OSRAM Case Study

Piotr Bartenbach
Bartomiej Staszczyk
Dominik Wolski

Q.1A
Incandescent bulbs:
100-watt bulbs:
250 rooms 7 hrs/day x 200 days/yr= 35 million watt-hours/yrat $.14/kwh =
$4,900/yr
50-watt bulbs:
240 bulbs x 24 hrs/day x 365 days/yr= 105,120,000 watt-hours/yrat $.14/kwh =
$14,717/yr
Total (100-watt + 50-watt bulbs):
$4,900 + $14,717 = $19,617

CFL bulbs:
18-watt bulbs:
$4,900 x .18 = $882
9-watt bulbs:
$14,717 x .18 = $2,649
Total (18-watt + 9-watt):
$882 + $2,649 = $3,531

Savings
$19,617 -$3,531 = $16,086/yr

Fixtures Retrofit
Rooms:
4 table/vanity x $7.00 = $28
2 wall x $15 = $30 $106/room
3 overhead x $16 = $48
Total = $106 x 250 rooms = $26,500

Halls:
24 overhead x $16 = $384/hall
Total = 10 x $384 = $3,840

TOTAL:
$26,500 + $3,840 = $30,340

Price to the Hotel (40% gross margin to the ESCO) $30,340 .60 = $50,600
Loan Payment = $7,425 (15 years/12%)

Net Annual Advantage: $16,086 -$7,425 = $8,661 (before considering cost of

replacement bulbs).
The hotel is currently paying $2,280 per year for incandescent bulbs (1,900 x
$1.20) and will use about 215 CFL bulbs/year (240x8,760/~10,000).

One CFL bulb valuation equation:

8' 661+2' 280215( X) '

=2 490 X
1,15
61' 345215 X (5,85 )=2' 490 X
61' 345=3,748 X
X =16,40

Value of hotel room bulbs:

Retrofitting = $26,500 0.6 = $44,167

Annual payment = $6,485 (15 years/12%)

Energy savings = $4,900 - 882 = $4,018/yr

ANSWER: Given net savings are negative so the hotel does not take
advantage on replacing the bulbs.

'

'

12 068940+1 4401,20215 X
=240 X
1,15
75' 174215( 5,85 )=240 X
'

'

75 174=1 497 X
X =50,20

Q.1B
ANSWER: The value of BES with the first attempt on CFL bulbs for the halls
should equal $50.20 each. Nevertheless, we believe that there is no point to let
BES in on any of the EVC to the hotel, assuming the 40% gross margin on the
retrofit job is normal profit for BES.

Q.1C
ANSWER: OSRAM has to consider how many of CFL bulbs ($50 per each) they
want to recommend and how many they want to hold. Basically, the hotel has
been paying $1278/yr for hall bulbs. With the price of $50/bulb, it brings out lay
of $10750 on energy savings with net of retrofitting $11128. It should appear as
a good deal for the hotel, even that they are not keeping much savings from it.
Nevertheless, bulbs with price of 50% EVC the deal should be contracted.

Q.2A
Current state is as follows:
- Time for changeover = 4234 working hours (4864 scheduled)
- Group relamping of CFL bulbs in hallway and casino:

o
o
o
o
o
o
o

8760 hours a year of usage (90% of 9000 hours of bulb life)

Each bulb changed once a year = 667 hours
12 bulbs changed per hour
Work rate = $20/hour
1 crew = 8 people; 7 out of 8 hours per shift are used
12 scheduled shifts; 83,33 crew hours
Labor cost $15 360 = 12 (shifts) x 8 (people) x 8 (hours) x 20
($/hour)

Annual savings:
- $97 280 - $15 360 = $81 920
- This translates to: 64 days saved
- Equipment rental savings:
o $19 200 = 64 (saved visits) x $300 (per visit)
Value
-

of one out of 8000 bulbs:

$81 920 + $ 19 200 + $64 800 = 8 000X
$165 920 = 8 000X
X = $20.70

Q.2B
Annual Power Cost to the Casino
Incandescent bulbs:
1 000 (hall lamps) x 50 (W) x 365(days) x 24 (hours/day) x 0.12 ($/kwh) =
$52 560 per year
5 000 (casino bulbs) x 100 (W) x 365 (days) x 24 (hours/day) x 0.12 ($/kwh) =
$525 600 per year
Fluorescent bulbs:
2 000 (casino bulbs) x 25 (W) x 365 (days) x 24 (hours/day x 0.12 ($/kwh) =
$52 560 per year
Total power cost:
- $52 560 + $525 600 + $52 560 = $630 720
With CFL bulbs
3,000 (hall and casino bulbs) x 9(W) x 365 (days) x 24 (hours/day) x 0.12
($/kwh) = $28 382 per year
5,000 (casino bulbs) x 18(W) x 365 (days) x 24 (hours/day) x 0.12 ($/kwh) =
$94 608 per year
Total CFL power cost:
$28,382 + $94 608 = $122 990
Power cost savings= $630 720 -$122 990 = $507 730
One-time Retrofit Cost:
$90 000 (3000 wall fixtures per $30) + $175 000 (5000 overhead fixtures per
$35) = $265 000

$265 000 + $177 000 (Mark up 40% of gross margin to the retrofit contractor)
= $442 000
Loan payment:
- $64 900 Annually for 15 years at 12% interest
Reduced casino downtime:
- Profit impact: $75 000 (gross margin) x (76-12)/76 = approx.. $63 000 per
year
- Net impact: $507 730 - $64 900 + $63 000 = approx.. 506 000 per year

Q.2C
The value per CFL bulb is $63.50 ($506 000 / 8 000)

Q.3
Comparison of both segments indicates that high level of attractiveness for ONA,
however, the LMC market is better due to the higher EVC per bulb. EVC per bulb
in LMC equals $63,50 while in ESCO it is $50,20. ONA can also consider
discrimination of price and serving both segments at a flat rate. It is up to ONA
what do they appreciate more, higher margins or bigger market share.