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Smart Lighting 2012

Nano-455

Published February 2012 NanoMarkets, LC

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Entire contents copyright NanoMarkets, LC. The information contained in this report is based on the best information available to us, but accuracy and completeness cannot be guaranteed. NanoMarkets, LC and its author(s) shall not stand liable for possible errors of fact or judgment. The information in this report is for the exclusive use of representative purchasing companies and may be used only by personnel at the purchasing site per sales agreement terms. Reproduction in whole or in any part is prohibited, except with the express written permission of NanoMarkets, LC.

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Table of Contents
Executive Summary ............................................................................................................... 1 E.1 Opportunities and Strategies for Smart Lighting Systems/Luminaire Manufacturers ...... 1 Page | i
E.1.1 The Shifting Meaning of Smart Lighting .......................................................................................................1 E.1.2 Prospects for Immediate Opportunities: Why It's Time to Treat Smart Lighting Seriously ........................2 E.1.3 How (and Where) New Markets and New Value are Being Created by Smart Lighting ..............................3 E.1.4 Some Risks to Consider for Smart Lighting Manufacturers .........................................................................6 E.1.5 Smart Lighting Systems Marketing Strategies ..............................................................................................7

E.2 The Making of the Smart Lighting Industry: Firms and Sectors to Watch ....................... 9
E.2.1 Smart Lighting Start-Up Strategies ...............................................................................................................9

E.3 Summary of Eight-Year Forecast of Smart Lighting Systems ......................................... 10

Chapter One: Introduction ................................................................................................... 12 1.1 Background to this Report .......................................................................................... 12

1.1.1 Some Embarrassing Questions for Smart Lighting Vendors ......................................................................12 1.1.2 How Smart Lighting Will Overcome the Burden of its History ...................................................................13 1.1.3 Smart Lighting in Search of a Champion ....................................................................................................15

1.2 Objective and Scope of this Report ............................................................................. 16 1.3 Methodology of this Report ........................................................................................ 17 1.4 Plan of this Report ...................................................................................................... 17

Chapter Two: Smart Lighting Systems .................................................................................. 18 2.1 Marketable Features and Functions of Smart Lighting Systems: Now and in the Future ........................................................................................................................................ 18
2.1.1 Energy Efficiency ........................................................................................................................................18 2.1.2 Smart Lighting, Communications and Smart Metering: ZigBee, DALI and Demand Response .................19

2.2 Smart Lighting Software ............................................................................................. 22 2.3 Smart Lighting Device Evolution, Strategies and Companies ....................................... 23
2.3.1 Acuity Brands Controls ...............................................................................................................................24 2.3.2 Adura Systems ...........................................................................................................................................26 2.3.3 Cavet Technologies ....................................................................................................................................26 2.3.4 Daintree Networks .....................................................................................................................................27

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2.3.5 Digital Lumens ............................................................................................................................................27 2.3.6 Easylite .......................................................................................................................................................28 2.3.7 Eaton ..........................................................................................................................................................28 2.3.8 Encelium Technologies/Osram ..................................................................................................................29 2.3.9 Energy Automation Systems (EASI) ............................................................................................................30 2.3.10 Echoflex Solutions ....................................................................................................................................31 2.3.11 Enlighted ..................................................................................................................................................31 2.3.12 ETC/Electronic Theatre Controls ..............................................................................................................32 2.3.13 Fifth Light Technologies ...........................................................................................................................33 2.3.14 GE Total Lighting Control .........................................................................................................................33 2.3.15 Honeywell Lighting Controls and Ex-Or ...................................................................................................34 2.3.16 Hubbell Building Automation ...................................................................................................................35 2.3.17 Leviton .....................................................................................................................................................35 2.3.18 Lumenergi ................................................................................................................................................36 2.3.19 Lumetric ...................................................................................................................................................37 2.3.20 Lutron .......................................................................................................................................................37 2.3.21 OSRAM Lighting Controls .........................................................................................................................38 2.3.22 Philips/Dynalite/Lightolier .......................................................................................................................39 2.3.23 Redwood Systems ....................................................................................................................................40 2.3.24 Schneider Electric .....................................................................................................................................41 2.3.25 Starfield Controls .....................................................................................................................................42 2.3.26 Universal Lighting Technologies/Panasonic .............................................................................................42 2.3.27 WattStopper/Legrand ..............................................................................................................................43

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2.4 Component Level Developments ................................................................................ 43

2.4.1 Smart Lighting Sensors ...............................................................................................................................43 2.4.2 Smart Lighting Chips ..................................................................................................................................45

2.5 Key Points from this Chapter ...................................................................................... 47

Chapter Three: Markets for Smart Lighting .......................................................................... 49 3.1 Key Drivers for Smart Lighting Markets ....................................................................... 49
3.1.1 Energy Efficiency ........................................................................................................................................49 3.1.2 Health and Mood .......................................................................................................................................50

