LED Lights

Updated on

The simple lightbulb is likely to play as big a role in fighting global warming as windmills, solar panels or electric cars. The light-emitting diode or LED light has created an energy revolution, producing a crisp white glow with up to 80 percent less power than traditional incandescent lamps. The inventors of the LED were awarded the Nobel Prize in physics in 2014 for creating the blue light needed to complete the color spectrum, which spawned a new industry in 1997. As prices have dropped, this disruptive technology has changed the way people illuminate their homes, streets and Christmas trees. The switch has been propelled by a ban on the sale of less-efficient bulbs in many countries, which is pitting the drive for green technologies against the consumer’s right to choose.

The Situation

The shift to LEDs is transforming the lighting industry, which has seen a faster-than-expected dropoff in sales for traditional bulbs. More competition is coming from Asian companies such as Nichia, Samsung Electronics and MLS Electronics, which already make the computer chips key to LEDs for other electronic products. Dutch giant Philips began a departure from its lighting fixtures business by listing the unit's shares on the stock exchange in Amsterdam in May. That mirrored Siemens, which spun off its Osram lighting unit in 2013. Separately, a plan by Philips to sell a majority stake in its lighting components unit to a Chinese consortium was blocked by U.S. regulators who found parts of its LED semiconductor technology crucial to national security. Not discouraged by the failure of Philips, Osram announced the sale of its lamps business to a Chinese consortium in July as it aims to expand its semiconductor, automotive lighting and services businesses. Some analysts anticipate that General Electric — which grew out of Thomas Edison’s invention of the first commercially viable incandescent lightbulb in 1879 — will follow suit. To offset the disruption, traditional lighting companies are focusing on long-term service contracts for lighting systems for buildings and cities, as well as specialized products for cars, medical applications and theaters.


The Background

LEDs use layered semiconductor materials to convert electricity directly into light particles, or photons, while incandescent lamps heat a wire filament and fluorescent bulbs excite atoms by passing the current through a gas. LED lamps are smaller and can last as long as 20 years. The technology also makes computer display screens brighter and thinner. Lighting accounts for 20 percent to 30 percent of global electricity consumption and about 6 percent of greenhouse gas emissions. Replacing all lighting with LEDs would cut that energy use by about 40 percent, Philips predicted in 2013, saving more than $100 billion a year. That could reduce annual carbon dioxide emissions by about the same amount as that produced by three-quarters of the cars in the U.S. That’s potentially a bigger impact than wind power (expected to contribute about 7 percent of electricity by 2020) or solar power (about 3 percent). The European Union phased out sales of incandescent bulbs in 2012, and there are similar limits in countries such as China, Russia and Brazil. Although the U.S. introduced lighting-efficiency standards, it stopped short of a full ban on incandescents and withdrew funding for the switch after it became a symbol of government excess to Tea Party lawmakers.

The Argument

LED prices dropped about 20 percent in 2015, a similar decline to the previous year, though they still cost at least seven times as much as incandescent and halogen lamps. The higher cost can now be recouped through lower energy bills in two to three years — a payback period acceptable to most consumers in a McKinsey survey — putting LEDs at a tipping point. Consumers still balk at the up-front cost, though some governments are subsidizing the switch. With savings on electricity bills driving acceptance, LEDs are forecast to power more than 70 percent of all residential lights by 2020. Energy-efficient compact fluorescent bulbs provide competition for LEDs, though they are slow to reach full brightness and their mercury content raises concern about environmental impact. Some people simply prefer the more diffuse yellow light of old-style lamps. The switch to LED street lighting has brought an uproar from residents in parts of the U.K. who complain that the white light is too harsh and disrupts their sleep.

The Reference Shelf

  • Bloomberg New Energy Finance report from 2011 titled “LEDs: The Energy Efficiency Game Changer.”
  • A 2012 McKinsey study on the global lighting market.
  • Briefing paper from the International Energy Agency on the phase-out of incandescent lamps.
  • A summary of the potential savings from LEDs from Philips and a background page from Osram.

    First published Dec. 16, 2014

    To contact the writers of this QuickTake:
    Alex Webb in San Francisco at awebb25@bloomberg.net
    Elco Van Groningen in Amsterdam at vangroningen@bloomberg.net

    To contact the editor responsible for this QuickTake:
    Leah Harrison at lharrison@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.