Energy Savings Initiative - Department of Industry, Innovation and
Information Paper
Investigation of a National Energy Savings
Initiative: economic modelling and potential regulatory impacts
Department of Resources,
Energy and Tourism
Department of Industry,
Innovation, Climate Change,
Science, Research and
Tertiary Education
July 2013
About the National Energy Savings Initiative Working Group
The Working Group was established to prepare a report for the Minister for Resources and Energy and the Minister for Climate Change on possible design options for a national Energy Savings
Initiative. Full terms of reference are at Appendix D.
Working Group members
Mr Martin Hoffman
Mr Brendan Morling
Change, Science, Research & Tertiary Education
Dr Steven Kennedy
Mr Brad Archer
Advisory Group
Australian Council of Social Services
Australian Council of Trade Unions
Australian Energy Markets Commission
Australian Industry Group
Australian Industry Greenhouse Network
Choice
Clean Energy Council
The Climate Institute
ClimateWorks Australia
Energy Efficiency Certificate Creators Association
Energy Networks Association
Energy Efficiency Council
Energy Retailers Association of Australia
Energy Users Association of Australia
Property Council of Australia
Mr Neil Marshman of Rio Tinto
State and Territory government officials
Written and published by the Department of Resources, Energy and Tourism and the Department of Department of Industry,
Innovation, Climate Change, Science, Research & Tertiary Education.
© Commonwealth of Australia 2013
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Disclaimer This document is made available to provide analysis in relation to the policy investigation of a possible national
Energy Savings Initiative. Material in this document should not be taken to indicate the Commonwealth's commitment to a particular policy or course of action. The Commonwealth does not make any representations or warranties that it will implement any or all of the options, preferred positions or dispositions set out in this document. Material in this document is made available for general information only and on the understanding that the Commonwealth is not providing professional advice. Different solutions and outcomes may apply in individual circumstances. While reasonable efforts have been made to ensure the accuracy, completeness and reliability of the material contained in this document, to the extent permitted by law, the
Commonwealth provides no express or implied warranties and makes no representations that the information contained in this document is accurate, complete or reliable, and expressly disclaims liability for any loss, however caused and whether due to negligence or otherwise, arising directly or indirectly from the use of, inferences drawn, deductions made, or acts done in reliance on, this document or the information contained in it, by any person.
As part of the Clean Energy Future plan, the Australian Government is investigating the costs and benefits of national Energy Savings Initiative.
National Energy Savings Initiative
Contents
Information Paper
Prime Minister’s Task Group on Energy Efficiency ............................................... 10
National Energy Savings Initiative Working Group and Advisory Group ............. 11
Australians are facing increasingly higher energy bills ........................................ 15
The ‘energy efficiency gap’, energy prices and productivity ................................ 16
Current measures to close the energy efficiency gap ........................................... 22
Option B: Harmonise existing energy efficiency schemes .................................... 29
Option C: Intervention using non-market based policy instruments .................... 30
National Energy Savings Initiative Information Paper
Option C4: Support for the energy services sector ............................................ 33
Option C5: Targeted or expanded regulatory requirements ............................... 33
Option D: Intervention using a market instrument – a national Energy Savings
Option D1: National Energy Savings Initiative
Option D3: National Energy Savings Initiative
Option D4: National Energy Savings Initiative
– Low-income household focus37
Energy sector resource costs and benefits for Option A ................................... 48
Risk and competition assessment for Option A .................................................. 51
Option B: Harmonise existing energy efficiency schemes .................................... 52
Energy sector resource costs and benefits for Options B1 and B2 ................... 53
Energy sector resource costs and benefits for Option B3 ................................. 55
Competition assessment for Options B1, B2 and B3 .......................................... 59
Option C: Intervention using non-market-based policy instruments.................... 59
Option C4: Support for the energy services sector ............................................ 63
Competition assessment for Options C1 to C5 ................................................... 67
National Energy Savings Initiative Information Paper
Option D: Intervention using a market-based instrument – a national Energy
Option D1 under a range of consumer behaviour assumptions ........................ 71
Investigation of different scheme design Options D1-D4 ................................... 80
Considerations for transitioning to a national Energy Savings Initiative ............. 94
What roles do different participants have in a white certificate scheme? .................. 102
Appendix B: Design Features - Option D1: National Energy Savings Initiative .......... 104
Treatment of self-generation under a national Energy Savings Initiative ................... 104
Appendix C: Obligated Parties under a National Energy Savings Initiative ............... 106
National Energy Savings Initiative Information Paper
Appendix D: National Energy Savings Initiative Energy Savings Initiative Working
Opportunities for reducing additional reporting requirements ................................... 113
Appendix G: Distribution of certificates across the top 15 end uses .......................... 117
Distribution of certificates across sectors and end uses for Option D1 ..................... 117
Distribution of certificates across sectors and end uses for Options D1-D4 ............. 119
National Energy Savings Initiative Information Paper
1 Executive summary
1.1 Rationale for intervention
In 2010, the Australian Government established a Prime Minister’s Task Group on Energy
Efficiency to look for options to:
deliver a step-change improvement in Australia’s energy efficiency by 2020, and
place Australia at the forefront of OECD energy efficiency improvement,
The Report of the Task Group recognised that barriers to energy efficiency could lead to an
‘energy efficiency gap’ in Australia. The Report stated that:
Australia’s historical record of energy efficiency improvement has been poor compared to that of other countries. Currently we sit in the middle of the pack compared to other OECD countries. But our rate of improvement is falling behind [...]. Paradoxically, our history of poor performance has left Australia with a wealth of opportunities to improve our energy efficiency performance.
1
The existence of an energy efficiency gap would suggest that some energy users are consuming more energy than they would in the absence of barriers that impede the adoption of energy efficiency improvements. This implies that investment in energy efficiency is less than optimal.
2 Consuming energy at a greater than optimal level may also have a negative impact on other energy customers because the costs to supply energy, and the price at which it is sold, may be inflated, increasing energy costs for everyone. On an aggregate level, using more energy than necessary to provide the goods and services we consume diverts scarce economic resources from potentially more productive activities. In this way, improving energy efficiency may lead to increased economic productivity.
How large the energy efficiency gap is, and whether this magnitude justifies government intervention, beyond that which is already occurring, are questions the Energy Savings
Initiative Working Group sought to answer. If the effect of energy efficiency barriers not addressed by existing measures is material, then the question becomes which mechanism would be most efficient in addressing these remaining barriers.
1.2 Context
The Prime Minister’s Task Group on Energy Efficiency reported to the then Minister for
Climate Change and Energy Efficiency and the Minister for Resources and Energy on options to deliver a step change in energy efficiency improvement by 2020. One of the Task Group’s six foundation recommendations was that the Australian Government:
Agree to the introduction of a transitional national energy savings initiative to replace existing and planned state energy efficiency schemes, subject to detailed consultation on its design.
3
In response to the Task Group report, and as part of the Australian Government’s plan for a
Clean Energy Future, the Australian Government stated that:
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National Energy Savings Initiative Information Paper
The Government will expedite the development of a national energy savings initiative and will examine further how such a scheme may assist households and businesses to adjust to rising energy costs. This further work will involve additional detailed design, quantification of costs and benefits, and discussions with state and territory governments. An important element of the Government’s further investigations will be comprehensive public and industry consultation.
4
This Information Paper presents the results of the analysis, including economic and energy market modelling and stakeholder consultation. Note that no decision has been made about whether a national Energy Savings Initiative will be introduced.
1.3 Framework for analysis
A two-step impact analysis framework was applied to a range of interventions that could feasibly achieve the following objective:
To improve Australia’s energy efficiency in order to help manage energy bills and improve productivity .
The first step involved a qualitative analysis of whether it was feasible to consider each broad option capable of substantially overcoming relevant market failures and other barriers in order to cost-effectively improve energy efficiency across all sectors of the Australian economy.
The second step of the analysis applied a regulation impact analysis approach to each policy option assessed to satisfy the requirements of the first step. The analysis drew on: quantitative data derived from a wide range of research commissioned by the Working Group; 5 a detailed energy sector modelling exercise; 6 and supplementary qualitative analysis of those impacts that were not explicitly incorporated in the modelling. The quantitative analysis included an assessment of:
scheme administration and business compliance costs;
benefits in the energy sector that are considered to increase the level of resources available to the Australian economy; and
distributional effects within the energy sector across different sectors and stakeholder groups;
Note that the scheme was modelled to cease in 2030 and the benefits were projected to 2050 in order to account for the long-lived savings associated with some energy efficiency activities, such as building improvements and insulation.
Unless otherwise stated, all dollar values presented in this report are present values denominated in 2012 dollars, discounted at an annual rate of seven per cent.
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National Energy Savings Initiative Information Paper
Intervention options considered were:
Option A: No Further Intervention – business as usual scenario, in which existing
Commonwealth, State and Territory measures were assumed to continue under current arrangements, including the future operation of energy efficiency schemes, with targets and coverage consistent with existing jurisdiction-based schemes;
Option B: A harmonised energy efficiency scheme in jurisdictions with existing schemes (New South Wales, Victoria, South Australia and the Australian Capital
Territory);
Option C: Intervention using non-market-based policy instruments; and
Option D: Intervention using a market-based instrument – a national Energy Savings
Initiative following the cessation of state and territory energy efficiency schemes.
The qualitative analysis found that only a national Energy Savings Initiative was capable of meeting the stated objective in full. However, harmonising existing schemes was also assessed as capable of meeting the stated objective within the jurisdictions in which existing schemes are currently operating. On this basis, it was also included in the second step of the analysis.
The key modelling features of a national Energy Savings Initiative were:
coverage of electricity and gas use in the residential, commercial and industrial sectors in all states and territories;
scheme operation from 1 January 2015 to 31 December 2030; and
an evaluation period of 1 January 2015 to 31 December 2050 to account for the long-lived energy savings delivered by energy efficiency improvements, which would extend beyond the scheme’s operation.
Table 1.1 provides an overview of the key results for all options considered compared with the hypothetical baseline scenario, which assumes existing schemes cease. The economic and energy market modelling of Option A assumed energy efficiency schemes operating in jurisdictions with existing schemes from 1 January 2015 to 31 December 2030. Energy savings targets were applied to the relevant jurisdictions consistent with Commonwealth assessment of their schemes’ targets in effect when the modelling exercise commenced.
Therefore, modelling for this option does not closely follow the design parameters or activity sets of the existing schemes. Instead, assumptions were applied which approximate the existing schemes’ current targets and other broad policy settings based on information available when the modelling commenced. Consequently, the results of this analysis are not sufficiently refined to be used for evaluating the current or future performance of existing schemes.
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National Energy Savings Initiative Information Paper
Table 1.1: Key results from the impact analysis for all options considered A
Option
Meets stated objective?
Partially
Partially
Net present value
(2015-50)
$(2012) million
Household electricity bill savings
Participants Non-participants B
2020 2030 2020 2030
1,270 11% 5% -0.5% -1% A: No Further Intervention
B1: Harmonised scheme in jurisdictions with existing schemes – activities, accreditation standards and procedures
B2: Harmonised scheme in jurisdictions with existing schemes –
Option B1 plus certificate trading
B3: Harmonised scheme in jurisdictions with existing schemes –
Option B2 plus both gas and electricity in all sectors (excluding
EITEs and large off-grid energy users) under a single target
Partially
Yes, in covered areas only
1,260-1,275
1,263-1,275
2,325
11%
11%
11%
5%
5%
4%
-1%
-1%
-1%
-1%
-1%
-1%
C: Non-market based policy instruments Partially Option C was not included in the quantitative analysis because no sub-options, either separately or in combination, were considered a feasible, cost-effective means of achieving the stated objective.
D1: National Energy Savings Initiative – Core Scheme Design, covers all sectors, excluding EITEs and large off-grid energy users
Yes
D2: National Energy Savings Initiative – Total Geographic and Sectoral
Coverage, including EITEs and large off-grid energy users
Yes
D3: National Energy Savings Initiative – Peak Demand Reduction
Incentives
Yes
D4: National Energy Savings Initiative – Low-income Household Focus Yes
2,220
3,522
2,406
10%
11%
10%
5%
4%
4%
-1%
-0.5%
-1%
-1%
-2%
-2%
-1,865 5% 1% -4% -4%
Notes: A: All quantitative results are reported against the hypothetical baseline scenario, which assumes that existing jurisdiction-based energy efficiency schemes cease to operate; B: Negative electricity bill savings mean that non-participating households were projected to face marginally higher electricity bills due to retail electricity price increases projected for all options considered.
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National Energy Savings Initiative Information Paper
1.4 Analysis of options
The first element of the modelling exercise determined that an appropriate energy savings target for a possible national Energy Savings Initiative was five per cent.
7 The second element applied a range of consumer behaviour assumptions to Option D1: Core Scheme
Design, which assumed broad geographical and sectoral coverage, excluding
Emissions-intensive trade-exposed industries (EITEs) and large off-grid energy consumers.
This approach enabled the analysis to account for uncertainty about consumer behaviour and provided a reasonable range of potential costs and benefits associated with a national Energy
Savings Initiative. In Figure 1.1, the costs for each scenario are represented by the palestshaded blocks below the zero line; benefits by the deeper-shaded blocks above the zero line; and net present values by the narrower, darkest-shaded blocks, which also display the net present values in dollars. The notes accompanying the figure include details of the different consumer behaviour assumptions applied to these scenarios.
Figure 1.1: Costs, benefits and net present values for Option D1, 2015-50
Source: SKM MMA and Working Group analysis
Note: Option D1: Core Scheme Design (Core) – applied the same central consumer payback thresholds used in the target testing analyses, which were based on advice from expert consultants, a public workshop held by the Working Group, submissions to the Issues Paper, and an extensive review of the relevant behavioural economics literature.
Option D1: Pessimistic Consumers
– applied shorter payback thresholds to represent a lower level of consumer confidence in the benefits of investing in energy efficiency improvements.
Option D1: Optimistic Consumers – applied longer payback thresholds to represent a higher level of consumer confidence in the benefits of investing in energy efficiency improvements, and
Option D1: Behaviour Change – assumed that payback thresholds increased from the central level to optimistic, simulating an increase in consumer confidence in the benefits of investing in energy efficiency improvements brought about by the introduction of the scheme. This approximates consumers ‘learning by doing’ with regard to energy efficiency investments.
The analysis indicated that the Core Scheme Design, operating from 2015 to 2030, could result in a net benefit of $1.5 to $5.3 billion 8 over the period 2015 to 2050, when compared with a hypothetical baseline scenario that assumed existing schemes cease to operate.
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National Energy Savings Initiative Information Paper
The third element of the modelling exercise investigated the impacts on the modelling results of four different scheme design options for a national Energy Savings Initiative:
D1: Core Scheme Design; D2: Total Geographic and Sectoral Coverage; D3: Peak Demand
Reduction Incentives; and D4: Low-income Household Focus.
9 The details of each of these schemes and the projected net present values associated with these scheme design options are presented in Figure 1.2 and following notes.
Figure 1.2: Cost, benefits and net present values for Options D1-D4, 2015-50
Source: SKM MMA and Working Group analysis
Note: Option D1: Core Scheme Design (Core) – restricted broad geographic and sectoral coverage, but excluding EITEs and large off-grid energy consumers. This is the same scheme design used in the second element of the modelling exercise to explore a range of consumer behaviour assumptions;
Option D2: Total Geographic and Sectoral Coverage (Total) – including EITEs and large off-grid energy consumers;
Option D3: Peak Demand Reduction Incentives (Peak) – energy efficiency improvements expected to reduce peak demand were awarded 150 per cent of the number of certificates received under Option D1, and improvements not expected to exacerbate peak demand were awarded 50 per cent; and
Option D4: Low-income Household Focus (LIH) – in meeting the annual energy savings target, at least 10 per cent of energy savings must be created by installing energy efficiency improvements in low-income households.
The analysis indicated that all of the scheme design options considered, except for
Low-income Household Focus, could deliver a net benefit greater than the $1.3 billion projected for Option A: No Further Intervention, which modelled energy efficiency schemes in jurisdictions with existing schemes by applying energy savings targets consistent with those in effect for these existing schemes when the modelling exercise commenced.
10
This greater benefit was driven by the greater amount of energy consumption covered by a national scheme compared to the existing schemes in just four jurisdictions. Total benefits for the Core Scheme Design were projected to be 37 per cent greater than Option A at an additional scheme cost of 14 per cent.
Total Geographic and Sectoral Coverage was projected to deliver the greatest net benefit of
$3.5 billion, which is 60 per cent greater than the Core Scheme Design. This was due to the additional energy consumption of EITEs and large off-grid energy users covered by this option.
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National Energy Savings Initiative Information Paper
Peak Demand Reduction Incentives was projected to deliver a net benefit of $2.4 billion, which is almost 10 per cent greater than the Core Scheme Design. The focus on reducing peak electricity demand was projected to result in total benefits marginally greater than the
Core Scheme Design, at a reduced cost equivalent to around five per cent.
The net cost projected for Low-income Household Focus was due to the greater costs associated with focussing on energy efficiency improvements in low-income households compared with the energy efficiency activities that would otherwise have been implemented.
Option B3: Harmonised Expansion, which applied the Core Scheme Design assumptions to the four jurisdictions with existing schemes only, was projected to deliver a net benefit of
$2.3 billion, which is $0.1 billion greater than for the Core Scheme Design. While the benefits projected for the Core Scheme Design were greater due to its wider geographic coverage, these were offset by the greater costs associated with the establishment and operation of a national scheme covering all jurisdictions compared with just the four jurisdictions with existing schemes in Option B3.
1.5 Impact on household electricity bills
The analysis indicated that the introduction of a national Energy Savings Initiative could lead to a marginal average annual increase in retail electricity prices of less than one per cent in all but the Low-income Households Focus option, for which a four per cent increase was projected. The analysis indicated that the reduced demand for electricity projected under a national Energy Savings Initiative would lead to lower wholesale electricity prices, placing a downward pressure on retail electricity prices. The analysis also found that reduced demand would result in higher network prices, placing upward pressure on retail electricity prices.
This was projected to occur because reduced demand for electricity would lead to lower volumes of electricity passing through electricity networks, which would compel network operators to spread some of their operating costs over the fewer units of electricity they would now deliver. Overall, these offsetting upward and downward pressures led to marginal increases in retail electricity prices reported.
Under these conditions, households that do not reduce their electricity consumption would immediately face marginal increases in their electricity bills whereas participants’ bills would decrease. Figure 1.3 shows the projected savings on the average annual household electricity bill for scheme participants and the additional costs for non-participants, as well as the proportion of households projected to participate in the scheme.
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National Energy Savings Initiative Information Paper
The analysis indicated that the Core Scheme Design, Total Geographic and Sectoral
Coverage, and Peak Demand Reduction Incentives options would have very similar impacts on household electricity bills. Participating households were projected to reduce their electricity bills by around ten per cent ($180 per year) on average in 2020 and around four per cent ($85 per year) on average in 2030. Non-participating households were projected to face marginal increases in their electricity bills of less than one per cent (around $10 to $15 per year) on average in 2020 and approaching two per cent (around $30 to $40 per year) on average in 2030. The additional scheme costs associated with the Low-income Households
Focus resulted in lower savings for participants overall and higher additional costs for the small proportion of households projected not to participate in this scheme design option.
Figure 1.3: Average annual household electricity bill savings A for Option D1, participants and non-participants
Source: SKM MMA and Working Group analysis
Notes: A: The installation of energy efficiency improvements that reduce gas consumption would lead to further savings for scheme participants, whereas gas bills for non-participants are not expected to be materially different from the hypothetical baseline scenario, which assumes existing jurisdiction-based schemes cease to operate. B: Participant households are assumed to undertake one energy efficiency improvement – households undertaking two improvements would be projected to make savings around twice those reported on average; C: Savings reported for 2020 and 2030 are annual averages over the five-year periods 2018-2022 and 2028-2032; D: Consistent with Note B above, the number of participating households is derived from the total number of energy efficiency improvements installed under the schemes over the period 2015 to 2030, and total household numbers were sourced from SKM MMA modelling results – if households were to undertake more than one improvement the proportion of participants would be lower than reported.
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National Energy Savings Initiative Information Paper
1.6 Next steps
This Information Paper draws no conclusions and makes no recommendations. Comments from stakeholders on the content of this Information Paper may be sent to energysavingsinitiative@ret.gov.au. The Australian Government will consider the results of the investigation of a possible Energy Savings Initiative, including any comments received on the Information Paper. Any decision to proceed with the scheme would be conditional on the agreement of the Council of Australian Governments (COAG) and existing and planned jurisdiction-based schemes ceasing.
1.7 Acknowledgments
The Commonwealth Working Group developing this Information Paper has appreciated the insights and advice from Advisory Group members and notes that recommendations about policy design and the analysis are the responsibility of the Working Group. Endorsement has not been sought for the analysis and the Working Group understands that some Advisory
Group members’ views may differ from the analysis. The Working Group appreciates the input from many stakeholders during numerous consultations, workshops and meetings held since September 2011 as outlined in Chapter 2.
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National Energy Savings Initiative Information Paper
2 Background, consultations and analysis
2.1 Prime Minister’s Task Group on Energy Efficiency
In 2010, the Australian Government established a Prime Minister’s Task Group on Energy
Efficiency. The Task Group reported on options to deliver a step change in energy efficiency improvement by 2020 and place Australia at the forefront of energy efficiency improvement within the Organisation for Economic Co-operation and Development (OECD). One of its six foundation recommendations was that the Australian Government:
Agree to the introduction of a transitional national energy savings initiative to replace existing and planned state energy efficiency schemes, subject to detailed consultation on its design.
11
The Task Group noted that ‘significant further design work is necessary before the
Government could consider whether to proceed with implementation of an energy savings initiative’.
12 This Information Paper presents the results of the analysis. Note that no decision has been made about whether a national Energy Savings Initiative will be introduced
2.2 Clean Energy Future commitment
In response to the Task Group report, and as part of the Clean Energy Future plan, the
Australian Government committed to undertake further analysis on the costs and benefits of a potential national Energy Savings Initiative (see Box 2.1).
Box 2.1: Commitment from the Clean Energy Future plan 13
As recommended by the Prime Minister’s Task Group, the Government will undertake further consultation and design work on a national Energy Savings Initiative. Factors that will be considered will include:
economy-wide targets to maximise the benefit of the scheme;
sectoral and fuel coverage issues;
incentives or requirements to create certificates in low-income households and in ways which reduce electricity demand at peak times;
energy saving activities which would be eligible; and
managing a smooth transition from state-based schemes.
This commitment noted that, subject to the outcomes of economic modelling and a regulatory impact analysis, the Government will make a final decision on whether to adopt a national
Energy Savings Initiative, and that any decision to proceed with such a scheme would be conditional on the agreement of the Council of Australian Governments (COAG) and existing and planned jurisdiction-based schemes ceasing.
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National Energy Savings Initiative Information Paper
2.3 National Energy Savings Initiative Working Group and Advisory Group
In September 2011, a Working Group comprising senior officials from the then Department of Climate Change and Energy Efficiency (DCCEE) 14 and the Department of Resources,
Energy and Tourism (DRET) was established to lead this further policy design and analysis.
The Working Group has engaged with an Advisory Group (Table 2.1), comprising representatives from relevant sectors, and state and territory governments. The Advisory
Group was invited to contribute expertise on a range of issues such as: sectoral and fuel coverage; scheme targets; eligible activities; considerations concerning existing schemes; and opportunities for energy efficiency in specific sectors.
The Working Group has greatly appreciated the insights and advice from Advisory Group members and acknowledges that recommendations about policy design and the analysis are the responsibility of the Working Group. The Working Group notes that endorsement has not been sought from the Advisory Group, and understands that some Advisory Group members’ views may differ from those of the Working Group.
Table 2.1: Advisory Group members
Australian Council of Social Services
Australian Council of Trade Unions
Australian Energy Markets Commission
Australian Industry Greenhouse Network
Australian Industry Group
Choice
Clean Energy Council
Energy Efficiency Certificate Creators Association
Energy Efficiency Council
Energy Networks Association
Energy Retailers Association of Australia
Energy Supply Association of Australia
Energy Users Association of Australia
Property Council of Australia
Mr Neil Marshman of Rio Tinto
State and Territory government officials
The Climate Institute
ClimateWorks Australia
2.4 Consultation process
A range of consultation processes has informed the analysis of a national Energy Savings
Initiative, including workshops, written submissions, input from the Advisory Group, and meetings with individual stakeholders including all state and territory governments. A full list of consultation events is in Table 2.2.
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National Energy Savings Initiative Information Paper
Table 2.2: Consultation events and activities to date
Date Consultation event
September 2011 Presentation to Energy Efficiency Opportunities workshop – Sydney
Presentation to Energy Retailers Association of Australia – Sydney
October 2011 Bilateral meetings with state governments and stakeholder groups
Formal meeting of the Advisory Group
November 2011 Workshop on low-income households – Adelaide
Technical workshop on peak demand – Melbourne
Presentation to the Energy Efficiency Council annual conference – Melbourne
Presentation to Energy Efficiency Council workshop on possible objectives –
Melbourne
December 2011 Formal meeting of the Advisory Group
Expert workshop on modelling of energy efficiency and peak demand savings –
Melbourne
Release of Issues Paper and Modelling Assumptions
Workshop on international schemes (co-hosted by the International Energy
Agency and the Regulatory Assistance Project) – Sydney
January 2012 Public workshop on Issues Paper – Brisbane
One-on-one meetings with stakeholders – Brisbane
February 2012 Public workshops on Issues paper – Melbourne, Sydney and Perth
One-on-one meetings with stakeholders – Melbourne, Sydney and Perth
Consultation with state and territory governments
Targeted workshop on low-income households – Adelaide
Public workshop on assumptions for modelling – Melbourne
Presentations to Energy Retailers Association of Australia - Melbourne, Clean
Energy Council - Melbourne, Energy Efficiency Council – Melbourne, Energy
Efficiency Certificate Creators Association – Melbourne and Australian Industry
Greenhouse Network – Canberra
Expert workshop on modelling of distribution networks – Canberra
Technical workshop on peak demand – Melbourne
Submissions closed on Issues Paper and on Modelling Assumptions booklet
April 2012 Formal meeting of the Advisory Group
May 2012
July 2012
Formal meeting of the Advisory Group
Presentation to the Clean Energy Council conference – Sydney
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Date
August 2012
Consultation event
Release of Progress Report
December 2012 Presentation to the Energy Efficiency Council National Conference
February 2013 Formal meeting of the Advisory Group
April 2013 Formal meeting of the Advisory Group
In December 2011, the Working Group released an Issues Paper that set out topics for consideration as part of further work on a national Energy Savings Initiative and sought stakeholder views. More than 80 submissions were received. These submissions were used to inform a Progress Report,
15
which was released in August 2012. The Progress Report outlined the Working Group's preliminary views on a range of key design issues including:
an objective for a possible national scheme;
a proposed approach to complementarity with the carbon pricing mechanism, the
Renewable Energy Target and the national energy markets;
sectoral and fuel coverage issues;
scheme architecture; and
options within a national Energy Savings Initiative for specifically targeting energy efficiency activities at low-income households or in ways that help reduce peak electricity demand.
The Progress Report outlined scheme design options that would be examined further through the regulatory impact analysis.
2.5 Analysis
The Working Group commissioned a number of consultancies to improve available data on energy efficiency improvement opportunities and to better inform the projected costs and benefits of a national Energy Savings Initiative. These analyses, which are available on both
Departments’ websites, 16
focus on:
energy efficiency opportunities in the industrial sector;
energy efficiency opportunities in the commercial and SME sectors;
standardising energy efficiency savings in the residential sector;
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National Energy Savings Initiative Information Paper
costs of complying with current jurisdiction-based schemes and how these costs may change under a national Energy Savings Initiative;
options for addressing peak electricity demand through a national white certificate scheme; and
economic and energy market modelling of the potential impacts of a national Energy
Savings Initiative (taking into account results from the above consultancies).
2.6 Next steps
The Australian Government will consider whether or not it supports a national Energy
Savings Initiative, rather than taking a decision to implement such a scheme. A formal
Regulation Impact Statement (RIS) is therefore not necessary at this present time.
17 However, this Information Paper follows the standard approach of a consultation RIS to ensure rigorous cost-benefit analysis is applied, alternative policy options are considered and effective consultation with stakeholders occurs, and can be used to inform a formal RIS if required in the future.
Should the Australian Government support the proposal for a national Energy Savings
Initiative, it would then take the proposal to COAG through the Standing Council of Energy and Resources for agreement. In this instance, a standard COAG RIS would be developed to inform COAG’s decision. If the Australian Government determined it did not support a national Energy Savings Initiative at this time, it would not proceed to COAG discussions.
The closure of all existing state and territory energy efficiency obligation schemes would also be required before a national Energy Savings Initiative would be introduced.
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3 Defining the problem
3.1 Australians are facing increasingly higher energy bills
Retail energy prices faced by Australian households and businesses have risen sharply in recent years and are projected to continue increasing for the foreseeable future. Higher energy prices necessarily mean higher energy bills, unless Australian households and businesses use less energy. Various factors are contributing to this projected increase and are likely to continue placing upwards pressure on energy prices into the future.
For electricity, the main cause of recent and forecast price increases is higher network charges (especially for distribution networks). This expenditure on ‘poles and wires’ reflects investment to expand and replace aging assets, to meet reliability standards and to meet rapidly growing levels of peak demand. The Council of Australia Governments is implementing changes to network regulation to help ease these pressures on electricity prices.
Figure 3.1 shows the components of projected future residential electricity prices (national average electricity tariff).
