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Financial incentives spur energy efficient ac

Cooling-growth-of-air-conditionersUSA: Financial incentives can play a significant role in moving the air conditioning market toward more energy efficient products, according to a new report.

Aware that one of the largest drivers of growing global energy demand is the increasing market penetration of air conditioners, researchers at Lawrence Berkeley National Laboratory, California, looked at the effectiveness of incentive schemes in a number of countries and regions where they had been tried.

The report, entitled Cooling the Growth of Air Conditioners Energy Consumption, assesses the effectiveness of schemes implemented in China, Mexico, Indonesia, Mumbai and the US cities New York and Indianapolis.

In addition to energy savings, financial incentives can also reduce peak demand, increase grid reliability, reduce GHG, stimulate the economy and reduce poverty.

According to the report, no other country has injected as large an amount of money into boosting the sale of energy-saving appliances as China. It has also witnessed the fastest growth of air conditioning – the number of units in urban homes grew from 8% in 1995 to 128% in 2012.

The Promotion of Energy-Efficient Products to the Benefit of the People programme was launched in June 2009. It had dual goals of boosting sales of home appliances to help the economy recover from the 2008 financial crisis and promoting energy-efficient products to “the benefit of the people.”

To encourage sales the retail price of energy-efficient products was lowered to match the price gap between energy-efficient products and products that met the minimum energy performance standards (MEPS). Manufacturers were paid refunds by the government on a monthly basis.

The first round of the promotion programme ended on May 31, 2011; a second phase started in June 1, 2013.

From June 2009 to December 2010, the central budget allocated RMB11.5bn (US$1.85bn) to subsidise more than 34 million energy-efficient room air conditioners. In June 2012, a new round of subsidies started. No breakdown is available for air conditioners only but the total budget was RMB26.5bn (US$4.2bn) for flat-panel TVs, air conditioners, refrigerators, washing machines, and water heaters.

According to official estimates, around 10TWh of first-year gross energy savings resulted from implementation of the programme during the first 18 months (June 2009 to December 2010), representing 80 to 100TWh of savings over the lifetime of the products. Summer peak electricity load was reduced by an estimated 30%. Based on these savings estimates and the budget of US$1.85bn, the cost of conserved energy for air conditioners was about $0.02/kWh.

On the downside, the report claims that third-party analysis of air conditioner prices in the second phase of the programme found that tier-1 (the most efficient) products’ prices were made artificially high so that manufacturers could profit from well-off consumers. In addition, a large number of appliance manufacturers were reported to have illegally obtained hundreds of millions of dollars in energy-saving subsidies. According to the National Audit Office, 348 companies reported fraudulent data that overstated their sales of energy-efficient products in order to obtain extra subsidies from the government.


In Mumbai, India, the power distribution company Reliance Infrastructure started an incentive programme for its commercial air conditioning customers last year.

The programme, running from February 2014 through to January 2016, intends to discount 1,500 wall-mounted 5-star split AC units to replace window units and close the price gap between 3- and 5-star AC models.

RI pays rebates in addition to the discounted price that RI secured from Godrej Appliances, the manufacturer that won the bid to be the supplier. This amounts to R4,000 rupees for a 1.5ton unit and R5,000 for a 2ton unit.

Approximately R20m rupees (~US$333K) were budgeted for the programme. There are no official estimates of the energy, demand, or emissions savings from this project, however, based upon energy efficiency differences between 3- and 5-star units, the report estimates savings will be around 10%.


The Mexican government ran a programme to replace highly energy-consuming refrigerators and air conditioners with more energy-efficient units under the Programa Nacional de Sustitución de Equipos Electrodomésticos (PNSEE), also referred as the Efficient Lighting and Appliance Project.

Backed by a US$600m fund, PNSEE started in March 2009 with a target of replacing 1.7 million refrigerators and air conditioners by 2012. Approximately 10% were air conditioners. To qualify, replaced units had to be be at least 10 years old and in working condition and with a cooling capacity of at least 0.75 tons.

As part of the project, the old units were collected from consumers and sent to scrapping centres for dismantling and recovery of the refrigerants. Between $25 and $70 was offered in rebates and up to US$470 in financing depending on monthly energy consumption.

Scrap-air-conditionersPSNEE was financed with World Bank loans, a Global Environment Fund grant, and the Mexican government’s federal budget.It attracted more than 150,000 participants. An innovative feature of PSNEE was that participants could finance their air conditioning purchases through their utility bills. This strategy meant that the consumer’s bill remained approximately the same but because of electricity saved by the new equipment, the difference between previous electricity use and post-replacement electricity use paid for the new equipment.

New York

The New York utility Consolidated Edison (ConEd) is currently running a $1.1m rebate programme for room air conditioners, offering $25 to all residential customers for the purchase of a new Energy-Star-rated room air conditioner. Started in 2010, the ConEd offer is seasonal, only available from May to August.

An evaluation of the programme conducted in October 2013 revealed a very high free-ridership, estimated at 53%. To remedy to this, the evaluators suggested implementing tiered incentives that target higher-efficiency air conditioners. Hours of use were also longer than expected, and consumption peaks were later in the day than expected, resulting in a lower peak coincidence factor for room AC. The lower-than-estimated savings meant that the programme cost per kWh saved was greater than had been estimated.


Under a grant from the Montreal Protocol’s Multi-lateral Fund (MLF) for the phase-out of HCFCs, the UNDP proposed that additional investments be made to enhance manufacturing of energy-efficient equipment. The scheme started in January 2014 and runs to the end of next year

The idea is that the manufacturer stakeholders that participate in Indonesia’s HCFC phase-out management plan (HPMP) will receive additional assistance to achieve higher energy efficiencies in the products they produce.

The project estimates that 3.97Mt of CO2 emissions reduction will result from project implementation. This estimation is calculated over 10 years of equipment lifetime and would be the sole result of penetration of more energy-efficient refrigerators and air conditioners, not including the changeover to low-GWP refrigerants

The project also estimates a Global Environment Fund unit abatement cost of about US$1.26/t CO2, considering a total funding of US$5m from GEF for the PENHRA project.


Since 2002, Indianapolis Power and Light (IPL) has offered a direct load-control programme that focuses on residential central air conditioners. The programme employs an adaptive load control receiver installed outside the home, offerings US$5 per month to residential customers who allow IPL to remotely reduce their AC use. The cycling, which is triggered when wholesale electricity costs rise above $0.10/kWh, is said to be either unnoticeable or minimally noticeable from the customer’s perspective.

IPL spent $1.3m on the CoolCents programme in 2013 which is paid for with ratepayer funds. At the end of 2013, the programme had approximately 39,000 customers which represents about 20% of IPL’s eligible customer base.

A evaluation of the programme in 2013 found that it had saved 28MW of demand and 191MWh of energy. The average programme cost per kWh saved was $0.069 compared to the minimum event-triggering criterion of a marginal price of at least $0.10 per kWh.

The full report, Cooling the Growth of Air Conditioners Energy Consumption, can be read and downloaded here.


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