Author: Dr. Tanushri Banerjee, Associate Professor, School of Petroleum Management, Pandit
Deendayal Petroleum University, Gandhinagar, Gujarat
Co-author: Dr. Arindam Banerjee, Professor (Marketing), Indian Institute of Management,
Ahmedabad, Gujarat
University Address of Author:
School of Petroleum Management
Pandit Deendayal Petroleum University
Raisan, Gandhinagar – 382007
Gujarat, India
Email – tanushri.banerjee@spm.pdpu.ac.in
Telephone: +91-79-23275116
University Address of Co-author:
408, Indian Institute of Management
Vastrapur
Ahmedabad – 380015
Gujarat, India
Email: arindam@iimahd.ernet.in
Telephone: +91-79-66324898
Shifting consumer trend towards Green Technology home appliances in India – A cross
sectional analysis
Abstract: India is a country of varied colors – ethnic groups, income levels, geographies, religions,
languages, urban/rural mix – which leads to a lot of variation in the tastes of the consumers. An area that
has created significant awareness amongst the Indian consumer is the use of Green Technology and
Energy efficient Home appliances. Anticipating a shift of the consumer mindset towards Greener
Technology products, organizations have introduced a range of products for various customer segments.
This report aims to study the purchase of Energy efficient home appliances in the Residential sector in
India and evaluate reasons for their decision to go green.
Keywords: Green Technology, home appliances, India, Residential sector, Energy efficient
1
I Introduction and objectives
Understanding the need of the Indian consumer and planning as well as forecasting their change
in purchase behavior is always a challenging exercise for organizations during launch of new
products and sub categories. One such area that has created significant awareness amongst the
Indian consumer is the use of Energy efficient Home appliances. Globally depleting fuel
resources like coal, oil and gas have triggered discussions in various forums in India to
emphasize the significance of renewable energy sources like solar, hydro, wind and bio gas.
Anticipating a shift of the consumer mindset towards Greener Technology products,
organizations have identified this niche market and introduced a range of products for various
customer segments.
As the developing countries grow, attention often turns to the environment. For instance, a recent
World Bank report shows that levels of particulate matter (PM) in urban areas are over twice as
high in low and lower-middle income countries than in upper-middle and high income countries.
As a result these low and low-middle income countries loose an average of 0.7% of gross
national income from PM-related damages, compared to just 0.3% for high income countries
(World Bank, 2009). Such costs from pollution suggest that promoting a cleaner environment
need not conflict with efforts to promote economic growth. Green growth seeks to encourage
economic growth and development in a way that balances concerns about environmental harm
with the need for long-term economic growth. Reducing environmental harm can come from
end-of-the-pipe solutions that remove pollutants from the waste stream before they enter the
environment, or from behavioral changes that reduce the use of resources in production or
consumption.
Green Technology is a term we have been hearing in the recent past. It is a term used to describe
a way of thinking that best preserves our natural resources and with it sustainability of life on our
planet. As awareness towards energy efficient products has grown amongst consumers in India,
we try to capture in this report the adoption trend of 2 home appliances the refrigerator and the
air-conditioners in India and particularly in the state of Gujarat.
II Literature review
In 2005, journalist Thomas Friedman wrote an influential book declaring the world was now
“flat” by which he meant that the Internet and global communications had greatly reduced the
economic and cultural advantages of developed countries. Friedman argued that the U.S. and
European countries were in a fight for their economic lives, competing for jobs, markets,
resources and even ideas with highly educated, motivated populations in low wage areas in the
less developed world1. This globalization presented both challenges and opportunities for the
business firms.
2
Amiya Bagchi, reputed to be India’s one of India’s leading economist said “Liberalization has
increased pollution and noise levels because every employee can now afford a scooter. All our
cities will get choked” 6
Pollution and sickness are byproducts that came along with the industrialized world (Haluzan,
2011). These factors contribute towards an ever growing necessity of cleaner energy. Green
technology encourages society to change the fuel utilized for energy or to consume less.7
Appliance companies are improving the efficiency of new models by use of Energy Star labels.
