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Cooling India

A new study from Lawrence Berkeley National Laboratory highlights the enormous potential growth for air conditioning in India.

Globally, 2017 will likely end up one of the three hottest years on record. Nowhere does this matter more than India, where temperatures last year in Rajasthan reached 124 degrees Fahrenheit (51 degrees Celsius). By any measure, India is one of the hottest countries in the world. Chennai, Mumbai, Kolkata, and Delhi all rank among the top 10 hottest large cities globally, as measured by cooling degree days.

Air Conditioner Sales Are Booming

Not surprisingly, air conditioner sales in India are boomingOnly 5% of households in India currently have air conditioning, but this is poised to increase dramatically as incomes rise and air conditioners get cheaper.

This is mostly great news. Air conditioning brings relief on hot and humid days. During extreme heat events, air conditioning can even make the difference between life and death. In the United States, for example, heat-related mortality has decreased more than 80% with the spread of air conditioning.

At the same time, air conditioning also raises large challenges. Air conditioning is extremely energy-intensive. A typical room air conditioner uses 20 times as much electricity as a ceiling fan, and 10 times as much as a typical evaporative cooler. So we are talking about an immense amount of electricity. By one estimate, the potential cooling demand in Mumbai is one-quarter the demand for the entire United States. Meeting such a large increase in electricity demand will require rapid investments in generation, transmission, and distribution.

Environmental costs are also significant. With its population of 1.3 billion people, India will soon pass Russia to become the third-largest source of carbon dioxide emissions. Coal and other fossil fuels dominate Indian electricity generation, so more air conditioners means increased emissions. In addition, the refrigerants used in air conditioning are themselves a potent greenhouse gas.

Low-Hanging Fruit?

A new study from Lawrence Berkeley National Laboratory (LBNL) asks whether energy efficiency could help mitigate these impacts. Over the last few decades, air conditioners have become much more energy-efficient. Today’s most efficient air conditioners use about half as much electricity as in 1990.

Interestingly, however, many of the air conditioners for sale today in India fall well short of this technological frontier. India uses a 5-star label system, with “1-Star” serving as the minimum allowable efficiency level.

What is striking here is the wide range of efficiency levels. While the most efficient air conditioners sold in India are on par with the most efficient units sold anywhere in the world, the bottom of the market is lagging behind, roughly equivalent to a 1990-era U.S. model. From the top to the bottom the ratio is about 2:1, so the most-efficient units use half as much electricity as the least-efficient units. According to the LBNL report, these least-efficient units have significant market share, so that the market average is close to the bottom of the range.

The LBNL report then points out that there could be large gains from removing those inefficient units from the market. Simulating air conditioner sales out to 2030, they calculate that if average energy-efficiency could increase at 6% per year, compared to this historical average of 3%, this would save a whopping 63 TWh/year by 2030 — equivalent to total electricity consumption in the state of Oklahoma.

How Does India Get There?

I agree there is a lot of potential here, but I would have liked the LBNL to say more about how India can reach this goal. The LBNL study envisions ratcheting up minimum efficiency standards, essentially eliminating the bottom half of this market. The concern with this, of course, is that these air conditioners tend to be the cheapest, so stricter standards will likely increase appliance prices.

But to me the elephant in the room is electricity prices. India subsidizes electricity for residential customers. The tariffs are complicated, but in Delhi, for example, households pay only about 75% of the private cost of electricity generation. Moreover, many households in India are not billed at all, or don’t pay their bills.

Why should anyone invest in energy-efficiency if they aren’t paying the full cost of electricity? To the contrary, your incentive is to buy the cheapest, least-efficient air conditioner available. No wonder there continues to be a market for these sub-standard air conditioners.

