Laying the Foundation
A combination of unexpected events and prior planning sent the CFL market soaring in 2001.
It has been 23 years since the compact fluorescent lamp (CFL) was first introduced. Over its first two decades of sales, the CFL made only modest incursions into the residential marketplace thoroughly dominated by a century-old lamp design—the incandescent bulb. Then, in 2001, the market share gains for CFLs outpaced all of the gains achieved in the first 260 months of the products’ existence. National sales of CFLs grew from 0.5% share in mid-2000 to 1.6% share in mid-2001, reaching 2.1% by the fourth quarter of 2001. In this same year, California sales absolutely soared, reaching a peak of 8.5% in the second quarter and stabilizing at between 5% and 6% in the third and fourth quarters of 2001 (see Figure 1).What happened?
The events of 2001 built on the foundations laid by energy efficiency programs in previous years.And on top of this groundwork, a number of extraordinary factors came into play in 2001, particularly in California.Any one or two of them alone might have led to a banner year of sales, but together they created something of a “perfect storm”—a confluence of factors at the right time and place to drive an unprecedented market outcome.
Between 1997 and 1999, a number of things occurred that planted the seeds for dramatic future growth of efficient lighting sales. First, the EPA launched an Energy Star labeling program for residential light fixtures, and later an Energy Star labeling program for screwbased CFLs as well. During this same period, Pacific Northwest National Laboratories (PNNL) accelerated sales of high-quality subcompact (approximately incandescent-sized) CFLs through a targeted procurement and testing effort.
In California, starting in 1999, a utility- led effort, the California Residential Lighting and Appliance Program (CRLAP) undertook a broad, sustained initiative to build a conscious market preference for Energy Star-labeled bulbs, torchieres, and hard-wired fixtures.This included
• a decisive shift from bill stuffers and utility-driven advertising to in-store advertising materials and events, including point-of-purchase banners and shelf-mounted signage, frequent sidewalk sales, and heavily publicized torchiere turn-in events;
• a massive statewide effort to build retailer infrastructure for marketing the products, including professional training of sales representatives and regular visits by field staff to each store to display merchandise attractively, tabulate inventory levels, and maintain point-of-purchase displays; and
• significant investments of incentive dollars into competitively allocated manufacturer buydowns, which maximized price leverage per dollar invested. More importantly, this investment greatly amplified competition among manufacturers. Those who successfully moved their initial allocations of incentive dollars through retail channels by the program deadline could obtain additional allocations from their less successful competitors.This gave upstart manufacturers a foot in the door when competing for retail distribution space with larger,well-established competitors.
Collectively, these program elements helped accomplish something previous California utility programs had not:They built a truly competitive marketplace in efficient lighting. Suddenly, energy-efficient lighting became an important enough revenue source to Home Depot, Lowe’s, Home Base,Orchard Supply, and other retailers to cause them to invest their own promotional resources (such as discounts and advertising) to grab market share from their competitors. More importantly, however, the ongoing investment by California throughout the 1990s and 2000 was quietly building an efficiency infrastructure that would pay enormous dividends in 2001, when unprecedented changes in the energy landscape would drive consumers to stores in record numbers to purchase energy-efficient products.
The 2001 Experience
Even allowing for sharp declines in the average selling price of CFLs, CFLs outsold incandescent bulbs on a dollar basis in California for the full year 2001. Here are some of the factors that contributed to this increase in sales.
Episodic power shortages, rolling blackouts, and the fear that they would become more frequent and last longer. As reserve margins of electricity supply became tight in California, utilities and regulators switched from a market transformation mode to a resource acquisition mode. Instead of steadily decreasing incentives and relying primarily on marketing and education to drive sales, the utilities offered rebates that nearly equaled the purchase price of a CFL.The rebate amounts were not particularly high by historical standards. PG&E, for example, offered rebates of $3 per bulb compared to rebates of $4 to $7 per bulb in the early 1990s, yet achieved CFL sales of approximately 7 million units in 2001— a massive increase compared to year 2000 volumes.
