PROJECT DEVELOPMENT FACILITYREQUEST FOR PIPELINE ENTRY AND PDF BLOCK B APPROVAL

AGENCY’S PROJECT ID: 3084GEFSEC PROJECT ID:      COUNTRY: IndiaPROJECT TITLE: Market Transformation through consumer Awareness Programs for Energy Efficiency Standards and LabellingGEF AGENCY: UNDPOTHER EXECUTING AGENCY (IES):      DURATION: 12 monthsGEF FOCAL AREA: Pipeline Entry and PDF Block BGEF OPERATIONAL PROGRAM: OP-5GEF STRATEGIC PRIORITY: CC-1ESTIMATED STARTING DATE: January 2005ESTIMATED WP ENTRY DATE: PIPELINE ENTRY AND PDF BLOCK BMay 2006PIPELINE ENTRY DATE: November 2004

FINANCING PLAN (US$)GEF ALLOCATIONProject (estimated) 5,000,000Project Co-financing (estimated)

20,000,000

PDF A*      PDF B** 160,000PDF C      Sub-Total GEF PDF 160,000

PDF CO-FINANCING (details provided in Part II, Section E – Budget)

GEF Agency      National Contribution 120,000Others      Sub-Total PDF Co-financing:

120,000

Total PDF Project Financing:

280,000

* Indicate approval date of PDFA      ** If supplemental, indicate amount and date of originally approved PDF      

Record of endorsement on behalf of the Government:Mr. S.K. JoshiDirector (SD)Ministry of Environment & ForestsGovernment of India

Date: 23 September 2004

This proposal has been prepared in accordance with GEF policies and procedures and meets the standards of the GEF Project Review Criteria for Pipeline Entry and PDF Block B approval.

Yannick GlemarecDeputy Executive CoordinatorDate: 4 October 2004

Olav LundstolPortfolio Manager-Climate ChangeTel. +603-2091 5171 Email: olav.lundstol@undp.org

1

2

PART I - PROJECT CONCEPT

A- SUMMARY

The Indian energy sector has undergone a profound transition during the last three decades, with a major emphasis on the growth in national generation capacity. At present the installed capacity in India is 100,000 MW, which is primarily state owned. The per capita consumption of electricity in India has increased from 15.6 kWh in 1950 to 348.5 kWh in 1997-98 (17). As per 1991 census, 100% of towns and 86.4% of villages in India have been electrified. Currently, the power sector is experiencing an energy deficiency of 8 % and a peaking shortage of 12 %. In the Planning Commission report published in the year 2001, the capacity addition target is set to be 100,000 MW during the period 2001 to 2012. To attain this target by 2012 and to meet the ninth plan requirement, investment requirements of USD143 billion will be needed over the next ten years.

India’s energy intensity per unit of GDP is higher compared to Japan, U.S.A and Asia as a whole by 3.7, 1.55, and 1.47 times respectively. This indicates inefficient use of energy but also substantial scope for energy savings. The scope for EE and EC efforts is high both due to a large dynamic national market and the role of India within the wider South Asian region as a manufacturing base for many multinational companies. Products made in India are increasingly being exported to other countries. India is the only major manufacturer of refrigerators and air conditioners in the South Asian1 region. There is a growing regional harmonization program2 in this sector, and as with the envisioned national S&B program and the associated GEF project, any changes made in this sector in India, will be followed quickly by other countries in the region.

There are however a host of remaining barriers that hinder the utilization of EE&EC technologies especially in the national market place but also in the wider sub -region and region. It is for example often the case that the efficiencies of energy consuming products being sold in India are significantly lower that those of the products being exported from India by the same manufacturer. There are several reasons for this difference:

No mandatory requirement for minimum energy performance Consumers have no way of differentiating between energy efficient and non

energy efficient products Lack of consumer demand for energy efficient product Price sensitivity of the consumer and lack of life cycle cost information Poor power quality in many parts of the country, making design of energy

efficient product more difficult, and the product more expensive compared to other countries.

1 South Asian Region includes India, Sri Lanka, Bangladesh, Nepal, Bhutan, and Maldives2 South Asian Regional Initiative (SARI) – Energy program, funded by USAID

3

The proposed GEF project will address the major reasons and barriers as they relate to the end use of refrigeration products (refrigerators and air-conditioners) since these end uses are growing rapidly and constitute an important potential for cost effective GHG reductions in India. Both the energy consumption as well as peak demand savings potential from refrigerator and air-conditioners are very high. Several studies have been conducted to assess the potential of electricity savings in some key equipment and appliances selected by the BEE. The table below presents the available data for energy efficiency potential in India3:

Appliance / Equipment Technical Potential (GWh/yr)Refrigerators 9,000.0Air-conditioners 1,700.0Motors 13,200.0

Initial estimates for India show a cumulative reduction potential in green house gas emissions of 4.03 Million Metric Tons of CO2 for air-conditioners4 and 3.71 Million Metric Tons of CO2 for refrigerators over a timeframe of ten years (2002 to 2012). These figures correspond to a cumulative reduction in energy use by 3450 GWh and 3180 GWh for air-conditioners and refrigerators respectively over this period5.

The goal of this project is the reduction of GHG emissions from inefficient end uses of energy. The objective of the project will be the removal of the existing barriers to the massive utilization of energy efficient refrigeration products 6 in India.

The project strategy and the associated interventions are proposed as an integral and complementary part of the third thrust area of the Bureau of Energy Efficiency7 and the proposed Action Plan of BEE for 2004-2007.

The envisioned GEF project outcomes are the following:

3 USAID – ECO Project4 GHG Emissions Reduction Estimation – Indian Standards and Labeling Program, CLASP, 20035 Note on important factors in projection calculations:

In the first two years, 25 % of the new sales are expected to move to higher efficiency* Between year 3 and 5, 50 % of the new sales are expected to move to higher efficiency* Year 6 onwards, entire sales are expected to move to higher efficiency Between year 2002 and 2012, sales will grow by 6 % annually Average rating is 165 liters, single-door, automatic defrost units and current maximum electricity

consumption is 1.7 kWh/day; and baseline scenario assumes a reduction by 15 %* This assumption is based on the fact that for the first 5 years, the Standards program will be voluntary in nature and the market uptake will be largely demand-driven.

6 Refrigeration Products include both Domestic Refrigerators and Air-conditioners for the purpose of this proposal7 See Section V under Annex A: BEE background and action plan details for a full listing and summary of the 10 thrust areas that the GOI and BEE have identified as national priorities and where associated funding and activities are being mobilized.

4

Strengthened consumer awareness and knowledge of energy efficiency refrigeration products

Strengthened institutional capacity for implementation of a national standards and labels program for the refrigeration products, including market support mechanisms and advice to manufacturers

Increased market demand from consumers, dealers and institutional buyers for energy-efficient appliances

Long-run energy savings for the consumer in particular and the economy in general

B - COUNTRY OWNERSHIP

1. Country Eligibility

India is a party to the United Nations Framework Convention on Climate Change (UNFCCC). India signed this multilateral treaty on 10 June 1992, and was the 38th

country to ratify the convention on 1 November 1993. As a developing country that has ratified the convention, India is eligible to receive support from the GEF.

2. Country Driven ness

As shown in the section above, the Government of India (GOI) is highly committed towards fulfilling its obligations as a signatory to the UNFCCC. The GOI passed the Energy Conservation Bill in 2001. Through the active commitment to enact the Energy Conservation Act 2001 (EC Act 2001), a positive enabling environment will be created in India to promote energy efficiency on broad scale and with the highest national impacts. Some important features of the Act are presented below:

Improvement in the energy efficiency of equipment and appliances through standards and labeling (this part of the law is explained in greater detail in further sections)

Establishing energy consumption norms and standards for designated consumers, mainly energy intensive industries and other establishments.

Enforcement of mandatory energy audits through accredited energy auditors in the designated consumers,

Institutionalization of energy managers in the designated consumers to ensure energy management organization structure.

Preparation of energy conservation building codes to suit the regional and local climatic conditions

The Ministry of Power (MOP) has the primary responsibility of programs and policies as notified implementing reforms in power sector under EC Act 2001. MOP with the help of Central- and State-level departments controls the electricity generation, transmission, and distribution network. MOP has the overall responsibility of implementing the programs notified under the EC Act 2001.

5

The Electricity Act 2003 provides the policy framework to protect consumers' interest and encourage good governance through an efficient regulatory mechanism. This has to be backed up by creating awareness that as electricity generation depletes public resources, it should be produced, transmitted and distributed at maximum efficiency and at least cost to the consumers. This also means that the utilities should improve delivery efficiency, billing and revenue collection, and the public should cooperate in curbing misuse, pilferage and wasteful consumption.

The Bureau of Energy Efficiency (BEE) was established effective 1st March 2002 under the EC Act. BEE works under the Ministry of Power, with a mandate to address issues related to energy efficiency improvement. BEE has the mandate to implement the Standards and Labeling program in India. It is getting initial financial support from MOP through the central energy conservation fund. The MOP has earmarked a sum of INR8

500 million ($10 million) for energy conservation broadly. BEE is also getting technical support from a number of international donors. Currently, a number of energy efficiency programs are operational in the country. Some of the programs are supported by international bilateral or multilateral programs or by the international banks. A summary of the current programs is shown in Annex E under section V.

C – PROGRAM AND POLICY CONFORMITY

1. Program Designation and Conformity

OP5 Removal of Barriers to Energy Efficiency and Energy Conservation CC-1 Transformation of Markets for High Volume Products and Processes

2. Project Design

a) Problem statement

As shown above (see page 3), initial estimates for India show that there is a very high scope for GHG emission reductions through the introduction on a massive scale of energy efficient refrigerators and air conditioners (see also footnote 5). The sales projections for refrigerators and air-conditioners show a sustained growth of about 10% every year for the next 8-10 years9, however overall India still has a very low saturation rate for these products and the penetration rate of refrigerators and air conditioners in India is very low. The penetration rate of household refrigerators in India, the fifth largest consumer durable in terms of penetration, is 13% compared to well over 90% in Malaysia, Australia, Singapore, Hong Kong and Korea; around 80% in Thailand; close to 40% in Philippines and China, and 20% in Vietnam and Indonesia. The penetration rate for household air-conditioners is about 1% compared to 20% in Indonesia, 24% in China, 40% in Thailand, and 45% in Malaysia.10

8 Indian Rupees9 See Section V under Annex F for graphic illustrations of the current markets and the estimated growth trends.