Yes, these electricity tariffs are intended to achieve distributional goals, but there are far better ways to improve equity than via electricity tariffs. For example, India is beginning to experiment with a universal basic income (UBI), in which every individual would receive a uniform stipend (see here and here). The UBI  would be a much more direct approach for redistribution, and could be funded, in part, by savings from electricity tariff reform. Alternatively, even without the UBI, marginal electricity rates could be increased while lowering fixed charges, or by levying fixed charges that depend on income. Building institutional capacity will also be necessary to improve bill collection and enforcement.

Tariff reform will not be easy, but would yield large benefits, encouraging a whole set of more efficient behaviors. Households make choices not only about which air conditioner to buy, but also between fans, evaporative coolers, air conditioners, as well as complementary investments in cool roofs, efficient building design, insulation, and natural shading. Raising minimum efficiency standards can’t address all these other tradeoffs; India needs energy pricing that reflects the true costs.



Lucas Davis View All

Lucas Davis is an Associate Professor of Economic Analysis and Policy at the Haas School of Business at the University of California, Berkeley. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.

13 thoughts on “Cooling India Leave a comment

  1. Great article Lucas,

    I have been in India this summer to get the actual feel of whats happening at ground level. Summer temperatures have hit all time highs in many cities across the country and comfort is a major factor. I see the new generation with disposable income spending on air conditioners of all star ratings. Many a times this is more an impulse buy over being a thought out purchase.

    I’ve seen shops selling 1.5 TR units where a 1 TR unit would have been a perfect fit. Yes, the demand is high and so is the cost of running these units and the eventual cost on a strained grid. At the ground level people do understand climate change and feel its effects, however being a cost conscious country and very “ME” centric, they’d select the lowest priced one that is the lowest on energy efficiency.

    The push to subsidize higher energy efficiency air conditioners by the indian government by about $110 is a good move but still available only to 20,000 purchasers. This is a drop in the ocean for a country with an appetite of consuming millions of air conditioners a year.

    EESL a PPP enterprise has committed to purchase 100,000 air conditioners directly from manufacturers at a bulk buying price, this number I understand will go up to 150,000 units in 2018. This is a good start and I would like to see this go higher to drive costs down would be a great benefit to this lovely and diverse country.

  2. This blog draws our attention once again to cooling as the most critical electricity end use of planet earth midsection stretching from the Philippines to Latin America through South Asia and the African Sahel. These countries are largely resource rich developing countries, with rising income, high demand growth for electricity, entrenched fuel subsidies, and weak institutional frameworks. Many of these countries have cooling degree days approaching or exceeding 4500 CDD/year and up to 500 CDD/month during the summer. In many of these countries, AC units can register in excess of 4000 running hours annually. In areas where AC have achieved significant penetration as in the Gulf region of the Middle East, AC accounts, coincident with system peak, in excess of 40% of peak grid capacity. As the blog points out, the last 20 years have witnessed significant improvement in AC efficiency with AC today consuming half the energy air conditioners consumed in the 1990’s. As pointed out by Professor Davis and also in the LBNL study the energy efficiency of “installed” window air conditioners in India have half the EER or ISEER of the most efficient window AC units available in the market. It was this fact precisely in 2010 that led my team to conduct an exhaustive AC study of Saudi Arabia and the Gulf region. Unlike the LBNL study, our study covered all types of AC units to include the window unit, split DX, package air and water, condensing, and water cooled chillers. The study confirmed, particularly for window and split DX, that installed AC units had half the efficiency of the most energy efficient units available in the market. More alarmingly, the study confirmed that 40% of the AC models in the market covering Star 1 and 2 representing the lowest energy efficiency units in a 6 rating system s accounted for 80% of all AC units purchased while all higher star rated systems in the same category accounting for less than 20% of all AC purchases pointing clearly to the dominant role window and split DX type units but particularly low efficiency units of these AC types play in the profile of AC electricity consumption. In particular the study pointed out that both window and split DX units are the popular AC technology of choice for middle and low income consumers given both low capital cost and subsidized electricity rates. Another fact our study revealed was the significant degradation in capacity and EER both window and split DX units suffered with increase in ambient air temperature. Given the weather conditions in the countries we addressed where ambient air temperature can range from 28 to 52 degree C, a drop in EER and capacity degradation of 20% and 50% respectively was registered. The above suggests the need for a multifaceted approach to address the dire AC situation facing the developing world. Such an approach and in support of Professor Davis suggestion is to address AC energy efficiency, standards, and labels but to also clearly outline the risks the present AC situation presents to the economy of the developing world and the measures necessary to mitigate them. Such measures in the least must address: building envelope thermal integrity, raising AC energy efficiency standards, labels, enforcement, and equipment replacement programs in the context of price and subsidies reform, rising income, reform of the institutional framework, equity, and consumer choice given the energy/technology tradeoff cycle.