Figure 3.1: Components of residential electricity prices (national average)
35,0
30.0
30,0
29.6
25.9
25,0
31.3
20,0
15,0
10,0
5,0 c/kWh
(nominal)
0,0
States Schemes
Small Scale Renewable
Energy Scheme
Large Scale Renewable
Energy Target
2011/12
0,4
0,6
0,4
2012/13
0,3
0,5
0,5
2013/14
0,3
0,2
0,6
2014/15
0,3
0,2
0,6
Retail Margin
Retail
Feed-in Tariffs
Distribution
Transmission
1,3
1,7
0,1
9,8
1,6
2,1
0,7
10,4
1,6
2,2
0,7
11,1
1,6
2,3
0,7
11,7
Carbon Costs
1,9
0
2,4
2,1
2,6
2,2
2,8
2,2
Wholesale 9,7 9 8,5 8,8
Source: Australian Energy Market Commission, ‘Possible Future Retail Electricity Price Movements: 1 July 2012 to 30 June
2015 ’ 2013.
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Notes: These projections relate to regulated electricity tariffs and prices have been weighted by the number of residential customers and the average residential electricity price in each state and territory. The values are nominal (not adjusted for inflation) and exclusive of GST. Numbers may not add due to rounding. Retail component values are inclusive of the Victorian wholesale energy component.
For gas, over the past decade, increases in capital and labour costs have seen the cost of gas production increase. However, the most significant factors in these increases are on the demand side: the price of natural gas is affected by rising demand from both increasing exports of Liquefied Natural Gas (LNG) and increased domestic demand (primarily related to electricity generation). Tight supply in the western gas market, increasing exposure to international prices in the eastern gas market, and higher production costs are also expected to continue placing upwards pressure on natural gas prices into the future when prices are anticipated to increase from 4.71$/GJ to 12.38$/GJ in the short to medium term.
18
3.2 The ‘energy efficiency gap’, energy prices and productivity
Many reports and research projects have suggested that Australia, like many other countries, suffers from an ‘energy efficiency gap’ – where the level of energy efficiency performance is lower than the level of performance that could be achieved.
19
In practice, many opportunities to improve energy efficiency are forgone, including those that offer significant positive returns on investment.
The Report of the Prime Minister’s Task Group on Energy Efficiency stated that:
Australia’s historical record of energy efficiency improvement has been poor compared to that of other countries. Currently we sit in the middle of the pack compared to other OECD countries. But our rate of improvement is falling behind... Paradoxically, our history of poor performance has left Australia with a wealth of opportunities to improve our energy efficiency performance.
20
This is consistent with more recent reports from the International Energy Agency (IEA).
21
The assumed existence of an energy efficiency gap suggests that energy end-users may be consuming more energy (and spending more money on energy) than is optimal (i.e. when the marginal benefit of improved energy efficiency would be equal to, or greater than, the marginal cost of implementing energy efficiency measures). However, this in itself does not justify further government intervention as end-users may consider some degree of suboptimal energy use acceptable. For example, they may believe that the potential costs, including their time, associated with improving energy efficiency outweigh the energy bill savings they could receive as a result. They may also consciously choose to purchase an option with a lower upfront cost and forgo future savings, in order to use the upfront saving elsewhere. Conversely, where the gap is material, it represents money that businesses could be reinvesting to increase profitability and competitiveness, and households could be using to increase their living standards, for example by purchasing other goods and services.
In addition to private costs, an energy efficiency gap may result in public costs that have an impact on the whole community, not just individual energy users deciding whether or not to invest in energy efficiency:
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The cost of energy may be higher than it otherwise would be.
Network and generation infrastructure is built to meet demand for energy, and investment in networks has been the single biggest driver of electricity price increases in recent years. Higher peak demand typically means more investment in networks and higher prices for all users – even for those who may be using energy efficiently.
Australia’s productivity may be lower than it otherwise would be.
Higher energy prices both increase the cost of doing business across the economy and mean more resources are allocated to energy sector infrastructure than necessary. This may divert resources from more productive purposes and decrease our trade competitiveness.
The cost of greenhouse gas abatement may be higher than it otherwise would be.
Australia’s energy supply is carbon-intensive so action that improves energy efficiency will help to reduce greenhouse gas emissions. Energy efficiency is generally a low-cost source of abatement, which may reduce the cost of achieving
Australia’s emissions reduction targets.
The complex and interacting factors that motivate consumer decisions to invest, or not, in energy efficiency improvements, and the inherent uncertainty associated with energy demand forecasts make it difficult to accurately assess the size of the energy efficiency gap in
Australia. However, the net benefit estimated by the cost-benefit analysis of a national
Energy Savings Initiative (see Chapter 6) provides an indication.
Having reviewed different estimates of the extent to which the then National Framework on
Energy Efficiency 22 could narrow the energy efficiency gap, the Productivity Commission in a 2005 report noted:
Rather than debate the size of these gaps ... it [is] more productive to accept that they exist, and then ask why they exist, and how government intervention could help increase the uptake of energy efficiency improvements in a way that is best for the Australian community.
23
Therefore the Government would need to be confident that the gap is sufficiently material so that further government intervention generates net benefits.
The report further noted that some government intervention to address these problems is appropriate and that the Commission favours light-handed regulatory responses and information provision but that a sufficient case has not been made for the imposition of a national energy efficiency target and tradeable obligations. This Information Paper is examining the costs and benefits of this type of approach.
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3.3 Market failures and non-market barriers may prevent the energy efficiency gap from being reduced
As outlined in the Progress Report, economists have proposed a range of causes for the energy efficiency gap. These causes are well-documented and are commonly referred to as market failures in the market for energy efficiency products and services.
24
Higher energy prices will not change the intrinsic nature of non-price barriers and market failures, just their influence in deterring the optimal level of energy efficiency in the economy.
25
Table 3.1 summarises the common market failures and other non-market barriers that impede the take-up of energy efficiency improvements. These may vary by scale, sector, business type and size, and household characteristics, but they all act as a barrier to the take-up of energy-efficient products or services.
If many consumers are affected by these barriers, the combined effect of their decisions would lead to greater energy consumption requiring otherwise unnecessary investment by the community in energy infrastructure.
Table 3.1: Common market failures and non-market barriers to improving energy efficiency 26
Barrier Description
Imperfect and asymmetric information
Split incentives
(principal/agent problems)
Energy efficient technologies and services are not taken up because individuals or decision makers do not have access to sufficient or accurate information about their options; appropriate skills are not available; or the transaction costs involved in researching and understanding their options are too high. For example, information about improving the energy efficiency of a mini-market may not be readily available to a business owner who does not have skills or time to understand the costs and benefits involved in replacing equipment such as an existing refrigeration unit.
Energy efficient technologies and services are not taken up because the person purchasing an energy-using technology is not the same person who benefits from its use. For example, a landlord may purchase the technology used in a rented building, but it is the tenant that pays the energy bills associated with that technology.
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Bounded rationality, behavioural norms and organisational barriers
Even where people have access to sufficient information, they may be overwhelmed by its size and complexity, or may not have the time to carefully process it. In these circumstances, people may fall back on ‘satisfycing’
(‘near enough is good enough’) behaviour or ‘rules of thumb’ when making decisions about energy use. Organisational barriers occur where structural arrangements or internal incentives impede informed decision making. For example, operational engineers who manage energy use may not be engaged in energy or equipment purchasing. Organisational incentives might also focus more on expanding market-share rather than decreasing production costs.
Materiality barriers The energy savings of many small-scale activities may yield substantial community benefits if adopted at scale. However, individuals may not consider the private energy savings of such activities to be sufficiently material for them to spend the time and effort or cost acquiring and implementing them. For example, resealing windows to minimise air leakage may have a minor effect on energy consumption for one household but a large impact when the cumulative savings of numerous participating households are taken into account (and the overall benefit may be larger than the respective portion each participating household receives).
Access to capital and other financing barriers
Even where cost-effective energy efficient options are identified, take-up can be impeded if upfront capital cannot be acquired or cannot be acquired at a cost effective rate. This is particularly evident in the low-income household sector, where access to capital may be limited or non-existent.
27
Regulatory and planning practices
Regulations, programs and taxation rules can have a negative effect on the take-up of energy efficiency improvements by offering more benefits in pursuing activities not related to energy efficiency. Regulatory arrangements can impede some activities or can distort their costs and benefits. For example, the current flat-tariff pricing regime in the National Electricity Market may provide an incentive structure that leads to underinvestment in energy efficiency improvements that reduce peak electricity demand).
3.3.1 Could high discount rates suggest the presence of market failures and non-market barriers?
Energy consumers (households and businesses) tend to focus more on the upfront cost of buying a product than the ongoing cost of using it over its lifetime. Discount rates are used to convert streams of future costs and benefits into present-day values and in doing so, reflect the magnitude of the difference between upfront and lifetime costs. Consumers who consciously or unconsciously apply higher discount rates place lower values on future cash flows and, therefore, favour investments with short-term payoffs over those with long-term benefits.
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Energy efficient products are often more expensive to buy than less efficient options but less expensive to use because they consume less energy. While the upfront cost premium is often more than offset by energy bill savings made over the useful life of the product, consumers may still prefer to buy the cheaper, less efficient options. Consumers tend to value more highly an upfront cost saving when buying a cheaper new product than the future savings on energy bills resulting from the purchase of a more expensive energy efficient product. This preference tends to occur even when the energy efficient product results in greater long term savings.
Higher discount rates may also reflect the risk that consumers associate with a purchase. For example, a small business may apply a high discount rate to an efficient product or technology because its operators are uncertain about how much they will utilise the product
(e.g. efficient storage freezers), particularly where its use relates directly to unpredictable future sales. As energy efficiency activities have long run returns, if a consumer’s future rate of production/sales is uncertain, that consumer may appropriately undervalue the full potential returns of an energy efficiency activity.
Where consumer discount rates are very high for certain purchases or investments, the implication is that consumers require these to deliver an unusually high rate of return.
Research commissioned by the Working Group on current levels of adoption of cost-effective energy efficiency improvements in Australia indicates that households and businesses demand much higher rates of return on energy efficiency expenditure than for other common investments (see Table 3.2).
Table 3.2: Comparison of average rates of return needed for energy efficiency investments in sectors of the Australian economy and other common investments
Type of investment Average annual rate of return
Energy efficiency improvements
Residential 28
Low-income residential 29
Small and medium businesses (SMEs) 30
50%
100%
57%
Commercial 31
Industrial 32
33%
33%
Other common investments
5.5% Average return for large superannuation funds 2004-2011 33
Standard bank interest on deposits 34
Average annual shareholder returns for
S&P/ASX50 companies 2000-2010 35
4.5%
11.7%
Residential property 2002 – 2012 36 9.1%
Source: data collected for the national Energy Savings Initiative Working Group and other public sources, as noted.
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These very high rates of return required by Australian households and businesses for investments in energy efficiency improvements can be a result of the market failures described above.
For example:
the consumer may also have imperfect information about all of the appliance’s features including the efficiency with which it uses energy; and
a particular size or colour may be preferred for a household appliance but none of the more energy efficient models are available in that size or colour.
In this case the consumer might choose a less efficient appliance on the basis of size or colour. However in the absence of the market failure (i.e. without imperfect and asymmetric information about the energy efficiency of the appliance and potential long term energy savings), the consumer might place a greater importance on energy efficiency and choose the more efficient model.
However, high individual discount rates do not in themselves indicate a market failure but reflect different preferences. A consumer with perfect knowledge about the long term savings from an energy efficient product might still choose a less efficient model with certain features of with a lower upfront cost if they are able to obtain more benefit by using the upfront saving for another purpose.
3.3.2 Peak demand and flat electricity tariffs
As mentioned above, the growth in peak demand is a key contributor to rising electricity prices and the energy efficiency gap is one element contributing to increasing peak demand and increasing average demand. Reducing the energy efficiency gap may place downwards pressure on electricity prices.
In addition, the way in which electricity is priced represents another barrier to the take-up of energy efficiency improvements. Currently, retail electricity prices do not reflect the full economic cost that electricity production and consumption places on the economy at the time it is consumed. While the introduction of the Carbon Pricing Mechanism has begun to address the environmental cost associated with carbon-intensive energy, the pricing structures electricity consumers generally face bear little relationship to the actual impacts they impose on network and electricity supply costs at different times.
37
Most consumers experience relatively constant (or flat) electricity tariffs at all times of day and across the year.
38 This means that consumers face an equal incentive to improve their energy efficiency during peak and non-peak demand periods, even though using energy more efficiently during peak demand periods would result in greater benefits for the community as a whole. As this full benefit is not communicated through electricity prices, consumers typically underinvest in energy efficiency improvements that would otherwise reduce peak demand.
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3.4 Current measures to close the energy efficiency gap
3.4.1 Existing Government measures
Successive governments at a national and state level have intervened to seek to reduce the energy efficiency gap through policies targeted at specific market failures in specific sectors.
As outlined in the Progress Report, there are around 60 targeted energy efficiency policies and measures operating across different levels of government in Australia, several of which are part of the National Strategy on Energy Efficiency (NSEE).
39 This reflects to some extent the range of market failures and the diversity of consumer groups and technologies targeted.
Examples of regulatory and other measures currently in place, or coordinated, at the
Commonwealth level are summarised in Table 3.3.
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Table 3.3: Commonwealth energy efficiency measures
Measure Target group / technology Targeted market failure
Building Code of Australia provisions*
E3 Program – minimum energy performance standards 40
E3 Program – energy rating labels
Energy Efficiency
Opportunities
New residential and commercial buildings
Equipment and appliances
Large industrial operations
Split incentives / bounded rationality
Split incentives / bounded rationality
Selected household appliances Imperfect information
Imperfect information / organisational barriers
Commercial buildings Mandatory disclosure for commercial buildings
Phase-out of greenhouse intensive and inefficient water heaters*
Phase-out of incandescent lighting*
Residential housing
Residential and commercial lighting
Residential housing
Imperfect information / split incentives
Split incentives / bounded rationality
Phase-out of greenhouse intensive and inefficient water heaters*
Split incentives / materiality / bounded rationality
Split incentives / bounded rationality / access to capital and other finance barriers
Residential housing Low Income Energy
Efficiency Program
Clean Energy Finance
Corporation
Clean Technology
Investment Program
Industrial and commercial
Industrial operations
Split incentives / bounded rationality
Access to capital and other finance barriers
Access to capital and other finance barriers
LivingGreener website Residential housing Imperfect information
NOTES: Measures marked * are co-ordinated by the Commonwealth but individually regulated at state level.
These existing policies and programs are each contributing to reducing the energy efficiency gap in Australia by addressing one or two market or other failures affecting the target groups.
For example, it is estimated that minimum energy performance standards and energy rating labels for appliances will reduce energy use in the residential sector by approximately 22,000
GWh per annum by 2020, with the program projected to return a net economic benefit of
$22.4 billion over the period of 2009-2024.
41
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The Energy Efficiency Opportunities (EEO) program has helped large Australian companies to identify 487.5 petajoules (PJ) in energy savings over the period 2007-2011. In the 2010-11 reporting period, participating companies had identified and adopted (or planned to adopt)
88.8 PJ of energy savings, representing a net annual financial benefit for these companies of
$807.6 million.
42
Other Australian Government measures include:
the $1 billion Australian Government’s Clean Technology Investment Program, which provides grants to participants in the manufacturing sector to support investment in energy-efficient capital equipment and low-pollution technologies, processes and products; 43
the Clean Energy Finance Corporation, which has been established as an independent body to administer $10 billion in finance over five years to overcome capital market barriers that hinder the financing, commercialisation and deployment of renewable energy, energy efficiency and low emissions technologies; 44 and
the ‘LivingGreener’ website, which provides information about options for sustainable living, including how to save energy and costs, 45 supplemented by a household information and advice telephone service.
46
Also contributing to improving energy efficiency are state and territory government policies and programs, including the four jurisdiction-based retailer obligation energy efficiency schemes: the New South Wales Energy Savings Scheme, the Victorian Energy Efficiency
Target, the South Australian Residential Energy Efficiency Scheme, and the Australian
Capital Territory Energy Efficiency Improvement Scheme.
In 2012, COAG committed to developing a national approach to assessing the complementarity of existing and future climate change measures with the carbon price mechanism, as well as to fast track the rationalisation of policies and programs that are not complementary to a carbon price, or are ineffective, inefficient or impose duplicative reporting requirements on business.
In early 2013, the Select Council on Climate Change (SCCC) provided a report to COAG prepared by the Complementary Measures Working Group providing outcomes of reviews undertaken by the Commonwealth, States and Territories of carbon reduction and energy efficiency measures for their complementarity with a carbon price.
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In addition to this review activity, in 2012 COAG agreed that the Business Advisory Forum
(BAF) Taskforce, established following the Business Advisory Forum held in April 2012, would provide advice to COAG on the overall review outcomes of the SCCC process and whether any further reform action is required. In April 2013 the BAF Taskforce advised
COAG that, based on advice provided by jurisdictions, the COAG agreed reform outcome appears to have been met for all measures reviewed by the SCCC.
47 Section 7.2 contains a discussion on the complementarity of a possible national Energy Savings Initiative with other major policies.
3.4.2 Energy market reforms and reviews
In December 2012, COAG agreed to a suite of actions proposed by the Standing Council on
Energy and Resources (SCER) and the BAF Taskforce, to restore the focus of the electricity market on serving the long term interests of consumers. Broadly, there are four key areas in which energy market reform will be progressed to achieve this goal: strengthening regulations, empowering consumers, enhancing competition and innovation, and ensuring balanced network investment.
The major component of this reform relevant to the energy efficiency gap arises from the
Australian Energy Market Commission’s (AEMC) Power of Choice review.
48 In December
2012, SCER (with the support of the BAF Taskforce and COAG) agreed to progress work on a number of the recommendations in the Power of Choice review, which will lead to new work streams in its demand side participation work plan.
49 Many of these reforms have implications for consumer incentives to undertake energy efficiency activities, including information about the quantity, timing and cost of electricity consumption, as well as the option to move to electricity tariffs that better reflect the cost of supplying electricity. For example, SCER agreed that officials should prepare Rule change proposals for consideration by the AEMC addressing:
expansion of competition in metering and related services to all customers, consistent with a business-led, optional approach to adoption of more advanced metering in states where a widespread roll-out is not underway;
reform of the distribution pricing principles to provide better guidance for setting cost reflective distribution network charges;
reform of the demand management and embedded generation connection incentive scheme available to distribution businesses;
defining customer rights to access their own energy consumption data;
formal incorporation of a minimum functionality specification for smart meters into the Rules; and
clarifying AEMO’s role in demand forecasting for its market operational functions, in particular to improve forecasting of demand side responses in the market.
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In line with the AEMC’s original terms of reference for this report, the Power of Choice review has provided recommendations to support greater coordination between energy efficiency policy and electricity market objectives such that total benefits are increased.
Primarily, the AEMC makes two recommendations in this regard:
better coordination of energy efficiency and electricity market policy and measures which would be a key consideration if a national Energy Savings Initiative or other new measures considered in this analysis were to be introduced;
improve publicly available data on the network and wholesale market impacts of energy efficiency measures on electricity demand (by collecting information on the effect of energy efficiency measures on both average and peak demand).
SCER also gave in-principle agreement to other work to manage the transition to competition in metering, to request advice on open access and communication standards to support competition in demand side participation end user services, and to develop an additional option for demand side resources to participate directly in the wholesale market for electricity in the National Electricity Market.
Ministers also agreed to develop the market settings to allow for jurisdictions to provide consumers with the option to move to time-varying pricing and, in states without an existing widespread roll-out, an opt-in policy for the supporting metering infrastructure. The full suite of reforms adopted by SCER is outlined in the Communique of the 14 December 2012 SCER meeting, available at www.scer.gov.au
. In May 2013 SCER published a consolidated demand side participation work plan, including these and some additional reforms.
The Productivity Commission is also conducting a public inquiry into Electricity Network
Regulation Frameworks to investigate the potential to enhance the economic efficiency of electricity networks. The inquiry’s draft report includes a range of options to address growth in peak demand and promote demand side participation which would need to be taken into account in developing a possible Energy Savings Initiative.
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4 Policy Objective
Market forces combined with well-informed consumers and rational decision-making processes should mean that additional support for energy efficiency, including government intervention, is not required. However, Chapter 3 highlights a number of market failures which prevent the more efficient use of energy from being achieved. As such, there may be a case for further intervention to help drive more efficient use of energy in Australia.
After wide-ranging consultations with stakeholders as outlined in Chapter 2, the Working
Group proposed that, in designing an intervention to help overcome existing market failures, the overarching objective could be:
To improve Australia’s energy efficiency in order to help manage energy bills and improve productivity.
This objective recognises the economic benefits that energy efficiency can contribute to all sectors including households, commercial businesses and industry.
A policy intervention with this objective could help consumers to manage energy costs by improving the energy efficiency of their appliances, equipment, processes and building fabric. This would enable consumers to reduce their energy consumption and minimise the effect of rising energy prices.
An effective improvement in energy efficiency could also increase productivity across all sectors of the economy by freeing resources that would otherwise be used to meet higher energy costs. These resources could be invested elsewhere to improve Australia’s productivity.
Improving the productivity of Australia’s energy infrastructure alone could reduce upwards pressure on energy costs, particularly those costs associated with network infrastructure upgrades to cope with peak electricity demand.
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5 Statement of options
5.1 Overview
As discussed in section 2.4, this Information Paper follows the format of a Regulation Impact
Statement (RIS). A RIS requires the proposal being considered (in this case a national Energy
Savings Initiative) to be compared with the status quo and with alternative policy options that could respond to the problem outlined in Chapter 3. In this context, Option C below discusses a number of new or expanded alternative policy options for comparative purposes. However, the Australian Government is not formally considering these options in this current exercise.
Option A: No Further Intervention
Current policies and measures remain in place, including the four existing jurisdiction-based energy efficiency retailer obligation schemes as currently designed.
Option B: Harmonise existing energy efficiency schemes
Current policies and measures remain in place and the four existing jurisdiction-based energy efficiency retailer obligation schemes are harmonised.
Option C: Intervention using non-market based policy instruments
One measure or a combination of measures is implemented in addition to existing jurisdiction-based energy efficiency retailer obligation schemes.
Option D: Intervention using a market based policy instrument – a national
Energy Savings Initiative
A national Energy Savings Initiative is introduced and existing jurisdiction-based energy efficiency retailer obligation schemes are wound up. Scheme design variations for a national Energy Savings Initiative are considered as sub-options.
5.1 Option A: No Further Intervention
Under this option, current measures to address the energy efficiency gap would remain in place but no additional intervention would occur. In addition to existing state and territory measures, current Commonwealth measures include (but are not limited to):
Energy Efficiency Opportunities;
Greenhouse and Energy Minimum Standards;
Energy Rating Labels;
Building Code of Australia provisions;
Mandatory disclosure for commercial office buildings;
Phase-out of incandescent lighting;
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Phase-out of inefficient water heaters; and
the Carbon Pricing Mechanism.
Option A assumes that existing measures that address the energy efficiency gap broadly continue under current arrangements, including the future operation of energy efficiency schemes, with targets and coverage consistent with existing jurisdiction-based schemes.
There may be incremental changes to these measures but not disruptive changes that significantly alter how measures are implemented.
5.2 Option B: Harmonise existing energy efficiency schemes
If there was no additional Commonwealth intervention, jurisdictions with existing energy efficiency schemes in New South Wales, Victoria, South Australia and the Australian Capital
Territory) might choose to harmonise their schemes. This could deliver cost savings via streamlined reporting requirements on obligated parties and potentially deliver greater opportunities and economies of scale for energy savings, if harmonisation included an expansion to cover fuels and sectors not currently covered by the existing schemes.
Were the Australian Government to have an interest in harmonisation, a decision to harmonise existing jurisdiction-based schemes would require agreement by the relevant jurisdictions. However, noting support from a range of stakeholders for efforts to streamline and harmonise jurisdiction-based schemes, this may be an option worth considering as an alternative to, or as a step towards, a single national scheme.
A spectrum of harmonisation options is available, as illustrated in Figure 5.1. Minimal harmonisation could include aligning energy efficiency activities across schemes, moving through shared certificate creator accreditation standards, interstate certificate trading, and common fuel and sectoral coverage to ‘full harmonisation’ with a single target and regulator.
Figure 5.1: Spectrum of harmonisation options activities interstate certificate trading sectoral coverage accreditation standards fuel coverage
Minimal harmonisation single single target administrator
Full harmonisation
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Some moves towards harmonisation have begun. In December 2011, the New South Wales and Victorian Governments announced a process under the Interstate Reform Partnership to examine aspects of their respective schemes that could be aligned. A Taskforce was established to progress this work and undertook to report on options and recommendations by the end of 2012 50 . In May 2012, Victoria adopted a commercial lighting methodology in its scheme in line with that developed in New South Wales.
51 The administrators of the NSW
Energy Savings Scheme and the Victorian Energy Efficiency Target (VEET) Scheme identified the alignment of compliance dates as an area that may provide cost savings for electricity retailers participating in both schemes. Administrators were also seeking to align the ESS Registry with the VEET Registry.
52
The extent to which harmonisation can reduce costs for businesses operating in jurisdiction-based schemes will depend on the extent and speed of harmonisation. In order to provide illustrative examples to compare to the national scheme design presented in this analysis, three harmonisation options were considered.
The first option was the harmonisation of activities, auditing and accreditation standards only; the second option added the trading of certificates across jurisdictions; and the third
‘full harmonisation’ option incorporated the adoption of a single target, expansion to include both electricity and gas consumption across all sectors in all four jurisdictions, and the establishment of a single scheme regulator.
The investigation has drawn on the analysis of compliance costs under each harmonisation option commissioned by the Working Group.
53 For the full harmonisation option, we have also undertaken energy market modelling to estimate the potential net benefits arising from energy efficiency activities. The results of this analysis are outlined in Chapter 6.
5.3 Option C: Intervention using non-market based policy instruments
Several non-market based policy instruments are available to government to incentivise or facilitate improvements in energy efficiency. Four potential options are outlined in this section:
grants, rebates and loans;
a government-funded purchaser of reductions in peak demand for electricity;
provision of information through advertising campaigns, websites and other media;
support for the energy services sector; and
targeted or expanded regulatory requirements.
One or a combination of these instruments could possibly be implemented to achieve the objective of improving Australia’s energy efficiency in order to help manage energy bills and improve productivity.
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Some of the measures discussed in this section are already in place at Commonwealth, state or local government level. Where this is the case, using these instruments to achieve the objective would involve adjusting the level and scope of existing policies, rather than implementing new ones. The potential interventions discussed in this section would also need to take into account existing jurisdiction-based energy efficiency schemes, which are likely to continue to operate following the introduction of any non-market based intervention option.
If a combination of measures was introduced, it would best be co-ordinated to ensure the measures were complementary and were introduced in an appropriate sequence.
54 For example, to maximise their effectiveness, interventions that provide energy users with information about energy efficiency options could be complemented by financial incentives to support energy users to invest in energy efficiency improvements.
55
5.3.1 Option C1: Grants, rebates and loans
Financial incentives such as grants, rebates and loans are designed to address barriers in the energy efficiency market relating to price and access to capital. Grants and rebates can be provided by government to households and businesses for the purchase of energy efficient products or for improving the energy efficiency performance of buildings. Similarly, loans can be issued by government on favourable borrowing terms to finance the same types of activities, such as zero or low interest, extended fixed rate interest periods, and longer than market pay back periods.
Grants, rebates and loans can influence consumers who are in the market for a new product or building upgrade to select a higher energy efficiency option. These instruments may also influence consumers to retire and replace existing products, or upgrade their building, sooner than they otherwise would have. In this way, grants, rebates and loans can accelerate the diffusion of new technology into the community.
Examples of grants, rebates and loans schemes include:
the $1 billion Australian Government’s Clean Technology Investment Program which provides grants to participants in the manufacturing sector to support investment in energy-efficient capital equipment and low-pollution technologies, processes and products; 56
the South Australian Government’s rebate of $500 available to concession card holders who purchase and install a solar hot water or electric heat pump hot water system; 57 and
the Clean Energy Finance Corporation, which has been established by the Australian
Government under the Clean Energy Future plan as an independent body to administer $10 billion in finance over five years to overcome capital market barriers that hinder the financing, commercialisation and deployment of renewable energy, energy efficiency and low emissions technologies.
58
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Option: scale-up existing grants, rebates and loans programs to encourage wide-spread adoption of improved energy efficiency. This type of intervention could have very broad coverage (either through a single program, or multiple programs) to seek to achieve the optimal improvement in Australia’s energy efficiency across all sectors. In order to facilitate the most cost-effective energy efficiency improvements, this intervention would aim to target particularly those parts of the economy where energy efficiency improvements are achievable at lowest cost.
5.3.2 Option C2: Peak demand purchaser
Reducing the peaks in electricity demand could help meet the stated objective by reducing or deferring the need for new generation and network infrastructure (thus placing downward pressure on electricity bills) and more efficiently utilising existing electricity infrastructure.
One possible approach is for a government-controlled entity to provide payments to third parties in return for carrying out or arranging activities that reduce electricity demand during peak periods.
Option: establish a government-funded single buyer to purchase reductions in peak demand.
The buyer could offer to purchase reductions at a pre-determined price, or conduct periodic requests for bids to achieve peak demand outcomes. To ensure the primary objective of improving energy efficiency is met, the options for reducing peak demand could arise from energy efficiency improvement activities or projects in addition to load reductions through demand curtailment. The interaction with energy market reforms would need to be closely coordinated if this option were to be considered in a full COAG regulatory impact analysis.
5.3.3 Option C3: Provide information through advertising campaigns, websites and other media
Information provision is designed to overcome one of the major barriers to energy efficiency: imperfect and asymmetric information. Examples of advertising and other forms of information provision in Australia include:
the Victorian Government’s ‘Black Balloons’ energy savings campaign (subsequently adopted by the New South Wales Government 59 ), which featured advertisements on television, radio, newspaper and other media depicting greenhouse gas emissions as black balloons emerging from energy-consuming appliances in order to increase awareness of energy consumption; 60
the Australian Government’s ‘LivingGreener’ website, which provides information about options for sustainable living, including how to save energy and costs.
61
As part of the Australian Government’s Clean Energy Future plan, $6 million has been allocated to expand the LivingGreener website to include more information about energy efficiency and managing energy costs, supplemented by a household information and advice telephone service; 62
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Western Australia’s ‘Living Smart’ program, which offers individuals a multi-week course on practical knowledge and skills to improve the sustainability of households and communities.
