Lighting is one of the most important and high quality uses of electricity. Recent advances in lighting technologies have made it possible to use the precious electrical energy more efficiently. Even though efficient lighting devices are available in abundance, their performance in terms of penetrating the market is rather dismal. The main reasons for this are the high initial purchase costs, uncertainties in returns and the tendency of consumers to use high discount rates in investing in energy efficient devices. Therefore, there is a need to develop a portfolio of both inefficient and efficient lighting devices for better market penetration of the latter one, since total elimination of the use of inefficient devices is impossible. Further, it is interesting to study whether the energy efficient alternatives are attractive investments vis-a-vis common stock options. This paper analyses the economics of such an issue before developing an optimal portfolio of these alternatives for a typical household in Karnataka State, India. A mixed integer programming model has been developed, and a comparison of returns is made. The results show that the optimal lighting portfolio provides a far higher return at a lower risk compared to the stock market. Overall results indicate a substantial savings both in terms of energy and peak demand. (C) 2001 Elsevier Science Ltd. All rights reserved.