The Energy Savings Scheme
An Effective Model for a National Energy Savings
Initiative?
Margaret Sniffin
General Manager
29 February 2012
Today’s presentation

What is the ESS?

How does it work?

Why participate?

What does it cost?

What is covered?

How has it performed?

What lessons have been learned?

Is it an effective model for a national scheme?
Energy Savings Scheme – key facts


ESS commenced on 1 July 2009 – in NSW only
Mandatory scheme – established by legislation
Electricity retailers are the liable parties

Market based mechanism that involves the creation and
trading of Energy Savings Certificates (ESCs)

Not a funding or grants program

IPART is both Scheme Administrator and Regulator
we accredit companies to create certificates
– we monitor compliance by obligated parties
-
Administrative Structure of ESS
Legislation:

Electricity Supply
Act 1995 (the Act)

Electricity Supply
Regulation 2001
(the Regulation)

Energy Savings
Scheme Rule
(ESS Rule) – define
eligible activities

Will run to end 2020
unless replaced by
a national scheme
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How the Scheme works

Obligation placed on electricity retailers to acquire energy
savings. Can do this by:




carrying out energy savings activities themselves (for
example street lighting upgrades) and have these recognised
by IPART to create ESCs, or
buying ESCs from other accredited providers
ESCs are created from activities in the residential, commercial
and industrial sectors

must apply to IPART to be accredited to create ESCs

ESCs trade for around $31 per certificate on spot market
Retailers surrender ESCs against their individual target (based
on their share of total electricity sales in NSW), or pay a penalty
Scheme targets drive demand for ESCs

2011 target was 2.5% of annual liable electricity sales
or approximately 1,400 GWh

surrender of ~1.4 million ESCs to avoid paying penalties

By 2014, target will be 5% of annual liable electricity sales or
about 3,000 GWh per annum in energy savings

surrender of ~3.0 million ESCs to avoid paying penalties
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
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ESC Supply & Demand for CY2010 & 11
ESC registered as % of Annual Target. CY2011 includes unsurrendered prior vintage ESCs – tight supply situation
100.00
% of Annual Target
80.00
CY2010 ESC creation
60.00
CY2011 ESC creation
to date
40.00
CY2011 ESCs to come
CY2011 Target with
10% carry over
20.00
0.00
1 July
31 December
Time
30 June
What obligations and costs do Accredited
parties face?

$500 Application Fee – once off

Annual Reporting – pro forma statement



Report future creation and any changes to project
Not required for small projects with one-off creation of
ESCs
Audits - based on risk assessment


Nature of project, ESC volume, compliance history
Costs range from $8,000 - $25,000 per audit

ESC registration fee - $0.70 per certificate

Penalties enforced for contraventions
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The lifecycle of a ESC
Registration, transfer and surrender of ESCs is done via the Registry at www.ess.nsw.gov.au
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ESC Spot Price History

Certificate price theoretical ceiling: ~$35 set by the
penalty rate
18 March –
compliance
deadline
Trends in the ESC spot price over the period July 2009 to Dec 2011 (source: NextGen)
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Cost effectiveness of ESS

Databuild Research and Solutions study: looked at cost
effectiveness of first 18 months of ESS operation. Findings:


Costs to participants and businesses small compared to ESC
value
Total net benefit of ~$24.50 per ESC
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ESS Rule - Calculation Methods

Applicants must use one of the specified Calculation
Methods:
Project Impact Assessment Method (PIAM)
Metered Baseline Method(s) (MBM)
Deemed Energy Savings Method(s) (DESM)
Commercial
Lighting
Formula
Default
Savings
Factors
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Equipment types and calculation methods
Activity
PIAM
MBM
DESM
CLF
Yes
Residential Lighting
Commercial Lighting
DESM
DSF
Yes
Yes
Yes
Yes
Whitegoods Sales & Removals
Yes
Showerhead Replacement
No
Yes
Improved NABERS ratings
Commercial equipment
Yes
Yes
Industrial equipment
Yes
Yes
Industrial sites & processes
Yes
Yes
Air
Compressors
HVAC Chillers
Refrigeration
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Accreditations in ESS – by year
104 accreditations; 160 projects in total. Showerhead programs no longer eligible
*As of 24 February 2012
Project Impact Assessment Method (PIAM)
Project Impact
Description: Assessment
Engineering
assessment or situation-specific data used to
calculate energy savings from the intervention
Use when:
Sectors:
a) Savings are small compared to overall site consumption
b) Unexplained variation in baseline energy consumption is high
c) Data for a site’s electricity consumption is not available
Commercial, Industrial, (Not typically residential)
It is possible under the PIAM to create ESCs for up to 5 years in
advance, with some discounting of expected future ESC volumes
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PIAM Projects
Discrete upgrade of a small
part of a site
Energy Savings achieved are
small relative to whole site,
perhaps the savings are ‘lost
in the noise’
Forward creation of ESCs
is possible, providing early
cash flows. Discounting is
used to calculate the upfront
ESCs, with top-ups available
to ensure full crediting over
time
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PIAM Case Study: Out Performers Penrith City Council Chiller Upgrade
Key facts:

Council replaced 2
chillers with 1 ultra
efficient two stage
centrifugal compressor

Saves 331 MWh per year

Generates certificates
worth $8,771 (or 350 ESCs)
per year

Engaged an aggregator

Used Project Impact
Assessment Method
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Metered Baseline Method (MBM)
Baseline
Use when
Per unit of output
Usage depends on production volumes
Commercial
Industrial
Unaffected by
output
Usage independent of production volumes,
eg: in commercial office or school campus
Commercial
Industrial
Normalised
Usage variable, can be normalised by
factors other than per unit of output
Commercial
Industrial
NABERS
NABERS ratings - offices, hotels and
shopping centres
Sector
Commercial
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MBM Projects
A large number of small
discrete projects
Together the Energy Savings
achieved are significant
relative to whole site
Significant administrative
simplicity is achieved by not
using PIAM for each initiative
An income stream can be
generated from the Energy
Savings Certificates
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MBM Case Study: Knowledge Global - Fitness
First Efficiency Verification Program
Includes a series of energy
efficiency activities:

Key facts:

Will save 4,528 MWh per
year

Will generate certificates
worth $120,000 (or 4,800
ESCs) per year
behavioural changes and
reporting

lighting and controls
upgrades

HVAC maintenance and
upgrades
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Deemed Energy Savings Method
Four deemed sub-methods
Baseline
Use when
Sector
Default Savings
Factors
a) Installing new efficient standard appliances
b) Replacing inefficient appliances
c) Removing surplus appliances
Residential
Commercial
Industrial
Commercial
Lighting Formula
Lighting retrofits
Commercial
Industrial
High Efficiency
Motor Formula
Sale/installation of motors that that meet the
high efficiency levels of AS/NZS1359.5:2004
Commercial
Industrial
Install power factor correction equipment in
an electricity distribution network
Commercial
Industrial
Power Factor
Correction Formula
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CLF Case Study: Demand Manager – Lighting
Upgrade Australian Technology Park

Target of reducing energy
consumption by 15% by
June 2012

Range of energy saving
measures identified,
including implementation of
efficient lighting solutions

An example of these
measures is the replacement
of light fixtures for a 180m
exterior walkway
Key facts:

Saved 7.9 MWh per year

Generated certificates worth
$2,100 (or 84 ESCs) per
year
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How has ESS performed?
Vintage
Total created
Total forfeited*
Forfeit rate
2009
278,179
22
0.01%
2010
916,972
112,748**
12.30%**
2011
685,527
3,385
0.49%
2012
16,619 (to date)
0
0.00%
*Note: total forfeits include incorrectly registered ESC creation
**2010 total forfeits largely due to showerhead over-creation
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Lessons learned

Balance between upfront assessment & ongoing
compliance audits

Encouraging applications from long-term /
sustainable businesses – especially industrial sector

Tailoring audit regime to project risk e.g. phone
surveys for 3rd party business models

Importance of clear Scheme documentation – new
website, new application documents

Improving efficiency of application assessment
process - pre-application workshops

Being responsive to changes in market (ie growth in
commercial lighting)
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Is the ESS an effective model for a national
scheme?
Satisfies a number of criteria including:

Encourages least cost solutions

Uses tradeable certificates

Broad based sectoral coverage – residential,
commercial and industrial

Broad range of eligible activities with scope to expand

Broad range of methodologies to calculate savings
– Deeming, upfront calculations, on-going assessment

Robust audit and compliance regime
– Use of 3rd party independent auditors
For more information: visit our new Website:
www.ess.nsw.gov.au
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www.ess.nsw.gov.au
Independent Pricing and Regulatory Tribunal
www.ipart.nsw.gov.au