Lighting

LEDs are shaping current market dynamics. The momentum created by the ongoing phaseout of incandescent and halogen lamps as well as declining shares of fluorescent technologies is raising lighting efficiency globally. This is a considerable improvement relative to the early 2000s when incandescent lamps were being partially replaced by equally low-efficiency halogens in many parts of the world, including Europe.

While most consumers during 2005-15 considered alternatives to halogen and incandescent lamps inadequate, LED lighting quality, design and functionality improvements since then have accelerated their uptake.

Global LED use has increased substantially in recent years, rising from a market share of 5% in 2013 to nearly half of global lighting sales in 2019, with integrated LED luminaires making up an increasing share. A number of developed markets, including the United States and Europe, are responsible for the rapid expansion of the luminaire market segment, while China has built a substantive domestic and global manufacturing base.

LED sales now appear to have overtaken fluorescent sales for both residential and commercial applications, and the LED share is expected to continue expanding. To remain in line with the Sustainable Development Scenario (SDS), LEDs need to make up more than 90% of lighting product sales by 2030.

LED penetration remains uneven across many markets, and sales are typically lower in relative terms for lamp replacements than for newly built buildings. However, many companies and governments are enacting measures to enlarge the share of LEDs in existing residential, public and commercial buildings.

LED prices continue to fall as the estimated 38 billion cumulative sales of LED lighting products in the past five years have generated economies of scale. Not only is competition among manufacturers making standard LED products more affordable, but further innovation is presenting customers with a wider choice of prices and products.

China has taken the lead in manufacturing, benefitting from considerable government subsidies and incentives, and prices have fallen substantially to USD 3-5 per LED light bulb. Prices are similar in many European markets and in North America.

While current retail prices make high-efficiency products accessible to customers without eroding future innovation and investment capacity, more targeted programmes have been promoting deployment among low- and medium-income households. India’s UJALA programme (Affordable LEDs for All) especially has helped deploy more than 360 million units since 2015, out of an intended 770 million.

The next several years will demonstrate whether LED technology becomes a victim of its own success: long lamp lifetimes may mean that a new business model will be needed to promote LED sales, for example to provide enhanced energy services through controls and sensors (i.e. occupancy or daylighting sensors) along with non-energy services.

Supply abundance and fierce price competition will also put pressure on manufacturers, with concomitant benefits for consumers and the environment, although the enforcement of regulations will be key to ensure product compliance.

Current trends suggest the market is on track to follow the SDS trajectory by 2030. Nevertheless, to raise the share of LED sales to more than 65% of the residential market by 2025, countries need to take advantage of recent sales trends and update their regulatory policies to keep pace with expected LED performance, which is drastically higher than five years ago. Setting and upgrading minimum efficacy levels would also help phase out less-efficient halogen and compact fluorescent lamps.

LED efficacy has improved considerably in recent years, despite some signs of slowdown in the last two. LEDs typically available in the residential market have an efficacy of over 100 lumens per watt (lm/W), depending on the model (e.g. directional, non-directional, tubular). Since 2010, the average efficacy of LEDs has improved by 6-8 lm/W each year.

In many developed countries, the efficacies of LEDs available for residential use are already 110 lm/W to 130 lm/W, and they need to increase to an average of 160 lm/W by 2030 to meet SDS ambitions. In fact, some products for commercial uses such as office and street lighting have already reached or exceeded these efficacies.

In contrast, efficacies are much lower for compact fluorescent lamps (around 60 lm/W) and halogens (less than 20 lm/W) and will not improve, particularly as industry has shifted its focus to LED technology and product innovations.

Sales of incandescent lamps, with efficacies of around 13 lm/W, have dropped to make up less than 5% of the market. Halogen and compact fluorescent lamp sales peaked in 2015 and have since declined continuously.

LEDs have become more efficient than any other economically viable alternative. Further advances could be made through advanced LED modules (e.g. consisting of multiple-chip packages on a printed circuit board), for instance, or continuous improvements in optics. DC grids also hold the potential to reduce losses from AC to DC conversion (as LEDs are DC systems).

