Question

Compact fluorescent lamps (CFLs) have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $.35 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $2.90 and lasts for 12,000 hours. A kilowatt-hour is 1,000 watts for 1 hour. Suppose you have a residence with a lot of incandescent bulbs that are used on average 500 hours a year. The average bulb will be about halfway through its life, so it will have 500 hours remaining (and you can’t tell which bulbs are older or newer).

If you require a 9 percent return, at what cost per kilowatt-hour does it make sense to replace your incandescent bulbs today?

Answer 1

The CFL bulb wil last for 12000/500 = 24 years

so for equal comparison, from next year, every year one has to spend $0.35 in addition to electricity cost (100 hours life / 500 use per year)

Now, let cost of each KwH be x

so on using incandecent bulb, we get electricity cost in a year = 60*500*x/1000 = 30x

For CFL bulb, we get, = 15*500*x/1000 = 7.5x

	Y0	Y1	Y2	Y3	Y4				Y24
Incandecent Bulb		-30x	-30x	-30x	-30x				-30x
			-0.35		-0.35				(no need to buy at Y24)
CFL Bulb		-7.5x	-7.5x	-7.5x	-7.5x				-7.5x
	-2.9

Discounting all by 9% and bringing NPV to 0 at Y) gives,

x= $0.006, so at 0.6 cents per KwH it makes sense to use CFL bulb