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Cost of 'greener' lighting explodes as China dominates rare-earth supply

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By Lou Kilzer
Sunday, Aug. 14, 2011
 

Light bulbs touted as money-saving energy savers are skyrocketing in price.

The reason?

China's stranglehold on rare-earth elements — components essential to making next-generation bulbs — say industry officials.

The squiggly shaped compact fluorescent lamps — known as CFLs — and most light-emitting diodes, or LEDs, need rare-earth elements in order to produce white light.

China mines about 97 percent of the world's 17 rare earths but restricts exports, causing prices for those elements to spike by more than 1,000 percent in the past year.

If such an inflation rate applied to a $2 cup of coffee, "the new cost would be $24.55," General Electric noted last month.

This year, the cost of fluorescent-lighting products rose 24 percent or more because of market conditions for rare-earth minerals used in making phosphors, said Joseph Higbee, a spokesman with the National Electrical Manufacturers Association. Most rare earths used in lighting are three heavy elements — yttrium, europium and terbium — two of which the Department of Energy expects will remain in short supply globally for awhile, he said.

"We will do our best to manage these costs where we can, but rises on a similar scale to those seen in recent months will mean further significant price adjustments may be unavoidable," General Electric warned.

Osram Sylvania, another lighting giant, announced monthly price increases "until the cost of rare-earth materials are stabilized."

To make matters worse, manufacturers produce almost all CFLs and a growing share of LEDs in China, experts said. So even if significant rare-earth mining resumes outside of China, those elements might go to the People's Republic anyway.

Molycorp, a Colorado company with America's only rare-earth mine, told the Tribune-Review it would sell its products to CFL manufacturers — even if they relocated operations to China, as General Electric did. Molycorp plans to start large-scale processing of rare earths at its California mine next year.

Federal rules will increase efficiency requirements on lighting gradually during three years, starting in January. Current incandescents, which expend 90 percent of their energy as heat, do not meet the requirements.

Some people are starting to reconsider the push toward the technology. Some halogen incandescent lighting, although more expensive than ordinary incandescents and less efficient than CFLs and LEDs, would meet the federal requirements.

"Rare-earth prices have skyrocketed," said John Bailes, sales manager for AM Conservation Group in South Carolina, a dedicated "green" company that focuses on lighting.

"It's too early to tell if that impacts the equations on savings. No one knows how high the prices will go," Bailes said. "Going back to incandescent halogen lighting could make sense. Since the invention of the CFL, prices have constantly gone down — until now."

General Electric, which would not discuss its long-term lighting plans, closed its last U.S. plant where workers made traditional incandescents last year.

Sylvania will make halogen incandescents in St. Marys, Elk County, spokeswoman Stephanie Anderson said. Sylvania produces 1 million traditional incandescent bulbs each day at the plant, but soon will shift to halogen and watch the market to gauge demand, she said.

Reconsidering incandescent lighting is a big leap for many in the industry. Nor does it sit well with environmentalists.

"There's no sign that critical metals are going to run out. We can't turn away from new technology," said David Hamilton, director of energy programs for the Sierra Club. "Based on what I've learned, it can't be determined how things are going to go."

One environmental activist said he has had misgivings about CFLs for some time. Sean Gray, senior analyst for the Washington-based Environmental Working Group, said the bulbs use less energy, but they contain mercury, a toxic metal.

"I'm very torn about this," he said. "I can see my son tipping over a lamp. That bothers me."

If CFLs rise in price, it might turn attention to LEDs, Gray said.

China's hold

China leads the United States in the lighting revolution.

China began pouring money into LED projects in 2003, to "facilitate a shift from CFL manufacturing to LED lighting," the Swedish Energy Agency and National Lighting Test Center in Beijing said in a presentation in May. The nation plans to create a million LED-related jobs. Chinese provinces subsidize manufacturers, and cities buy LEDs for street lighting, helping the industry.

Chinese government officials realized that China could produce the lamps, but others held the core technology — actual LED chips that produce light based on quantum mechanical equations. China set about to change that.

The research paper said Beijing established a strategy "to attract all the leading LED chip manufacturers to establish production facilities in China."

That appears to be working.

In 2009, Cree Inc., a major LED producer based in North Carolina, bought a manufacturing facility in Huizhou, Guangdong Province, that houses Cree's first chip production outside the United States. More than half of Cree's 4,000-plus employees work in China, according to the company.

When signing the deal, Huizhou's Communist Party Secretary YeBin Huang said: "We will do our best to support Cree through government projects, as well as government policies."

"China is our largest customer," said Cree spokeswoman Michelle Murray. "We decided to grow the business where (business) is." She said the incentives helped.

In its most recent annual report, Cree said that in 2010, "the company was awarded a tax holiday in China, which allows for 0% tax for three years starting in fiscal 2011." In a March filing with the Securities and Exchange Commission, Cree said China could offer it tax rebates, "favorable lending policies and other measures."

Bridgelux, a Silicon Valley start-up billing itself as the "first, new U.S.-based LED manufacturer in the past 20 years," opened a plant last year. CEO William Watkins said Northern California offers advantages.

"You have access here to a very talented work force," he said. "It is Silicon Valley; you can always find someone here who knows something about anything."

Yet, he said, China's industrial policy offers great incentives for chip makers.

"We haven't made a decision, but we're always open to possibilities," he said of the chance that Bridgelux would expand there.

Terry McGowan, head of technology for the American Lighting Association, said "the good news is that not all LEDs are made in China." South Korea and Japan offer competition, and American venture capitalists "have been increasingly interested in LEDs."

He believes it's not too late to save the industry in the United States.

'In its own interest'

Molycorp was the world's largest rare-earths producer until stopping production in 2002.

The company changed hands several times before going public a year ago, with the intent to reopen its mine and build an environmentally friendly processing plant in Mountain Pass, Calif. It's in a race with Australia's Lynas Corp. to get up and running.

Other rivals — most of them years away from mining — cheer on Lynas and Molycorp. They want to prove to investors that rare-earth know-how is not irretrievably lost to China.

Still, Molycorp and Lynas might not break China's hold on energy-efficient lighting, particularly CFLs.

John Burba, executive vice president and chief technology officer for Molycorp, said the company would send rare-earth minerals to China for its non-Chinese customers who manufacture there.

"We will sell as much of it outside of China that we can," Burba said.

China might be making a mistake with its strict quotas on rare earths, said Robert Lawrence Kuhn, an investment banker who advised senior Chinese leaders for more than two decades.

He said the idea might have sprung from "overreaching by lower-level people." Senior Chinese leaders set economic strategy, but local party officials, competing bureaucrats and agencies vie to outdo each other. The Chinese consider this to be "dynamic tension," Kuhn said.

"But in the end, there is an overriding philosophy: China will do things in its own interest," he said.

 

 
 


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