3.2 Addressable Markets for Smart Lighting Systems ........................................................ 51

3.2.1 Commercial and Industrial Markets ...........................................................................................................51 3.2.2 Public and Government Buildings ..............................................................................................................52 3.2.3 Residential Markets ...................................................................................................................................52 3.2.4 Outdoor Lighting ........................................................................................................................................53 3.2.5 Smart Lighting Systems for Automobiles and Other Forms of Transportation ..........................................53

3.3 The Importance of the Retrofit Market for Smart Lighting ........................................... 54

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3.4 United States Markets for Energy Efficient Lighting Systems ....................................... 55
3.4.1 Uncertainties about the Phasing Out of Incandescent Bulbs ....................................................................55 3.4.2 Leadership in Energy and Environmental Design (LEED) ...........................................................................55 3.4.3 Energy Policy Act of 2005...........................................................................................................................55 3.4.4 Energy Independence and Security Act (EISA) of 2007 ..............................................................................56 3.4.5 Other Factors .............................................................................................................................................56

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3.5 Japanese Markets for Energy Efficient Lighting Systems .............................................. 57

3.5.1 Regulatory and Legal Environment ............................................................................................................57

3.6 Chinese Markets for Energy Efficient Lighting Systems ................................................ 58

3.6.1 Impact of Environmental and Energy Legislation and Regulation .............................................................58 3.6.2 Phasing out of Traditional Light Bulbs in China ..........................................................................................59

3.7 Korea Markets for Energy Efficient Lighting Systems ................................................... 59

3.7.1 Energy Legislation and the Phasing out of Traditional Light Bulbs ............................................................60 3.7.2 Impact of Environmental Legislation and Regulation ................................................................................60

3.8 Taiwanese Markets for Energy Efficient Lighting Systems ............................................ 60 3.9 Energy-Efficient Lighting Other Asian Countries .......................................................... 60
3.9.1 India ...........................................................................................................................................................60 3.9.2 Other Nations.............................................................................................................................................61

3.10 European Markets for Energy-Efficient Lighting ......................................................... 61

3.10.1 Rules for Phasing Out Incandescent Bulbs in the EU ...............................................................................62 3.10.2 A Note on the U.K. Markets .....................................................................................................................62

3.11 Key Points from this Chapter .................................................................................... 63

Chapter Four: Eight-Year Forecast of Smart Lighting Systems .............................................. 67 4.1 Methodology of this Forecast ..................................................................................... 67
4.1.1 Definitions ..................................................................................................................................................67 4.1.2 Data Sources and Assumptions about Market Size and Penetration ........................................................68

4.2 Eight-Year Market Forecast of Smart Lighting System Type of End User ....................... 68 4.3 Eight-Year Market Forecast of Smart Lighting System Sensor Modules by End User ..... 69 4.4 Eight-Year Forecast of Smart Lighting System Central Controllers by End User ............. 71 4.5 Summary of Eight-Year Market Forecast of Smart Lighting Systems Revenue by End User and Type of Product ......................................................................................................... 72 4.6 Eight-Year Market Forecast of Smart Lighting Systems Revenues by Generation of System ............................................................................................................................. 73
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Abbreviations and Acronyms Used In this Report ............................................................. 78 About the Author ............................................................................................................. 79

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List of Exhibits
Exhibit E-1: Forecast of Smart Lighting Systems by End User Market ($ Millions) ........ Error! Bookmark not defined. Exhibit 2-1: Lutron Lighting Control Systems ..............................................................................................................38 Exhibit 4-1: Forecast of Lights Controlled by Smart Lighting Systems by End-User Market Type ..............................69 Exhibit 4-2: Forecast of Local Intelligence in Smart Lighting Systems (Sensors and Intelligent Ballast) by End User Type ....................................................................................................................................................................70 Exhibit 4-3: Forecast of Intelligent Switches for Smart Lighting Systems by End User Type ......................................71 Exhibit 4-4: Forecast of Central Controllers for Smart Lighting Systems by End User Type .......................................73 Exhibit 4-5: Forecast of Smart Lighting System Revenues by Product Type and End User ($ Million) .......................74

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Executive Summary
E.1 Opportunities and Strategies for Smart Lighting Systems/Luminaire Manufacturers E.1.1 The Shifting Meaning of Smart Lighting

