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Prioritizing energy efficient ACs

Star labeling has succeeded in winning consumer trust. However, the high cost of high-efficiency appliances continues to be a barrier that has to be surmounted to push high efficiency ACs in the market.

Residential air conditioners’ penetration in India is concentrated in metropolitan cities and accounts for a tremendous share of the current electricity used. This consumption by residential buildings is expected to rise substantially within the next decade, necessitating an energy optimization strategy for India’s cooling needs. Further, the Kigali Amendment to the Montreal Protocol requires a refrigerant transition to low GWP alternatives, while increasing and optimizing ACs’ energy efficiencies. The need for efficient cooling technologies will play a significant role in keeping to global climate ambitions.

There are two key aspects to controlling emissions arising out of the increase in usage of cooling appliances: one relates to the efficiency of the appliance/system, which causes indirect emissions; and the second relates to refrigerant consumption, which contributes directly to increased GHG emissions.

Indian consumers and energy efficiency
Energy conservation and efficiency is well recognized by the Indian government and is promoted through the various schemes and programs under the Energy Conservation Act, 2001 (EC Act 2001). A key sector of focus in this Act is the residential sector. In fact, recognizing this has not only led to BEE’s S&L program being mandated for ACs but also to the Energy Conservation Building Code (ECBC) being developed and rolled out for commercial and residential buildings. The growth in demand for cooling is inevitable and is aligned with India’s development priorities. The India Cooling Action Plan (ICAP) establishes cooling as a national priority and raises a call to action to proactively meet this cooling growth in a sustainable manner.

Motivators for adopting energy efficiency for households
Energy efficiency in ACs involves a substantial initial investment. Based on the online sale prices of ACs, a 5-star rated AC can be at least `8000 more expensive than a 3-star AC. Various factors determine consumers’ decisions to purchase efficient ACs. Studies have tested the dependency between socio-economic and demographic characteristics and energy efficiency among individuals or households.

The lifetime costs (maintenance cost, electricity bills, etc.) of the appliance also influence purchase decisions. Knowledge about associated cost savings and environmental friendliness of these products encouraged the willingness to pay more. Even in terms of decision-making, consumers that choose to purchase a 5-star AC typically do so for their second AC or due to the additional design features that a 5-star AC has to offer. They stated that it was the aesthetics of a 5-star model that made it attractive in the cases where it was bought. Electricity pricing can also play a significant role in consumers’ purchase decisions. Further, quality of electricity supply had a role to play in purchase decisions. However, even in major metropolises in India, 3-star ACs are more prevalent that 5-star ACs. It is, therefore, necessary to understand what motivates households to purchase energy-efficient ACs.

How does urban India perceive energy efficiency?
Energy efficiency and star labels formed a recurring theme in the survey, thus capturing urban households’ perceptions and practices. The responses of the households reflect the impact of the systematic consumer awareness program that the star-labeling program has been running. To a series of questions that covered awareness, trust, willingness to buy, other purchase choices, usage, key challenges, sources of information related to energy efficiency, and other AC attributes, the responses received were:

Star labeling program: Trustworthy and aspirational
Of all the AC-owning households across four Tier-II cities in India, over 75 percent were aware of the star labeling program. This awareness was significantly higher in some regions — 80 and 90 percent of the households in Dhanbad and Madurai, respectively. However, less than 50 percent of the households in Vadodara reported being aware of the star labeling program. Among the households that were aware of the star labeling program, 95 percent deemed it either highly trustworthy (48%) or trustworthy (47%), and 93 percent claimed to find it either very useful (43%) or useful (50%).

Given the positive perceptions and values attributed to the program, it is not surprising that a majority of these households (over 70%) wanted to purchase a high-star labelled AC. The energy star label was ranked fourth among the information sources that households reportedly took into account when considering the purchase of their AC. This was preceded by advertising (TV and print) and personal recommendations–also key sources of information influencing the AC purchase decisions among households. Moreover, of all the key attributes that influence AC purchase in households, the energy performance of the unit ranked third. Almost 93 percent of households ranked brand as a key attribute, followed by tonnage (62% of households). Over 55 percent of households ranked the energy star rating as a key attribute when buying ACs. The other two attributes in the top five considerations were the design/aesthetic of the AC (approximately 53% of households) and cost–just over 48 percent of households ranked this as a key consideration.

It is interesting to qualify that when asked at which point buyers considered these attributes–well before buying the AC or at the time of purchase–68 percent of households reported that they considered energy efficiency a key attribute at the time of purchase, whereas relatively more respondents indicated that they decided their budgetary and branding preferences well before making their purchase. However, of all these households, only 14 percent actually went on to purchase a 4- or 5-star labeled AC. When asked for the reasons in this discrepancy between desire and purchase decisions, over 75 percent of households cited cost as a barrier.