6

Based on the low penetration rate of these energy-consuming products and the fact that most energy consuming products in 2020 are not yet built, any change in energy efficiency of these appliances will have a significant impact on the overall energy use in the future. Although most households in India do not yet have major appliances (with refrigerators having the greatest penetration at less than one-third of urban households), several development trends suggest that increased buying of energy efficient appliances could both decrease demand on the electricity supply and meet consumer needs.

Several factors suggest opportunities in the Indian appliance market for increased energy efficiency:1. Even with relatively low penetration rates, the appliance market is large; for instance,

over 11 million urban households own refrigerators.2. Over the past decade, the number of appliances is large and growing (e.g., refrigerator

penetration grew from 23% of urban households in 1997 to 28% in 1999). 3. Many appliances available to consumers are not likely to be energy efficient, and

many appliances are assembled and have no brand names. In addition, no efficiency standards are in place for either unbranded or branded appliances.

4. Consumers want ways to identify and buy high quality, reliable appliances and associate an energy efficient product with a quality product.

5. Consumers would like to save money by using energy efficient products. 6. Consumers would like fewer electricity outages and better power quality.7. An appliance efficiency labeling programs to encourage consumers to buy more

efficient appliances is currently being implemented

Despite these positive trends that will facilitate the application of energy efficient energy consuming products, there are still some key barriers to widespread commercialization of energy efficient appliances in India, such as:

Awareness about energy efficiency in general is very low amongst most consumers, producers and retailers

Lack of institutional capacity to implement regulatory, policy and market requirements for EE end use products

Lack of awareness of the life cycle economic benefits of high-efficiency products Lack of associated financial and economic incentives and mechanisms to promote

wider availability of EE end use refrigeration products together with its demand Manufacturer uncertainty about market demand of high efficiency models Dealer reluctance to stock or promote energy efficient models

To address these barriers and promote a sustainable pattern of energy end use in India, the proposed GEF intervention has been designed based upon the experience of several similar programs implemented previously in other countries. A closer look at those

10 Source: Extracts from speech by President, Refrigeration and Air-conditioning Manufacturers’ Association (RAMA) India, 2003

7

programs11 reveals three basic approaches with a focus on: a) regulation b) industry incentives c) market based development. It’s important to note that while all these approaches have been tested in India in individual programs before, there are few examples of any EE programs adopting an integrated approach. Most EE programs were designed in response to immediate needs, as a knee jerk reaction, without pre-testing, considerations of scalability, and access to EE solutions proposed by the programs. Linkages between policy and market were missing. Several program evaluations and studies indicate that there is a need for an integrated approach for a successful EE program.

b) Scenario without GEF intervention

The baseline scenario does indeed contemplate several bilateral and multilateral funding and project efforts. Among these the CLASP program, has provided and will continue to give technical assistance to promote the development of EE standards and labels for selected home appliances (such as refrigerators and air conditioners) and facilitate the experience of other successful S&L programs world wide, although with a focus on US experience. These efforts have been and will continue to be complemented with other bilateral efforts from GTZ, that have focused on initial work towards voluntary compliance with the EC Act, initial definition and design of BEE structure, action plan and program, training of energy managers and auditors, promotion of performance contracting linked to wider EE investments. Another important bilateral project has been implemented by the USAID (25 M USD), however it is ending in 09-2004 and it has primarily focused on activities linked to Utility DSM, TA to facilitate the design and initial implementation of enhanced policy (it also gave support towards the development of the EC Act, the establishment of BEE and promoted training programs for energy managers and auditors) and market (enabling frameworks and contracts for ESCO) and financial (ECO loan fund with certain financial incentive schemes to promote innovative supply and demand options in the energy sector) mechanisms. In addition to these projects there have been and there will be ongoing efforts funded by the ADB and the WB, in the areas of promoting ESCO, performance contracts and EE investments in general through specific EE projects and RE projects that can access funding through established EE&RE funds (e.g. IREDA).

The capacity of many of the government institutions is limited to working on just the regulatory approach. This leads to ineffective program implementation. In India, the erstwhile Energy Management Center (EMC) faced the challenge of excessive government control, no market exposure, lack of independence, and lack of implementation partners. BEE is set to overcome these barriers, but will need additional assistance from external agencies for funding and programmatic support.

The conventional approach for implementing the energy efficiency program in the refrigeration product sector would be limited to the literal enforcement of the EC Act and

11 See Section V under Annex G for a discussion of the experiences with these specific EE program approaches and how an integrated market transformation approach to EE is expected to capture the key benefits linked to the individual approaches and thus increase overall GEF project and replication success.

8

partial implementation of Thrust Area 3 of BEE action plan12. The latter would focus on the recent efforts to develop standards and labels for a few selected end use appliances, conducting surveys of energy consumers and on energy intensity and fuel use data on the supply side in India, continued capacity building for managers and auditors and overall promotion of performance contracts in the wider EE areas of opportunity.

In relation to the refrigeration products sector, these are the major areas of baseline interventions expected without GEF support:

Launch of Energy Efficiency labeling: Government will launch the labels and MEPS in a phased manner with slow uptake of EE products taking place. The role of bilateral and multilateral agencies like the Collaborative Labeling and Appliance Standards Program (CLASP) in this case ends once the labels are designed and all the necessary rules and regulations are drafted. The govt. has to implement this, promote the use of labels, enforce the labels, update the standards and the labels periodically, monitor the industry e.g. If the consumer demand for EE products does not go up significantly, then the program will not be successful. The industry will no have the incentive to produce more EE products, and the consumers will not be aware of the potential benefits.

Government will promote the labels: The promotion activity will be done in a limited way, with little market (industry, consumers, and other non-government institutions) participation. This will be compounded by low allocation of resources, and little or no expertise in marketing and outreach. Govt. purchasing will be a side effect, but it will have to be strengthened with private sector experience in procurement.

Enforcement of the MEPS: In absence of comprehensive market transformation effort, the switchover to energy efficiency refrigeration sector will continue at its own pace the important issue of long term measures for mainstreaming energy efficiency will not receive any attention. Thus manufacturers will continue to use existing designs without making any efforts to improve the energy-efficiency beyond the minimum requirement. Thus possible reductions in CO2 emissions (through this route) won’t be achieved and consumers will continue to pay for the high electricity consumption of existing models. The energy scenario of this country (demand outstripping supply) will in no way improve.

c) GEF intervention

The GEF project alternative builds upon a variety of international and national experiences related to the implementation of S&L programs and also other EE programs.

12 See Section V under Annex A for more info on this and other elements of the BEE action plan

9

Specifically it adopts several of the lessons learned by the ongoing UNDP GEF “Barrier removal for the widespread commercialization of EE CFC free refrigerators in China” project and the overall UNDP MP CFC program under implementation in India. These interventions have all emphasized the following elements as key to their success:

Close industry involvement and partnerships are needed for effective involvement in all phases of the project cycle (development and implementation)

Need for comprehensive technical assistance, capacity building and awareness and information access to all concerned stakeholders

Need to address effectively both demand and supply side issues13, and to develop and implement sustainable financing and economic mechanisms to provide a market pull effect

A combination of market push and pull factors work most effectively to involve producers, retailers and consumers on a sustained basis, this means that voluntary and mandatory EE standards and regulations approaches can be combined within an overall program approach as long as the overall phasing is strategic and can be sustained after the program ends

Based on the above, this GEF project is promoting an integrated approach that will involve all relevant stakeholders and propose an integrated market transformation process. In this alternative scenario a long-term market demand for energy efficient refrigeration products would be created, and air conditioner, refrigerator manufacturers together with their main sub contractors will respond by investing in the production of energy-efficient refrigerator products. Energy labels, financial and economic incentive schemes and evaluation criteria (like life cycle cost assessment) would be promoted widely, which would influence both supply and demand for energy-efficient refrigeration equipment. This would mean savings on overall electricity costs for consumers and reduced demand on the country’s energy resources. The project will necessarily entail mitigation of the global warming phenomenon through significantly reduced emissions of CO2 from power.

The proposed market transformation process will work at every level of the purchase environment for refrigerators and air-conditioners in India, the extent of which is shown in the figure below.

