VantagePoint Capital Partners, the Silicon Valley investor that helped bring Tesla Motors Inc. public, expects prices for LEDs to “plummet” within three years as competition intensifies to satisfy surging demand for energy-efficient lights.
Prices for LEDs, or light-emitting diodes, may fall 90 percent by 2015, said Alan Salzman, chief executive officer of the San Bruno, California-based venture capital company, said in an interview.
Incandescent bulbs are being phased out in Europe. In the U.S., efficiency policies will eliminate the 100-watt bulb in 2012. LED makers stand to gain a bigger share of the $40 billion a year global lighting market. Bulb companies including General Electric Co. and Koninklijke Philips Electronics NV are producing LEDs, and Salzman said startups that are developing low-cost LEDs will take a slice of the market.
“We’re just at the beginning of the LED phase,” Salzman said. “There’s very little quality product yet even on the shelves.”
VantagePoint has invested about $750 million in 32 clean technology companies. Those include four that make LED products: Switch Bulb Co., Bridgelux Inc., Huga Optotech Inc. and Glo AB.
Timing of Boom
Salzman said that within five years, the use of LEDs for general lighting purposes may grow to more than 50 percent of the market from less than 1 percent today. Analysts including Ben Schuman at Pacific Crest Securities Inc. said it may take more time than Salzman suggest for the LED boom to happen.
“About half of lighting is residential, and it’s going to take longer than five years for payback periods for residential lighting to expand the market beyond early adopters,” said Schuman, who follows LED maker Cree Inc. “More recently, folks have become more optimistic about the consumer market. But I still think it looks like we’ll see industrial and outdoor, followed by commercial, followed by residential.”
Salzman said that it’s the commercial market that may take more time to develop.
“All consumer stuff will go,” Salzman said. “Commercial, where you have the fluorescent tubes -- that will take a little longer. I think it’s going to be one of the fastest clean-tech sectors to flip.”
A basic LED bulb will save U.S. consumers as much as $7 a year in energy costs compared with incandescent bulbs, and they’ll last for about 30 years, according to Salzman.
“If it’s $20 for the bulb, it’s a three-year payback,” he said. Salzman expects LED prices to drop to about a quarter of a cent a lumen by the end of 2012 from 1 cent now. By 2015, the price could be a 10th of a cent, he said.
Lumens are the unit of measure for light output. Incandescent bulbs are typically measured in watts, the amount of energy they consume. A 60-watt bulb produces about 800 lumens, according to the U.S. Environmental Protection Agency website. The global lighting product market is estimated at $40 billion to $80 billion a year, Bloomberg New Energy Finance estimated in an October report.
There were an estimated 2.7 billion type-A bulbs installed in the U.S. last year, the most common size used in almost all basic lighting, comprising 1.7 billion incandescents, 990 million compact fluorescents and 240,000 LEDs.
LEDs make light from semiconductors instead of the heated filament used in conventional incandescent bulbs, and they use less energy. Switch Bulb, a company backed by VantagePoint that formally launched in April, says its products use 85 percent less power than incandescent bulbs and, unlike compact fluorescent bulbs, don’t contain mercury.
Switch Bulb plans to begin selling its lamps later this year for about $20 to $30, according to Brett Sharenow, the San Jose, California-based company’s chief strategy officer.
Its products are designed to replace conventional 40-watt, 60-watt, 75-watt, and 100-watt bulbs. It will use less energy and produce as much as 1,700 lumens.
Bridgelux, another VantagePoint-backed company, is developing an LED manufacturing process that it says can reduce costs by about 75 percent from currently available products, which typically use semiconductors with a synthetic sapphire or silicon carbide substrate. The Livermore, California-based company demonstrated in March its gallium nitride-on-silicon technology, which produced 135 lumens a watt.
Bill Watkins, Bridgelux’s chief executive officer, said the company’s manufacturing process can use existing semiconductor fabrication lines, and he expects to expand production by working with chip companies. That business model will “drag down these capital costs,” Watkins said in an interview.
VantagePoint has ranked in the top 10 of New Energy Finance’s league tables for venture capital investments in four of the last five years, based on the number of deals completed.
Two of the companies it has backed have completed initial share sales in the last year, Tesla and biotechnology company Solazyme Inc., and another, the solar-thermal technology developer BrightSource Energy Inc., registered April 22 to raise as much as $250 million in an IPO.
VantagePoint has also invested in Taichung, Taiwan-based Huga Optotech, which makes the wafers and chips used in LED lighting, and Lund, Sweden-based Glo, which uses nanotechnology in its LED chips.