Pangaea Blog

Pangaea invests in early stage cleantech companies with world-class advanced materials innovation.

Wanted: LED Technology for Lighting Main Street

LED lighting has the potential to be one of the true blockbuster clean tech markets. A 2011 report by McKinsey & Company forecasts the global lighting market to reach €108BB($140BB) by 2020 with LEDs taking €64BB($83BB) of that share. This is a 10X increase from the LED lighting market size today. Technology is advancing as well; with Cree producing a record 254 lumen-per-watt device in 2012 - almost a 3X increase over the last decade. Exciting stuff for VCs indeed!!! At Pangaea Ventures we share in the excitement but worry that current thinking just won’t take us far enough.

The LED industry has attracted some of the world’s largest industrial technology companies and is a truly enabling technology for all types of consumer electronics today. Unfortunately, the market penetration of LED lighting represents only a few percent of sales on a per-lumen basis and a trip down to the local big box reveals why. A 60-watt equivalent warm LED retails for $20-25 with an efficiency of 60-65 lumens/watt. Walk down the aisle and you’ll find equivalent compact fluorescents (CFLs) in terms of output and efficiency costing 10X less. It's sort of like putting $700 Gucci jeans next to the Levi's section. Where is the mass market going to go? A quantifiable price premium is justified due to lifetime, but end-market fragmentation, difficulties creating standard use profiles and practical electrical monitoring limitations or costs means that LED lighting will struggle to benefit from low-cost, long dated financing packages that technologies such as solar have enjoyed.

In the simplest of terms, LEDs are solar cells operating in reverse. Incumbents might point to solar cost and price curves that have driven solar electricity to grid parity in many locales and use this to foreshadow what’s in store for LEDs. Unfortunately the LED industry has already enjoyed the steepest part of the cost-curve with the LED component industry already reaching the size of the solar industry of 2007. Unlike the fat solar margins of 2007, LED margins are razor thin and an Asian manufacturing machine approaching full depreciation is already in place. Economies of scale aren’t going to help us much more.

Neither are the following:

  • GaN on Silicon start-ups have us believing that by moving to 200mm or 300mm wafers, the nodal cost improvement seen in the semiconductor industry will be paralleled and existing automated CMOS capacity can be used to reduce the cost of the back end steps. Unfortunately economies of size are effectively counteracted by a combination of poor manufacturing yields, high cost GaN epitaxy engineering, lower efficiency, lower achievable current densities and the list goes on.
  • Further up the value chain, phosphors have some potential for improvement but not enough to make a major dent.
  • LED packaging is as commoditized as it can be.
  • There seems to be a new and better lamp design every other day and so the headroom for improvement is marginal at best.
  • Efficiency roadmaps should impact the dollar per lumen denominator but existing device and materials limitations mean that achieving high efficiency goes hand in hand with higher cost. Case and point: the Phillips L-Prize bulb at 95 lumens/watt at double the price of its equivalent 64 lumen per watt cousin.

By now you might be thinking to yourself that I am such an LED bear, that reverting back to kerosene lamps is the solution that I will propose. Nothing could be further from the truth. By 2025 LED lighting will be a main street technology. But costs and prices need to come down by about 10X to the 2020 targets proposed by the DOE. What is needed to achieve this goal? New breakthrough technology that simultaneously enables a step change in cost structures, while transforming the high efficiency lab devices to commercial products. This new technology must drop into the existing LED value chain as it is today. At Pangaea Ventures we recently placed our first bet on a company proposing to do just this and we hope to hear about other new ideas in the coming years.

Partner, Pangaea Ventures Ltd. Andrew has over 12 years of energy and industrial experience, recently leading several of Pangaea’s investments in the energy generation, energy storage and energy efficiency domains. Andrew holds a Bachelor of Applied Science (Mechanical Engineering) and a Masters in Business Administration degree.View Andrew Haughian's profile on LinkedIn

Comments

  • Guest
    Charlie Nobles Tuesday, 12 February 2013

    Andrew,
    Your views are well made, but are LED-centric. I think there is significant value-add in the holistic street and outdoor lighting solutions being proposed. Taking a passive LED streetlight and 'networking' the light through a wireless-enabled two way communication link extends the benefits in energy savings and reduced maintenance, and is acretive to business cases. This is especially true for outdoor lighting technologies and systems that couple with the current AMI smart metering networks and infrastructures. Have you reviewed these solutions, or companies providing this solutions?

  • Andrew Haughian
    Andrew Haughian Tuesday, 12 February 2013

    Charlie,
    I am afraid you took "Main Street" to literally mean street lighting when in fact I was using it figuratively for every home in America, or for that matter the world. We want to see LEDs hit the cost points where this becomes reality.

    I am not the most knowledgeable on the solutions you mention (we focus only on the materials side), however I am sure they are all very much complimentary to what happens on the materials/LED side of things.

  • Guest
    Hal Bundrick Sunday, 24 February 2013

    Andrew, good article. One major hurdle that has to be cleared to bring LED lighting to its full potential -- and reduce costs -- is more entrepreneurial effort here in the States. Too much inferior product is flooding the market from overseas. As a new micro-manufacturer of LED flat light modules here in the USA, we are putting our money where our mouth is. Others will follow. The giant lighting conglomerates will be slow to innovate and lower prices. Like the personal computer revolution that challenged IBM, HP and the rest, the LED lighting revolution is most likely taking form right now in "garages" and small manufacturing plants like ours.

  • Andrew Haughian
    Andrew Haughian Wednesday, 27 February 2013

    You are right that it is difficult as a US based manufacturer as industry as really centred on an Asian centric supply chain. Nevertheless, I think the truly breakthrough innovations will come from here and while I don't believe a soup to nuts LED supply chain can be replicated here, I believe there is the entrepreneurial talent to ensure that the majority of the actual value creation stays at home.

  • Guest
    Allen Wednesday, 27 February 2013

    Hey Andrew,
    The post made me so convincing to get ready and made an LED March all over my living place but seriously the LED use has been increasing so vastly here and everywhere around the world cause of its benefits and application. I have been used LED as a lighting purpose in my home and use LED signs for my business advertisements. I feel LED technology is the cutting edge technology in lighting era.

  • sean
    sean Monday, 13 May 2013

    Andrew,
    Really enjoyed your article addressing the issues in LED lighting. I believe the key is to reduce as few parts as possible, while maximizing thermal efficiency since the thermal efficiency is one of the major issues in LED lighting. The current design with the heat-sink makes the most LED bulbs look bulky, increase the cost of LED lighting and causes the early failure in the power supply such as SMPS. Hope we can resolve the problem soon. One innovation in a tech venture solved the issue for the low-cost LED blub with just three pieces that could save lots of the material cost (by 50% or more) and also allows more trendy and slim design in LED lighting.

  • Andrew Haughian
    Andrew Haughian Wednesday, 27 February 2013

    Allen,
    Signage is a mature LED market a minority of early adopters like you and me have paid the extra price to have LED lighting in our homes. But the bottom line is that on a per lumen basis, LEDs represent only one or two percent of the global lighting market today and the only way that will change is significant cost reductions.

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Guest Sunday, 23 November 2014