While air conditioners increase market penetration, the energy guzzler that they are, sustainability vis-à-vis power supply is a big question mark.
The world is about to install 700 million air conditioners. As countries grow in wealth, electricity becomes available, and the climate warms, projections are clear. There will be mind-boggling amounts of air-conditioning installations taking place.
In most ways, of course, this is a welcome progression. Protection from intense heat is essential for health and well-being. It is just that it implies a huge energy demand, and potentially huge carbon emissions to boot. A recent Berkeley report projects that this installation of 700 million air conditioners by 2030 (and 1.6 billion units by 2050) in terms of electricity use and greenhouse gas emissions is like adding several new countries to the world.
That has already happened in some places. In just 15 years, urban areas of China went from just a few percentage points of air-conditioning penetration to exceeding 100 percent, more than one room air conditioner per urban household. Mexico has projected a stupendous growth of air conditioning over the 21st century, from 13 percent of homes currently to 71 to 81 percent of homes. And air conditioner sales are increasing in Indonesia and Brazil by between 10 and 15 percent per year.
“The biggest country for air conditioning growth, and associated greenhouse gas emissions, is projected to be India,” quips Durwood Zaelke, president of the Institute for Governance and Sustainable Development, which focuses on short-term, high-impact fixes to the climate problem. “The country experiences not only extremely hot temperatures, but also has relatively little air conditioning installed so far (a nation of 1.25 billion people has just 5 percent air conditioning penetration). Indeed, in coming years, India hopes to first bring electricity to several-hundred-million people. If they can focus on efficient AC machines, they can save a tremendous amount of power,” Zaelke adds.
A Berkeley Laboratory study found that if the world can shift toward 30 percent more efficient air conditioners, and phase out HFCs at the same time, that could effectively offset the construction of as many as 1550 peak power plants. It further found that in terms of emissions avoided, this approach would have an even bigger impact than huge renewable energy projects – saving eight times as much emission as China’s Three Gorges dam, and two times as much as India’s solar initiative. By the year 2050 for the globe as a whole, the total avoided carbon dioxide equivalent emissions could amount to some 4 billion tons annually – more than any single country other than China and the United States currently emit – with 1 billion tons of emissions avoided in India alone. Cumulatively, this amounts to avoid 98 billion tons of carbon dioxide emissions.
In a recent development, at a United Nations conference in Rwanda, in October 2016, 197 nations have agreed to drastically reduce their use of hydrofluorocarbons (HFCs), by which the world may end up avoiding between 0.2°C and 0.44°C of warming by the century’s end.
Wealthier regions, including the United States and Europe, will take the lead, cutting HFC emissions as much as 10 percent by 2019 and even more thereafter. Meanwhile, developing countries such as China and Brazil will get a bit more flexibility, and will not have to cap their HFC use until 2024. That way, they can wait until newer air conditioners and refrigerators come to market and the price comes down. Even poorer countries with sweltering climates like India and Pakistan get until 2028, although they get financial incentives to start cutting earlier. Rich countries and donors pledged to chip in aid under the treaty to finance the transition, as they did with CFCs. By some estimates, shifting away from HFCs could cost India between Rs.100,000 to Rs.260,000 crore through 2050.
Testing Norms Leave Much to be Desired
A Centre for Science and Environment (CSE) study report, Not As Cool – Improving Energy Performance of Air Conditioners in India, conducted in July 2016, has projected that electricity consumption by RAC might double by 2024, if the RAC sales continue to grow at 10 percent annually. The Bureau of Energy Efficiency (BEE) regulates the sector with 4 percent energy efficiency ratcheting every two years with its star-labeling program.
CSE estimates that RACs consume about 96 TWh (96 billion units) of electricity, if they function as per their efficiency rating and operate for 8 hours a day for 180 days a year. This means that RACs are responsible for almost a third of 295 TWh electricity consumed by homes and offices.
