LED and VFD Retrofit: AEC Revenue Model for a 200,000 Sq Ft Warehouse

Distribution warehouses are among the more straightforward Tier II AEC candidates. Long operating hours, high lighting loads, and constant-speed motor systems that rarely need to run at full speed. This model works through what a two-phase retrofit would save and what those savings produce in AEC revenue.

Every input is stated so you can substitute your own.

The baseline facility

A 200,000 square foot distribution warehouse operating 18 hours per day, six days per week — roughly 5,616 operating hours annually.

At $0.08/kWh, total electricity cost runs about $480,000 annually.

The metal halide fixtures draw roughly 415 W each including ballast losses, producing around 50 lumens per watt — under a third of what current LED high-bay fixtures achieve. The ventilation motors run at full speed continuously regardless of actual dock activity or temperature differential.

Phase 1 — LED high-bay retrofit

Replacing 1,200 metal halide fixtures with LED high-bay luminaires at 155 lumens per watt would reduce connected lighting load by approximately 65%. Adding occupancy sensing in aisles and storage zones, plus daylight harvesting in perimeter areas with skylights, takes the reduction further.

Annual lighting consumption would fall from 2,800,000 kWh to roughly 900,000 kWh.

Savings: 1,900 MWh per year.

Instant-on capability matters here beyond the wattage. Metal halide fixtures require 15–20 minutes to warm up and cannot re-strike quickly after interruption, which makes occupancy-based control impractical. LED removes that constraint, which is what allows the control layer to contribute meaningfully.

Phase 2 — VFDs on dock ventilation

Installing variable frequency drives on the twelve 25 HP ventilation motors, modulating fan speed against temperature differential and dock occupancy rather than running at full speed continuously.

Fan power follows the cube of speed, so a fan averaging roughly half speed draws well under a quarter of full-load power. Annual ventilation consumption would fall from 1,500,000 kWh to roughly 200,000 kWh.

Savings: 1,300 MWh per year.

There are secondary benefits worth counting in the business case though not in the AEC calculation: quieter operation at reduced speed, and soft-start capability that eliminates the mechanical stress of across-the-line motor starting. Facilities running this configuration commonly see reduced bearing failures, worth roughly $12,000 annually in avoided maintenance at this scale.

Combined savings and AEC revenue

1,900 MWh + 1,300 MWh = 3,200 MWh annually.

One AEC per MWh of verified reduction:

VFD and LED retrofit equipment each carry a 15-year TRM measure life, which is also the Act 129 cap on claimable life. Over 15 years that is $1,292,160 to $1,748,640 in AEC revenue ($86,144 × 15 at the weighted average and $116,576 × 15 at the spot average), before any price appreciation.

AECs are issued from the complete application filing forward under § 75.63(i). Generation or savings occurring before that filing do not produce credits, so filing timing determines when the revenue stream begins. For a facility at this scale — 3,200 AECs a year — that is roughly $7,179 per month of operation before the complete application is filed that earns nothing. Those credits are never issued rather than deferred.

The full financial picture

Annual benefits at $26.92/AEC:

Simple payback: $285,000 ÷ $354,144 = 0.80 years, roughly 10 months.

At the $36.43 spot average the AEC line rises to $116,576, the total annual benefit to $384,576, and payback shortens to about 9 months ($285,000 ÷ $384,576 = 0.74 years) — the AEC line moves the number, but energy savings dominate the return.

Where AEC revenue sits in the case

Worth being clear about proportion. AEC revenue is about 24% of the total annual benefit in this model. Meaningful, but the project pays for itself on energy savings alone.

The argument for registering is not that AECs justify the project. It is that a project already being done for energy savings produces a documented, verifiable reduction — and that documentation is most of what certification requires. The Act 129 rebate application in particular already contains third-party-verified savings calculations, which flow directly into a PennAEPS submission.

Stacking with Act 129

Utility rebates and Tier II AECs are not mutually exclusive. The rebate reduces capital cost at the front end; AECs provide a recurring revenue stream afterward. The same retrofit produces both.

See stacking utility rebates for how the two programs interact.

Substituting your own numbers

The model scales predictably. To run it for your facility:

• Annual kWh saved — from your rebate application, M&V report, or pre/post utility bills
• Divide by 1,000 — that is your annual AEC count
• Multiply by the AEC price — $26.92 RY2025 weighted average
• Apply the measure life — for total revenue over the life of the installation

A facility saving 500 MWh annually is looking at roughly $13,460 per year at the RY2025 weighted average of $26.92/AEC and about $18,215 at the RY2025 spot average of $36.43/AEC. One saving 10,000 MWh is looking at roughly $269,200 at the weighted average and about $364,300 at the spot average — the weighted average being the conservative end of the band and the spot average the upper end.

Frequently asked questions

Does the project need to be new to qualify?

No. A completed retrofit that remains operational and verifiable can be certified. AEC issuance begins at the complete application filing rather than at installation, so a project completed earlier generates credits from that filing forward over its remaining measure life.

What documentation is needed?

Where a utility rebate was claimed, the rebate application usually contains the savings calculation already, third-party verified. Beyond that: contractor invoices showing fixture and equipment counts, project completion or commissioning documentation, and pre/post utility bills for the affected areas.

Does the Act 129 rebate reduce AEC eligibility?

No. The rebate is a capital cost offset; the AEC is issued against the verified energy reduction. They are separate programs with separate mechanics.

How is savings verified if no rebate was claimed?

Engineering calculation from the contractor's bill of materials against applicable code baselines, supported by pre- and post-installation utility data.

Is a smaller project worth registering?

Depends on your administrative threshold. A 500 MWh annual saving produces roughly $12,000–$13,500 per year. Aggregation across multiple sites or measures changes the calculus for smaller projects.

Model your facility

Substitute your own numbers, or send us the inputs and we will run it — including the assumptions most estimates get wrong.