Some of the biggest names, such as Kohler, Bosch, GE, Kenmore, Asko and KitchenAid, are on
board. It is interesting to note that some LG and Kenmore Trio refrigerators recently had their
Energy Star status suspended, after Consumer Reports tests showed disappointing real-world
energy use.
The blue-and-white label instantly conveys that the appliance is 10-50% more efficient than
standard models, which will lead to lower energy bills and less pollution. More than 40,000
products in 60 different categories, from dehumidifiers to DVD players, now qualify for the
Energy Star program. To do so, they must meet strict efficiency guidelines established by the
Environmental Protection Agency (EPA) and Department of Energy (DOE)-while delivering the
performance that consumers want at a reasonable price. Starting in 2011, the Energy Star
program began labeling the most efficient products that receive the Energy Star label.
A home fully equipped with Energy Star products will operate on about 30% less energy than a
house equipped with standard products, saving $600 a year. But you don't have to replace every
appliance at once to see the environmental benefit. If half of all U.S. households replaced a
standard TV with an Energy Star model, the emissions prevented would be equal to shutting
down a power plant. (In 2010, 200 million Americans purchased Energy Star products.8
Energy saving is a big requirement for an emerging economy like India. In and around urban
areas, activities like deforestation and draining of the water bodies have started creating change
in weather patterns like hotter summers, shorter winters, failed or insufficient monsoons. The
kitchen may be the best room in the house to some, but it can also be the most wasteful.
According to the U.S. Department of Energy, lighting, refrigeration and cooking are responsible
for 41.5% of a home's energy consumption. The energy saved (GWh) by the energy efficiency
technologies in future years could mitigate the energy shortages and reduce the peak shortages
benefiting the end consumers.
Research and study has been conducted on areas such as (1) understanding how the technological
distance between countries affect the transfer of green technologies, (2) whether lessons learned
from the recent success of India and China are generalizable to smaller countries. (3) Similarly,
within countries, diffusion of green technologies can be affected by characteristics that are
unique to developing countries. For instance, limited access to credit markets may make
financing green technology difficult. (4) Due to the importance of market failures, the role of
both technology policy and environmental policy for promoting environmentally friendly
technological change.7
3
Survey has already been conducted on load research and capacity building efforts for utilities in
Gujarat by doing a load research study for residential and commercial establishments in Gujarat
to ascertain load curves. The survey has revealed that air-conditioners take 16.4% of total
residential sector connected load, of which around 76% load is accounted for by non-star rated
ACs. It has been suggested that utilities may launch replacement programmes in collaboration
with star-rated AC manufacturers wherein cash incentive may be provided to the buyer of star
rated air conditioners.13
In Gujarat, which is a relatively well off industrialized state, in most cases medium and high
income consumers purchase non-star, or 1 or 2 star rated ACs currently because 4 and 5 starred
split ACs have higher capital cost of about Rs. 8,000 - 10,000 than that of non star rated ones.
Further window air conditioners are available with maximum 2 star-rating in the market. The
cost differential between split and window ACs of same capacity vary from Rs. 8,000 - 12,000
depending on brand and star rating. A program could be designed in such a way that
utility/government provide incentives to AC manufacturers for manufacturing 4 and 5 star rated
split and window ACs in bulk and then rebates/discounts be provided to consumers for
replacement of old non starred ACs by 4 or 5 starred products, and also on new purchases for 4
or 5 starred ACs. Refrigerators are available with 3, 4 and 5 star ratings for various brands in the
market and there is a maximum sale of 4 star rated refrigerators for the year 2008-09. A program
could be designed in such a way that utility/government should develop a buy back policy for
replacement of old non star-rated refrigerator with 5 star-rated refrigerator at rebates of about Rs.