63
Option: complement the expansion of the LivingGreener website announced in the Clean
Energy Future plan with an advertising campaign to promote energy efficiency improvements, and provide tailored information to energy users through training courses similar to the Living Smart program. To access energy efficiency opportunities across all sectors of the economy, the advertising campaign would be multi-faceted and adapted for particular sectors or sub-sectors. For example, the campaign might focus on social media for individuals in the 15 to 30 year age bracket, while different methods of information provision would be used for the commercial building sector.
5.3.4 Option C4: Support for the energy services sector
International experience has shown that energy services companies (ESCOs) can facilitate energy efficiency improvements by addressing the barriers that impede energy efficiency across all sectors of the economy.
64 Rather than focusing directly on end users of energy, one option for government intervention could be to stimulate the development of a robust energy services sector to deliver services such as advice, audits, business case assessments, design solutions, process optimisation, procurement and installation of technologies and potentially asset management and innovative project financing.
Option: fund the delivery by ESCOs of a specified number of energy efficiency audits in households and businesses across Australia. In addition, make funds available to ESCOs on a competitive tender basis to identify and implement energy efficiency opportunities in community facilities and public buildings. In order to establish and maintain the quality and credibility of the energy services sector, introduce a national training and accreditation system for ESCOs.
5.3.5 Option C5: Targeted or expanded regulatory requirements
Regulation has an important role in driving energy efficiency improvements in appliances and equipment, industrial processes, buildings and transport. These areas are covered under existing arrangements such as appliance and equipment labelling, Greenhouse and Energy
Minimum Standards, Nationwide Housing Energy Rating Scheme, Commercial Building
Disclosure, National Australian Built Environment Rating System and the Energy Efficiency
Opportunities program.
As noted above, Option A: No Further Intervention assumes that existing measures broadly continue under current arrangements, including the future operation of energy efficiency schemes, with targets and coverage consistent with existing jurisdiction-based schemes.
There may be incremental changes to these measures but not disruptive changes that significantly alter how measures are implemented.
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New targeted regulatory arrangements could be considered as an option. However there appears to be limited scope for additional targeted arrangements given the already large number of targeted energy efficiency government arrangements.
65
Consequently an option for new targeted regulatory requirements could be to enhance existing measures, such as the standards developed as part of the Equipment Energy
Efficiency (E3) Program and implemented under the Greenhouse and Energy Minimum
Standards Act 2012. The standards prescribe minimum efficiency requirements for a range of household appliances and commercial and industrial equipment.
Option: E3 Program standards require a level of energy efficiency closer to the highest available on the market. One approach would be to identify the highest performing equipment on the market, and require all equipment meet at least that standard within a relatively short period of time compared with existing progress for improving standards.
66
Other areas with regulated energy efficiency standards, which could be considered for raising the level of energy efficiency closer to the highest currently available, include housing and commercial buildings. These enhanced regulations could form a suite of enhanced regulatory requirements addressing all sectors that are currently subject to energy efficiency regulation.
Another example of targeted regulation could be to reduce energy costs in qualifying low income houses by replacing old refrigerators, heaters etc. A new regulatory requirement could be placed on electricity distribution or retail companies to proactively replace energy intensive whitegoods that are more than ten years old with the costs to be passed on either to all consumers or paid back over time by the recipient consumer.
Option: Replace inefficient goods such as old refrigerators and heaters for low-income households.
5.4 Option D: Intervention using a market instrument – a national Energy
Savings Initiative
An alternative approach to meet the stated objective is to adopt a market-based policy instrument. Market-based instruments focus government attention on the outcome (improving energy efficiency), and leave the way that the outcome is achieved up to individuals and companies. This is appropriate when government does not have the best information to make decisions about which energy efficiency opportunities to target in which sub-sectors of the economy. Energy users, energy retailers, ESCOs and energy efficient product suppliers may be better placed to tailor and deliver energy efficiency improvements in a cost-effective way, as it is generally a primary focus of their business and marketability.
Various market-based instruments for energy efficiency could be implemented. The approach assessed in this Information Paper is a ‘white certificate scheme’. A short description of how white certificate schemes work is in Box 5.1. More detail on the specific roles of participants in a white certificate scheme is set out at Appendix A.
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Box 5.1 What is a white certificate scheme?
All white certificate schemes share three key features:
a target for energy efficiency improvement set by the government;
obligated parties that must meet a portion of the target by identifying and carrying out energy efficiency improvements in households and businesses or by engaging intermediaries to do so (individual obligations collectively add up to the full target); and
a measurement and verification system that defines the activities that can be used to meet the target, their value (in terms of energy saved), and confirms that these activities took place.
Obligated parties would be expected to pass through the costs of meeting the obligation to their customers. If an obligated party does not meet its allocated portion of the target it may be required to pay a penalty. Parties which are obligated to meet the target will seek out the cheapest way to do so amongst eligible activities. In this way, least-cost energy efficiency improvements (among those that are eligible) are delivered.
5.4.1 Option D1: National Energy Savings Initiative – broad geographic and sectoral coverage, excludes emissions-intensive trade-exposed industries
The Progress Report laid out the rationale behind potential scheme design options for a national Energy Savings Initiative (which is a white certificate scheme). Design features were proposed to best address the market failures identified in Chapter 3, and policy objective set out in Chapter 4; and to fulfil the Working Group’s Terms of Reference. The key design features assumed for the purposes of this analysis are summarised in Table 5.1
The rationale for selecting most of these design features is explained in the Progress Report.
Additional brief explanations are provided for geographic coverage and the treatment of self-generation (including co-generation and tri-generation) in Appendix B. The rationale for selecting the obligated parties is in Appendix C.
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Table 5.1: National Energy Savings Initiative: Summary of key design features
National Energy Savings Initiative
Objective To improve Australia’s energy efficiency in order to help manage energy bills and improve productivity
Scheme term 1 January 2015 - 31 December 2030
Target Type
Target Level
Sub-targets
National energy savings target set. Measured as percentage of total electricity and gas use in covered sectors and geographic regions.
Five per cent
No sub-target
Fuel coverage Electricity and gas
Obligated
Parties
Retailers of electricity and gas; wholesale customers who purchase electricity directly in a wholesale market; and ‘large gas consuming facilities’ or gas suppliers.
67
Trading
Certificates
Banking
Borrowing
Sectoral coverage
Yes
Yes
Yes, unlimited
Limited – e.g. up to five per cent
Residential, commercial and industrial sectors, other than entities carrying out emissions intensive trade exposed activities
Electricity use that is self-generated (that is, it is generated by the energy user itself and not purchased from a retailer, wholesale market or privately from a generation business) is excluded from the target base
Geographic coverage
Electricity: all users in National Electricity Market and South West
Interconnected System, and small users (less than 160KWh per annum) in the Mt Isa grid, Darwin-Katherine Interconnected System and North West
Interconnected Service.
68 Small users outside of these networks are eligible to create energy savings certificates, but their energy use is not included in the target base
Gas: all users connected to the three major pipeline networks in Australia: the Eastern Gas market; the Western Australian market; and the Northern
Territory market
Measurement and verification
Deeming, calculation, and combination methodologies accepted to measure energy savings. Activities that do not meet regulatory, financial and technological additionality criteria are not eligible
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5.4.2 Option D2: National Energy Savings Initiative – Total geographic and sectoral coverage, includes emissions-intensive trade-exposed industries
Under Option D2, energy use in all geographic areas is included in the target base, and all users are eligible to undertake energy efficiency activities including emissions-intensive trade-exposed industries.
69 This option is otherwise identical to Option D1.
5.4.3 Option D3: National Energy Savings Initiative – Peak demand reduction incentives
The Clean Energy Future plan states that factors to be considered under a national Energy
Savings Initiative will include incentives or requirements to reduce peak electricity demand.
70
As discussed in Chapter 3 and in the Progress Report, the sub-optimal consumption of energy can result in both positive and negative externalities. This scheme design option incorporates the estimated peak demand impact of each eligible activity into its certificate-based reward.
All other things being equal, this approach would steer the market towards the take-up of activities that maximise the positive public benefit outcomes, and away from those that could have negative outcomes.
As well as the overall annual savings in energy that an eligible activity is predicted to produce, certificates awarded under this approach would reflect an activity’s incremental impact on wholesale market peaks; relevant transmission and distribution network peaks; and energy infrastructure utilisation.
In Option D1 the quantum of certificates awarded to an activity is equal to the estimated gigajoules of energy saved. Under Option D3, the number of certificates awarded would be based on energy saved and then adjusted for the activity’s predicted impact on peak demand and network productivity. For the purposes of modelling this peak demand option, activities were categorised into five groups ranging from having a ‘detrimental’ impact through to a
‘beneficial’ impact on peak (which correlate to multipliers of 0.5, 0.75, 1, 1.25, and 1.5).
71 If
Option D3 is supported, these multiplication factors could be refined further following indepth consultations with relevant parties including the Australian Energy Market Operator.
5.4.4 Option D4: National Energy Savings Initiative – Low-income household focus
The Clean Energy Future plan states that factors to be considered in designing a national
Energy Savings Initiative include the use of incentives or requirements to create certificates in low-income households.
72
The Progress Report proposed the most practical way of identifying households likely to have a low income is the possession of a Health Care Card by at least one member.
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Option D4 considers the costs and benefits of setting a sub-target that requires a minimum of ten per cent of total energy savings 73 (i.e. certificates covering all sectors) under a national scheme to be delivered in low-income households.
The cost-benefit and qualitative analyses of the approaches outlined in this chapter are discussed in Chapter 6.
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6 Impact analysis (costs and benefits)
6.1 Framework for analysis
As noted in Chapter 3, further government intervention to reduce the energy efficiency gap would only be justified where a feasible, cost-effective policy was available, which could substantially overcome the market failures and barriers inhibiting energy efficiency improvements at net economic benefit. In addition, the Working Group’s Terms of Reference require the investigation of an energy savings scheme that would be capable of delivering energy efficiency improvements across all sectors of the economy.
74
These requirements informed the Working Group’s development of an objective for any proposed intervention: to improve Australia’s energy efficiency in order to help manage energy bills and improve productivity . To determine whether each of the policy options identified in Chapter 5 is appropriate to meet this objective, a two-step impact analysis framework has been developed.
The first step is a qualitative analysis of whether each option satisfies two primary criteria :
Substantially overcomes relevant market failures and other barriers – as outlined in
Chapter 3, the market for energy efficiency has multiple, interacting market failures and barriers that inhibit energy efficiency improvements. Government intervention must address each of the identified market failures and other barriers in order to achieve the policy objective.
A feasible and cost-effective means to improve energy efficiency across the Australian economy – the energy efficiency gap is a whole of economy issue where market failures and other barriers to achieving energy efficiency improvements are present to varying degrees in all sectors of the economy. Therefore, any government intervention should be capable of broad-scale application and be feasible and cost-effective when implemented at scale.
The second step in the impact analysis framework explored the costs and benefits associated with each policy option assessed as capable of meeting the above criteria. The analysis incorporated: quantitative data derived from a wide range of research commissioned by the Working Group; 75 a detailed energy sector modelling exercise; 76 and supplementary qualitative analysis of those impacts that were not explicitly incorporated in the modelling. The analysis included an assessment of:
scheme administration and business compliance costs;
benefits in the energy sector that are considered to increase the level of resources available to the Australian economy;
distributional effects within the energy sector across different sectors and stakeholder groups;
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risks associated with each policy option;
potential competition impacts;
additional impacts not included in the modelling; and
the sensitivity of reported results to changes in certain key assumptions.
The assessment was guided by the Office of Best Practice Regulation (OBPR) publication
Council of Australian Governments Best Practice Regulation - A Guide for Ministerial
Councils and National Standard Setting Bodies , consultations with the OBPR and the
Working Group’s Terms of Reference (see Appendix D).
6.2 Summary of findings
Step one, the qualitative analysis of the policy options identified in Chapter 5 indicates that
Option D, a national Energy Savings Initiative, is the only option likely to meet the stated objective whilst satisfying the two primary criteria outlined above. The analysis found:
Option A: No Further Intervention – the future operation of energy efficiency schemes, with targets and coverage consistent with existing jurisdiction-based schemes, would continue to narrow the energy efficiency gap in the sectors, fuels and geographic areas they cover. However, the energy efficiency gap would remain unchanged in uncovered jurisdictions, sectors and fuels.
Option B: Harmonise existing energy efficiency schemes – scheme administration and business compliance costs associated with achieving the same level of energy savings under existing schemes could be reduced, depending on how schemes are harmonised. Expanding existing schemes to include gas and electricity in all sectors – excluding emissions-intensive trade-exposed industries (EITEs) and large off-grid energy users – under a single target could result in a positive net present value when compared with Option A. However, the energy efficiency gap would remain unchanged in sectors, fuels and geographic areas not covered by a harmonised scheme. Option B was also included in the second step of the analysis on the basis that it could satisfy the two criteria in step one within the jurisdictions in which existing schemes are operating, and in response to the significant level of stakeholder interest expressed in harmonising existing schemes.
Option C: Intervention using non-market-based policy instruments – the non-market-based policy instruments in Option C is capable of making substantial contributions to improve energy efficiency. However, these measures, individually or in combination, are unlikely to achieve the stated policy objective as cost-effectively as a market-based instrument applied at an economy-wide scale.
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Option D: Intervention using a market-based instrument – a national Energy
Savings Initiative – a market-based instrument, or ‘white certificate scheme’ could be capable of addressing multiple market failures and barriers to energy efficiency, and could be cost-effective and efficient when applied at an economy-wide scale.
The results of step two, the quantitative analysis, are reported against a hypothetical baseline that assumes existing schemes cease to operate. The analysis indicated that a national Energy
Savings Initiative with a core scheme design that excludes EITEs and large off-grid energy users (Option D1) could deliver 283.1 to 733.0 PJ of net energy savings with a net benefit of
$1,525 to $5,262 billion 77 over the period 2015 to 2050.
78 The range of values is based on four different sets of assumptions applied to consumer behaviour in the modelling exercise.
Section 6.6 provides a more detailed description of the analysis for Option D1.
The central set of consumer behaviour assumptions used for Option D1 was applied to
Options D2 to D4.
79 The results indicate that Option D2: Total Geographic and Sectoral
Coverage that includes EITEs and large off-grid energy consumers, could deliver the greatest energy savings of 579.6 PJ, and a net present value of $3.522 billion over the period 2015 to
2050 80 (see summary in Table 6.1).
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C4
C5
D1
Table 6.1: Summary of impact analysis results for each option
Option Description
A
B1
B2
B3
C1
C2
C3
D2
D3
D4
Meets objective
No further intervention Partially, in jurisdictions with existing schemes, only
Harmonise existing energy efficiency schemes
– activities, accreditation standards and procedures
Partially, in jurisdictions with existing schemes, only
Harmonise existing energy efficiency schemes
– Option B1 plus certificate trading
Partially, in jurisdictions with existing schemes, only
Harmonised expansion of existing energy efficiency schemes – Option B2 plus cover both gas and electricity in all sectors
(excluding EITEs and large off-grid energy users) under a single target
Grants, rebates and loans
Yes, only in jurisdictions with existing schemes
Partially
Peak demand purchaser
Provide information through advertising campaigns, websites and other media
Partially
Partially
Support for the energy services sector Partially
Targeted regulatory requirement
National Energy Savings Initiative – Core
Scheme Design with broad geographic and sectoral coverage, excluding EITEs and large off-grid energy users
Partially
Yes
National Energy Savings Initiative – Total
Geographic and Sectoral Coverage, including
EITEs and large off-grid energy users
Yes
National Energy Savings Initiative – Peak
Demand Reduction Incentives
National Energy Savings Initiative –
Low-income Household Focus
Yes
Yes
Net present value
$(2012) million
1,270
1,260-1,275
1,263-1,275
2,325
N/A
N/A
N/A
N/A
N/A
2,220
3,522
2,406
-1,865
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6.2.1 Presentation of the quantitative analysis results
The quantitative analysis of the options comprised an economic and energy sector modelling exercise that projected the impacts of a range of scenarios. The results of this modelling exercise are presented below, for Option A: No Further Intervention (section 6.3),
Option B3: Harmonised Expansion of existing schemes (section 6.4.3), and Options
D1 to D4: National Energy Savings Initiative (sections 6.5 and 6.6). The results for each option are presented in two parts:
‘Energy sector resource costs and benefits’ reports the costs and benefits to the energy sector that are considered to impact on the level of resources available to the
Australian economy and therefore contribute to the estimated net present value for each of the options. The reported costs result from administering and complying with the scheme and the benefits comprise reduced expenditure on: electricity generation; electricity networks; gas production; gas pipelines; end user gas consumption; and carbon liability. These impacts are considered to change the total amount of resources available in the economy.
81
‘Distributional impacts’ presents the projected: distribution of energy savings certificates across sectors and end uses; net energy savings attributable to the schemes over and above the hypothetical baseline; and household electricity bill impacts for participants and non-participants. These impacts are not included in the net present values reported for the different options because they are not considered to change the total amount of resources available in the economy.
The following sections contain more detail on the modelling results.
6.2.1.1 Energy sector resource costs and benefits
The resource costs and benefits associated with the different options are first presented as the net present values associated with the schemes over the evaluation period 2015 to 2050.
The energy sector resource benefits arise from the avoidance of costs that would otherwise be incurred in the absence of the schemes, comprising reduced expenditure on:
electricity generation;
electricity networks;
gas production;
gas pipelines;
end user gas consumption; and
carbon liability.
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A breakdown of total benefits 82 into these six categories is provided for each option in the relevant sections below.
Scheme administration and business compliance costs
The costs incurred by obligated parties purchasing sufficient certificates to meet their targets comprise the majority of the costs associated with white certificate schemes. The certificate prices estimated by the economic and energy market modelling exercise do not include the estimated costs to government of administering schemes or to businesses to carry out the transaction of purchasing certificates. To fill this data gap, the Working Group commissioned a separate analysis 83 which estimated the government scheme administration costs and business transaction costs at $0.19 and $0.14 per gigajoule-denominated certificate, respectively, under a national Energy Savings Initiative.
84 These additional costs were incorporated into the economic and energy market modelling exercise and represent a component part of the overall costs-benefit analysis results. They are not additional to the net present values reported for the different options.
The analysis assumed that the roles of a national Energy Savings Initiative scheme administrator included: maintaining registers for certificates, certificate creators and obligated parties; monitoring and enforcing compliance with scheme rules; accrediting certificate creators; auditing obligated parties and activities; reporting on scheme performance; and developing and accessing methodologies for determining the number of certificates to be awarded for energy efficiency improvements.
85
Business compliance costs are incurred by entities obligated under the scheme to meet annual energy savings targets (largely energy retailers). The analysis assumed that these costs comprise two elements: the cost of purchasing the certificates to meet annual energy savings targets; and transaction costs associated with these purchases. A breakdown of business compliance costs into these elements is provided for each option below.
6.2.1.2 Distributional impacts
All distributional impacts are presented for each of the four scheme design options under
Option D: a national Energy Savings Initiative. They consist of the projected: net energy savings and the proportional contributions made by electricity and gas; distribution of energy savings certificates across sectors and end uses; and impact on household electricity bills for participants and non-participants. Only the net energy savings are reported for Options A and B3. This is to avoid any unintentional effects that the projected distribution of certificates across sectors and end uses might have on the operation of existing schemes and the markets that underpin them.
These distributional impacts are not included in the net present value calculation. They are purely flow-on effects from the re-allocation of resources reported in the sections on energy sector resource costs and benefits and represent a redistribution of existing resources, not a change in the total available resources.
86
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Net energy savings
Net energy savings are reported as the petajoule (PJ) reduction in energy demand below that projected under the hypothetical baseline scenario. That is, energy savings made in addition to the business-as-usual scenario. Net energy savings are also discussed in terms of the proportional contribution made by electricity and gas. This represents the net energy savings attributable to the schemes, not the absolute quantity of energy savings projected to result from the installation of energy efficiency improvements under the schemes. As with any market intervention, it is unavoidable that actions will be rewarded that would have been undertaken in the absence of an additional incentive – the so-called ‘free-rider effect’. The energy demand reductions projected to result from the take-up of energy efficiency improvements in the absence of the scheme are obtained from the modelling results for the hypothetical baseline scenario. The net energy savings are an important result to report because these reductions in demand for energy lead to the price and household bill impacts also reported in this Information Paper.
Distribution of certificates across sectors and end uses
The distribution of energy savings certificates awarded for energy efficiency improvements installed under the schemes is presented by sector and by end use category.
87 This analysis shows the proportional share of the assistance projected to be received by the different sectors, and the types of energy efficiency improvements projected to be undertaken.
Household electricity bill impacts for participants and non-participants 88
The projected impacts on the average annual household electricity bill are presented for each of the individual options below. This information is broken down into impacts on participating and non-participating households in order to demonstrate the effect on household electricity bills of installing one energy efficiency improvement. The projected proportion of participating households is also presented.
6.2.2 Retail energy price impacts
In addition to the costs incurred by obligated parties, the net energy savings attributable to the scheme affect retail energy prices via wholesale market and distribution network prices. The analysis indicated that the impact on retail energy prices would be broadly similar across all the scheme design options considered. For this reason, the retail energy price impacts under all options are discussed here to avoid repetition.
Retail gas prices
The analysis indicated that retail gas prices under all options evaluated would track very closely the prices projected under the hypothetical baseline, which assumed existing schemes cease to operate. The higher prices available for gas exports are expected to become increasingly dominant in the domestic market. The modelling results indicated that the impact of an Energy Savings Initiative on gas consumption would not be sufficient to alter the projected gas price increases. Consequently, retail energy price impacts reported in this section focus on residential electricity price projections under the options considered.
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Retail electricity prices
The potential impact of a national Energy Savings Initiative on retail electricity prices was a key element of this analysis, in particular because it went into greater detail than previous studies on the factors affecting prices along the supply chain. The results of the analysis therefore provide new insight into the relationship between electricity demand reductions and retail electricity prices. The analysis indicated that all the options considered would have an impact on four components of retail electricity prices, namely: scheme administration and business compliance costs; wholesale electricity prices; Renewable Energy Certificate (REC) prices and network prices.
The analysis assumed that scheme administration and business compliance costs incurred by electricity retailers would be passed onto consumers via electricity bills, placing upward pressure on retail electricity prices. Reductions in electricity demand from the projected increased adoption of energy efficiency improvements reduced the average marginal price of electricity in the wholesale market, placing downward pressure on retail electricity prices.
The change to REC prices were also assumed to be passed onto consumers by electricity retailers.
89
Network pricing impacts are more complex, because network prices are a function of: approved expenditures by network operators to ensure they can meet peak demand; and total volume of electricity delivered through the network. Regulations permit network operators to recoup their approved expenditures by spreading it over each unit of electricity they deliver.
As demand falls, volumes delivered decrease and networks smear their total expenditures over fewer units of electricity. This places upward pressure on network prices. However, decreases in peak demand reduce approved expenditures by network operators can place a downward pressure on network prices over time.
Figure 6.1 presents the projected impact of the four scheme design options on these components of retail electricity prices, and their net effect, over the period 2015 to 2030.
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Figure 6.1: Average annual impact on retail electricity price components and net impact
2015-30
Source: SKM MMA and Working Group analysis
The analysis indicated that the overall impact of a national ESI on retail electricity prices would be negligible, with all but one scheme design option exhibiting less than a one per cent increase in the average annual retail electricity price when compared with the hypothetical baseline that assumed the existing schemes cease to operate. The exception was
Option D4: Low-income Household Focus (LIH), which was projected to result in an average annual increase of almost four per cent. This was due to significantly greater certificate costs associated with focussing on energy efficiency improvements in low-income households compared with the energy efficiency activities that would otherwise have been implemented.
It is important to note the strong influence that network prices had on these results. The analysis indicated that, under current regulatory and policy settings, the scheme design options considered would not be capable of driving network expenditure reductions of sufficient magnitude to overcome the upward pressure placed on network prices by the projected decreases in the volume of electricity delivered by the networks.
Consequently, for all scenarios, the analysis indicated that households that do not reduce their electricity consumption, either by participating in the scheme, or otherwise, would face marginal increases in their electricity bills. For example, for the Core Scheme Design, non-participating households were projected to face electricity bill increases of $10 to $15 per year. The household electricity bill impacts projected for each option are reported in the relevant subsequent sections of this chapter.
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6.3 Option A: No Further Intervention
Option A: No Further Intervention is the ‘business as usual’ scenario, as described in
Chapter 5. The economic and energy market modelling of this scenario assumed energy efficiency schemes operating in jurisdictions with existing schemes from 1 January 2015 to
31 December 2030. Energy savings targets were applied to the relevant jurisdictions consistent with Commonwealth assessment of their schemes’ targets in effect when the modelling exercise commenced.
Therefore, modelling for this option does not closely follow the design parameters or activity sets of the existing schemes. Instead, assumptions were applied which approximate the existing schemes’ current targets and other broad policy settings based on information available when the modelling commenced. All assumptions as to how these schemes were modelled to operate currently and into the future were made by the Working Group, and do not reflect input from the relevant states or territories. Consequently, the results of this analysis are not sufficiently refined to be used for evaluating the current or future performance of existing schemes.
The modelling results for Option A were intended to inform the Working Group whether the target chosen for a national Energy Savings Initiative could meet the minimum target requirement specified in the Working Group’s Terms of Reference. This requirement was that a national scheme would be capable of delivering energy efficiency improvements at least as great as those being delivered by the existing jurisdiction-based energy efficiency schemes.
90 This effectively set the lower boundary for the energy savings targets tested in the first element of the modelling exercise.
91
A hypothetical baseline scenario, which assumed existing schemes had ceased to operate by
1 January 2015, was also modelled to provide a common point of reference against which to compare all options.
6.3.1 Energy sector resource costs and benefits for Option A
The analysis indicated that Option A could deliver a net benefit of almost $1.3 billion for the period 2015 to 2050.
Figure 6.2 shows the composition of total resource benefits over the whole evaluation period,
2015 to 2050. Almost 70 per cent of the total benefit was projected to result from reduced expenditures associated with electricity consumption: 50 per cent from electricity generation and 19 per cent from electricity networks. Reduced gas-related expenditures were projected to contribute 12 per cent of the benefits, with the remaining 19 per cent attributed to avoided carbon costs. The concentration of benefits associated with reduced electricity consumption reflects, in part, the balance of electricity and gas coverage under the existing schemes.
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Figure 6.2: Composition of energy sector resource benefits for Option A, 2015-50
Source: SKM MMA and Working Group analysis
Scheme administration and business compliance costs for Option A
The analysis indicated that the overall scheme administration and business compliance costs associated with Option A could amount to $2,062m over the period 2015 to 2030. Table 6.2 shows the breakdown of these costs between scheme administration and business compliance costs.
Table 6.2: Total estimated scheme administration costs for Option A, 2015-30; $(2012)m
Scheme administration costs Business compliance costs Total
Transactions Certificates
74.1 63.9 1924 2062
Sources: SKM MMA modelling results and Table 5.2 and Table 5.7 NERA Economic Consulting and Oakley Greenwood,
Analysis of compliance costs and cost benefit analysis for a national Energy Savings Initiative
– Final Report, December 2012
Note: Appendix F of this Information Paper provides an explanation of how these data sources were combined to generate the results reported in the table.
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6.3.2 Distributional impacts for Option A
Net energy savings for Option A
Option A was projected to reduce energy demand by 211 PJ below the hypothetical baseline over the period 2015 to 2050. About three-quarters of the energy savings are projected to come from reduced electricity consumption, which in part reflects the balance of electricity and gas coverage under the existing schemes.
Household electricity bill impacts for Option A
Figure 6.3 shows the projected savings on the average annual household electricity bill under
Option A, for scheme participants and non-participants and the proportion of households estimated to participate in the schemes by 2030.
If each energy efficiency improvement in the residential sector was installed in a different household, as was assumed in the modelling exercise, by 2030 more than three-quarters of the households in jurisdictions with existing schemes would have participated in these schemes.
Households installing one energy efficiency improvement were projected to reduce their electricity bills by around ten per cent ($190 per year) on average in 2020 and five per cent
($100 per year) on average in 2030. In contrast, non-participating households were projected to experience a marginal increase in their electricity bills of less than one per cent (around
$10 per year) on average in 2020 and slightly greater than one per cent (around $20 per year) on average in 2030. This reflects the small increase in electricity prices projected across all scenarios discussed in Section 6.2.2.
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Figure 6.3: Average annual household A electricity bill savings B for Option A
Information Paper
Source: SKM MMA and Working Group analysis
Notes: A: Households covered by existing schemes only, i.e. in New South Wales, Victoria, South Australia and the Australian
Capital Territory; B: The installation of energy efficiency improvements that reduce gas consumption would lead to further savings for scheme participants, whereas gas bills for non-participants are not expected to be materially different from the hypothetical baseline scenario, which assumes existing jurisdiction-based schemes cease to operate. C: Participant households are assumed to undertake one energy efficiency improvement
– households undertaking two improvements would be projected to make savings around twice those reported on average; D: Savings reported are annual averages over the fiveyear periods 2018-2022 and 2028 and 2032; E: Consistent with Note C above, the number of participating households is derived from the total number of energy efficiency improvements installed under the schemes over the period 2015 to 2030, and total household numbers were sourced from SKM MMA modelling results – if households were to undertake more than one improvement the proportion of participants would be lower than reported.
6.3.3 Risk and competition assessment for Option A
The results for Option A indicate that the future operation of energy efficiency schemes, with targets and coverage consistent with existing jurisdiction-based schemes would continue to reduce the energy efficiency gap in the sectors, fuels and geographic areas they cover.
Without further intervention the energy efficiency gap will remain unchanged in jurisdictions without an energy efficiency scheme in comparison with the hypothetical baseline scenario that assumes existing schemes cease to operate. Option A does not change the existing level of competition between energy retailers.