13 UNDP GEF China EE refrigerator project is promoting simultaneously technical assistance, capacity building and putting in place performance oriented financial and economic incentives for producers/companies at different levels of the supply chain, as well as offering similar components for the stakeholders on the demand side to guarantee their participation and the overall success of the project

10

Figure 1: The purchase environment for EE products14

The project is expected to have the following outcomes, outputs and activities:

Outcomes

Strengthened consumer awareness and knowledge of energy efficiency refrigeration products

Strengthened institutional capacity for implementation of a national standards and labels program for the refrigeration products, including market support mechanisms and advice to manufacturers

Increased market demand from consumers, dealers and institutional buyers for energy-efficient appliances

Long-run energy savings for the consumer in particular and the economy in general

Outputs and Activities

Consumer Education and Awareness: Some of the activities designed to overcome the lack of consumer awareness and to promote evaluation of life cycle cost analysis for more efficient refrigeration products are given below: (disseminate through broadcast and print media material informing consumers of the benefits of energy efficiency, disseminate in-store points-of-sale materials allowing consumers to understand the features, benefits, and savings of energy-efficient refrigerators and air conditioners, Public relations campaign to spread the core message of the benefits of energy-efficient refrigerators and air conditioners, training retail staff in communicating the benefits of energy-efficient refrigerators and Consumer attitude tracking survey)

Capacity building for Public Institutions: (Govt., BEE, regulators, independent organizations): Provide support to build an institutional framework and capacity

14 Evaluation of Labels, Presentation by Dr. Peter du Pont, IIEC, December 1998

11

to implement the program in a sustained manner. This program component addresses the need to build the capacity in formulating energy and energy efficiency policies as well as developing policy support activities. This will mainly involve the provision of training on energy policy formulation and policy impact analysis. This will also support development of incentives for the industry to implement energy efficiency initiatives. The program will involve comprehensive reviews of existing policies/programs/plans of the government, the private sector on energy, and international best practices for possible adoption

Capacity building and Technical Assistance of the Industry, Financial Institutions, Consumers, Retailer and Industry Associations, to establish market based financial and economic support schemes: Different sectors have varying levels of financial needs and priorities in regards to energy efficiency initiatives implementation. This program will consist of components that will focus on the provision of financial incentives for energy efficiency projects, the development of financing schemes, and the development and promotion of energy efficiency business development opportunities (initiate a dialogue between manufacturers, financial institutions, consumer organizations, and other stakeholders to develop comprehensive programs to promote demand for energy efficient products and provide technical assistance for preparation of business plans and financing proposals for upgrading designs and production technologies

Technical Assistance for the industry on developing energy efficient refrigeration products: The purpose of this objective is to provide refrigerator manufacturers with the necessary technology and training to design and produce high-efficiency refrigerators. These activities are designed to overcome barriers dealing with manufacturer uncertainty about the cost-effectiveness of high-efficiency models as well as the lack of expertise on the part of manufacturers to produce these models. Some of the following activities have been proven to be effective in supporting the industry (introduce refrigerator manufacturers to technology options available internationally, provide training in technology options and selection and provide technical assistance for upgrading designs and production technologies)

3. Sustainability (including financial sustainability)

The overall sustainability of the proposed project intervention will be built through the inclusive and strategic incorporation of all relevant stakeholders both from the demand and the supply side. Furthermore the project will promote a combination of market pull and push approaches within a phased intervention strategy thereby allowing the development of awareness, capacities, technology improvements, smart performance based incentive schemes on different levels of the EE refrigeration supply chain and tailored to the demand side together with the required enabling regulatory, policy and enforcement capacity. It is important to note that the project is emphasizing the critical effort to establish an enabling framework, institutional capacities and strategic partnerships between public sector and the private sector, to ensure that the continuously

12

needed upgrading and adjustments in the standards and labels for the refrigeration sector and other associated end use sectors, will take place.

On the financial sustainability, the project will place a high priority on active and dominating financial participation by the private sector in several of the planned project components, to ensure ownership and also promote the gradual transition towards both financial and economic sustainability of the required energy efficiency adaptations needed in the refrigeration sector.

4. Replicability

See above (Section A on project rationale, Section C under Project Design and Section V under Annex F) and below for more details on this specific issue. In general there is a huge potential for replication both in the growing Indian internal market, but also in the wider South Asian region, for replications of the proposed project approach. Note also that this project is also to a certain degree a replication effort of the earlier UNDP GEF China Refrigeration Project (see above under C) GEF Intervention for more details on this and consult also original documents related to this project if needed).

5. Stakeholder Involvement/Intended Beneficiaries

The following are some of the major organizations that will be involved in the refrigerator and air conditioner standards and labeling program in India:

Manufacturers:1. Godrej & Boyce Manufacturing Co. Ltd.2. M/s Voltas Limited3. Whirlpool of India Limited4. Electrolux Kelvinator Limited5. B.S. Refrigerators Limited (BPL)6. Applicomp India Limited (Videocon)7. LG Electronics India Limited8. Samsung India Ltd.9. Blue Star Ltd.10. Tecumseh Products India Ltd.11. Carrier Aircon Ltd.12. Daikin Shriram Air conditioning Pvt. Ltd.13. Hitachi 14. UCPL15. Kirloskar Copeland16. Small Scale Manufacturers

International Experts:1. UL India Pvt. Ltd.2. Intertek Testing Services

13

Govt. Institutions & Autonomous Bodies:1. Bureau of India Standards2. Central Power Research Institute3. Electronics Regional Test Laboratory4. National accreditation Board for Laboratories5. Electrical Research and Development Association

NGOs and Consumer Organizations:1. Consumer Education and Research Center2. Voluntary Organization in Interest of Consumer Education

Manufacturing Associations:1. Confederation of India Industries2. All India Air conditioning and Refrigeration Association

International Organizations1. Collaborative Labelling and Appliance Standards Program (CLASP)2. Indo German energy efficiency program for pumps, motors and lighting products3. GTZ4. USAID5. USEPA6. WB7. ADB8. UNDESA

D - FINANCING

1. Financing Plan

The overall project costs for a 5 year intervention are currently estimated based upon the anticipated design and taking into account the size of the country, the sectors and stakeholders involved and comparing with recent similar projects in other countries in the region (e.g. China). Currently a rough estimate of 5 million USD in expected funding from the GEF together with 20 million USD in co financing, is expected to be necessary to fully fund the intervention in such a way as to guarantee a critical mass of experience and capacity building, so that widespread replication efforts can take place during and after the planned GEF project. It is expected that the majority of the co financing would come from the private sector, together with some complementary funding from other bilateral agencies and the relevant government agencies.

2. Co-Financing

See above under financing plan.

14

E - INSTITUTIONAL COORDINATION AND SUPPORT

1. Core Commitments and Linkages

The project forms part of the fourth thematic area on Vulnerability and Environmental Sustainability of the Country Cooperation Outline 2004-2007 that was recently approved by the Executive Board of UNDP. It will specifically form part of the efforts to provide support to meet the goals and commitments of India towards the UNFCCC and towards technology change where global environment challenges also can be combined with national development and environment challenges.

On the regional level the project will establish links as appropriate with a new regional program to start in 2005 that will work on Renewable Energy and Energy Efficiency. In addition there are several regional PDFB proposals under preparation to promote S&L efforts in the wider Asian and LAC regions cooperating with selected countries, and synergies and linkages will be established to hinder any overlap and an effective exchange of information and experience. There is an initial concept for the Asian region and focus will be on all relevant appliances and energy efficiency. It will focus on the promotion of regional exchange and dissemination of best practices and lessons learned with regards to implementation models, financing mechanisms, economic incentive mechanisms, demonstration programs and S&L practices (testing facilities, testing procedures, uniform regional standards feasibility). Continued learning from the early China UNDP GEF refrigeration project will also be established.

2. Consultation, Coordination and Collaboration between and among Implementing Agencies, Executing Agencies, and the GEF Secretariat, if appropriate.

See above under the baseline descriptions and in Section V under relevant annex for a matrix in the case of India. In the case of other countries in the region, an effort will be made to build upon relevant experiences and facilitated through the regional office of UNDP GEF in Kuala Lumpur on an ongoing basis. Finally its important to note that there has already been extensive amount of exchange with the GEF secretariat task manager on this project (it was submitted to 2 earlier pipeline entries) in addition to informal consultation with WB staff in India on their planned interventions in the EE sector and cooperation with BEE. This strategy of coordination will be continued to ensure complimentarity and no overlap in the development and implementation of all interventions.

3. Implementation/Execution Arrangements

The Bureau of Energy Efficiency under the Ministry of Power will take overall responsibility for the execution and implementation of the project as per the UNDP guidelines, and the achievement of its objectives. The proposed Organization structure of BEE is attached as Annexure (Section 12.4). A Steering Committee will be constituted by the Ministry of Power to oversee the execution of the project that will be implemented by

15

the Bureau of Energy Efficiency. The steering committee will be comprised of representatives from the MOP (Steering Committee Chair), BEE, cross-sectoral ministries including the, Ministry of Environment and Forests, State Departments of Power, public/private sector organizations, NGOs, prominent experts, and UNDP. The Steering Committee will act as the coordinating mechanism for the preparation and finalization of the project brief and full document, and as such will provide the necessary guidance and oversight to the project implementation. Individual experts will be invited to provide inputs as appropriate to specific meetings. The Steering Committee will facilitate cross-sectoral involvement from the ministerial to the private sector, review outputs, and ensure that the project strategies meet national goals and objectives.

A National Project Director (NPD) will be responsible for the overall supervision of the project. The NPD will be responsible for the review, monitoring and clearance of the work plan, which forms the basis for project execution. The Steering Committee will establish a Selection Sub-Committee, which will finalize the selection of the project team as per the TORs. Day-to-day co-ordination will be the responsibility of the Project Manager, contracted through this project. To this end, the NPD will facilitate the close co-ordination among the various line ministries, state governments, nodal departments, private sector and the participating institutions.

A Project Management Cell (PMC) will be set up in BEE to carry out day to day working of the project. A Project Manager who will be appointed by BEE for carrying out the PDF phase will head the PMC. The project staff comprising of two technical and support staff will assist him. The Project Manager will maintain close interaction with the institutions associated with the line ministries. He will also facilitate the work of the collaborating institutions and consultants both at national and international levels such as CLASP as may be necessary in the preparation of the project brief and full proposal. The Project Manager will report to the NPD and the Steering Committee for policy directions, workplan and budget approvals.

A Project Management Cell (PMC) will be set up in BEE to carry out day to day working of the project. A Project Manager who will be appointed by BEE for carrying out the PDF phase will head the PMC. The project staff comprising of two technical and support staff will assist him. The Project Manager will maintain close interaction with the institutions associated with the line ministries. He will also facilitate the work of the collaborating institutions and consultants both at national and international levels such as CLASP as may be necessary in the preparation of the project brief and full proposal. The Project Manager will report to the NPD and the Steering Committee for policy directions, work plan and budget approvals.

