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Mapping The Refrigerant Trends In India

Mapping The Refrigerant Trends In India

As the market opens up more for HCs, the industry might find greater clarity in adopting HC-based refrigerants in the coming decade.

India has been responsible for almost 10 percent of the increase in global energy demand since 2000. This demand is expected to increase to about 1250 (IEA estimates) to 1500 million toe in 2030. Electricity demand in India was 938 TWh in 2012, which is expected to reach 2499 TWh by 2030. The electricity consumption in the industry and domestic sectors has increased at a much faster pace as compared to other sectors. The room air-conditioning (AC) sector has very less penetration at around 7–9 percent in the country; however, the rise in demand is expected to occur at a CAGR of 15 percent in the period 2018–2020. The growth is expected to mark an increase in emissions due to high global-warming potential (GWP) refrigerant usage and electricity consumption. Therefore, it becomes vital for the nation to phase down high GWP hydrofluorocarbon (HFC)-based refrigerants and rapidly introduce low-GWP refrigerants and mechanisms to achieve energy efficiency in room AC (RAC) equipment.

Building sector energy demand

Unprecedented rise has been seen in the domestic sector energy demand. India is urbanizing rapidly – in 2010, about 31 percent of India’s population was residing in urban areas, which is expected to grow to 50 percent by 2050, adding about 441 million to the urban population, while the number of urban households is expected to double by 2032. It is estimated that India would potentially have to build about 700–900 million m2 of residential and commercial spaces in the urban areas every year for the next 20 years (Bureau of Energy Efficiency [BEE] design guidelines for energy-efficient multi-storied residential buildings). The per capita floor space requirement of the residential sector, which was 12.8 m2 in 2012, is estimated to grow to 35 m2 in 2050, which would increase the electricity demand manifold. Electricity demand in residential and commercial building sectors constitutes around 33 percent of the total electricity demand in India. Share of residential demand stands at approximately 24.32 percent of the total electricity demand.

Heating, ventilation, and air-conditioning segment

In the building sector, heating, ventilating, and air-conditioning (HVAC) devices take a major portion in the electricity consumption in residential, commercial, and industrial applications, leading to tremendous pressure on energy resources, and ultimately impacting the climate. Space cooling is likely to consume around 56 percent of the total primary energy supply (TPES) by 2027-28. Currently, space-cooling requirements in India are predominantly met by fan and room air conditioners in residential buildings, and chillers and variable refrigerant flow (VRF) in commercial buildings. However, still a very low percentage of Indians (around 5–6%) use air conditioners for comfort.

Room air conditioners market – Growth and energy efficiency

The room air conditioners market has been growing at a CAGR of 12 percent over the last 5 years. In India, the current annual demand of RAC is approximately 7.6 million units. However, the market is minimal as compared to other developing countries, such as China, where the room air conditioner demand was around 43.48 million by 2017 itself. As per the current market of room air conditioners, fixed-speed split ACs cater to the majority of the market and are a priority segment for manufacturers. In the total AC market of 7.66 million, fixed-speed ACs constitute around 54 million units and variable-speed ACs account for the remaining 22 million. Air conditioners of capacity 1.5 ton and 1 ton constitute the major share of the market.

Energy efficiency

BEE launched the Standards and Labelling Program for RACs in the year 2007. Initially, the program was started in a voluntary phase for fixed-speed air conditioners, up to a rated cooling capacity of 10,465 Watt (9000 kcal/hour). Subsequently, the star rating for room air conditioner was made mandatory in 2010. The scope was expanded in 2015, to include cassette ACs, floor-mounted, and ceiling-mounted ACs.

Since 2007, BEE upgraded the standards for the first time in 2012, and set the minimum energy-performance standards (MEPS), energy-efficiency ratio (EER) at 2.5 from 2.3. Similarly, the Bureau tightened the MEPS in 2014 and ratcheted up from EER 2.5 to 2.7. Five-star in 2010 (threshold for 5-star in 2010 was EER-3.1) became 1-Star in 2018 (threshold for 1-star in 2018 was ISEER-3.1) as per new Indian Seasonal Energy Efficiency Ratio (ISEER) methodology.

BEE expanded its scope of policy measures to cover high-efficiency variable-speed drive technology RAC (inverter AC), which is the next-generation efficiency product in the market. The air conditioner’s performance would be tested as per Indian conditions and rated using the ISEER. In 2018, the Bureau merged the program for fixed and inverter AC, and implemented the ISEER methodology for evaluating the performance for fixed speed as well.