Rebates alone could not drive a stampede of purchases. Retail sales staffs were already very familiar with the benefits of CFLs; branding and consumer education messages were firmly in place; and retailers had already established longstanding relationships with numerous competitors.All this made possible the large orders that would follow.
Public awareness messages broadcast by state and city government officials and utilities. These messages urged customers to conserve, specifically by purchasing and using CFLs.The state’s Flex Your Power campaign, with initial funding of $20 million and later budget additions,was able to promote simple energy efficiency messages very widely in the state.
Massive direct purchases by state and local governments. The California legislature mobilized $20 million of emergency funding for the California Conservation Corps (CCC) to purchase and distribute free CFLs to nearly half a million low-income households.
Rising electricity rates, especially for usage above baseline amounts. While baseline electric rates held steady, Californians saw very steep increases in their incremental rate for consumption above baseline.
Unprecedented competition among manufacturers and retailers. This competition resulted in substantial internal discounting (manufacturers and retailers accepting lower gross margins than they typically would for CFLs). It created a “virtuous cycle” in which price cuts drove greater sales, increasing economies of scale in manufacturing and making possible even lower prices on subsequent orders.
The imposition of steep tariffs on Asian manufacturers.Tariffs of up to 75% were set by the European Union in response to charges of dumping (belowcost selling).This caused numerous lowcost suppliers from Asia to shift the focus of their marketing efforts to North America, greatly increasing the available supply of products and driving additional price competition.This increase in manufacturers is perhaps most evident in the Energy Star CFL program data.At the beginning of 2001, the program included 17 manufacturers offering 161 qualifying products. By the end of the year, that list had grown to include 94 manufacturers and 455 qualifying products.
A number of market changes have occurred that are likely to persist even after utility rebate levels and promotional efforts drop off. Unprecedented competition has fueled a wave of product innovation and aggressive pricing that will make CFLs affordable and potentially attractive to most purchasers from now on. Stores like Home Depot, Ikea, Costco, and Kmart have made inexpensive CFLs a standard promotional item, in many cases bypassing major manufacturers to offer a private-label brand at a lower price.
Not all of these privatelabel CFLs meet Energy Star requirements, however, which raises legitimate questions about their performance and longevity. Energy Star has gained enough support in the marketplace to be willing to limit participation to products verified to have high quality.Thus the program has moved from a recruitment phase to a discernment phase, requiring manufacturers to meet more stringent specification and testing requirements beginning in July 2002. It no longer needs simply to encourage consumers to buy any CFL instead of an incandescent bulb; it can instead direct consumers toward high-quality CFLs with superior efficiency and performance.
Retailers now clearly understand the benefits of CFL technology, both to consumers (energy savings and convenience) and to the retailers themselves (higher sales revenues per unit of shelf space than incandescent bulbs).As a result, some level of in-store CFL promotion will now be self-sustaining, allowing the utilities to retarget or reduce their funding and still achieve a given level of market success.
Utilities, regional groups, and state governments have come to understand that a largely transformed CFL market represents a very fruitful place to prospect for resource acquisition, both on a short-term and on a long-term basis.The CCC program generated a payback of approximately one year on a $20 million investment of public funds, though long-term evaluations will be needed to verify the persistence of savings and continued usage rates.
Most importantly, the program put approximately 6 times more dollars in the hands of low-income residents through long term energy savings than if it had simply given the $20 million to the residents directly.This multiplier effect is likely to feature prominently in future low-income programs, or in others that need to achieve demand reductions quickly to meet local or regional power shortages.
One overarching lesson from the events of 2001 is that market transformation takes time. CFLs ground their way to begrudging market acceptance for more than two decades before finally gaining traction with consumers. That period reflects multiple generations of revision to the technology itself, the trying and refining of numerous utility program approaches, and a great deal of hard work by a whole array of allies. Large incentives by themselves do not guarantee large energy savings, but they can stimulate a dramatic short-term response in an already substantially transformed, competitive market.
