Economies of scale can potentially reduce first costs of capital expenditures, given that price quotes for LED products often vary significantly by the size of the order, particularly when less than 1,000 units are involved. Smaller cities that either want to purchase fewer LED streetlights, or that have budget restrictions precluding purchases of more than a few hundred units at a time, can benefit greatly from combining their purchases with other similar buyers. Purchasing in this way offers a number of advantages:
- Reducing prices, sometimes significantly
- Encouraging a broader range of product selection, due to increased interest from manufacturers
- Enabling the services of a delegate buyer with LED street lighting expertise and up-to-date technical knowledge of products and applications
- Providing an external, central point of contact for sales inquiries
Combining purchases can be a viable approach, even when the different partners are using different luminaire models, as long as the luminaires are in the same product family. (Orders containing multiple products or product options may be treated separately from a pricing standpoint, however.)
Two common forms of volume purchasing include buyer-to-buyer and institutional purchasing alliances.
Buyer-to-Buyer Purchasing Alliances
Buyer-to-buyer purchasing alliances are adaptable to a variety of uses. For example, 15 members of the Iowa Association of Municipal Utilities (IAMU) created a temporary alliance for the express purpose of negotiating lower prices for LED streetlights. This group represents several community-owned, locally controlled electric utilities in Iowa serving municipalities with populations below about 5,000.
For more information, see the Iowa Municipalities Unite to Purchase LED Streetlights implementation brief.
Municipal funds were assembled from a combination of the following sources:
- American Reinvestment and Recovery Act (ARRA)
- Energy Efficiency Conservation Block Grant (EECBG)
- Municipal General Funds
- Per-fixture fee (no more than $15/fixture) to recover costs of preparing the RFP
Importantly, ARRA and EECBG grants – monies which were awarded separately – were pooled together in order to facilitate the joint purchase. IAMU staff managed the overall effort for the members, negotiating directly with LED manufacturers, and served as the common voice for all participants. In total, these cities purchased 1,154 LED luminaires that will save close to 550,000 kWh of electricity annually. The estimated simple paybacks achieved by the individual cities range between 2.4 and 9.5 years.
Institutional Purchasing Alliances
A number of institutional purchasing alliances exist for purposes such as offering quantity discounts on office and other standard equipment used by local government agencies. The scope of the offerings by such aggregators includes basic streetlights, among other lighting equipment, but the generic nature of the products offered probably precludes their use for such a dynamic and customizable technology as LED, at least in its current stage of development. Institutional purchasing alliances appear to work best with commodity products that can be ordered off the shelf, with few options needed or available.