LED Lighting Prices May Drop 90% As Competition Grows to Meet Demand

Silicon Valley investor VantagePoint Capital Partners, the firm responsible for bringing Tesla Motors (NASDAQ:TSLA) public last year, is expecting prices for light-emitting diodes, or LEDs, to plummet over the next three years as competition crops up to get in on the increasing demand for the energy-efficient lighting.

VantagePoint CEO Alan Salzman expects prices to fall 90% by 2015. LED demand grows as incandescent lighting is phased out in Europe, and U.S. efficiency policies will eliminate the 100-watt bulb in 2012. According to Salzman, “We’re just at the beginning of the LED phase.”

VantagePoint stands to make out as demand for LEDs increases, even if prices fall and competition increases. The firm currently has $750 million invested in 32 clean technology companies, four of which produce LED products: Switch Bulb Co., Bridgelux Inc., Huga Optotech Inc. (TPO:8199), and Glo AB.

There are currently very few producers of LEDs, the technology isn’t far advanced, and LEDs are not widely used as a general lighting source, making up less than 1% of the market. However, Salzman says that within the next five years, LEDs could account for 50% of the lighting market. While some analysts disagree with Salzman’s relatively short time frame, they agree that the LED boom will happen as other lighting falls out of use because of inefficiency.

A basic LED bulb should save the average consumer about $7 a year in energy costs when compared to a incandescent bulbs, and unlike incandescent bulbs, LEDs should last for about 30 years, a fact that is currently reflected in their relatively higher price. But Salzman is already predicting LED prices will drop 75% by the end of 2012, and 90% by 2015.

The global lighting product market currently takes in somewhere between $40 and $80 billion a year. In 2010, there were an estimated 2.7 billion type-A bulbs installed in the U.S., with only 240,000 of those being LEDs.

According to Switch Bulb, a company backed by VantagePoint, its LEDs use 85% less electricity than incandescent bulbs. The company plans to start selling LEDs to replace conventional 40, 60, 75, and 100-watt bulbs for $20-30 a piece. Bridgelux, also backed by VantagePoint, hopes to reduce the cost of producing LEDs by 75% with a new manufacturing process.

VantagePoint is known for their investments in energy. Most recently, solar-thermal technology developer BrightSource Energy Inc. registered with the SEC for an initial public offering of $250 million. Huga Optotech makes wafers and chips used in LED lighting, and Lund uses nanotechnology in its LED chips.

LED stocks to watch: Cree Inc. (NASDAQ:CREE), Veeco Instruments Inc. (NASDAQ:VECO), Aixtron AG (NASDAQ:AIXG), Koninklijke Philips Electronics NV (NYSE:PHG), and Rubicon Technology (NASDAQ:RBCN).

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