    • Thanks for your comment. Is your Saudi Arabia study publicly available? If so, I’d be very interested to read it, could you please send me a copy?

      • No, the study is not publicly available. The study was commissioned by a quasi-public sector energy organization in Saudi Arabia. Believing that air conditioning is a major public health and environmental issue, I will check on study findings and information and make available information I can share.

  3. An interesting paper. I agree wholeheartedly that better electricity pricing will be a key to help address the burgeoning demand for inefficient air conditioners in India. In countries where authorities are determined to price electricity below cost, they should at least ban or tax inefficient appliances. However, as India and other regions in the tropics move to wider adoption of air conditioning, there will be a need to look to technological and policy solutions that go beyond simply improving the efficiency of single home vapor compression air conditioners.

    Even for efficient air conditioners, an urban area where every resident buys his own small split unit is an inefficient solution. Furthermore, by pumping heat into the surrounding air, the individual air conditioners raise the ambient temperature of the entire area. This, in turn, will marginally increase demand for, and reduce the efficiency of, additional air conditioners. (One might think of it as use of the thermodynamic “commons.”) There are existing technologies, such as shading, geothermal cooling and absorption chillers, that could be more effective than conventional vapor-compression refrigeration, but generally only a larger, building-wide or district-wide scale. There are also interesting emerging technologies such as solar air conditioning and the use of selective surfaces to radiate heat into space. Paying for these larger scale technologies, however, might require a different commercial model than a simple electricity rate structure.

  4. Indian could also subsidize the efficient air conditioners directly, which would improve system efficiency before any change in pricing could take effect, given that so many people access power directly (without paying).

  5. Improved efficieny is indeed the faster way to ‘saving’ energy. In all areas of use there is room for savings: lighting [use less of it by more lumen per watt], transportation [improved ICEs], industry [generate from waste]

    It is imperative that people all over the world have healthier and more comfortable living. Talking about the high temps in Rajasthan is like the high temps in Death Valley – few live there, and even fewer of those know where there next meal is coming from. The LBL study is another example of ‘research’ for the sake of a study.
    Let them eat cake.

    • Azmat,
      I have to respectfully disagree with you there. Rajasthan is listed as an example of the extreme conditions that can occur, but large swaths of India experience days in excess of 40 C, where heat waves are occurring more often (2015: 2,300+ dead). If we believe global warming to continue, than case studies from the extremes (i.e.: Rajasthan) are predictors of future heat waves elsewhere. Also, Rajasthan has an estimated population of 70 million people (2012 estimate), where NYC only has 8.6 million (NYC planning July 2016). We are talking about an area with a population 8 times that of New York City. For comparison, Death Valley has a population of ~281. I would encourage you to check your numbers.
      As for the cake: in India, a slice of U.S. cake is two days salary for an average worker.

  6. Thanks for bringing up the concept of cooling degree days. I am hoping to convince PG&E/Opower/Oracle to use the metric rather than the current AVG temperature metric that is associated with my bill.

    I was told by an architect to use heating, or cooling degree, days to estimate HVAC requirements. It looks like BizEE Degree Days (1) developed an algorithm- “an intensive calculation process, but it’s the best method -we know of for accuracy of the resulting degree-day data.” – to use weather underground data that I can use when I start crunching our PG&E data.


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