16

PART II - PROJECT DEVELOPMENT PREPARATION

A- DESCRIPTION OF PROPOSED PDF ACTIVITIES

The following gaps in information exist, which need to be filled before appliance energy efficiency improvement programs can be undertaken, and an effective energy efficiency consumer awareness program can be launched. The activities proposed under this PDF – B proposal address these issues:

1. Evaluation of alternative approaches: Detailed analysis of the fallout of the various approaches for implementing energy efficiency programs in this sector will be done. This will assist in developing the overall strategy for market transformation.2. Refinement of existing information: Information about market penetration of appliances, consumer behavior, buying preferences, and role of the retailer are critical for a successful consumer awareness campaign. There is little information on segmentation of the appliance market based on household income, education, and distribution in terms of rural, urban, and peri-urban areas. Although a preliminary study is in progress, the scope of the study is limited, therefore a comprehensive consumer research needs to be undertaken to fill this information gap. The energy used by most common household appliances in use and production is often not tested and therefore it is very difficult to establish a baseline for program design and for evaluating the impact of the campaign. Little information is available about the potential for improving the energy efficiency of appliances lie air conditioners and refrigerators.Refinement of Baseline Energy Consumption Data

In-depth Gap Analysis Refinement of Barriers and Objectives Analyses

3. Program Design: The refined baseline data, gap analysis results, and the finalized priority listing of objectives and interventions will serve as key inputs in the design of the program framework and the specification of the various program components. Based on the priority list of objectives and interventions, activities or groups of activities will be identified. The design of the program components and detailed budgeting will be prepared. This includes the design and testing of the consumer awareness campaign.

Design of Program Framework as per GEF requirements GHG impact assessment (defining system boundary) Program Scheduling and detailed design of program components Logical Framework Analysis (this 2-3 days exercise will confirm the final project

design, costing and related responsibilities)

4. Coordination Mechanisms and Other Institutional Support Activities: The program will be developed to coordinate activities with government efforts and to involve other donors, and stakeholders. It will involve the development of effective coordination mechanisms that will enable consultation and cooperation between government agencies, institutions, financial institutions as well as donors, the private sector, NGOs, and community groups.

17

Coordination Mechanisms for Implementation Identification of Suitable Partners for Financing (Leveraging GEF resources)

5. Preparation of Project Ex Summary and Project Document: The project will be designed in detail as per the requirements of GEF and UNDP

B- PDF BLOCK B (OR C) OUTPUTS

Activity OutputEvaluation of alternative approaches Report with detailed evaluation of alternative approaches

and refinement of the proposed program componentsRefinement of existing informationRefinement of Baseline Energy Consumption Data

Baseline energy consumption data by sector and sub-sector

In-depth Gap Analysis Analytical report including additional barriers and objectives derived from gap analysis and assessment of remaining gaps

Refinement of Barriers and Objectives Analyses

Revised assessment of problems and objectives

Program Design Program design, budget and scheduleDesign of Program Framework as per GEF and UNDP requirements

Program Framework and detailed components including proposed program sub-programs and components Delineation of responsibilities for each activity, sequencing criteria, program sequencing flow chart,

Program SchedulingDetailed Design of Program Components, Including consumer awareness campaign design

Final list of prioritized program objectives and interventionsCosting of each component and indicative activities Concept for consumer awareness campaign

Coordination Mechanisms and Other Institutional Support Activities

Institutional setup for program implementation

Coordination Mechanisms for Implementation (WB, BEE, CII, etc)

Structure and mechanisms for effective coordination, consultation, and cooperation between stakeholders

Identification of Suitable Partners for Financing (Leveraging GEF resources)

Survey of banks/financing institutions and listing of financial organizations

Preparation of Ex Summary and Project Document

GEF proposal incorporating outputs of above activities

C-JUSTIFICATION

Experience of market-based programs in other countries has shown that significant changes can be brought in the market with coordinated efforts involving both the government and the private sectors. GEF has supported similar programs in other

18

countries/regions with very positive results. India being a signatory to the Montreal Protocol has carried out CFC phase out in the refrigerator industry. The multilateral fund provides substantial financial and technological assistance to the industries consuming ODS. The experience shows that there is a need to extend support for promotional and client servicing. In addition, the overall impact has been limited due to lag in corresponding infra structural change required to support technological turnaround. Besides ODS phase out does not cover energy efficiency aspects per se.

GEF supported efforts in transforming the lighting market with Efficient Lighting Initiative (ELI) have been very successful. Similar efforts for CFC phase out and energy efficiency improvements for refrigerators in China have produced spectacular results. The Indian consumer appliance market is poised to expand rapidly, and interventions at this stage will yield the most cost effective results. The policy support for the market transformation program is already in place. BEE has initiated several complementary activities for increased energy efficiency in the industrial and building sectors.

GEF support for spreading the message to the consumers is critical at this stage for effective market transformation. The fallout of the current approach being taken for energy efficiency program implementation are given below:

Slow progress of standards (8-10 years update cycle) Minimal consumer participation Indifferent industry response (experience with BIS standards) due to low

market demand for EE Slow technological upgrade/innovation taking place No institutional linkages between consumers, manufacturers, and financiers

With support from GEF all of the fallouts above can be effectively managed by incremental GEF activities. Financial institutions will get involved in the energy efficiency activities from the very beginning and support both the manufacturers and the consumers.

The Government is, for the first time, designing a comprehensive energy efficiency consumer awareness program in close coordination with the private sector, consumer organizations, and other stakeholders. The consumer awareness campaign will be designed by leading advertising firms, and the message for individual programs/products will be coordinated with the overall campaign. The market transformation campaign will involve all the stakeholders and will be co-funded by the Government, Industry, and other donor agencies.

GEF support for this PDF will enable BEE to make detailed market assessment studies and feasibility analysis, and will also help in preparing the application for the full-scale GEF proposal. GEF support will catalyze the project development effort, and ensure timely implementation of the program. The PDF funding will support BEE in establishing the scope of the consumer awareness campaign for effective market transformation, determining the incremental cost based on the scope of the project,

19

arranging co-financing, and seeking implementation commitment from project partners and stakeholders.

D-TIMETABLE

Starting Date: January 2005Completion Date: December 2005

E- BUDGET

Activity

Budget (US $)GOI (In Kind)

In cash) GEF Total

1. Evaluation of alternative approaches

20,000 4000 15,000 39,000

2. Refinement of existing information

30,000 4000 25,000 59,000

3. Program Design 20,000 7000 60,000 87,0004. Coordination Mechanisms and

Other Institutional Support Activities

15,000 6000 40,000 61,000

5. Preparation of Program Documents

10,000 4000 20,000 34,000

Total 95,000 25,000 160,000 280,000

Co-financing SourcesName of Co-

financier (source)Classification Type Amount

(US$) StatusGovernment of India

Government In-kind 95,000 Co financing letter issued

Government of India

Government Cash 25,000 Co financing letter issued

Sub-Total Co-financing 120,00

0

20

PART IV – RESPONSE TO REVIEWS

A-GEF Secretariat

GEFSEC Comments UNDP ResponseCountry Drivnness:Legal basis is the Energy Conservation Act. The Bureau of Energy Efficiency of the Ministry of Power has developed an Action plan for the implementation of this Act.Endorsement :An endorsement letter of Dharmendra Sharma of the Department of Economic Affairs, Ministry of Finance, dated November 2 2003 has been submitted. According to our database he is not the operational focal point. Please clarify.

Endorsement letter from the current GEF focal point is being obtained

1. COUNTRY OWNERSHIP2. PROGRAM AND POLICY CONFORMITYOP #5SP1 Transformation of Markets for High Volume Products and Processes The OP#5 activities in India now have an institutional "home" at the Bureau of Energy Efficiency. With regard to the GEF funding for OP5 in India it would seem appropriate for all agencies that work together with this Bureau, to enter into a strategic dialogue with the bureau and each other and come up with a long-term plan for the financing of the Bureau's activities.4/2004:BEE seems to be taking on this coordinating role.

BEE is already discussing with various bilateral and multilateral partners keeping the action plan as the strategic framework for seeking support from them. BEE is expecting each partner to assume a strategic role in select areas of the proposed Action Plan 2004-7.

BEE will coordinate the market transformation activities

Project Design11/2003:The concept mentions the good experiences with the CFC phase out in refrigerators but does not elaborate on how it was achieved. Any new project needs to build on the experiences and lessons from that effort.

The CFC phase out program demonstrated the importance of close industry involvement in the program design and implementation process. The success of the program was largely dependent on broad awareness

21

4/2004:Please address.

raising campaigns, targeted technical assistance and capacity building, combination of regulatory measures with investment incentives and tax incentives, and a quick response by the manufacturers after a thorough pre feasibility process with surveys and information widely disseminated.

11/2003:Refrigerators still seem to have low penetration rates, only about 11 million households own refrigerators, I.e. small markets compared to the size of the country and large assumed growth rates.

A second assumption for the project is that efficient refrigerators Integrate experiences and lessons from other refrigerator projects that are mentioned in the concept as well as CFC phase-out have lower life-cycle costs than "normal" refrigerators on the Indian market. Under these assumptions it seems that a direct introduction of mandatory energy efficiency standards, based on a dialogue between the government and the industry should be the cost-effective measure and have very reliable results, possibly at lower costs. This procedure could then also be easily replicated with the other appliance markets. Can you please discuss why this approach is not chosen?

4/2004:UNDP argues that standard setting alone will be half-hearted and ineffective. Project would speed up process and improve acceptance of standards.

The annual production of refrigerator is about 5 million and the sector is growing at the rate of 12%. This is a conservative figure –since most financial institutions and banks are offering cheap credits and the prices are becoming more affordable.

Large-scale promotion of technologies/equipments would entail a combination of mandatory measures and market mechanisms. This approach is central to the project design. The revised proposal discusses alternative approaches and the selected market transformation approaches.

Govt. program on its own will not be sufficient in bringing about the market transformation. This is largely due to two reasons:

1. Need for consumer acceptance2. Need for Enabling

environment Even thought the Govt. is eager to bring about the market transformation, it requires technical and programmatic support in developing the program design and in program implementation.

