Economy

Why the new energy efficiency norms in electrical appliances matter

Nandana James Mumbai | Updated on December 07, 2019 Published on December 04, 2019

When it comes to the enforcement of energy labelling norms for the electrical appliances industry, an increase in the window of norms revision from the current two-year cycle, as well as lowering GST based on energy efficiency can help the industry.

As a change in these norms has an impact on cost and price, value engineering by manufacturers, local manufacturing and educating customers about energy efficiency can also help, according to experts.

This is in the backdrop of the new energy labelling norms, set to be applicable for refrigerators from January 2020 and air-conditioners from January 2021. New energy labelling norms for ceiling fans are also expected to be implemented from July 2020.

Hetal Gandhi, Director, CRISIL Research, said, “Increase in prices on account of Bureau of Energy Efficiency (BEE) rating changes will have a bearing on customer sentiment.”. Typically, a 1-star jump in the energy efficiency rating translates to a 4-5 per cent increase in product prices, keeping other things constant, she said.

A change in energy efficiency norms has an impact on the cost as higher raw material content has to be utilised by the industry to improve or sustain the star rating, said Gandhi.

Even though a revision in energy efficiency norms happens every two years, and the benefits of 5-star ACs and refrigerators are often bandied about, customer awareness about what exactly it entails remains insufficient, as the demand for higher energy-efficient products is weak, according to experts.

For instance, B Thiagarajan, MD, Blue Star Ltd, pointed out that only 11-15 per cent of customers opt for 5-star ACs while buying an AC.

For ACs, 3-star is still the biggest belly in the split AC segment, with around market share 78 per cent, while 5-star is only 18 per cent, said Nandi. As for  refrigerators, for both frost free and direct cool, around 40 – 50 per cent are 3-star rated, he added.

Household appliances such as ACs and refrigerators come with star ratings, which are categorised as per Indian seasonal energy efficiency ratio (ISEER) bands and comparative energy consumption (CEC) criteria respectively, and indicate the amount of cooling the appliance delivers for every unit of electrical energy consumed, explained Gandhi. The higher the rating, the more energy efficient it is.

As for its implications, for the industry, energy label revisions call for an investment in technology, usually associated with the product cost increase, along with product testing as per revised standards, third party testing, product awareness campaigns and service trainings, said Kamal Nandi - Business Head and Executive Vice President – Godrej Appliances.

As a long term benefit for the consumers, though there is an increase in the overall one-time buying cost, running cost of the appliance will reduce considerably, said Nandi. “In case of ACs, the energy consumption should be reduced by 10 per cent. In case of refrigerators, upto 20 per cent increase in energy efficiency is expected,” he said.

A recent release by Godrej Appliances further reinforces the need for improved energy efficiency technology. The number of ACs in use in India is projected to reach 1 billion by 2050, and the growing use of ACs is making cities warmer, it pointed out. ACs are power guzzlers and an increase in demand for ACs will, in turn, put pressure on the energy generation, leading to higher emissions. If the emissions continue at this rate, the average temperature in India will further shoot up, it added.

While energy efficiency norm revisions will continue to happen and is necessary for sustainable growth, there is a strong need to incentivise customers so that they migrate to pay more for higher energy-efficient products, said Thiagarajan. Higher energy efficiency comes at a higher price and in India, people are more inclined towards paying on the basis of the initial cost, rather than the life-cycle cost, he pointed out.

‘Adding to woes’

Pradeep Bakshi, Managing Director and CEO, Voltas Limited, said, “The new energy labelling norms will surely have an impact on the input cost owing to technology and manufacturing upgradation. With the current economic slowdown and also the industry growing at a very slow pace, this additional cost burden may further add to the woes.”

The adoption of energy efficiency appliances can be further enhanced by making them more affordable, said Manish Sharma, President & CEO, Panasonic India.

A larger window of four to five years as against the current two year norm for revision of energy labelling norms was suggested by Bakshi, as echoed by other experts.

“It’s best if the norms are long-term and stable, it helps plan the business more effectively, and avoid repeated disruptions. Longer norms cycle will allow time to develop and align manufacturers with the required technical modifications/change,” affirmed Anuj Poddar, Executive Director at Bajaj Electricals.

The current BEE label value is already far more stringent compared to the global market, Nandi pointed out, affirming that there is a need for a longer window for revision. The changes in the standards at a faster pace would result in consumers shifting to lower star rated products, apart from creating confusion, he said.

However, Thiagarajan was of the opinion that energy efficiency revisions should be subject to a progressive increase, wherein companies improve their energy efficiency by 2-2.5 per cent every year. This will enable it to go largely unnoticed by customers as the prices will also not see a sudden surge, he explained.

On how the revision of energy efficiency norms can be undertaken in a way that wouldn’t imply more costs for the company and a higher price for the customer, Nandi said, “Government should give rebate on duties and taxes towards investment, technology implementation and for taking into account environment friendly quotient for 5-star rated products. Incentive on purchase of higher efficiency products will also help promote right consumer behavior.”

Compliance with energy efficiency norms is a challenge, considering the cost of implementing new technologies and investment in newer equipment, said Nandi.  “Also, resources on testing laboratory availability, etc. pose certain challenges in the time to market,” he said. Yet another concern due to the continuous change in energy efficiency norms is that some of the segment may become vacant, with consumers not having viable options to choose from, he added.

GST reduction on energy-efficient models to narrow the price gap between energy- efficient products and normal products is also something that Gandhi, Nandi, Thiagarajan and Sharma suggested to make these products more affordable.

Various suggestions

GST reduction on energy-efficient models to narrow the price gap between energy- efficient products and normal products is also something that Gandhi, Thiagarajan and Sharma suggested to make these products more affordable.

Since manufacturing energy-efficient appliances entails additional costs, companies can take steps such as value engineering, which will increase efficiency while keeping a leash on costs, said Gandhi.

Given that a large part of premium-segment products is either imported or assembled after importing components, a shift towards local manufacturing can bring down costs, she said. “Government intervention in the form of ‘Make in India’, inviting global players to set up manufacturing plants in the country, too, can bring down costs,” she added.

Manufacturers can also emphasise on technology upgrade and energy efficiency while launching these new products to differentiate it from the existing products, said Gandhi.

There is also a need for advertisements to draw attention to the benefits of energy-efficient products and lower power consumption, and also for dealers and sales executives also to direct customers towards higher energy-efficient products, said Thiagarajan.

“The problem is, you are thinking a notification (on new energy label norms) is issued and everything will happen (automatically). Consumers don’t behave like that. They take their own time. You are supposed to be continuously educating the consumer,” he explained.

Ensuring energy efficiency

While energy labelling is a tool, it is not by itself a solution, cautioned Thiagarajan. Talking about ACs, he said that proper installation and servicing, as well as the use of the recommended temperature of 24 degrees for optimum energy efficiency are also important in reducing carbon footprints and ensuring energy efficiency, he said.

“Moving towards products and processes that allow a more sustainable and greener tomorrow is beneficial not just for us as a manufacturer but also the consumer,” said Bakshi.

Published on December 04, 2019
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