4,000 - 6,000 to the consumers to cover the price differential. Also, the new refrigerator
purchases should be promoted for 5 star-rated machines by providing highest and attractive
rebates/discounts to 5 star rated refrigerators. Utility-run energy efficiency programs can also
effectively reduce the price of energy efficiency measures through their bulk procurement. Such
programs would reduce various transaction costs (such as search costs, installation costs etc.)
incurred by individual consumers. Bulk purchase has the potential to reduce the purchase cost by
30 – 40 % compared to the retail price. Since utilities are in regular contact with consumers for
metering, billing, and repairs, and can collate information about their consumption patterns, so
that they could implement programs at a lower cost compared to acquisition of such devices by
individual entities.10
Energy efficient refrigerators
The average electricity consumption of a 190-200 liter direct cool, non star rated (conventional)
refrigerator sold in the Indian market is about 1.33 kWh per day (Approx. 486 kWh per year). A
commercially available energy efficient, 4 star rated refrigerator (made by LG) consumes about
0.88kWh per day (320 kWh per year), and costs about Rs. 1000 – 2500 more depending upon the
brand of the conventional refrigerator. We assume an incremental cost of Rs. 2500 for an energy
efficient refrigerator. Refrigerators operate continually and cycle throughout the day. A
compressor activation rate for Indian refrigerators is 38% (Phadke et. al., 2005). Since the
refrigerators cycle operate throughout the day, the peak coincidence factor for refrigerators is
equal to the number of hours (10 hours) of power shortage in the day divided by the total number
of hours (24 hours) which worked out to be 0.42. The use of an efficient refrigerator results in an
annual electricity saving of 166 kWh for residential as well as commercial consumers.
Energy efficient air conditioners
4
The average electricity consumption of non star rated (conventional), 1.5 TR split air conditioner
sold in the Indian market is about 2.512 kW/hr. The commercially available energy efficient 4
star, 3 star and 2 star rated air conditioner (made by LG) consume about 1.78, 1.88 and 2.024
kW/hr and retails for split AC is Rs. 2000-10,000 more depending upon the brand and star rating
of the conventional split air conditioner. The higher cost and electricity consumption of air
conditioner are consistent with that reported from analysis of specific improvements for a typical
air conditioner. We assume an incremental cost of Rs.6000 between 4 starred and 2 starred AC,
and Rs.8000 between 4 starred and non starred AC. Air conditioners operate continually and
cycle for about 6-12 hours in a day except winter season. The compressor activation rate is of 70
- 80 % for Indian air conditioners. Since the air conditioners cycle for 8-12 hours in a day, the
peak coincidence factor for air conditioner is taken 0.42. The use of 4 starred energy efficient AC
over non starred AC results in the annual electricity saving of 1167 kWh in residential sector.
While, the use of 4 starred EE AC over 2 starred AC results in annual electricity savings of 394
kWh in residential sector and 444 kWh in the commercial sector.7
III Method
In this report, we focus on ways to stretch the existing electricity supply capacity by making
energy use more efficient for India by taking examples of air-conditioners and refrigerators in the
Residential sector. More efficient use of energy thus has the potential to reduce the nation’s
vulnerability in both the imported fuels and electricity markets. We use the energy efficiency
measures by analyzing the electricity shortage in Gujarat, India’s most industrialized state, and
estimate the economic benefits to the consumers. Air conditioner and refrigerators are rapidly
rising end use devices, where energy efficiency improvement could make a difference. Reason
being, its use in the residential as well as commercial sectors is increasing day by day due to
increase in per capita income and also due to temperature rise because of climate change.
IV Approach
In order to estimate the future impact on electricity demand, we need to estimate the penetration
rate of each end-use device. Device purchases may be categorized as those for (1) replacement of
existing devices at the end of their life, and (2) satisfying new consumer demand. The latter
demand could arise either from the same consumer purchasing additional devices, or due to the
formation of new households and/or businesses. The rate of former types of purchases would be
determined by the life of device. For example, the annual sales of a device with a 10 year life
would be 10% of its equilibrium saturation value (Phadke et. al., 2005).
