Navigant Research Blog

Lighting-as-a-Service Hints at Major Industry Shifts

— January 31, 2014

In November, Philips signed a 10-year performance lighting contract with the Washington Metropolitan Area Transit Authority (WMATA) to provide lighting-as-a-service in 25 WMATA parking garages.  Over 13,000 lighting fixtures are being upgraded to a custom-designed LED lighting solution at no upfront cost to WMATA.  The cost of the project will be paid for through the estimated $2 million in energy and maintenance savings the project will yield per year.  Energy usage is expected to be cut by 68%, or 15 million kWh, per year.  Philips will also monitor and maintain the system during the life of the contract, allowing WMATA to redirect approximately $600,000 annually in labor and material resources.  As part of the 10-year maintenance contract, Philips will also reclaim and recycle any parts of its system that must be replaced.

The implications of this business model are significant.  WMATA gets a top-of-the-line lighting system essentially free.  In fact, if Philips charges anything less than $2 million per year (or whatever the annual savings are), WMATA is making money on the project.  Throw in the maintenance contract and how could a potential customer say no?  The only potential downside would be if Philips welches on its customer service agreement and fails to perform adequate maintenance.  This would be a problem for Philips as well, as it would mean that the firm underestimated the resources needed to fulfill the maintenance contract and is missing its cost goals.

Reuse, Recycle, Re-Profit

According to Philips, lighting-as-a-service (or Pay per Lux) is their model moving forward, and that could be extremely disruptive.  While the fine details of the agreement have not been made public, it’s likely that WMATA agreed to pay Philips a percentage of the actual energy savings per year (compared to WMATA’s energy usage in a base year) as opposed to a flat rate.  This incentivizes Philips to maximize the efficiency of the system, which benefits everyone.  In that way, WMATA is truly paying for performance.

Echoing the theme of my last blog on cradle-to-cradle circular economies, Philips could also capture cost savings by recycling the lighting components, thereby turning a waste stream into a supply line.  Even if the upfront savings are small, they would provide an incentive for Philips to streamline the recycling process by designing products for disassembly, using fewer raw materials, and expanding relationships with recycling facilities, perhaps even acquiring them.  Then, if lighting-as-a-service starts to gain traction and the amount of material being recycled gains critical mass, the savings could become very real.

An efficient recycling process could lead to other opportunities.  For example, Philips could provide upgrades to WMATA’s system, increasing energy savings and customer satisfaction, more frequently and at lower cost without creating any waste.  If no material is being wasted, suddenly planned obsolescence doesn’t sound so bad.

I suspect any company that offers a technology that can pay for itself with annual savings is taking a long look at this business model.  If not, they should be.  The residential solar industry is already capitalizing on a similar leasing model.  If leasing and maintenance contracts become the norm in these industries where savings pay for the product, and customers begin paying for light as opposed to a lighting fixture, it could mean that hardware companies like Philips and Samsung will have to differentiate themselves more on customer service than on their physical products.


LEDs Still Gaining Efficiency

— August 14, 2013

The remarkable efficiency gains achieved by LED lighting over the past few years has led some within the industry to doubt that improvements can continue much longer.  A recently published paper in Applied Physics Letters, however, shows that the scientific understanding behind LED technology continues to improve at the same time that manufacturers continue to improve the efficiency of their LED modules.

In the paper, researchers from Rensselaer Polytechnic Institute identify the cause of a common LED challenge known as “efficiency droop,” where the efficiency of the light source decreases as a higher current is applied.  Efficiency droop is especially troublesome for lighting applications, which compared to other uses for LEDs like signage or flat-screen monitors, requires higher-lumen outputs.  While the new research does not immediately make available a commercially viable solution, it does indicate that efficiency gains won’t be slowing down anytime soon.  The study shows that as current increases in an LED, an electric field develops that pushes electrons away from the region where those electrons would otherwise produce light.  Now that researchers and engineers have a more accurate understanding of this effect, they will be better able to design systems to minimize it.

Drums Unstopping

Announcements of ever-higher LED efficiencies seem to come out weekly.  In a July 23 press release, Seoul Semiconductor announced its new 5630C as the world’s most efficient mid-power LED package at 180 lumens per watt (lm/W).  On July 29, Shanghai-based Pozeen launched a retrofit kit for recessed lighting fixtures that can achieve an overall efficiency of 110 lm/W.  These come on top of regular announcements by companies such as Cree and Philips that LED chips and packaged LED modules are reaching ever new heights.  Cree announced in February that its R&D department had made a demonstration chip that achieved 276 lm/W.  Philips announced in April that it had developed a prototype tube LED that delivers 200 lm/W.

None of those recent advancements were achieved with the benefit of the Rensselaer study, indicating that the steady drumbeat of product announcements will keep sounding for at least the next several years.  Anyone doubting that science will keep pushing the envelope toward LEDs’ theoretical limits will be sorely disappointed.


