India's cooling problem is becoming an electricity-cost problem, and the AC industry is trying to solve it

For millions of Indian households, air conditioners (ACs) have gradually moved from being a modern luxury to a basic summer necessity, but switching one on still comes with a looming worry: How much will it add to the electricity bill?

India's air conditioning market is estimated to grow from $6.15 billion in 2025 to $7.07 billion in 2026, before reaching $21.59 billion by 2034, according to a forecast by IMARC Group.

The projected expansion counts rising temperatures, urbanisation and growing demand for residential cooling.

On Thursday, India’s domestic power demand hovered around record highs, a trend that sustained through most of an unusually hot September, the Economic Times reported.

Also Read: Peak power demand exceeds 250 GW through most of September

The power grid is not the only system feeling the heat. It is seeping inside homes through electricity bills, purchase decisions and the growing preference for ACs that promise to deliver the same cooling with less power.

A 2024 household survey by the Bureau of Energy Efficiency (BEE) and CLASP, which covered 4,321 households across 20 states, puts the scale of the shift in perspective.

Fans, air conditioners and coolers together accounted for 40% of household electricity consumption among surveyed households, making thermal comfort the single largest electricity-consuming category. ACs alone accounted for 11% of total household electricity consumption and 12% among urban households.

The survey found that 13.3% of households owned an AC, up from 10% in 2022. Ownership rose to 17% in urban India, while 55% of the ACs in surveyed homes had been bought in the previous five years.

So the question for India's AC industry is no longer simply how to sell more cooling. It is increasingly how to cool a hotter India without making the electricity bill hotter.

That is changing what companies put inside an AC, and what they put into the sales pitch. Five-star ratings, inverter technology, AI-enabled cooling and energy-management features are moving from technical specifications to consumer propositions, as manufacturers try to convince buyers that paying more upfront can mean paying less for electricity over the life of the appliance.

Five-star, high efficiency models

LG Electronics India says consumers are increasingly looking at the total cost of owning an AC rather than just its purchase price.

“More than half of LG's AC sales now come from five-star or high-efficiency models, up from more than 45% last year,” Sanjay Chitkara, Co-Chief Sales and Marketing Officer, LGE India, told ET Online.

The company highlights AI-enabled adaptive cooling, intelligent energy management and connected appliances designed to help optimise energy use and cooling.

LG said five-star ACs were among the key premium categories supporting growth in the fourth quarter of FY26 and lifting average selling prices. Its five-star mix is now around half of its residential AC business, while residential AC sales grew approximately 20% in the first quarter of FY27, the company said.

LG also sees significant room for growth beyond metros. With AC penetration in India at around 13%, the company expects the next three to five years to be driven by higher penetration, replacement demand, premiumisation and energy-efficient cooling, particularly in tier-2 and tier-3 markets.

Voltas is also focusing on improving energy efficiency and adding intelligent features to its room air conditioner portfolio.

In its latest annual report, the company said it had refreshed its residential AC range with improved energy efficiency, sharper product segmentation and features tailored to changing consumer needs.

The company introduced its AI-powered Vertis Split AC series with features including AI Adaptive Cooling, AI Geo Fencing and AI Energy Manager. These features are designed to adjust cooling and manage energy use based on operating conditions and consumer requirements.

Also Read: Retailers face AC shortage as heatwave boosts demand

Daikin, meanwhile, offers different levels of energy efficiency across its AC range. Its 1.5-ton five-star model has an Indian Seasonal Energy Efficiency Ratio (ISEER) rating of 5.70 and rated annual power consumption of 716.97 kWh. Its three-star 1.5-ton model has an ISEER rating of 4.40 and annual consumption of 880.1 kWh.

The difference illustrates how efficiency ratings and annual consumption figures can help consumers compare models before buying. Inverter technology and energy-saving operating modes are among the features manufacturers use to manage power consumption.

Samsung has also been adding AI-enabled cooling and energy-management features to its newer AC range, with a focus on adjusting cooling according to usage and surrounding conditions.

The broader shift can also be seen in what Indian households already own.

The BEE-CLASP survey found that 40% of ACs in surveyed households were three-star models, 33% were five-star and 18% were four-star.

In other words, consumers are not ignoring efficiency. But the most efficient option is not automatically the most popular one.

And that adoption gap is also creating room for newer players in the market.

Gurugram-based climate-tech startup Optimist launched its first residential AC in May 2026. The startup is positioning its product around efficiency, high-temperature performance and visibility into electricity consumption.

The company says its AC, priced at around Rs 39,990, can deliver 25-35% lower electricity bills than typical alternatives, with seasonal savings of up to Rs 8,000, although actual savings will vary by usage and the product used for comparison.

"The biggest climate impact of an air conditioner isn't when it's manufactured; it's when it's used," Ashish Goel, co-founder and chief executive of Optimist, told ET Online.

Founded in 2024, Optimist raised $12 million in seed and pre-Series A funding led by Accel and Arkam Ventures in January 2026.

The efficiency push and the affordability gap

The BEE survey, however, shows that awareness does not always translate into energy-efficient choices.

The survey found that affordability remains a major consideration when households buy appliances. While 65% of respondents reported awareness of energy-saving appliances, only 2% said they consistently considered energy efficiency first when purchasing appliances.

That gap matters particularly for ACs because ownership remains skewed towards higher-income households.

ACs were present in 17% of urban homes but only 4% of rural homes, according to the survey. Ownership was 53% among upper-class households, compared with 43% in the middle category and 4% in the lowest category.

That leaves manufacturers with a difficult proposition: make the AC more efficient without making it so expensive that consumers choose a cheaper, less efficient machine instead.

The cooling problem is getting bigger

The issue extends beyond households. Rapid growth in artificial intelligence, cloud computing and digital infrastructure is also creating demand for systems that can deliver more cooling with less energy.

"Energy-efficient and climate-first cooling technologies are definitely going to play a role in reducing the data centre energy demands," said Shubhojeet Chakravarty, Partner of Data Centers at PwC India.

For households, however, the calculation remains much simpler.

How much does it cost to keep the room cool and how much more are you willing to pay upfront to reduce the bill?

That is becoming central to India's AC market.