Accelerating Energy Efficiency Improvements in Room Air Conditioners in India: Potential, Costs-Benefits, and Policies

Rising incomes, increasing urbanization, and large cooling demand prompted by India’s hot, humid climate are driving increasing uptake of room air conditioners (ACs). Air conditioning already accounts for 40-60% of summer peak load in large Indian cities such as Delhi and is on track to contribute 140 gigawatts (GW) (~30%) to peak demand in 2030. India’s standards and labeling policies improved the market average efficiency of room ACs by about 35% between 2006 and 2016 (3% per year) even as inflation-adjusted room AC prices continued to decline. In this report, we assess the technical feasibility and costs and benefits of accelerating the efficiency improvement in room ACs in India and discuss policy enhancements needed to achieve this goal.

We also describe examples of rapid AC efficiency improvement from Japan and Korea. Driven by appropriate policies and programs, AC efficiency in these countries improved by more than 8% per year, resulting in near-doubling of energy efficiency over seven to ten years while inflation-adjusted AC prices declined. We also find that the most efficient room AC sold on the Indian market is almost twice as efficient as the average AC sold on the market in 2015-16. As a result, we conclude that the technology needed to accelerate room AC efficiency in India is available.

If, starting in 2018, the market average room AC efficiency improves by 6% per year instead of the current 3% per year, about 39 GW of peak load (equivalent to about 80 power plants of 500 MW each), and more than 64 TWh per year of energy (equivalent to the current electricity consumption of the entire state of Gujarat) could be saved by 2030. The net present value (NPV) of the consumer benefit between 2018 and 2030 would range from rupees (Rs) 4,000 crore or US$600 million (if room AC prices increase as expected based on estimates of current cost of efficiency improvement) to Rs 173,000 crore or US$25 billion (if room AC prices do not increase with efficiency improvement, as has been the case historically). Although the rebound effect could reduce the financial benefit of efficiency improvements, it would not affect the overall consumer welfare benefit.

This benefit is achievable by ratcheting up India’s one-star efficiency level (the de-facto minimum energy performance standard) for room ACs to the level of the current (2016) five-star rating by 2022 and to the level of current best available technology on the market by 2026. Bulk procurement, similar to that used in UJALA LED Program, and incentive programs would be crucial for accelerating the market transformation, especially pulling up the top of the market. Similar programs could be implemented for other types of ACs.