In 2001, an unprecedented effort was undertaken in California to deliver energy-saving measures to residents. In response to the energy crisis, utilities and other organizations developed large-scale CFL programs to reduce energy consumption and to help mitigate the effects of higher utility bills for low-income households.The extent of the effort and the diverse strategies used created a unique opportunity to examine the advantages and disadvantages of the CFL program delivery mechanisms. KEMA-XENERGY, a national energy consulting, information technology, and energy services firm, evaluated the major CFL program delivery mechanisms by analyzing the results of a survey conducted with 2001 CFL program participants.
Delivering to the Consumer
The major CFL programs offered in California in 2001 employed four distinct methods for delivering CFLs; each was designed to meet a specific set of objectives.
Targeted-event giveaway programs. Targeted-event giveaway programs seek to reach a specific group of residents, often by leveraging an existing event or gathering place to reach the target audience. Each of California’s electric, investor-owned utilities (IOUs) offered at least one CFL giveaway event in 2001.
Each utility employed a slightly different strategy for targeting various groups. San Diego Gas & Electric Company (SDG&E) held more than 60 events at senior citizen centers, giving away almost 20,000 CFLs to seniors. Southern California Edison (SCE) sponsored 16 CFL giveaway events targeted at underserved residents, such as non-English speakers, low-income households, and those living in rural communities.Through SCE’s initiatives, more than 25,000 CFLs were handed out at promotional exhibits held at county fairs, ethnic festivals, and senior citizen events. Pacific Gas & Electric Company (PG&E) held one significant giveaway event in 2001, targeting Asian residents of San Francisco through an event held at City Hall.About 1,500 CFLs were given away at that event.
Door-to-door giveaway programs. The door-to-door giveaway delivery strategy aims to deliver a high volume of CFLs to a targeted group of residents who are located in close proximity to one another.The major door-to-door giveaway program in California in 2001 was the state’s Powerwalk program, which targeted households located in lowincome neighborhoods.Through the Powerwalk program, the California Conservation Corps distributed 1.9 million CFLs to approximately 475,000 low-income households statewide.
Leveraging existing programs. Leveraging existing programs, or piggybacking, maximizes the energy saving of existing energy efficiency programs with minor incremental cost. In 2001, SCE increased its energy savings potential by introducing a CFL incentive with its refrigerator-recycling program.SCE offered participating customers the choice of $35 or a five-pack of CFLs.A total of 5,500 people opted for the CFLs, representing 10% of those given the option.
Reduced-price programs. Usually the major goal of reduced-price programs is to increase the number of CFLs purchased in the marketplace.This is done either through a manufacturer buydown or through a point-ofpurchase (POP) rebate.A secondary goal may be to affect the upstream market for CFLs, so that any increase in CFL market share will be sustained.
Each of the state’s electric IOUs offered reduced-price programs in 2001, resulting in the purchase of several million reduced-price CFLs.SDG&E and SCE provided manufacturers with a $3 buydown rebate on CFLs, while PG&E worked directly with retailers to offer a POP rebate of $3 per CFL. SDG&E discounted over 18,000 CFLs, SCE over 350,000 CFLs, and PG&E about 7 million CFLs.
Comparing the average cost per CFL delivered across delivery mechanisms allows for an initial assessment of the relative cost-effectiveness of the various program delivery strategies (see Table 1).
Program energy savings were considered as well, and a comparison of the cost per annual kWh saved is presented in a full report posted on the Web (see “For more information” at the end of this article).
Although the cost per CFL delivered is an important factor to consider when assessing program effectiveness, many of the programs offered in California last year included nonenergy savings objectives, such as targeting seniors or historically hard-to-reach customer segments. Delivery strategies that are designed to target specific sectors, such as targetedevent giveaways, are the most expensive programs on a per-unit basis.The high per-unit cost is most likely because targeted- event programs are relatively small in scale. Often these programs use preexisting events and gathering places, such as events at senior or civic centers, which helps to control the program costs.
