Speedy uptake of five-star rated fans needs government push to make them affordable, say experts

  • Super energy efficient fans with better cooling are available in the market, but are prohibitively expensive, with only three percent of households reporting they owned one, according to a survey.
  • If India is to reduce its electricity consumption, tapping into low income households and scaling up the sale and distribution of five-star rated fans is key. But experts say retail prices need to drop before this can happen.
  • A number of financial tools and incentives can be used to reduce upfront costs with a high payback period, including reducing tax rates and enabling low cost credit schemes.

This is the second article in a two-part series on energy efficiency of ceiling fans in India. Read the first story here.

In an appliance store in Delhi’s Dayanand colony, two walls of a room are lined with the blades of ceiling fans, all showcasing their sizes and air delivery rates for customers who are looking to buy one.

“In an area like this, the first thing the customer will look at is the style and colour. They want something to match the interiors of their house,” said Promod Kohli, a shopkeeper. “The second thing they look at is the air delivery and price. But no one comes in here asking about the star rating.”

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Since this year, all fans produced and sold in the market come bearing a ‘star rating’ from one to five – an indicator of how much electricity the fan consumes. The higher the star rating, the less electricity it consumes and greater the potential for energy savings. Replacing old fans with new ones has the potential to reduce 10-15 percent of India’s electricity consumption, according to a 2019 National Cooling Plan. Achieving this is crucial if India is to meet its net-zero emissions target by 2070. However, a study by the Council on Energy, Environment and Water (CEEW) shows that the enthusiasm for star-rated fans has been low, with only three percent of households surveyed, owning one.

As global temperatures rise and heatwaves in India worsen, much of the country’s population will increasingly rely on fans as an affordable means to stay cool. Super energy-efficient fans with five stars perform better when it comes to air delivery – the volume of air pushed out per minute – but are prohibitively expensive for most.

“Fans are not a luxury – they’re something everyone uses. And since there are models that can save on electricity consumption that can help India’s energy savings overall, the focus needs to be on making sure those are used as far as possible,” said Shalu Agarwal, Senior Programme Lead at the CEEW, whose study valuates the super efficient fan market to be worth Rs. 12,000 crores (Rs. 120 billion).

Capitalising on the potential savings means making these super efficient fans affordable for everyone. Emerging research shows that market forces alone won’t be able to do the trick, especially in rural or peri urban markets where there is no incentive to invest in energy-efficient technology, and the upfront cost doesn’t seem worth it.

Fans on display in a store in Delhi. Photo by Simrin Sirur/Mongabay India.

Building awareness

Even though the Bureau of Energy Efficiency made star rating for ceiling fans a voluntary programme in 2010, this move wasn’t followed through consistently to ensure a steady uptake by customers – the energy efficiency standards were revised once in 2019 and made mandatory only in 2022.

In other words, customers have had the option of buying inefficient fans till as recently as last year. Every year, around 41 million fans fly off the shelves of stores like the one in Dayanand colony. And since fans can last up to 20 years or more, installing less efficient ones means locking in those inefficiencies for decades.

Amit, a shopkeeper from a different appliance store notes that customers aren’t as enthusiastic about star rated fans as they are for air conditioners, which have been mandatorily star rated for more than a decade. He points to a stack of unlabelled fans, which sits next to a pile of labeled ones. “These are old stocks from before the government’s orders came. People are not so bothered, so they will buy it as long as it’s a brand they feel is reliable and fits their budget,” he said.

A 2021 survey by CEEW among 76 urban consumers in Uttar Pradesh found that only about 17 per cent of the respondents expressed awareness of star-labeled or super efficient fans.

Atul Kumar, professor in the energy studies programme at Jawaharlal Nehru University, chalks this down to a lack of relatability among consumers. “People in India have seen the transition from using fans, to coolers, to ACs across a generation, and know that ACs are electricity guzzlers that come with huge electricity bills. So there is an immediate understanding that energy efficiency will lead to cost savings,” he said, adding, “That association and perception is not there with ceiling fans as yet.”

