Improved electricity supply and rising rural incomes are expected to drive a surge in demand for household electric appliances—and an associated increase in electricity consumption.
New Delhi: In the last three years, almost 26 million Indian households have been connected to the electricity grid for the first time, thanks to the Saubhagya initiative launched by the government of India in October 2017. As a result, the country’s energy-access dialogue has shifted significantly — from providing simple household lighting connections to providing a reliable and stable electricity supply.
At a time when India is focused on improving its rural economy and empowering the under-served population with better access to electricity services, this is a powerful development that could boost demand for household appliances across the country.
Studies estimate that most households in India have yet to purchase basic appliances, especially in rural areas. Even though the country is the third-largest consumer of electricity globally, India’s per capita consumption is less than a third of the world average. The average electricity consumption in rural households is less than half of the national average for residential consumption. This is attributable to years of unreliable electricity supply in rural areas, among other factors.
The evolving energy access landscape heralds key changes. Improved electricity supply and rising rural incomes are expected to drive a surge in demand for household electric appliances—and an associated increase in electricity consumption. Affordable, quality-verified energy-efficient appliances must be the way forward.
What are the implications for households and distribution companies (Discoms) if all or most of the households recently connected to the grid have access to basic electric appliances? How would using high-efficiency appliances help?
Let’s assume that in the near to medium term all the connected households under the Saubhagya initiative will own two LED (Light Emitting Diode) bulbs, two ceiling fans, and a television. Around 30 percent will also have an air cooler and a refrigerator.
Against this backdrop, our analysis shows that if households buy ordinary and inefficient appliances in rural markets, India will need to generate an additional 29 billion units (kWh) of electricity per year. However, if these appliances are replaced by energy-efficient ones, IFC estimates that only 12.18 billion units — a 58 percent saving — will be needed to meet this additional demand, avoiding 14 million tons of CO2 emissions per year.
While the additional generation needed under the ordinary and inefficient appliance scenario may apparently seem manageable — only 2.3 percent of India’s total generation in 2018-19 — adopting energy-efficient appliances can have bigger impacts for consumers (electricity bills) and Discoms (balance sheets).
First, it will help household consumers save up to Rs 6,282 crore in electricity bills, lowering bills at the household level by around Rs 3,900 per year — a substantial amount in rural India. Second, it will reduce the burden on Discoms by Rs 1,918 crore, since the average cost of supply for residential consumers is higher than the average revenue by Rs 1.45 per unit of electricity.
Using energy-efficient appliances will increase the peak load requirement by 6 gigawatts. In sharp contrast, inefficient appliances will increase the peak load requirement by nearly 15 gigawatts, which amounts to constructing nearly 30 new 500 MW coal-fired power plants.
While we have considered data on widely available AC-based household appliances for this analysis, distributed solar and associated efficient DC appliances can complement the electric grid since a majority of newly connected households live in areas where the grid is weak. Decentralized Distributed Generation initiatives including mini-grids and solar home systems can be successful and scalable when combined with efficient appliances, as they reduce the cost of energy usage.
However, the key barriers to adopting energy-efficient appliances are upfront costs and availability. Several government and utility programs aim to improve the market for energy-efficient appliances.
For example, the UJALA (Unnat Jyoti by Affordable LEDs for All) program has led to the widespread adoption of LED bulbs and provided significant benefits for manufacturers.
A similar approach is being adopted to increase the uptake of efficient fans. The recently announced India Cooling Action Plan presents further scope for improving efficiencies in space cooling for rural households. Also, the long-standing Standards and Labelling program has effectively improved efficiency and lowered the cost of appliances.
But, lack of availability and awareness regarding efficient appliances in rural areas reveal gaps that need attention. Field observations show that poor-quality household appliances in rural and semi-urban markets are easily available at a lower cost as compared to efficient and high-quality products. This underlines the need for market interventions.
We need a holistic approach to build the market for quality-assured efficient appliances in rural areas based on programs that can support the sustainable growth of the international stand-alone solar market to rapidly increase energy access for 789 million people living without electricity globally.
In India, the private sector and financial institutions are working to help develop the market for these modern off-grid solar lighting products and appliances. Efforts include removing market entry barriers, providing market intelligence, fostering B2B/market linkages, and raising consumer awareness in Bihar, Uttar Pradesh, Rajasthan, Odisha, and Assam through programs like Lighting Asia/India.
It is also essential to address the supply chain challenges of reaching rural areas cost-effectively. Last-mile rural distribution companies can play a key role by making these products available and providing doorstep service as well as financing. Digital financing technologies like Pay-as-You-Go Financing can accelerate deployment and prove to be a game-changer in a post-COVID world. Complementary approaches including rural consumer awareness programs can further help inform
end consumers about the availability and advantages of quality and efficient appliances.
Given the strong manufacturing base and huge market demand for household appliances in rural India, this is an opportunity we cannot miss — a leap toward a brighter and more sustainable future.
[This piece was authored by Qamar Saleem, Manager Asia & Pacific and Global SME Banking Lead; Anjali Garg, Energy Specialist; and Brendon Mendonca, Consultant, at the International Finance Corporation (IFC), a member of the World Bank Group. It was published as part of a series titled Energizing Rural India under an editorial partnership between ETEnergyworld and Power for All]