It has implications for the way RACs are tested for energy performance and also for the real world energy and monetary savings. A 5-star RAC is supposed to save 20–22 percent of energy cost compared to a 1-star RAC. But CSE findings show that in the peak heat of the summer, when temperature crosses 40°C-mark in most of north India, a 5-star RAC can be consuming 10–28 percent more than its declared rated capacity. Of course, the performance of the 1-star RAC is expected to be even worse.
Moreover, cooling capacity drops by almost 30 percent, which means a 1.5 ton RAC will act like a 1 ton RAC. This means that there is neither cooling nor saving – if one is running the RAC at 27°C setting. Lowering of the internal temperature can further worsen its performance.
Even though the full energy-efficiency gains from technology improvement are realized from the overall length of usage over time, the short-duration spikes can undermine long-term gains and savings. But addressing this is important to manage the peak demand loading. Just to give an indicative idea, it may be noted that normally, in monetary terms, running a 5-star RAC for couple of hours of peak afternoon during summer should cost just about Rs.490 a month. But with worsening of performance it will cost anywhere between Rs.660 and Rs.780. It will also cool 30 percent less (based on Delhi’s non-subsidized tariff rate of Rs.5.8 per unit). With climate change and more extreme weather conditions this will have serious implications in the longer run.
With climate change, more exacting and short-duration extreme temperatures can be experienced more frequently during hot summers in northern and western India. It is important, therefore, that based on the high temperature profiling of different climatic zones and micro climatic conditions, BEE and BIS adopts an additional test procedure based on higher temperature representative of Indian conditions.
This is justified based on the observed temperature data in different climatic zones of India. The temperature data available from the Bureau of India Standards for 60 cities in different climatic zones show that 41 out of 60 cities have at least 175 hours in a year when external ambient temperature is above 35°C. As many as 22 out of 41 cities that include Delhi-NCR, Jaipur, Ahmedabad, Lucknow, and Raipur have temperature around 40°C or above. It can be safely assumed that almost whole of north Indian plain has at least 175 hours in the year when ambient temperature is above 40°C.
In addition to this, it is important to recognize that even within composite and hot and dry climatic zones, there is wide variation in micro climatic conditions that can record much higher temperature than the overall ambient temperature. This is going to get further aggravated in cities expanding concrete space rapidly and falling into the grip of heat islands. A study by IIT Delhi has found that urban centers in India are becoming hot-spots for urban heat island effect. The study has found that dense urban areas and highly commercial areas in Delhi have the highest urban heat island effect, with maximum hourly magnitude peaking by 10.7°C and average daily maximum urban heat island effect by another 8.3°C.
This means the temperature in the urban cores where most of the RACs are installed have local temperature conditions almost 8–10°C higher than the overall ambient air temperature recorded at the weather stations for the city.
Though India has not adopted ISO’s T3 test parameters for products to be sold within India, these conditions are found in the Indian Standard Rating Conditions for Units Intended for Export that are applicable to the units that are meant to be exported. International best practice shows that the countries with harsh summer have adopted both T1 (mild climate) and T3 (hot climate) test parameters of ISO.
Indian Market Dynamics
The Indian air conditioner market is estimated at 4.2 million units in 2016, a 7.7 percent increase over 3.9 million units in 2015. Voltas and LG continued to lead at a market share in the vicinity of 20 percent each. Daikin, Hitachi, Samsung, Blue Star, and Lloyd (recently acquired by Havells) commanded an 11–12 percent share each. Other aggressive brands in the market are Videocon, Haier, Mitsubishi, Whirlpool, Truvison, Cruise, AKAI, O’General, Vestar, Mitashi, Panasonic, Onida, Godrej, Electrolux, Kelvinator, Carrier, Midea, IFB, TCL, and GREE.
On August 24, 2016, the Bureau of Energy Efficiency (BEE) introduced a new star-rating methodology, Indian Seasonal Energy Efficiency Ratio (ISEER) for air conditioners. This rating methodology factors in variance in higher temperature in India and rates air conditioners accordingly.