Improving awareness about the benefits of installing energy efficient fans is the first step to bridging the gap, especially among urban consumers according to Kumar. “Many of the retailers are also misinformed, so they must be made aware of the programme and benefits,” he said. Fans and coolers account for a bulk of India’s residential electricity consumption – more than ACs – and it’s likely to stay that way till at least 2027, according to projections by the Alliance for an Energy Efficient Economy (AEEE).

The ceiling fan market is kept afloat by growing demand, abundant availability, dependable supply chains and relatively cheap, well established technology. But the 2022 directive from the BEE, which makes it mandatory for all fans in the market to be star rated, somewhat disrupts this network, explained Agarwal of the CEEW. This is especially true for super efficient five-star rated fans, which use 35 watts of electricity or less and run on expensive brushless direct current (BLDC) motors. The cost of this disruption is, at the moment, being passed on to customers. A BLDC fan costs more than Rs. 3,000 – double that of a one star fan running on a less efficient induction motor.

The high cost also means it’ll take an average of six years for savings to match up to the high upfront cost. It could take even longer if electricity tariffs for certain customers are lower, which is a big deterrent. According to the CEEW’s study, a drop in retail price with a payback period of three years or less could make BLDC fans more attractive.

“There’s neither demand nor manufacturing capacity at current prices, which creates this chicken and egg problem. Some sort of intervention that aggregates demand to bring down prices would be helpful,” said Agarwal.

The Energy Efficiency Services Limited (EESL), a joint venture company of four public sector undertakings, announced in June that it would do just this. EESL plans on buying and distributing 10 million BLDC fans – one fourth of the stock that is sold in the market – in a bid to drive down the price. The EESL played a significant role in reducing the prices of energy efficient LED bulbs through bulk procurement, which led to the success of the government’s Unnat Jyoti by Affordable LEDs for All (UJALA) scheme, launched in 2014.

“What we are doing is going to various industries and several states to gauge their requirements for ceiling fans. Aggregating demand like this pushes the volume up, and the cost of production goes down for original equipment manufacturers. The cost effectiveness of this system brings down price, and this is what we want to do for star rated fans now because they are not gaining traction in the market,” said Animesh Mishra, head of public relations and sales at EESL.

Apart from bulk procurement, EESL is also tying up with the central government to ensure energy efficient appliances are installed in government housing schemes for the poor.

Shopkeeper Amit stands next to a pile of unlabelled fans. Photo by Simrin Sirur/Mongabay India.

Ravindra Negi, former chairman of the Indian Fan Manufacturers Association, is confident that prices will reduce as demand grows. “The industry has done everything to comply with the BEE’s notification, and a lot of innovation is under way to try and reduce costs as well. Now that the star rated system is mandatory, market forces will also play a big role to eventually bring down the price,” he said.

But research from Bihar shows that market forces and bulk procurement alone may not work in households that have subsidised electricity bills, because there is no incentive to switch to a more expensive energy efficient alternative. Most states in India – 27, to be precise – provide subsidized electricity to citizens.

“This is a classic market failure where a well intentioned subsidy, which is there for all the right reasons, really slows adoption of energy efficient appliances,” said Meredith Fowlie, professor in the University of California, Berkeley’s Department of Agricultural and Resource Economics, and one of the lead authors of the study. “Households paying subsidized electricity are not looking at the social costs when it comes to buying a fan, they’re looking at the cost in relation to their electricity bills. Unsurprisingly, when you drop the fan price close to or even a little below the price of a standard fan, everyone wants it.”

The right price for efficiency

The study, which was conducted with UC Berkeley along with IIT Bombay, took place in from October to July 2021 in villages where BLDC fans were not sold at all. A technology trial among 36 households found that BLDC fans worked well despite fluctuations and electricity outages, and that they consumed 67-83% less electricity compared to conventional fans that consumed 75 W of power.

In these areas, demand “is perceived to be low and the costs of building supply chains is likely to be high.” But households that installed BLDC fans and were educated about their benefits also saw a 17% rise in utilisation.

