Japan’s Eco-point Program transforms market for LED lamps (MAGAZINE)

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This article was published in the July/August 2011 issue of LEDs Magazine.

View the Table of Contents and download the PDF file of the complete July/August 2011 issue.

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The superior performance of a new technology is no guarantee of market success. Potential adopters can gain experience with innovative technologies by trying them out first, but after new products pass this initial hurdle they often face an even more nagging barrier – higher cost.

In its recent survey of municipal-lighting asset managers across Canada, for example, the Toronto Atmospheric Fund found that 66% of the respondents were using LED lighting in some way and were well aware of its benefits. However, 86% of the respondents said that the high cost of LED technology is the leading barrier to adoption.

Governments employ a variety of policies to reduce the cost of new technologies to speed their market adoption. Feed-in tariffs jump-started the European market for wind and solar generation technologies. China’s Green Light Program, which began in 1996, provided robust subsidies to accelerate adoption of CFL lamps across the country. Chinese companies now dominate this manufacturing sector globally. Meanwhile, the US DOE’s SSL Manufacturing Roadmap has added a new pathway to the agency’s strategy to accelerate SSL adoption, namely R&D funding that will reduce manufacturing costs while enhancing product quality.

Out of Japan comes another approach that has stimulated rapid market uptake of LED lighting – the Eco-point Program. In April 2009, then Prime Minister Taro Aso of Japan announced a large economic-stimulus package that included the $10.9 billion Eco-point Program to stimulate consumer purchases of energy-efficient air conditioners, refrigerators, and televisions. In addition to stimulating the economy, the program sought to reduce greenhouse-gas emissions and hasten digital broadcasting across Japan.

Here is how the program worked. After purchasing an energy-efficient appliance or TV, a consumer received from the government eco-points worth 5-10% of the value of the purchase – with each eco-point worth ¥1. The consumer then redeemed these points for a variety of 271 so-called green goods and services listed in a catalog sponsored by the government. These ranged from travel to hamburgers. Eco-points could also be redeemed for gift certificates for family and friends. Indeed, 85% of redemptions were eventually gifts.

LED lamps join Eco-point Program

In December 2009, the government added LED lamps to the list of redeemable products. From April 2010 onward, consumers were allowed to exchange their eco-points for LED lamps at twice their value. For example, only 2,000 eco-points (instead of 4,000 previously) were needed to redeem an LED lamp priced at ¥4,000 (around $50).

FIG. 1. Replacing all the incandescent and fluorescent lamps in Japan with LED alternatives could have a significant impact on energy consumption, but would have an upfront cost of ¥15.7 trillion, says the Institute of Energy Economics.

The impact of the program on LED lighting products was profound. According to GfK Marketing Services, Inc., by June 2010 consumer sales of LED lamps had surged to 19% of total light-bulb sales by volume, and 60% by total value. Domestic shipments were expected to reach 20 million units in 2010, despite the cost of products ranging from ¥3,500 to ¥3,800 ($43-47). Meanwhile, the average cost of LED lamps fell by about 25%, the result of increasing economies of scale and intense competition among Japanese manufacturers.

In May 2011, the government reported that a total of 450,000 consumer applications had been processed to redeem eco-points for LED lamps (batteries were also included in this category) worth a total of ¥3.8 billion or $46 million.

The double value of eco-points for LED lamps no doubt attracted consumers to these products. Cultural factors also played a role, however. The Japanese love gadgets and are notorious energy savers. Even electric tea kettles boast energy-saving features! So the novelty of LED lamps held strong appeal.

By April 2011, individuals had submitted 44 million eco-point applications to the government, which were worth ¥621 billion ($7.7 billion) in redeemable eco-points. Despite the popularity of the program, critics maintain it did not save much energy. It’s true that 82% of consumer purchases were for energy-hogging flat-screen TVs. Energy-efficient air conditioners and refrigerators accounted for only 19% of the eligible purchases.

The large proportion of large-screen TV purchases was not a surprise. The government plans to end analog broadcasting by July 2011, and the eco-point program was designed in part to ease consumers into the new system.

The Ministry of Economy, Trade and Industry had been expected to revive the program in the Tohoku and Kanto districts that were hit hardest by the March 2011 tsunami, in order to reduce electricity demand and avoid rolling blackouts in the Tokyo Electric Power Co. service area. But the government finally decided not to reinstate eco-points after determining it would not save enough energy.

Energy-saving potential of LEDs

However, with 7% of its electricity generation now out of commission due to the failure of the Fukushima Dai-ichi nuclear power plant, Japan needs electricity conservation more than ever. A recent report issued by Japan’s Institute of Energy Economics (IEEJ) highlighted the opportunities afforded by LED lighting (see Fig. 1 and Report estimates energy-saving potential of LED lamps in Japan).

Lighting accounts for 16% of Japan’s electricity consumption. According to the IEEJ, if all lighting in Japan were switched to LEDs, Japan’s electricity consumption could be reduced by 9%. The residential sector presents a prime opportunity, where incandescent lamps account for 29% of the lighting load.

The government of Japan is now reportedly drafting comprehensive energy-saving measures to address the electricity crisis caused by failing nuclear plants. By design, eco-points targeted flat-screen TV purchases that eventually increased household electricity use. However, the LED component of the program demonstrated that significant energy savings and rapid market transformation for home-grown technologies could be achieved by significantly lowering the initial cost of products in a way that appealed to the public’s values.

In sum, in a remarkably short period, Japan’s Eco-point Program quickly built market share for LED lamps, while stimulating the economy and boosting Japan’s LED manufacturing sector. Despite its cultural biases, the Eco-point Program could serve as a model for other national governments seeking to rapidly transform their domestic retail markets for LED lighting.