Keeping the performance of air conditioners during higher temperature in mind, ISEER will address different climatic zones in India and higher temperature. ISEER measures energy efficiency of air conditioners based on a weighted average of the performance at outside temperatures between 24°C and 43°C based on Indian weather data.
For 54 major cities in India, 65 percent of the total number of hours in a year have temperature above 24°C (5778 hours out of 8760). Air conditioners in India have till now been tested under the IS 1391 at a standard operating condition of outside temperature of 35°C. Star rating is given to manufacturers based on the test results provided by them as tested on this standard.
Moving forward, the Star-5 in 2010, which became Star-3 in 2015, will become Star-1 in 2018 as per the new ISEER methodology. As per latest notification, since January 2016, Star-2 is the least efficiency level being sold in the market; hence variation in power consumption is compared between Star-5 (most efficient) and Star-2 (least efficient) air conditioners. This is expected to take the cost up to around 20 percent.
EESL Procures One Lakh Inverter ACs to Start with
Energy Efficiency Services Ltd. (EESL), under the Union Ministry of Power, is planning to bring in an air conditioner which is not there in the Indian market in terms of efficiency. Right now, the BEE has 1- to 5-star categories of ACs. While a 5-star AC has an energy-efficiency ratio of about 3.5 to 3.7, EESL is looking at split, inverter air conditioners with the minimum efficiency of 5.2. The company has initiated the open procurement process and Request for Proposal (RfP) for 100,000 air conditioners. Initially, the company is looking at B2B business, by replacing air conditioners at banks, ATMs, institutions, and organizations and in the second phase to be introduced in the retail market too.
Inverter air conditioners function on the principle of varying speed of the compressor to maintain optimal temperature rather than the staid on/off options in a regular air conditioner. With the compressor drawing less or more power to maintain the desired temperature, inverter ACs are an ideal option for India, with varying room sizes, climatic conditions, erratic weather, and overburdened power supply system.
The inverter AC market is at present garnering 10 percent of the market share, and can see a boost in sales with endorsement from the BEE, especially among the premium segment buyers, for whom energy efficiency matters more than cost. While there may be a short-term increase in price, higher volumes and locally available technology will eventually drive down prices, apart from the savings in energy bills, thereby making inverter ACs a viable proposition in the long run.
The air conditioners market in India is anticipated to cross Rs.41,000 crore by 2021, on account of extreme climatic conditions, rising disposable incomes, and growing construction activities in both commercial and residential sectors, coupled with various government initiatives aimed at improving energy efficiency. Moreover, implementation of energy-efficiency labeling system and standardization for air conditioners is expected to have a positive impact on the country’s air conditioner market in the coming years.
Southern region is the highest demand generator for air conditioners in the country, and its dominance is expected to continue during 2016–2021 as well. Southern region comprises of cities such as Bengaluru and Chennai, which are considered as the developing IT hubs of the country, and the demand for air conditioners is increasing from these areas. In 2015, light commercial air conditioners dominated the India air conditioner market, followed by chillers, VRF and ductable splits.
“Growing air conditioner market in India resulted in high energy demand, increasing electricity bills and environment degradation, which has ultimately resulted in increasing demand for environment-friendly technologies. India aims to reduce its power consumption from air-conditioning segment by the implementation of energy star ratings for air conditioners. With the introduction of HFC-32 and HC-290 room air conditioners, India is taking several measures to reduce its emissions in atmosphere, and the country’s government has proposed an HCFC phase-out management plan. Hence, the demand for environment-friendly air conditioners is expected to grow at a robust pace over the next five years,” said Karan Chechi, Research Director with TechSci Research.