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The term "smart lighting" is widely used but vague in meaning. This vagueness rests in the word "smart," but as used in "smart lighting" (and in similar phrases) this seems to mean adding a level of functionality to lighting systems in a manner that increases its responsiveness to outside stimuli of various kinds. At the most basic physical level what we are talking about then when we talk about smart lighting is lighting equipped with a range of sensors, control electronics and communications interfaces. The reasons for adding these enhancements are discussed below, but we note here that energy efficiency, enhanced comfort and health are the top reasons currently given for adding "smartness" to lighting. The word "currently" is important here, because the meaning of "smartness" in "smart lighting" is history dependent. Yesterday's smart lightingexemplified by rest-room lighting attached to, and switched on and off by, a motion sensorshould probably no longer be considered smart lighting. At the very least this kind of lighting represents a relatively mature market; not where one would go looking for smart lighting opportunities. These opportunitiesthe focus of this reportbecome available when adding "smarts" to lighting grows addressable markets, distinguishes products in existing markets, or adds value to products in some way. How this occursor, in other words, where the opportunities are likely to be foundwill change in significant ways over the period considered in this report. Other terminology: By way of a footnote to these definitional comments, we note that a great deal of what it is reasonable to call "smart lighting," is now included under the much more mundane terminology "lighting control systems," so that the discussion in this report covers much that might be covered as "control systems" in another report. Again, for the purposes of our analysis here, we are really only interested in the leading edge "lighting control systems." That said, an interesting question whose answer may be suggestive of areas where there are additional opportunities is the relationship between smart lighting and centralized energy management systems of various kinds. Such energy management systems are not in any sense "leading edge." In one form or another they have been around since the 1970s and have been quite common since the 1980s. They are now quite common for controlling HVAC, but they are

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far less common for controlling lighting. Since lighting accounts for a relatively high percentage of energy consumption, this would seem to be a "missed" opportunity. Perhaps new business revenues will be generated by interfacing new smart lighting to this kind of established technology. But there do not seem to be many firms interested in this possibility at the present Page | 2 time. Finally, another term that comes up from time to time, is "intelligent lighting," which (based on how the terms "smart" and "intelligent" tend to be used in the computer community) has more or less the same meaning as "smart lighting." However, we also note that in the recent past and perhaps still to some extent"intelligent lighting" referred to advanced stage lighting for the theater. This is not a topic that is covered at all in this report.
E.1.2 Prospects for Immediate Opportunities: Lighting Seriously Why It's Time to Treat Smart

Some of the above suggests that one might be a little skeptical about the potential for smart lighting. For starters, it suggests that under different names, smart lighting has been around a while and that it doesn't exactly have a glorious past. Perhaps the current interest in smart lighting is no more than bringing up and old idea under a different name? This may, in fact, be the case, but sometimes a reframing of an idea can lead to success in the marketplace. However, there can be no denying that in the past smart lighting-like systems have not had building owners and managers jumping up and down with excitement. Many potential purchasers of such systems have made their economic calculations with regard to lighting control systems and found them not worth the price of entry. Nonetheless, in the past few years there have been important marketplace and (to a lesser extent) technology changes that may have revived the prospects for so-called "smart lighting." It is for these reasons that NanoMarkets believes that a report of this kind is due. The rising price of energy: The most important of these recent changes is the growing perception that energy will continue to rise in pricein real termsfor the foreseeable future. This increases the value of any system that claims to save energy in the eyes of consumers; this includes "smart lighting." As a result, an expanded addressable market has been created for smart lighting systems. It is important to understand this as a long-term trend. Global consumption of energy is increasing because of rapidly growing industrialization in Asia and this is something separate and more powerful than short-term fluctuations caused by world crises and supply chain interruptions.

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For the most part, however, further discussion of this topic lies well beyond the scope of this report. However, it informs most of the discussions and arguments throughout the report. The solid-state lighting (SSL) revolution: The beginnings of a wholesale conversion to more efficient lighting in the form of compact fluorescent lights (CFLs) and light-emitting diodes Page | 3 (LEDs) has begun worldwide. The use of efficient OLED lighting may not be far behind. In much of the world there are mandates requiring the phase out of incandescent bulbs. All this has implications for smart lighting systems manufacturers. This changeover has made the market more open to energy efficiency message: a fact that can be exploited by smart systems manufacturers. But, the energy efficiency that resides in the current thrust of lighting replacement is focused entirely on the "bulbs" themselves, which represent just 20 percent of the total value in a lighting system. Smart lighting systems can reposition much of the rest of the value to be more in tune with the energy efficiency meme. That is, they can make luminaires and electronics "smart," thereby adding value and (perhaps) attracting new customers. It should be noted that the luminaires and electronics account for almost 70 percent of the value of a lighting system. Progress in sensor and microelectronics technology: The progress of Moore's Law and the latest developments in nanomaterials mean that more sophisticated smart lighting systems can be built. This means that while the potential market for smart lighting is currently being expanded, systems can now be manufactured that better meet the needs of the new markets.
E.1.3 How (and Where) New Markets and New Value are Being Created by Smart Lighting

NanoMarkets believes that the opportunities available to manufacturers of smart lighting systems, components and materials can and should be analyzed at three levels, with each part of this analysis including a discussion of how the opportunities are likely to evolve over time. The three levels of the analysis to which we refer are (1) functionality, (2) the physical layer, and (3) end-user segment. All three of these areas are important considerations in all parts of the lighting industry but take on new meaning in the context of "smart lighting." Functionality: Almost all discussions of smart lighting today focus on adding greater energy efficiency to lighting. NanoMarkets concurs that is where almost all the immediate opportunities for smart lighting are likely to appear driven by (1) likely short- and long-term energy cost increase expectations and (2) consumer and government concerns regarding environmental issues.

