Investment U article ever written.
In retrospect, it was well-deserved. The government was forcing consumers’ hands by phasing out incandescent light bulbs. It did so by introducing the Energy Independence and Security Act of 2007 – which mandated the end of the majority of incandescents between 2012 and 2014.
The only choice to replace incandescents at the time was something called the Compact Florescent Light bulb (CFL). The problem with CFLs is they contain small amounts of mercury – a substance that’s toxic to the environment. If a CFL bulb breaks, there is a 10-step procedure to clean up and dispose of the “hazardous waste.”
When I wrote my article, I focused on energy efficiency… and I minimized the environmental impact of CFLs.
Shame on me.
Now, a mere two years later, technology comes to the rescue. This solution will make CFLs short-lived.
The Wasted Energy Problem
The U.S. and the rest of the world desperately need to cut down on wasted energy. It’s a bigger problem than most people think. Reducing wasted energy is one of the easiest ways to mitigate our insatiable demand for it.
Fully 57% of the energy we start with is wasted. For the electrical power industry, it’s even worse: 69% of the energy used in coal, natural gas and nuclear power generation never does useful work as electricity.
What happens to it? It goes up the stack as heat loss at generating plants. It’s lost in wires on the way to your house. The inefficiency of the appliances in your home eats up some of the power you pay for.
One of the easiest ways to address the problem is to make those power hogs more efficient. One of biggest power users in the home is lighting.
Thanks to new technology… it’s one of the simplest things to fix.
Getting Rid of “Heat” Bulbs
The light bulb market in the U.S. is worth roughly $100 billion a year. Up until a few years ago, the market almost entirely consisted of incandescent screw-in bulbs.
Why get rid of them?
The simple reason is they’re energy hogs. Only 5% to 10% of the energy consumed by incandescents becomes visible light. The rest is heat. Touch a lit-up incandescent and you’ll burn your fingers.
You need only look at any late-night city skyline to see how much lighting our country uses. Since lighting consumes 22% of America’s energy, you can imagine how much is wasted.
Manufacturers responded to the problem with CFLs. While more expensive than incandescents, they use less energy and last longer… but they contain toxic mercury.
LEDs to the Rescue
Light Emitting Diodes (LEDs) have been around since the early days of the transistor. They are “semiconductors,” a term used to describe electronic devices composed of transistors and/or diodes.
First designed in 1962, early LEDs emitted a low-intensity red light. Advances in LED technology have modern versions covering the entire visible light spectrum as well as ultraviolet. TV remote controls, for example, use infrared versions.
Like other areas of semiconductors, LED efficiency and brightness have grown dramatically since the early days. The development of cheap, high-intensity LEDs positioned them as potential replacements for incandescent light bulbs.
How efficient are LED bulbs? An LED bulb that is equivalent to a traditional 60-Watt bulb only consumes 9.5 Watts of actual power. Put another way, LEDs are more than six times as efficient as incandescents and twice as efficient as their mercury-containing CFL predecessors.
The best part? The average expected life of an LED bulb is upward of 50,000 hours. Unlike CFLs, LED bulbs contain no elemental mercury, or any other toxic materials for that matter. They also admit no heat, and most are dimmable.
Also, CFLs can take some time to warm up. But LED bulbs produce all their light the instant you turn them on. They work at low ambient temperatures, a common problem with CFLs.
Until recently, LED bulbs were just too expensive. When they were introduced a few years ago, a 40-Watt equivalent LED bulb was $30. A 60-Watt replacement bulb was closer to $50.
But fast-forward two years and now the 40-Watt equivalent bulbs are $9.99, and the 60-Watt versions are $11.99. They’re available at big-box stores and will soon be found just about everywhere. CFLs are about to be relegated to the “It seemed like a good idea at the time” pile.
If the price seems too high to you, do some simple math. Compared to an incandescent, LED bulbs will pay for themselves in a little over a year of use.
Do you have teenagers or a spouse who constantly leave the lights on? Replace their light bulbs with LEDs. It doesn’t solve the problem, but at least you’ll dramatically reduce your electric bill.
Who Makes LED Bulbs?
General Electric Company (NYSE:GE) and Koninklijke Philips NV (ADR)(NYSE:PHG) are well-known names planning to introduce LED bulbs. Other manufacturers include Osram, Toshiba, Panasonic, and startups such as Renaissance Lighting and Bridgelux.
One company is beating all of the big guys to the mass market. Cree, Inc.(NASDAQ:CREE) develops LED bulbs, LED lighting and other semiconductors for power and radio frequency applications.
Based in Durham, N.C., Cree has introduced affordable LED bulbs for consumers. Home Depot is currently the only store to carry Cree bulbs.
The company itself is doing extremely well. The company announced third-quarter revenues of $348.9 million. This was a 23% increase for the same quarter of 2012.
Net income was $40.8 million, an increase of 75% on a year-over-year basis. Revenue and earnings were quarterly records.
Looking forward to this quarter, Chuck Swoboda, Cree Chairman and CEO, had this to say: “Overall company backlog is ahead of this point last quarter and we are targeting solid growth for Q4. We remain focused on using new product innovation to grow our business and build the Cree brand.”
The bottom line is LED bulbs are now even more cost-effective than before, especially when considering their 50,000-hour average lifetime. Cree has set the price bar for other manufacturers. You can expect Cree and the other companies mentioned above to begin offering additional LED bulbs in the near future.
All the companies mentioned above are worth investing in. However, Cree is the only pure play on LED lighting. An investment in Cree might well fund the purchase of LED bulbs for your house.
David Fessler is the energy and infrastructure expert for Investment U.
He’s a degreed Electrical Engineer and before retiring at the age of 47, David served as Vice-President for Strategic Business at LTX Corporation. He was also Vice-President of Operations, Sales & Marketing for Quality Telecommunications, Inc. and now owns two successful businesses.
His success as an investor spans over 35 years in the energy and technology sectors and David is also a noted specialist in the semiconductor and telecommunications sectors.
Related: Sector Spdr Trust Sbi(NYSEARCA:XLI), PowerShares WilderHill Prog. Ptf. (ETF)(NYSEARCA:PUW), Market Vectors Glbl Alter. Engy ETF Trst(NYSEARCA:GEX)