McKinsey was commissioned by Osram, Siemens’ lighting division, to examine the worldwide lighting market and to investigate the adoption patterns of SSL through the year 2020. The McKinsey report can be downloaded from the LEDs Magazine website at www.ledsmagazine.com/news/8/8/5.
The report tracks general lighting, automotive lighting and backlighting as the three largest lighting-market sectors at present, with general lighting (broken down into numerous segments, of which residential is the largest) accounting for about 75% of the total market in 2010. However, the report does not include other lighting applications within this sector, such as signal, signage or medical lighting, which together account for a total market share of under 10%. In addition, the market impact of organic LEDs (OLEDs) on general lighting were not included due to poor visibility into OLED adoption rates.
The global LED lighting market is expected to grow from EUR 7 billion in 2010 to EUR 40 billion in 2016 – a compound annual growth rate (CAGR) of 34%. Subsequently, growth is expected to slow down, with a CAGR of 13% from 2016 to 2020. The LED lighting market will amount to almost EUR 65 billion ($94 billion) by 2020, representing close to 60% of the total lighting market.
The report says that “the significant differences in LED technology versus other lighting technologies will lead to a fundamental disruption of the lighting industry along the entire value chain.” Standard lighting approaches are being challenged by entirely new possibilities enabled by LEDs, such as design flexibility, or the ability to dynamically change the color temperature of light. The controllability of LED-generated light enables intelligent lighting systems, and McKinsey estimates that the revenue from control-system components will reach EUR 7 billion in 2020.
While the rate of LED penetration in residential lighting is slower than in other general-lighting segments, the residential LED lighting market is likely to be worth over EUR 20 billion by 2020. Architectural lighting has been an early adopter of LED lighting due to benefits such as color control, and is expected to see 85% LED penetration by 2020. Rapid growth in LED penetration is also expected in hospitality-, shop- and outdoor-lighting applications. However, the proliferation of cost-competitive linear-fluorescent lamps in office and industrial lighting will mean that penetration of LEDs will be slower in these applications.
Why people buy LED fixtures
In June 2011, McKinsey conducted a global survey of 650 lighting professionals and 1000 consumers to estimate LED market share of lighting fixtures by application, including office, shop, hospitality, residential, industrial, outdoor, and architectural lighting. The lighting professionals included lighting designers, architects and electrical engineers, and participants were from the USA, Germany, Japan, China, Russia, Brazil and India.
The buyers indicated their number-one purchasing criterion when selecting new lighting fixtures in up to three applications (see chart). Quality of light, which includes CRI, color temperature, color consistency and light distribution, ranked the highest for all applications except residential, where it was out-ranked by purchase price. The second-highest concern was lifecycle cost/energy efficiency for all applications except residential.
In the survey, lighting professionals and consumers were also asked to identify a payback period (in years) that would encourage them to choose LED over traditional lighting, by application. The results showed that most people required payback of three years or less. The acceptable payback period for residential lighting had the highest proportion of participants (22%) that expected payback in less than one year.
The acceptable premium that people were willing to pay for a new lighting fixture for the first installation varied on average between 30% above cost (for residential) and 39% (for office lighting). However, the median value was at 20% for all applications except for office lighting, which had a median value of 30%.
General lighting
A key finding of the report is that growth of the general lighting market is highly correlated with local construction investment, so it is no surprise to see that Asia, and China in particular will experience the most-rapid growth. Asia already accounts for around 35% of the general-lighting market, and this figure is set to rise to around 45% by 2020. Europe and North America will follow, with market shares of 25% and 20% respectively.
The report describes the general-lighting market as fragmented, due to the fact that lighting is used in so many different applications, with many types of light sources and many different parties responsible for purchasing decisions. The local landscape of fixture manufacturers depends on the region: there are over 100 fixture companies in Europe, but in the US the fixture market is relatively consolidated with four large companies. In Japan, the top two companies have a large market share, while China has many local companies including OEM suppliers for overseas brands.
The report predicts that the lighting-fixture market will remain fragmented because of the local buying power of governments, construction firms, architects and designers. This is in contrast with globally-consolidated electronics manufacturers.
In Asia, North America and Europe, the current LED share of the general-lighting market is similar, at around 7%, but in each case this is expected to grow to around 70% by 2020. LED penetration will be slightly higher in Europe and North America than in Asia.
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