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While energy efficiency may be the prime functionality required from smart lighting systems today, it is important to remember that it is not the only way that smart lighting can create value. Lighting can be enhanced to provide more convenience, better aesthetics, and improved moodor even improved healthof the people exposed to the lighting. All of these factors could be increased using "smart" lighting technology and we think that such opportunities Page | 4 outside of today's mainstream energy efficiency meme will start to emerge in the next few years. Physical layer: The opportunities in the smart lighting space can also be defined in terms of the physical components/infrastructure associated with the system. Only about one fourth of the value of a lighting system is actually found in the "lamp" itself, with most of the rest coming from the electronics and luminaire. Currently the technology development emphasis in the lighting industry is on lamp replacement, with an efficiency-driven trend towards compact fluorescent lamps and solidstate lighting. Lamp technologyin its current incarnationis inherently "dumb," so the opportunities for smart lighting development reside primarily in the electronics and luminaire sectors. As such, NanoMarkets believes that smart lighting represents an opportunity for luminaire and electronics components firms to capitalize on the latest requirements for energy efficient lighting. It also seems that to the extent that smart lighting is able to catch on it will serve as a driver for the energy-efficient lighting technology business as a whole, so the makers of CFLs, LEDs and OLED lighting have an interest in promoting smart lighting in some way. Their direct participation in smart lighting might also make sense as a way to pump up the value added for "lamp" suppliers, but, of course, only some of these suppliers have the resources to participate in the smart lighting market. Finally, it is possible thatthrough the use of smarter materialsthe LED and OLED industry may be able to participate more directly in the smart lighting business. Of course, all the opportunities set out above are likely to shift over time. For one thing, firms in the luminaire and lighting electronics business will have to shift from a strategic focus on energy efficiency to other kinds of functionality or to certain kinds of aesthetics. There are also, NanoMarkets believes, likely to be more opportunities in the future for networking lighting both as a way of enhancing the cost of managing lighting and as a way of fitting lighting systems more appropriately into the much ballyhooed Internet-of things. More specifically, over time we anticipate there will be opportunities to create communications
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interfaces both for local communications (among local sensors and local sensors and a local control box) and for connections to the Internet. End user segment: Different kinds of end users have different requirements for "smartness" in lighting. Our sense of the market is that the first large segments that will seriously buy into Page | 5 smart lighting will be the commercial and industrial segment and the street lighting segment. This is because in these areas energy efficiency can be easily translated into dollar savings and this in turn creates an immediately realizable opportunity; that is, smart lighting can be shown to be worth or not worth the price of entry. This is less of an issue in some of the other end-user segments in which smart lighting will generate revenues. Thus, in individual residential units, it seems unlikely that energy savings are usually going to be enough to change consumer behavior. So, some of the other factors impact of mood, health, aesthetics or even an ideological propensity towards "green lighting" are likely to play a major role in shaping the residential market. Since NanoMarkets believes that such factorsor at least some of themare likely to become a much bigger part of smart lighting capabilities in the future, this suggests to us that residential markets for smart lighting are likely to evolve after the commercial, residential and street lighting segments have evolved. Something similar can be said about lighting in transportation as well. Here, efficiency may be something worth having. But does it really matter that much in a car or a bus? Again, other factors that coincide with future capabilities of smart lighting are likely to be more powerful adoption factors. Finally, there are large public and government buildings. These would seem to open to the same kind of rational argument involving efficiency as other large buildings whether they are industrial, commercial or residential multi-tenant buildings. However, there is also an added dimension. It is not unusual in the case of such buildings for the owners to make some claim on posterity by including unique architectural features and smart lighting could in some sense facilitate that. Smart lighting could achieve that goal by enabling the building owner or management to claim that the building is especially energy efficient; a selling feature for possible tenants/users. Or moving to the next stage of development of smart lighting, advanced lighting may add mood lighting, or something; which would also be a selling feature.

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E.1.4 Some Risks to Consider for Smart Lighting Manufacturers

Obviously, the smart lighting business is subject to risks, some of which will probably be unexpected. However, a few risks stand out as being something for smart lighting firms to specifically look for. Page | 6 Smart lighting's future may be like its past: As we discuss above, and throughout this report, there are powerful reasons to suppose that smart lighting's time has come round at last. However, one can, of course, never be quite certain of this, and, as discussed above, the history of smart lightingunder different namehas not been one of unqualified success. With this in mind, therefore, one cannot rule out the possibility that another promising way of reducing the cost of energy consumed by lighting systems will not ultimately fail in the marketplace. Perhaps the additional complexities and costs that smart lighting systems will inevitably bring to the market will simply not be enough to convince potential end users of their efficacy. In other words, in a sense, smart lighting may turn out to not be smart enough! But this risk is mitigated somewhat by the fact that more advanced technology should permit smart lighting systems to offer more sophisticated and nuanced responses than older systems. Technology risks: Another "hidden" assumption of this report is that there is not major change in the technology environment in which smart lighting is immersed: One part of this assumption is that computer/semiconductor technology is up to providing the kind of functionality that our analysis suggests will generate most of the revenues that we predict for the smart lighting sector. This seems pretty certain to be the case most of the time. However, there is a lot of technological uncertainty about the Internet-of-things concept that we see as playing a role in the growth of smart lighting There is also the possibility of some major breakthrough that would propel the smart lighting business forward at a much higher rate than suggested in this report. Since high-speed processing doesn't seem to be a major requirement for smart lighting systems, the most likely point where such a breakthrough could occur would be in sensors that would enable smart lighting systems to take on entirely new functionality. One obvious risk is that technological changes occur in the energy industry that significantly reduce the cost of energy; this would reduce the value of any smart lighting system and probably kill off the smart lighting market as a whole. Such developments within the period considered in this report seem highly unlikely however and, again, a detailed discussion of such issues seems well beyond the scope of this report.

