A winner in the light bulb wars

FORTUNE — Light-emitting diodes (LED) — the same technology that now provides the backlight for many flat panel TVs — will see its use double in the next year. The technology will replace fluorescent tubes in commercial applications, help make more efficient street lights with less light pollution, and most importantly could look cool in the process.

According to NPD DisplaySearch’s latest forecast, LED in lighting applications will double from 15 million units in 2012 to a forecasted 33 million in 2013. That number could triple by 2015. The global penetration for LED light applications will likely increase to 26% of the market, up from just 5% last year.

To date, Japan has been the largest market for LED lights, while China will soon drive the market due to government demands including the 12th Five-Year Plan. “The potential for China is there,” says Philip Smallwood, lighting market analyst for IHS iSuppli. “But in the United States we have a lot of regulation also coming to into play.”

This past January saw the switch flipped for the 75-watt incandescent light bulb, which followed the end of the line for the 100-watt as a result of the Energy Independence and Security Act of 2007. Next year will see the ban move to 60-watt bulbs as well. LED bulbs will likely fill this void. But they could also replace those curly compact fluorescent bulbs that now seem little more than stopgaps between incandescents and LEDs. “Compact fluorescent light bulbs are replacing incandescent bulbs, and LED bulbs are replacing the compact fluorescent light bulbs,” explains Steven Sher, NPD DisplaySearch analyst for lighting technologies. There are currently no policies in place to phase out compact florescent light bulbs; however, there are many policies to phase out the incandescent bulbs.

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However, what is true for the U.S., Europe, and even China won’t necessarily follow for the developing world. While the price of LEDs continues to fall, these bulbs are still more expensive, and thus incandescents could prove popular in many parts of the world throughout the next decade. Moreover it will likely be the compact fluorescent bulbs — even with the environmental concerns as the bulbs contain mercury — which will outpace LED adoption in the developing world. “In the less-developed countries where they don’t have the spending capacity that we have in North America they will likely stick to the CFLs,” adds Smallwood.

Incandescents won’t simply shut off even as the 2007 energy act continues to pull bulbs off store shelves. For one thing many consumers, anticipating the ban, bought up stocks of the old bulbs. “We don’t change light bulbs in what could be called a proactive way,” Smallwoods tells Fortune. “We change our bulbs in a very reactive way, when they burn out. With that in mind we’ll be seeing CFL and even incandescent bulbs very much in use in the next five years – unless everyone runs out and buys new bulbs, and that isn’t going to happen.”

The technology has been slow in gaining traction. Many people might think of LED bulbs as something new, in fact this technology has been around for more than 100 years but only found commercial applications in the late 1960s as costs fell. It has taken the last 40-some years for the technology to be finally ready for the home.

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Now thanks to lower costs and greater applications, LED could have people taking a new look at it. While CFLs were met with those aforementioned environmental concerns, they had other issues that kept the technology from being embraced. Although they offered energy savings, the high costs up front kept consumers buying incandescents, while detractors noted that the light from the CFLs tended not to be as soft as that of the beloved bulb that has lit up homes for more than 100 years.

Now LEDs could change that as they offer a plethora of advantages, including low operating cost and long lifespan. The bulbs, which are also typically cool to the touch, could be seen as “cool” in other ways. “The whole mindset of light could change, as LED really allows people do much more in terms of ambiance,” says iSuppli’s Smallwood. “LED can be played with new ways that makes them cool. This could change the mentality of the consumer, which is typically hard to do.”

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