Not all eligible conventional end-use devices may be substituted by energy efficient ones. In
some cases, the efficient devices may not fit the rest of the system at the installation site, and
there may be other technological obstacles (cold starts, severe voltage fluctuation, etc.), and due
to market failures (lack of information, access to credit, principal agent problems, organizational
rigidities, etc.) there may be barriers to their purchase. The upper limit on their penetration will
thus be less than 100% of the opportunity set (Phadke et. al., 2005).
5
The study starts with the assumption that all devices are at their equilibrium level in the base
year 2006-07, and hence the annual penetration rate of each device is simply the inverse of the
life of the device. Devices that have a lifetime longer than 10 years never get fully replaced. In
parallel, new devices continue to be bought to satisfy the demand arising from expanding
households and businesses. The energy saved by each energy efficient technologies is aggregated
to arrive at the total energy saved annually.
Results for Air conditioner market for year 2008-09
1.
2.
3.
4.
5.
6.
Total sales of AC in Gujarat for year 2008-09 = 1.5 Lacs
Maximum sale of AC capacity = 1.5 Tr
%Total sale of AC in Ahmedabad in residential & commercial sector = 55-60%
% Sale of Split AC in Gujarat by LG in residential & commercial sector = 70%
% Sale of Window AC in Gujarat by LG in residential & commercial Sector = 30%
% Sale of Branded AC in residential & commercial sector = 100% 10
Results for Refrigerator market for year 2008 - 09
1.
2.
3.
4.
5.
6.
7.
Total sales of all volumes of fridge in Gujarat for year 2008-09 = 3.0 Lacs
Maximum sale of fridge capacity = 175- 200 liters
%Total sale of fridge in Ahmedabad in residential & commercial sector = 30%
% Sale of Frost free fridge in Gujarat by LG in residential & commercial sector = 40%
% Sale of Direct cool fridge in Gujarat by LG in residential & commercial Sector = 60%
% Sale of Star rated fridge in residential & commercial sector = 85%
Sale of Non star rated fridge in residential & commercial sector = 15% 10
As increasing numbers of consumers voice their concerns, manufacturers have been forced to
respond and are seeking ways to improve the performance of their products. The introduction of
the EU energy efficiency rating has speeded up this process and has had the unintended happy
effect of sparking healthy competition between companies as to who can make the most ecofriendly appliance. While no appliance can be truly green, some options are greener than others.
Refrigerators account for 17 per cent of all domestic energy consumption in Britain and are the
hardest working appliances in the kitchen. However, energy efficiency has dramatically
improved and most fridges are around 30 per cent more efficient than they were 30 years ago.
One problem that still lingers is the use of hydrofluorocarbons [HFCs] as a refrigeration coolant.
Like banned chlorofluorocarbons [CFCs], HFCs are greenhouse gases. The new generation
fridges use hydrocarbons (such as R600a) as a refrigerant. Bosch and Miele make CFC/HFC free
fridges, as do Siemens who also use recyclable plastics in the manufacture of their models.
Danish Company Vestfrost has produced the ‘ECO-Fridge’ (also known as ‘ConServ’) which is
greenhouse gas free, made from recycled materials and highly energy efficient, earning them the
acclaimed ‘eco-label’ which the EU awards to companies whose products are manufactured with
minimal environmental damage. You can keep your fridge’s energy consumption to a minimum
by insulating it around the sides and regularly cleaning the coils at the back.11
6
In Gujarat, air-conditioners take 16.4% of of total residential sector connected load, of which
around 76% load is accounted for by non-star rated ACs.13
IV Findings
We observe from the table below that purchase of units of both Refrigerators and Airconditioners have increased from 2009 to 2011.
1
2
3
4
5
6
7
8
9
10
Company
2011
2010
2009
Bluestar Ltd. (Air-conditioning
and Refrigeration)
Fedders Llyod Corporation Ltd.
