For an industry that has remained mostly unchanged throughout the twentieth century, lighting has seen a remarkable amount of turmoil and transition since 2000. Incandescent bulbs have been the standard technology in most lighting applications for many years, but two new technologies have started to take a substantial share of the market. While incandescent bulbs still held a significant share in 2011 for instance, the trend continued to move in favor of new technologies up until 2014.
Starting on January 1, 2014, U.S. law required new lighting efficiency standards which essentially banned the manufacture of many new incandescent light bulbs. That move, while pre-planned by Congress, was nonetheless remarkable because up to that point, more than half of all 40 and 60 watt bulbs were still incandescent ones. The 40 and 60 watt bulbs were mainstays for home lighting use and so essentially the law changed the way that many people had to light their homes. The phase out of many standard incandescent bulbs was gradual, starting with the uncommon 100 watt bulbs in 2012, and 75 watt bulbs in 2013.
While there are a number of new technologies that are competing for wallet share in the vacuum left by the departure of incandescent bulbs, the two most common types are CFL bulbs and LED light bulbs. Each type of bulb has advantages and disadvantages. Related: Decoding Saudi Arabia's Strategy In Its Oil Price War
CFL bulbs, or compact fluorescent light bulbs, last about 8,000 hours versus 50,000 hours for LEDs and about 1,200 hours for traditional incandescent bulbs. CFLs use about a quarter of the power used by traditional incandescent bulbs but still about twice as much as LEDs. As a result, the cost for using CFLs is about twice the cost of running LEDs. And for most consumers, cost is what really matters with light bulbs, whether in office applications or home applications.
LED bulbs are much better for directional applications, like track lights, than for applications like lamps, but diffusers help somewhat when facing the latter issue. The downside of LED bulbs is primarily the upfront cost. LED bulbs generally cost at least twice as much as CFL light bulbs, although those costs pay off over time given the lower cost of use. Related: Why Venezuela's Petro-Aggression In Guyana Is Being Largely Ignored
In short, CFL bulbs are cheaper upfront, but are not as energy efficient as LEDs, and over a period of several years, an LED bulb pays for itself in savings versus a CFL bulb. As of 2014, LED bulbs held only a very tiny market share - less than 5 percent - in standard A19 conventional bulb applications (2.4 percent share), linear work lighting (1.3 percent share), and bay lighting (2.2 percent share). Only in outdoor lighting applications, where LEDs have considerable value given the difficulty in changing bulbs, did the bulbs hold a 10 percent+ share (10.1 percent share).
That is an unfortunate reality because if all CFL and incandescent bulbs were changed to LED bulbs, it would translate into nearly 5,000 trillion Btu's of energy saved, which represents almost 70 percent of the energy used in lighting applications. Nonetheless, for many applications, upfront cost is a more important factor than energy efficiency over time. Related: Oil Fundamentals Improve But Inventories Will Keep Prices Low
For instance, relatively few people live in the same house for a decade or more. As a result, buying premium bulbs which will literally last a lifetime is not economically rational for many individuals. The same logic applies to many businesses who may be leasing space for five years at a time rather than operating out of a building they own outright. The reality is that, in many cases, cost still matters a lot, and until LEDs come more in line with CFL pricing, their market share is likely to remain low.
Nevertheless, costs for LEDs continue to come down. Just a few years ago, a 60-watt LED lightbulb cost more than $100. Now they are less than $5 each. Costs will continue to decline, allowing LEDs to grab more market share. The future is indeed bright for LEDs.
By Michael McDonald of Oilprice.com
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Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance… More
Comments
And just to be clear, incandescent bulbs are NOT ILLEGAL TO MAKE, IMPORT, or SELL, its just that they must be 40% more efficient. Why 40%??? Simple, the US manufacturers of bulbs could only compete with Asian bulbs on halogen bulbs which were 40% more efficient. The EnergyStar standard made cheap Asian imports illegal while giving that market to US factories making halogen or similar incandescent A19 bulbs. Selling those US halogens with US profits makes the price as high as Asian CFL where profits are low for exactly the same factory because in Asia, putting people to work is more important than profits when money only earns 0-1% interest.
LED High Bay Light is perfect lighting for roads on highways more efficient compared to CFL lighting system.