Understanding the perception of energy efficient ACs
In response to the impact of ACs on electricity consumption, over 68 percent of households affirmed large or substantial, as opposed to being unsure or perceiving AC’s impact as being small. However, the well-established tradeoff between upfront spending, or through the course of the appliances’ lifetime, is still clearly stacked against energy efficient purchases. The energy star rating is among the top attributes that buyers consider when purchasing an AC. This was highlighted across two key data points related to AC purchase decisions: sources of information that households considered when purchasing an AC; and star rating as an attribute of the AC. However, only a minor number of these households went on to purchase an energy efficiency labeled air conditioner.

These findings are well in line with the priorities that previous government programs have also run. BEE’s extensive ad campaign for print, electronic, and social media included flyers and articles explaining energy efficiency and star labeling that were widely published in national and regional dailies. Messages from public figures through interviews and advertisements are also used to encourage the adoption of energy conservation behaviors among the public. Advertisements related to star labeling specifically also accrued the third highest visibility among consumers as a channel of information, just after print and television adverts.

Energy efficiency is also a positive USP for various brands, and many manufacturing companies and retail outlets also focus on it as a selling point. This could also be because of the ease that the labeling program offers in comparing and switching between different types of ACs. Regardless of make, refrigerant, branding, tonnage, pricing, inverter, wiring, and other key features that make an AC, the star labeling program offers an easily comparable vantage point. In addition to sales staff highlighting the star rating of the products on offer, households reported that the star labeling sticker acted as a key source of information for them at the point of sale. As a factor that influences the purchase of an AC at the time of buying unlike other attributes like tonnage, budget, and brand, energy efficiency being a key consideration may be linked to extensive training and awareness programs that have been dedicated to retail sales staff as part of the star labelling program.

Sales staff was also considered among the top five sources of information that influenced households’ decisions around AC purchase. This is in line with systematic attempts made at organizing awareness among retail staff by BEE — in addition to consumers, BEE also provides training to retailers nationwide to create awareness on the benefits of the star labeling program among traders, sellers, and distributors.

Energy efficiency and servicing practices: Limited awareness
Very few households see any explicit relationship between energy efficiency and AC usage practices. Only a third of households believed that there was any relationship between servicing the AC and the maintenance of energy efficiency; two-thirds of the household either did not know of or did not believe in a link between the two (approximately 30% and over 40%, respectively).

Moreover, of those who responded as recognizing a linkage between energy efficiency of their appliance and servicing practices, only 26 percent identified any specific aspect/ practices of the servicing as a having a direct impact on the electricity load of an AC, electricity consumption, or efficiency of the AC unit. These practices included cleaning of the AC, earthing and voltage related practices and filter cleaning specifically. However, among all the households, only less than 10 percent had a contractual Annual Maintenance Contract or had bought an Extended Warranty Service both of which provide regular servicing.

Thus, in an attempt to frame a larger picture around awareness related to energy efficient ACs, if the starting point is familiarity with the star labeling program, then trust and usefulness of it, followed by consideration of the star labels when planning a purchase, the desire or aspiration to purchase, the actual purchase, and then finally, the internalization of electricity savings brought on as a result of the energy efficient purchase, its measurement, and maintenance, it is clear that Indian households still have a long road ahead in internalizing energy efficiency behaviors related to ACs.

Recommendations for furthering awareness on energy efficient ACs
In addition to financing solutions to address the main barrier as noted by consumers, if information and data gaps like electricity savings, cost-benefit of AC’s efficiency as compared to its running time, may also equip the retail staff to nudge, and the consumer themselves to consider, a higher efficiency product more favorably. Furthermore, the lack of awareness on servicing, operations and maintenance (O&M) practices’ influence on energy efficiency needs to be systematically targeted.

Financing purchase of high-efficiency ACs
Financing solutions or affordable high-star labeled ACs remain out of reach for a majority of the population. Since energy efficiency purchases are directly linked to costing, and a major source of influence is at the time of purchase, schemes that allow for easier financing solutions like rebate in GST, tie-ups with retailers and manufacturing companies to incentivize higher-star purchases, as well as large scale procurement programs, especially for MSMEs, start-ups, and other clusters need to be investigated from a business model perspective. While the super-efficient AC program initiated by EESL is a start in such offerings, it needs to be assessed and enhanced based on the ongoing experiences and finally scaled up to meet the increasing cooling demand in India.

