Material Insights · Understanding the Material World

Energy in buildings and Heat pumps, air conditioning and refrigeration

Heat pumps, air conditioners and fridges are how buildings turn electricity into heating and cooling, and cooling is now a main driver of electricity peaks in hot countries such as India. The efficiency of the machines sold today largely decides future building power demand.

Energy in buildings (energy) and Heat pumps, air conditioning and refrigeration (energy): 4 relationships.

How they are linked

1. Cooling and heating service

Physical flow · Strong · Heat pumps and ACs to building energy use

Compressor machines move heat in or out of rooms using electricity, so space cooling and heat pump heating become part of a building's power bill.

  • about a fifth of building electricity used by ACs and fans, 2018
  • 10% of world electricity used for space cooling, 2018

The IEA expected the global stock of air conditioners in buildings to rise from 1.6 billion in 2018 to 5.6 billion by 2050. In hot countries new cooling adds directly to electricity demand rather than replacing another fuel.

Sources: IEA

2. Peak load

Transition · High in India · Cooling demand to electricity peaks

Air conditioners all run in the same hot spells, so they add far more to peak demand than to annual energy use.

  • 45% possible AC share of India's peak load by 2050, from 10% in 2018, without action
  • 136 GW to 243 GW India's peak demand, 2013-14 to 2023-24
  • 40% share of household electricity used by fans, ACs and coolers in surveyed homes, 2024

Only 13.3% of 4,321 surveyed Indian households owned an AC in 2024, so ownership has a long way to rise. India met a record peak of 270.82 GW on 21 May 2026, during solar hours, which the Ministry of Power linked to greater use of cooling appliances; cooling also keeps evening demand high after solar output falls, which raises the need for storage, flexible plants and network upgrades.

Sources: IEA; Down To Earth (on a CLASP and Bureau of Energy Efficiency survey); Deccan Chronicle (on a Ministry of Power statement)

3. Efficiency standards

Policy · Strong · Appliance rules cut building load

Minimum performance standards and star labels decide how much electricity each unit of cooling needs, so the rules in force when units are sold fix their demand for their working life.

  • 25% to 40% cut in cooling energy targeted by the India Cooling Action Plan, by 2037-38
  • 25% higher efficiency of typical ACs sold in Japan and the EU than in the US and China, 2018
  • ISEER 6.2 best room ACs on the Indian market, 2019

India's room AC stock grew from 2 million units in 2006 to about 30 million in 2017, and the 2019 India Cooling Action Plan projected cooling demand to grow eightfold in 20 years. Raising the efficiency floor limits the peak that this growth would otherwise add.

Sources: IEA; NRDC

4. Price link: running cost

Cost and price · Strong · Both ways

A heat pump's running cost is its electricity bill, so power prices shape how attractive it is against a boiler or a less efficient AC.

  • 0.14 monthly change correlation
  • 0.70 12-month change correlation
  • 1.61 fitted elasticity

The yearly correlation of 0.70 between the US heat pump and electricity proxies mostly reflects shared inflation rather than buyers reacting to tariffs. The economic link that matters is the ratio of electricity to gas or oil prices, which sets the payback on a heat pump.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

  1. Cooling is a growth market tied to heat and income: the IEA saw the world AC stock rising from 1.6 billion to 5.6 billion by 2050.
  2. In India cooling drives peak demand, which rose from 136 GW to 243 GW in the decade to 2023-24 and reached a record 270.82 GW in May 2026, so it shapes the case for storage and peaking capacity.
  3. Typical ACs sold in Japan and the EU were about 25% more efficient than those in the US and China in 2018, so tighter standards elsewhere would reward makers of efficient units.

What to track

  • India peak electricity demand met: New summer peaks signal cooling-led load growth (Monthly · Central Electricity Authority; Grid-India)
  • Room AC sales and star-rating mix: A shift to higher star ratings slows growth in peak load per unit sold (Yearly · Bureau of Energy Efficiency; industry data)

For policymakers

Key learnings

  1. The AC share of India's peak load could rise from 10% to 45% by 2050 without action, so cooling policy is also grid policy.
  2. Every unit of efficiency built into ACs sold now cuts the peak capacity that rising ownership would otherwise require, and the India Cooling Action Plan targets a 25% to 40% cut in cooling energy by 2037-38.
  3. Fans, ACs and coolers already took 40% of electricity in surveyed Indian homes in 2024, so building codes and appliance labels matter for household bills.

What to track

  • BEE star-rating thresholds for room ACs: Tighter thresholds lower future peak demand (As revised · Bureau of Energy Efficiency)
  • Progress against India Cooling Action Plan targets: Shows whether cooling energy is on track to fall against the baseline (Periodic · Ministry of Environment, Forest and Climate Change)
  • Household AC ownership: Rising ownership signals faster growth in evening peaks (Survey-based · CLASP and BEE; NSSO)

India

India's room AC stock rose from about 2 million in 2006 to about 30 million in 2017, yet only 13.3% of surveyed households owned one in 2024, so cooling is set to be one of the largest sources of new electricity demand.

Sources

  1. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  2. Air conditioning use emerges as one of the key drivers of global electricity-demand growth (The Future of Cooling), IEA (2018)
  3. India's ambitious plan to cool a growing population, NRDC (2019)
  4. Cooling appliances now drive India's household electricity use, Down To Earth (on a CLASP and Bureau of Energy Efficiency survey) (2026)
  5. India's peak power demand hits record high at 270.82 GW amid heat and use of cooling appliances, Deccan Chronicle (on a Ministry of Power statement) (2026)