Door-to-door programs are often designed to reach targeted geographic (or demographic) segments at much higher volumes than can be achieved through the targeted-event giveaway approach. The cost per unit delivered reflects this higher volume. However, to be successful from a cost-effectiveness perspective, door-to-door programs require a welltrained, established network of program canvassers and the ability to buy CFLs in bulk at a volume discount.
Leveraging other programs is one of the least expensive mechanisms for delivering CFLs. However, this delivery method provides CFLs only to those who are already participating in other energy efficiency programs. It operates outside the marketplace for CFLs and, like targeted approaches, may not create significant lasting increases in the marketplace for efficient lighting.
Reduced-price programs are also a relatively cheap delivery mechanism, especially when the program is large scale, as was the case with PG&E’s POP program. Administrative costs are similar to those incurred by the other program delivery strategies discussed above, but because the CFL is discounted instead of being fully subsidized, program costs on a per-unit basis are relatively low.
The effects on the market for CFLs caused by reduced-price programs may be sustainable, at least in the short run. That is, the increase in product availability and exposure at retail stores is likely to continue beyond the program end date. These programs, when implemented on a medium to large scale, are also more effective at reaching a broader segment of the population than traditional energy efficiency programs.
Installing Energy Savings
The energy savings achieved by California’s 2001 CFL programs on a perunit basis depends on the rate of installation, the extent to which the bulbs are used, and the reduction in wattage realized by the installation of the CFL.
Installation rates. The targetedevent giveaway programs, which gave away one CFL per participant, achieved the highest installation rate (93%) (see Table 2). Programs that gave away more than one CFL per resident achieved a much lower overall installation rate (77%), with the exception of the reduced-price program, which achieved a 90% installation rate, even though, on average, participants purchased six CFLs each.
The lesson learned is that the significant decline in installation rates as the number of CFLs provided increases is much more gradual when the participant shares in the cost and can choose the style and size of the CFL.
Hours of usage. Of the program CFLs that were installed, participants use the bulbs on average between three and four hours per day, according to selfreported survey results.The average usage of CFLs declined as the number of program CFLs installed in the home increased.This decline in hours of usage per bulb illustrates the effect of installing the first CFL in the most-used fixture, the second CFL in the next-most-used fixture, and so on.
Type of bulb replaced. Program planners generally assume that when a free or partially subsidized CFL is provided through a program, the participant replaces an older, less-efficient bulb (usually an incandescent bulb).We found that on average, about 10% of new, program CFLs replaced existing CFLs.
Best Delivery Strategy?
What is the most effective strategy for delivering CFLs? That depends largely on a program’s objectives. Our study showed that each delivery mechanism will be more or less successful at meeting each of a variety of objectives (see Table 3). Not one mechanism is effective in meeting them all. Selecting a delivery mechanism involves making trade-offs of potential objectives.
For utilities and other energy efficiency program administrators that already offer energy efficiency programs, piggybacking on an existing program by adding a CFL incentive is a very costeffective way to increase the energy savings potential of these programs. However, it is unlikely that such an approach would reach a broad segment of the target population. Large-scale reduced-price programs are more effective at achieving this goal, and may also lead to sustained market effects, such as an increase in the stock of CFLs by retailers and more prominent placement and promotion of CFLs.
Often a program administrator seeks to target a specific group, such as lowincome households. In this case, a targeted approach may be more appropriate than a reduced-price program. California’s large-scale giveaway effort, the state’s Powerwalk program, reached almost half a million low-income households with only moderate per-unit costs. It capitalized on an existing infrastructure (the California Conservation Corps) and the geographic clustering of its target audience. Smaller-scale targeted giveaway programs offered by California’s electric IOUs were equally innovative in utilizing an existing infrastructure to locate the desired audience, leveraging local ethnic, rural, and senior events.
In summary, one program alone will not be effective in meeting a range of objectives. Offering a portfolio of programs that relies on multiple delivery mechanisms may be the best strategy for meeting several program objectives at a reasonable cost.
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