Air conditioner market of any country across the globe is primarily dependent on the construction and infrastructure sectors. Backed by the booming construction sector (during April 2000–March 2016, around Rs.164,500 crore were invested for the development of construction industry in India), the market of air conditioners in the country is expected to register a healthy growth rate during 2016–2021.
The global air-conditioning systems market is estimated at USD 146 billion, expanding at a 10.50 percent CAGR from 2015 to 2018.
Air-conditioning systems have been witnessing a surge in demand from both commercial and residential applications, with the popularity of smart thermostats and inverter air conditioners rising with increasing adoption. The focus of most manufacturers of air-conditioning systems is energy efficiency, given escalating global concerns over energy conservation. Concerns associated with air pollution have also spurred the demand for air-purifying technologies, a trend the air-conditioning systems market has been capitalizing on.
The presence of a large number of leading players makes the global air-conditioning systems market extremely competitive.
Air-conditioning systems find application in commercial, residential, automotive, and industrial sectors. Accounting for a revenue share of almost 40 percent in 2016, the commercial segment dominated the overall air-conditioning systems market. This segment is poised to retain its lead through 2024, driven by the growing usage of air-conditioning systems in areas such as hotels and tourism, construction, hospitals, clinics, and healthcare. By volume, however, the residential application segment dominated the market in 2016. This segment is also anticipated to expand at the highest CAGR based on revenue from 2017 to 2024.
By type of equipment, split air-conditioning systems are the most preferred kind and accounted for a revenue share of over 76 percent in 2016. This segment also dominated the air-conditioning systems market by volume.
By revenue, Asia-Pacific is projected to dominate the global market for air-conditioning systems with a share of over 55 percent over the next five years. The demand for air-conditioning systems in Asia-Pacific is likely to be driven by Japan, China, and India. In addition, the replacement of air-conditioning systems with energy-efficient equipment is forecast to significantly drive the demand for air-conditioning systems in the coming years.
Europe is projected to witness moderate growth, with the EU7 countries likely to present the most attractive opportunities for players in the air-conditioning systems market. Growing awareness about energy-efficient air-conditioning systems in building automation and control has driven their demand in the last decade.
The North America air-conditioning systems market is also a strong contender and the US holds the largest share in the regional market. The changing standards of the American Society of Heating, Refrigerating and Air Conditioning, ongoing technological evolution, and the presence of several regulatory policies have been accelerating the demand for energy-efficient, technologically advanced, and eco-friendly air-conditioning systems in North America.
The air-conditioning systems markets in Latin America as well as the Middle-East and Africa are forecast to witness sustainable growth in the near future, fueled by the increasing adoption of smart air-conditioning systems in countries such as the UAE, Saudi Arabia, Turkey, and Israel.
Technavio’s research analysis suggests that the four following emerging trends will drive the market over the next few years, increased popularity of smart thermostats, fast adoption of inverter air conditioners, greater demand for integrated systems, and introduction of air purifying technology.
Split air conditioners. The global split air-conditioning market is expected to exceed 104 billion tons by 2020, increasing at a compound annual growth rate of over 6 percent during 2015–2020. The recent increase in construction activities is the key driver for the growth of this market. Recently, it has been observed that construction activities in both residential and commercial markets have grown significantly owing to rapid increase in urbanization, especially in the developing economies. The augmented sale of residential buildings and commercial buildings, and the construction of new skyscrapers across the world will bolster the demand for air conditioners during the forecast period.
APAC accounts for 57 percent of the market, with countries like China and India being the largest contributors. The market in this region is expected to grow at a CAGR of 7 percent during this period. Much of this region’s growth can be attributed to the strong focus on infrastructural development, which results in the high demand for air-conditioning units. Additionally, the rising population pressure in this geography will lead to the high demand for residential buildings, which in turn will hike the demand for split ACs during the forecast period.
The presence of well-established international, as well as local players makes the global split AC market highly fragmented and competitive. The competitive environment of this market is expected to intensify in the future with an increase in R&D innovations and integration of IoT devices with split ACs.