Refrigerants in room air conditioners

The formidable AC demand, which India is poised to witness, would substantially impact its global warming commitments and emissions intensity. The second vital aspect of AC is refrigerant use. The world witnessed the use of refrigerants from ozone-depleting substances (ODS) to substances with high GWP. It is pertinent to consider the impact of refrigerants on warming.

The only ozone-depleting refrigerant is R22, while R290 is a highly flammable class-3 refrigerant. The rest are not flammable. R410a has the highest GWP. It is widely accepted that R290 and R32 are the most promising refrigerants as they are environment-friendly and clean, whereas R290, although flammable, can be safely handled during installations and servicing. In addition, there is not much clarity on hydrofluoro olefin (HFO) and alternate refrigerants in the RAC segment.

International policies – Montreal Protocol: Kigali Amendment

In the winter of 2016, nearly 197 countries got together in Kigali, Rwanda, to mark the incremental progress in overcoming differences, drawing upon creativity, compromises, and trust toward finally reaching an agreement, which is ambitious, balanced, and unique. Countries came together to adopt a deal to phase down global climate-warming HFC emissions under the Montreal Protocol, drawing a set of differentiated baselines and freeze years within both Article 5 and non-Article 5 countries. India took responsible steps to move up its ambition from an initial proposal to phase down HFCs from 2031 to a schedule, which begins phasing down HFCs 3 years earlier.

Given the high-growth nature of the Indian economy, which is yet to peak its production and demand for refrigeration/cooling, the step came as a strong message from the Indian delegation to Kigali on its leadership in contributing to do more within the limited time and resources available. However, leapfrogging its ambition by 3 years would have an implication on the pace at which Indian manufacturing and refrigerant gas industry could transition itself in line to match India’s goals.

The unprecedented level of cooperation and commitment by all countries during the Montreal Protocol is considered as the most important leading factor for its success. There are separate phase-down schedules for Article 5 countries and non-Article 5 countries. Moreover, Article 5 parties are further divided into two groups, based on their phase-down schedules.

India falls under group-2 as far as HFC phase-down is concerned. India will complete its phase-down in four steps from 2032 onward, with cumulative reduction of 10 percent in 2032, 20 percent in 2037, 30 percent in 2042, and 85 percent in 2047. Following figures elucidate the phase-down schedules for various Article 5 countries.

Domestic policies

Since the early 1990s, the Government of India has been preparing itself to the phase-out of ODS and has developed national strategies for faster, inclusive, and effective implementation of India’s ambitious pledges to the Montreal Protocol. Over the past two decades, India has successfully implemented ODS phase-out projects that have enabled the industry to smoothly and systematically transition to ozone-friendly alternatives. Accelerated Hydrochlorofluorocarbon Phase-Out Plan – India adopted an ambitious target to phase out hydrochlorofluorocarbon (HCFC) earlier than 2040 to 2030 and has set developed strategies to this effect.

HCFC Phase-Out Management Plan (HPMP) – Stage-I. The plan comprises a combination of interventions, such as technology conversions, policies, and regulations, technical assistance, training, awareness, coordination, and monitoring in selected HCFC-consuming sectors, to be implemented for the period 2012 to 2015, to enable compliance with the 2013 and 2015 control targets for consumption of HCFCs. The results obtained so far include: a) identification of appropriate non-ODS technologies in foam-manufacturing sector for the phase out of HCFC and 15 system houses that develop pre-blended polyols with environment-friendly blowing agents for rigid-polyurethane foams; and b) formulation and implementation of the ODS (Regulation and Control) Amendment Rules, as per the Gazette of India published in April 2014.

HCFC Phase-Out Management Plan (HPMP) (2017–2023) – Stage-II. India is willing to move toward adoption of comparatively low GWP refrigerant like R32 and low-GWP refrigerant such as R290 in the second HCFC Phase-Out Management Plan.

India Cooling Action Plan

On March 8, 2019, Ministry of Environment, Forest and Climate Change released India Cooling Action Plan (ICAP) to address India’s cooling needs and challenges through a holistic approach. The ICAP seeks to provide an integrated vision toward cooling across sectors encompassing inter alia reduction of cooling demand, refrigerant transition, enhancing energy efficiency, and better technology options with a 20-year time horizon. The ICAP provides short-, medium-, and long-term recommendations across different sectors, while providing linkages with various programs of the government aimed at providing sustainable cooling and thermal comfort for all. An implementation framework is also set forth to coordinate the implementation of these recommendations.

