Enterprise LED Lighting
Today we published our latest Enterprise LED market research, which studies trends in commercial and industrial LED lighting and profiles the top vendors. The report includes our newly developed LED Lamp and Fixture Pricing Index which tracks historical pricing for these products.
The idea for our index came during customer interviews. In talking with corporate managers, a theme emerged: ”It seems like LED performance has really increased, but they’re still pretty expensive – maybe I should wait until next year when prices come down?” As we were already testing periodic vendor pricing, tracking an average price for a basket of Enterprise LED products was a logical addition to our research.
These managers are no dummies. They’ve seen pricing for other emerging semiconductor-based products drop dramatically in a few year period. Will this be solar, where panel prices dropped 50% in two years? Or the iPad, which seems to have maintained its pricing? So far our index shows its been somewhere in between. Over the last two years prices have declined by 24%.
So back to their question – where are prices headed? If you were a Wall Street index trader you would need to consider three market drivers, each with competing lines of thinking:
1. Balance of System
While LED price/performance has surged, chips (the semiconductor part of an LED fixture) are now only 20-30% of the cost in a fixture’s bill of materials. A few years ago they were 50% of the cost. While its widely assumed that LED chip prices will continue to decrease based on newer chip technology and manufacturing scale, the balance of system cost is now the bigger opportunity. Innovations in optics, thermal management, mechanical structure and power are the targets.
So how much can they be reduced? Much harder to say. Since an LED fixture is really an integration of these interrelated elements, maybe CREE has the best idea with last year’s purchase of fixture manufacturer Ruud/Beta. Could their new view into LED fixture manufacturing deliver CREE new ways to drive cost reductions? If so, expect GE Lighting to buy their own LED chip company.
2. Utility Rebates
One day a year ago an LED A lamp at Home Depot went from $45 to $22. The local utility had introduced a new downstream incentive program which simply subtracted their rebate off the Home Depot shelf price – no customer rebate paperwork necessary. While the consumer’s energy savings payback was still over 5 years, store volume for LED A lamp picked up instantly.
The psychology of utility rebates can have a similar impact in the corporate market. Traditional lighting upgrades are not glamorous and often take 12-24 months to make the corporate budget cycle. How corporate managers react to “free” utility money for more visible LED projects is worth considering. Does it drive behavior, budgeting and faster investment decision making?
Financial payback still rules the day for corporate lighting retrofits. With utility rebates recently supporting 20-50% of an LED project’s entire cost, the corporate budgeting wheels have started to turn. One Groom Energy customer recently secured a 65% project rebate for a one year payback project which wouldn’t otherwise have been budgeted.
One line of thinking says that as utility programs roll out more broadly, the incentives will similarly drive greater customer adoption, but somewhat insulating LED fixture manufacturers from pricing pressure.
Alternatively, as LED fixture pricing falls, utilities could scale back their rebate levels accordingly, knowing that the investment payback needn’t be TOO wonderful…or, just as California utilities are now phasing out rebates for outdated T-12 fluorescents, maybe in short order LED rebates programs disappear altogether, just after they really got started.
3. Land Grab Competition
Like any early, but eventually large market, manufacturers are competing at each step of the race. They’re focused on their new product introductions, building brand awareness, delivering successful case studies and sales channel training.
Large traditional US fixture manufacturers, who earlier took their time introducing LED based products, have now ramped up their efforts. Even though they’ll cannibalize sales of their traditional fixtures and replacement lamps, they now see the market direction and want to lead in the first new technology to hit their industry in 30+ years.
Consumer electronics focused companies are entering as well. LG, Panasonic, Samsung, Sharp and Toshiba have each announced plans to enter the LED general illumination market. Smaller Asian based manufacturers, with lower cost structures, (and perhaps lesser quality, but lower cost LEDs) are also trying to make inroads.
And new companies like Digital Lumens and LEDnovation are developing their own customer base and sales channels, promoting the virtues of pure LED lighting, while betting that fast customer adoption will help them compete with slower, larger, brand name lamp players like GE, Philips and Sylvania.
A New Metric for Enterprise Lighting
2010-2012 Enterprise LED customers have seen aggressive pricing from all of these vendors. Bidding on some large visible projects has resulted in manufacturer margins which are not sustainable – but the deals have been won.