Tax incentives for 5-star ACs. ACs fall within the luxury category of India’s GST and are subject to the highest rate of taxation. A lowering of GST on highest efficiency products from 28 percent to under 5 percent would be able to successfully allow for competition between lower efficiency products available at pricing marks in the range of around `30,000 on average, as compared to highest star units costing upwards of `45,000. A significant markdown in the GST would allow for a more favorable competition toward higher efficiency products, and also encourage industry to create financing schemes and encourage further product development for this segment of ACs specifically. Currently, BEE requires that AC efficiencies be increased every 3 years. Given that the demand is low for highest star ACs due to financing concerns, the vicious cycle of scaling up to lower costs continues; and has been met with pushback from industry to invest in greater R&D to lower component and other costs to bring the average product price down. An incentive on the final price could support demand creation, and help scale-up production and market uptake of better efficiency products across the country.

Bulk procurement. EESL launched a first-of-its-kind super-efficient AC program in 2019. This was designed to facilitate consumer access to the most efficient AC products, not on the Indian market yet, made available at prices that were 30 percent lower as compared to existing market offerings of efficient ACs. The success of this program is as yet unknown, but the idea of investing in higher efficiency products to allow their purchase at competitive pricing is worth scaling up to encourage consumers to opt for best-efficiency technologies.

International financing programs. Akin to the support granted to EESL as part of the bulk procurement program, international development agencies and banks can also play a critical role in galvanizing the scale up of financing made available for high-efficiency products. Clean and efficient cooling is increasingly being recognized as a critical technology that can be leveraged and encouraged to curtail greenhouse emissions, both from energy utilization and refrigerant emissions’ perspective. The Montreal Protocol has a dedicated fund (Multilateral Fund) to support countries in their transition to cleaner refrigerants, as do various multilateral and philanthropic bodies. The Kigali Cooling Efficiency Program (K-CEP) and the Climate and Clean Air Initiative are only two examples of programs that have specific financing windows for switching to low-GWP refrigerants.

Optimizing efficiency through O&M
While households consider energy efficiency important, they show a serious lack of clarity on the dependence of efficiency on regular servicing. Consumer awareness programs run by BEE and companies do not highlight the significance of regular servicing in optimizing the energy utilization of the AC. This is a huge area for improvement, both for the energy utilization of the unit and cumulatively, for the country. Moreover, it is critical to also help deliver the benefits of an energy-efficient purchase to the household itself.

However, in addition to a mass consumer awareness program targeting operations and maintenance, on the informational supply side as well as to nudge consumers to undertake better and regular servicing to optimize efficiency of their ACs, the following interventions may be considered:

Manufacturing companies, retailers, and OEMS must develop and promote informational outreach collaterals on best case practices related to installations and servicing of the AC. These should also be included in the product manual.

Retail outlets and manufacturing companies can create business models for effective servicing, offering incentives for annual servicing, maintenance contracts and extended service warranties. Of the households surveyed, less than 10 percent had subscribed to such servicing contracts, suggestive of a market potential that may be tapped into.

The ICAP has envisioned a well-trained, certified servicing sector. This ongoing supply side readiness is under progress, and seeks to create a workforce of technicians that undertake good servicing practices so as to optimize cooling and efficiency of the AC appliance. As the servicing sector gradually formalizes, businesses connecting households with trained and certified technicians will simultaneously emerge.

In addition to servicing practices, information on usage also needs to be organized for awareness drives to hone energy efficiency benefits by consumers. One such example is the temperature set point of 24 degrees Celsius that BEE notified to be the default in 2018. It has been estimated that for every degree of warmer temperature in AC use, there is a 6 percent drop in electricity consumption. This awareness drive has so far been limited only to social media and a few news publications, and has not been aggressively rolled out as previous consumer programs dedicated to the star labeling program. Only 40 percent of households reported any effect of temperature setting on energy consumption. However, some respondents among this subset of households also reported that keeping low temperatures is a good maintenance practice that they follow. This possible misconception around AC set points needs to be further analyzed, and since a higher set point is a behavioral nudge that does not require any additional investments, BEE should consider designing a large-scale campaign to adopt this energy efficient practice among households.

In conclusion, while it is commendable to note the awareness spread that the star labeling program has achieved across even Tier-II cities in India with regards to high-efficiency ACs, the stark market reality betrays its accessibility given the price points. Different financing platforms like tax incentives, cumulative procurement programs, as well as aggregating incentives across brands to encourage a more accessible price point for such units would be a direct area of intervention to scale up their sales, and contribute to a wider spread of higher efficiency appliances.

Enhancing the narrative around energy efficiency as a purchase priority for consumers needs more attention. Data on electricity savings resulting from a higher efficiency AC, as well as its impacts on the local and global environment need to be brought out to the public in a simple targeted manner. The amount of possible savings as a result of a higher efficient AC purchase, and the impacts of regular servicing–on electricity savings and the life of the AC, for example–also need to be studied and targeted to the Indian consumer so that purchase decisions for higher efficiency products are not just well intentioned, but also well informed.

Based on Do Residential AC Buyers Prioritize Energy Efficiency? A CEEW India and Shakti-Sustainable Energy Foundation report. 

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