Vadim Dadyka: a change of trend in the lighting market
VADIM DADYKA, Director General, AtomSvet LLC. Member of the Board of Directors of CJSC UK FNK GRUPP
During his professional career, he successfully implemented a number of large projects in the field of metallurgy and heavy industry. He held managerial positions at JSC Metalloinvest, and JSC Uralmshzavod. At the present time, he is Director General of Management Company FNK - MANAGEMENT. Vadim Dadyka is one of the originators of the AtomSvet project and is now responsible for its complex development in the Russian, CIS and foreign markets.
— Hello, Vadim. As we know, AtomSvet is working mainly in the industrial LED lighting segment. What sector is going to be developed more actively in the nearest future?
— Hello. We believe that all the present lines of activity will develop actively in the coming years. However, we have decided to focus on industrial and street lighting systems as a priority, where s our products are most competitive from the point of view of compliance with strictest quality requirements.
It is well known that the main development drivers in the field of industrial lighting are the sectoral energy saving programmes.
According to our estimates, the government-sponsored enterprises will remain the major generators for the growth in demand for LED systems and equipment in the nearest future. Large energy saving programmes are now being implemented by all state corporations: Rosatom, Rusgydro, RJD, steel plants, heavy industry, and the oil and gas sector.
— What do you think are the critical changes in the LED industry that have taken place within the last 3 years?
— First of all, the LED lighting market grew many times larger on the tide of the energy efficiency improvement strategy. According to a consolidated assessment made by a number of leading players, the Russian LED market volume in 2012 is 7.5 billion rubles. It is at least 10% of the Russian lighting engineering market.
Three years ago the number of relatively large modernization projects, which had the status of pilot projects, could be counted on the fingers of one hand. Today, large scale industrial LED lighting projects are being implemented in the nuclear industry, the oil & gas industry, hydro-electric power stations, and the Russian Railways (historically it is one of the first largest industrial users of the LED lighting engineering systems).
Some projects in large cities and towns are worth mentioning separately, including street lighting systems which operate at night, i.e. energy consumption is of constant and high, which requires significant expenditure. The LED lighting transition projects for the housing and utilities sector, architectural lighting, city and highway lighting are the most promising in the energy saving domain. The scales of the projects being implemented have long ago exceeded the pilot project status. For example, AtomSvet LED lighting systems are used for the outdoor lighting modernization project in Nikel, Murmansk Region. The project was initiated by the Energy Efficiency Centre of INTER RAO EEC and developed on the basis of energy service contract with our client, MUP Jilfond.
The outdoor lighting modernization project in Nikel, Murmansk Region, was initiated by the Murmansk Regional government in 2012. The project was based on the energy service contract model, and LLC Energy Efficiency Centre of INTER RAO EEC was selected as the energy service company. The Centre calculated the technical requirements for the lighting engineering equipment, and open bidding procedures were announced. . AtomSvet LLC was declared the winner of the bidding process.
At the present time, the project has been completed, and the new lighting systems have been installed on almost all the streets of Nikel. Economic benefits of the LED lighting are significant: energy consumption was reduced to 60-70%. While the previous high pressure mercury arc lamps consumed 250W, the newly installed LED lighting systems consume only 70W.
The main advantages of the new lighting systems are: reduced electricity consumption, reduced operating costs, increased service life (3-4 times longer), no need for replacement or regular maintenance, and high luminous efficiency, which is obvious to the naked eye.
One of the main tendencies is the appearance on the market of complex LED solutions for the industrial and street lighting complete with automated lighting control systems (ALCS). According to our estimates, replacing traditional lights by LEDs with ALCS, we can release up to 75% of the company’s production capacity and redirect it for any other production needs.
Also, the growing demand for special types of LED lighting systems is worth noting, particularly low-voltage and explosion proof devices. As far as the latter are concerned, today many companies offer LED solutions in this area — LED lighting systems manufacturers and companies producing traditional explosion proof lighting systems. All the AtomSvet product lines may be manufactured in explosion proof form.