States and trends of refrigerant usage

India is a party to the Kigali Amendment (2016) and, therefore, committed to phasing down HFCs’ use from 2028. In this context, it becomes pertinent to track RAC industry trends and identify gaps in meeting the Kigali Amendment targets. HFC consumption in India was not monitored or reported before the amendment, which poses huge challenges to both policymakers and industry in creating efficient HFC phase-down schedules. Also, questions on the issues such as sectors to be focused and alternative availability for the HFCs need to be addressed before the forthcoming phase-down schedule. In addition, the amendment has special focus on enhancing and maintaining energy efficiency alongside the HFC phase down. Therefore, energy efficiency of the equipment also becomes the focal point along with refrigerant transition.

Refrigerant use share

The share of refrigerants is not to be confused with the actual refrigerant consumption, which is dependent on the sale of AC models employing a particular refrigerant. For instance, while the majority of RAC models may employ R32, the model that employs R22 may have more sales and, therefore, the consumption of R22 seems higher. Currently, there are about five types of refrigerants in use in the room AC sector. These include HCFCs like R22, HFCs such as R32, R410A, R407C, and natural refrigerants like R290. HCFCs are being phased out and will be fully phased out by 2030. However, since the inception of the Kigali Amendment, use of refrigerants other than HFCs and low GWP types has picked pace in the Indian market.

Some of the key points to be noted are:

  • The use of R22 has decreased from 50 percent in 2016 to 38 percent in 2017. This indicates that the phase-down of R22 is in line with the Montreal Protocol (toward achieving 67.5% reduction in HCFC production and consumption by 2025).
  • The usage of R410a has decreased from 41 percent to 36 percent.
  • The share of clean refrigerants has increased, considering R32 usage rose from 8 percent to 17 percent.
  • R290’s (propane) usage has increased from a mere 2 percent in 2016 to 6 percent in 2017, showcasing a threefold increase.

This also highlights the importance the market is placing on hydrocarbon-based low GWP refrigerants. The share of HCFCs has decreased significantly from almost 50 percent to 38 percent, which may be an indicator that pushes toward following the Montreal Protocol schedule may have had influence on the market. While HFCs’ usage has increased, it is still in line with the Kigali Amendment phase-out schedule, which would start in the year 2032 in India. The increase has not been significant. At the same time, natural refrigerants have seen a marked increase, indicating that these are possible replacements for HFCs in the upcoming years apart from being competitive in the market.

Refrigerants and efficiency

The Kigali Amendment called for consideration of equipment energy efficiency alongside refrigerant transitions. In this context, impact on the energy efficiency of room AC due to refrigerant choice was also analyzed. Market-ready room AC models in combination with different refrigerants were compared. Figure 9 shows that maximum achievable energy efficiency of the models, which use low GWP R32 and R290 refrigerants, showcases higher efficiencies than the models using high-GWP refrigerants. The change in efficiency can partially be attributed to the optimization in design required in RAC equipment for each refrigerant. This could potentially accelerate adoption of low-GWP
refrigerants and energy-efficient equipment in tandem.

Refrigerants’ demand analysis

Domestic refrigerant demand has been projected till 2030. This projection timeline was important from the context of the planned phase-down schedule of HFCs as per the Kigali Amendment. In forecasting the demand for refrigerants, key parameters such as the growth of the refrigerant in the room AC sector, probable high GWP–low GWP transitions, availability of refrigerants, etc., have been considered.

Assumptions for demand scenario

  • The assumptions have been made for forecasting the HFC demand scenario, based on the inputs received from various industry stakeholders on refrigerant use in the room AC sector and available literature in the public domain:
  • HCFCs would be phased out as per schedule under the Montreal Protocol. The refrigerant market is expected to grow at around 8.5 percent per annum till 2026 and at around 7 percent from 2027 onward.
  • Large-scale transition to next-generation low-GWP products has been assumed to take place after 2028 as A5 Group-2 nations (including India) are required to start phase down from 2032 onward. India is allowed to use the current range of products without any restrictions till 2030-31. This transitioning timeframe should allow India to continue to remain self-sufficient as adequate time for technology development and commercial-scale production would be available.
  • Based on the available data and interaction with industry stakeholders, India has already been shifted toward medium- and low-GWP refrigerants in room AC sector such as R32 and R290.
  • The current consumption baseline for the HCFCs, HFCs, and low-GWP refrigerants was 64.5 percent, 35 percent, and 0.5 percent, respectively, in 2017.

