Utility Rebates Helping Lower Cost Barriers to LED Bulb Adoption

Top-tier LED bulb suppliers are exploiting energy rebates from local utilities to overcome retail price barriers as they try to win consumer loyalty after the final phase of the transition to energy-efficient bulbs took effect Jan. 1 under the Energy Independence and Security Act (EISA) of 2007. Executives from Cree and Philips told us that rebates offered at retailers by select utilities have brought prices down to under $5 in some cases. Rebates vary widely by geography, however, with California and the Northeast having some of the more progressive utilities, they said.

But price isn’t the only barrier to consumer adoption, bulb makers told us. Since the early days of compact fluorescent bulbs (CFL), consumers have been wary of energy-efficient bulbs, associating them with a cool light sometimes perceived as harsh. Mercury was also a deal-killer for many consumers with CFLs, from concerns over broken bulbs to recycling.

More recently, quality has become a top concern, as a federal court decision proved earlier this year (CED Feb 21 p12), when the U.S. District Court in Santa Ana, Calif. ordered bulb maker Lights of America to pay $21 million for false claims of life expectancy and light output with its LED bulbs. Consumer complaints about Lights of America LED bulbs at Amazon are related to quality and lifespan. One consumer said three of six bulbs purchased failed within six months, and another complained of eight bulbs not working and another 13 whose bulbs fell out of the fixture. Those aren’t the kind of technology associations companies want to have as they bring new light bulbs to market.

Cree jumped into the consumer market in a big way with $10 LED bulbs last year and makes the EcoSmart lighting line sold at Home Depot. Mike Watson, vice president-product strategy, told us Cree is concerned about “subpar” or “compromised” products within the energy-efficient lighting category altogether. He cited poor industry execution when CFLs first launched that created a bad impression in the minds of consumers for all energy-efficient lighting to this day, said Watson. Early CFLs that didn’t dim, turned on slowly, flickered, contained environmentally unfriendly mercury and “produced crappy light” were examples of compromise “in every possible way,” Watson said. “That has caused a problem for LED even before LED was an option,” he said.

Cree’s decision to bring out a $9.97 bulb last spring was a way to get consumers to try LED lights, Watson said. The $10 price point is a “magical number at retail where consumers will try” something new, he said. “If you want to break the barriers to adoption the ultimate way is to get consumers to try something for the first time,” he said. The hope was that consumers would experience a color temperature similar to what they were used to and they would realize energy savings on their utility bill.

But $10 for one bulb is significantly more than the price of incandescents, which are selling for under a buck each at Amazon. Rebates from utilities looking to reduce drain on the power grid are key to faster adoption of LED, bulb makers said. Cree CEO Charles Swoboda said on the company’s most recent earnings call that less than half of Home Depot stores are offering rebates for energy-efficient bulbs. Each utility has different priorities, he said, and Cree is “constantly working with them” to put rebate programs in place. Even then, programs are only temporary, with some lasting two or four weeks and some longer.

Philips has a goal to keep advancing LED lighting technology to meet consumers’ lighting needs at the lowest price possible, Peter Soares, director-consumer channel marketing at Philips Lighting, told us. The company’s first 60-watt LED bulb launched at $39.95 two years ago, and even at that price point neither the manufacturer nor retailer was “raking in the margin,” he said. Every six months Philips “took cost out of products” through economies of scale, he said. The current version of the 60-watt equivalent bulb sells for between $14.97 and $17.97, he said. A utility rebate in Vermont brings the price to $4.97 on the low end, he said.

Philips launched a more affordable series earlier this month on a “completely different platform” in 75-watt and 100-watt-equivalent ratings. Utility rebates can take those retail prices to $9.97 and $14.97, Soares said.

As LED bulb lines expand, lighting companies will take out features that not everyone needs or wants to reach a price, Soares said. Full dimming is an example of a feature that adds cost but is not something everyone needs, he said. A $10 bulb may offer dimmability and “maybe there’s a $7 price point in the future that’s not dimming because some people don’t need that feature,” he said.

Energy Star certification is another area offering differentiation options. Philips is building bulbs to Energy Star specifications for select bulbs, with more than 90 models currently Energy Star-qualified, the company said. The lower-cost bulbs are expected to receive Energy Star certification by May, a spokeswoman said, when “you'll start to see interesting price points” as Philips hopes to spur customers to buy more than one at a time. The newer slim bulb design eliminates the heat sink “that’s a telltale sign of an LED bulb,” the spokeswoman said. Cutting out the heat sink reduces cost and allows for more appealing form factors, she said. The company has moved away from high-power LEDs that generate a lot of heat to mid-power ones that have less heat to contend with, she said.

Cree’s Watson cited the “rigorous process” required to get Energy Star certification, which most utilities require for a bulb to be part of a rebate program. Cree met the Energy Star certification process three months ago for its 40- and 60-watt bulbs and its BR can lights, Watson said. Cree’s rebates range between $3 and $5, he said. In the Washington, D.C., and other areas, “you can get a 60-watt Cree LED bulb for under $5,” he said. Rebates are applied directly at the retail store without the need for consumer action, he said.

According to Philips, roughly 90 million 75-watt incandescent light bulbs are sold annually, while the 100-watt incandescent accounts for nearly 25 percent of the 4.4 billion sockets found in the U.S. Switching to LED replacements could reduce electricity use by more than 86 million megawatts per year, the company said. Potential cost savings could be as high as $8.5 billion, it said.