In recent years, LEDs have surpassed incandescent and CFL to become the most common lighting technology installed today. The energy savings associated with LEDs and the improved aesthetic of LED over fluorescent or incandescent have been two primary factors driving this growth to date. Additionally, utility-driven rebate programs intended to promote energy efficient technology have offered incentives to offset the upfront cost of LEDs and expedite the rapid adoption of LEDs.
Policy also plays a major role in the adoption of LEDs, when governments set standards it’s a sure-fire way to increase implementation of a new technology, as it forces the hands of consumers and utilities alike. A couple of examples of how policy can shape the efficiency market have been in the news recently. Next month, the EU is taking the final step to phase out less efficient light sources by banning the production or import of halogen bulbs. And in the US, regulations that include tougher standards for bulbs are set to go into effect in 2020, essentially making LED bulbs the standard and ensuring further growth.
LEDs have come a long way but there is still plenty of room to grow. In a report by PS Market Research, the global LED market is expected to surpass $70 billion by 2023, growing at a Compound Annual Growth Rate (CAGR) of 12.6%. The main growth drivers identified were increased investment in infrastructure enhancement (mainly in China, India, and other Southeast Asian countries) and the reduced cost of LED fixtures.
Why are LED solutions getting cheaper? Two main reasons. The reduced cost of fixture components and the increased competition in the LED industry. Due to relatively low barriers to entry in the LED market, manufacturers are frequently popping up and creating more competition. With the increasing number of LED manufacturers in the market, there is growing pressure to differentiate from competitors. Some are targeting niche product categories and some are trying to develop all new applications for LEDs. Another option is to differentiate based on price. When consumers have such a difficult time telling one product from another, price is likely to be the determining factor. If an LED manufacturer can’t convince its customers that their products are worth the premium price, they’ll need to lower their price to keep competitive.
In the United States, some of the cost decreases that the LED market has experienced due to lower component costs and increased competition could be partially negated by tariffs. Many LED manufacturers import components for their fixtures from China and if a tariff needs to be paid, it will likely be the consumer that has to pay the brunt of that cost. That’s where manufacturers and their sales channels can benefit from incorporating utility rebates into their sales pitch. Utility rebates can provide some of the relief needed to keep product costs down and offset the tariff.
Another restraint noted by PS Market Research that could slow the growth of LEDs is the consumer’s lack of awareness of payback periods. The cost of LEDs can seem like a lot if the customer doesn’t recognize all the energy savings that are associated with their upgrade. It’s vital to educate consumers about all the benefits of LEDs and show them how quickly their LED investment can pay for itself.
As people are more and more interested in energy efficiency and the prices continue to decrease, the LED market will continue to grow. However, there are still some objections that consumers may have that need to be answered. Staying educated on the market trends and barriers, as well as having solutions to their problems, will help dissuade their concerns and help convince them LEDs are still the wave of the future!