22

11/2003:Life-cycle cost analysis rests on the assumption of stable and high power prices – please explain in the concept why this is true for the Indian context. 4/2004:OK

Energy prices are administered by the GOI and are high due to a number of reasons ranging from inefficiencies in transmission and distribution and other factors. The trend shows increasing prices.

11/2003:The project does not specify a complete set of project activities or outputs.

4/2004:Project activities and outcomes are specified but incrementally and additionality, in particular to the existing USAID program are not explained.

This has been amended substantially in the GEF alternative described under Project Design in the Executive Summary above.

Please see the substantially amended text and argument under Project Design page 5-11 in this proposal. On the relationship issues related to USAID and CLASP and other programs, see specifically changes on page 7-8 on the baseline programs such as CLASP and USAID, together with the GEF alternative argument that follows these pages.

The current standards and labeling programs in India are limited in their scope to program design and development of an implementation approach. The task of actually implementing and enforcing the standards and labeling program will be GOI responsibility.

The proposed GEF program will further develop the implementation programs, and help the Govt. in actually bringing about the transformation in the market.

11/2003:Can it be demonstrated that all barriers in this market are related to awareness, as indicated in the list under 15. , i.e. are all other barriers (technological, finance- and cost-related,

Changes have been made to the proposal to incorporate the importance of the different barriers,

23

policy framework-related, capacity-related, availability-related, etc. ) sufficiently addressed to maximize the probability of project success?4/2004:OK11/2003:One of the PDF-B activities is the design of an incentive program for increased production and sale of energy efficient appliances. The concept does not mention this as an activity of the project. Please explain and include in the concept.4/2004:clarified.

Has been amended

11/2003:Given that several efforts in S&L are already underway, e.g. through CLASP, or with the Indian manufacturers, the incremental addition of GEF support is unclear. Please explain the complementarity between this project and the existing CLASP and US funded effort - and other efforts and activities of the BEE?

4/2004:This comment has not been sufficiently clarified. In particular, the description of the USAID project sounds like a duplication of efforts.

Furthermore: Most of the manufacturers as enumerated in the annex are multinational companies who have to live with standards and labels in the other markets in which they

Annex G under Section V shows the focus of different projects has been included.

Changes have been made under the Project Design sub section (page 5-11), with detailed explanations of the emphasis of the CLASP and US funded efforts (see specifically pages 7-8), and linked to that what would be the GEF incremental role in order to remove critical barriers for the successful implementation of S&L program with wide reaching impacts

The anticipated log frame with the project components has been adjusted to accommodate the comments on 2b and 3, such that efforts on Technical assistance and Capacity building now

24

compete. These companies have the know-how on how to manufacture energy efficient refrigerators. Components 2.b and 3 seem to be unnecessary, and hard to motivate from the standpoint of global environmental benefits. (Why is component 2.b not a subcomponent of component 3?)

It is a good idea to introduce quality control and the iterative process, even if it is unclear why they are not part of the government's baseline standard setting activities.

The lessons from the UNDP/GEF refrigerator project in China, as well as from the ODS-related project funded by the multilateral fund need to be integrated in the project.

are to be provided to a wider range of organizations and institutions.

Furthermore it will be examined during the PDFB exercise how the local and national contractors that are delivering components to the assembly of refrigerators and A/Cs could be involved in the project design (e.g. in the China UNDP GEF project this was an important part of the final FSP project design).

This could be phased such that they would become a gradual part of their baseline activities and funding definitions.

See amended text on page 9 for details on these projects and how the lessons learned are integrated into the GEF project design

Some lessons Learnt from ODS:1) Government ownership and

funding from the MP enabled technological shifts in the industry

2) Participation of the entire market chain is necessary to create the desired impacts –Integrated – all stakeholders involvement

3) Investments in new technologies required risk sharing – that was critical for even the multinationals in new environments

4) The govt. commitments to Multilateral Environment Agreements required funding

25

support to achieve the stipulated compliance levels.

11/2003:No discussion

4/2004:The project now contains an activity that strives to design an iterative process to regularly update standards and labels, and one to exert some quality control over

Amended in the project proposal.

Replicability:Two avenues for replication arepossible:- replication in other South Asiancountries- replication in other appliance marketsboth are mentioned but not elaboratedupon.

Govt. has decided to use the refrigerator program as a pilot to test S&L program development and implementation; other products will follow the same route, replicating the experience of the refrigerator program.

Other South Asian countries face similar challenges in improving end use energy efficiency in the appliance sectors. The experience from India will help

Stakeholder Involvement:

26

11/2003Stakeholders:-refrigerator and compressormanufacturers-consumer organizations-GoIInternational refrigerator manufacturers seem an important stakeholder group, but are not mentioned in the concept. "Other stakeholders" are mentioned under “justification” – who are they?4/2004:It seems stakeholders were not consulted for concept development (which is acceptable). Please clarify how they will be consulted during the PDF-B execution.

Stakeholders were consulted at the concept stage, preliminary consultations were held with select manufacturers, GOI, funding agencies. The BEE will further consult them through steering committees setup.

Further analysis on the refrigerator sector will be conducted during the PDFB phase so as to target adequate strategies for each type/segment of companies, be they local, national or international and considering their place in the production

Monitoring and Evaluation:3. FINANCING11/2003:Total project: 18 mUSD, 6 mUSDfrom GEFIt is unclear how the size of this project was calculated and who could possibly be cofinanciers. Currently, it seems to me that an MSP would be enough for this project.The allocation in the GEF budget for SP1 in any Fiscal Year is only 25 mUSD. Concepts for the current pipeline alone are already more than 27 mUSD.4/2004:GEF 3-6 mUSD, total volume 18-25Financing PlanmUSDHow was this budget estimated?Implementing Agency Fees

Cost estimates are based on experience with similar projects in China and Thailand. The stakeholders were consulted about this. Budget estimates are preliminary and reflects experiences in other countries. Initial expense is high in this intensive process, especially since media and outreach costs are high. However the exact size of the program will be done with due diligence. The co-financing is expected from the manufactures, BEE and the balance by the GEF. An MSP will not be able to enable a nationwide program, necessary for effective implementation.

4. INSTITUTIONAL COORDINATION AND SUPPORT11/2003:The BEE’s task is to implement the Energy Conservation Act. It does not become clear from the concept how this project would represent a priority of the BEE.4/2004:clarified

Proposal has been linked to the ongoing initiatives and proposed BEE’s Action Plan for 2004-7.

Core Commitments and Linkages

27

Consultation, Coordination, Collaboration between IAs, and IAs and EAs, if appropriate11/2003:The project concepts mentions other initiatives under the BEE – what are they and how is this project complementary?4/2004:clarified.

See Annex A under Section V

11/2003:The concept mentions CLASP and US funded activities but does not explain why more activity is necessary.4/2004:still open.

Refer to the earlier response on the role and scope of CLASP and other US funded programs (pages 7-8 together with overall project design sub section from page 5-11)

5. RESPONSE TO REVIEWSCouncilGEF Secretariat See responses abovecomments from review for pipeline 15 have been addressed in terms of clarity of the program and the coordination of (GEF) energy efficiency activities in India. However, questions regarding the incrementality of the project, and its additionality to the efforts of other donors are still open.

Other IAs and RDBsSTAPReview by expert from STAP RosterConvention Secretariat6. Terms of ReferencePart of the PDF B is allocated to "design a program framework as per GEF requirements". Please clarify. (Are you talking of the general framework that we have asked for in November when UNDP and World Bank came at the same time asking for OP5 projects in India? If yes, then this activity would link to core support of the BEE and its Action Plan, rather than to the design of the market transformation program)

Why does the budget contain a line on the evaluation of alternative approaches? (relate to translating the pipeline entry criterion (met) to the WP inclusion criterion):

This has been changed and now refers to overall GEF and UNDP requirements for eligibility that will be followed during FSP preparation.

This refers to the first activity under the PDFB. Its basically a further analysis of the different approaches to implementing EE programs for the

28

refrigerator and A/C sectors, to be able to refine the overall project design and market transformation strategy.

7. Budget line items related to the TOR11/2003:PDF-B: 220,000, GEF contribution: 165,000, in-kind: 25,000 from manufacturers, 30,000 from GoIParallel projects exist from USAID, UNF, and EPAThe PDF-B should be cofinanced better. The cofinancing ratio should be indicative of the ratio that is expected for the full project.4/2004:government cofinancing has been made available.Please clarify budget table and how it relates to the activities listed in the text.(including schedule):

It is a direct reflection with the same 5 activities in each case, however the wording may have been somewhat shortened to fit in the budget table.

29

PART V – ANNEXES

Annex A: BEE Background and Action Plan details

A Director-General heads Bureau of Energy Efficiency. The general superintendence, direction and management of the affairs of BEE is vested in the Governing Council having up to 26 members. Minister of Power heads the Governing Council and it consists of Secretaries of various line Ministries, heads of various technical agencies under the Ministries, members representing industry, equipment and appliance manufacturers, architects, and consumers, and members from each of the five power regions representing the states of the region. The Director-General of the Bureau is the ex-officio member-secretary of the Governing Council.

BEE will be initially supported by the Central Government through central energy conservation fund. It will, however, become self-sufficient in a period of 5-7 years. It is authorized to collect appropriate fees in discharge of functions assigned to it and raise funds from other sources.

The functions of BEE can be classified as Regulatory functions being the recommendatory body to the Central Government in implementing the provisions of the Energy Conservation Act and Facilitation, Market Development and Market Transformation Functions such as:

Arrange and organize training of personnel and specialists in the techniques for efficient use of energy and its conservation.

