EUAA - Monday, 18 May 2015
Monday, 18 May 2015
Department of Economic Development,
Jobs, Transport and Resources
GPO Box 4509
Melbourne VIC 3001
Dear Sir / Madam
Submission to the Review of the Victorian Energy Efficiency Target scheme
The EUAA after a series of consultations with its members from the large commercial and industrial sector
as well as attending various departmental forums is pleased to make a submission to the “Review of the
Victorian Energy Efficiency Target scheme (VEET).
The EUAA is the peak industry body for Australia’s energy users including manufacturers, retailers and
resource-­­based industries. EUAA members collectively provide employment to over 1,400,000 Australians.
Our members seek competitive, reliable and sustainable energy supply as a means of running their
operations. We remain as the only organisation singularly focused on representing the needs of large
energy users in both the rapidly evolving, volatile energy markets (electricity, gas, renewables), and on
climate change and energy efficiency policy issues.
Submission Overview
EUAA members are of the view that while households and small businesses have been able to use the VEET
to drive energy efficiency, its value to large energy users is much more questionable as the expansion of
the scheme has not brought with it the additional scope of measures that could be of benefit to these larger
businesses. To illustrate this point, we are aware that several EUAA members have invested
significant amounts of capital into energy efficiency projects in their Victorian operations, yet despite this
investment, they were not able to create one Victorian Energy Efficiency Certificate (VEEC) due to the very
restrictive and prescriptive nature of the energy saving measures recognised by VEET. This is further
illustrated by the fact that over 90% of all VEEC’s created to date have been from residential energy saving
measures. A scheme that fails to create a single certificate for large energy users is of little value to our
members and surely needs a major overhaul.
Of additional concern to larger users is the Methodology used to model the savings and benefits from the
application of VEET. Reliance upon “deemed reductions” and savings from domestic hot water systems and
PV panels casts doubt upon the validity of these results. For example, the loss of a smelter is the equivalent
of turning off an entire reasonable sized town and significantly overshadows any reduction gained from this
modelling. As a traditional manufacturing hub of activity, Victoria has witnessed a steady decline in
manufacturing capacity and with it energy consumption.
The EUAA believes that the demise of industrial load is the main contributor to reduced electricity demand.
This falling demand coincides with two 4-­­yearly reset periods in which the AER has allowed the NSP’s to
significantly upgrade and augment their network businesses (otherwise known as gold-­­plating).
EUAA - Monday, 18 May 2015
Claims for benefits arising from deferred NSP investment and reduced generation costs due to the impact
of VEET are very ambitious and the overcapacity of the networks is reason enough to avoid claiming a
reduction in network charges.
Further, EITE protection should be provided in the absence of a global market-­­based mechanism to avoid
carbon leakage. This will bring the Victorian scheme inline with the NSW ESS. The EUAA has long endorsed
a harmonised climate change policy across all state and federal levels. Greenhouse gas coefficients for the
VEET scheme should match those published in NGERS in order to meet this objective.
The EUAA strongly urges the Victorian government to recognise the shortcoming of the VEET and to open
the scheme up to large energy users by adopting the very well regarded NSW Energy Saving Scheme (ESS)
“Whole of Meter Methodology” for industrial facilities together with their other industrial energy efficiency
methods. The Whole of Meter Methodology uses actual energy meter data to determine energy savings
and as such, is considerably more accurate than any Deeming Methods. By addressing this anomaly the
integrity of the scheme can be assured and applied amongst the larger energy user sector.
Recommendations
The following improvements need to be made to VEET so as to treat large energy users fairly:

Provide greater flexibility for compliance with whole of site (metered baseline) methodologies as
per NSW ESS Scheme for large sites using electricity and natural gas.

Allow sites formerly captured under the EREP to qualify for exemptions.

In the absence of a global market-­­based mechanism, EITE exemptions for Trade Exposed Industries

Reduce site exemption threshold from 100 TJ/yr (30,000 MWh/yr) to 50 TJ/yr (15,000 MWh/yr) for
individual sites -­­ this will also minimise the impact of sites falling below the current threshold.