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6.4 Option B: Harmonise existing energy efficiency schemes
The analysis investigated the option of harmonising existing jurisdiction-based schemes (in
New South Wales, Victoria, South Australia and the Australian Capital Territory). The harmonisation of these schemes is a matter for the relevant jurisdictions, rather than the
Australian Government. However, given the support from participants and other stakeholders for the harmonisation of these existing schemes, the Working Group considered it to be a possible future development warranting analysis.
The analysis investigated the potential costs and benefits of three harmonisation options for the four existing jurisdiction-based energy efficiency schemes.
92 Option B1, the lowest level of harmonisation assessed, assumed that:
eligible activities are harmonised and applied in line with the existing fuel and sectoral coverage in each of the schemes;
accreditation standards and procedures are harmonised across the schemes; and
there is no expansion of existing schemes beyond the current targets and fuel and sectoral coverage.
Option B2 added inter-jurisdictional certificate trading to Option B1. It was assumed that all schemes would create and freely trade certificates across their jurisdictional boundaries and a single existing registry would be used with separate accounts for each scheme.
Option B3 is the ‘harmonised expansion’ option which adds to Option B2 and assumed:
aligned fuel coverage (i.e. both electricity and gas) in all existing schemes;
aligned sectoral coverage (i.e. residential, commercial and industrial sectors excluding
EITEs and large off-grid energy users) in all existing schemes;
a single target, based on existing scheme targets and adjusted proportionally upwards to account for the expansion of fuel and sectoral coverage where relevant; and
the establishment of a single scheme administrator.
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Energy efficiency improvements under Options B1 and B2 were assumed to closely approximate those projected under existing schemes, because current targets, eligible activities and fuel and sectoral coverage remain unchanged. The energy savings impacts and associated resource benefits under Options B1 and B2 are therefore assumed to be the same as for Option A. Consequently only the projected impacts on scheme administration and business transaction costs are reported for these two sub-options below. Consistent with the assumption regarding energy savings impacts, certificate costs are also assumed to be the same as for Option A.
Under Options B1 and B2, no judgement was made about how jurisdictions might achieve harmonisation. The analysis assumed low and high-cost approaches for scheme administration and business transaction costs in order to estimate the breadth of costs and benefits potentially associated with harmonisation.
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The low-cost approach assumed existing schemes recognise the eligible activities, methodologies and accreditation standards under each existing scheme. The high-cost approach assumed comprehensive development of a new single set of eligible activities and methodologies, and a new accreditation standard for certificate creators.
In contrast, Option B3 assumed significant changes regarding the fuel and sectoral coverage of existing schemes. For this reason, a separate economic and energy sector modelling scenario was developed to estimate the costs and benefits to the energy sector associated with this option and is reported separately below.
In Option B3, existing jurisdiction-based schemes are assumed to expand fuel and sectoral coverage and harmonise operation as a single Energy Savings Initiative-style scheme across these jurisdictions, including the same energy efficiency improvements as permitted under
Option D: National Energy Savings Initiative. Consequently, the approach to scheme administration was assumed to be the same for this sub-option as for the introduction of a potential national Energy Savings Initiative.
6.4.1 Energy sector resource costs and benefits for Options B1 and B2
The rationale for harmonising existing schemes proposed by stakeholders is to potentially reduce scheme administration costs and the transaction costs incurred by obligated parties in complying with the schemes. Options B1 and B2 explore the potential impacts of two relatively low levels of harmonisation of existing schemes compared to Option B3. Both of these options assume the same annual targets and sectoral and fuel coverage as for Option A.
Consequently, the economic and energy market modelling exercise did not consider separate scenarios for Options B1 and B2. It was assumed that the balance of costs and benefits to the energy sector associated with Options B1 and B2 would be broadly in line with those projected under Option A, i.e. a net benefit of $1.3 billion over the period from 2015 to
2050.
94 Implicit in this is the assumption that, under Options B1 and B2, energy retailers would face the same certificate costs as under Option A, i.e. the costs of installing energy efficiency improvements were assumed to be the same.
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As a consequence, the only aspect of the cost-benefit analysis of Options B1 and B2 that differs to Option A is the projected impact of harmonisation on scheme administration and business transaction costs. These results are presented below for both Options B1 and B2.
Scheme administration and business compliance costs for Options B1 and B2
Costs to harmonise the schemes comprised any establishment costs incurred by both scheme administrators and obligated parties in preparing for harmonisation and ongoing costs consistent with the assumptions for each option and harmonisation approach described above.
Table 6.3 presents the projected scheme administration and business transaction costs for both Options B1 and B2.
Table 6.3: Total projected scheme administration and business transaction costs for
Options B1 and B2, 2015-30; $(2012) millions
Option Scheme administration costs
Business transaction costs
Total (exc. certificate costs)
Option B1 $77-$85 $57-$63 $133-$148
Option B2 $77-$83 $56-$62 $133-$145
Source: SKM MMA modelling results and Table 5.2 and Table 5.7 NERA Economic Consulting and Oakley Greenwood,
Analysis of compliance costs and cost benefit analysis for a national Energy Savings Initiative – Final Report , December 2012.
Appendix F of this Information Paper provides an explanation of how these data sources were combined to generate the results reported in the table.
Compared with Option A, the low-cost approach for Options B1 and B2 could deliver savings of $4.5 million and $5.0 million, or 3 per cent and 4 per cent respectively over the period 2015 to 2030. Under the high-cost approach, both Options B1 and B2 were projected to result in additional costs of $10.4 million and $7.0 million, or 8 per cent and 5 per cent, respectively.
Both the low and high-cost approaches for both options were projected to increase scheme administration costs by up to 15 per cent and decrease transaction costs for obligated parties by up to 12 per cent.
Of the two options, Option B2 was projected to be the most cost-effective under both the low and high-cost approaches for both scheme administration and obligated parties. While scheme administrators and obligated parties were both projected to incur higher establishment costs to adapt to certificate trading across schemes, these were offset by relatively lower ongoing costs due to avoided duplication of effort by scheme administrators.
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The analysis also considered the impact on Option B2 of introducing a single scheme administrator to replace the four existing administrators. This could significantly increase savings to $43.4 million, more than 30 per cent of total scheme administration and business transaction costs over the period 2015 to 2030 compared with Option A. The additional savings were projected to mostly accrue to obligated parties, which operate in more than one jurisdiction and would no longer have to report to multiple scheme administrators. Ongoing cost savings for scheme administrators were also projected to result from reduced duplication in systems and processes across the schemes, for example in reporting, accreditation and auditing.
6.4.2 Distributional impacts for Options B1 and B2
Apart from scheme administration and business compliance costs, the other impacts of
Options B1 and B2 are assumed to be the same as for Option A.
6.4.3 Energy sector resource costs and benefits for Option B3
The analysis indicated that Option B3 could deliver an overall net benefit of $2.3 billion over the period 2015 to 50, which is $1 billion greater than Option A. This result reflects the assumed expansion of existing schemes upon harmonisation under Option B3 to cover all sectors (excluding EITEs and large off-grid energy users), as well as both electricity and gas.
Under Option B3, costs were projected to be around 25 per cent lower and benefits
15 per cent greater than Option A: No Further Intervention. Despite the greater number of certificates that energy retailers were required to purchase to achieve their annual targets compared with Option A, certificate prices were so much lower than Option A that the overall costs were also lower. The lower certificate costs resulted from the increased range of low-cost energy efficiency improvements made available by the expansion of the scheme to areas in which the take-up of lower cost activities were less saturated than under Option A.
This greater number of certificates translated into increased energy savings and associated energy market benefits.
Figure 6.4 shows the composition of resource benefits over the whole evaluation period, 2015 to 2050. The majority of the total benefits are projected to result from reduced electricity consumption, with 48 per cent attributed to electricity generation and 16 per cent to electricity networks. This represents a 10 per cent reduction on the sum of these electricity-related benefits under Option A. Reductions in gas-related expenditures were projected to comprise 17 per cent of the share of the total (about 50 per cent greater than
Option A), with eight per cent each attributed to gas production and end user gas consumption, and one per cent to gas pipelines. As under Option A, 19 per cent of the benefits are projected to result from avoided carbon costs.
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This shift in electricity-related to gas-related benefits, compared with Option A, is consistent with the assumed scheme expansion to include gas and all sectors (excluding EITEs and large off-grid energy users) in all jurisdictions with existing schemes. This expansion of scheme coverage means that both electricity-related and gas-related benefits are greater than under
Option A, in absolute terms, by around 5 per cent and 80 per cent, respectively.
Figure 6.4: Composition of energy sector resource benefits for Option B3, 2015-50.
Source: SKM MMA and Working Group analysis
Scheme administration and business compliance costs for Option B3
The analysis indicated that Option B3 could cost a total of $1.6 billion over the duration of the scheme, 2015 to 2030. Table 6.4 presents a breakdown of these results.
Table 6.4: Total projected scheme administration and business transaction costs for
Option B3, 2015-30; $(2012) millions
Scheme administration costs Business compliance costs Total
Transactions Certificates
57 42 1453 1553
Sources: SKM MMA modelling results and Table 5.2 and Table 5.7 NERA Economic Consulting and Oakley Greenwood,
Analysis of compliance costs and cost benefit analysis for a national Energy Savings Initiative – Final Report, December 2012
Appendix F of this Information Paper provides an explanation of how these data sources were combined to generate the results reported in the table.
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Option B3 was projected to cost $0.5 billion less than Option A over the period 2015 to 2030, which is a decrease of 25 per cent. The vast majority of this saving resulted from the significantly lower certificate costs projected to occur under a harmonised expansion of the existing schemes, despite the greater number of certificates that obligated parties would be required to purchase to meet the increased energy savings target assumed for this option.
While smaller in absolute terms, the percentage savings projected for scheme administration and business transaction costs were also substantial at around 30 per cent and 50 per cent, respectively, in comparison with Option A. Although establishing the expanded Option B3 scheme would introduce additional costs not present under Option A, the ongoing cost savings achieved through Option B3’s introduction of a single administrator and the assumed move to a lower-cost compliance model in some jurisdictions were projected to be around ten times greater.
95
6.4.4 Distributional impacts for Option B3
Net energy savings for Option B3
Compared with the hypothetical baseline, which assumes states schemes cease to operate, the analysis indicated that Option B3 could reduce energy consumption by 296 PJ, over the period 2015 to 2050. This is around 40 per cent greater than Option A. Around 45 per cent of this net energy saving was projected to come from gas, which is greater than Option A and results from the expansion of the schemes assumed under Option B3 to include gas consumption in all jurisdictions and sectors.
Household electricity bill impacts for Option B3
Figure 6.5 shows the projected savings on the average annual household electricity bill under
Option B3, for scheme participants and non-participants and the proportion of households estimated to participate in the schemes by 2030.
Based on the assumption that each energy efficiency improvement in the residential sector was installed in a separate household, by 2030, almost three-quarters of the households in the jurisdictions covered by the expanded harmonised schemes were estimated to have participated.
Households installing one energy efficiency improvement were projected to reduce their electricity bills by around ten per cent ($190 per year) on average in 2020 and four per cent
($90 per year) on average in 2030. Non-participating households were projected to experience a marginal increase in their electricity bills of less than one per cent (around $15 per year) on average in 2020 and slightly greater than one per cent5 (around $25 per year) on average in 2030. This is marginally more than Option A and reflects the slightly higher retail electricity prices projected under Option B due to the increase in network prices projected across all options considered and discussed in section 6.2.2.
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Figure 6.5: Average annual household A electricity bill savings B for Option B3
Information Paper
Source: SKM MMA and Working Group analysis
Notes: A Households covered by existing schemes only, i.e. in New South Wales, Victoria, South Australia and the Australian
Capital Territory; B: The installation of energy efficiency improvements that reduce gas consumption would lead to further savings for scheme participants, whereas gas bills for non-participants are not expected to be materially different from the hypothetical baseline scenario, which assumes existing jurisdiction-based schemes cease to operate. C: Participant households are assumed to undertake one energy efficiency improvement – households undertaking two improvements would be projected to make savings around twice those reported on average; D: Savings reported are annual averages over the fiveyear periods 2018-2022 and 2028 and 2032; E: Consistent with Note C above, the number of participating households is derived from the total number of energy efficiency improvements installed under the scheme over the period 2015 to 2030, and total household numbers were sourced from SKM MMA modelling results
– if households were to undertake more than one improvement the proportion of participants would be lower than reported.
6.4.5 Risk analysis for Options B1, B2 and B3
Jurisdictions with schemes are likely to reduce the risk of inefficient business practices where requirements under different jurisdictions’ schemes vary depending on:
which version of Option B is adopted (Option B3 with more harmonised elements will lower the risk of inconsistent practices occurring between jurisdictions which could lead to greater efficiency gains than Options B1 or B2);
the level and nature of cross border interaction between certificate creators, energy retailers and state/territory governments; and
the level of harmonisation that already exists (the greater the level of existing harmonisation, the lower the likelihood of further reducing the risk of inefficiency due to inconsistent practices).
Reducing inconsistent business approaches across jurisdictional borders will tend to reduce costs that may subsequently be passed on to consumers.
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6.4.6 Competition assessment for Options B1, B2 and B3
Greater harmonisation of existing jurisdiction-based schemes could reduce the cost and complexity to market participants dealing with multiple schemes and create a level playing field that stimulates competition, innovation and consumer choice.
For Energy Service Companies (ESCOs), consistent rules, accreditation arrangements and common eligible activities across states could facilitate access to larger markets and improve economies of scale for individual businesses.
For energy retailers, an increased number of, and competition among, ESCOs could put downward pressure on certificate costs (i.e. competition could reduce the payments ESCOs are willing to accept in return for implementing energy efficiency activities to create certificates). Uniform certificate trading arrangements across states would encourage more efficient markets for white certificates and potentially lead to improved transparency in certificate trading.
6.5 Option C: Intervention using non-market-based policy instruments
The non-market-based instruments in Option C could be effective in addressing the specific market failures or other barriers they are designed to overcome. However, none of them are able to substantially overcome the multiple market failures and other barriers that inhibit the adoption of energy efficiency improvements at an economy-wide scale in a feasible and cost effective manner. Table 6.5 shows the market failures and other barriers targeted by the five non-market-based policy instruments.
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Table 6.5: Non-market-based policy instruments and the market failures and other barriers they can address
Market failure or other barrier
Imperfect and asymmetric information
Grants, rebates, loans
Peak demand purchaser partial
Information provision
Support for energy services sector partial
Targeted regulatory requirement
Split incentives
(principal/agent problems) partial partial partial
Bounded rationality, behavioural norms and organisational barriers
partial
Materiality barriers
Access to capital and other financing barriers
Regulatory and planning practices
In theory, a suite of non-market-based policy instruments could be designed to target all of the market failures and other barriers that inhibit the adoption of energy efficiency improvements across all sectors and regions of Australia. However, for the suite of instruments to be cost-effective and efficient when applied at an economy-wide scale, government would require near perfect information about:
which technologies are able to provide the most cost-effective energy efficiency improvements for each household or business, in order to determine which technologies government should support;
which sub-sectors of the economy have the most cost-effective opportunities for energy efficiency improvements and therefore what skills and systems are needed to unlock these opportunities;
96
and
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the level of incentive a household or business will require to be motivated to invest in a wide range of different energy efficiency improvements, in order to determine the level of funding required to achieve the targeted amount of energy efficiency improvement under a grants mechanism.
Information would be required to make these decisions, in a way that consistently targeted the lowest-cost and most efficient energy savings opportunities across each sector and region in Australia. However it is likely to be too administratively expensive to maintain and update this broad range of information.
97
Non-market-based instruments may also prove to be inefficient at an economy-wide scale because existing state and territory energy efficiency schemes are likely to continue to operate and interact with the instruments with unintended consequences. For example, if the non-market-based interventions did provide assistance for activities that were eligible for credit under jurisdiction-based schemes, those activities might be rewarded twice (depending on the additionality requirements of each jurisdiction-based scheme). This would lead to energy efficiency improvements being undertaken at greater cost to government and participation in non-market-based programs being skewed away from jurisdictions without a scheme.
The analysis does not suggest that the non-market-based policy options should not be considered as elements in Australia’s energy efficiency policy portfolio. On the contrary, many non-market-based measures have a strong track record in Australia and abroad, and play an important role in achieving energy efficiency improvements. Some of these measures, such as information provision, could complement a market-based policy such as a national
Energy Savings Initiative.
6.5.1 Option C1: Grants, rebates and loans
Grants, rebates and loans schemes can be designed to overcome market failures such as inefficient pricing or externalities, and barriers such as access to capital (particularly for lowincome households). They do not necessarily address non-price barriers that inhibit the adoption of energy efficiency improvements, 98 though they can be designed to do so. For example, Low Carbon Australia actively seeks to address split incentives between landlords and tenants, among other strategies.
99
Such schemes can be relatively high-cost when applied at a very large scale, 100 particularly grants and rebates, where part of the capital cost is borne by government. Loans schemes, on the other hand, are designed so that the initial capital outlay by government is recovered over time. This cost reduction might be partially off-set by the greater ongoing costs associated with administering loans, and the need to allow for potential loan defaults.
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Grants, rebates and loan schemes can be relatively simple to administer when they are small-scale and there are limited recipients and limited products. However, administration costs could increase when seeking to achieve economy-wide energy efficiency improvements involving a wide range of grants and rebates.
101
Funding such schemes may be inefficient where it is difficult to know the appropriate level of incentive a householder or business requires to be motivated to purchase an energy efficiency improvement. Under-estimation of this amount could result in the targeted energy efficiency improvements not being achieved, while over-estimation could lead to an over-allocation of resources that could be better used elsewhere.
In economy-wide schemes of this nature, it can be difficult to accurately assess which technologies are the most appropriate to support and ‘picking winners’ could create distortionary market effects.
102
When used in combination with a suite of related measures, such schemes can form part of a comprehensive portfolio approach. Examples include the Clean Energy Finance Corporation and the Clean Technology Investment Program under the Clean Energy Future plan. Adding a market-based mechanism to this portfolio approach, such as a national Energy Savings
Initiative, could complement existing grants, rebates and loans schemes.
6.5.2 Option C2: Peak demand purchaser
This option would reduce peak electricity demand by government providing payments to third parties to arrange activities, including energy efficiency, that reduce electricity demand during peak periods. Currently a key barrier to reducing peak demand is the lack of widespread incentives to encourage the use of electricity during shoulder or off-peak periods.
The cost of using electricity during peak periods is not apparent to most consumers and there is generally no advantage for consumers who avoid using electricity during peak periods.
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The central buyer option is amenable to being applied at a broad scale. It also has the potential to be technology neutral which avoids the disadvantages with determining which energy efficiency technologies to fund. However, similar to grants and rebates, it is potentially a high-cost option because substantial government funds would be required to establish and operate the central buyer entity, and to fund its purchases.
104
It is unlikely that this option would be effective in reducing peak demand by focussing on activities oriented towards energy efficiency. Direct load control (e.g. short term control of air conditioners during extreme heat events) is likely to be a major activity under this option.
While this will reduce energy consumption at peak periods and improve energy productivity in the electricity network, it is unlikely to increase the energy efficiency of products or processes.
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Another potential disadvantage is that a central buyer for peak demand reductions would not necessarily complement the current and future energy market arrangements. For example, the
Australian Energy Market Commission has made recommendations which could assist consumers to reduce their level of peak demand.
105 A central buyer option could interfere with these potential market developments, and may risk funding activities which are non-additional.
6.5.3 Option C3: Provide information through advertising campaigns, websites and other media
A lack of knowledge will be a significant inhibitor to improving energy efficiency even in the presence of price signals. However, there is a strong body of evidence that the provision of information does not, on its own, necessarily result in sustained energy efficiency improvements.
106 For example, evaluation of the Victorian Government’s Black Balloons campaign revealed that while the campaign was effective in motivating Victorians to implement certain energy saving behaviour, such as turning off appliances at the switch, switching off lights and installing energy efficient light globes, only 4 per cent of those who had altered their behaviour had been motivated to purchase energy efficient appliances.
107 For a number of reasons, not least financial, it may be difficult to maintain an information campaign over the proposed life of the scheme.
Education and provision of information is more likely to be effective in overcoming information barriers if it is targeted to the particular situations of individual energy users, and is delivered by a source those users trust.
108 Web tools and use of social media can offer more tailored options, but they will not necessarily be as influential as face-to-face interactions carried out through energy audits.
109 Consideration could be given to combining information strategies with other complementary measures to overcome barriers which information strategies alone would not normally address, such as access to capital and misaligned incentives.
110
6.5.4 Option C4: Support for the energy services sector
Even in the presence of price signals and basic information, expertise is often required to make a meaningful impact on energy efficiency. ESCOs still need to provide advice and expertise on implementing energy efficiency measures to groups highly sensitive to price signals. For example, various programs provide low-income households with housing energy efficiency assessments.
111
Providing funding for ESCOs to perform energy efficiency audits and implement energy efficiency improvements could boost the development of the ESCO sector and broaden their ability to implement energy efficiency measures. Training and accreditation of ESCOs would be an important complementary measure to assist the orderly growth of the ESCO sector by encouraging high standards of performance and developing public confidence in the industry.
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Developing the sector would be a positive step but the economic incentive for such companies to invest in the sector must also be present for the industry to be sustainable in the absence of government support. This option would be dependent on the level of incentive available to expand the ESCO sector to the extent required to meet the stated objective. Due to the varying rate of development of ESCOs in different jurisdictions, a separate analysis would need to be conducted to determine the required level of support.
6.5.5 Option C5: Targeted regulatory requirement
6.5.5.1 Standards require a level of energy efficiency closer to the highest available
Australia currently has the Greenhouse and Energy Minimum Standards (GEMS) Act (2012) for a range of appliances and equipment. These standards are designed to remove the lowest performing products from the market, rather than encourage the adoption of high-efficiency products. To achieve the objective of economy-wide energy efficiency, this option would require GEMS to remove all but the very high performing products available on the market
(potentially to the equivalent of a four star energy rating label where labelling is available) and to further expand the range of appliances and equipment and sectors covered by the minimum standards.
The Equipment Energy Efficiency (E3) website indicates the wide range of goods and appliances covered by GEMS. Regulation Impact Statements for these standards suggest a low proportion of locally manufactured goods relative to imported goods.
112 Consequently a large proportion of Australia’s imported appliances and equipment would be affected by significantly higher minimum standards. Australia has a relatively small portion of the world market. It is unlikely that overseas manufacturers would make exceptional efforts to improve their products’ energy efficiency to meet Australian standards that, under this option, would be significantly more stringent than in other countries. The introduction of such standards could reduce the range of products available, potentially reducing competition and restricting consumer choice. Reduced competition might also inhibit the replacement of old inefficient devices if the new devices lack all of the specifications required by a consumer. Increased standards could also raise the upfront costs of available products, partially offsetting private gains made by reducing energy consumption.
Consequently, introducing such a stringent standard appears to be a high-risk strategy.
Further research might find that this does not necessarily apply to every type of appliance and equipment subject to GEMS. However, in order to be able to meet the stated objective, this option would need to be applied to a wide range of energy-consuming products.
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The introduction of minimum standards typically takes a long period of time due to the need to consult and engage extensively with manufacturers and industry associations. For example, in July 2009, the Council of Australian Governments agreed to a measure to strengthen the
April 2010 air conditioner minimum energy performance standards by 10 per cent from
October 2011, subject to a Regulation Impact Statement. In September 2011, the Ministerial
Council on Energy (now the Standing Council on Energy and Resources) amended its decision in response to concerns from some members of the air conditioning industry, delaying the implementation to April 2012 or later depending on the type of air conditioner.
113
Long lead-times before standards could be introduced would alone render this option incapable of achieving the stated objective within a reasonable time frame.
A substantial change to minimum standards may also require agreement with New Zealand.
The Trans-Tasman Mutual Recognition Agreement (TTMRA) states that any product that can be lawfully manufactured in or imported into either Australia or New Zealand may be lawfully sold in the other jurisdiction. If the two countries have different regulatory requirements for a given product, the less stringent requirement becomes the de facto level for both countries unless the one with the more stringent requirement obtains an exemption under the TTMRA. As the Australia-NZ appliance and equipment markets are closely integrated, TTMRA issues may arise if Australia proposes to implement a more stringent level of mandatory energy efficiency standards and New Zealand does not.
114
Other sectors with energy efficiency regulations include housing and commercial buildings.
The strategy of raising these standards much closer to the highest standards available would need to take into account:
whether this approach leads to the most efficient investment in energy efficiency (for example, if the regulated sector has substantially improved energy efficiency over time, further improvements in energy efficiency might only be achievable at significant cost whereas an immature sector may offer more savings at a lower cost);
the potential impact on key sectors of the economy such as building and construction.
For example, the construction of high energy efficiency buildings may be more expensive, which could lead to lower rates of construction and home affordability.
Since the “construction industries are one of the main driving areas in the Australian economy, having a significant contribution to GDP and a multiplier effect on the activity in other industries”
115
, this could have a significant unintended impact on the
Australian economy as a whole;
the potential impact on choice and competition if higher standards result in fewer options for consumers; and
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if there is an overall improvement in energy efficiency in the economy (the energy consumed during the production of a good could substantially increase to meet the higher standard and the energy used during construction could offset energy savings from improved energy efficiency – for example more energy intensive alloys may be required to reduce weight for improved efficiency).
Depending on the sector, highly stringent standards could result in distortions such as those outlined above. A less stringent standard combined with a suite of measures, such as a market-based mechanism and information campaign, could more effectively meet the objective of improved energy efficiency.
6.5.5.2 Replace old energy-intensive goods in low-income households
This option would require electricity retailers or distributors to reduce energy costs in qualifying low-income houses by replacing energy-intensive goods, such as old refrigerators, water heaters, or heating/cooling appliances. The costs could be passed on either to all consumers or paid back over time by the recipient of the energy efficient good.
Low-income households have very little capacity to meet additional costs for energy-efficient whitegoods and so the certificate creator would meet the cost of the new equipment upfront with either the low-income household or other consumers meeting the cost over a period of time. By itself, this scheme would not meet the requirement under the Clean Energy Future plan that an energy efficiency scheme has broad coverage. However it may be a scheme for consideration in conjunction with a range of other approaches discussed regarding intervention using non-market-based policy instruments.
6.5.6 Risk analysis for Options C1 to C5
Imperfect and asymmetric information, split incentives, bounded rationality, behavioural norms and organisational barriers, materiality barriers, access to capital and other financing barriers and regulatory and planning practices have been examined either as market failures or other barriers which contribute to the energy efficiency gap.
The non-market based policy instruments considered in this section have to varying degrees addressed some of these issues and may partly address the gap. A combination of these measures may be more effective. However, as discussed there is a question of how efficiently resources can be allocated to address the gap in a non-market environment – particularly in the case of Options C1, C3 and C4.
As indicated in Option C2, there is greater likelihood of direct load control having an impact on peak demand periods than energy efficiency. There is also a potential that the central buyer for peak demand reductions would not necessarily complement the current and energy market arrangements and new arrangements developed following the Power of Choice review.
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Under Option C5, higher GEMS or other standards could risk reducing the range of appliances and equipment available to the public given the large percentage imported into
Australia, which is a relatively small market for foreign manufacturers. Increased buildings standards could increase construction costs and reduce home affordability. No additional risk is envisaged under a regulatory arrangement requiring obligated parties to replace old energy intensive equipment in low-income households.
6.5.7 Competition assessment for Options C1 to C5
Option C1: grants, rebates and loans
Financial incentives such as grants, rebates and loans would be designed to change the relative competiveness of goods and services based on their ability to improve the energy efficiency of a house, business, industry etc. Businesses using more efficient appliances and equipment would benefit from reduced energy costs and are more likely to be competitive.
Option C2: Peak demand purchaser
Establishing a government-funded single buyer to purchase reductions in peak demand would not provide exclusive rights to that entity as other entities could still compete to buy reductions in peak demand. However smaller or emerging suppliers entering the market may have difficulty competing with the larger government-funded entity.
Option C3: Information Provision
Providing information which indirectly supports some products or suppliers over others, based on their energy efficiency, may provide a competitive advantage. However, by itself, an information campaign is not anticipated to have a serious impact on the availability of competition. The Energy Rating Labelling Scheme is a good example of information provision having a positive impact on energy efficiency without having a significant impact on competition.
Option C4: Support for the energy services sector
Support for the energy services sector would not of itself affect competition unless it is offered to ESCOs in a manner that did not give each ESCO an equitable opportunity to participate in the support program. New suppliers could find it more challenging to enter the market if existing competitors have received support which they were subsequently unable to access if the program of support was time-limited.
Option C5: Targeted regulatory requirement
Existing programs such as the Energy Rating Labelling Scheme and the GEMS demonstrate there is not necessarily an impact on manufacturers’ ability to compete where there is an increased emphasis on the energy efficiency of goods which they produce. However, substantially tightened GEMS or other standards could reduce the range of appliances and equipment available to households and businesses and the affordability of housing stock. The level to which competition would be reduced would depend on the degree to which performance standards are tightened.
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No additional risk is expected under a regulatory arrangement requiring obligated parties to replace old energy intensive equipment in low-income households.
6.6 Option D: Intervention using a market-based instrument – a national
Energy Savings Initiative
A white certificate scheme for energy efficiency, such as one of the options discussed later in this section, could satisfy the two primary criteria required to achieve the stated objective of improving Australia’s energy efficiency. First, unlike the non-market-based policy instruments discussed above, a well-designed white certificate scheme is capable of addressing the multiple market failures and other barriers to the adoption of energy efficiency improvements, as shown in Table 6.6 below.
Table 6.6: Energy efficiency barriers and a white certificate scheme
Barrier Potential impact of a white certificate scheme for energy efficiency
Imperfect and asymmetric information
Could stimulate the market to supply information about energy efficiency by acting as an incentive for energy services companies to provide information about energy efficient products and activities to consumers.
Split incentives
(principal/agent problems)
Could provide a split benefit for energy efficiency – for example, a tenant could enjoy the bill reductions, while the landlord could benefit from an obligated party paying them for energy savings certificates.