(Airconditioners)
Hitachi India Ltd. (Airconditioners)
Hitachi India Ltd. (Refrigerators)
Llyod Electric and Engineering
Ltd. (Air-conditioners)
Symphony Ltd. (Air-coolers)
Voltas Ltd. (Air-conditioners)
Voltas Ltd. (Refrigerators)
Whirlpool of India Ltd. (Airconditioners)
Whirlpool of India Ltd.
(Refrigerators)
323034
228819
219638
103303
41425
243365
190347
133131
14432
351782
11845
308863
11248
271616
501165
724792
175505
421355
485798
73052
106098
262067
367644
49976
76779
1838807
1700945
1365566
Source: ACE Equity company reports
V Discussion
It is gathered from the study that in the current scenario where India is still in a stage where the
shift towards environmentally friendly home appliances is in its nascent stage, utilities may
launch replacement programs in collaboration with star-rated appliance manufacturers where is
cash incentive maybe provided to the buyer of star rated appliances.
VI Limitations
The study has indicated an increase in the number of unit sales in India for both refrigerators and
air-conditioners from 2009 to 2011, however data regarding star rated versus non star rated units
sale was difficult to obtain. Conversation with retail stores in Ahmedabad have verbally
emphasized the fact that prospective customers make an enquiry about energy efficient products
and their benefits while making their purchase decision and there has been a gradual increase in
the shift towards energy efficient products.
VII Further Research
Future research can include all the energy efficient appliances from 2009 onwards that are for
domestic use and fall under Residential sector. Study can further be extended to include the
7
Commercial sector and Irrigation appliances. A study can be conducted on the cost of the
conserved energy due to consumers shifting towards energy efficient home appliance.
VIII Managerial Implications
As part of Corporate Social Responsibility, companies and managers need to think of building
innovative greener products that adhere to local as well as global environmental policies. Regular
training camps can be organized by organization to create awareness amongst urban and rural
population in India for demonstrating the benefits of using environmentally friendly products.
They need to continue their dialogue and efforts for technology transfer from developed
countries to India necessary for manufacturing custom made products that suit the geographic
and social structure in India. This will facilitate in generating the necessary goodwill and
awareness amongst consumers to move towards environmentally friendly products.
IX References
1. Friedman Thomas, “The World is Flat”, New York: Farrar, Straus and Giroux , 2006
2. http://www.green-technology.org/what.htm, “Green Technology – What is it?”, as of
August 2013
3. Hackett.L , http://history-world.org/industrial%20Intro.htm, “Industrial Revolution”,
1992
4. Haluzan.N,http://pollutionarticles.blogpost.com/search/label/industrial%20pollution,
“Industrial Pollution facts”, 2011
5. http://prezi.com/pavzszu2zdfl/copy-of-green-technology-research-paper, as of August
2013
6. Guy Sorman, “The Genius of India”, McMillan India Limited, 2001, pg 108
7. David Popp, “The Roles of Technological Change in Green Growth”, Policy Research
Working Paper 6239, October 2012
8. http://www.thedailygreen.com/going-green/latest/892, as of August 2013
9. http://www.thedailygreen.com/green-homes/latest/green-remodeling-energy-efficientkitchen-appliances-460212#slide-1, as of August 2013
10. USAID India,
http://www.beeindia.in/schemes/documents/ecbc/eco3/DSM/Report%20on%20Demand%
20Side%20Management%20in%20Gujarat.pdf, “Energy conservation and
Commercialization in Gujarat – Report on Demand Side Management (DSM) in
Gujarat”, 2009
11. http://www.theecologist.org/green_green_living/home/1217678/green_home_appliances
_a_buyers_guide.html, as of August 2013
12. http://www.greenchoices.org/green-living/at-home/what-do-energy-labels-mean, as of
August 2013
13. Prof. Amit Garg, Jyoti Maheshwari and Jigeesha Upadhyay, “Load Research for
Residential and Commercial Establishments in Gujarat”, Final Survey Report, March 31
2010
8