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The changeover to CFLs and LEDs is largely occurring as the result of government mandates. It is far from clear how fast these markets would appear without such mandates and the argument of those who favor mandates are precisely that the markets for energy-efficient lighting would grow slowly if action favoring them was not Page | 7 taken by the government; that is, there is claimed to be a market externality. This immediately raises the question of what would happen if the lighting mandates went away or weren't effective and the likelihood of this being the case. We note that there has already been some effective resistance to lighting mandates in the U.S. and we expect that rules will be widely disobeyed in other geographies; so penetration of the lighting place by CFLs and LEDs may proceed at a slower pace than some observers currently expect. This penetration is a necessarybut not sufficientcondition for substantial sales of smart lighting to occur.
E.1.5 Smart Lighting Systems Marketing Strategies

While smart lighting systems can trace their conceptual history back decades, today's systems are obviously a new breed; bringing together the latest sensing, control, communications and illumination technology. NanoMarkets believes that this implies the need for a product/market strategy that focuses on market creation. This is especially important in that building automation in the past has been viewed by users with such skepticism, and this is especially true of residential end users. In other words, the fact that something like "smart lighting" systems existed in the past, might actually be regarded as a disadvantage. This suggests to us that some specific marketing tactics will be required. It also suggests that the smart lighting market is one that is crying out for leadership for a firm that has the resources to create credibility for the current generation of smart lighting. Such a firm would probably have to be a large firm with an established role in the building automationor much betterthe lighting industry. Messaging to end users: The trends toward the spread of CFLs, LEDs and OLEDs and energy conscious lighting sector lie well beyond the control of smart lighting systems makers. However, we believe that these manufacturers can most effectively serve or expand existing addressable markets for smart lighting systems by messaging (1) how their systems can lead to reduced energy costs and (2) work especially effectively with the new lighting technologies. Some of this development work will be aimed at the final consumer and will be designed to overcome reluctance to buy such systems that may have been created by the poor

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performance of the industry in the past and especially by bad experiences that potential end users of smart lighting systems may have had with similar systems. Building an industry: The smart lighting systems business at the present time finds itself in something of a "Wild West" situation and is in need of an industry leader to tame it and give it Page | 8 credibility. This will take one or more firms taking upon themselves the role of sheriff in this Wild West situation for this to happen. The specifics go beyond the scope of this report, but what we are talking about here is firms pushing the concept of smart lighting both to the lighting industry and to the ultimate consumer; in other words, a firm that is willing to create a buzz around the smart lighting concept. Several kinds of firm could play a role here. A pure-play smart lighting firm has a strong incentive to take this path, but they seldom have the financial ability to adopt this strategy. However, this may not be true of all smart lighting start-ups and if the availability of risk capital were to increase during the period under consideration here, this situation may change. Under current circumstances, the "sheriff" that we are calling for here is much more likely to emerge from the ranks of the large lighting firms or the large control/building automation firms. The arrival of a large firm of this sort would go a long way to establish smart lighting as a credible product and not just a fad. There are some signs that this could happen in that several of the lighting firms have smart lighting R&D programs, but there is no company one can point to as an early industry leader as yet. Standards: There are quite a number of efforts directed towards creating standards for solidstate lighting. There are also other relevant standards efforts such as BACnet in the building automation world, and the ZigBee wireless protocol. But in the not-so-distant future these and other protocols will have to be brought together and become more directed towards smart lighting. The key aspect of smart lighting that is likely to be in need of standardizing is local communications so that customers can mix and match central controllers, specialized sensors, dimmers, ballasts and drivers. This is yet another area where a firm that becomes an industry champion can help to shape what happens in the future. NanoMarkets believes that without smart lighting standards, future growth in the smart lighting industry will be seriously impaired. This isonce againbecause of the rather difficult history that lighting automation has exhibited. Among other factors that future smart lighting

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standards seem to imply for customers are (1) the ability to mix and match products from different smart lighting system manufacturers and also (2) a sense that the system being acquired is to some extent future proof. Until standards of the sort mentioned above are mature, customers are most likely to buy Page | 9 everything in their smart lighting system from one vendor. Where this happens it is good news for the supplier chosen, but in many cases we expect that potential customers will be put off buying any smart lighting systems.
E.2 The Making of the Smart Lighting Industry: Firms and Sectors to Watch

