In 2009, there was a great deal of discussion regarding LED-based solid-state products for interior and exterior lighting. We've begun to hear more and more about the promise of greater energy efficiency cutting the demand for electricity, longer life spans for lighting systems to reduce maintenance costs, and the elimination of hazardous materials such as Mercury (Hg) and Lead (Pb). We've seen the widespread conversion of traffic signal lights to LED-based lamps. Many cities have announced pilot programs to introduce LED-based street lights with a growing number of successful installations. Solid-state lighting is finding success in commercial settings and even in some residential applications.
With all the talk, one would think that the LED lighting revolution had already begun.
In reality, however, we see very few high-quality LED or solid-state lighting systems in use today, whether in offices, retail outlets, lodging, restaurants or homes. Why? After all, the forecasted reductions in energy consumption based on the promise of solid state lighting will not be realized if we don't significantly increase the number of installations. The answer is that most LED-based lighting systems today simply cost too much. This is not a surprise, nor controversial. The industry recognizes that to expand and accelerate market penetration we must reduce LED lighting system prices significantly. Currently, the initial installation costs of solid-state lighting systems can be four to five times those of conventional lighting systems, and even higher for retrofit replacement lamps.
What trends do we see developing for 2010 that will lead us closer to market-enabling pricing-closer to the LED lighting revolution and the much discussed mass adoption of solid state lighting? And how long will it take?
Perhaps the more accurate characterization is that we are in the middle of the LED lighting revolution, but the good news is that the industry is on the verge of a major market expansion in 2010. Four key trends are developing in 2010 and beyond that will help to reduce the cost of LED lighting and inevitably lead to wider market adoption.
The first trend is a snapback in demand and a resulting shortage in global manufacturing capacity. As 2008 ended, in the midst of the global financial crisis and economic recession, we saw a significant slowdown in LED chip demand and an ensuing drop in LED prices. In 2009, however, demand increased dramatically as LEDs began to be used by Samsung and other consumer electronics manufacturers for backlighting. The popularity of these TVs, together with ongoing demand for LEDs in camera flash, automotive, lighting and mobile devices is straining the global LED manufacturing capacity. Some in the industry, such as Display Search, are predicting five times growth in the number of LED TVs manufactured in 2010 compared to 2009.
As market penetration of solid-state lighting expands, this global manufacturing capacity shortage will be exacerbated. We believe 2010 will see LED supply constraints, a resulting push to expand capacity at existing fabs and the rapid construction of new fabs. (Editorial note: Bridgelux raised $50 million to build a new fab.) Since it can take up to two years to develop a new LED fab from ground-breaking to volume production, this global under-capacity may continue for several years. This will drive LED manufacturers to increase the efficiency of their existing fab capacity by scaling to larger wafer sizes-as in the IC industry-and put pressure on the solid-state industry to find additional cost reduction options in 2010 and beyond.
The second trend in the coming year is that lighting fixture and luminaire manufacturers will demand ever greater energy efficiencies from LED-based lighting sources to help achieve Energy Star, California's Title 24 and other global regulatory standards. As governments around the world ban low efficiency incandescent light bulbs, they are simultaneously increasing the energy efficiency requirements for the replacement lighting technologies, including LEDs. This forces a need for greater system-level efficiencies onto luminaire manufacturers. These manufacturers, therefore, will demand greater efficiencies from the LED light source manufactures. As LED technology improves and becomes more efficient, this will also help drive down the cost of light.
The third trend is a push for greater system-level integration of the LED light source. The challenge is to provide the LED-based light with drive electronics, optics and possibly thermal management to simplify the lighting system design task, thereby reducing design costs, product development risk, time-to-market and-ultimately-system cost. Currently LED luminaire manufacturers must either purchase a light source from one vendor, drive electronics from another and optics and reflector from another, or develop a subset of this technology in house. All of this adds to the cost, design complexity and risk for lighting manufacturers. Historically, manufacturers design and produce the fixture; purchase the ballast, lamp holder and possibly the bulb or lamp; and then assemble the entire luminaire. These manufacturers, therefore, desire increased integration, simplification and a lower-cost light source sub-system from LED light source manufacturers.
The fourth trend in 2010 is the increasing penetration of LED-based systems into key lighting market segments. Although these systems are still expensive today, they offer an attractive return on investment for certain commercial applications-particularly environments where the lights remain on 16 or more hours per day. The energy savings alone produces significant cost savings. These savings, coupled with reduced maintenance costs due to the longer LED system life, can reduce the payback period in these applications to less than two years.
These four trends will come together in 2010 to cause companies throughout the solid-state lighting supply chain to ramp up manufacturing and drive innovation. This will create economies of scale, reduce product development risk and drive costs down for the LED light sources, electronic drivers and all system components -ultimately driving down overall product costs to make LED-based lighting systems more affordable, more ubiquitous and finally delivering on the promise of greater energy efficiency for the global economy.
Keith Scott is Vice President of Business Development at Bridgelux. Here he is on video.