A Demand-Side Case for LEDs
By Dr. Inês Azevedo
In recent years, concerns in the United States over energy independence, environmental issues, and affordable energy systems have led policy makers to rethink our national electricity system and the provision of energy services. Several portfolios of strategies, and combinations of energy sources and technologies, have been proposed. Such strategies generally include what economists call "supply-side" and "demand-side" options.
Supply-side options, as the name suggests, involve growing the supply of available energy. These options include, among others, increasing the share of renewables in the grid, increasing natural gas-installed capacity (up to a limited level of emission reductions), increasing nuclear-installed capacity, and leveraging coal resources, possibly coupled with carbon capture and storage to address climate-change concerns.
Demand-side options involve reducing energy needs by increasing energy efficiency, and several energy-efficiency and energy-conservation strategies can be pursued in the residential, commercial, and industrial sectors. In the U.S., the process of generating electricity from fossil fuels and other primary energy sources to electricity is relatively inefficient—with roughly 65 percent of the fuel energy content lost as heat while being burned to produce electricity—according to the National Research Council.
The potential for energy-efficient, cost-effective measures has led several states to pursue efficiency standards. In addition, U.S. federal policies have encouraged energy efficiency through both mandatory and voluntary standards for end-use appliances and devices (for example, the National Appliance Energy Conservation Act of 1987, Energy Policy Act of 1992, Energy Policy Act of 1995, Energy Independence and Security Act of 2007). Furthermore, part of the American Recovery and Reinvestment Act has been assigned to projects aimed at improving energy efficiency in buildings.
Prior to the economic recession, electricity consumption has generally been on a growth trend, particularly in states lacking policy intervention. Despite fluctuations resulting as a response to changing energy prices or weather, recent history in California and New York (where per capita electricity consumption has remained constant) or in Vermont (where per capita consumption declined during the Nineties) suggests that active policy intervention can yield significant results. Savings achieved through refrigerator and other appliance efficiency standards suggest that large future savings might be possible, as well.
Lighting might hold the greatest potential for energy savings, given that it accounts for approximately 20 percent of U.S. electricity consumption. Lighting in the residential sector accounts for up to 20 percent of total electricity use, and in commercial buildings it accounts for nearly 36 percent. While the adoption of fluorescent lighting technologies prevails in the commercial sector, incandescent lighting is still the largest share of both energy consumption and number of lamps installed in residential sector sockets. Therefore, there is still a lot of room for improvement in energy saving, given that incandescent lighting's conversion process from electricity to useful light wastes more than 90 percent of the electricity via heat.
The ability to dramatically decrease the energy used to keep lights on requires new technologies that use less power, but that are also affordable and capable of producing high-quality light. In the past few decades, compact fluorescent lamps (CFLs), fluorescent tubes, and high intensity discharge lamps have helped to increase energy efficiency in cost-effective ways. Yet, solid-state lighting (SSL) technologies, in particular, light-emitting diodes (LEDs), represent one of the most promising technologies.
The efficiency of LEDs—measured in lumens per watt—grew extremely fast in comparison with other lighting technologies since research in monochromatic LEDs restarted in the 1960s. However, the challenge with LEDs at the time was whether they would be able to produce stable and high-quality white light for general illumination purposes. For some years now, the program on Solid State Lighting from the Department of Energy (Energy Efficiency and Renewable Energy) has been putting together roadmaps for SSL technology performance, in terms of efficacy, cost and lifetime. The industry has been able to keep up with or, in several cases, surpass the performance goals suggested by the Department of Energy.
But as LEDs develop and as the industry meets these goals, are LEDs already becoming cost-effective for residential consumers? The figure below shows a comparison of costs and energy consumption for different lighting options that would deliver the equivalent of a 60W incandescent light bulb. It is assumed that the light bulbs are used three hours per day, electricity price is 11 cents per KWh, and the discount rate is 10 percent. This example describes the decision of a household, and therefore only incandescent lamps, CFLs and LEDs (both cool and warm white) are included. (Fluorescent tubes are left out of the analysis, since we are describing lights that would be used for a desk or floor lamp, and fluorescent tube lamps would require different types of fixtures.)
Source: Inês Azevedo, April 2012
The price, efficacy, and lifetime of the light bulbs selected for this first order analysis correspond to the performance of technologies that are currently available to consumers in stores today.
The figure shows that CFLs and LEDs are already cheaper than incandescent on an annualized basis, and consume less than half of the energy. Living in a location with high electricity prices would favor cool white LEDs. For example, under an electricity price of 20 cents per KWh, cool white LEDs would be the cheapest option.
For an average U.S. household with 32 incandescent light bulbs working, on average, three hours per day (author's assumption), switching from incandescent bulbs to CFLs would lead to savings of $157 per year. A similar switch to cool or warm LEDs would save a household $131 and $104 per year, respectively.
According to the projections from the Department of Energy for manufacturing cost and efficacy of both cool and white LEDs, performance will continue to improve in the short-term future. Thus, if LEDs perform as anticipated by the Department of Energy, both cool and white LEDs will be cheaper (on an annualized basis) than CFLs by 2015, even for small daily usages such as three hours per day.
LEDs are slowly emerging in the market, and their penetration in general lighting still represents much less than one percent of U.S. lighting electricity consumption. However, the Energy Independence and Security Act of 2007 stipulates maximum allowed power for different ranges of lumen outputs in general lighting; this is likely to support the adoption of LEDs in the short term, as long as the upfront cost to consumers continues to drop.
Many state-level building regulations already include lighting standards or requirements (such as Title 24 in California). State-level efforts also include rebates and subsidies to promote the adoptions of efficient lighting (see, for example, the Database of State Incentives for Renewables and Efficiency at www.dsireusa.org for a detailed list of all incentives and policies for lighting that are promoted by utilities).
While all these efforts are moving the U.S. in the right direction, there is still a very large potential to reduce energy consumption in cost-effective ways, especially in the residential sector. However, LED designers and manufacturers need to ensure that products reaching the market have good color, high performance and no heat-management problems because in the end, consumer satisfaction will be a key that ultimately drives widespread adoption.
Dr. Inês Azevedo is the Executive Director for the Climate and Energy Decision Making Center and Assistant Research Professor in the Department of Engineering and Public Policy at Carnegie Mellon University. Dr. Azevedo's research interests lie at the intersection of environmental, technical, and economic issues.
T. Rowe Price and Dr. Inês Azevedo are not affiliated.