The smart lighting sector cannot yet be said to have evolved into an industry. However, at the present time, it can reasonably be said to have four segments: traditional building automation manufacturers, traditional lighting manufacturers, chip makers and start-ups. The traditional building automation firms are long-established automation firms that can incorporate lighting into their general scheme of things. These firms include Johnson Controls, Honeywell and Trane. None of these firms have been especially proactive in smart lighting, but they obviously all have the capability to be the industry champion that we talked about previously. Both Johnson Controls and Trane have been expanding into new markets in the recent past. As to the large lighting manufacturersPhilips, GE, Osram, etc.these firms would be even better positioned to promote smart lighting as a "champion. However, for the time being these firms seem more interested in development issues around smart lighting rather than promoting the concept more generally. This is also true of the chip makers, but we note again that given the huge number of devices that could be demanded if smart lighting really takes off, this sector should be of considerable interest to traditional manufacturers of analog control chips and communications interface chips; especially the makers of Wi-Fi and ZigBee chips.
E.2.1 Smart Lighting Start-Up Strategies

The big question mark is really over the start-ups. There are now about 20 small lighting control systems firms out there with some reasonably well funded. These include Adura Systems, Cavet Technologies, Daintree Networks, Easylite, Ecoflex Solutions, Energy Automation Systems (EASI), Enlighted, Fifth Light Technologies, Lumenergi, Lutron, Redwood Systems, Starfield Controls and Universal Lighting Technologies. This is unlikely to be a complete list.

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All of these firms offer similar products and it is far from clear how they will all compete and whether there will be sufficient market demand to keep all these firms going. A review of these firms' strategies suggest that they hope to thriveor at least survivein the marketplace through design and other strategies that include: Superior user interface including Web-based control. The problem with this strategy is that it is easily copied. More generally, there is clearly competitive advantage in making the system easy to use and install, with at least one vendor promoting its system as plug and play. Advanced communications interfaces. Who will be first to integrate its smart lighting system with Smart Grid/smart metering solutions and with the Internet-of things and will potential customers care? Number of lights that can be controlled. This obviously translates into which markets can be addressed. Not all systems will be able to control all the lights in a large commercial building. Value added features such as "daylight harvesting," where ambient light is sensed throughout the day and the lighting is then raised or dimmed to a preset level. Another possible feature is to provide separate control to different zones in the building or even control of individual lighting fixtures. Combine product with some kind of energy management/billing analysis service. The service aspect of the marketing strategy of a smart lighting manufacturer may well include installation or systems integration of some kind. Page | 10

In addition to these specific factors, obviously all systems compete on generic economic factors; price and ROI. Based on what these firms have said so far, 18 months to two years is about the current ROI, which seems reasonable enough. NanoMarkets is, however, concerned that there is really not yet enough to distinguish these firms in a way that will be truly meaningful to customers. In other technology markets this has tended to lead to firms having to fall back on hype in promoting their products.
E.3 Summary of Eight-Year Forecast of Smart Lighting Systems

Exhibit E-1 summarizes our forecasts of smart lighting systems by end user market. These forecasts are taken from Chapter Four of this report, which shows how they are derived.

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Forecast of Smart Lighting Systems by End User Market

10,000 9,000 8,000 7,000 $ Millions 6,000 5,000 4,000 3,000 2,000 1,000 0 2012 2013 2014 2015 2016 2017 2018 2019 NanoMarkets, LC Residential buildings Government and public buildings Commercial and industrial buildings Streetlights and other outdoor

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Total Smart Lighting System Revenues

10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2012 NanoMarkets, LC 2013 2014 2015 2016 2017 2018 2019

To obtain a full copy of this report please contact NanoMarkets at sales@nanomarket.net or via telephone at (804) 938-0030 or visit us at www.nanomarkets.net.

$ Millions

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Chapter One: Introduction

1.1 Background to this Report

The "smart lighting" concept means different things to different people, but distilling its Page | 12 essence, what seems to be intended is lighting with an additional layer of intelligence that provides enhanced functionality; creating opportunities over and above the simple provision of light where it is needed: Smart lighting systems today, generally consist of sensors located at light fixtures, which are networked back to a central controller. They distinguish themselves in the marketplace by the nature of the sensor, how the networking is provided and the degree to which they provide management information. For the immediate future, smart lighting opportunities are strongly focused on improving energy efficiency, but NanoMarkets believes that the addressable markets for smart lighting will expand to include environments where the benefits being sold will include improved aesthetics, comfort and even improved health.
1.1.1 Some Embarrassing Questions for Smart Lighting Vendors

All of the above hints that a lot of money is going to be made in the smart lighting space and NanoMarkets believes that this will ultimately be the case. Nonetheless, NanoMarkets notes that manufacturers of smart lighting systems mustas part of their business caseanswer some questions about what is new and different about their systems: Although presented as something new under the sun, smart lighting is clearly related to the residential and commercial building automation systems that have been touted by various firms since the oil crisis of the 1970s. These systems cannot be said to have been abject failures; they are certainly used in commercial and industrial buildings to some extent. But building automation is not the huge industry it was supposed to be. And for one reason or another, building automation systems have not often been used to control lighting systems. They are more likely to control HVAC. This raises the issue of whether there is now enough incentive for automated lighting systems to be widely used and what that incentive is. What do today's smart lighting systems have that the old building automation systems lacked?