The second part of the study, which recruited 1,709 households, was designed to determine the willingness to pay for a BLDC fan. All participants had subsidized electricity connections, paying either nothing or Rs. 2-3 per kWh of electricity.

At the time of the study, EESL was procuring BLDC fans for Rs. 2399 – a price that no one participating in the study was willing to pay. But when the price was reduced by Rs. 1000, “fan adoption exceeded by 75 percent,” says the study.

“We wanted to do this study to document that the demand is there if you can bring the price point down. The government will need to think creatively about how to do that,” said Fowlie.

Failing to capture this market “without additional policy intervention [means] India will likely see significant under-investment in energy efficient fans,” the study warns, adding that “This under-investment will “lock-in” energy inefficient cooling for decades. This will impose larger-than-necessary costs to households, distribution companies, and the environment.”

“Demand aggregation and the work we do is not subsidized by any government, so the effect of demand aggregation can only be so much. Distribution companies can come up with their own schemes to encourage uptake of energy efficient fans, as their costs will reduce when more energy is saved,” said Mishra.

If the price is brought down, the researchers propose using Bihar’s network of women-led self help groups, called Jeevika, to help procure, distribute and sell fans in this market. “These are women who have their own businesses and there’s sort of an interest in pairing with EESL to help them reach these hard-to-reach markets. But these female entrepreneurs do not want to start getting inventory and try to sell a fan where the local demand can’t support it,” said Fowlie.

Financing the transition

There are a number of ways the government could intervene to facilitate higher adoption of BLDC fans, particularly among low income households. One is to enable more low cost credit options, like equated monthly installments (EMI), says Agarwal. Tying up with microfinance institutes (MFIs) to provide collateral-free loans with flexible repayment terms could also encourage uptake in areas where the upfront cost is too high. The IIT-UC Berkeley study even suggests direct benefit transfers and on-bill financing as methods to reduce upfront costs. On-bill financing is when the distribution company bears the cost of the energy efficient upgrade and allows the consumer to pay back the amount in installments through the electricity bill.

A third route is to reduce the goods and services tax (GST) on ceiling fans, which are subject to 18 percent taxation at the moment. A five star fan costs Rs. 3,000 or more in the retail market, including tax. This could be brought down to around Rs. 2600 if it is brought to the five percent tax slab. “Lowering the GST on SE fan models for a predetermined period of 2-3 years could further boost the efforts to make these affordable for Indian consumers. Such a move would also provide a strong signal to consumers and the industry that scaling up SE fans is a policy priority,” says the CEEW study.

For Kumar of Jawaharlal Nehru University, a big concern is replacing existing stocks of unlabelled, inefficient fans that people are already using. “There is very little scope for retrofitting and these stocks won’t be replaced for decades. With incandescent light bulbs, the government initiated a buyback scheme. Something similar could be done here, although the costs of such an exercise will be much higher,” he said.

Buying back old fans in bulk can also come with other benefits, explained Pramod Kumar Singh, Senior Director of Research and Programmes at the Alliance for Energy Efficiency Economy (AEEE). It could help in the proper disposal and waste management of these inefficient electrical goods, while making sure they aren’t sold off second-hand to low income households at throwaway prices. “If there’s a mechanism through which those fans are being purchased by a government entity, critical materials can be recovered and then disposed for recycling.”

According to Fowlie, urgent intervention needs to take place now if India has any hopes of substantially reducing its residential electricity consumption while providing effective cooling for households across income brackets.

“Every year it’s getting hotter and hotter.  As heat worsens, low income populations are going to be particularly impacted, and for every month that the price point isn’t brought down, millions of inefficient fans will sold and installed. This is why intervention is needed now,” she said.

Read more: [Commentary] Living off the grid in India’s southernmost district


Banner image: Salesman Promod Kohli stands in his store in Dayanand colony.  Kohli says that customers do not ask for star rating, when it comes to fans. Photo by Simrin Sirur/Mongabay India.

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