LED Revolution Rises in the West

— March 17, 2013

The market for light-emitting diodes (LEDs) has reached the turning point from “promising technology” to “practical mainstream solution.”  The replacement of 125-plus years of vacuum tube lighting by LEDs seems as inevitable as the transition from TV tubes to flat screen LED monitors, though it won’t happen nearly as quickly.  But even as we witness this shift, I wonder if we really perceive the revolution taking place.

That revolution was evident at last month’s Strategies in Light conference, in Santa Clara, which focused on LED  technologies and, more specifically, LEDs applied to lighting applications.  Since this year marks the 50th anniversary of the invention of the visible LED, the program included an awards ceremony honoring industry pioneers Nick Holonyak Jr., M. George Craford, Roland Haitz, and Shuji Nakamura.  It was a rare window into history.

The conference also demonstrated that LED lighting R&D activity is overwhelmingly focused on achieving some degree of parity with conventional lighting in terms of light quality and cost, while still delivering on the energy efficiency and long life-cycle potential of LEDs.  Just as anyone seeking “plain white paint” is confronted by thousands of options at their neighborhood paint shop, “white light” is far from a neutral, standard attribute for lighting.  How a given light source’s color temperature maps against the standard Planck curve is just the beginning of a light quality assessment.  The facts are that LED lighting can be made very efficient, have good light quality, last a very long time, and be cost-effective.  But it’s exceedingly rare that all four of these goals are met simultaneously in a given application. Hence there’s much work to be done, justifying the focus on achieving parity and conventional lamp replacement.

Beyond Tubes

Beyond the focus on parity and replacement, however, are opportunities that are potentially much more transformative. Although the transistor radios of my youth seemed a major innovation compared with the vacuum-tube radios of a decade earlier, the real power of transistors came in the form of integrated circuits that unleashed a much larger information and communications revolution.  In a presentation titled “The Next Evolution of Lighting,” Brad Koerner, director of experience design at Philips Lighting, showed how LEDs are ushering in a new paradigm for lighting design, controllability, and occupant experience.  LED lighting form factors that mimic fluorescent tubes might make sense for today’s lamp replacement market, but they’ll probably look silly in retrospect when lighting is integrated into the very surfaces of next-generation buildings.  Today’s lighting programmability essentially means on, off, or dim – but what happens when lighting color temperature is also programmable, allowing sunlight’s subtle differences by time of day, season, or geographic location to be carried indoors to our work and living spaces?

We are only at the cusp of these revolutions today.  In the meantime, all those concerned with smart buildings, from architects to facility managers, should balance their healthy skepticism with a dreamer’s wonder at what may soon be.


Lighting Suppliers Face Contracting Market

— February 12, 2013

Source: WikimediaTwo recent acquisitions by lighting company giants reveal an important trend in the broader lighting industry.  In late November, General Electric acquired Colorado-based Albeo Technologies, a manufacturer of LED lighting with a focus on integrated wireless controls.  In early January, Acuity Brands purchased California-based Adura Technologies, a startup company specializing in wireless lighting control.  As detailed in Pike Research’s 2012 report on Intelligent Lighting Controls, all of the major lighting companies have made one or more acquisitions in the last few years that give them access to new and innovative means of controlling the lighting products that they already offer.

It’s no secret that the rapidly dropping cost of LED lighting is proving to be a major disrupter in the lighting industry.  While actual adoption rates are still modest, the promise of a lamp type that will be more efficient as well as fully dimmable, easily controllable, and mercury-free has resulted in a focus on the technology that far exceeds current sales.  R&D dollars are shifting and product lines are quickly expanding, as no big lighting company can afford to ignore the light source that is broadly acknowledged to represent the future.

The Larger Threat

The acquisition of companies that are focused on controls, however, exposes a larger and much more challenging threat to big lighting companies: the overall pie is shrinking.  As Pike Research forecast in our 2011 report, Energy Efficient Lighting for Commercial Markets (update coming in March 2013), global revenue from the sales of lamps and luminaires in commercial buildings is expected to drop significantly in the coming decade, from a peak $54 billion in 2012 down to $30 billion by 2021.  This decline will be primarily driven by the much longer life of newer fluorescents and LEDs.  While revenue from LED sales will increase, those sales will not even come close to offsetting the inexorable contraction of the market.  So, for big lighting companies, updating their product lines with new LED lights will not be enough.

Seen in this light, the frequent acquisitions over the past couple years of startups that focus on lighting controls is an indicator of a long-term shift in strategy.  General Electric and Acuity have traditionally been known for lamps and luminaires, not for lighting controls.  But these big players can no longer afford to simply maintain their traditional roles in a changing industry.  Expanding to new types of products and revenue streams has become a necessity, and lighting controls are the logical choice.

This promises to be a boon to the wide range of new and innovative methods for controlling lights, from the local strategies of providing just the right amount of light based on current occupancy and daylight levels, to the networked strategies of providing detailed analysis and complex control to building managers in remote offices.  The shift will surely be challenging for the big lighting companies; but it’s an exciting signal for the broader adoption of smart lighting control strategies that can be expected to ensue.


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