Business-as-usual scenario

Demand under business-as-usual (BAU) scenario has been projected for various refrigerants, keeping in mind the same share of low-GWP alternatives in overall pool of refrigerants’ use in room AC sector till 2030. HCFC would follow the Montreal Protocol schedule to phase out by the year 2030. The industry would continue to replace HCFCs with predominantly
HFCs, while HCs would continue to have less than 1 percent share in the total demand.

It is observed that by 2019, HFC demand surpassed HCFCs and continus to rise to more than 45,000 metric ton, while at the same timeline, low GWP variants, owing to the reduced share are seen to rise insignificantly. It is assumed that beyond the assessed timeline, low-GWP refrigerant demand may pick up following the Kigali schedule while India inches toward phasing down HFCs as per Kigali Amendment timelines.

New policies scenario

In this scenario, it is expected that the effect of Kigali Amendment and implementation of the ICAP would impact the refrigerant-demand dynamics, where natural refrigerant demand would get a boost as compared to BAU. This scenario considers the rise of low-GWP refrigerants more rapidly as compared to the BAU scenario. Effective policy implementation would boost the production of low-GWP variants in the country and allow for the replacement of HFCs. While HFCs dominate the first half of the assessed timeline, their rise is not steep owing to low GWP refrigerants as replacements. Clearly, HCFCs are observed to have phased out by 2030, while low
GWP refrigerants rise to nearly 10,000 metric tons. The year 2025 shows an interesting crossover between reducing HCFC demand and rising low-GWP refrigerant demand.

Ambitious scenario

In this scenario, the goals identified in the ICAP regarding reducing the cooling demand and, thereby, refrigerant demand through various policies, have been considered. The ICAP targets reduction in refrigerant demand by up to 30 percent by 2038. Considering the ICAP implementation as the target, the refrigerant demand in the ambitious scenario, the total refrigerant demand is estimated to be reduced by 25 percent in the year 2030, while the share of the low-GWP alternatives would continue to grow faster as compared to HFCs.

Hydro fluorocarbons growth projections

It is clearly evident that in case of HFCs growth, ICAP implementation would play an important role as the HFCs demand would reduce in both the alternate and intervention scenarios through industry shifting toward non-GWP refrigerant, along with total refrigerant demand reduction due to domestic policies under ICAP implementation approach.

Implications

Policy

India’s refrigerant demand and type of refrigerant used in the room air conditioners segment would have long-term implications on its power sector, climate commitments, and AC industry. Improving the energy efficiency of room ACs is one of the most viable and cost-effective methods to address the power sector challenges.

International commitments. Kigali Amendment to the Montreal Protocol appeals to the nations to undertake the dual tasks of phasing down high-GWP refrigerant use alongside improving equipment energy efficiency. While India has placed mandatory standards and concurrent refrigerant phase-down plans, the amendment provides an opportunity to look deeper into novel methods to accelerate to super-efficiency and low-GWP refrigerant use, in tandem with its international counterparts.

The aforementioned scenarios showcase that in the 2030s, significant focus would be needed on developing new low-GWP products and/or promoting existing low-GWP products, to meet the refrigerant requirements. The BAU scenario indicates a phase-out of HCFC use by 2030 in-line with the Montreal Protocol requirements. The BAU HFC rise is significant and unchecked; however, with interventions, such as increasing penetration of low-GWP refrigerants inter alia this rise is seemingly in control, allowing for a slightly faster start of HFC phase-out planning. Rapid rise of low-GWP refrigerants is seen to rise in the new policies and ambitious scenarios, which show a positive outlook for the sector.

In parallel, India’s international commitments are ambitious and have enabled faster adoption of measures in the country. The Article-5 nations function as cooperative peers that share common goals and objectives, besides sharing common HFC phase-down schedules beginning from 2031.

HCFC substitution. HFCs are substituting HCFCs as the HCFC phase-out began in 2012. HCFC22 use in RAC segment has already started transitioning to HFCs. All these transitions have happened largely due to the market forces and availability of viable substitutes.

Refrigerant replacement options. The refrigerants currently in use in the RAC segment are HCFC22, R410A, HFC32, and R290, while there are a limited number of techno-commercially viable low-GWP refrigerant options such as HFC32 and
R290.

