Oh Santa

12.04.13

Why You Should Give LED Light Bulbs for Christmas. Seriously.

Give the gift of light this year! You may look like a Scrooge at first, but your present will be paying dividends for years to come.

My bright idea for a high-tech gift for this holiday season is actually a 19th century invention: a light bulb.

Most people would regard a light bulb in their stocking with the same enthusiasm with which they’d greet a lump of coal. But they shouldn’t. For this year, when you give the gift of an expensive, highly-efficient, LED, you’ll be bringing light—and an annuity that could pay out a couple hundred dollars of dividends over the next decade.

Much to the chagrin of traditionalists, luddites, and aficionados of wasting energy, the old-fashioned incandescent light bulb is going away. They’re not being banned. Rather, new standards stipulate that bulbs manufactured and sold in the U.S. must meet higher energy efficiency standards. Since the technology behind old-fashioned incandescent can’t really get there, they’re going bye-bye. The phase-out of incandescent light bulbs began with the 75- and 100-watt bulbs. Starting next year, 40- and 60-watt incandescent bulbs will be phased out, too.

Many Americans have been angered by the transition. For the available replacements, while they may be more efficient when it comes to turning energy into light, have been inferior goods. Compact fluorescents take a while to heat up, don’t offer the same light quality, and contain mercury, a highly toxic substance. The next generation, light emitting diodes (LEDS), are extremely expensive and only come in a few shapes and sizes.

Of course, proponents and manufacturers of LEDs say they are worth it. They use much less electricity to generate the same amount of light and last much longer. Sure, they cost ten times as much. But over their lifetime, thanks to lower operating costs, they’ll more than pay back the investments. This is why cities with long-term planners, capital budgets, and the ability to borrow have embarked upon campaigns to install large number of LEDs—i.e. New York City and Los Angeles.

But people don’t think the same way that cities do. We see bulbs as cheap, disposable goods, not as long-term capital assets. When one wears out, you throw it away and replace it with a similar version that costs as little as possible. And even if there were a better technology out there, few of us would take the time and money to remove perfectly good bulbs, destroy them, and replace them with new LEDs. That would require spending hundreds of dollars up front. Worse, the paybacks are embedded in utility bills that don’t break out the savings.

And yet the logic is undeniable. Since March, Cree, the lighting company based in North Carolina, has been selling 40-watt and 60-watt LED bulbs through Home Depot. And this week it introduced a 75-watt bulb.

Cree is primarily a supplier to commercial and industrial users. And consumers account for only about 20 percent of the lighting business. But it has been getting into the consumer space—in part because the company believes that if more people use them at home, they’ll be more likely to use them at work. “It is consumers who really drive opinion and can drive mass adoption,” Mike Watson, vice president of corporate marketing at Cree, told me.

You pay $22 out of pocket for a 75-watt bulb, but you are in effect giving $215.50.

The challenge for Cree is that LEDs are really expensive, compared to traditional bulbs. They’re expensive. A six-pack of the 75-watt bulbs costs $128.82 at Home Depot, or $21.47 each. The less powerful ones are much cheaper. The 40-watt bulb costs $9.97 and the 60-watt bulb retails for $12.97. In some states, including Connecticut, where I live, purchasers get $5 rebates from state energy efficiency programs on the 40- and 60-watt bulbs. So, at the Home Depot in Connecticut, a 40-watt bulb costs $4.97, and a  60-watt bulb costs $6.97.

I’ve tested several of these LED bulbs in my home. You get essentially the same quality and experience as an incandescent—the bulbs look like classic a19 incandescents, light up instantly, and give off the same quality of light.

Since regular, old-fashioned incandescent ones cost about 75 cents each, there is a huge differential in the upfront cost. But think of the money you save. The 75-watt LED uses only 18 percent as much energy as a 75-watt incandescent to produce the same amount of light. Let’s say you use it three hours a day in a state where electricity costs about 14 cents per kilowatt hour. Over the course of a year, the 75-watt incandescent uses 82 kilowatt hours of electricity, costing $11.48. With a 75-watt LED, that same lighting would cost $2.06, for a savings of $9.41 per year. “We don’t market green or clean, and that’s because economically they make sense,” Watson said. “The minute you turn them on, they start saving you money.”

There’s another challenge. One of the selling points of LEDs it that they last a long time—Cree bulbs are supposed to last for 25,000 hours and come with a 10-year warranty.  But few people have had them around long enough to accept this on faith. Consumer Reports last month actually ran one for 25,000 hours straight and it still maintained its brightness. The longer an LED lasts, the more it is used, the more of a moneymaker it becomes. In 25,000 hours a regular 75-watt bulb would use $262.50 of electricity. Over the same period, the $22 75-watt LED would use just $47.25 in electricity. That’s a savings of $215.50.

And yet not many people will go out and make the switch. Our existing bulbs tend to work, and we are not yet conditioned to think of them as capital investments. “This isn’t a disposable commodity,” said Watson. “It is a transferrable asset.” Behavioral economists have taught us that we are often wired to ignore the long-term financial benefits of a transaction in favor of perceived short-term benefits.

That’s why I think LEDs make excellent gifts. For the giver, these bulbs offer a huge amount of leverage. You pay $22 out of pocket for a 75-watt bulb, but you are in effect giving the recipient an annuity that will pay out $215.50 over its lifetime. No savings bond promises that kind of bang for the buck. And even though the recipient might recoil at first, he will come around once you point that they’re getting a household utility and an income stream—all with no upfront cost.