Develop testing and certification procedures and promote testing facilities. Strengthen consultancy services. Create awareness and disseminate information. Promote research and development. Formulate and facilitate implementation of pilot projects and demonstration

projects. Promote use of energy efficient processes, equipment, devices and systems. Take steps to encourage preferential treatment for use of energy efficient

equipment or appliances. Promote innovative financing of energy efficiency projects. Give financial assistance to institutions for promoting efficient use of energy and

its conservation. Prepare educational curriculum on efficient use of energy and its conservation. Implement international co-operation programs relating to efficient use of energy

and its conservation.

i

The Bureau of Energy Efficiency (BEE) has now come through its inception stage. It is now defining specific, achievable, targets and milestones. Energy audits of key government buildings have been completed and baselines have been prepared. Guidelines and certification procedures have been formulated for energy managers and auditors. Systems and procedures are being worked out for performance testing of appliances and equipment and financing schemes are being devised to make energy efficiency a profitable option.

Table 1: BEE Thrust AreasThrust Area 1:  Indian Industry Program for Energy ConservationThrust Area 2: Demand Site ManagementThrust Area 3: Standards and Labeling ProgramThrust Area 4: Energy Efficiency in Buildings and EstablishmentsThrust Area 5: Energy Conservation Building CodesThrust Area 6: Professional Certification and AccreditationThrust Area 7: Manuals and CodesThrust Area 8: Energy Efficiency Policy Research ProgramThrust Area 9: School EducationThrust Area 10: Delivery Mechanisms for Energy Efficiency Services

The BEE has set up the following objectives for the successful implementation of the S&L program over the next five years:

1. Increased manufacturing of energy-efficient equipment and appliances;2. Increased availability of energy efficiency information enabling consumers to

consider energy consumption at the time of purchase;3. Reduction in energy consumption in equipment and appliances of common use

(refrigerators, air-conditioners, storage water heaters, motors, agriculture pump sets, lighting products, industrial blowers, fans, and air compressors);

According to BEE estimates, the expected savings for all the nine of the top products are 11,689 million kWh/year, equivalent to 1,962 MW of avoided capacity during the next five years.15

Annex B: Refrigerator and AC S&L Program

A- Refrigerator and AC GHG reduction potential analysis

The Collaborative Labeling and Appliance Standards Program (CLASP), under the funding from the United States Environmental Protection Agency worked in India to estimate of greenhouse gases (GHG) emissions reduction scenarios for two products – refrigerators and air-conditioners.

15 From BEE Action Plan 2002 (this is approximately 20% of the technical potential)

ii

Emission reduction potential was evolved by studying the emission factors and by using the same as the multipliers to the sales growth and energy efficiency improvement potential. Considering the national and grid-based electricity generation mix, plant vintages and energy intensities, and losses in transmission and distribution arrived at emission factors. MBase, a software tool developed by the Lawrence Berkeley National Laboratory, under the US EPA assistance and a spreadsheet tool developed by CLASP team for India were used at the analysis stage. Data on the current sales and potential over the next ten years was collected from industry associations and the manufacturers.

As the process of standards setting is still evolving in India, CLASP team highlights the barriers and opportunities to strengthen these estimates in future. Based on the assessment under this task, CLASP estimates a cumulative reduction of 4.03 Million Metric Tons of CO2 for air-conditioners and 3.71 Million Metric Tons of CO2 for refrigerators over a timeframe of ten years (2002 to 2012). These figures correspond to a cumulative approximate (ten years) reduction of 3450 GWh and 3180 GWh for air-conditioners and refrigerators respectively.

As the next step, CLASP is conducting a detailed consumer survey. Data from the consumer survey will be used to estimate the impact of replacement of old stock with the new stock. CLASP team also intends to generate the energy intensity and fuel use data from individual power producers across the country, which will be used to strengthen the grid-based emission factors in the next project phase.

B- Key players in the refrigerator and air-conditioner standards and labeling program

The Government of India is fully committed to the goal of providing adequate power so as to meet the objectives of economic development and improving the quality of life of its citizens. The passing of EC Act 2001 and creating the necessary infrastructure for the implementation of reforms in the power sector is an example of this.

Ministry of Power (MOP) has the primary responsibility of implementing reforms in power sector under EC Act 2001. MOP with the help of Central and State level departments controls the electricity generation, transmission, and distribution network. MOP has the overall responsibility of implementing the programs notified under the EC Act 2001. Standards and labeling are one of the major thrust areas identified by MOP for implementation.

Under the provisions of the EC Act 2001, The Bureau of Energy Efficiency (BEE) was established effective 1st March 2002 by integrating the staff of Energy Management Centre (EMC). BEE works under the Ministry of Power, with a mandate to address issues related to energy efficiency improvement. BEE has the mandate to implement the S&L program in India. It is getting initial financial support from MOP through the central energy conservation fund. The MoP has earmarked a sum of INR 500 million as central energy conservation fund. BEE is also getting technical support from a number of international donors.

In partnership with BEE

Ministry of Power (MOP)

Bureau of Energy Efficiency (BEE)

Standards & Labeling Program

IIEC - Collaborative Labeling & Appliance Standards Program

(CLASP)

International Funding Agencies

Overall responsibility for implementing Energy Conservation Act 2001

Thrust area of BEE’s Action Plan

iii

Organisation Structure of Bureau of Energy Efficiency

DIRECTOR GENERAL

PS PA

Director – Designated Consumer

Program

Director- Designated Agency Relation

Director – EM /EA Certification and Relation

Programme

Director – Standards & Labeling

Director – Buildings & Establishments and EC

Building Codes

Director – Monitoring & Evaluation, Policy Program

and Outreach

Deputy Director – Designated Consumer and Agencies

Deputy Director – Energy Manager & Energy Auditor

Deputy Director – Standards & Labelling

Secretary (Overall Charge of Administration and Finance)

Finance & Accounts Officer

Accountants(2)

AccountsAssistants (2)

Assistants – Admn (2)

Stenos (5) Dispatcher Caretaker Peons (2) Driver Safai Karmachari

i

Annex C: Organizations involved in the Refrigerator and A/C sector programs

Manufacturers:1. Godrej & Boyce Manufacturing Co. Ltd.2. M/s Voltas Limited3. Whirlpool of India Limited4. Electrolux Kelvinator Limited5. B.S. Refrigerators Limited (BPL)6. Applicomp India Limited (Videocon)7. LG Electronics India Limited8. Samsung India Ltd.9. Blue Star Ltd.10. Tecumseh Products India Ltd.11. Carrier Aircon Ltd.12. Daikin Shriram Air conditioning Pvt. Ltd.13. Hitachi 14. UCPL15. Kirloskar Copeland16. Small Scale ManufacturersInternational Experts:

1. UL India Pvt. Ltd.2. Intertek Testing Services

Govt. Institutions & Autonomous Bodies:1. Bureau of India Standards2. Central Power Research Institute3. Electronics Regional Test Laboratory4. National accreditation Board for Laboratories5. Electrical Research and Development Association

NGOs and Consumer Organizations:1. Consumer Education and Research Centre2. Voluntary Organization in Interest of Consumer Education

Manufacturing Associations:1. Confederation of India Industries2. All India Air conditioning and Refrigeration Association

International Organizations

CLASP, a collaboration of Lawrence Berkeley National Laboratory (LBNL), the Alliance to Save Energy (the Alliance), and the International Institute for Energy Conservation (IIEC) is facilitating energy efficiency standards and labeling programs in developing countries. The Collaborative Labeling and Appliance Standards Program (CLASP) assists with the design, implementation, and enforcement of energy efficiency standards and labels for appliances, equipment, and lighting products in developing and transitional countries around the world.

i

CLASP’s mission is to promote efficiency standards and labels through partnerships with agencies, stakeholders, and relevant institutions in targeted countries. CLASP works with representatives of countries that have successfully adopted standards to join the program in reaching out to neighboring countries. CLASP also partners with a variety of policy and technical specialists from around the world, including representatives from European organizations, developing country non-governmental organizations (NGOs), testing laboratories, manufacturers, research organizations, and universities.

In India, CLASP is providing technical support to Bureau of Energy Efficiency (BEE), Ministry of Power and Bureau of Indian Standards (BIS) for implementing the standards and labeling program. The present phase of CLASP work in India is funded by the United States Agency for International Development (USAID) and the United States Environmental Protection Agency (USEPA). The United Nations Foundation (UNF) is also extending its support to CLASP.

3-year Vision, Goals and Anticipated Outcomes:Vision: To promote a regulatory-based, market-implemented mechanism that develops institutional capabilities and practices for continually improving energy efficiency over decades.Goal: To reduce greenhouse gas emissions through energy efficiency standards and labels that improves the economic efficiency and makes energy-using products more affordable to the general populace.One-year Activity Description:

Support Government of India to develop at least one new minimum efficiency standard

Support Government of India to develop at least one new information labeled product

Tasks: Support to develop new efficiency standard

a. Provide technical assistance in the dialogue among consumers, manufacturers and other stakeholders to review the draft, revised and final standards and labeling criteria for target products.

b. Train BIS/BEE on engineering analysis of the productc. Prepare a draft standardd. Develop the final standard for approval

Support to develop new information labeled producta. Train BEE in development of a criteria-setting modelb. Establish new efficiency criteria for labeling of the selected productc. Identify stakeholders important to promotion of labels (consumer groups,

manufacturers, BIS, BEE) as well as consensus building around their roles in implementation.

d. Assist BEE in deigning a process to test the proposed labels in various regions in India, with help from a consumer marketing organization in India

e. Assist in the harmonization of labeling criteria with standards and testing work underway.

ii

International Funding AgenciesThe following international funding agencies are supporting the current standard and labelling program in India (see explanation above under project design and matrix below on their respective involvement). (SEEE

Annex D: Summary of Market Research Report

iii

Market Research Report

Consumer Survey: A mix of Focus Group Discussions (FGD’s) and Depth Interviews (DI’s) were

conducted with the target respondents. In all 16 FGD’s and 25 DI’s were conducted across 8 centers, which were spread across the geography of India.

The FGD’s were conducted with the Recent Owners and Intending Buyers of the AC’s and Refrigerators. The focus group discussion allowed for cross-fertilization of responses, and ensured richer and wider reactions by the consumers.