Technology

Air conditioning industry and refrigerant production industry. Owing to Kigali commitments and national-level interventions, such as the ICAP, the RAC technology’s tilt toward highly efficient equipment is imminent. From Minimum Energy Performance Standards (MEPS) of 3.1 ISEER, a possible leapfrogging can occur within the forthcoming years. As far as the refrigerant industry is concerned, key changes are centered at increasing penetration of low-GWP refrigerants and HFC alternatives. And since policies are built around refrigerant-transition pathways, the industry is likely to see rapid change in not just the upstream sector but also the downstream sector, where servicing would be ramped up in tandem with manufacturing. In other words, it would affect the entire supply chain of the refrigerant industry.

Demand side

Peak demand and energy consumption. Increasing penetration of super-efficient equipment is critical as India is poised to witness a marked increase in peak electricity demand. The CAGR path points toward a dramatic threefold rise in electricity demand by 2030. The Standards and Labeling Program, since its inception, has been aiming to improve equipment efficiency in regular intervals. The program can find support in leapfrogging from market transformational initiatives like procurement of super-efficient products
in bulk to rapidly achieve economies of scale.

Consumer behavior, livelihood, and co-benefits. Awareness toward energy efficiency and climate change has increased in the recent years. Consumers have been seen opting for higher-efficiency products consciously. This is a healthy sign that would play a central role in the nation’s future policies. On the other hand, the demand-side shifting toward newer technologies and refrigerants would give the service and technical sectors a boost. This would potentially provide employment opportunities for service-persons.

Way forward

The report concludes with key takeaways to address cooling needs from a developing country’s perspective. Although phase-out and transition toward low-GWP refrigerants is a priority in the larger global context, important consideration needs to be given to affordability of the equipment as well. Without finding or enabling off-takers for high-energy-efficient products, a transition would be highly difficult.

The analysis reveals that the industry is rapidly moving toward use of HFCs and relatively low-GWP HFCs. In addition, amidst low clarity on the plausible replacements for HFCs in the context of technology-readiness and affordability, the industry’s stance toward HC needs to be recorded.

The policymakers, however, have favored HCs as they have shown tremendous potential as climate-friendly replacements for HFCs. The favorability may also have been influenced by the beginning of the HFC phase-down and replacement in the developed world. As the market opens up more for HCs, the industry might find greater clarity in adopting HC-based refrigerants in the coming decade.

Technologically, the aim would be to reduce the refrigerant charge size and obtain higher economy overall. This deliberation could get fast-forwarded if platforms for knowledge-sharing amongst international peers emerge, giving greater flexibility in terms of experimentation with different technology options before hard implementation on ground. Such collaborations could also foster mutual growth and sharing responsibility for climate commitments.

Since the analysis forecasts a slower low-GWP refrigerant growth in the BAU scenario owing to technological and market barriers, key focus could be laid on increasing manufacturing capacity in the country, not only for development of refrigerants but also for energy-efficient cooling equipment.

The cooling sector could greatly benefit from increased local capacity, which could additionally cater to the growing demand. While technology transfer and knowledge-sharing platforms are leveraged, the learning could be applied at home, by incentivizing local entrepreneurs and businesses aiming to contribute in the cooling space.

Beyond policy and technological options, the service sector needs to be looked into with deeper focus. Service technicians form a key stakeholder group, both in the formal and informal sectors. Training and creating awareness toward novel technologies and refrigerants is vital. Development of training materials, consolidation of training infrastructure, institutionalizing the training network, and emphasizing quality in training are essential components. In addition, an important aspect that needs to be looked into, for short term, is the penetration of energy-efficient equipment.

This can be achieved through market transformation mechanisms, which involve novel business models to achieve economies of scale much faster.

There are examples of market transformation initiatives undertaken in the country in the past, which may render as stepping stones to designing effective programs. Nodal agencies, think tanks, and other policymakers could be the relevant actors to carry out such programs.

The analysis also gives way to understanding consumer perspectives, their preferences, cooling needs, and specifically, the way they address their cooling needs. For instance, addressing practices such as overcooling would also be crucial in reducing peak demand.

Overall, the movement of cooling transition in the country would revolve around the following key aspects, wherein all the other action points would converge:

  • Increasing the proportion of relatively low-GWP HFCs-based refrigerant in the mix; such as HFC32 (India has already embarked on this path).
  • Use of natural refrigerants like hydrocarbons, HFOs, and CO2, wherever possible.
  • Reduce usage of R410a and R407C on account of newer alternatives being developed.

Based on The Energy and Resources Institute (TERI) – a report by The Energy and Resources Institute (TERI).

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