As LED efficacy is already the highest on the market, and as gains in this area began to decelerate very recently, the question is whether LED manufacturers will be interested in fostering innovation to reach even higher efficacy levels.

As LEDs have become more efficient and affordable, their wider use in decentralised energy systems has been a boon for energy access. During 2010‑17, 130 million off-grid solar-based lighting devices were deployed, mainly in sub-Saharan Africa and South Asia.

In 2016, 94% of them were pico-solar installations with energy-efficient LEDs, but pico sales have since fallen while plug-and-play solar home systems are emerging.

Effort is needed to increase deployment of energy-efficient LEDs as part of access strategies: in the SDS, 1.2 billion people gain access to electricity by 2030, and energy efficiency is the key to ensuring its sustainability.

Governments should take advantage of the growing LED market (and lower LED costs) to raise minimum performance and quality requirements for lighting products.

For example, in 2018 EU member states voted to phase out inefficient halogen lamps and compact fluorescent lamps in 2021, while introducing minimum performance and quality standards for LED lamps and luminaires. This single regulation applies to household, commercial, industrial and street lighting. In 2019, the EU Ecodesign Directive introduced the rescaling of energy labels for lamps (from levels A to G) and enlarged their scope to cover all lighting sources in the EU market.

United for Efficiency, led by the UN Environment Programme, is also updating its model regulation guidelines for developing countries.

In addition to updating standards, further effort is needed to expand lighting policy coverage to markets that are still unregulated. Phasing out incandescent, halogen and compact fluorescent lamps and setting efficacy and quality (e.g. flicker and lifetime) requirements for LED lamps is critical for general lighting applications in both developed and developing countries.

Governments can also take advantage of LED market expansion to update or introduce labelling schemes.

Labelling programmes that inform consumers of higher LED efficacy have been applied in many markets, including China, Europe, India and the United States. Adopting these labelling schemes in other markets would encourage consumers to shift from halogen and fluorescent lamps to LEDs.

Further harmonisation of labelling schemes is also crucial to help suppliers realise economies of scale, which would raise both product affordability and the amount of capital available for investment in innovation. In addition, labelling schemes must be based on robust standards against which products can be scaled, and they should also be related policy mechanisms to ensure that the same rules apply to all market participants.

Furthermore, design regulations for lighting applications and services should be revisited. In many countries, energy performance standards for buildings (e.g. lighting energy use per m²) have not been updated to reflect the rapidly changing lighting market.

These standards should recognise that LED lamps are twice as efficient as fluorescent ones and are much more amenable to lighting controls (i.e. adjustment of light output and even colour using fixture sensors). Improved metrics for quality control and more appropriate testing procedures are also critical to ensure LED energy performance and quality.

Market-based solutions, such as using bulk procurement and energy service providers, can help reduce LED costs even further while increasing uptake.

India has demonstrated that it is possible to deploy 360 million LED lamps rapidly on a large scale when the right financing and market mechanisms are in place: it has one of the largest LED markets in the world thanks to its national UJALA programme, which uses bulk procurement to offer bulbs that are 50% more efficient than other lamps typically available.

Another innovative market-based solution is for private sector partners to establish themselves as lighting service providers rather than equipment sellers.

Several businesses offer arrangements whereby building owners can contract lighting services (i.e. in lumens delivered) rather than purchase lighting equipment. The business takes care of all lighting system O&M, reducing the burden on building owners, and in addition, this approach incentivises investment in lamps of higher quality and longer service life because they reduce the O&M costs for the service provider.

However, such programmes should ensure that manufacturers do not sell products for less than their production costs and that the initial investment can be recovered through consumer electricity bills. ESCOs should also analyse the impact of their distribution models on small lighting businesses and traders, as they may absorb a share of their regular turnover.

Governments can also increase market volumes through green public procurement schemes that bring new and better lighting technologies to national markets, but standards for lighting products are needed to ensure that public buildings choose high-performance products.

Governments can also provide incentives to manufacturers for RD&D of high-efficiency LEDs.

Michael Scholand (4E TCP), Mark Ellis (4E TCP), Patrick Blake (UN Environment Programme)