by Matt Breuer
April 17, 2018
The lighting industry has changed dramatically over the course of the last decade, disrupted by regulatory, technological, and consumer-driven change. While efforts to improve the energy efficiency of traditional lighting technologies have been under way for at least two decades, the most rapid and revolutionary changes have taken place during the last several years. According to the Department of Energy, electricity use for general lighting in the US fell by 17.5% between 2010 and 2015, despite growth in lighting inventories, and all projections suggest that energy savings will only accelerate in the future.
In large part, these impressive reductions in energy use are due to the most innovative aspect of the lighting industry’s disruption: the rise of LEDs. LED-based bulbs and luminaires are highly efficient, long-lasting, and otherwise high-quality, prompting the lighting industry to use them in place of century-old technologies like incandescent bulbs and fluorescent tubes. And since LED lighting is in general a higher-value product than older types, the lighting market is in for significant growth going forward.
Several important trends continue to boost the value of the high-efficiency general purpose lighting market, which is expected to see value gains of 7.8% per year through 2022 to reach nearly $15 billion. These trends include:
The last significant round of regulatory change came in 2007, under the authority of the Energy Independence and Security Act (EISA). The law required two phases of new regulations. The first went into effect on a rolling basis from 2012 to 2014, raising the minimum energy efficiency standards for many of the most common types of conventional lighting, including the standard household incandescent bulb and certain types of linear fluorescent tubes. The law prohibited the manufacture and import of substandard lighting (although existing stocks could still be sold off), leading to a major shift in the industry’s product mix. Plenty of fluorescent lighting is efficient enough to remain on the market, but the technology behind incandescents and halogens is essentially incompatible with new standards and can now only be made in specialty formats like low-Wattage decorative lighting. LED lighting benefited the most from this shift in product mix, since even in its early days it offered major improvements in energy efficiency.
In addition to regulations, the federal government gave a big boost to the high-efficiency lighting industry with the American Recovery and Reinvestment Act (ARRA) of 2009, commonly thought of as President Barack Obama’s economic stimulus package, which offered grants for projects that would reduce energy consumption. Many of the ARRA’s funds went toward renovations of lighting systems, including upgrades of roadway and municipal lighting to new, more efficient LED products.
The lighting industry will experience even more change when EISA’s second phase goes into effect at the beginning of 2020. These regulations will further raise efficiency standards, will expand the list of affected types of lighting, and will prohibit not only the production and import but the sale of all substandard lighting. Since a lot of substandard products remain on store shelves right now, this last step will significantly accelerate consumers’ transition to high-efficiency lighting.
As with any new technology, the quality of early LED lighting was inconsistent, which caused consumers to doubt the benefits of these products. However, LED lighting has improved significantly over the last decade, which has led to rapid adoption rates. While energy efficiency is the primary selling point for LEDs, they also offer other performance benefits, including:
And let’s not forget the importance of affordability. This has long been an obstacle to consumers’ adoption of LED lighting, because the technology was for a long time just too expensive. However, pricing has fallen dramatically in the last several years, which has boosted LEDs’ market share as more and more consumers are giving them a try.
Taking all types of markets into account, LED bulbs and tubes accounted for 75% of sales in value terms in 2017, and this figure is expected to continue rising significantly through 2022. The transition to LEDs has been a good bit slower in consumer markets than in others, such as roadway lighting and commercial buildings. However, since there remains so much opportunity for new adoptions of LED lighting, these markets will see the fastest growth through 2022. It also helps that some of these older bulbs will be taken off of store shelves come 2020, forcing many holdouts to finally try some of the newer, more efficient types of lighting.
But consumers aren’t being forced to buy LEDs – after all, CFLs will remain available through 2020, and they’ve become pretty inexpensive. Rather, consumers are catching on to the real benefits of LED lighting – namely, that they allow for substantial energy savings and can last a really long time. As prices continue to fall, it’s easier to accept that slightly higher up-front costs can actually pay out in the long run.
Not only are consumers coming around on the benefits of the basic LED light bulb, but many have begun to purchase smart lighting. About 20% of consumers are estimated to own smart lighting already, with about one-third of consumers planning to buy such a product in the next year.
Smart lighting allows you to operate your lighting wirelessly – for example, using your smart phone or a smart home hub. And these products go beyond simply switching lights on and off remotely; they typically include multiple color temperature settings and can often automate lighting changes according to a user-defined schedule. Each of the leading light bulb producers carries its own line of smart lighting:
What might be most remarkable about smart lighting is that it’s creating a new high end in a market that has long been dominated by commodity-type bulbs. Since incandescents don’t last very long, they were typically designed to be low-cost and disposable. LEDs’ lengthy service life has now created the opportunity for more sophisticated light bulbs. With high-end products like smart lighting gaining popularity, and with a lot of new product development sure to come, the lighting industry is rife with opportunities for growth.
For more insight into the state of the lighting industry, see General Purpose LEDs & Other High-Efficiency Lighting in the US, a new study from The Freedonia Group. This comprehensive report provides the following:
Matt Breuer is an industry analyst at The Freedonia Group, where he writes industry studies focused on the US consumer goods markets.
Provide the following details to subscribe.