Speaking about main trends we can say that in general the market situation became more competitive and the market itself started to show tendencies towards consolidation. Today we can speak about establishment of the Russian ‘LED brands’. At the same time, 4-5 leading manufacturers hold 40% of the LED lighting system market.
— What are the main challenges and problems of the Russian LED lighting system market today?
— The main problem is high prices of the LED lighting systems. As a result, there are significant capital costs and long payback periods. It is very difficult for companies to allocate immediately the required resources for modernization of their lighting.
Conclusion of energy service contracts could be a way out of this situation as provided for in the Federal Law No.261-FZ. However, it takes a very long time to sign an energy service contract. According to the Federal Laws No.94-FZ and No.223-FZ, which regulate purchases in the state sector, the state-owned enterprise has firstly to organize a tender for the energy audit, and then bidding for selection of an energy service company, and after that agree with it the supply of LED lighting systems.
We consider it necessary to adopt legislative acts regulating the procedure of financing and signing contracts related to energy saving programmes. It is also necessary to determine a pool of banks with state participation, which would financially support energy saving programmes. For example, in Europe such programmes are supported by the European Bank for Reconstruction and Development.
One more problem is that of poor quality products available in the market, both manufactured domestically and imported, mainly of Chinese origin.
Despite the fact that LED products are purchased by means of official tenders and bids, it is difficult to immediately reject the seller of poor quality goods since the price is a priority. As a result, a company purchases cheap lighting systems which do not comply with the specifications and performance requirements and quickly become unserviceable. The risk of getting defective products stops many companies making the transition to the energy saving technologies.
During one of our studies we revealed that a whole raft of poor quality products, the import of which is not restricted by our legislation, is the basic demotivating factor for the consumers.
I think that we must follow the example of Europe and the USA – they are toughening up their engineering legislation to put barriers on the way of low grade imports.
— By the way, what is the competitive situation with regard to Chinese products?
— This question may be divided in two components: LEDs and lighting systems manufactured in China. The leading Russian manufacturers are not using Chinese LEDs, as their quality and luminous efficiency are not very good. Both these parameters are critical for products which are to be operated at least 25,000-50,000 hours.
However, the share of Chinese LEDs in the Russian market has reached about 30% according to some estimates. These LEDs are used mainly by small manufacturers, of which there are several hundred in Russia. As a rule, the products of these manufacturers are of extremely poor quality. Actually, we can call it a Chinese import in ‘Russian packaging’.
As far as import of Chinese LED lighting systems is concerned, its share in the Russian market is estimated at 20%.
To complete the picture, you should take into account that the leading Russian manufacturers who are not using Chinese LEDs hold about 40% of the market. About 10% go to the leading western manufacturers, and 30% of the market is held by other LED lighting systems manufacturers, while many of them, as I said before, are using components produced in China. Therefore, it turns out that very sizeable share of the Russian market is actually given over to China.
In the industrial and street lighting systems segment, the share of Chinese import is generally not so large, and the larger the projects, the smaller this share. Consumers in this sphere, as a rule, are technically competent. Nevertheless, one problem exists here, too. The situation is much worse with office lighting systems – here the Chinese manufacturers’ share is about 30% (we are speaking about Chinese import only and not about lighting systems with Chinese components).
However, the saddest situation is in the sales of LED lamps. Here the share of Chinese import is around 95%. A number of leading Russian players are trying to regain their positions in the market from the Chinese, but it is too soon to talk about any success .
To some extent, the situation now resembles the previous boom in energy saving lamps which then failed even more often than incandescent lamps. Such a loss of reputation like this with respect to LED lighting represents a serious danger which should not be neglected.
— In a few words, what is the process of transition to LED lighting in large industrial companies?