Bounded rationality, behavioural norms and organisational barriers
Could encourage energy efficient behaviours and products by reducing the upfront cost of energy efficiency improvements, making them more attractive to households and businesses.
Materiality barriers ESCOs would be able to profit from aggregating energy savings from large numbers of small projects, which may not otherwise be undertaken by individual households and businesses, and selling the energy savings certificates they generate to energy retailers.
Access to capital and other financing barriers
Energy savings certificates could offset the upfront cost to households and businesses of undertaking energy efficiency improvements, making small energy efficiency improvements more attractive and making it easier to attract finance for large energy efficiency projects by offsetting financing costs.
Regulatory and planning practices
A general incentive to invest in energy efficiency could help counter the existing incentive structures, provided by the current flat-tariff pricing regime in the National Electricity Market
(NEM), which may lead to underinvestment in energy efficiency improvements that reduce peak electricity demand.
Source: adapted from Australian Government, Report of the Prime Minister’s Task Group on Energy Efficiency , 2010.
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Second, a white certificate scheme could be cost-effective and efficient when applied at an economy-wide scale. White certificate schemes do not require the government to stipulate which specific energy efficiency activities must be undertaken in which particular sector and subsector covered by the scheme.
116 Rather, white certificate schemes rely on market participants seeking out and capitalising on the most cost effective energy efficiency opportunities available within the broad parameters set by the government. Thus, they are suited to situations where the government does not have good information about all available cost-effective energy efficiency opportunities.
In a well-designed scheme, the market would deliver the desired outcome at least-cost.
117 By combining financial incentives with flexibility about which activities can be undertaken and how, white certificate schemes can also promote more innovative ways of unlocking energy efficiency opportunities and at the same time further encourage the development of an ESCO sector, which is a key element in stimulating the adoption of energy efficiency improvements.
118 A white certificate scheme appears broadly suited to achieving the stated policy objective.
6.6.1 Economic and energy sector modelling
As indicated in Chapter 2, the Working Group consulted widely with stakeholders regarding the underlying assumptions to apply to the economic and energy sector modelling exercise for this analysis.
119 The modelling exercise itself comprised four elements:
Element one tested a range of energy savings targets to determine the appropriate level of ambition for a national energy efficiency scheme;
Element two explored a range of consumer behaviour assumptions;
Element three investigated four different scheme design options; and
Element four conducted a sensitivity analysis.
Under element one, a range of energy savings targets were assessed to determine which had the highest net benefit (in net present value terms) and would form the basis for the subsequent modelling phases. The targets were set as a percentage of total national annual electricity and gas consumption (in gigajoules) in all sectors (excluding EITEs and large offgrid energy users) on major electricity networks and gas pipelines. Importantly, the targets relate to the number of energy savings certificates obligated parties would be expected to surrender each year after the target has ramped up to its full extent, not an annual percentage reduction in national energy demand. Figure 6.6 presents the net present values associated with each of the targets tested, based on the costs and benefits over and above those projected under the hypothetical baseline scenario.
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Figure 6.6: Costs, benefits and net present values for the four targets tested, 2015-50
Source: SKM MMA and Working Group analysis
The analysis indicated that the five per cent target could deliver the greatest net benefit of the targets assessed over the evaluation period 2015 to 2050. On this basis, the Working Group selected the five per cent target as the core national Energy Savings Initiative scenario for further investigation (referred to below as Option D1: Core Scheme Design).
The second element tested different consumer behaviour assumptions by applying a range of payback thresholds to the five per cent target scenario. A payback threshold reflects the period of time that a consumer is willing to wait until energy bill savings pay back any additional upfront costs associated with investing in a more energy efficient product. This approach enabled the analysis to account for uncertainty about consumer behaviour with regard to energy efficiency investments by providing a reasonable range of potential costs and benefits associated with Option D1: Core Scheme Design. The following range of consumer behaviour scenarios was investigated:
Option D1: Core Scheme Design (Core) – applied the same central consumer payback thresholds used in the target testing analyses, which were based on advice from expert consultants,
120
a public workshop held by the Working Group, submissions to the
Issues Paper, and an extensive review of the relevant behavioural economics literature;
Option D1: Pessimistic Consumers – applied shorter payback thresholds to represent a lower level of consumer confidence in the benefits of investing in energy efficiency improvements;
Option D1: Optimistic Consumers – applied longer payback thresholds to represent a higher level of consumer confidence in the benefits of investing in energy efficiency improvements;
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Option D1: Behaviour Change – assumed that payback thresholds increased from the central level to optimistic, simulating an increase in consumer confidence in the benefits of investing in energy efficiency improvements brought about by the introduction of the scheme. This approximates consumers ‘learning by doing’ and as a result, permanently changing their payback thresholds.
The third element investigated the impacts on the modelling results of four different scheme design options for a national Energy Savings Initiative:
Option D1: Core Scheme Design (Core) – broad geographic and sectoral coverage, but excluding EITEs and large off-grid energy consumers. This is the same scheme design used in the second element of the modelling exercise to explore a range of consumer behaviour assumptions;
Option D2: Total Geographic and Sectoral Coverage (Total) – including EITEs and large off-grid energy consumers;
Option D3: Peak Demand Reduction Incentives (Peak) – energy efficiency improvements expected to reduce peak demand were awarded 150 per cent of the number of certificates received under Option D1, and improvements expected to exacerbate peak demand were awarded 50 per cent; 121 and
Option D4: Low-income Household Focus (LIH) – in meeting the annual energy savings target, at least 10 per cent of energy savings must be created by installing energy efficiency improvements in low-income households.
The fourth element tested the sensitivity of the modelling results to the seven per cent discount rate used by applying discount rates of three and 10 per cent, in accordance with the
Commonwealth Office of Best Practice Regulation guidelines.
122
The following sections present the results of the second, third and fourth elements of the modelling exercise. The results for the four scenarios in each element are presented concurrently for ease of comparison.
123
6.6.2 Option D1 under a range of consumer behaviour assumptions
The following sections provide an overview of the range of impacts projected for a national
Energy Savings Initiative under four scenarios that apply different payback thresholds that simulate different levels of consumer confidence in energy efficiency investments. In addition to the core scenario, which is the five per cent target scenario selected for further investigation above, three further scenarios were modelled simulating consumers who are relatively pessimistic, relatively optimistic, and who undergo a permanent change in behaviour upon the introduction of the scheme in that they become more confident in benefits associated with investing in energy efficiency improvements resulting in a change in their payback threshold.
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Since the Pessimistic consumers, Optimistic consumers and Behaviour Change scenarios use different consumer behaviour assumptions than those applied to Option A and Option B3, it is not appropriate to compare the modelling results across these scenarios.
6.6.2.1 Energy sector resource costs and benefits for Option D1
The analysis indicated that Option D1 could deliver an overall net benefit ranging from $1.5 billion to $5.3 billion over the whole evaluation period, 2015 to 2050, depending on the consumer behaviour assumptions applied. In Figure 6.7, the costs for each scenario are represented by the palest-shaded blocks below the zero line; benefits by the deeper-shaded blocks above the zero line; and net present values by the narrower, darkest-shaded blocks, which that also display the net present values in dollars. Section 6.6.1 above includes an explanation of the different consumer behaviour assumptions applied to these scenarios.
Figure 6.7: Costs, benefits and net present values for Option D1, 2015-50
Source: SKM MMA and Working Group analysis
Note: Since the Pessimistic consumers, Optimistic consumers and Behaviour change scenarios use different consumer behaviour assumptions than those applied to Option A and Option B3, it is not appropriate to compare the modelling results across these scenarios.
The Core Scheme Design was projected to deliver an overall net benefit of $2.2 billion, which is around $1 billion or 75 per cent greater than Option A: No Further Intervention, which modelled energy efficiency schemes in jurisdictions with existing schemes by applying energy savings targets consistent with those in effect for these existing schemes when the modelling exercise commenced. This greater benefit was driven by the greater amount of energy consumption covered by a nationwide scheme compared to the existing schemes in just four jurisdictions. Total benefits were projected to be 37 per cent greater than Option A at an additional scheme cost of 14 per cent.
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The net benefit projected for the Core scenario was $0.1 billion less than under Option B3, which applied the Core Scheme Design assumptions to the four jurisdictions with existing schemes only. While the Core scenario was projected to deliver greater benefits as a result of its wider geographic coverage, these were offset by the greater costs associated with the establishment and operation of a nationwide scheme covering all jurisdictions compared with just the four jurisdictions with existing schemes in Option B3.
The Pessimistic Consumers scenario was projected to deliver a net benefit of $4.1 billion, which is $1.9 billion or 80 per cent greater than the Core scenario. This was driven by the lower level of investment in energy efficiency that was projected to occur in the absence of a scheme, which resulted from the shorter payback threshold applied in this scenario.
Therefore, activities undertaken with the financial assistance of the scheme were more likely to be additional to those occurring without a scheme in place. The assumption that consumers have shorter payback thresholds meant that they required a larger financial incentive in order to install energy efficiency improvements, which increased the certificate cost associated with the scheme. This resulted in projected scheme costs almost double those for the Core scenario, but it also resulted in a greater amount of energy savings and associated benefits being attributed to the scheme, to a significantly greater extent.
The Optimistic Consumers scenario was projected to deliver the lowest net benefit of
$1.5 billion, which is $0.7 billion or 32 per cent lower than the Core scenario. This was due to the higher level of investment in energy efficiency improvements projected in the absence of a scheme. A greater proportion of certificates was therefore projected to be awarded for activities expected to be undertaken in the absence of the scheme, leading to fewer additional energy savings and associated benefits being attributed to the scheme. Scheme costs were projected to be about the same as under the Core scenario.
Most noteworthy is the Behaviour Change scenario which was projected to deliver the greatest net benefit of $5.3 billion. This is $3.1 billion or 150 per cent greater than the Core scenario. This significant increase was driven by the assumption that consumers’ payback thresholds were permanently changed by the introduction of the scheme such that they were more willing to invest in energy efficiency including after the scheme ceased to operate. This was projected to induce greater take-up of energy efficiency improvements, both under the scheme and independently, including activities that cease to be eligible under the scheme over time.
124 As a result, a greater quantity of energy savings and associated benefits were attributed to the scheme, while scheme costs were projected to be about the same.
Figure 6.8 shows that the composition of resource benefits for the Option D1 consumer behaviour scenarios over the whole evaluation period, 2015 to 2050.
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Figure 6.8: Composition of energy sector resource benefits for Option D1, 2015-50
Source: SKM MMA and Working Group analysis
Note: Since the Pessimistic consumers, Optimistic consumers and Behaviour change scenarios use different consumer behaviour assumptions than those applied to Option A and Option B3, it is not appropriate to compare the modelling results across these scenarios.
All of the Option D1 consumer behaviour scenarios exhibit a similar composition of benefits across the different categories. All but the Behaviour Change scenario were projected to derive just under 50 per cent of the benefits from reduced expenditure on electricity generation, and 15 to 20 per cent from electricity networks. Gas-related benefits were projected to contribute around 15 per cent, a slightly greater share than under Option A. This is due to the greater opportunities under Option D1 to reduce gas consumption under a nationwide scheme that covers both gas and electricity in all sectors compared with existing schemes, not all of which cover gas consumption. The share of benefits projected to result from avoided carbon costs is slightly less than 20 per cent across all Option D1 scenarios, which is consistent with Option A.
The Behaviour Change scenario exhibits a small deviation from the above description, with
54 per cent of benefits projected to result from reduced expenditure on electricity generation, which is offset by a small percentage decrease in each of the gas-related benefit categories. In absolute terms, the Behaviour Change scenario delivers the greatest benefits for all of the individual categories except gas pipelines, for which the benefits were around 10 per cent lower than the Core scenario.
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Scheme administration and business compliance costs for Option D1
The analysis indicated that Option D1 could cost between $2.3 billion and $4.4 billion over the duration of the scheme, 2015 to 2030. Table 6.7 presents a breakdown of these results.
Table 6.7: Scheme administration and business compliance costs for Option D1, $(2012)m,
2015-30
Scheme administration costs Business compliance costs Total
Option Transactions Certificates
D1: Core
D1: Pessimistic consumers
D1: Optimistic consumers
D1: Behaviour change
89
92
92
92
66
68
68
68
2197
4251
2119
2119
2352
4411
2278
2278
Sources: SKM MMA modelling results and Table D.6 NERA Economic Consulting and Oakley Greenwood, Analysis of compliance costs and cost benefit analysis for a national Energy Savings Initiative – Final Report, December 2012.
Note: The Optimistic Consumers and Behaviour Change scenarios are projected to cost the same because the modelling exercise used the same payback threshold assumptions for these two scenarios.
Appendix F of this Information Paper provides an explanation of how these data sources were combined to generate the results reported in the table.
Option D1: Core Scheme Design was projected to cost around $2.4 billion over the period
2015 to 2030, which is $270 million or 14 per cent more than Option A. The vast majority of this additional cost resulted from the projected increase in overall certificate costs, reflecting the expansion from the four individual existing schemes with relatively limited coverage to a national scheme with broad coverage.
Total scheme administration and business transaction costs were projected to be around
20 per cent and 3 per cent greater than Option A, respectively. This reflects the greater costs associated with operating a significantly larger scheme, covering all jurisdictions and the obligated parties which operate within them. Both scheme administration and business transaction costs were estimated to be significantly lower in jurisdictions with existing schemes under Option D1 than Option A.
125
Option D1: Pessimistic Consumers was projected to cost $4.4 billion over the period 2015 to
2030, around $2 billion more than the core scheme design. The additional expense was due to higher certificate prices being required to provide sufficient incentive for consumers with shorter payback thresholds to install energy efficiency improvements.
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The other consumer behaviour scenarios, Optimistic Consumers and Behaviour Change were projected to cost very slightly less than the core scheme design. This was because the certificate prices required to encourage consumers with longer payback thresholds to install energy efficiency improvements were slightly lower than for consumers with the ‘central’ payback threshold assumptions used in the core scheme design scenario.
6.6.2.2 Distributional impacts for Option D1
Net energy savings for Option D1
The analysis indicated that Option D1 could reduce energy consumption by 283 PJ to 699 PJ, over the whole evaluation period, 2015 to 2050, depending on the consumer behaviour assumptions applied. Figure 6.9 shows the projected net energy savings under the different consumer behaviour scenarios and the proportional contributions made by electricity and gas savings.
Figure 6.9: Net energy savings and contributions from electricity and gas for Option D1,
2015-50
Source: SKM MMA and Working Group analysis
Note: Since the Pessimistic consumers, Optimistic consumers and Behaviour change scenarios use different consumer behaviour assumptions than those applied to Option A and Option B3, it is not appropriate to compare the modelling results across these scenarios.
The Core scenario was projected to deliver net energy savings of 329 PJ, with electricity savings contributing 65 per cent.
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The Pessimistic Consumers scenario was projected to deliver significantly greater net energy savings of 585 PJ. This was due to the lower adoption of energy efficiency improvements in the absence of the scheme based on the shorter payback thresholds applied to consumers in this scenario. The proportion of the net energy savings coming from electricity was projected to be 65 per cent, the same as the Core scenario.
Under the Optimistic Consumers scenario, net energy savings were projected to be lower than the central scenario at 283 PJ. This was due to the greater adoption of energy efficiency improvements in the absence of the scheme based on the longer payback thresholds applied to consumers in this scenario and its reference scenario. The proportion of the net energy savings projected to come from electricity was 59 per cent, six percentage points less than the
Core scenario.
Consistent with the net present value analyses above, the Behaviour Change scenario was projected to deliver the greatest net energy savings of all the consumer behaviour scenarios at
699 PJ, more than double the net energy savings under the Core scenario. This was the result of the assumption under this scenario that consumers were willing to accept longer payback periods under the scheme than in its absence, which led to an increased propensity for consumers to invest in energy efficiency improvements under the scheme. The proportion of the net energy savings projected to come from electricity was slightly greater than the Core scenario at 69 per cent.
Distribution of certificates across sectors and end uses for Option D1
Figure 6.10 presents the distribution of certificates across the different sectors of the economy. Under the Core scenario, 30 per cent of certificates were projected to be awarded for energy efficiency improvements in the residential sector, including five per cent in lowincome households. Around 30 per cent were also projected to be awarded in the SME and large commercial sectors, with the remaining 12 per cent going to the large industrial sector.
The shorter payback thresholds applied in the Pessimistic Consumers scenario led to a large increase in the proportion of certificates awarded in the large commercial sector to
39 per cent and a similar decrease in the SME sector to 18 per cent. The proportion going to low-income households increased to 6 per cent while the overall residential sector share remained constant at 30 per cent. The large industrial sector was unaffected by the shorter payback thresholds in this scenario.
The longer payback thresholds applied in the Optimistic Consumer and Behaviour Change scenarios led to a decrease in the proportion of certificates awarded in the large commercial sector to 25 per cent. The total residential sector increased its share to 33 per cent with low-income households remaining unchanged at five per cent. The SME share increased a little to 31 per cent and the large industrial sector decreased slightly to 11 per cent.
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Figure 6.10: Distribution of certificates across sectors for Option D1
Information Paper
Source: SKM MMA and Working Group analysis
Note: The distribution of certificates across sectors is identical in the Optimistic Consumers and Behaviour Change scenarios, because the same payback threshold assumptions were applied to both these scenarios. The different net present value and net energy savings results reported in this Information Paper for these two scenarios are due to the different reference cases against which they are evaluated. For the Optimistic Consumers scenario, the same longer payback thresholds are applied to the reference case, which resulted in greater adoption of energy efficiency improvements in the absence of the scheme than under the central payback assumptions used for the reference case against which the Behaviour Change scenario is evaluated.
Percentages may not sum to 100 due to rounding.
The distribution of certificates by end use was projected to be similar across the four consumer behaviour scenarios, with residential heating receiving the greatest share in all scenarios at 15 to 20 per cent. Commercial heating, ventilation and air-conditioning, commercial lighting, residential lighting, and SME boilers also received high proportions of certificates in all scenarios. A detailed discussion on the distribution of certificates by end use together with charts is in Appendix G.
Household electricity bill impacts for Option D1
Figure 6.11 shows the projected savings on the average annual household electricity bill under all the Option D1 scenarios for scheme participants and non-participants, and the proportion of households participating in the scheme over its period of operation. Consistent with the discussion in Section 6.2.2 regarding the slightly higher retail electricity prices projected to result from the introduction of a national Energy Savings Initiative, non-participants in the scheme are projected to face slightly higher electricity bills.
Participants, however, are projected to make overall bill savings as the benefit of energy savings are projected to outweigh the electricity bill impacts associated with the slightly higher retail electricity prices.
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Figure 6.11: Average annual household electricity bill savings A for Option D1, participants and non-participants
Source: SKM MMA and Working Group analysis
Notes: A The installation of energy efficiency improvements that reduce gas consumption would lead to further savings for scheme participants, whereas gas bills for non-participants are not expected to be materially different from the hypothetical baseline scenario, which assumes existing jurisdiction-based schemes cease to operate. B: Participant households are assumed to undertake one energy efficiency improvement – households undertaking more than improvement would be projected to make savings around twice those reported on average; C: Savings reported are annual averages over the five-year periods 2018-2022 and 2028-2032; D: Consistent with Note B above, the number of participating households is derived from the total number of energy efficiency improvements installed under the schemes over the period 2015 to 2030, and total household numbers were sourced from SKM MMA modelling results
– if households were to undertake more than one improvement the proportion of participants would be lower than reported.
Households that install one energy efficiency improvement under the Core scenario were projected to reduce their electricity bills by around ten per cent ($180 per year) on average in
2020 and five per cent ($90 per year) on average in 2030, which is slightly less than
Option A. Non-participating households were projected to experience a marginal increase in their electricity bills of less than one per cent (around $15 per year) on average in 2020 and slightly greater than one per cent (around $30 per year) on average in 2030, which are slightly greater than Option A. Based on the assumption that each participating household installs one energy efficiency activity, around 60 per cent of households were projected to participate in the scheme by 2030.
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The other scenarios exhibited a similar pattern of projected annual savings to the Core scenario. The Pessimistic Consumer scenario projected slightly greater savings accruing to participating households, with non-participating households projected to face slightly smaller electricity bill increases. Household participation was estimated to be around 70 per cent.
The Optimistic Consumer scenario projected slightly smaller savings for participating households than the Core scenario, with non-participating households facing very similar additional costs in both 2020 and 2030 to the Core scenario. Household participation was estimated to be around 65 per cent.
The Behaviour Change scenario projected savings lower than the Core scenario in 2020, but greater savings in 2030 for participating households. Similarly, electricity bill increases projected for non-participating households were greater than the Core scenario in 2020, but lower in 2030. Household participation was estimated to be around 70 per cent.
6.6.3 Investigation of different scheme design Options D1-D4
The following sections provide an overview of the results for element three of the modelling exercise, the projected impacts associated with the four different national Energy Savings
Initiative scheme design options explained in more detail above: Core Scheme Design; Total
Geographic and Sectoral Coverage; Peak Demand Reduction Incentive; and Low-income
Household Focus.
6.6.3.1 Energy sector resource costs and benefits for Options D1-D4 126
The analysis indicated that all of the scheme design options considered, except for
Option D4: Low-income Household Focus, could deliver a net benefit greater than Option A.
In Figure 6.12, the costs for each scheme design option are represented by the palest-shaded blocks below the zero line; benefits by the deeper-shaded blocks above the zero line; and net present values by the narrower, darkest-shaded blocks, which also display the net present values in dollars. shows the projected costs, benefits and net present values associated with the four scheme design options considered over the evaluation period of 2015 to 2050
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Figure 6.12: Costs, benefits and net present values for Options D1 to D4, 2015-50
Source: SKM MMA and Working Group analysis
Option D1: Core Scheme Design was projected to deliver an overall net benefit of
$2.2 billion, which is around $1 billion or 75 per cent greater than Option A. This greater benefit was driven by the greater amount of energy consumption covered by a nationwide scheme compared to the existing schemes in just four jurisdictions. Total benefits were projected to be 37 per cent greater than Option A at an additional scheme cost of 14 per cent.
The net benefit projected for Option D1: Core Scheme Design was $0.1 billion less than under Option B3. While the projected benefits were greater as a result of its wider geographic coverage, these were offset by the greater costs associated with the establishment and operation of a nationwide scheme covering all jurisdictions compared with just the four jurisdictions with existing schemes in Option B3.
Option D2: Total Geographic and Sectoral Coverage was projected to deliver the greatest net benefit of $3.5 billion. This was due to the greater amount of energy consumption covered by this scheme design option than the others considered. The five per cent target therefore required energy savings around 60 per cent greater than the other scheme design options. The total benefits were projected to be around 60 per cent greater than the Core Scheme Design and costs 65 per cent higher. This indicates that the additional benefits associated with the expansion of scheme coverage come at a greater marginal cost than those associated with
Option D1.
Option D3: Peak Demand Reduction Incentives was projected to deliver a net benefit of
$2.4 billion, which is almost 10 per cent greater than Option D1. Total benefits were projected to be marginally greater than Option D1, at a reduced cost equivalent to around five per cent.
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Option D4: Low-income Household Focus was projected to result in a net cost of $1.9 billion over the period 2015 to 2050. While the total benefits projected under this option were around five per cent greater than Option D1, this small increase in monetary benefits was accompanied by scheme costs almost three times greater. Since low-income households were assumed to have the shortest payback threshold of all the sectors analysed, a greater financial incentive was required for them to install energy efficiency improvements, and this increased certificate costs. The requirement that 10 per cent of energy savings come from low-income households greatly increased certificate costs, as obligated parties were required to subsidise a larger proportion of increasingly expensive activities for low-income households.
Figure 6.13 shows that the composition of resource benefits for Options D1-D4 over the whole evaluation period, 2015 to 2050.
Figure 6.13: Composition of energy sector resource benefits for Options D1 to D4, 2015-50
Source: SKM MMA and Working Group analysis
The analysis projected that all the scheme design options would exhibit a similar composition of benefits across the different categories as Option D1: Core Scheme Design reported above in Section 6.6.2.1. Under each scheme design option, reductions in electricity-related expenditures comprised the majority of benefits and avoided carbon costs contributed a little under 20 per cent.
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Option D2: Total Geographic and Sectoral Coverage was projected to deliver a slightly smaller proportion of benefits from electricity generation at 44 per cent and electricity networks at 15 per cent, with a corresponding increase in the share from gas-related benefits to 22 per cent. This was due to the significant increase in gas consumption covered by this scheme design option, with gas comprising a greater proportion of energy consumption by
EITEs and large off-grid energy users than in the other sectors.
Option D3: Peak Demand Reduction Incentives was projected to deliver the greatest proportion of benefits from electricity generation at 51 per cent and electricity networks at
18 per cent. A focus on reducing peak electricity demand was found to decrease gas-related savings to 14 per cent of the total, with end user gas consumption particularly affected.
Option D4: Low-income Household Focus was projected to deliver benefits distributed almost identically to Option D1. Very slightly greater shares were projected to come from electricity generation and end user gas consumption, which were offset by a small decrease in the proportion of benefits attributed to avoided carbon costs.
Scheme administration and business compliance costs for Options D1-D4
The analysis indicated that the different scheme design options would result in different scheme administration and business compliance costs. This was because the different scheme designs require different numbers of certificates to be created as well as in different proportions in different sectors. This was particularly evident for Option D2: Total
Geographic and Sectoral Coverage and Option D4: Low-income Household Focus. Table 6.8 presents a breakdown of these results.
Table 6.8: Scheme administration and business compliance costs for Options D1-D4,
$(2012)m, 201530
$m (2012) Scheme administration costs Business compliance costs Total
Option
Transactions Certificates
D1: Core
D2: Total
89
152
66
112
2197
3591
2352
3856
D3: Peak 86 63 2099 2249
D4: LIH 81 60 6615 6756
Sources: SKM MMA modelling results and Table D.6 NERA Economic Consulting and Oakley Greenwood, Analysis of compliance costs and cost benefit analysis for a national Energy Savings Initiative – Final Report, December 2012.
Appendix F of this Information Paper provides an explanation of how these data sources were combined to generate the results reported in the table.
Option D2: Total Geographic and Sectoral Coverage was projected to result in significantly greater costs, with the majority resulting from increased overall certificate costs. This was due to the significantly greater number of certificates that obligated parties would be required to purchase to meet the increased energy savings target associated with the expansion of the scheme under this option.
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The costs projected for Option D3: Peak Demand Reduction Incentives were broadly similar to those projected for the Core Scheme Design, reflecting the broad similarity in scope of these two scheme design options.
Consistent with the net present values reported above for the different scheme design options, the analysis indicated that Option D4: Low-income Household Focus would be the most costly. This is reflected in the certificate costs, which were projected to be more than three times greater than Option D1: Core Scheme Design due to the additional cost associated with installing energy efficiency improvements in low-income households. However, scheme administration and business transaction costs were broadly similar to the Core Scheme
Design, reflecting the otherwise similar scope of these two scheme design options.
6.6.3.2 Distributional impacts for Options D1-D4
Net energy savings impacts
Consistent with the greater energy consumption covered by a national scheme, the analysis indicated that all Option D scheme design options could deliver greater net energy savings than Option A. The proportional share of net gas savings was also projected to be greater than
Option A in all scheme design options considered, except for Option D3: Peak Demand
Reduction Incentive, which was projected to deliver the same proportion of net energy savings from electricity as Option A. Figure 6.14 shows the projected net energy savings under the different scheme design options and the proportional contributions made by electricity and gas savings.
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Figure 6.14: Net energy savings and contributions from electricity and gas for Options D1-D4,
2015-50
Source: SKM MMA and Working Group analysis
As reported above, Option D1: Core Scheme Design was projected to deliver net energy savings of 329 PJ, with electricity savings contributing 65 per cent.
Option D2: Total Geographic and Sectoral Coverage was projected to reduce net energy consumption by the largest amount among the scheme design options at 580 PJ, which is around 75 per cent greater than the Core Scheme Design. This was due to the greater quantum of energy consumption covered by this scheme design option compared to the others. The proportion of net energy savings projected to come from electricity was 53 per cent, which is significantly lower than the Core Scheme Design. As noted above, EITEs and large off-grid energy users consume a greater proportion of gas than other sectors, which resulted in greater reductions in gas consumption than possible under the other scheme design options.
Option D3: Peak Demand Reduction Incentives was projected to deliver net energy savings of 301 PJ, which is around 10 per cent less than the Core Scheme Design. The extra incentive provided for energy efficiency improvements that decrease peak electricity demand was projected to result in a small increase in the proportion of activities rewarded by the scheme that were projected to be installed in the absence of the scheme – so-called ‘free-riders’. This scheme design feature was also projected to result in a greater proportion of the net energy savings coming from electricity – around 75 per cent.
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Option D4: Low-income Household Focus was projected to deliver net energy savings of
359 PJ, which is around 10 per cent greater than the Core Scheme Design. The focus on lowincome households, which are less likely than other households to invest in energy efficiency, was projected to result in fewer activities being rewarded by the scheme that were projected to be installed in the absence of the scheme – so-called ‘free-riders’. The proportion of net energy savings projected to come from electricity was 59 per cent, which is six percentage points lower than the Core Scheme Design.
Distribution of certificates across sectors and end uses for Options D1-D4
Figure 6.15 presents the distribution of certificates across the different sectors of the economy.
As reported above in section 6.6.2.2, under Option D1: Core Scheme Design, 30 per cent of certificates was projected to be awarded for energy efficiency improvements in the residential sector, including five per cent in low-income households. Around 30 per cent were also projected to be awarded in the SME and large commercial sectors, with the remaining 12 per cent to the large industrial sector.
Figure 6.15: Distribution of certificates across sectors for Options D1-D4
Source: SKM MMA and Working Group analysis
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Under Option D2: Total Geographic and Sectoral Coverage, the large industrial sector was awarded a greater proportion of certificates at 34 per cent. This was due to the scheme expansion to cover EITEs and the large off-grid energy users investigated under this option.
