As energy usage across the world continues to rise at a rapid pace, a variety of governments have been seeking solutions to a potential energy crisis. Aside from finding or creating new sources of supply like shale gas and solar power, energy efficiency measures have become the topic du jour, as consumers look to do more with less.

One of the biggest opportunities could lie within in commercial and residential lighting space. New technologies are the main culprit of energy use across the world, but they are also helping to reduce the amount of energy needed to light-up our planet. For investors, focusing on this need for energy efficiency could provide great long-term gains for a portfolio.

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A Lesson In LED
For more than 130 years, variations of incandescent and gas-discharge lamps have been used to illuminate commercial buildings. However, times are changing. Semiconductors called light emitting diodes or LED's are driving that change, and saving energy. Although created in the 1960s, new technologies in LEDs are moving the semiconductor from the TV remote to high-efficiency bulbs. An LED consumes only 13 watts of power and produces the same amount of light as a 100-watt incandescent bulb.

SEE: 10 Ways To Save Energy And Money

At the same time, new efficient manufacturing processes are helping drive down the costs of the once expensive bulbs. Today, consumers can buy a LED bulb from Home Depot (NYSE:HD) for around $20. Cleantech market intelligence firm, Pike Research predicts that continued advances in LED lighting technology will help producers shrink costs for various products by 80 to 90% over the next decade.

Those shrinking costs, energy savings, as well as the fact that LED bulbs have an average lifespan of 50,000 hours are helping set up a huge surge in adoption by commercial and residential consumers. Pike estimates that LED market share of the commercial lighting sector will reach 52% by 2021. Likewise, General Electric (NYSE:GE), whose founder invented the first light bulb, predicts LEDs will make up between 80% of the general lighting market in that time frame.

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Playing The Potential
Unlike their cousins, compact florescent bulbs (CFLs) - which have been met with public indignation because they contain a small amount of mercury vapor - LED's major drawback was high costs. However, that is quickly changing as new manufacturing processes cut costs. For long termed investors, now could be a great time to play the sector. Conglomerates like Phillips (NYSE:PHG) and Panasonic (NYSE:PC) have their hands in the LED market. However, there are plenty of pure-plays as well.

Industry standard-bearer, Cree (Nasdaq:CREE) still represents a great play on the growth of LEDs. The company continues to be one of the top innovators across both the commercial and residential space and recently introduced the industry's first LED downlight that can match traditional tube fluorescents on price. Nevertheless, despite its potential, Cree shares could be a value. The firm saw its share price fall nearly 70% since its 2011 highs as the market cratered. Similarly, Chinese producer SemiLEDs (Nasdaq:LEDS) has seen its share price dwindle as well.

SEE: Implied Volatility: Buy Low And Sell High

An additional way to play the growth in LEDs is by focusing on the equipment makers in the sector. Both Aixtron (Nasdaq:AIXG) and Veeco Instruments (Nasdaq:VECO) produce the equipment, while Rubicon Technology (Nasdaq:RBCN) produces the sapphire substrates.

Finally, while it does not produce LEDs directly, chipmaker Marvell Technology (Nasdaq:MRVL) could be an interesting way to play the rise of solid-state lighting. The firm makes variety of LED drivers and chipsets that improve efficiency and cost. Recent innovations at the firm included a new driver that will allow LEDs to be dimmable as well as be controlled via wireless smart grid software and advanced HVAC systems.

The Bottom Line
As we continue to grapple with increasing energy demands, innovative technology like LEDs are helping us find solutions. By reducing costs and energy requirements, the adoption of LED bulbs is poised to grow exponentially in the future, as energy efficiency continues to be a mandate for consumers and governments worldwide. The previous firms are ideal ways to play the growth in the sector.

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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Tickers in this Article: HD, GE, PHG, PC, CREE, LEDS, VECO, AIXG, RBCN, MRVL

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