Light-emitting diodes (LEDs) will soon dominate the lighting market. Few (if any) market watchers would disagree with that statement. In fact, analysts at A.T. Kearney predict that LEDs could capture as much as 90% of the lighting market by 2020.
More energy efficient and longer lasting than incandescent or compact fluorescent (CFL) light bulbs, LEDs are also mercury free. Despite not having much exposure to this rapidly growing, if immature, market, consumers seem to know two things: LEDs are (for now) more expensive than the alternatives at the time of sale and they save energy. Indeed, the acronym itself, LEDs, has become a byword for energy efficiency.
A report released in June by the U.S. Department of Energy confirmed LEDs' superior environmental performance, finding that based on a rigorous life-cycle assessment of the manufacturing and performance characteristics of incandescents, CFLs, and LEDs, LEDs have the lowest environmental impact – and the performance gap widens by 2017, based on expected improvements to LED technology.
Such is the prevailing wisdom regarding the LED market. But will energy efficiency drive the market? Perhaps not.
"In the near future," begins a report published last month, "adoption of Solid State Lighting will have little to do with energy efficiency." Solid State Lighting (SSL) refers to semiconductor-based lighting such as LEDs and organic light-emitting diodes (OLEDs). Jonathan Dorsheimer and co-author, Josh Baribeau, explain why:While initial interest in SSL has everything to do with energy savings, we believe this will ultimately prove to be a red herring. This is not to suggest that SSL will be inefficient; in fact, it will be quite the opposite. It is our hypothesis that the value of the efficiency will prove to be less important to the decision to convert to SSL over time. Think of it as a feature that became an embedded standard – air conditioning in the modern automobile comes to mind.
The paper, A Light Read, was published by Canaccord Genuity, an institutional investment banking firm based in Boston. The lead author, Dorsheimer, is a sustainability analyst at the firm specializing in semiconductors. The report appears to be available only to clients; I received a copy from fellow Forbes Contributor Michael Kanellos.
If energy efficiency does not drive the LED market, what will? "It will be the flexibility for lighting designers to light objects and space in a unique way," Dorsheimer and Baribeau write. "Benefits will include data harvesting – what would Wal-Mart pay to know the floor traffic in each aisle every day? What is the value to a call center if they could achieve a productivity boost by increasing the quality of light? Light has the ability to adjust our moods, affect our sleep habits, improve the appearance of the food we buy, and increase productivity. Most people don't know how to quantify these intangibles, but know them when they see them."
As lighting designers better understand these intangibles, including the physiological benefits of lighting, they are able to persuade clients to make the switch to LEDs. Dorsheimer and Baribeau note that "progressive hotel chains, retail stores, and offices" are already doing so. The authors are bullish on the prospects for the $60-billion-plus lighting market, predicting a return to growth over the next decade, with LEDs leading the way:
We believe the lighting industry is on the verge of a major replacement cycle brought about by increased competition in hospitality and retail, LEED certification and tax benefits of office buildings, and constrained operating budgets for municipalities. The combination of paybacks dipping below two years and favorable regulatory environments around the world should lead us into this cycle over the next few years.
The authors acknowledge that the LED industry faces a host of challenges on the way to market dominance. "Inferior products with egregious product claims, color temperature and consistency, glare, flicker, compatibility with existing dimmers and controls, cost and most importantly education and awareness on the benefits of SSL still have to advance," they write.
As architects, lighting designers, engineers, and independent manufacturers' representatives (the bridge between manufacturers and lighting designer) develop more awareness with LED brands and products, the rate of deployment should quicken.
"We can envision an environment in the not-too-distant future in which specifiers will not even have a choice between LED and incandescent/fluorescent/HID [high-intensity discharge] because the manufacturers will have mostly converted their entire portfolios. Energy efficiency will be required, not a differentiated benefit," write Dorsheimer and Baribeau.