Consequently, the other sectors were projected to receive smaller proportions of a significantly greater number of certificates than under all other scheme design options. The value of certificates is different between Option D2 and Option D1: Core Scheme Design, although the total value of certificates awarded under Option D2 is greater for every sector except for SMEs, which received a less than 1% decline in total certificate value.
Under Option D3: Peak Demand Reduction Incentive, the large commercial and SME sectors were both projected to increase their shares of certificates by four percentage points to
34 per cent and 33 per cent, respectively, compared to Option D1. The large industrial sector was also projected to receive a slightly greater share at 13 per cent. The residential sector was projected to receive a significantly smaller share at 19 per cent, including 3 per cent for low-income households.
Under Option D4: Low-income Household Focus, low-income households were mandated to receive 10 per cent of the energy savings certificates. The analysis indicated that the resulting five percentage point increase in the proportion of certificates for low-income households was largely offset by a four percentage point decrease in the share for the rest of the residential sector. The SME and large commercial sectors were also projected to receive marginally smaller shares, with the large industrial sector increasing its share slightly to
13 per cent.
A detailed discussion on the distribution of certificates by end use for Options D1 to D4 is in
Appendix G. In summary, the distribution of certificates was projected to be broadly similar across the scheme design options, with some exceptions under Option D2: Total Geographic and Sectoral Coverage. Option D2 includes four large industrial sector activities included in the top 15 end uses which were not included under any other options.
Household electricity bill impacts for Options D1-D4
Figure 6.16 shows the projected savings on the average annual household electricity bill under Options D1-D4, for scheme participants and non-participants, as well as the proportion of households projected to participate in the scheme over the period 2015 to 2030.
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Figure 6.16: Average annual household electricity bills savings A for Options D1-D4, participants and non-participants
Source: SKM MMA and Working Group analysis
Notes: A The installation of energy efficiency improvements that reduce gas consumption would lead to further savings for scheme participants, whereas gas bills for non-participants are not expected to be materially different from the hypothetical baseline scenario, which assumes existing jurisdiction-based schemes cease to operate. B: Participant households are assumed to undertake one energy efficiency improvement – households undertaking more than improvement would be projected to make savings around twice those reported on average; C: Savings reported are annual averages over the five-year periods 2018-2022 and 2028-2032; D: Consistent with Note B above, the number of participating households is derived from the total number of energy efficiency improvements installed under the schemes over the period 2015 to 2030, and total household numbers were sourced from SKM MMA modelling results – if households were to undertake more than one improvement the proportion of participants would be lower than reported.
The projected impacts on household electricity bills were very similar for Options D1, D2 and D3. Households that install one energy efficiency improvement under were projected to reduce their electricity bills by around ten per cent ($180 per year) on average in 2020 and around four per cent ($85 per year) on average in 2030, which is slightly less than Option A.
Non-participating households were projected to face marginal increases in their electricity bills of less than one per cent (around $10 to $15 per year) on average in 2020 and approaching two per cent (around $30 to $40 per year) on average in 2030, which are slightly greater than Option A. Based on the same assumption that each residential sector activity was installed by a separate household, around 60 to 65 per cent of households were estimated to have participated in the scheme.
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While Option D4 was projected to result in less favourable outcomes for both participating and non-participating households, the analysis indicated that this scheme design option could reach around 95 per cent of households, including all low-income households over the period
2015 to 2030, assuming that households install only one activity under the scheme. This represents a participation rate more than 50 per cent greater than the core scheme design.
Households installing one energy efficiency improvement were projected to reduce their electricity bills by around five per cent ($85 per year) on average in 2020 and less than two per cent (around $30 per year) on average in 2030, which is less than half the bill savings projected under the core scheme design. The small proportion of households projected not to participate in this scheme design option was projected to face increased electricity bills of around four per cent ($80 per year) on average in both 2020 and 2030.
6.6.4 Co-benefits
Improvements in energy efficiency can result in benefits beyond the proposed objective of a national Energy Savings Initiative. These include community and societal benefits, environmental benefits, and economic benefits outside of the energy sector.
Community and societal benefits
Fossil fuel-based electricity generation is a source of air-based particle pollution, which poses risks to public health through respiratory illness. Energy efficiency can reduce the extent of air-based particle pollution and thus have positive impacts on human health.
128
Energy efficiency improvements can also improve the quality of indoor environments such as homes, office buildings and schools. For example, improving the thermal efficiency of windows can reduce condensation on windows which could otherwise lead to the growth of potentially harmful microorganisms.
This has been shown to reduce rates of communicable respiratory illness, allergies and asthma symptoms, and improved worker performance.
129 The benefits from improved indoor environments could be particularly pronounced in low-income households where occupants disproportionately suffer adverse health impacts as a result of housing conditions characterised by cold, damp, mould and a lack of natural light.
130
In addition to improved individual rates of health, the public health benefits mentioned above could provide broader societal benefits. These include lower health system costs, improved workforce productivity due to reduced work absenteeism and increased school attendance.
131
Environmental benefits
While not quantified through this analysis, various literature suggest that improving energy efficiency can also reduce concentrations of non-greenhouse gas pollutants, such as particulate matter, carbon monoxide, sulphur dioxide and nitrogen oxides which adversely affect the quality of air, waterways and ecosystems.
132
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While not an objective of a national Energy Savings Initiative, an environmental co-benefit is the reduction of domestic greenhouse gas emissions. Therefore, under a capped emissions trading scheme, a national Energy Savings Initiative could reduce the cost of achieving emissions reduction targets and increase the proportion of abatement achieved domestically, thereby reducing the number of carbon permits Australia would need to purchase from international sources.
Economic benefits not included in the cost-benefit analysis results
When an individual or business saves money through an energy efficiency improvement this leads to second round impacts in the economy. For example, such an individual or business may choose to spend some or all of the money saved in other parts of the economy. The beneficial, second round economic impacts associated with this expenditure are not captured in energy market models.
For purely indicative purposes, the modelling calculated the value of energy savings by reference to the retail price of energy at the time of the saving. This measurement provides an indicative estimate of the potential utility which energy consumers may receive as a result of their energy efficiency enhancing activities. The average annual utility value under
Option D1: Core was about $20 per household, for a residential participant adopting an activity in 2015.
6.6.5 Productivity
Part of the proposed policy’s objective is to improve productivity. Productivity impacts are not explicitly reported above. However, the reductions in future investment projected by the modelling represent productivity increases in the energy sector because the same outcome is being achieved with fewer resources. The improvement in productivity is likely to be passed onto the broader economy in the form of increased resources available for investment.
What is productivity?
Productivity is a measure of how efficiently an economy uses resources to produce economic output. Productivity is important because improvements in living standards in the medium to long term depend largely on productivity growth.
133
For end-use energy, productivity is the quantity of services obtained by the end energy user, such as heating, lighting and refrigeration, relative to the energy used to produce them. The benefits of improved end-use energy productivity are typically enjoyed by businesses and households that adopt energy efficiency improvements and use less energy to experience the same level of services, thereby reducing their energy costs, or increase their use of these services without increasing their costs.
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In addition, productivity gains in end-use energy can result in productivity gains in the energy system more broadly. As indicated in the cost-benefit analysis, end-use energy efficiency improvements which reduce demand for electricity during peak periods could diminish the need for future investment in peak generation and network capacity. These benefits are typically shared by all users of the system or network, who experience lower shared infrastructure costs in the long run than otherwise expected due to reduced costs for network infrastructure and lower wholesale energy prices.
Australia’s productivity is lagging, particularly in the utilities sector
Analysis of Australia’s economic performance by the ABS shows that the productivity of the
Australian economy has declined over the past decade, a situation that has been largely masked by strong economic growth led by the resources sector.
134 While Australia’s income has grown at an average rate of 4.1 per cent per annum from 2005 to 2011, 135 multi-factor productivity 136 has declined by 0.7 per cent per annum over the same period.
137
Recent productivity in the energy sector has also been weak, with multi-factor productivity in electricity services declining by an average 2.7 per cent per annum between 1997 and
2010.
138 Productivity in the gas services sector, while stronger than in the electricity sector, has been declining since the mid-2000s.
139
Improving productivity in the energy sector and the wider economy
A Working Paper prepared for the Productivity Commission estimates that 50 per cent of the decline in multi-factor productivity in the electricity services sector between 1997 and 2010 can be attributed to increased demand in peak periods.
140 One way to improve productivity in this area is to smooth out peaks in electricity demand by improving end-use energy efficiency.
141
The Working Group’s analysis shows that a national Energy Savings Initiative could contribute to managing peak electricity demand, resulting in around $800 million of savings from avoided or deferred spending on electricity network requirements over the evaluation period, compared to the hypothetical baseline scenario, which assumed that existing schemes cease to operate. 142
The projected distributional impacts associated with the introduction of a national Energy
Savings Initiative reported above would result in benefits for participants arising from their improvements in end-use energy productivity. Participants would either reduce their ongoing energy costs due to more efficient use of energy in their homes and businesses, or increase the degree of comfort in which they live or work, reduce health-related expenses, or increase production and service delivery without increasing energy costs.
Productivity gains in the energy sector could have flow-on effects in the broader economy.
143
Reducing expenditures on energy consumption would increase the funds available to businesses for reinvestment (with consequent improvements in profitability and competitiveness), and households for discretionary spending (with consequent improvements in living standards).
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6.6.6 Obligated parties
A national Energy Savings Initiative places an obligation to meet an energy savings target on certain parties in the energy supply chain. To minimise the administrative and compliance costs of a scheme, the point of obligation should meet the scheme design principles of efficiency and simplicity. In particular, the selection should result in a manageable number of obligated parties, allow the obligation to be readily calculated and managed, and create an incentive to minimise the costs of the scheme.
An obligation would be placed on electricity and gas retailers. Retailers are best placed to measure and meet obligated targets, have the systems and expertise to manage this obligation, as well as the ability to pass through scheme costs to their customers. Retailers are also the primary obligated parties under the existing jurisdiction-based schemes. Treatment of the following is addressed in Appendix C:
electricity and gas not sold by retailers;
large users; and
obligation thresholds.
The expansion of coverage in Option D2: Total Geographic and Sectoral Coverage to include electricity use in off-grid loads, small grids and large users on other larger grids (such as the
North West Interconnected System) means that additional obligated parties may be required.
For large grids, it is proposed that an obligation be placed on retailers and end-use customers that purchase electricity directly from a supplier. As for major grids, where it is not feasible or efficient to place an obligation on all wholesale customers, the obligation would be placed on the relevant electricity supplier. As with the Renewable Energy Target, liable entities could be determined with reference to ‘notional’ energy wholesalers or generators.
144
For small private grids, it is proposed that electricity suppliers would be an obligated party, where they sell to other users on the grid. The energy use of the supplier itself is expected to be considered ‘self-generation’ and would therefore be excluded from the target base.
6.6.7 Streamlining reporting requirements
To operate effectively, a national Energy Savings Initiative would require information to be reported by obligated parties and certificate creators to the scheme administrator. Should a national Energy Savings Initiative be implemented, it will be important to minimise these reporting obligations. Opportunities to do so include:
obtaining data from existing sources;
minimising requirements for data that cannot be obtained from existing sources; and
using existing reporting processes rather than creating a new process.
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Appendix E discusses how reporting obligations could be minimised for the relevant scheme design variations discussed in Chapter 5.
6.6.8 Risk analysis for Option D
The risk of an energy efficiency gap continuing is substantially reduced through the use of variants of Option D. Compared with other measures analysed in this paper, Option D variants tend to be more responsive and flexible as they would use market-based measures which reduces the potentially inefficient use of resources. Options A and B3 have a similar effect but only in those states with existing white certificate type of schemes.
A key issue for all variants of Option D will be the certificate creators’ ability to earn sufficient remuneration from the value of the “white certificates” to warrant their participation in quality assurance measures (e.g. training and accreditation); and administrative requirements to minimise fraud.
6.6.9 Competition assessment for Option D
A national Energy Savings Initiative could enhance competition as uniform regulation would decrease the complexity and costs of operating across different jurisdiction-based schemes.
If a national scheme was introduced, obligated parties and certificate creators under existing jurisdiction-based schemes may have a short term competitive advantage as they may already have established the processes and systems to comply with a white certificate scheme.
Conversely, energy retailers with no current obligation would need to invest time and resources into establishing these systems.
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7 Implementation
As noted previously, the Australian Government has not made a decision to implement a national Energy Savings Initiative. Furthermore, any decision to proceed would be conditional on the agreement of the Council of Australian Governments (COAG) and the abolition of existing and planned state and territory energy efficiency obligation schemes.
Nonetheless, the Working Group’s Terms of Reference require it to consider possible implementation arrangements for a national Energy Savings Initiative, including arrangements for ensuring a smooth transition from existing state-based schemes.
This section discusses some of the high level considerations that would be important should a national Energy Savings Initiative be implemented. Full implementation arrangements would be determined if the Australian Government decided to pursue a national scheme through
COAG, and would be negotiated with all state and territory governments.
7.1 Considerations for transitioning to a national Energy Savings Initiative
Throughout the 2012 consultation process, stakeholders raised a number of important transition issues should the Australian Government and COAG proceed with a national
Energy Savings Initiative. These include:
the need for clear and early communication on transition arrangements to provide certainty to regulated entities, assist scheme participants to prepare for the transition to a national scheme, and avoid any adverse impacts on existing markets for white certificates;
the treatment of existing state and territory-based credits and certificates under the national scheme (with full fungibility a key preference for some states);
the need for a streamlined process for (re)accreditation of existing certificate creators; and
the treatment of energy saving activities and methodologies recognised under state and territory schemes.
The Australian Government recognises the importance of appropriate transitional arrangements for public and private sector entities that participate in existing sub-national schemes and appreciates the views provided by stakeholders in this regard. As reflected in the
Working Group’s Terms of Reference and referred to above, it would be the Australian
Government’s intention to ensure that any transition to a national scheme is well-orchestrated and smooth. However, it would be pre-emptive to propose specific transitional arrangements at this stage. Rather, these matters would be progressed through the Standing Council on
Energy and Resources and then COAG 145 in the event that the Australian Government decides to pursue a national Energy Savings Initiative.
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7.2 Interactions with existing mechanisms
An important consideration for any implementation of a national Energy Savings Initiative is how it would interact with existing mechanisms. The Working Group’s Terms of Reference require the investigation of a national Energy Savings Initiative to consider complementarity to the Carbon Pricing Mechanism, the Renewable Energy Target (RET) and the wider
Australian energy market development objectives (including effective retail competition; efficient network regulation; and increasing efficient demand-side participation).
146
In addition, the Terms of Reference suggest that the Working Group consider the potential impacts and interactions between a national Energy Savings Initiative and the National
Greenhouse and Energy Reporting (NGER) Scheme, Energy Efficiency Opportunities (EEO)
Program and the Greenhouse and Energy Minimum Standards (GEMS). These are discussed below.
7.2.1 Carbon Pricing Mechanism
The Carbon Pricing Mechanism is the Australian Government’s central policy instrument for achieving Australia’s greenhouse gas abatement goals. Other measures may also be needed to address market failures that are not addressed by the carbon price signal, as noted in the
COAG complementarity principles.
147
The proposed objective of a national Energy Savings Initiative - ‘ to improve Australia’s energy efficiency, in order to help manage energy bills and improve productivity ’ - differs from the objective of the Carbon Pricing Mechanism, which is to achieve Australia’s greenhouse gas abatement goals. The differing objectives reflect that the two policies are designed to target different market failures. As the Carbon Pricing Mechanism sends a price signal, it is not expected to overcome the non-price barriers that affect the market for energy efficiency, meaning that there may still be a sub-optimal use of energy in Australia.
Furthermore, a national Energy Savings Initiative and the Carbon Pricing Mechanism would achieve their respective objectives in different ways. The Carbon Pricing Mechanism increases the relative price of emissions-intensive activities and in doing so makes less emissions-intensive activities relatively more attractive propositions for both suppliers and consumers. A national Energy Savings Initiative would provide additional incentives that encourage consumers to adopt high-efficiency appliances, equipment and processes. This does not undermine the ability for the Carbon Pricing Mechanism to change the relative cost of emissions-intensive activities.
While reducing emissions would not be the objective of a national Energy Savings Initiative,
Australia’s energy supply is carbon-intensive so action that improves energy efficiency will help to reduce greenhouse gas emissions. In particular, the ESI could increase the proportion of abatement that takes place in Australia, reducing our reliance on purchasing abatement from international sources.
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A national Energy Savings Initiative would also have a different target base, obligated parties and eligible activities to the Carbon Pricing Mechanism unless emissions-intensive trade-exposed entities (EITEs) were included. As discussed in Chapter 6, the analysis of a national Energy Savings Initiative indicated that the greatest net benefit could be obtained by including the energy used by EITEs in the target base and allowing EITEs to create certificates by undertaking eligible activities.
Factors the Working Group concluded that a possible national Energy Savings Initiative would be complementary to the Carbon Pricing Mechanism because it has different overall objectives and seeks to address a different set of market failures.
7.2.2 Renewable Energy Target
The RET mandates that at least 20 per cent of Australia’s electricity will come from renewable sources by 2020
The proposed scheme design outlined in this Information Paper requires that any technology currently supported by the RET is not supported under a national Energy Savings Initiative,
148 which removes the potential for overlap with the RET. The Working Group concludes that this approach, combined with the objective for the national Energy Savings Initiative concentrating on consumption of energy rather than production, would complement the RET.
Since the RET and a proposed national Energy Savings Initiative would share some obligated parties (electricity retailers), there may be scope to explore synergies in reporting cycles, administration and certificate trading. These possible synergies are discussed further in
Appendix E.
As mentioned in section 6.2.1, the lower wholesale electricity prices projected under all the scheme design options would place a small upwards pressure on Renewable Energy
Certificate (REC) prices. This is because lower wholesale prices increase the gap that RECs need to bridge between the costs of supplying electricity from fossil fuels and renewable sources. Note that this small projected increase in REC prices under a national Energy
Savings Initiative is even less significant than the small impact also projected under
Option A: No Further Intervention.
7.2.3 Energy markets
Modelling of a national Energy Savings Initiative shows that, while the scheme is focused on the market for energy efficiency technologies, it would also have an impact on Australia’s energy use, and therefore on Australia’s energy markets. This is consistent with analyses of existing jurisdiction-based energy efficiency schemes.
149
The analysis indicated that the primary impact of a national Energy Savings Initiative on energy markets would arise from reduced demand on energy networks and the flow-on effects of this on retail electricity prices. This is discussed further in section 6.2.1.
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It is not anticipated that a national Energy Savings Initiative would adversely affect the operation and regulation of energy markets. In fact, there is evidence that a white certificate scheme could benefit the operation of energy markets where full retail contestability has been introduced, by enhancing retail competition.
150 However, network and retail regulators may choose to take the operation of a national scheme into account when making regulatory determinations. For example, if a national Energy Savings Initiative leads to high levels of high efficiency appliance uptake in a distribution business’ network zone, the impacts of this could be reflected in the future price cap or approved expenditure of that regulated business.
To facilitate this, the reporting mechanism for any national scheme should be designed to enable energy market operators and regulators to integrate scheme data with their analytical processes.
151
A number of reviews on the operation of energy markets in Australia are relevant to this analysis, including the Australian Energy Market Commission’s (AEMC) ‘ Power of choice ’ report.
152 The report contains a number of recommendations that focus on creating energy market conditions necessary to provide consumers greater choice to better manage energy consumption. Given the similarity to the proposed objective for a national Energy Savings
Initiative, the Working Group has engaged closely with the AEMC. Similarly, if a national
Energy Savings Initiative was implemented, its impact on energy demand would be relevant to future energy market reform processes.
Also relevant to this analysis is the Standing Council on Energy and Resources (SCER)
Demand Side Participation Work Plan. The SCER work plan constitutes a package of reforms aimed at improving incentives and prices, informing consumer choice by improving access to information about electricity consumption and options to change, and encouraging the availability of enabling technologies.
153
7.2.4 Other mechanisms
Both the NGER Scheme and EEO Program are reporting-based initiatives. Information reported under the NGER Scheme is about the greenhouse gas emissions, greenhouse gas projects, energy use and production of covered corporations, and is used to inform policy.
Under the EEO Program, reported information focuses on cost effective opportunities to improve energy efficiency in covered businesses (those which consume above half a petajoule of energy annually) and is used to encourage discovery and action on these opportunities by businesses.
Given the nature of the NGER Scheme and EEO Program, possible interactions with a national Energy Savings Initiative would centre on reporting and information gathering. This is discussed in Chapter 6. It is also possible that a national Energy Savings Initiative would provide additional financial incentives for businesses covered by the EEO Program to implement more of the energy efficiency activities identified through EEO reporting than currently. In this context it is worth noting that the EEO Program does not require businesses to implement activities identified through the program.
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GEMS plays an important role in improving energy efficiency in Australia by progressively raising the baseline standard for energy efficiency of covered equipment, and simplifying consumers’ purchasing decisions by removing the lowest performing options from the market.
154 One area in which GEMS could potentially interact with a national Energy Savings
Initiative is regulatory additionality. It would be inappropriate for activities or technologies that are required (as a minimum) under GEMS to receive credit under a national Energy
Savings Initiative. Accordingly, the scheme designs proposed in this Information Paper do not permit this.
155
There could also be opportunities for positive interactions between GEMS and a national
Energy Savings Initiative, particularly for data each scheme would collect on specific activities. For example, information on the technical performance of products gathered under
GEMS could inform decisions on eligible activities under a national Energy Savings
Initiative, including technological additionality requirements.
Information collected under a national Energy Savings Initiative could also provide evidence about the diffusion of energy efficient technologies in the market, helping to inform the ongoing development of minimum standards. Finally, as a national Energy Savings Initiative could drive faster diffusion of energy efficiency technology, GEMS may accelerate at a faster pace than would otherwise be possible.
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8 Consultation
The Australian Government’s commitment to investigate a national Energy Savings Initiative indicated that further work would include consultation with the community, industry and state and territory governments.
156
Chapter 2 outlines the consultation that has occurred prior to the release of this Information
Paper. This current chapter outlines some of the key issues that have been raised in consultations to date and the next steps.
8.1 Key issues raised in consultations to date
A number of issues have been raised in stakeholder consultations, in particular by state and territory government representatives. The Working Group’s short responses to some of these key issues are below.
Officials from jurisdictions with existing energy efficiency schemes highlighted the importance of clearly stating that the modelling of Option A: No Further Intervention does not closely follow the design parameters or activity sets of the existing schemes.
Instead, assumptions were applied which approximate the existing schemes’ current targets and other broad policy settings based on information available when the modelling commenced. All assumptions as to how these schemes were modelled to operate currently and into the future were made by the Working Group, and do not reflect input from the relevant states or territories. Consequently, the results of this analysis are not sufficiently refined to be used for evaluating existing schemes.
Most state and territory governments have indicated the importance of ensuring that a national scheme delivers equitable net benefits across all states and territories.
The modelling and analysis commissioned as part of the Australian
Government’s investigation examines national costs and benefits. It would be appropriate for analysis of sub-national costs and benefits to be commissioned separately, for example by individual state governments, or by COAG should negotiations proceed to this stage.
Participants in existing jurisdiction-based schemes have noted the importance of appropriate arrangements to transition from jurisdiction-based schemes to a national scheme. Critical elements raised include the full fungibility of existing certificates and inclusion of all existing eligible activities.
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As no final decision has been taken to implement a national scheme at this time, it is pre-emptive to determine transitional arrangements. Should a decision be taken to implement a national scheme, it is the Australian
Government’s intention to ensure that appropriate transitional arrangements are agreed with relevant state and territory governments.
The ability for individual states to ‘ring fence’ a minimum amount of energy saving activities to take place within their own jurisdiction’s borders.
From the analysis undertaken to date, no specific impediments have been identified to individual states or territories implementing additional policies for energy efficiency and/or greenhouse gas reduction within their boundaries, including potentially by ‘topping up’ the national target. For example, a state government could introduce its own jurisdictional target within a national scheme, as long as that was at least as ambitious as their fair contribution to the overall national target.
However, as noted in the Progress Report, 157 unlimited trading of certificates between jurisdictions is considered the most cost-effective way to meet a national scheme target. While not dismissing the merits or justifications for ring-fencing a proportion of activities to take place within individual jurisdictions, this approach would likely impose additional transaction and compliance costs and increase administrative complexity.
Recognition that behavioural change could occur as a result of an Energy Savings
Initiative and that this effect should be considered in the analysis.
Option D1: Behaviour Change is included in the analysis and it simulates an increase in consumer confidence in the benefits of investing in energy efficiency improvements brought about by the introduction of the scheme.
This approximates consumers ‘learning by doing’ which results in behaviour change.
8.2 Next steps
Comments from stakeholders on the content of this Information Paper will be welcomed and can be sent to energysavingsinitiative@ret.gov.au. Subsequently, the Australian Government will consider the results of the investigation of a possible Energy Savings Initiative, including any comments received on the Information Paper. Any decision to proceed with the scheme would be conditional on the agreement of the Council of Australian Governments (COAG) and existing and planned jurisdiction-based schemes ceasing.
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Appendix A: How white certificates schemes work
What are white certificate schemes?
A white certificate scheme is an energy efficiency obligation scheme which mandates a required level of energy efficiency improvements across specified sectors of an economy over a particular timeframe. Typically, white certificate schemes follow a ‘baseline and credit’ approach, in which energy use under the scheme is compared against a projected business as usual baseline, which is an estimate of the energy use in the absence of the scheme. Resulting energy savings can therefore be attributed (and rewarded via ‘white certificates’) to the relevant parties in the scheme.
White certificates:
show that a specified amount of energy efficiency improvement has occurred or will occur over a period of time; and
are tradable commodities which are held by the person who implemented, or owns the rights to, the energy savings from an eligible energy efficiency project.
How does a white certificate scheme work?
White certificate schemes generally feature:
a target for energy efficiency improvement;
obligated parties that must meet a specified portion of the total target; and
a measurement and verification scheme that: o defines the activities that can be used to meet the target; o defines the monetary value of these activities in terms of energy efficiency; and o confirms that these activities occurred.
Obligated parties, usually energy retailers, must submit a specified number of certificates to the scheme regulator commensurate with their annual energy saving target. Collectively the targets of all obligated parties equals the overall energy savings target of the scheme.
Typically, an obligated party will meet its target by supporting eligible energy efficiency activities to be implemented by their customers, or by purchasing certificates from another obligated party, from Energy Service Companies (ESCOs) which have undertaken eligible activities, or from a trading market intermediary. Failing to meet a target may result in a penalty. Obligated parties therefore have an incentive to seek out the cheapest way to meet their target. As a result, the most cost-effective energy efficiency improvements are delivered.
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What roles do different participants have in a white certificate scheme?
The Government :
establishes the regulatory framework which applies to the scheme; and
sets the target for energy savings from the scheme.
The scheme regulator :
controls the day to day operation of the scheme;
defines and certifies eligible project activities; and
enforces compliance with the rules of the scheme.
The obligated party (generally an energy retailer) :
is assigned an energy saving target specifying an amount of energy (proportionate to the overall energy use of their customer base) to save within a specified time period, generally a year;
is obligated to meet the target and can achieve this by: o creating certificates directly through eligible activities or initiatives with their customers; or o purchasing them from:
a trading market intermediary; or
ECSOs.
passes the costs of complying with the scheme through to their customers as part of their retail energy bills.
The Energy Services Company (ESCO) :
undertakes energy efficiency activities (typically in households and businesses) which are eligible for creating certificates which can then be sold to obligated parties.
The energy consumer:
(households or businesses) may receive help from ESCOs or their energy retailer to identify and tailor energy efficiency options to their needs;
large energy consuming companies may undertake larger-scale energy savings activities themselves, or with the help of a third party, and on sell the resulting certificates.
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Image A.1: The roles of different organisations in a white certificate scheme
Information Paper
Source: M. Sniffin, The Energy Savings Scheme: An Effective Model for a National Energy Savings Initiative?
Presented at the First
Australian Summer Study on Energy Efficiency and Decentralised Energy. Sydney, Australia, 29 February to 2 March 2012
Example of a national ESI in practice
Energy retailer ‘Power to You’ has an obligation under a national ESI to deliver 100
GWh of energy savings in a year. Power to You decides to contract an ESCO to undertake eligible activities in households and businesses to deliver sufficient white certificates to meet its annual target.
The ESCO then works with households and businesses to install energy efficient equipment. For example, the ESCO supports a household to replace their old refrigerator with a new energy efficient model which qualifies as an eligible activity.
Given the value of the white certificates awarded for the purchase of the energy efficient refrigerator:
the energy efficient product becomes more affordable for the household;
the household will benefit from reduced energy use and therefore costs in the future; and
the ESCO obtains some of their certificates it is contracted to deliver to Power to You.
An incentive is also created for an energy services industry to develop. The industry assists retailers and households where the market does not encourage direct interaction between energy retailers and households.
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Appendix B: Design Features - Option D1: National
Energy Savings Initiative
Treatment of self-generation under a national Energy Savings Initiative
The proposed treatment of electricity that is self-generated 158 considers:
whether the consumption of this self-generated electricity would be included in the target base of a scheme; and
whether consumers that use this electricity would be allowed to create certificates from eligible energy efficiency activities in their home or business.
It is proposed that electricity generated and consumed by the same entity would be excluded from the target base as any efficiency improvement only delivers a private benefit for that entity. Shared benefits would be limited to where energy efficiency improvements reduce the amount of energy that this entity would otherwise import from the network. Any imported electricity (and gas) would be included in the target base, as well as any electricity exported by the self-generator that is consumed by another user.
To maximise potential shared benefits, it is proposed that entities with self-generation units above a certain capacity threshold (see below) would only be able to create certificates from eligible energy efficiency activities to the extent that these entities import energy from a network. For example, if 20 per cent of an entity’s total end-use energy is imported, any certificates it could create from eligible energy efficiency activities would be discounted by
80 per cent. In this way, a consumer would not receive a financial benefit through the scheme from energy efficiency activities that only provide private benefits to the consumer.
