The Most Important Light Bulb Deal in the World
Slate, March 18, 2016. Image credit: David Mellis
Today, the worm has turned. With production levels increasing, the per-unit cost of LEDs has fallen sharply. (You can get a decent GE LED for about $6 at retail.) Higher efficiency standards have pushed incandescents out of the mix to a large degree. And most significantly, companies like GE have developed new business models that enable large clients to get access to money- and energy-saving LEDs without laying out a ton of cash up front. That has turned LEDs from an experimental, above-market curiosity into a no-brainer.
The economics of operating LEDs may be obvious. They use up to 80 percent less power than incandescents to produce the same amount of light. Irick argues now that for homeowners, the payback of the upfront investment to switch to LEDS—a house with 40 bulbs, paying $200 for new bulbs—will save $280 per year. “The simple payback is less than 10 months,” he said. For companies, which buy in bulk, the payback period can be shorter.
In theory, companies should be able to manage their own light bulb replacement. But Irick notes there are three barriers to the adoption of LEDs. The first is general education and awareness of how they work and what the savings can be. Companies get that relatively quickly. And GE can make very specific promises on the amount of energy to be used in lighting, given the number of hours the bulbs are on.
The second barrier—“the capital barrier,” as Irick call it—is more difficult to surmount. The economics of buying and installing them can be a challenge to corporate bureaucrats. Companies often produce multiyear budgets well in advance. Going LED means spending a lot of money in a single year to buy and install them, make sure they work, and dispose of the old ones. And it is difficult even for a company like Chase to make a decision quickly to write a check to buy 1.4 million new light bulbs and pay for their installation. GE, of course, has a long track record of helping to finance customers’ purchases of its capital goods, structuring payments over a period of years rather than upfront.
The third barrier is execution. Aside from selling the lights, GE manages the process of installation and disposal across a very large physical footprint. All JPMorgan Chase has to do is write some checks and watch the savings mount.