The labels were exposed in the latter half of the FGD’s; post a discussion on perceptions and attitudes vis-à-vis energy consumption. Each label was exposed in solus and a discussion was carried out for each, where the spontaneous and processed reactions were taken. The order of exposure of the labels was rotated across the Groups Discussions and the Depth Interviews.

Couples were also interviewed in the Metro centers. This decision was taken keeping in mind our experience in the category, where the woman were also involved in the decision making process. Couples helped us in understanding the male and female aspect and the nature of they complement each other in the decision making process.

Depth Interviews were conducted with the Manufacturers and Retailers, so as to explore their views vis-à-vis energy consumption and efficiency. In each center, 2 Retailer interviews were conducted, except Delhi and Mumbai, where 3 Retailer interviews were conducted. These retailers were selected on the criteria that they stock AC’s and Refrigerators of various competing brands of the market.

Key Consumer Insights:A typical consumer of today comes from a context wherein the interaction with gadgets is high and the consumer is interested in and inclined towards gadget use. Perception about Gadgets: Most respondents expressed a high degree of comfort

with the gadgets and appliances. However, families across Metros and Small towns aspire to improve their lives, seek comfort, reduce their domestic chores or at least streamline them. The role of gadgets has become that of a catalyst, which helps a housewife fulfill her expectations.

Entry point for Refrigerators: Most of the consumers were upgraders or second time purchasers of Refrigerators. They belonged to largely nuclear set-ups, with fewer and demanding family members.

The final purchase of a refrigerator seemed to be a function of physical features, durability, capacity, brand, usage, price, guarantee and warranty period. There was no prioritizing amongst these aspects driving purchase, however, price and brand appeared to be the final seal on the purchase process.

Entry point for Air Conditioners: The comfort and knowledge levels with the category were relatively low in consumers and evaluation is driven essentially more by word of mouth or hearsay than actual experience. The household buyer is at a nascent and evolving stage vis-à-vis the category.

The final purchase of an AC seems to be a function of- capacity & format, efficacy of cooling, quality of compressor, power consumption, brand, and remote control and after sales service. There was no specific ranking across these parameters, though price did seem to influence the decisions

December, 2003 4

Market Research Report

Current Energy Practices: Most respondents seemed to practice energy conversation in the realm of tube lights and bulbs –the nature of conservation is more centric on visible and time bound consumption of electricity.

Consumers appeared to be driven by economizing on electricity consumption, which is overt and obvious and recurrent in nature. Vis-à-vis refrigerators and other appliances, the consumers had a perception that the consumption of electricity was more in the case of Air Conditioners and thus the usage of AC’s was relatively low.Energy conservation is a known and widespread fact and is practiced by a fairly large number of consumers- however this is at an individual level or family level and is driven by the fear of huge electricity bills.

Reaction to Labels Spontaneous Level - Most respondents expressed a sense of curiosity at this level.

The respondents could associate the labels as being the indicators of electricity consumption.

Interest in the labels - It was a varying factor, while the consumers did seem to be interested in the concept of labels the interest did not sustain and was overtaken by other feelings such as curiosity, wonderment to the benefits of the label placement.

Some of the specific elements that evoked interest were – Fist bearing money, Stars, Units per day.

Comprehension- The labels were comprehended as being a power saving guide or an indicator of the electricity consumption across centers. Some also understood the labels as indicating the power fluctuation in the appliances.

Overall, the labels were understood as the power saving manual/tools that would help in consuming power more wisely. The labels were referred to as “Quality symbols” (implying a high quality certification) depicting how to conserve energy and were further deemed to be “credibility agents”.

Relevance of the labels – Both Recent Owners and Intending buyers found the labels to be more relevant for the women, since they are the ones who deal more with the household appliances.

At the same time, men would be interested and would show a level of involvement since they have an upper hand as the decision-makers for purchasing high involvement gadgets like Refrigerators and AC’s.Also, these labels were considered to be more relevant for the common masses since they are the ones who are more conscious about saving money and using the resources wisely.

Impact on Decision-Making – The labels generated positive reaction as far as final decision-making was concerned. Respondents were concerned about saving on huge electricity bills and hence evinced a desire to opt for the appliances with labels on them.

Yet, there was a concern about how much cost difference these labels would generate in the actual cost of the appliance, and whether the deal is economical.

December, 2003 5

Market Research Report

Quantitative Module: On the basis of the consumer preferences from the qualitative survey phase of this

research project, 3 main designs were prepared. These were then tested in 2 sets of colour combinations. Thus, we tested 2 panels with 3 label designs each.

When we tested the likeability and preference among the 3 labels we found that in both panels, it was the label showing unit per day and hand holding money that was preferred over the hand holding lightning. When tested between the 2 panels, the colour combination of Yellow and Red was preferred over the White & Green colour combination. The two label elements – hand holding money & the stars were the most noticed elements. Also the consumers preferred that the label be authenticated by a government agency.

It was found that in case of refrigerator consumers, the electricity consumption was the 2nd most considered factor, after price. Though most consumers considered energy conservation important, only 36% actually try to conserve energy. Their method of conserving energy is to use it moderately. But almost all the consumers wanted to save energy as it helps save money & power.

In case of AC consumers, it was found that electricity consumption was the most considered factor, when deciding the AC brand for purchase. Though most consumers are conscious of energy conservation, only 46% actually try to conserve energy. Their method of conserving energy is to use it moderately. But almost all the consumers wanted to save energy as it helps save money & power.

According to the AC and refrigerator retailers the 5 most important purchase factors are – energy consumption, price, after sales service, warranty, the brand and the compressor quality.

CONCLUSIONS & RECOMMENDATIONQualitative Phase: There was an apprehension regarding the clarity of the message in the labels.

However, the respondents made suggestions for better and clearer presentation of the content.

There were concerns pertaining to the units of power consumed per appliance. Therefore, the suggestion that it would be a better idea to mention hourly consumption.

Consumers also expected a detailed explanation of the symbols – stars, diamonds that are used as indicators of the power consumption by the dealers and the salesmen to add more reliability.

Also, there was a suggestion regarding the elaboration and the endorsement of the key message by-

Celebrities or big names in related fields Unique 3- D stickers Multi colored labels, especially green as the it signifies the environment,

greenery…etc Single line slogans

Thus, the final label has to be one, which is simplistic, easy to understand and catches the attention of the consumer by symbols such as fist holding money.

December, 2003 6

Market Research Report

Overall, it is absolutely critical to support the label placement with a strong marketing and public education/implementation program, before, during and after its launch. Consumers must be educated on the process and the systems of the labels, so that they can effectively derive maximum benefits of the same.Quantitative Phase: In India, the market for both AC and refrigerators is growing at a 10% year on year

growth. Electricity consumption is one of the top factors considered while choosing an AC

brand. While choosing a refrigerator brand it is not one of the important factors considered; because the electricity consumed by a refrigerator is much lower than an AC. Brand and Product features are the key factors that are considered while purchasing both the appliances.

The consumers are conscious about energy conservation. They are definitely interested to save energy as it affects their monthly bills as well as conserve the energy level of the country.

Consumers liked the idea of energy efficiency labels and prefer if it has a Government backing. They would surely go in for products with energy labels. Retailers are also of largely the same opinion; though their endorsement to the energy labels is significantly lower than the consumers – possibly because of their apprehensions that the energy labels may become the over-riding factor for brand choice by the consumers and thus can impinge on the role they play in driving brand choice.

All the three labels shown got a high likeability scores by the consumers and retailers. In terms of noticeability of the various elements on the labels, the box in the centers

of the Labels, depicting the units / rupees consumed per day/month was the most noticed element followed by the “more stars more savings” caption and the graphic depicting hand holding money/lightning.

Among the various elements shown on the Label, “Hand holding money” got the highest likeability scores. The likeability scores were significantly higher than the likeability scores for “More stars more savings” and “Hand holding lightning”

In terms of understanding, most respondents understood that the labels are trying to convey savings in electricity consumption. However 10% of the respondents understood that more stars means more electricity consumption – some education of the consumers will have to be done to avoid this mis-comprehension when the labels are announced in the market place. Among the 3 Labels, Label 1 (Hand holding money, More stars-more savings,

Units consumed, BEE Logo) got rank 1 by the highest proportion. The brighter colours of red and yellow were preferred by the stakeholders as compared to the green and white coloured Labels.

A government logo on the label alongwith with the government being the certifying authority for the Labels will be preferred by the stakeholders

Based on the research findings, we recommend the final label design should be as follows:

Refrigerator - Hand-holding money, units consumed per day and more stars – more savings captions in a yellow and red background (or other brighter colours).

December, 2003 7

Market Research Report

Air-conditioners - Hand-holding money, units consumed per hour and more stars – more savings captions in a yellow and red background (or other brighter colours).

December, 2003 8

Market Research Report

Appendix E: List of Major EE Projects in India

S. N.

Project Name Brief Description Implementing Agency

Funding Organization

Duration

Cost in Million USD

1. Energy Conservation & Commercialization (ECO) Project

The Energy Conservation and Commercialization (ECO) Project aimed at promoting the widespread commercialization of energy efficiency technologies and services in India, which would have a direct impact on the reduction in growth of greenhouse gas (GHG) emissions. The project supports the development of policy and market interventions that would enhance the capabilities of the private, financial, and government sectors for deploying market-based mechanisms for end-use efficiency investments.

Nexant & Ministry of Power

USAID 2000-2004

25.0

2. Collaborative Labeling & Appliance Standard Program (CLASP)

CLASP working in India to:

a. Provide tailored technical assistance to BEE for the

International Institute for Energy Conservation (IIEC) & BEE

UNDESA, USAID & US-EPA

2002-Ongoing

0.30

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

9

Market Research Report

development of standards and labels for select home appliances (primarily refrigerators & air-conditioners)

b. Conduct market analysis and research for baseline studies as well as monitoring and evaluation of program impacts;

Provide turn-key educational and outreach tools that explain the common elements and strategies of successful S&L programs worldwide; and

Create forums for information exchange such as workshops

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

10

Market Research Report

and seminars.

