20000

LED Lighting Products

comprise Orion's product portfolio and many customizable options for customers

500

Million Dollars

Orion plans to expand their revenue to $500 million by 2025, at least a 10% organic growth per year

50%

Reduction

in lighting-related electricity use and costs from Orion’s LED lighting systems


The Path to Drawdown: LEDs

Light-emitting diodes (LEDs) were first invented in 1994 as high-brightness, high-efficiency light bulbs. LEDs function like solar panels but in reverse, converting electrons to photons rather than the other way around. For the same amount of light, LED lighting uses 90% less energy than incandescent bulbs and half as much as compact fluorescents. While other lighting technologies convert energy into heat (and wasting most of it), LEDs turn 80% of their energy use into light.

There are many environmental and cost advantages to LED lighting. Its efficiency in converting energy into light (rather than heat) helps reduce electricity consumption and air-conditioning loads. For people without ready access to energy, LEDs can be powered with small solar cells and can replace expensive kerosene lamps and their noxious fumes and emissions. Where LEDs are installed in streetlights, they can save up to 70% of energy and significantly reduce maintenance costs.

Project Drawdown projects that if LED lighting becomes widely adopted in the residential and commercial lighting market, it can help avoid between 10.2 - 10.8 gigatons of CO2 emissions in residences, and between 5.9 - 6.7 gigatons in commercial buildings. To achieve this, the global market share of LEDs needs to scale rapidly:

  • In 2018, LEDs accounted for 3% of the total commercial lighting market and 2% of the residential lighting market
  • By 2050, LEDs should comprise 95% and 90% of the residential and commercial markets, respectively
  • That’s 12.82% CAGR for residential LED and 11.21% CAGR for commercial LED lighting between 2018 - 2050.

About

Orion Energy Systems, Inc. (stock ticker: OESX) provides LED lighting systems, wireless internet of things (IoT) enabled control solutions, design energy project management and maintenance. Headquartered in Manitowoc, Wisconsin, virtually all of their sales are in North America.

OESX's Role in Drawdown

Orion’s largest business segment is its Engineered Systems (p. 3), which develops and sells lighting products and provides construction, installation and engineering services for their commercial and industrial lighting and energy management systems. Its solutions are targeted for large national accounts, including retailers, logistics, public sector institutions, schools, healthcare and hospitals, automotive and others.

Specific products offered by their Engineered Systems segment run a wide gamut (p. 11): 

  • Interior LED high bay fixtures that offer exceptional brightness for less energy than most of Irion’s competitors 
  • Smart lighting control systems with data intelligence capabilities for building managers to log, monitor, and analyze their use of space, energy savings, and provide physical security of the space
  • LED troffer door retrofit, designed to replace existing 4 foot by 2 foot, and 2 foot by 2 foot fluorescent troffers in office or retail grid ceilings. These can be installed in one to two minutes
  • A variety of other LED fixtures to address customers’ lighting and energy management needs, including fixtures designed for agribusinesses, parking lots, roadways, retail, mezzanine, outdoor applications and private label resale.


Orion’s total revenue has been on a steady rise, increasing by 11.55% annually from 2016 to 2020. Within this, their Engineered Systems segment has been growing much faster, at 26.2% CAGR. Their projection to sustain 10% organic growth per year (p. 3) for the next five years seems promising.

OESX: What We Like

We are impressed with Orion Energy System’s strong innovation track record (p. 10), which has helped its steady growth. Examples include interior airflow solutions that integrate LED lighting, some of which utilize ultraviolet C light waves to disinfect surfaces as well as deepening their capabilities in the integration of smart lighting controls.

OESX: What We Want to See Improve

Continue Diversifying Customer Base


Orion Energy notes (p. 3) that in 2020, their largest customer represented 74% of their revenues, but as a result of their diversification effort, this customer’s share dropped to 56% in FY2021, and Orion expects this trend to continue. We agree that a high concentration of a company’s customer base should be avoided, and urge Orion to accelerate this diversification, both across end-markets and geographical areas.

Track Sustainability Metrics


We agree that Orion’s LED products help customers (p. 3) achieve energy savings with sustainable solutions. But we’re disappointed that there is no mention of sustainability on Orion’s reports, presentations, or website. We urge them to become more sustainability- and climate-minded, and start tracking key metrics like their GHG emissions and emissions avoided in an annual ESG report.

Enhance Supply Chain Transparency


Similarly, there is very little information regarding Orion Energy Systems’ suppliers or supply chain. While their report suggests that their supply chain is sufficiently diversified, we would like to know the geographic distribution of their suppliers and whether these companies are working to reduce their direct and indirect carbon footprint.

Other LEDs Stocks in the Climate Index

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