Reduce compliance burden by using NGER’s data to determine if an organisation meets the energy
use threshold for an exemption.
EUAA - Monday, 18 May 2015
EUAA response to specific questions:
Question 1: What should the new VEET target be?
The EUAA has concerns that the proposed targets have been arbitrarily set, do not provide long-­­term
predictability, and are being set in isolation from state and federal energy and climate change policies.
The EUAA recommends the following regarding a new VEET target:
- A federal, market-­­based climate change policy is preferred to a state-­­based energy efficiency
target. In the event that such a national policy is introduced, the VEET scheme should be repealed.
- In the absence of a federal policy, a state-­­based emissions target should be set that matches the
international consensus on limiting global greenhouse gas emissions to a level that will avoid
catastrophic effects of climate change. Victoria’s emissions target should match this in the first
instance and should adjust as it changes over time.
- If a VEET target is to be set, the context within a state-­­based emissions target should be clarified
and how this will integrate over time. In the event that such a state-­­based target is introduced, the
VEET scheme should be repealed.
- The timeframe for the VEET should be extended to 10 years to provide stability and enable
participation of larger, more complex projects.
- A target range rather than a single figure. An example of a target range would be 5 million tonnes
with low uptake and 10 million tonnes for high uptake. The progress and costs of the target should
be reviewed over the 10 years (say every 2 years) and the trajectory adjusted to suit. This would
provide target flexibility whilst providing the predictability required to make investment decisions.
Question 2: Comments are invited on the modelling approach used to determine the costs and benefits
of the VEET scheme. Is there any additional data or information that should be considered?
The EUAA recommends a number of possible actions to enhance the modelling approach, these are:
- A full-­­breakdown of the components of the cost-­­benefit analysis should be provided so that an
accurate assessment can be made.
- The timeframe of the financial assessment (2016 to 2050) introduces an unnecessary margin of
error due to assumptions made. A more appropriate timeframe of 2016 to 2030 should be used
instead.
- The recent demise of industrial load is the main contributor to reduced electricity demand: the loss
of a smelter is the equivalent of turning off an entire reasonable sized town and significantly
overshadows any reduction due to “deemed reductions” from domestic hot water systems and
household solar roof panels.
- AEMO data supports the peak loading on the NEM occurring in the 2007/08 year. Since that time
demand has been falling and yet we have had two 4-­­yearly reset periods in which the AER has
allowed the NSP’s to significantly upgrade and augment their network businesses (otherwise
known as gold-­­plating). Due to the over capacity of the networks there is no validation for claiming
a reduction in network charges, by avoidance of network investment, due to VEET.
EUAA - Monday, 18 May 2015
- There is no provision for unnecessary or stranded assets to be removed from the RAB
so consumers continue to pay for this inefficient expenditure regardless of actual
electrical load demand. Consequently, there is no mechanism for consumers to gain
financial relief from falling electricity demand. Thus claiming deferred network expenditure as a
result of VEET initiatives is not a valid assumption.
Question 3: Which greenhouse gas coefficient should be used to quantify the reduction in greenhouse
gas emissions achieved by the VEET scheme?
Climate change policies should be harmonised across state and federal levels as much as possible.
Greenhouse gas coefficients for the VEET scheme should match those published in NGERS in order to meet
this objective.
Question 4: Please outline whether you think this approach is appropriate for valuing greenhouse gas
emissions reductions over the period 2016 to 2050?
Carbon valuation provided by the CCA is acceptable, however extrapolation is not acceptable. The period
should be reduced to 2016 to 2030 so that no extrapolation is required. The volume of energy reductions
that are being attributed to the VEET scheme is concerning. AEMO data shows that there has been a
contribution of over 3,860 GWh of generation from rooftop PV’s and Victoria has dropped over 3,000 GWh
with the closure of Pt Henry smelter, with a further 738 GWh estimated to be lost over 2015-­­17. Taken
together, the above represents the reduction of more than 7,500 GWh (approximately 15%) of generation.
