Big Government (and other good thoughts)

By Ted Konnerth

A couple of weeks ago, I attended an investment forum for solid state lighting in Chicago. The attendees included a broad mix of LED manufacturers, commercial lighting manufacturers, investment firms, trade associations and professional consulting firms. The perspective placed on LED lighting was interesting to me, since the fundamental concept for the forum was 'investment'. The speakers and panel members were for the most part leading companies in the still nascent industry of LED lighting. Several issues struck me as noteworthy:

- Market size. Each speaker referenced the size of the US lighting market and the number ranged from $9.2B to $25B. I've reviewed the latest NEMA report which reports the US lighting market for SIC codes 3646 and 3645 (Commercial lighting fixtures and Residential lighting fixtures, respectively) at a total of $7.5B for 2008. Now granted that NEMA does not have access to every manufacturer or importer of lighting equipment in the US, so their numbers are conservative; but a range of more than 3X is disturbing.

- Energy Planning.  A representative of the State of California (the 8th largest economy in the world) gave an interesting talk about the impacts of clean technology and energy conservation. California enacted strict energy conservation legislation following the original 'gas shortages' in 1974. Since 1974, California's consumption of electricity has remained virtually flat; for 35 years! The US consumption has increased over 50% in that same timeframe.

- Energy requirements.  The projected generation capacity required for the US over the next 10 years is an additional 135,000MW, solely to keep up with demand. Currently there are projected capacity additions that are in approval process to add 77,000MW, leaving a shortfall of 58,000MW to meet demand. 58,000MW is the equivalent of 110 power plants (typically coal or gas). The US would need 1 new plant every month for 10 years to meet that demand.

- Power plant status. The design life of a coal power plant is 30 years. The average age of the US coal power plants is 32 years. It takes on average 12 years to build a gas-fired power plant and 18 years for nuclear... "Clean power" (wind, solar, biomass, etc) is less than 11% of total power generation in the US. Nuclear is 19%.

- Fuel source.  58% of our annual consumption of petroleum is imported. 22% of our natural gas consumption is imported. The US refinery capacity is near saturation.

- Costs for generation. It costs $1200/MW to build wind power generation. It costs $6,000/MW to add solar generation. The costs to California to reduce energy consumption= $6/MW.

We all sit at the forefront of new technologies which can in the long run provide significant benefits to our energy needs; wind and solar power can provide huge benefits in generating energy in an environmentally neutral fashion. But the 'bridge' to clean tech is a very long one, and with the energy demand continuing to grow, two things will happen quickly:

1. Utility demand rate changes.  Utility companies in 4 states have already proposed peak demand rate structures that will have an effective power rate in excess of $1/KWH. This trend will grow rapidly as IOU's struggle to meet energy demands; they will severely impact the expense of consumption during peak generation times (noon to 9pm).

2. Energy conservation measures. Energy conservation represents the fastest and least intrusive 'bridge' to new generation solutions. And this is where 'big government' comes in. Energy conservation is rarely adopted universally unless there are two significant impetuses: financial and regulatory.

The investment forum dedicated most of the agenda to LED lighting technologies, where the pace of advancement is racing forward. LED sources are now exceeding 100 lumens/watt, with a concomitant reduction in cost of 50% over the past two years. At that pace, the arrival of a $10 LED 'light bulb' which will last several years, provide 10 X's the lumen efficiency of incandescent, full dimming and color rendering better than incandescent is on the horizon.

The next 10 years will be filled with promise for any company that builds energy efficient products; controls, automated meter readers, 'smart grid' products, LED's, variable speed drives, solar panels, wind power equipment, transmission cables, transformers, etc. As 'big government' becomes more and more impactful in how we use and control energy the opportunities for emerging technologies will be enormous. The stimulus money for energy reduction is $38B, and is currently being doled out to those companies who can demonstrate energy conservation. If the lighting market is somewhere around $10-12B, a slice of $38B in incentive money ought to have profound impacts.