— Of course, the system approach has always been considered the most effective. As an example, I can cite the economic benefits of transition to more energy efficient lighting systems for illumination of a standard industrial production unit. According to our calculations, an AtomSvet LED lighting system not only pays back the cost of its purchase in less than 3 years, but also starts to bring a considerable profit. Moreover, in five years, the lighting system of a production unit with of 100 LED lighting systems can show a profit of more than 2,000,000 rubles (a return on investment of 23.73% per annum).Here we include savings related to the cost of ownership (reduction of operating costs, storage costs and disposal of waste of hazard Class 1).
— And the traditional final question — what is your forecast?
— We expect that the energy saving strategy will continue to be supported at the governmental level. In the next 1-3 years, companies will remain the main source of demand.
Among the clients of AtomSvet LLC we can list the largest domestic and foreign companies, such as:
- FUEL & ENERGY INDUSTRY AND HEAVY INDUSTRY: ОАО Vladikavkaz Car Repair Plant n.a. S.M.Kirov; ОАО Oktyabrsky Electric Car Repair Plant, Saint-Petersburg; Radioengineering Lighting Plant Krasnoyarsk electromechanical plant; Zhigulevskaya GES; ООО RN Yuganskneftegas, Nefteyugansk; TGK-11, Tomsky GRES-2 and TEC-3; ОАО Kolomensky Zavod, Kolomna; ОАО Irkutskenergo;
- PRODUCTION ENTERPRISES: Konditersky Dom Vostok, Kemerovo; Maysky Chay, МО; Russian Brewery Khmeleff; AvtoVAZ, Avtosalon RENAULT, Moscow; Shtokman Development AG;
- STREET LIGHTING: Ulan-Ude – Baykal Airport Highway, Ulan-Ude; Achinsky NPZ (Oil Refinery); street lighting in Irkutsk; GK KDV, Kemerovo Oblast, Yashkino Village; street lighting in Novosibirsk; warehouse facilities in Kirov;
- ENTERPRISES WITH A HIGH EXPLOSION HAZARD: Novosibirsk factory of Chemical Concentrates ТВС-L; Tunnel Crew No.6 Metrostroy; SIetyua International Chemical Company, Noyasbrsk (with public ownership). Meanwhile, in 3-4 years we expect a significant increase of demand from commercial enterprises, brought about by the rise in electricity prices.
In 2-4 years, there will be a new series of LEDs with even greater luminous efficiency, which will finally remove any questions about the competitive advantages of LED lighting, including comparison with High Pressure Sodium Arc lighting systems.
As regards the industrial sector, we expect a steady increase in the demand for street lighting systems in 2013-2014 – a breakthrough related to the production of competitive highway lighting systems.
In the nearest future, some promising trends, which are now outside the mainstream, could develop significantly. For example, LED lighting for greenhouses, poultry farms and other agricultural facilities. Here we have very good prospects related to both electricity savings and the fact that the LED colours are optimal for the plants. It has already been proved that LED lighting may significantly increase crop yield.
The development of the Russian LED lighting systems market will in general be in tune with progressive growth of the world LED lighting market. By 2015-2016, according to expert estimates, the share of LED systems in the global market will reach 45-50%. In Russia, in spite of the market development, this share will be lower.
In the next few years, the prevailing tendency towards the growth of sales will be one of the main drivers for the development of the lighting systems market. It implies the necessity of mass modernization of the Russian installed base of lighting systems in the following sectors: manufacturing industry, public utilities, street lighting, transport, administrative buildings, and housing sector. However, the modernization will not only be driven by directives, but also by the beginning of a large-scale failure of lighting systems, the average service life of which exceeds 20-30 years during the period from 2012 to 2020. It means that the expected replacement will generally be forced and just to a small extent related to the current economic situation.
The market growth will also be dependent on large companies’ investment programmes. The main growth in the market will be large investment projects, while the retail share will remain small. According to our calculations, the most promising segments in 2013 will be (in descending order): street/road lighting systems, lighting systems for offices/organizations, industrial lighting systems, lighting systems for housing and utilities sector, lighting systems for shopping centres and supermarkets, architectural/decorative lighting systems, and household lighting systems.
— Thank you for the interview!
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