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One can also see something of the smart lighting system concept in the simple sensor that switches on and off lights in rooms. These are especially common in rest rooms in relatively low occupancy buildings where these rest rooms are not used all the frequently. These systems are clearly useful, but can hardly be considered an opportunity. There do not seem to be large addressable markets for this kind of simple Page | 13 sensor plus light system that remain untapped. But given that, does the market need a more complex system, such as implied by the smart lighting concept?
1.1.2 How Smart Lighting Will Overcome the Burden of its History

We think that there are several key trends that change the economics of smart lighting in ways that get over the issues raised above. Rising cost of energy: NanoMarkets believes that the rapid industrialization of China and India will push up the real cost of energy dramatically in the next decade. In addition, current monetary policies in major countries suggest energy prices in money terms will be subject to general inflation. These trends are likely to increase the value of any energy savings systems and create a growing need by lighting consumers of all kinds to find cost efficient ways of cutting down on their lighting bills. If smart lighting can be shown to be one of these ways, then the rising cost of energy in real terms will be good news for the lighting community. Automation of lighting that could not be cost justified in the past may now make economic sense. The question that still needs to be answered, however, is whether the customer will see the savings produced by the smart lighting system as worth it, given the system's upfront costs. This is hard to determine at this point; in financial terms we don't really know what discount rate customers (especially residential customers) will apply to future benefits from smart lighting systems. New lighting technology: Lighting is currently undergoing a transition from the incandescent bulbs and fluorescent lighting that has been around for decades to more energy efficient lighting. Most visibly, we are seeing this in the change from incandescent lights to compact fluorescent lights and the steady emergence of solid-state lighting. SSL is already appearing in the form of LED lighting and has been recognized as a major opportunity by all the leading lighting industry players. And beyond the LED, lies even more potential in the form of OLEDs. The trend towards energy efficient lighting has two major implications for the smart lighting market. On the demand side, it creates a marketing environment in which energy efficient

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lighting is highlighted, so the smart lighting seems more of a no-brainer than it did say, five years ago. On the supply side, the 75 percent of the lighting market that is not made up of bulbs and tubesthe part made up of luminaires and electronicshas a strong incentive to go with the flow and embody "smartness" itself. This changed environment is one reason why the market may well be finally able to embrace smart lighting, while it was not necessarily so Page | 14 enthusiastic about smart lighting's ancestors. Government mandates, subsidies and cultural influences: Any discussion of the evolution towards energy efficient lighting systems cannot be divorced from government policies favoring energy efficiency in general and lighting efficiency in particular. As far as the latter is concerned the main impact comes from the implementation of policies around the world to replace incandescent bulbs with CFLs and LEDs. Also of some importancealthough considerably less importance than incandescent bulb mandatesare other government policies designed to favor energy efficiency and environmentalism more generally. For example, many governments around the world are funding smart electricity grids and some of the smart lighting systems of the not-too-distant future may derive many of their benefits by plugging into these Smart Grids. Beyond these specific government policies is a culture that is more concerned with waste and environmental issues and which bred some of the policies outlined above. This is all quite friendly to the future of smart lighting. However, all this needs to be balanced against the fact that in the current worldwide economic environment, environmental concerns are not always the primary focus of energy, employment or industrial policy. Ongoing development of electronics and sensor technology: A number of ongoing technological developments seem to have important consequence for the future of smart lighting. Moore's Law ensures that tomorrow's smart lighting systems will have more functionality than today's system, or yesterday's. Similarly, developments in sensor technologyespecially those related to nanotechnology have similar consequences for smart lighting systems. NanoMarkets' view on the market is that this means in the future smart lighting systems will bring with them a lot more functionality designed to address broader addressable markets. The situation is reminiscent of what happened to business telephone systems in the 1980s, when microelectronics technology evolved to a point that old key systems could be replaced with electronic small business telephone systems. Suddenly, it was possible to supply small business

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customersand eventually residential customerswith PBX-like features. And it seemed, these new customers were willing to pay for these new features. Could something like this happen in the smart lighting sector? And will this added functionality take smart lighting systems beyond being machines for producing higher levels of energy Page | 15 efficiency to ones that provide enhanced mood and healthier lighting? The answers to these questions seem most likely to be, "Yes." But, it may also be worth bearing in mind that the small business "revolution" eventually delivered overkill, with so many features that it was difficult for consumers to differentiate one from the other.
1.1.3 Smart Lighting in Search of a Champion

