Nearly half a century after their invention, light-emitting diodes are moving into the spotlight for businesses looking to save energy.

In October, the Chili’s restaurant chain announced plans to outfit 827 restaurants with 125,000 LED lamps—an installation that the company claims will save up to $3.7 million per year and mark the largest LED rollout in the United States to date. Best Buy, meanwhile, has pledged to install 35,000 LED lamps in place of halogen bulbs for digital-camera displays and high-end audio and video showrooms. Walmart, which devotes one-third of all energy in most of its U.S. stores to lighting, now uses LEDs to light freezer cases, jewelry displays, exterior signage, and hundreds of parking lots and recently began introducing the technology for general lighting on the sales floor in a pilot market. “Everything at some point will switch over,” Charles Zimmerman, vice president of international design and construction for Walmart, predicted in an interview.

LEDs, which last orders of magnitude longer than incandescent bulbs, typically slash the energy required for lighting by as much as 80 percent. They have been used in some display and signaling applications since the 1970s, but because they come with high price tags, they have yet to garner a significant portion of the general illumination market. So large installations by companies like these mark important progress for LEDs.

LED light fixtures that are designed to replace screw-in incandescent bulbs still cost $40 or more for the equivalent of a 60-watt bulb and $20 for a 40-watt equivalent. LED tubes often cost as much as $50 to $100, versus as little as $2 to $10 for fluorescent counterparts. But LEDs save money over their life span because they use less electricity and last longer. A four-foot LED tube will typically require only about 15 to 25 watts of power, compared with 30 watts or more for a fluorescent tube that will last half as long.

Increasing efficiency and decreasing costs are expected to make the technology more competitive during the next few years—and incandescent bulbs are being phased out by law. So LEDs, which have long been expected to disrupt the lighting market, may finally be poised to do so. By 2020, someone using LEDs instead of standard fluorescent lights can expect to recoup the higher investment in less than a year, according to Michael LoCascio, a senior analyst with Lux Research. By that time, the firm predicts, LEDs will account for 60 percent of all low-bay lighting (overhead lighting, typically for ceiling heights of less than 20 feet) in commercial, industrial, and public buildings, up from just 1 percent today. Lux also forecasts that LEDs will make up 42 percent of the residential lighting market by 2020. Virtually no homes use LED lighting today.

LEDs cost more in part because they require special fixtures and use chips and control electronics. But these electronics mean that LED lights can be networked, which can lead to new efficiencies. For example, a company called Digital Lumens says its lighting management software for LEDs can reduce a business’s lighting-related electricity expenses by 90 percent and pay back their cost within about two years. At the same time, manufacturing scale is increasing and LED makers are able to pump in higher current and get more output per chip. This means fewer chips are needed to produce a given amount of light, while other portions of the lamp, such as thermal management systems (for conducting away energy lost as heat), can be simplified to further reduce cost.

Regulations will play a big role in the growth of demand for LEDs. New laws are helping to eliminate competition from incandescents, and LEDs stack up favorably against compact fluorescent bulbs, with their “inferior light quality and time to turn on,” LoCascio says. Meanwhile, LEDs’ color quality is improving, minimizing another of the technology’s historical disadvantages: producing warm white light has been difficult and expensive.

Walmart chose Puerto Rico for its first LED parking-lot installations, for a simple reason: electricity costs more there than in any other market where the company operates, Zimmerman says. Walmart anticipates a two-to-three-year payback period for the Puerto Rico installations. LED lighting will move “from marketplace to marketplace based on the cost of energy,” he says. ��Eventually it will move to the U.S. and Canada, where we have the lowest electricity rates.” However, corporate strategists must weigh more than energy requirements in lighting decisions—even at Walmart, which counts energy as its number-two operating expense in nearly every market around the world. “The biggest piece is always the maintenance aspect,” Zimmerman says. LEDs are a smart investment because they yield better light output and distribution, and LED parking-lot lamps need to be changed only once every dozen years, whereas fluorescent tubes last just two years.

But the promise of long life can also complicate matters for companies pursuing LED installations. Demonstration projects can offer indications of long-term performance, but at the end of the day, Zimmerman says, “the technology is not proven.” Because its plans are based on the assumption that the LEDs in its parking lots will last for 12 years, Walmart negotiated long-term warranties with General Electric.

For Walmart, sales-floor lighting “will be the last frontier for LEDs,” said Zimmerman. The fluorescent bulbs that the company uses for most sales-floor applications have the advantage of being easy to replace, he says, and they have very low up-front costs compared with LEDs. Plus, substituting LEDs for a typical fluorescent lamp would mean using “a four-foot tube with 100 little LEDs in it,” so there could be “millions of little points of light” across the sales floor. When you start putting things where the customer is looking directly at it (as opposed to tucked away in a freezer case or jewelry display), he says, it’s important not to distract customers.

But that last frontier is inching closer. Walmart began introducing LEDs on the sales floor last fall in some of its locations in China, where utility costs, government incentives, and local production combine to produce a viable pilot market. Zimmerman says the company will probably experiment with LEDs in China for at least two years before making a larger commitment.