These same customers have also learned that with “expensive” LED lighting, the more light output they want the higher the project’s cost and the lower the energy savings. They more clearly understand the value of light energy measured as footcandles on their desk, floor or walls.
So in the next few years, just as solar quickly moved to a $ per watt pricing comparison, the next Enterprise LED pricing index will likely be tracking $ per footcandle.
Lightfair 2009 was the coming out party for LED lighting. Lightfair 2010 turned into LEDfair, and by Lightfair 2011 LEDs had gone mainstream. As Bob, Fritz and I headed into Lightfair 2012′s exhibit hall we speculated on what we would see – and how over-the-top LED lighting might have become.
We were not disappointed – and it was a bit overwhelming.
Last year’s Lightfair had broken records (474 exhibitors, 200,000 square feet, 23,709 attendees from 75 countries) and this year’s exhibit hall had been sold out since last November, with over 500 vendors pre-registered. At previous Lightfairs we’ve prided ourselves on our detective work (finding hot new LED products within the massive convention center) but the sheer volume of LED products at Lightfair 2012 made this so much harder. LED lighting is fully penetrated. Where last year we quickly passed by any booth prominently displaying HID, fluorescent or induction based lighting, these old fashioned technologies are now virtually nowhere to be seen.
With that as a caveat, this year we were collectively struck by the following:
The Old Big Guys (Sylvania, Philips, Cooper, Acuity, GE) – all on board, all products LED, technical representatives that know the speeds/feeds performance data off the top of their head. Products are still high priced relative to smaller newer LED players, but Big Guys are not as defensive, know more about rebates and are more focused on the energy savings-oriented retrofit market, not just spec/new building lighting designers.
The New Big Guys (Toshiba, Sharp, Samsung) – making a stronger push into the US market, not yet with complete LED product lines, but based on their current marketing investment, let’s assume they will be there by next year.
The Chip turned Chip & Fixture Guy (CREE) – post the acquisition of Ruud/Beta, CREE now has a full line of products and interestingly assembled two booths instead of one, located at opposite ends of the convention floor – one for chips, one for fixtures.
Glare - Earlier LED fixtures struggled to produce enough light, and designs rarely tried to reduce glare as any additional diffusers (plastic lenses covering the LED chip) had the side-effect of reducing light output. With the benefit of another year of price/performance growth, this year more fixtures had LEDs inside – but you couldn’t tell. No more wearing sunglasses.
Lighting Controls – a number of newer wireless companies/products hidden amongst the older traditional wired products (think grey metal boxes with LCD displays and buttons, mounted at the breaker panel ). Lighting controls used to be about physically connecting to lighting fixtures – but now its about a software interface which wirelessly connects and makes the control magic possible.
And in software, these older controls players just cannot keep up. Ever seen a back-office PC with a dusty keyboard running a Windows 2003 based program with hard to understand icons? That’s this world. These companies are not proficient at developing and releasing new software products. At one demo the product manager told us “this control software isn’t released yet” and then whispered that he had given this same demo at LAST year’s Lightfair. His partner interrupted saying, ”it should be out in six months…”
Contrast this with the newer wireless control players (Adura, Daintree, Enlighted, Redwood) who have slick, easy-to-understand software with graphical interfaces – they talk about cloud, hosted, multi-user support and open standards. We should expect these guys to get rolled up by the New and Old Big Guys within the next few years.
Office - While LED office fixtures debuted by CREE last year, this year CREE has broadened this line of fixtures, lowered prices and is claiming that adoption is early, but happening. Other players are now showing their own versions of the classic dropped ceiling 2×2, 2×4 and pendant mount office style fixtures, all of which is goodness for customers.
Quality - Customers are now seeing so many fixtures from so many manufacturers and the market is moving to the next level of differentiation – fixture quality. As you pass a booth you now hear “we used with the highest performance chip” or “our company has been in business for X years”, etc. It’s no longer about the chip, but about the fixture design. This is why our friends at CREE have come up with a novel way to help certify a particular fixture design – it’s called TEMPO and it gives fixture manufacturers another good housekeeping type seal of approval. 80 companies using CREE chips have already gone through the testing and more are in process.
As we fly back from the city of sex & sin we’ll be busy trying to capture these observations and more of the last year’s developments within our soon to be re-released 2012 Enterprise LED Lighting Research report, which we’ll shortly be publishing again with our friends at Greentech Media.
