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IMS Research Analyst Blog
US Residential LED lamp installations projected to have a 200% CAGR through 2015
Date: 06 April 2011
The current buzz word in the lighting industry is LEDs. Their energy efficiency and long life make them attractive for consumers and businesses alike, since this decreases both energy and maintenance costs. Many LED replacement lamps are reported to use one-fifth the electricity of their incandescent counterparts and last for up to 50,000 hours, compared to 1000 hours for incandescent. Recently, the quality and quantity of light they produce has increased and their overall costs are decreasing on a year to year basis. This is not to say that they are cheap. In February of this year, Philips launched the first 60-watt equivalent LED lamp at a cost of $40 Dollars.
So the big questions on the minds of lighting companies like Philips, GE and OSRAM Sylvania is; which market sectors are going to embrace this new technology, and how quickly is this going to occur? After all, they need to know what, where, when and whom to market to.
In order to answer these questions, IMS Research has created a global installed base model of incandescent, CFL, linear fluorescent HID and halogen lamps, divided by region. An example of the kind of information included in this model is shown below. The graph shows that there are approximately; 3.9 billion incandescent, 1.75 billion CFL, 1.75 billion linear fluorescent, 50 million HID and 550 million Halogen lamps installed in the United States alone.
As seen above, Incandescent is, by far, the most prevalent lamp technology used in the US today. Most of these lamps are used in residential applications, with CFLs in a distant second place. The main reason behind this is that incandescent lamps are extremely cheap with an average selling price of approximately $0.43 cents. Add an average cost of electricity of $0.11/kWh to the equation, and you get a large group of consumers that base their lamp purchasing decision solely on the initial cost of the lamp.
So, what could be done to change the love affair that the American consumer has with incandescent lamps? Some people said that it would take an act of God, but in the end, all it took was an act of congress.
The Energy Independence and Security Act (EISA) of 2007 created higher efficiency standards targeting today’s 40–100W incandescent and halogen general-service lamps. Starting in 2012, 100W lamps will be required to be 28% more efficient, following with 75W lamps in 2013 and 40-60W lamps in 2014. These efficiency standards effectively ban most current incandescent technologies from being purchased after the block out date. It is important to note that there are several specialty incandescent lamps (e.g. three way lamps) that are not covered by the standards and that, at a price premium, consumers can already purchase incandescent/halogen lamps that meet the efficiency standards.
To a lesser extent, the Department of Energy’s (DOE) Energy Conservation Standard (ECS), which also comes into effect in 2012, will have an effect of residential lighting as well. This standard sets minimum efficacy standards for incandescent reflector lamps. Most of these lamps fall into the Parabolic Aluminized Reflector (PAR) lamp category, which constitutes a smaller portion of the residential lamp market. It is also important to note that there are currently incandescent and PAR lamps that already meet the requirements of the ECS.
These new standards have led to a paradigm shift within the residential lighting market. The technology that currently lights most homes in this country will be phased out, and realistically there are only three alternatives to fill the rather large sockets left behind: CFLs, halogen and LEDs.
CFLs have been pushed as the energy efficient alternative to incandescent lamps for the last two decades. Initially though, they were not very well received by the residential market. The “harshness” of the white light, issues with the technology in cold weather, the difference of the advertised and real life of the lamps, their mercury content, their lack of dimming capabilities, and finally, their initial cost were all factors that turned customers off.
That being said, the CFL of 20 years ago is not the CFL of today. There are now several different less “harsh” alternatives, the quality issues that plagued the earlier products have been greatly diminished (as has their mercury content) and their retail price has greatly decreased due to economies of scale and utility rebate programs. Even with these improvements though, the maximum residential penetration rate of CFLs in states like CA that have extensive rebate and educational programs is only around 22%.
Halogen lamps have been in the market for a long time, but have been relegated to the much smaller specialty lighting category. This is mainly due to their higher cost and the fact that there has been no real reason for a switch away from traditional incandescent technologies. There have also been safety concerns with the extreme heat they produce during operation.
With the passing of EISA 2007, companies have already introduced general halogen lamps that are 30% more efficient than their predecessors. Additionally, the light that they emit is almost exactly the same to the light given off by a regular incandescent. However, the cost of these products is equivalent to a comparable CFL and the technology does not have the benefit of the increased life, making them less attractive for rebate programs.
While LEDs have been around since the 1970s, their prohibitive cost, low lumen output, and directionality of light (which makes them better suited as PAR type replacement lamps) have kept them out of the general lighting market.
The recent exponential decreases in production costs and increases in LED efficiencies have led to a current explosion of LED lamps for the lighting market. It is forecasted that more general lighting products will continue to enter the market as costs continue to decrease and as efficiencies continue to go up.
The graph below shows the U.S residential projected installed base through 2015 for several lamp technologies.
As the usage of incandescent technologies decreases, the usage of CFL, halogen and LED technologies will all increase. LED lamps will have a Compound Annual Growth Rate (CAGR) of approximately 200% through 2015. A year by year explanation of what is projected to take place follows:
- 2011: The residential installed base will look relatively stagnant at this stage. While California has implemented EISA 2007 a year earlier than the rest of the country, it only constitutes a small fraction of the residences of the country. LEDs are still very expensive at this stage and only “innovators” will be willing to test out the new technology. Most consumers will have no use for the new efficient halogen lamps, and a measurable increase in the use of CFLs will not take place.
- 2012: The first phase of EISA 2007 will come into effect taking most traditional 100w incandescent lamps off the market. These lamps make up a relatively small portion of the residential installed base. Many consumers will replace 100w incandescent lamps with traditional 75w incandescent lamps, CFLs and efficient halogen lamps. A cost cutting push by CFL manufacturers will make them even more attractive than halogen replacement lamps, especially as utilities continue to offer rebates. Only a small portion of installed lamps will be LEDs at this point as early adopters begin to influence the market.
- 2013: The second phase of EISA will take most traditional 75w incandescent lamps off the market. 75 and 100w lamps still only constitute a relatively small portion of the residential incandescent installed base. 75w lamps will be replaced largely with CFLs and some 60w incandescent and lamps. 100w lamps will be replaced mostly with CFLs, some efficient halogen lamps, and by a small portion of LED lamps. CFLs will continue to be subsidized by states and utilities, making them more cost competitive than halogen lamps. LEDs will gain a stronger presence in the PAR installed base as their price further decreases.
- 2014: This will be the year when EISA 2007 has its greatest impact on the installed base. 40 and 60w incandescent lamps are the most widespread lamps in use today in residential applications. CFL lamps will mostly be used as replacements, but LED lamp installations will more than double, surpassing halogen replacement installations. This is mainly due to their cost falling under $10 for the first time. At this price point a greater amount of utility and government entities will be willing to provide consumer rebates for the technology, decreasing their purchase cost even further. LED PAR lamp installations will continue to increase as well. The rate of installation of halogen lamps will decrease as consumers realize that their replacement rate is too high.
- 2015: At this point LED lamp replacement installations will greatly increase. Technological breakthroughs will make these lamps look more like general incandescent lamps, all while being cost competitive with CFLs. At the same time, concerns over the mercury contained in CFL lamps and their shorter life will make them less and less appealing to consumers. More rebate programs will be established for LEDs leading to even more replacements being installed.
Note: Hoarding of lamps will not drastically affect the installed base of lamps. In the European markets, it was seen that hoarded supplies of lamps only lasted four to six months. While this may delay the uptake of new replacement lamp technologies during these months, it will not have a major overall effect on the market.