3. Energy Efficiency Enhancement Project

The project is to conduct a study of the feasibility of developing an active market for energy efficiency. The study will (i) identify barriers in establishing an energy efficiency market, (ii) recommend necessary intervention to create an enabling environment for the establishment of an energy efficiency market, (iii) identify specific energy efficiency investments to be made under the subsequent loan, (iv) identify potential Energy Service Companies (ESCOs) that will provide services to selected energy consumers, (v) develop financial products that can be made available to ESCOs or the energy consumers to finance efficiency investments, and (vi) identify specific institutions that will offer the

Ministry of Power

Asian Development Bank

2001-Ongoing

0.60

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

11

Market Research Report

newly created financial products to ESCOs.

4. Renewable Energy Project

The Renewable Energy Project aims to 1) increase power supply; 2) mobilize private sector investments in renewable energy power projects; and 3) promote energy efficiency and demand-side management (DSM) investments. The project has three components. The first finances small hydro investments by the private sector in, for example, canal-based and dam toe (sic) schemes, run-of-river schemes, rehabilitation and/or upgrading of old plants, use of tail ends of cooling water systems of thermal power plants, and stand-alone micro-hydro schemes. The project designs rural energy initiatives that feature partnerships between private investors and user communities. The second component

IREDA World Bank 2000-2006

300.0

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

12

Market Research Report

helps design, develop, and implement integrated energy management services operated by service companies and end-users on a performance guarantee basis; purchases and installs energy-efficient and/or load management devices and systems; produces energy-efficient equipment; and encourages end-user participation in the state energy board and other utility-sponsored DSM programs. The third component finances pre-investment activities that develop a sustainable pipeline of energy-efficient investments and standard bidding document preparation; establish in-house capacity within IREDA (the Indian Renewable Energy Development Agency Limited) to appraise, supervise, and promote energy efficiency

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

13

Market Research Report

services and schemes.

5. Energy Efficiency Project

The project aim to cover the following areas:

a. Climate Change

b. Infrastructure services for private sector develop

c. Financial and private sector development

d. Pollution management and environmental health

e. Regulation and competition policy

Ministry of Power

World Bank 2000-Ongoing

7.0

6. Energy Efficiency & Environment Project

The project aim to:a. Supporting

voluntary compliance of the EC Act

b. Capacity building of energy managers and auditors

c. Improving markets for performance contracting of energy service companies

d. Improving

BEE, Ministry of Power

GTZ 1995-Ongoing

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

14

Market Research Report

data collection and analysis for informed decision making on energy cost reduction

e. Improving transparency and integrity of impact of the Energy Conservation Act

Table 2: Refrigerator sales a growth projection and impact of GEF program2007 2008 2009 2010 2011 2012 2013

Baseline (nos.) 4.79 7.7 8.5Refrigerator (Direct)Energy Efficient w/o GEF (as % of total sales)

25% 25% 25%

Energy Efficient w GEFOther Appliances (Indirect)Without GEFWith GEFOther Countries

Annex F: Markets for Refrigeration Products

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

15

Market Research Report

Figure 1 – Preliminary refrigerator GHG reduction and market growth projections

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

16

Market Research Report

1.24 1.13 1.26 1.39 1.641.96 1.93 2.18 2.43 2.62 2.83 3.06

3.343.64

3.964.36

4.79

7.7

0

1

2

3

4

5

6

7

8

9

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2011-12

Nos. (in mn)

0.077

0.097

0.094

0.1

----- Growth Rate (%)

Figure 2 – Sales projection for refrigerators16

100 120 150 200 240330 390 385

495 560635

715800

9001005

11151240

2000

0

500

1000

1500

2000

2500

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2011

-12

Nos. (in '000s)

25.5

12.9

11.6

10

Figure 3 – Sales projection for air-conditioners17

16 Source : Intecos – CIER 2001-0217 Source : Intecos – CIER 2001-02

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

17

----- Growth Rate (%)

Market Research Report

Figure 3 – Most energy consuming products in 2020 are not yet built

Annex G: Alternative approaches for EE program implementation

Regulatory policy approach (Mandatory Measures Only)The regulatory approach is the typical Government approach for implementing programs, wherein mandates are issued for the industry or the consumers. There are few supporting activities, and the programs usually have limited success. Although strong policy and regulatory action is essential for a successful program, this has to be supplemented by market driven programs and other supporting activities. The current standards and labeling program has the policy support of the Energy Conservation Act. The Act has provisions for mandatory energy efficiency standards and labeling for a number of products, but this alone will not be enough to bring about the desired change.

Industry incentive approach (Fiscal and financial Incentives)Another approach, used often, is to provide fiscal and financial incentives to the industry for upgrading, retooling, in order to meet a given target. The CFC phase out program under the Montreal Protocol is a good example of this approach. This approach works well for issues requiring a one-time solution. Energy efficiency programs require constant up gradation of products at frequent intervals, and if the consumer demand for more efficient products does not increase, then the fiscal/financial support has to be provided for every such upgrade. This is unsustainable in the long run and the industry does not have any incentive to work on improving the efficiency of the products.Competition is necessary for innovations, and this approach alone does not induce research and development in the industry as ready-made solutions are made available –a ready market provided monopolizes the market and provides more lobbying power to industry.

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

18

Market Research Report

Market based approach (Creating market pull through consumer demand, information dissemination, capacity building, etc)Market pull based programs have the most cost effective impact in the long term. Studies in the US show that energy-efficiency standards and labeling in the residential sector result in cumulative present-valued dollar net savings of about $33 to $49 billion from 1990 to 2010, after subtracting the additional cost of the more efficient equipment. The result in 2010 is a 5.1% to 6.1% reduction in residential energy use. Average cost-benefit ratios for these standards are estimated to be about 3.5 to 4.4 for the U.S. as a whole.Market based programs empower consumers to make informed choices about the products they buy and to manage their energy bills. They tend to shift the distribution of energy-efficient models upward by providing information that assists consumers in making rational decisions and stimulating manufacturers to design products that achieve higher rating levels. The following figure, for example, shows the dramatic improvement in the market share of energy efficient refrigerators and freezers after the introduction of the labeling program in Germany.

FIGURE 4 IMPACT OF LABELING ON MARKET SHARE OF REFRIGERATORS AND FREEZERS IN GERMANY.

The market-based approach is the most resource intensive, and needs sustained effort in order to have a significant impact. The labeling program for refrigeration projects has initiated the process of creating the market pull, and comprehensive consumer awareness and industry support programs are required to complement the effort.

Integrated Market Transformation Approach

An integrated approach is being proposed which will involve all stakeholders and is a market transformation process, which is a combination of all the three approaches, discussed in the previous section. In this alternative scenario a long-term market demand will be for efficient products would be created, and air conditioner, refrigerator, and component manufacturers will

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

19

Market Research Report

respond by investing in the production of energy-efficient refrigerators. Energy labels, incentive schemes and evaluation criteria (like life cycle cost assessment) would be promoted widely, which would influence both supply and demand for energy-efficient equipment. This would mean savings on electricity costs for consumers and reduced demand on the country’s energy resources. The project will necessarily entail mitigation of the global warming phenomenon through significantly reduced emissions of CO2 from power.

Looking at the US example of combining mandatory standards along with market based labeling programs show that the total $2 per household federal expenditure for implementing the standards and labeling program is estimated to induce investment in energy-saving features of $130 to $140 per household. This would result in $450 to $620 gross savings per household in fuel costs, and contribute $320 to $480 of net-present-value savings per household to the US economy during the period 1990 to 2010.

The effectiveness of policy initiatives like labeling can be further extended by consumer awareness program. Recent experience in Thailand has shown the potential for appliance energy labeling programs to affect manufacturer production decisions. Thailand is one of the few Asian countries to have implemented a successful nation-wide energy labeling program for household appliances. The Electricity Generating Authority of Thailand (EGAT), the state-owned generating utility, implemented labeling programs as part of its national demand-side management (DSM) plan. The voluntary labeling of refrigerators and air conditioners started in 1995 and 1996, respectively.

After six years of DSM implementation, EGAT commissioned an independent study to evaluate the impact of its DSM programs in 1999. The results show that the Thai labeling programs are a successful example of energy labeling effort in a developing country. The study confirms that consumers are not especially active consumers of energy efficiency, they have to be exposed to the benefits of energy efficiency, but there is little information and the available information is not very relevant or is not easy to understand inmost cases. Policymakers rely on own experience or anecdotal data, and there is an inconsistency between belief and policy. Whereas the US program was informational in nature and had a cognitive goal, the Thai program was promotional and had a behavioral goal.

The lessons learned from Thailand can provide useful guidance to policymakers in both developing and industrialized countries that are pursuing or revamping energy labeling programs18. A summary of the study with program details and impacts is given in the Table below.

18 How Energy Labeling affected Production Decisions of Appliance Manufacturers in Thailand, Paper by: Na Phuket, S. R.; Prijyanonda, C, IIEC, September 2000

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

20

Market Research Report

Table 3: Impact of consumer awareness on appliance Energy Efficiency programs19

United States ThailandProgram Details

Appliance energy labeling since 1980 2 National energy efficiency programs Appliance energy labels since 1995

Minimum efficiency standards No minimum efficiency standards No promotion Supported by massive consumer

awareness campaignImpact on Consumers

Energy efficiency NOT salient: 20% of customers look at label

Energy efficiency salient: 62% of customers look at labels

Efficiency low priority (<10% rank in top 3)

Efficiency 2nd priority (49% rank in top 3)

Efficiency a selling point for 54% Efficiency a selling point for 80% Customers use efficiency as a tie

breaker Customers use efficiency as a

screening tool High consumer awareness but low

comprehension of labels Highly effective labels with high

consumer awareness Used by manufacturers as a marketing

tool

19 Evaluation of Labels, Presentation by Dr. Peter du Pont, IIEC, December 1998

Preparation Guidelines for Concept/PDF Template: Version 2 March 2004

21