What the previous section indicates is that smart lighting can no longer be viewed as just an extension of early technology and product developments and that addressable markets for this type of technology have expanded. However, NanoMarkets believes that for the smart lighting business to evolve to full bloom, the nascent smart lighting industry will need a champion of some kind; a firm who makes it its business to create an industry by effectively messaging the smart lighting story to both building owners and managers (end users) and the lighting and building automation industries as well. The most effective champion of this kind would be a large lighting or control/automation firm who could not only promote the smart lighting industry, but also add credibility and make it seem like it is not just another fad. So far no such firm is clearly identifiable although there are plenty of hints that some of the majors in the lighting space are beginning to be interested in smart lighting. There are also more than just a handful of smaller firms that usually bill themselves as selling advanced lighting control systems. These firms could certainly also take the initiative to build the smart lighting industry, but generally lack the financial and business development tools to accomplish this task. In addition, their brand names are seldom powerful enough to effectively generate credibility for smart lighting in the way that (say) a Philips or Honeywell could. NanoMarkets believes that the smart lighting opportunity, although not much discussed at the present time could ultimately lead to significant revenues for manufacturing of lighting fixtures and sensing and control equipment; perhaps even for firms that make the lights themselves. The fundamental difference between conventional lighting systems and smart lighting systems also suggests new supply channels and a careful attention to pricing strategies. None of these aspects of smart lighting, it seems, have been well thought through as yet.

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Beyond the lighting community proper, chip makers see in smart lighting a potentially high volume market for control, sensing and wireless interface chips; exactly the kind of market that they actively seek to build substantial businesses from. This is all exciting news andnot unsurprisinglyconsiderable attention has been paid to smart lighting by industry journalists and pundits. It is, however, high time to think through smart lighting opportunities from a Page | 16 strategic perspective.
1.2 Objective and Scope of this Report

The objective of this report is to identify and quantify the opportunities for smart lighting systems over the next eight years. With this in mind, the focus of the analysis in this report is on such opportunities rather than on markets that might be considered to be part of "smart lighting" but which are largely mature or about to be superseded technologically. This would include, for example, room lighting attached to a simple motion sensor, or the niche market for "home controllers;" which blossomed for a while in the 1980s, but never quite took off. Such markets may actually be larger than the markets that we actually do consider in this report. But they are not really "opportunities" in the sense of being a source of significant profits at the present time. Instead, most of the focus of this report is on where we think such profits might be made. In the immediate future, this would seem to be in providing better control over the energy efficiency of lighting systems and we investigate this opportunity in depth throughout this report including the likelihood that smart lighting control systems will become increasingly networked. However, as we indicate throughout this report, the smart lighting opportunity goes well beyond the energy efficiency issue to encompass other traditional functions of lighting including mood, health and convenience. As we also stress throughout this report, the smart lighting opportunity is primarily available to electronics firms (including chip makers) and luminaire makers, and with this in mind, we do not focus to the same degree on the makers of LEDs and other energy efficient lamps, although they certainly have a role to play in the smart lighting story. In addition to a broad coverage of technologies and functionality related to smart lighting, this report also covers all the major end-user segments of the market. We take these to be commercial and industrial, residential, government and public buildings. We have also discussed the available markets for smart lighting in transportation and given special attention to the market for smart lighting systems that control outdoor lighting.

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Finally, this reportand the forecasts in Chapter Fouris intended to be international in scope, although we do comment at various points in the report on which countries and regions are most likely to be open to the penetration of smart lighting technology.
1.3 Methodology of this Report

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The methodology used in this report is discussed more fully in Chapter Four. However, it follows the general approach that NanoMarkets has used in most of its other published reports. More specifically, we have synthesized data from a wide variety of sources to paint a picture of what is going on in the smart lighting industry and have then identified and analyzed the trends in the industry with the goal of showing where the main opportunities going forward will be found. The information for this report has come from a wide variety of sources including other NanoMarkets reports that cover related areas such as OLED lighting and photovoltaics. In addition, we have based our opinions expressed in this report on discussions with firms that produce lighting and related control systems.
1.4 Plan of this Report

Chapter Two of this report is focused on providing an assessment of the technology associated with smart lighting and a forecast of how it is likely to evolve. This includes a discussion of what is currently on offer and is planned by innovative lighting control companies along with the R&D activities of the leading lighting companies and research centers. Chapter Three of the report deals with the markets that smart lighting systems will be sold into and the functionality that will enable this penetration to take place. Both near-term and longterm considerations are given attention here. Thus, much of the chapter deals with smart lighting from the short-term perspective, which is to say energy efficiency in large buildings; the buildings where the advantages of such energy efficiency can be quantified. However, this chapter also takes a look at emerging characteristics of smart lighting (smart mood lighting, for example) and future markets (notably residential markets). Finally, in Chapter Four, we have made numerical projections of the smart lighting market based on the size of underlying addressable markets and NanoMarkets' expectations of penetration. These forecasts cover both systems markets and components and both volume and value projections are included in the Chapter.

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