LED lighting is set to transform the entire lighting industry. On that much, nearly every lighting expert can agree. The question that remains is: When? When will the technical capability, reliability, quality, and, perhaps most importantly, cost, reach the point where LEDs can compete with conventional commercial and residential light sources?
To determine where the price of LED lighting is heading, it's simplest to start with the building blocks: the light-emitting chips themselves. Driven by a host of technology and production improvements, LED manufacturers are driving down the price of their products at a blistering pace. Measured by light output, the cost for LEDs and LED components, has dropped in half in just one year, from $10 per kilolumen (klm) at the beginning of 2011 to $5 per klm at the beginning of 2012, says Boston-based Jed Dorsheimer, managing director of the Equity Research, Lighting & Solar division for investment bank Canaccord Genuity and an author of several LED market reports. “We expect it [the cost] to go to 500 lumens per dollar [$2 per klm] by 2014,” he states. The Department of Energy (DOE) predicted similar price drops in its March 2011 report, Multi Year Program Plan (MYPP), estimating the package price for warm-white LEDs will drop from $18 per klm in 2010 to $7.50 in 2012, $2.20 in 2015, and $1 in 2020.
“Costs are still a major obstacle” to the adoption of LED lighting, Dorsheimer says. “They won't be in two years. Our prediction is 2012 is actually going to be a pretty tough year for most LED manufacturers. But 2013 and 2014, where we get that five-times reduction in cost compared to the beginning of 2011, now you start to really get mass adoption.”
Part of the reason for those dramatic price reductions are technology-driven improvements in the efficacy of the LEDs. Today's LEDs have improved to 95 to 120 lumens per watt from 8 to 10 lumens per watt in 2001, says Ann Reo, vice president and general manager at io Lighting, a division of Cooper Lighting that focuses on architectural LED lighting. The DOE's MYPP states that both warm and cool LEDs are expected to reach 266 lumens per watt by 2020.
LED prices are also dropping with scale as manufacturers develop more-efficient platforms and improve their yield. LED manufacturers sort their products into bins based on color temperature and other quality factors—“tighter” bins offer better, more predictable lighting performance, but they're also more expensive. So as manufacturers refine their processes and tighten the distribution of their products, they improve their yields, leading to lower prices for more carefully binned chips. While the leading manufacturers have net yields for lighting-class LEDs just under 80 percent, Dorsheimer says, the average is about 50 percent, so improving yield is low-hanging fruit. And because better yield leads to higher production, there's little need for LED manufacturers to build new capital-intensive manufacturing facilities, which keeps costs low. And at least one manufacturer—Philips Lumileds—is offering “freedom from binning” with a selection of white LED emitters that the company says are uniform and consistent enough that no color bin selection is needed.
The lighting industry is also seeing an influx of excess LEDs from the screen, video, and display arenas, Reo says. That's leading to lower prices for common, low-to-mid-range fixtures such as downlights and troffers. But because those LEDs are more broadly binned, they're having a smaller effect on luminaires for high-end, architectural-accent applications. Smaller LED lamp manufacturers also still face a disadvantage in price because they are purchasing in lower volumes, says Bob Davis, director of product innovation and marketing for Litecontrol, although he predicts that price premiums will become more manageable as overall LED volume increases.
Fixture Finesse For LED lamp manufacturers, the chips are only one part of the cost—and while they're the most expensive portion today (making up about 45 percent of the cost of an interior downlight in 2011, according to the DOE's July 2011 solid-state lighting report Manufacturing Roadmap, that will no longer be true in the years ahead, Reo predicts. Lamp manufacturers are refining their own processes and designs to decrease cost and boost performance.
For LED lighting to make inroads in the indoor commercial and institutional settings dominated by linear fluorescent fixtures, “there has to be this combination of better performance coupled with lower price.”
—Bob Davis, director of product innovation and marketing for Litecontrol
For instance, bonding the LED chip directly to the heat sink, rather than going through a printed circuit board, is one way to reduce the number of steps in the LED fixture manufacturing process, says Nadarajah Narendran, professor in the School of Architecture at Rensselaer Polytechnic Institute in Troy, N.Y., and director of research at its Lighting Research Center (LRC). Remote phosphor technology, meanwhile, while expensive, has shown promise as a way to gain additional light from an LED source while reducing uncomfortable glare. In addition, as overall LED lighting product volume increases, more companies will begin to manufacture the subcomponents needed in LED lamps, increasing availability and lowering costs, Narendran says. While the technology is rapidly improving, these innovations incur research and development costs, Narendran notes. “[Manufacturers] need to recoup some of the investment they're making in research as well,” he says. Investing in the design and manufacturing of an injection-molded acrylic optic, for instance, can cost $15,000 to $25,000, Reo says.