How to make LED lighting mainstream: make it a service

LED lighting is still expensive. So what have industries everywhere done to take the cost out of more expensive technologies?: Make it a service.

That’s the idea behind Digital Lumens’ plan to offer LED lighting and energy management as a service rather than an equipment sale. The Boston startup intends to launch its service early next year, Tom Pincince, Digital Lumens’ CEO told us in an interview. The service plan will guarantee that adequate lighting will be around to enable employees to do their work.

“For the most part customers today buy lighting as a capital purchase. In the future we will get to a point where we will manage an intelligent system remotely. You will buy a service around lighting,” Pincince said.

What will allow Digital Lumens to sell its technology as a service is the package of sensors and processors that are built into the wirelessly networked LED fixtures, creating a lighting system that can adjust lighting needs of different locations within, say, a building or factory throughout the day (or night). Lights are dimmed when no one is around or brighten up when shades are drawn around the window, for example.

The company uses LED components from Cree, designs its own lighting system and develops the lighting management software. Its customers are mostly industrial space operators such as warehouses and factories.

The service model is similar to what has become popular in the solar market in which businesses pay monthly fees for using electricity from solar panels on their rooftops that are actually owned by somebody else, be it the company that erected the equipment or an investor who financed the installation. The power purchase agreement, which usually lasts 15-20 years, not only eliminates the need to pay for the big upfront cost, it often comes with performance guarantees and promises of lowered utility bills overall over time.

Where will Digital Lumens turn to for capital to finance installation? Pincince wouldn’t say. Digital Lumens also is looking at partnership opportunities to package LED lighting with solar energy equipment for commercial and industrial customers, Pincince said.

Investors have pumped a lot of money into the LED lighting market, from the development of LED chip technology to the integration of LED fixtures and the software that controls them. A system of conventional lighting fixtures for commercial and industrial space may cost two or three times less, but LED fixtures use energy more efficiently and promise to last longer. That means lower energy bills and the cost of replacing bulbs over the years.

The payback period for an LED lighting system could be under two years, and after that the business should expect energy savings to reach as high as 90 percent, Pincince said. Digital Lumens is able to deliver the 90 percent savings because LED is inherently more energy efficient and because the company’s lighting management software, he added.

Using computers to control lighting and reduce energy use isn’t common. The Electrical Power Research Institute reported that only 7 percent of the U.S. commercial and industrial market have installed lighting control systems of any kind.

The company, founded in 2008, last raised a $10 million round last year from investors such as Black Coral Capital, Flybridge Capital Partners and Stata Venture Partners. Digital Lumens has raised $25 million since its inception.

Digital Lumens customers include Americold, United States Cold Storage and, more recently, Mutual Logistics in France. Digital Lumens is now eying Asia as its next new market. Japan could be a good-size market, particularly given a rise in LED lighting installations in residential and commercial spaces since the nuclear power plant disaster last year, Pincince said.

Digital Lumens’ competitors include Cavet Technologies, Easylite LLC, Fifth Light Technologies and Redwood Lighting.