It appears from the detail provided at various Departmental forums that these reductions may have been
included in supposed net benefits of the VEET scheme and consequent reduction in GHG emissions. These
reductions cannot be attributed to VEET.
Question 5: Is there a case to exclude any business sector(s) from participation in the VEET scheme?
- In the absence of a global market-­­based mechanism, in order to avoid carbon leakage (where
industries within Victoria shut-­­down only to be re-­­opened interstate or overseas with equal or
greater emissions), protection should be provided to EITE Industries. However, if a global system
with appropriate linkages was established, protection for EITEs would not be required.
- Facilities that were previously captured under the EREP legislation should be given the option to
participate in the scheme. EREP facilities will have completed a large proportion of energy
efficiency upgrade projects available, hence, would only be penalised if they were included in VEET.
However, there are some facilities that may wish to participate in the scheme particularly if
project-­­based activities were allowed to be included.
- Reduce site exemption threshold from 100 TJ/yr (30,000 MWh/yr) to 50 TJ/yr (15,000 MWh/yr) for
individual sites -­­ this will also minimise the impact of sites falling below the current threshold.
6) Should the VEET scheme be amended to better ensure support for low income households?
- EUAA does not have specific recommendations for how low-­­income households should be treated,
however, the following principles should be adopted
o Low-­­income households should not be any worse-­­off
o The overall cost of the scheme should be minimised
EUAA - Monday, 18 May 2015
Question 7: In addition to expanding the range of energy efficiency activities available in VEET, should
any other action be taken to target participation by certain groups?
- Industrial and commercial users should have access to a full range of energy efficiency activity
options on the grounds so that those who are paying VEET pass-­­through costs have an opportunity
to create their own VEEC’s to offset such costs. The guiding principle should be that the creation of
VEEC’s is open to any commercial/industrial energy savings activity that produces energy savings
which can be measured and verified. Large energy users provide substantial opportunity for GHG
cuts. More activities = more VEET’s = reduced VEET obligation costs for all consumers.
- Provide greater flexibility for certificate creation with whole-­­of-­­site (metered baseline
methodologies as per NSW ESS for large sites. This should happen ASAP not in 2017 as ESS already
has developed the methodology.
- Include electricity, gas and thermal energy projects
- Standby power devices
Question 8: Please suggest up to five activities that should be prioritised for revision or introduction to
the VEET scheme. Please outline why you believe these activities should be prioritised.
- Project-­­based activities should be incorporated into the scheme as these will result in significant
energy efficiency improvements.
- Activities from industrial facilities should be included.
- Installation of standby power devices should be omitted as these are typically uninstalled after a
short period.
Question 9: Please suggest up to three changes which should be made to improve the VEET scheme.
Please outline why you believe these changes should be a priority.
1. Harmonisation with NSW ESS and SA REES schemes (in the absence of a single Federal scheme)
- Harmonisation with other state-­­based schemes will reduce costs and increase credit liquidity. This
should go some way to addressing the cost of the VEET scheme being triple that of the NSW ESS
scheme. Harmonisation elements include:
o Target and length of the scheme
o Design of the scheme
o Applicable activities
o Tradability of certificates
2. Expansion to include industrial sites and project-­­based activities
- Will result in significantly greater emissions reduction over time.
3. Format of VEET to coincide with State and Federal Climate Change Policies (ERF or future ETS)
-­
Provide clarification on how the VEET scheme will integrate into the Federal Government’s
Emissions Reduction Fund and Victoria’s Climate Change Policy
-­
In the presence of an effective national climate change policy, supplementary schemes at both
federal and state levels are unnecessary and increase regulatory costs. VEET should be reviewed
and a long-­­term course set in place to repeal over time. The aim would be to provide the lowest
cost solution whilst avoiding sovereign risk created with these schemes.
EUAA - Monday, 18 May 2015