Air-conditioners flew off the shelves in India this summer. Sales were reported to be up by 30-35 per cent compared to the last year, driven by the scorching summer which saw the longest heat wave in India on record. There is a general consensus that India will experience more frequent, intense, and prolonged heat waves in the future. Only a tenth of the households in India own air-conditioners. Many more are expected tto buy ACs to seek relief from the relentless heat. While ACs provide comfort, they also consume a lot of electricity shooting up electricity bills. Most of the electricity currently comes from coal in India, which contributes to the global climate change.
Additionally, when many people use their ACs at the same time, it leads to high peak demand, straining the electricity grid and increasing the chances of power cuts.
One way to mitigate these issues is to ensure that ACs are energy efficient, meaning they consume less electricity for the same cooling effect. Similar to emission norms for vehicles, ACs have standards for energy efficiency regulated by the Bureau of Energy Efficiency (BEE).
Star ratings
BEE stipulates the minimum energy performance standards for ACs and rates them from 1-star to 5-star with higher ratings indicating better efficiencies. Manufacturers are prohibited from selling an AC with energy efficiency less than a 1-star rating, eliminating electricity guzzling models out of the market.
At the same time, a 5-star rating encourages sales of highly efficient models by distinguishing them clearly. The combined effect is to push up the average efficiency of the ACs sold in the Indian market. BEE regularly updates the standards to encourage manufacturers to innovate and improve efficiency, which has led to considerable improvement in energy efficiency of ACs over the last decade.
AC standards were expected to be revised from January 2025. However, the BEE has recently postponed the revision to January 2026. This revision would involve tightening the standards by one notch, meaning the current 5-star models will get a 4-star rating and the existing 1-star models will be out of the market. The postponement and marginal revision could considerably slow down India’s trend of energy efficiency improvement of ACs.
India’s minimum energy performance standards with a 1-star rating are relatively lenient compared to other countries like China, where air conditioners need to be about 50 per cent more efficient than India to be qualified to be sold in its market.
As a result, these standards are being easily met. So, a marginal improvement in the 1-star rating standard effectively does not change much.
Moreover, the 5-star rating standard is lower than the efficiency of some of the most energy efficient models available today in India. Manufacturers will have little incentive to innovate further since their models will still qualify as a 5-star model up to 2028 without much improvement.
Our estimates show that the lax revision of the standards could lead to a cumulative loss of ₹80,000 crore in electricity bills to consumers and an additional 80 million tonnes of CO2 emissions over the lifetime of the ACs sold in next four years.
Revising standards
A more effective and also feasible revision would have been to revise the standards by two notches starting January 2025, meaning the current 5-star models will get a 3-star rating after January 2025 and the existing models with 1-star and 2-star ratings will be out of the market. Such a revision would also be consistent with India’s G20 commitment of doubling the rate of energy efficiency improvement by 2030.
Manufacturers have expressed concerns that stricter energy efficiency standards will raise prices and reduce the sales of ACs. However, data from other countries show that higher efficiency standards often lead to lower real-time prices over time.
Currently, about 50 per cent of the AC models available in the Indian market are 3-star models whereas about 21 per cent are 5-star models. Our analysis of the AC models available in the Indian market indicate that while 5-star models are more expensive than 3-star models, energy efficiency is only one of the factors contributing to the price difference.
Prices vary substantially even within a rating with a few 5-star models being comparable to the price of a 3-star model. Manufacturers typically market 5-star models as premium models making them more expensive than necessary due to energy efficiency alone. Hence, right pricing and focus on energy efficiency can attract buyers to 5-star models.
Furthermore, the AC sector has received substantial policy support. It has been identified as a champion sector by the government and has an ongoing Production Linked Incentive (PLI) scheme. The Finance Ministry has issued a notification that government agencies should procure 5-star ACs in most cases. Public sector companies like Energy Efficiency Services Ltd. are conducting bulk procurement of 5-star ACs providing a further fillip to the demand. A stricter energy efficiency rating system would be an effective complement to this.
With substantial policy support, India has the potential to become a global hub for highly efficient air-conditioners, in addition to helping consumers save significantly on their electricity bills. As summers are expected to get hotter and more air conditioners are expected to be sold, it is critical to ensure that they are energy efficient.
Chunekar is Fellow, and Sahasrabudhe is Senior Research Associate, Prayas (Energy Group)