It is proposed that a self-generation capacity threshold be set at 5 MW which is the threshold for the registration of a generator under the National Electricity Rules.
159
Entities with self-generation units below this threshold (for example, households with photovoltaic systems, community centres and hospitals) would have no restriction applied to their ability to create certificates through eligible energy efficiency activities in their home or business.
This approach avoids the administrative costs, complexity and disincentives that would be associated with applying ‘proportional certificate creation’ to small self-generation.
160
Installing a self-generation unit (such as co-generation and tri-generation) would generally be an eligible activity for creating certificates under a national Energy Savings Initiative provided that it results in an improvement in energy efficiency. As noted in the Progress
Report, improvements in the efficiency of self-generation would not be an eligible activity where the main objective of the owner is to sell electricity rather than use the electricity themselves.
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Approach to geographic coverage
In determining which geographic areas to include for Option D1, the principles-based analysis set out in the Progress Report has been applied. This involved a qualitative assessment of four key design aspects: the impact of inclusion; shared benefits; equity; and retail contestability. The results are summarised in table B.1.
The Clean Energy Future plan expresses the Australian Government’s commitment to investigate a national ESI that has broad coverage. Consequently, the analysis considers exclusions only where necessary for a scheme to remain fair, equitable and cost-effective.
Energy users in different geographic areas might be excluded from a national Energy Savings
Initiative in two ways. Firstly, their energy use could be excluded from the target base.
Secondly, they could be ineligible to create energy savings certificates.
Table B.1: Approach to geographic coverage in Option D1
Small users A Large users B
Eligible to create certificates?
Included in target base?
Eligible to create certificates?
Included in target base?
Electricity:
NEM & SWIS
Other large grids
(Mt Isa, DKIS, NWIS)
Off-grid & small grids
Gas:
Three major pipeline networks
Other gas
Notes:
A: ‘Small users’ are those that consume less than 160 MWh of electricity or 1 TJ of gas per year. ‘B: note that some large users may be excluded from the central modelling scenario for reasons not related to geographic coverage, the primary example being Energy Intensive Trade Exposed activities..
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Appendix C: Obligated Parties under a National
Energy Savings Initiative
Obligated parties
A national Energy Savings Initiative places an obligation to meet an energy savings target on certain parties in the energy supply chain. To minimise the administrative and compliance costs of a scheme, the point of obligation should meet the scheme design principles of efficiency and simplicity. In particular, the selection should result in a manageable number of obligated parties, allow the obligation to be readily calculated and managed, and create an incentive to minimise the costs of the scheme.
As outlined in the Progress Report, 161 it is proposed that an obligation would be placed on electricity and gas retailers. Retailers have the systems and expertise to manage an obligation, as well as the ability to pass through scheme costs to their customers. Retailers are also the primary obligated parties under the existing jurisdiction-based schemes. If a decision was taken to implement a national Energy Savings Initiative, this would help facilitate a smooth transition from these schemes.
However, not all energy covered by a national Energy Savings Initiative would be sold by retailers. Some energy users purchase energy from a wholesale market or directly from a generator or supplier. Where this energy would be covered by a national Energy Savings
Initiative, an additional obligation point would need to be created to ensure the relevant energy quantities are captured. As outlined in Chapter 5, Option D1 would include the energy use on the two major electricity networks, the three major gas pipeline networks,
162
and of small users on other large electricity grids.
163 All other smaller networks and off-grid use, as well as energy that is self-generated or consumed in EITE activities would be excluded from
Option D1. The following approach is proposed to ensure that all energy intended to be covered by the scheme is allocated to the most suitable obligated parties.
Electricity not sold by retailers
For electricity, it is proposed that an obligation would also be placed on end-use customers
(or ‘wholesale customers’) that purchase electricity directly in the National Electricity Market
(NEM) or the Wholesale Electricity Market (WEM) in Western Australia.
164
These large users would be expected to have the resources and expertise to administer an obligation and are in a good position to manage their energy use in response to an obligation.
165
Only a small number of these customers is registered in the NEM and the number and nature of end-use customers in the WEM is largely unknown because a considerable portion of trading in this market is through bilateral contracts. It is expected that end-use customers that enter into contracts directly with electricity suppliers would be limited to large users. However, where it is not feasible or efficient to place an obligation on all wholesale customers, the obligation would be placed on the relevant electricity supplier.
166
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Should a decision be made to implement a national Energy Savings Initiative, the specific contractual arrangements and the impact on the cost and efficiency of the scheme, as well as on-market customers, would need to be examined in further detail.
Gas not sold by retailers
The vast majority of gas consumed in Australia is not purchased through a gas market, 167 but through private bilateral contracts. In order to capture this gas use (where it is not captured through a gas retailer), it is proposed that an approach be followed that is broadly in line with the approach to liability for emissions from natural gas combustion under the carbon pricing mechanism.
168
Under this approach, an obligation would be placed on ‘large gas consuming facilities’ that purchase gas from a gas supplier (not a retailer).
169 For gas purchased by remaining end-use customers below the threshold for liability, the obligation would be placed on the relevant gas supplier.
Similar to wholesale electricity customers, large gas customers would be expected to have the resources and capability to administer an obligation. They are also best placed to manage the obligation as they would have the option to reduce their own energy use through accredited energy efficiency activities. Placing the obligation on the customer also avoids any constraints in the pass-through of costs that might arise from long-term contracts. In addition, placing an obligation on suppliers to sub-threshold gas users minimises the number of obligated parties.
Large user direct obligation opt-in
Some large users that purchase energy from a retailer, or a supplier who has the obligation, may prefer to take on a direct obligation rather than receive a pass-through cost from their retailer or supplier. This option could be made available where it does not adversely impact on the efficiency, simplicity and administrative costs of the scheme.
The details of the specific mechanisms for efficiently capturing energy in the target base through an obligation would need to be considered further if a decision was made to implement a national Energy Savings Initiative.
Obligation threshold
Consideration was given to the question of whether to apply a threshold to the obligation for retailers. In particular, the analysis looked at whether the expected level of compliance costs under a national Energy Savings Initiative would be disproportionately high for smaller retailers and would therefore adversely affect retailer competition.
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The results of an analysis commissioned by the Working Group 170 indicate that administration costs for retailers associated with scheme compliance 171 are expected to be broadly proportional to their obligation. While there appeared to be evidence of some economies of scale occurring in the deemed savings-based Victorian scheme, the analysis found that the key driver of costs was the number of certificates that a retailer would need to submit to the scheme administrator. Thus, a small retailer with a lower obligation (due to their lower level of energy sales) would incur a proportionately smaller compliance cost.
The analysis also indicates that the administration costs for retailers are not expected to be significant. It estimated that administration costs for retailers under a national scheme would be around $0.14 per gigajoule-denominated certificate. This equates to less than three per cent of the projected certificate price in 2015.
These results indicate that placing an obligation on all retailers would not materially affect the competitiveness of small retailers and thus is not expected to reduce competition in the energy retail market. In particular, the ability to purchase certificates to meet an obligation is expected to minimise compliance costs, particularly for small retailers.
On the basis of this analysis, it is proposed that an obligation be placed on all retailers. The benefits of this approach are that the target base is maximised by including the energy sold by all retailers, and the costs and benefits of the scheme are aligned with customers who are able to participate in the scheme also contributing to scheme costs which are passed through by their retailers. This approach also avoids distortional effects or perverse incentives that could potentially occur around any obligation threshold applied.
This approach aligns with the NSW ESS, which has similar broad coverage to the proposed national scheme. The ACT EEIS also places an obligation on all electricity retailers; however smaller ‘Tier 2’ retailers 172 may meet their obligation by paying a contribution fee rather than by carrying out energy efficiency activities. This is expected to have a similar effect for smaller retailers as the ability to purchase certificates to meet an obligation under a national scheme. The VEET and the SA REES have an obligation threshold of 5000 customers, with the Victorian Government proposing a dual threshold triggered by customer number and electricity and gas acquisitions.
173
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Appendix D: National Energy Savings Initiative
Energy Savings Initiative Working Group – Terms of
Reference
1.
The national Energy Savings Initiative Working Group (‘the ESI Working Group’) will prepare a report for the Minister for Climate Change and Energy Efficiency and the
Minister for Resources and Energy on possible design options for a national Energy
Savings Initiative (ESI, or ‘white certificate scheme’).
2.
In preparing its report, the ESI Working Group will consider and advise upon possible design options for a national ESI that would:
2.1
be economically efficient and environmentally effective;
2.2
complement the carbon pricing mechanism and the Renewable Energy Target (RET), in line with the Council of Australian Governments’ Complementarity Principles
(Attachment A);
2.3
be capable of delivering energy efficiency improvements at least as great as those being delivered by the New South Wales Energy Savings Scheme (ESS), the
Victorian Energy Efficiency Target (VEET) and the South Australian Residential
Energy Efficiency Scheme (REES);
2.4
complement wider Australian energy market development objectives, including effective retail competition; efficient network regulation; and increasing efficient demand-side participation;
2.5
be capable of supporting the deployment of a broad spectrum of technologies; and
2.6
be capable of delivering energy efficiency improvements across all sectors, including the commercial, industrial and residential sectors.
3 The ESI Working Group will also consider and advise upon options for using a national
ESI to create an incentive or requirement to undertake energy efficiency improvements in low income homes, and ways to reduce peak electricity demand.
4 The ESI Working Group will also consider how a national ESI could streamline the delivery of energy efficiency improvements by replacing existing white certificate programs.
5 The ESI Working Group will consider and advise upon possible implementation arrangements for a national ESI, including arrangements for ensuring a smooth transition from existing State-based schemes.
6 In considering possible design options, the ESI Working Group may examine:
6.1
lessons learned from existing State and Territory energy efficiency programs, including the ESS, the VEET and the REES;
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6.2
international energy efficiency programs, trends in energy efficiency policy, and recommendations of foreign and international organisations, such as the
International Energy Agency;
6.3
impacts and interactions between a national ESI and: a.
the Carbon Pricing Mechanism; the RET; b.
c.
the National Electricity Market, South West Interconnected System and other relevant energy markets; and d.
other regulatory obligations including, but not limited to, the National
Greenhouse and Energy Reporting Scheme, the Energy Efficiency
Opportunities program and the Greenhouse and Energy Minimum Standards scheme; and
6.4
the co-benefits of certain energy efficiency improvements, including reductions in non-greenhouse gas air pollution, health benefits, improved energy security, reduced energy costs for households, and infrastructure savings.
7 In considering possible design options, the ESI Working Group must examine the views and ideas of experts, and key stakeholders including representatives of the energy industry, end users, States, Territories, industry, environment and community groups.
8 The ESI Working Group will release one or more Issues Papers in 2011 and, before the end of March 2012, will present its report that updates the Minister for Climate Change and Energy Efficiency and the Minister for Resources and Energy on possible design options that warrant more detailed consideration.
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Appendix E: Reporting requirements for Option D1
Overview
Option D1 would require three categories of data to be reported by obligated parties:
1.
electricity and gas purchases and sales (to calculate the liability of obligated parties);
2.
quantity of electricity and gas consumption that would be exempted from inclusion in the calculation of the scheme target and eligibility for the creation of certificates; 174 and
3.
quantity of certificates to be surrendered to meet their energy saving targets for each compliance period.
Information from certificate creators may also be required for monitoring and verification purposes. The level of detail required would depend on the compliance and risk management models determined as part of any final scheme design. Examples of this data include the:
type and number of eligible activities undertaken to create a certificate;
address at which eligible activities have been carried out; 175
proportion of electricity that a self-generator purchases from the market; and,
methodology used to calculate the number of certificates resulting from each eligible activity.
176
These reporting requirements are common to all scheme design variations of a national
Energy Savings Initiative described in Chapter 5. Only Option D3 would have additional reporting requirements for obligated parties; and Options D3 and D5 may require additional information from certificate creators.
Opportunities for streamlining reporting requirements
Table E.1 lists opportunities for streamlining where data required from obligated parties could be obtained from existing sources. These opportunities would exist for all types of scheme design variations explored through this analysis.
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Table E.1: Reporting streamlining opportunities by obtaining data from existing sources.
Data that would be reported Opportunity for streamlining
Electricity purchased by obligated parties from a wholesale market
Obtain data from electricity market operator 177
Gas purchased by large gas consuming facilities Obtain data from National Greenhouse and
Energy Reporting Scheme (NGERS).
Gas suppliers who supply to end-use consumers, other than large gas consuming facilities
Obtain data from NGERS.
For data requirements unique to a national Energy Savings Initiative, opportunities for streamlining arise through aligning reporting schedules and forms
178
with existing reporting processes. Some examples of these unique data requirements include:
quantity of gas supplied to consumers by gas suppliers that fall under the Carbon
Pricing Mechanism threshold;
number of certificates being surrendered to meet the target for a given compliance period; and
number of certificates to be borrowed and banked.
Opportunities to build on existing reporting processes may be pursued with limited impact on the established system or its participants. For example, there is potential to add data fields specific to a national Energy Savings Initiative to existing reporting forms or websites including the Renewable Energy Target (RET), and/or the Energy Efficiency Opportunities program.
Of note, work is currently underway by the Clean Energy Regulator to develop improved online reporting for the National Greenhouse and Energy Reporting Scheme (NGERS), the
RET and the other administered programs to reduce overall business reporting burden. This work will look at the potential for modularising and standardising reporting across different schemes, including portability of reported information, as well as other forms of harmonised reporting. Using unique identifiers for each business that all programs can refer to would reduce the need for common information to be entered separately for each report. Should a national Energy Savings Initiative be pursued, this may offer substantial opportunities to streamline reporting requirements for business.
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Opportunities for reducing additional reporting requirements
Opportunities to reduce additional reporting requirements from a national Energy Savings
Initiative depend in a large part on its precise final design. However, the general principles of minimising reporting burden persist.
179 In some cases, for example, where information on electricity and gas purchased by obligated parties is required, additional reporting can be minimised by utilising data and information already reported under existing mechanisms and processes. In many cases, however, information required for effective administration of a national Energy Savings Initiative is not already reported: streamlining of the collection of this type of information can best be achieved by building Energy Savings Initiative specific requirements into existing reporting systems.
As indicated above, some additional reporting requirements may fall on certificate creators. A well designed certificate tracking system could minimise duplication of reporting at different points in the certificate creation and surrender cycle. These and other opportunities would be pursued should a decision be taken to implement a national Energy Savings Initiative.
Under Option D4, information about certificates created from activities in low-income households, and the method used to identify the low-income household would be needed (e.g.
Health Care Card numbers). This information could be provided by the certificate creator once they had carried out the activity (or at a specified time/s in the compliance year).
Obligated parties would also be required to report the proportion of surrendered certificates that were created from activities in low-income households against their overall liability. This could be managed simply through a certificate tracking system or similar method that minimised reporting burden.
Detailed list of reporting requirements
Tables E.2 and E.3 provide a detailed list of reporting requirements that are common to all variations of a national Energy Savings Initiative explored through this analysis. They have been identified through analysis of Option D1 but apply equally to each of the sub-options explored in Chapter 5.
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Table E.2: Detailed list of reporting requirements from obligated parties common to all options for an Energy Savings Initiative explored through this analysis.
Data requirement Rationale for collection by scheme administrator (and policy agency, where noted)
Electricity purchased by obligated parties from a wholesale market
Quantity of electricity purchased by obligated parties from unregistered on-grid generators 180
Quantity of electricity sales to off-grid consumers
To calculate the liability of obligated parties
To calculate the liability of obligated parties
Scheme administrator: To calculate the amount of electricity consumption by offgrid consumers to be exempted from the scheme
Policy agency: for periodic reviews of effects of inclusion of off-grid consumers in the scheme
To calculate the liability of obligated parties
Quantity of electricity and gas purchased by a large energy user that purchases their electricity and/or gas from the wholesale market, or directly from an electricity generator or gas supplier
Quantity of gas supplied to customers that consume less than the threshold determined by the scheme administrator 181
Quantity of goods manufactured by EITE activities
To calculate the liability of obligated parties
Number of certificates surrendered
Number of certificates to be borrowed (up to the limit for a given compliance period)
Scheme administrator: To calculate the amount of electricity and gas consumption by EITE companies to be exempted from the scheme
Policy agency: for its periodic reviews of effects of inclusion of EITE companies in the scheme
To calculate whether an obligated party has met their energy savings target for a given compliance period
To calculate whether an obligated party has met their energy savings target for a given compliance period
Number of certificates to be banked (up to the limit for a given compliance period)
To track movement of certificates over multiple compliance periods
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Table E.3: Detailed list of possible reporting requirements from certificate creators common to all options for an Energy Savings Initiative explored through this analysis.
Data requirement Rationale for collection by scheme administrator (and policy agency, where noted)
The type and number of eligible activities undertaken to create certificates
For monitoring and verification purposes
The methodology used to calculate the number of certificates from each eligible activity 182
For monitoring and verification purposes
The address at which eligible activities have been carried out
For monitoring and verification purposes, to minimise the risk that certificates are issued more than once for a given activity at a particular site
The proportion of electricity which a self-generator purchases from the market
For monitoring and verification purposes, to determine the proportion of electricity consumption from which certificates can be created 183
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Appendix F: NERA and SKM results for scheme administration and business transaction costs
The net present values for scheme administration and business transaction costs presented in this Information Paper differ slightly from those reported in the NERA analysis of compliance costs commissioned by the Working Group.
184 The reasons for this are outlined below.
NERA was commissioned by the Working Group to estimate prospective scheme administration and business transaction cost associated with the introduction of a national
ESI, for inclusion in the SKM MMA economic and energy sector modelling exercise.
185
Based on a draft version of the NERA analysis, the SKM MMA analysis incorporated a total additional cost to government and obligated parties of 30c per GJ-denominated certificate, comprising 14c for government (scheme administration costs) and 16c for obligated parties
(business transaction costs).
After the SKM MMA modelling had commenced, NERA revised these estimated costs to
33c/GJ (19c for government and 14c for obligated parties) in the final version of the report.
This 3c/GJ change represents just 0.5 per cent of the average cost of a certificate and, as such, it was not considered to be of sufficient magnitude to justify recommencing the modelling because any impact on the results would be negligible.
However, the change in the distribution of these costs between government and obligated parties resulting from the NERA revision was considered significant enough to include in the impact analysis presented in the Information Paper. This is because the projected distribution of these costs provided by NERA is consistent with assumptions in its study regarding the relative levels of effort required from the scheme administrator to establish and operate the schemes considered and obligated parties to comply with the scheme.
On this basis, it was assumed that the administration of the schemes under all options considered would be consistent with the assumptions made in the NERA study, as would the resulting distribution of these costs between scheme administration and business transaction costs reported by NERA. As a result, the net present values of the total scheme administration and business transaction costs projected by SKM MMA were distributed between scheme administration and business transaction costs by applying percentage shares derived from the results of the NERA study, as follows.
For Option A: No Further Intervention and the lower-level harmonisation Options B1 and B2, this data was sourced from Table E.3, p.89 of the NERA report.
For Options B3: Harmonised Expansion and all Options D: A National ESI, this data was sourced from Table D.3, p.85 of the NER
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Appendix G: Distribution of certificates across the top 15 end uses
Distribution of certificates across sectors and end uses for Option D1
Figures G.1 to G.4 show the projected distribution of certificates across the top 15 end uses for the four different scenarios.
The distribution of certificates by end use was projected to be similar across the four consumer behaviour scenarios, with residential heating receiving the greatest share in all scenarios at 15 to 20 per cent. Commercial heating, ventilation and air-conditioning, commercial lighting, residential lighting, SME boilers also received high proportions of certificates in all scenarios.
The shorter payback thresholds applied in the Pessimistic Consumers scenario led to commercial boilers entering the top 15 end uses, while SME heating and air-conditioning did not receive a large enough share to be reported separately. The longer payback thresholds applied in the Optimistic Consumer and Behaviour Change scenarios saw the categories industrial various end uses, residential refrigeration and commercial boilers enter the top 15, while SME lighting, commercial heating and commercial refrigeration did not receive a large enough share to be reported separately.
Figure G.1: Distribution of certificates across the top 15 end uses for Option D1: Core
Residential heating
Commercial HVAC
Residential lighting
SME boilers
Commercial lighting
SME pumps
Industrial other equip
SME refrigeration
Residential pools/spas
SME appliances and equipment
Commercial building shell
SME heating and air conditioning
SME lighting
Commercial heating
Commercial refrigeration
All other end uses
Source: SKM MMA and Working Group analysis
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Figure G.2: Distribution of certificates across the top 15 end uses for Option D1: Pessimistic
Consumers
Residential heating
Commercial HVAC
Commercial lighting
Residential lighting
Industrial other equip
SME boilers
Commercial building shell
SME refrigeration
Commercial heating
Residential pools/spas
Commercial boilers
SME appliances and equipment
Commercial refrigeration
SME pumps
SME lighting
All other end uses
Source: SKM MMA Working Group analysis
Figure G.3: Distribution of certificates across the top 15 end uses for Option D1: Optimistic
Consumers and Behaviour Change
Residential heating
Commercial HVAC
SME boilers
Residential lighting
SME pumps
Commercial lighting
SME appliances and equipment
Residential pools/spas
SME refrigeration
Commercial building shell
Industrial other equip
SME heating and air conditioning
Industrial various end-uses
Residential refrigeration
Commercial boilers
All other end uses
Source: SKM MMA and Working Group analysis.
Note: The distribution of certificates across end uses is identical in the Optimistic Consumers and Behaviour Change scenarios, because the same payback threshold assumptions were applied to both these scenarios. The different net present value and net energy savings results reported in this Information Paper for these two scenarios are due to the different reference cases against which they are evaluated. For the Optimistic Consumers scenario, the same longer payback thresholds are applied to the reference case, which resulted in greater adoption of energy efficiency improvements in the absence of the scheme than under the central payback assumptions used for the reference case against which the Behaviour Change scenario is evaluated.
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Distribution of certificates across sectors and end uses for Options D1-D4
Figures G.4 to G.7 present the projected distribution of certificates across the top 15 end uses for the four different scheme design options.
The distribution of certificates by end use was projected to be broadly similar across the scheme design options, with some understandable exceptions under Option D2: Total
Geographic and Sectoral Coverage. Under Options D1 and D4, residential heating was projected to receive the greatest share of certificates at around 15 per cent. Commercial heating, ventilation and air-conditioning, commercial lighting, residential lighting and SME boilers completed the top five end uses in both of these scenarios. The only end use projected be included in the top 15 end uses under Option D1 that was not projected to feature in the top 15 under Option D4 was commercial refrigeration, with industrial “various” end uses appearing instead.
Under Option D2: Total Geographic and Sectoral Coverage, residential heating maintained its position as the top end use, but it was projected to receive a smaller share of certificates than under Option D1 at 13 per cent. Commercial heating, ventilation and air-conditioning and residential lighting were also projected to remain in the top five end uses but with reduced shares of certificates at 10 per cent and 7 seven per cent, respectively. These reduced shares in certificates do not necessarily mean that fewer of these activities were projected to be installed, because the absolute number of certificates available under this option is significantly greater than the other options.
The expanded coverage assumed under Option D2 was projected to include four large industrial sector activities included in the top 15 end uses, which were not included under any other options. Industrial other process heating uses and industrial electrolytic processes both feature in the top five end uses with shares of certificates projected at eight per cent and seven per cent, respectively, while industrial boilers and industrial various end-uses feature lower down the scale. The end uses featured in the top 15 under Option D1 but not for this option are SME heating and air conditioning, SME lighting, commercial heating and commercial refrigeration. Again, this does not imply that these fewer activities of these types are installed under this option, just that the certificates projected to be awarded for them comprise a lower proportion of a greater number of certificates available under this option.
Under Option D3: Peak Demand Reduction Incentives, the focus on activities that reduce peak electricity demand was projected to reward the most certificates to commercial heating, ventilation and air-conditioning at 15 per cent. SME boilers, commercial lighting, residential heating and SME pumps completed the top five end uses under this option. While specific end uses were projected to receive different proportions of certificates, exactly the same activities featured in the top 15 as under Option D1: Core Scheme Design.
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Figure G.4: Distribution of certificates across the top 15 end uses for Option D1: Core Scheme
Design, 2015-30.
Source: SKM MMA and Working Group analysis
Figure G.5: Distribution of certificates across the top 15 end uses for Option D2: Total
Geographic and Sectoral Coverage, 2015-30
Source: SKM MMA and Working Group analysis
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Figure G.6: Distribution of certificates across the top 15 end uses for Option D3: Peak Demand
Reduction Incentive, 2015-30
Source: SKM MMA and Working Group analysis
Figure G.7: Distribution of certificates across the top 15 end uses for Option D4: Low-income
Household Focus, 2015-30
Source: SKM MMA and Working Group analysis
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1
Commonwealth of Australia,
Report of the Prime Minister’s Task Group on Energy Efficiency
, 2010, p.25.
2
That is, the marginal benefit of investing in energy efficiency is currently greater than the marginal cost of implementing energy efficiency measures.
3
Commonwealth of Australia,
Report of the Prime Minister’s Task Group on Energy Efficiency,
2010, pp. 25, 32.
4
Australian Government, Clean Energy Future Plan , 2011, p.81.
5
The Australian Government formed a Commonwealth Working Group to oversee detailed policy analysis, economic modelling and consultation to inform a Commonwealth position on whether to pursue a national scheme. The Working Group comprises senior officials from the Department of Resources Energy and Tourism and the Department of Industry, Innovation, Climate Change, Science, Research and
Tertiary Education. In 2011, the Minister for Climate Change and Energy Efficiency and the Minister for Resources Energy and Tourism asked that the Working Group bring together an Advisory Group of organisations able to contribute expertise on a range of issues such as: sectoral and fuel coverage; scheme targets; eligible activities; considerations concerning existing schemes, and impacts on and opportunities for energy efficiency in specific sectors. The Advisory Group consists of peak bodies and non-government organisations and representatives of state and territory governments.
6 SKM MMA, Economic Benefits from a National Energy Savings Initiative , March 2013.
7
The five per cent target returned a greater net benefit than the other targets tested: 4.5 per cent, 5.5 per cent and 7.5 per cent.
8
Unless otherwise stated, all dollar values presented in this report are present values denominated in 2012 dollars, discounted at an annual rate of 7 per cent.
9 These scenarios all applied the same central consumer behaviour assumptions as Option D1: Core Scheme Design described above.
10
The modelling for Option A: No Further Intervention did not closely follow the design parameters or activity sets of the existing jurisdiction-based schemes. Rather, it applied assumptions which approximate the existing schemes’ current targets and other broad policy settings based on information available when the modelling exercise commenced. As a result, the results are not sufficiently refined to evaluate the current or future performance of these existing schemes. Also, Option A assumed that the same period of scheme operation assumed for a national Energy Savings Initiative, 2015-30, and evaluated the benefits over the same evaluation period, 2015-50.
11 Prime Minister’s Task Group on Energy Efficiency,
Report of the Prime Minister’s Task Group on Energy Efficiency,
Canberra, July
2010, p.3.
12 Prime Minister’s Task Group on Energy Efficiency, Report of the Prime Minister’s Task Group on Energy Efficiency, Canberra, July
2010, p.68.
13
Australian Government, Securing a Clean Energy Future – The Australian Government’s climate change plan , Canberra, July 2011, p.82.
14 Following machinery of government changes the responsibility passed to the Department of Industry, Innovation, Climate Change,
Science, Research and Tertiary Education.
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15
Department of Climate Change and Energy Efficiency and Department of Resources, Energy and Tourism, Progress Report – National
Energy Savings Initiative , August 2012 http://www.climatechange.gov.au/en/government/initiatives/energy-savings-initiative/progressreport.aspx
viewed 13 September 2012.
16
The consultancies listed can be accessed from http://www.ret.gov.au/energy/efficiency/savings/Pages/nesi-index.aspx and http://www.climatechange.gov.au/government/initiatives/energy-savings-initiative/reports.aspx.
17
In line with guidance from the Office of Best Practice Regulation, a RIS is only required to support a government decision to implement a proposed policy.
See: http://www.finance.gov.au/obpr/ris/index.html
viewed on 27 September 2012.
18
Australian Energy Market Operator, 2012 Gas Statement of Opportunities for Eastern and South Eastern Australia , Melbourne, 2010.
19
See for example: Australian Government, Report of the Prime Minister’s Task Group on Energy Efficiency , Canberra, July 2010, pp. 25-40, at: http://www.climatechange.gov.au/publications/energy-efficiency/report-prime-ministers-taskforce-energy-efficiency.aspx
;
R Garnaut, The Garnaut Climate Change Review: Final Report , Cambridge University Press, 2008, p. 404; Productivity Commission, The
Private Cost-Effectiveness of Improving Energy Efficiency: Report No. 36, 2005, chapter 4.
20
Commonwealth of Australia,
Report of the Prime Minister’s Task Group on Energy Efficiency,
2010, p.25.
21 International Energy Agency, IEA Scoreboard 2011. Implementing energy efficiency policy: Progress and challenges in IEA member countries , 2011, p. 33.
22
The National Framework for Energy Efficiency (NFEE) aimed to unlock the significant but un-tapped economic potential associated with the increased uptake of energy efficient technologies and processes across the Australian economy. NFEE focuses on demand-side energy efficiency, primarily in the residential, commercial and industrial sectors. It also considers energy use in energy conversion and addresses intermediaries who can influence energy efficiency choices, such as energy retailers, builders, financiers and appliance suppliers. The NFEE ceased on 30 June 2011 but much of its work continues under the National Strategy on Energy Efficiency. http://www.ret.gov.au/documents/mce/energy-eff/nfee/about/default.html
viewed 13 December 2012.
23
Productivity Commission, The Private Cost Effectiveness of Improving Energy Efficiency: Report No. 36 , 2005, p.xxv.
