Wednesday, May 18, 2011

The Coming Adoption Wave in Lighting

As I slowly make my way to Philly on the Amtrak to attend Lightfair, I am bemused by how little has changed in lighting and train travel in the last 100 years. In many ways, these two industries are a paradox of the modern age. You'd be hard press to name many other major industries that haven't seen some sort of technology revolution in the last century - just think of how much has changed in communications, aviation, or computing, to name a few.

By contrast, today,
50% of the light sockets in the world are still made up of incandescent bulbs - a technology that was commercialized in the late 1800s. While there has been innovation along the way, nothing has fundamentally transformed lighting since people figured out how to produce long-lasting filaments in vacuum bottles.

Lighting is a $70 billion industry, and if the press releases going into LightFair are any indications - folks are quite excited about the potential of LEDs to be a killer app in this space. At Novus, we have a strong investment thesis around solid state lighting and believe that the industry is on the cusp of a major adoption wave.

So why do cleantech guys care about this space? By way of comparison, an LED can provide the same illumination for 1/5th the power today and last 50 times as long as an incandescent bulb. This is important since lighting accounts for 25% of global electricity use. The problem, however, is that LEDs have been too expensive. A year ago an LED bulb may have cost $50-80 at Home Depot (if you could even find one). This week Philips and a few others have announced $20 bulbs. The adoption wave in CFLs showed that a $10 price point was a tipping point for mass adoption.
At Novus we are invested in Bridgelux, and they have stated publicly that a $10 bulb is within reach in the next 1-2 years. Materials science and packaging advancements are driving performance improvements, while the demand surge of LEDs for LCD televisions has brought large scale to the industry and helped reduced costs dramatically.

We've seen LEDs make their way into traffic lights, street lights and automobile headlamps, but not the larger general illumination markets. At least - not yet.
So what happens if (or when) solid state lighting takes off?

There will certainly be opportunities to make and lose a lot of money; and we can look at how the solar industry evolved as a guide for what may happen:
  • Asian manufacturers will dominate and commoditize the industry - driving down costs further, shrinking margins and killing anyone with high cost structures
  • There will be a huge opportunity in the downstream space (lighting service companies, networked lighting, lighting demand response)
  • Shortages in raw materials such as phosphors, indium and sapphire
  • Capacity overbuilds leading to dramatic booms and busts for equipment makers
It's going to an interesting next couple of years. But tomorrow, I will just enjoy walking the floor and seeing some cool lights.

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