Everyone knew Lightfair 2011 was going to be all about LEDs.
LED’s had their coming out party at Lightfair 2009. Back then fluorescents still dominated, but white LEDs showed up in “soon to be released” form, providing excitement to an industry that hadn’t seen real technical change in 30 years.
Lightfair 2010 became LEDfair, with new product introductions covering every category and the largest vendors marketing LEDs front and center, ahead of their traditional products.
At Lightfair 2011 we witnessed LED 2.0.
Attendees now speak LM79 and LM80. Real customer case studies are more plentiful. Chips have 30% higher performance. Second generation products with the latest chips have replaced last year’s first and worst designs, correcting mistakes based on another year of selling….and learning….and redesigning….and retooling…..and re-introducing.
On the technology front some newer controversial approaches are appearing.
By moving the phosphor away from the surface of chip, remote phosphor designs claims 10% added efficiency. Philips thinks this can work, as does Intermatix – but the approach uses blue LEDs with a specific wavelength range – and those chips only come from Philips and CREE. Luminus Devices and Bridgelux are betting on bigger chips for higher performance while CREE has introduced a smaller, more specialized chip package which reaches high performance levels for specific fixture form factors, first implemented in their recent MR16 lamp. And Lighting Science Group, Switch (formerly Superbulb) and Liquidleds have all bet they can address the LED heat dissipation problem by adding fluid to the cavity around the LED chip.
While last week’s LSG announcement with Google caught people’s attention, the power of the networked LED system is now well marketed by companies like Redwood Systems, Daintree Networks and our friends at Digital Lumens.
In our Enterprise LED Research Report published last year we profiled 50 credible vendors and listed 250+ in our running database. With all of this week’s new product introductions both of those lists will be growing.
Last year the newest LED products had both high $ pricing and low performance vs. existing light sources. This year performance has advanced by 30%, but fixture prices still have an initial cost which is 50 – 100% more than the traditional lamp sources. Prices for chips are obviously expected to continue to come down with Philips predicting a 50% drop for their A lamp in the next five years.
So while its more clear that eventually LEDs can cost-effectively replace every type of lighting fixture, vendors must now combat customer perception. Even though utility rebates are high and likely to go down and the LED is only 30-50% of the bill of materials, customer’s may just decide that if products have made so much progress since last year, why not just wait for LED 2.1 when the math gets better?
As we did with our Enterprise Carbon Accounting research we conducted interviews with all the relevant players in the emerging industry – in this case it included DOE engineers, utility managers, vendors, and most importantly, our commercial and industrial customers.
The need for this report became apparent as we were launching Digital Lumens, a spin out company from Groom Energy who announced their business this past May. At the time it was clear the commercial and industrial LED market was going to surge over the coming years and there was very limited market data studying customer’s needs relative to the newest products being introduced.
Once we started building the report it became clear we could answer some important questions:
- Market: How big is the market today and how fast is it growing?
- Applications: which applications are best suited for LEDs today versus in the future?
- Customers: why are early customers buying products today and what are they learning?
- Technology: How are LED systems designed? What are the key technical challenges?
- The Vendors: Who are the players in the market and which products are they offering? (this we addressed through our LED Market Players Guide profiling 50+ vendors)
The key drivers for market growth we identified were:
- Recent LED chip performance advancements which allow more cost effective
designs for replacing existing lighting systems;
- Newly introduced utility energy efficiency financial incentives for converting to
these LED-based systems;
- Increased interest from building owners in applying sustainably oriented lighting
retrofits that save money for their operations.
The study took longer to complete than we originally anticipated – partly because we underestimated the amount of work – and partly because things in the LED market have been changing so quickly, even while we were compiling our research.
By 2009 we’d compiled a list of @ 100 vendors who were shipping commercial and industrial general illumination LED fixtures – today our list is at 250+ and still going (and more will come out of the woodwork now that we’ve published our list.) When we started there were only “custom” utility rebates and virtually no prescriptive rebates for LED based retrofits. Today, many of the leading utilities have prescriptive schedules for LED PAR, MR, High Bay and Low Bay upgrades. Meaning the customer market is accelerating and this is driving the utilities to react.
So, I’m assuming by next week we’ll already be developing our first update to the report