Business model for scaling up super-efficient appliances
- Dhruvak Aggarwal, research analyst at The Council on Energy, Environment and Water and Shalu Agrawal, senior programme lead, on residential energy access, demand-side management, and power sector reforms.
In a climate-constrained world, energy efficiency can be an effective compass to identify solutions that could yield carbon, energy, and resource savings. The International Energy Agency (IEA) projects that 40% of the emission cuts required to reach global climate goals would come from energy efficiency (Fischer 2021). In developing countries like India, energy efficiency is much more than a climate imperative and can unlock diverse developmental opportunities. India has achieved near-universal access to electricity in recent years, but there remain gaps in power supply reliability and quality (Agrawal, Mani, Jain, et al. 2020).
One way to plug these gaps is to ameliorate the financial disincentive for power distribution companies (discoms) to supply reliable electricity in areas with low revenue recovery. This can be achieved by enhancing energy use efficiency among poorly served, low-income households (Phadke et al. 2019). There exists a vast scope for scaling up super-efficient (SE) appliances, particularly lights, fans, and televisions (TVs), which form the bulk of the appliance inventory in India, But, challenges like high upfront cost, limited availability in local markets, and low awareness of benefits hold consumers back from actively adopting efficient variants (Chillayil and Kottayil 2021). This study focuses on scaling up super-efficient variants of one of the most commonly used household appliances: ceiling fans.
The business case for super-efficient ceiling fans Conventional fans use induction motors and consume about 75 W at top speed. SE fans, using brushless direct current (BLDC) motors and improved fan blade design, use 28-35 W at top speed. Manufacturers of these fans in India include newer players such as Atomberg, Halonix Technologies, Oceco and Ram Ratna Electricals, as well as incumbents in the fan industry such as Havells, Orient Electric, Crompton and Usha. Of the 90% of Indian households using ceiling fans, only 3% use energy-efficient variants (Agrawal, Mani, Aggarwal, et al. 2020). As per CEEW’s India Residential Energy Survey (IRES), the adoption of energy-efficient fans, though low, is concentrated in large urban centres like Delhi and Mumbai, and among higher-income households. In India, 40 million ceiling fans are sold annually, of which less than 3% currently comprise SE models. This puts the potential annual market for SE fans at Rs12,000 crore There exists a vast scope for scaling up SE appliances, particularly lights, fans, and televisions. The total addressable market for SE fans in India’s residential sector stood at an estimated 476 million ( ₹1,42,800 crore or $ 20 billion) as of 2020. This includes 410 million ceiling fans already in use in households and an unfulfilled demand of 66 million.
The monetary savings accrued through energy savings are shared between the consumers, the discom, and the state government, depending on the tariff structure in vogue in each state. For example, in Uttar Pradesh (UP), rural domestic consumers and those below a “lifeline” consumption threshold receive tariff subsidy from the state government, over and above an implicit cross-subsidy. As per our estimations, replacing one conventional ceiling fan with an SE fan in all of the domestic consumers’ home could save Rs,573 crore ($ 215 million) in subsidies for the state government and ₹270 crore ($ 37 million) in cross-subsidies for the state’s discoms.
By switching from a conventional to an SE fan, an average residential consumer would save ₹500 ($ 7) per year. These savings are adequate to recover an SE fan’s current average retail cost ( ₹3,000 or $ 41) in six years, which is lower than a fan’s technical life (10-15 years) but not attractive enough. The payback period is even higher for low-income consumers paying a subsidised electricity tariff. SE fans currently occupy a small share of the fans market, implying untapped economies of scale. Achieving these economies would reduce fan prices, thereby improving the payback period. We observe that a drop in the retail prices of SE fans by half would make the payback period attractive (three years or less) for consumers paying ₹6 per kWh and above. Consumers paying lower tariffs would need further financial support to bring down the payback period to under three years (e.g., consumers paying ₹4 per kWh would
(Dhruvak Aggarwal, research analyst at the Council and Shalu Agrawal, senior programme lead, on residential energy access, demand-side management, and power sector reforms.)