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24
See for example: Australian Government,
Report to the Prime Minister’s Task Group on Energy Efficiency
, Canberra, July 2010, pp. 25-
40, available at: http://www.climatechange.gov.au/publications/energy-efficiency/report-prime-ministers-taskforce-energy-efficiency.aspx
;
International Energy Agency, Mind the Gap: Quantifying principal-agent problems in energy efficiency , 2007, OECD/IEA, Paris, available at: www.iea.org/textbase/nppdf/free/2007/mind_the_gap.pdf
; Productivity Commission, The Private Cost Effectiveness of Improving Energy
Efficiency: Report No. 36 , 2005, chapter 4; M A Brown, Market failures and barriers as a basis for clean energy policies
’ Energy Policy, vol. 29, 2001, pp. 1197-1207; L Lutzenhiser, Social and behavioral aspects of energy use , Annual Review of Energy and the Environment, vol. 18, 1993, pp. 247-289; C F Camerer, G Loewenstein, & M Rabin (eds), Advances in behavioural economics , Princeton University
Press, 2004; International Energy Agency, Energy Efficiency Policy and Carbon Pricing , 2011; and Gadgets and Gigawatts , 2009; M
Croucher, Potential problems and limitations of energy conservation and energy efficiency , Energy Policy, vol. 39, 2011, pp. 5795-5799;
Productivity Commission, The Private Cost Effectiveness of Improving Energy Efficiency: Report No. 36 , 2005; M A Brown, Market failures and barriers as a basis for clean energy policies
’ Energy Policy, vol. 29, 2001, pp. 1197-1207; H Allcott, & S Mullainathan,
Behavior and Energy Policy , Science, vol. 327, 2010, pp. 1204-1205; and L Ryan, S Moarif, E Levina, & R Baron, Energy efficiency policy and carbon pricing , International Energy Agency, Paris, 2011.
25 Productivity Commission, The Private Cost Effectiveness of Improving Energy Efficiency: Report No. 36 , 2005, p.xxvii.
26
Derived from: Australian Government Report of the Prime Minister’s Task Group on Energy Efficiency , Canberra, July 2010; R Garnaut,
The Garnaut Climate Change Review: Final Report, Cambridge University Press , 2008; and Productivity Commission, The Private Cost-
Effectiveness of Improving Energy Efficiency, Report No. 36 , August 2005.
27
KPMG, Brotherhood of St Lawrence and Ecos Corporation, A national energy efficiency program to assist low income households , 2008, p. 21, available at: http://www.bsl.org.au/pdfs/KPMG_national_energy_efficiency_program_low-income_households.pdf
.
28 DCCEE estimates based on the Australian Bureau of Statistics Household Expenditure Survey, 2009-10 – Low Economic Resource
Households (a customised report) 2010.
29
DCCEE analysis based on the Australian Bureau of Statistics Household Expenditure Survey, 2009-10 – Low Economic Resource
Households (a customised report) 2010.
30 Energetics, Energy use and energy efficiency opportunity data for commercial sector and small/medium businesses: Summary of results ,
July 2012, available at: http://www.ret.gov.au/energy/efficiency/savings/nesi_consultant/Pages/index.aspx
31 Energetics, Energy use and energy efficiency opportunity data for commercial sector and small/medium businesses: Summary of results ,
July 2012, available at: http://www.ret.gov.au/energy/efficiency/savings/nesi_consultant/Pages/index.aspx
32
ClimateWorks Australia, Inputs to the Energy Savings Initiative modelling from the Industrial Energy Efficiency Data Analysis Project:
Final report , July 2012, available at: http://www.ret.gov.au/energy/efficiency/savings/nesi_consultant/Pages/index.aspx
33 Average derived from final column of Table 1b of Superannuation Fund-level Rates of Return June 2011 , Australian Prudential
Regulation Authority, 2012; from eight-year per annum rates of return for 161 of the 200 largest superannuation funds. http://www.apra.gov.au/Super/Publications/Documents/2011%20Superannuation%20Fund%20Level%20Rates%20of%20Return.pdf
viewed 26 October 2012.
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34
Advertised interest rate for a 3 month term deposit of $10,000 with NAB, Westpac or ANZ September 2012.
35
Analysis by CommSec for switzer.com.au, 2 December 2010, http://www.switzer.com.au/business-news/news-stories/aussie-companiesfact-and-fiction/ , viewed 10 July 2012.
36
Australian Bureau of Statistics 6416.0 - House Price Indexes: Eight Capital Cities, series A2333590K , 2012, Price Index of Established
Houses; Weighted Average of 8 Capital Cities; annualised return over period from March 2002 to March 2012.
37
Australian Energy Market Commission, Power of Choice review – giving consumers options in the way they use electricity: Final Report ,
2012, p.149. However, Victoria is planning to trial time-of-use retail electricity pricing on an opt in basis in the second half of 2013
(Victorian Government http://www.dpi.vic.gov.au/smart-meters/flexible-pricing).
38
Most residential users do not have the technological capacity to receive fully reflective time varying price tariffs. Recent AEMO data shows that while 85.6% of large customers have metering technology capable of supporting time varying pricing, only 12.3% of small users have a similar capability: Australian Energy Market Commission, Power of Choice - giving consumers options in the way they use electricity: Directions Paper , Australia, 2012, p.56.
39
Refer to http://www.climatechange.gov.au/government/initiatives/nsee.aspx
and http://www.coag.gov.au/sites/default/files/nsee_update_july_2010.pdf
for more information on the NSEE.
40
The E3 Program is a long-running cooperative inter-jurisdictional program. From 1 October 2012, its measures are legislated under the
Commonwealth Greenhouse and Energy Minimum Standards Act 2012 .
41 George Wilkenfeld and Associates Pty Ltd, Prevention is Cheaper than Cure – Avoiding Carbon Emissions through Energy Efficiency.
Projected impacts of the equipment energy efficiency program to 2020 , January 2009, available at: http://www.energyrating.gov.au
. Note that this estimate: does not include the impact of a carbon price on adoption of energy efficiency activities; and does include the phase-out of electric water heaters.
42 Australian Government, Department of Resources, Energy and Tourism, Energy Efficiency Opportunities – Continuing Opportunities
2011. Results of EEO Assessments reported by participating corporations , available at: http://www.ret.gov.au.
43 Australian Government, Securing a clean energy future: The Australian Government’s Climate Change Plan , Canberra, 2011, p57.
44 See CEFC website: http://www.cefcexpertreview.gov.au/content/Content.aspx?doc=thecefc.htm
.
45
See LivingGreener website: http://www.livinggreener.gov.au/ .
46 Australian Government, Securing a clean energy future: The Australian Government’s Climate Change Plan , 2011, available at: http://www.cleanenergyfuture.gov.au/clean-energy-future/our-plan/ .
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47
The Business Advisory Forum (BAF) Taskforce was established by COAG on 13 April 2012 to provide strategic oversight of COAG’s new regulatory and competition reform agenda. This included, working closely with the Select Council on Climate Change, providing advice to COAG on the development of a national approach to assessing the complementarity of existing and future climate change measures with the carbon price mechanism, as well as how to fast track and rationalise policies and programs that are not complementary to a carbon price, or are ineffective, inefficient or impose duplicative reporting requirements on business. Outcomes of reviews undertaken by the Commonwealth, States and Territories of carbon reduction and energy efficiency measures for their complementarity with a carbon price, were provided to COAG in early 2013. In this advice, jurisdictions reported that 5 measures will be, or have been, rationalised and 18 measures will be discontinued, resulting in reduced compliance costs for business, including for the electricity supply sector, which may flow through to electricity prices. COAG Complementarity Principles are available at http://climatechange.gov.au/en/government/initiatives/sccc/~/media/government/initiatives/sccc/COAG-Complementarity-Principles-
20120723.pdf
48
Australian Energy Market Commission, Power of Choice review – giving consumers options in the way they use electricity: Final Report ,
2012.
49 Standing Council on Energy and Resources,
Meeting Communiqué
, Hobart, 14 December 2012.
50
Refer to http://www.premier.vic.gov.au/media-centre/media-releases/2744-nsw-and-victorian-governments-agree-to-work-together-todrive-reform.html
51 Refer to Victorian Energy Efficiency Target Amendment (Further Prescribed Activities) Regulations 2012 .
52
See NSW Government website http://www.ess.nsw.gov.au/News_updates_and_events/Newsletter_-_December_2012
53
NERA Economic Consulting and Oakley Greenwood, Analysis of compliance costs and cost benefit analysis for a national Energy
Savings Initiative – Final Report , August 2012. This study explicitly excluded the costs associated with undertaking energy efficiency activities themselves, focussing instead on administration-related expenses expected to be incurred by scheme participants in order to comply with scheme regulations, such as the costs associated with: setting up IT systems; record keeping; accreditation; auditing; reporting; and certificate registration and surrender.
54 See for example, T Bye and A Bruvoll,
Multiple instruments to change energy behaviour: The emperor’s new clothes?
, Energy
Efficiency 1 (2008) pp. 373-386.
55 See for example: M Costanzo et al, Energy Conservation Behaviour: The difficult path from information to action , American
Psychologist, May 1986, pp. 521-528; S T Anderson and R G Newell, Information programs for technology adoption: the case of energyefficiency audits , Resource and Energy Economics 26 (2004) 27-50, p.48.
56 Australian Government, Securing a clean energy future: The Australian Government’s Climate Change Plan , Canberra, 2011, p57.
57 See sa.gov.au website: http://www.sa.gov.au/subject/Water%2C+energy+and+environment/Energy/Energy+rebates%2C+concessions+and+incentives/Efficient+w ater+heater+rebates+and+incentives/South+Australian+solar+hot+water+rebate , viewed on 23 August 2012.
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58
See CEFC website: http://www.cefcexpertreview.gov.au/content/Content.aspx?doc=thecefc.htm
.
59
See NSW Government Strategic Communications website: http://advertising.nsw.gov.au/campaigns/save-power .
60
NWC Research, Black Balloons campaign evaluation – a research report , Commissioned by the Victorian Department of Sustainability and Environment, 2008.
61
See LivingGreener website: http://www.livinggreener.gov.au/ .
62
Australian Government,
Securing a clean energy future: The Australian Government’s Climate Change Plan
, 2011, available at: http://www.cleanenergyfuture.gov.au/clean-energy-future/our-plan/ .
63 Living Smart website: http://www.livingsmart.org.au/about.htm
.
64
Australian Government,
Report of the Prime Minister’s Task Group on Energy Efficiency
, July 2010, Canberra, p.176.
65
For examples, refer to the
Report of the Prime Minister’s Task Group on Energy Efficiency p75 and the National Energy Savings Initiative
Progress Report figure 1.1
66
This type of scheme is in place in Japan; see Australian Government,
Report of the Prime Minister’s Task Group on Energy Efficiency
,
July 2010, Canberra, p. 185.
67 The obligation applies only to the sale and purchase of electricity and gas that is included in the target base. Where it is not feasible or efficient to place an obligation on wholesale electricity customers, the obligation would be placed on the relevant electricity supplier. The approach to liability in relation to gas consumption would be broadly in line with the approach to liability for emissions from natural gas combustion under the carbon pricing mechanism. ‘Large gas consuming facilities’ that are electricity generators would not have an obligation under any national Energy Savings Initiative. The details of the specific mechanisms for efficiently capturing energy in the target base through an obligation would need to be considered further if a decision was made to implement a national Energy Savings Initiative.
68 In Option D1 all users are covered in the major grids because there are shared benefits. Large off-grid energy users are not covered to prevent undesirable cross-subsidies (for example, Tasmania residential users could otherwise subside activities conducted by WA off-grid industry).
69 The Progress Report notes that the distinction between EITE activities and EITE companies will be considered further through the regulatory impact analysis. For the purposes of the modelling, an activity-level approach was adopted. This is discussed further in Chapter 6.
70
Australian Government, ‘Securing a Clean Energy Future – The Australian Government’s Climate Change Plan’, 2011, http://www.cleanenergyfuture.gov.au/wp-content/uploads/2012/06/CleanEnergyPlan-20120628-3.pdf
viewed on 24 July 2012 p.82.
71 For example energy savings which are beneficial to peak could be worth up to 1.5 times the value of energy savings which are neither beneficial nor detrimental to peak load.
72 Australian Government, ‘Securing a Clean Energy Future – The Australian Government’s Climate Change Plan’, 2011, http://www.cleanenergyfuture.gov.au/wp-content/uploads/2012/06/CleanEnergyPlan-20120628-3.pdf
viewed on 24 July 2012 p.82.
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73
The figure of ten per cent of total energy savings approximates the South Australian Residential Energy Efficiency Scheme (a scheme which does not include industry and commerce) which requires 35 per cent of energy efficiency measures to be implemented in low-income households.
74
The Working Group’s Terms of Reference are available at: http://www.climatechange.gov.au/en/government/initiatives/energy-savingsinitiative/terms-of-reference.aspx.
75
Refer to http://www.climatechange.gov.au/en/government/initiatives/energy-savings-initiative/reports.aspx#R1 for the consultants' reports.
76
SKM MMA, Economic Benefits from a National Energy Savings Initiative , March 2013.
77
Unless otherwise stated, all dollar values presented in this report are present values denominated in 2012 dollars, discounted at an annual rate of 7 per cent. The sensitivity analysis applies alternative annual discount rates of 3 and 10 per cent.
78 These results include energy savings of 211 PJ and $1.270 billion of net benefit that could be attributed to energy efficiency schemes operating in jurisdictions with existing schemes, based on the modelling of Option A: No Further Intervention, which applied assumptions that approximate the existing schemes’ current targets and other broad policy settings based on information available when the modelling exercise commenced.
79
The central set of assumptions is also applied to Option A: No Further Intervention, which applied assumptions that approximate the existing schemes’ current targets and other broad policy settings based on information available when the modelling exercise commenced, and Option B3: Harmonised Expansion, which applied the Option D1: Core Scheme Design assumptions to the four jurisdictions with existing schemes only. These central assumptions assume that consumers are willing to wait a shorter time until an investment in energy efficiency pays back its upfront cost than the Optimistic Consumer scenario and a longer time than the Pessimistic Consumer scenario.
These ‘payback thresholds’ are not affected by the introduction of an Energy Savings Initiative. However, the Behaviour Change scenario assumes that the introduction of a national Energy Savings Initiative increases all consumers’ payback thresholds from that assumed for the
Central scenario to that for the Optimistic Consumer scenario.
80 These results include energy savings of 211 PJ and $1.270 billion of net benefit that could be attributed to energy efficiency schemes operating in jurisdictions with existing schemes, based on the modelling of Option A: No Further Intervention, which applied assumptions that approximate the existing schemes’ current targets and other broad policy settings based on information available when the modelling exercise commenced.
81 This methodology differs to the approaches taken by jurisdictions with existing schemes to estimate the costs and benefits associated with their schemes. In particular, this analysis does not sum the private costs and benefits estimated to accrue to different stakeholders in the energy sector. The Working Group’s methodology considers private costs and benefits, such as losses to electricity generators and lower bills for energy consumers, to be distributional impacts representing wealth transfers between different stakeholders in the energy sector, rather than absolute gains or losses to the economy as a whole. These relative gains and losses within the energy sector are assumed to offset costs and benefits elsewhere as they flow through the economy. For example, lower energy bills would provide consumers with more money to spend on other goods and services, increasing the profits of companies from which these goods and services are purchased, thus offsetting the losses to electricity generators. In recognition of the importance of these distributional impacts as inputs to decision-makers, they are also reported in this Information Paper, where appropriate.
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82
Total benefits are the projected present value of energy savings associated with the certificates awarded for the installation of energy efficiency improvements under the schemes, not the net benefit reported for the schemes, which is the total benefit less the total costs associated with the schemes.
83
NERA Economic Consulting and Oakley Greenwood, Analysis of compliance costs and cost benefit analysis for a national Energy
Savings Initiative – Final Report , December 2012. The report is available at http://www.climatechange.gov.au/en/government/initiatives/energy-savings-initiative/reports.aspx. This study explicitly excluded the costs associated with undertaking energy efficiency activities themselves, focussing instead on scheme administration and business transaction costs incurred by obligated parties in complying with scheme regulations, including both upfront costs to establish compliance systems and ongoing operating costs. Business transaction costs incurred by certificate creators were not included in this analysis due to a lack of available data. However, these costs are included in the estimated costs of undertaking energy efficiency activities incorporated into the broader economic and energy market modelling.
84
Note that the SKM MMA modelling exercise incorporated slightly different values for these costs based on a draft version of the
NERA/Oakley Greenwood analysis, which were revised in the final report. SKM MMA applied costs of $0.14 and $0.16 per certificate for scheme administration and business compliance costs, respectively. Appendix F of this Information Paper explains how the Working Group took this into account when reporting these costs in this Information Paper.
85
These administration costs include costs incurred by the scheme administrator and the relevant government departments.
86 This partial analysis focusses on energy sector impacts; hence the second-order impacts of changes to the energy sector affecting the rest of the economy have not been included in the headline presentation of results. The distributional effects reported in this analysis are assumed to flow through the Australian economy without changing the total resources available. For example, reduced energy bills increase the amount of funds available to consumers to spend on other goods and services. This increases company revenues, which can then employ more workers, who spend the wages they receive on more goods and services, and so forth. These flow-on effects are assumed to continue over time, such that the savings to energy consumers from reduced energy bills effectively offset any revenue losses experienced by companies in the energy sector.
87 The modelling incorporated approximately 1,300 individual energy efficiency improvements, grouped into 65 end use categories.
88
The following section on retail energy price impacts explains why this Information Paper focusses on household electricity price impacts.
89 The ESI is modelled to reduce wholesale electricity market prices compared with a hypothetical business-as-usual. In general, renewable energy projects supported by the RET receive their requisite level of financing based on a) potential returns from selling into the wholesale market and b) on capital raised by RECs. If the potential returns from the wholesale market are reduced, then the capital arising from RECs needs to be increased in order for potential renewable energy generation projects to be realised. This requirement is then reflected in higher
REC prices.
90
Item 2.3 of the Working Groups Terms of Reference reads:
In preparing its report, the ESI Working Group will consider and advise upon possible design options for a national ESI that would: …
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be capable of delivering energy efficiency improvements at least as great as those being delivered by the New South
Wales Energy Savings Scheme (ESS), the Victorian Energy Efficiency Target (VEET) and the South Australian
Residential Energy Efficiency Scheme (REES).
The Working Group interpreted this requirement as also including the ACT Energy Efficiency Improvement Scheme (EEIS), which commenced on 1 January 2013. Appendix D of this Paper lists the Working Group’s Terms of Reference in full.
91
See Section 6.6.1 Economic and energy sector modelling.
92
Further detail in relation to these harmonisation assumptions can be found in: NERA Economic Consulting and Oakley Greenwood,
Analysis of compliance costs and cost benefit analysis for a national Energy Savings Initiative – Final Report , October 2012
93
Further detail in relation to the assumptions underlying the low and high-cost approaches to harmonisation can be found in: NERA
Economic Consulting and Oakley Greenwood, Analysis of compliance costs and cost benefit analysis for a national Energy Savings
Initiative – Final Report , December 2012
94
The modelling for Option A: No Further Intervention did not closely follow the design parameters or activity sets of the existing jurisdiction-based schemes. Rather, it applied assumptions which approximate the existing schemes’ current targets and other broad policy settings based on information available when the modelling exercise commenced. As a result, the results are not sufficiently refined to evaluate the current or future performance of these existing schemes.
95
Further detail in relation to these results for Option B3 can be found in the results reported for ‘Scenario 3: Full harmonisation’ in: NERA
Economic Consulting and Oakley Greenwood, Analysis of compliance costs and cost benefit analysis for a national Energy Savings
Initiative – Final Report , December 2012
96
As noted in Chapter 3, the barriers and market failures inhibiting the uptake of energy efficiency improvements vary depending on the sector, business or household type and size, geographic region and climate, and other characteristics, such as level of household income and type of tenure (leasehold or freehold). To be effective, interventions should be adapted to the particular barriers and failures that exist in each sub sector (see for example: J Schleich and E Gruber, Beyond case studies: Barriers to energy efficiency in commerce and the services sector , Energy Economics 30(2008)449-464, 461; C Egmond, R Jokers, G Kok, One size fits all? Policy instruments should fit segments of target groups , Energy Policy 34(2006) 64564-6474; and MA Brown, Market failures and barriers as a basis for clean energy policies ,
Energy Policy 29 (2001) 1197-1207, 1203).
97 M Transue and FA Felder, Comparison of energy efficiency programs: Rebates and white certificates , Utilities Policy 18 (2010) 130-111.
98 See for example: MA Brown, Market failures and barriers as a basis for clean energy policies , Energy Policy 29 (2001) 1197-1207;
International Energy Agency, Mind the Gap: Quantifying principal-agent problems in energy efficiency , 2005, available at: http://www.iea.org/textbase/nppdf/free/2007/mind_the_gap.pdf
; A Perrels, Market imperfections and economic efficiency of white certificate schemes , Energy Efficiency 1 (2008) 349-371.
99 http://www.lowcarbonaustralia.com.au/media/4871/11.11.15_-_low_carbon_overview.pdf
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100
See, for example, J Daley, T Edis and J Reichl, 2011, Learning the hard way: Australian policies to reduce carbon emissions , Grattan
Institute, Melbourne, for cost-effectiveness of grants and rebates in reducing greenhouse gas emissions.
101
J Daley, T Edis and J Reichl, 2011, Learning the hard way: Australian policies to reduce carbon emissions , Grattan Institute, Melbourne, p. 31.
102
R Garnaut, Garnaut Climate Change Review Update 2011: Australia in the Global Response to Climate Change , 2011, Cambridge
University Press, Melbourne, p.7.
103
Note, however, that from the second half of 2013 Victorian electricity customers will start to be offered a choice between flat tariffs and new flexible pricing (i.e. different rates for electricity at different times of the day). Source: Victorian Government http://www.dpi.vic.gov.au/smart-meters/flexible-pricing.
104
NERA Economic Consulting and Oakley Greenwood, Peak Energy Savings Scheme Design Options , March 2012
105 Australian Energy Market Commission 2012, Power of Choice – giving consumers options in the way they use electricity , 30 November
2012.
106
See for example: M Costanzo et al, Energy Conservation Behaviour: The difficult path from information to action , American
Psychologist, May 1986, pp. 521-528; S T Anderson and R G Newell, Information programs for technology adoption: the case of energyefficiency audits , Resource and Energy Economics 26 (2004) 27-50, p.48; ACT Government, Energy Efficiency Improvement Scheme:
Regulatory Impact Statement , Environment and Sustainable Development Directorate, March 2012, p.23 available at: http://www.environment.act.gov.au/__data/assets/pdf_file/0003/244434/Energy_Efficiency_Improvement_Bill_-
_Regulatory_Impact_Statement_2012.pdf
.
107
NWC Research, Black Balloons campaign evaluation – a research report , Commissioned by the Victorian Department of Sustainability and Environment, 2008.
108 M Costanzo et al, Energy Conservation Behaviour: The difficult path from information to action , American Psychologist, May 1986, pp. 521-528, 524.
109 M Costanzo et al, Energy Conservation Behaviour: The difficult path from information to action , American Psychologist, May 1986, pp. 521-528, 524.
110
M Costanzo et al, Energy Conservation Behaviour: The difficult path from information to action , American Psychologist, May 1986, pp. 521-528, 523; Victorian Government Department of Primary Industries, Proposed Victorian Energy Efficiency Target Regulations:
Regulatory Impact Statement , September 2008.
111
Refer to the hardship policy for Energy Australia and http://www.energyaustralia.com.au/residential/account-tools/billspayments/hardship-policy . Under the SA Residential Energy Efficiency Scheme (REES), 35 per cent of all audits and activities must focus on low-income households. The ACT Energy Efficiency Improvement Scheme (EEIS) includes a ‘priority household’ target, for low income households of 25 per cent of household audits.
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112
Refer to http://www.energyrating.gov.au/legislation-for-e3-under-gems/ for GEMS determinations for the types of goods covered by
GEMS. The individual Regulatory Impact Statements available at the same website give an indication of the proportion of locally manufactured goods to imported goods.
113
Refer to http://ris.finance.gov.au/2011/11/08/increases-in-minimum-energy-performance-standards-for-air-conditioners-ministerialcouncil-on-energy/
114
Consultation RIS: MEPS and Alternative Strategies for Set-Top Boxes (2007) p. A-35 http://www.energyrating.gov.au/wp-content/uploads/Energy_Rating_Documents/Library/Home_Entertainment/Set_Top_Boxes/200711-risstbs.pdf
115
ABS, Output of the Construction Industries (Price Index of) http://www.abs.gov.au/AUSSTATS/abs@.nsf/DSSbyCollectionid/63B1F55C25621179CA256ED200796D3E
116 Government would still need to decide the rules for making, measuring and verifying energy efficiency improvements, but in a welldesigned scheme, these would be technology-neutral and transparent.
117
See for example: Australian Government,
Report of the Prime Minister’s Task Group on Energy Efficiency
, July 2010, Canberra, p.53; p.
Bertoldi and Silvia Rezessy, Tradeable white certificate schemes: Fundamental concepts , Energy Efficiency, 1 (2008) 254; A Perrels,
Market imperfections and economic efficiency of white certificate systems , Energy Efficiency 1 (2008) 349-371; and A B Jaffe, R G Newell and R N Stavins, ‘Technology policy for energy and the environment’, in AB Jaffe, J Lerner and S Stern (eds),
Innovation Policy and the
Economy , 2004, Washington DC;
118 Australian Government,
Report of the Prime Minister’s Task Group on Energy Efficiency
, July 2010, Canberra,
119
These assumptions and the rationale behind them were presented in Australian Government, National Energy Savings Initiative Progress
Report , August 2012. A detailed description of the assumptions applied can be found in SKM MMA, Economic Benefits from a National
Energy Savings Initiative , March 2013.
120
The consultants’ reports contributing to the analysis are available at http://www.climatechange.gov.au/en/government/initiatives/energysavings-initiative/reports.aspx#R1
121 Two peak demand reduction options were considered in the modelling exercise. This analysis focusses on the modelling results for the option estimated to have the greatest net present value. The other option awarded 400 per cent of the number of certificates compared to
Option D1 for energy efficiency improvements expected to reduce peak demand, and 25 per cent for energy efficiency improvements not expected to reduce peak demand.
122
Australian Government, Best Practice Regulation Handbook , 2010, p.66.
123 Note: the results presented for the different consumer behaviour scenarios and the scheme design options are not directly comparable with each other. However, it would be reasonable to expect that the different consumer behaviour assumptions will have similar proportional impacts on the scheme design options as they were projected to have on Option D1: Core Scheme.
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124
The modelling exercise includes a mechanism whereby activities cease to be eligible for reward under a scheme once they reach a certain market penetration rate. This was designed to reflect that a regulator would update scheme rules over time as certain energy efficiency activities had are recognised as being ‘business as usual’ and no longer requiring scheme assistance to achieve market penetration.
125
NERA Economic Consulting & Oakley Greenwood, Analysis of Compliance Costs for a national Energy Savings Initiative- Final Report for the Department of Climate Change and Energy Efficiency , November 2012, Table 5.9, p. 45.
126
For the purposes of comparison, all scheme design options considered applied the same central consumer behaviour assumptions as
Option D1: Core Scheme Design.
127
While the percentage energy savings target was the same for all scheme design options, the greater energy consumption covered by
Option D2: Total Geographic and Sectoral Coverage led to a significant increase in the absolute amount of energy savings required to meet the target.
128 United States Environmental Protection Agency, ‘ Assessing the Multiple Benefits of Clean Energy: A Resource For States
’, 2011, p. 95.
129
William J. Fisk, ‘Health and productivity gains from better indoor environments and their relationship with building energy efficiency’,
Annual Review of Energy and the Environment , Vol. 25, 2000.
130 C Elliott and E Stratford, Energy efficiency measures in low income housing: Sub-project 1: Literature review , University of Tasmania,
March 2009.
131
Australian Government, ‘
Report of the Prime Minister’s Task Group on Energy Efficiency ’, 2010, p. 19.
132 See for example, L Ryan and N Campbell, Spreading the net: The multiple benefits of energy efficiency improvements, International
Energy Agency, 2012; Synapse Energy Economics, ‘Electricity Energy Efficiency Benefits of RGGI Proceeds: An Initial Analysis’, 2010, p. 4, accessed on 18 September 2012 at http://www.synapse-energy.com/Downloads/SynapseReport.2010-10.RAP.EE-Benefits-of-RGGI-
Proceeds.10-027.pdf
.
133 McKinsey Global Institute,
Beyond the boom: Australia’s productivity imperative , August 2012; S Eslake, ‘Productivity: The Lost
Decade’, in H Gerard and J Kearns (eds), The Australian Economy in the 2000s , 2011, Proceedings of a Conference, Reserve Bank of
Australia, Sydney, pp. 223-254.
134 See for example, Global Institute,
Beyond the boom: Australia’s productivity imperative , August 2012; and S Eslake, ‘Productivity: The
Lost Decade’, in H Gerard and J Kearns (eds), The Australian Economy in the 2000s , 2011, Proceedings of a Conference, Reserve Bank of
Australia, Sydney, pp. 223-254.
135 This figure is a reference to Gross Domestic Income, which is equivalent to Gross Domestic Product adjusted for terms of trade.
136
‘Multi-factor productivity’ is a measurement used by the ABS to assess productivity across all sectors of the economy. Multi-factor productivity incorporates an assessment of both labour productivity (output per hours worked) and capital productivity (output per dollars invested).
137
McKinsey Global Institute, Beyond the boom: Australia’s productivity imperative , August 2012, p.9, based on ABS statistics.
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138
V Topp and T Kulys, Productivity in Electricity, Gas and Water: Measurement and Interpretation , Productivity Commission Staff
Working Paper, March 2012, Canberra, p.20.
139
V Topp and T Kulys, Productivity in Electricity, Gas and Water: Measurement and Interpretation , Productivity Commission Staff
Working Paper, March 2012, Canberra, p.120. The authors note that productivity estimates for the gas sector are based on limited data and should be treated with caution.
140
V Topp and T Kulys, Productivity in Electricity, Gas and Water: Measurement and Interpretation , Productivity Commission Staff
Working Paper, March 2012, Canberra, p.XX.
141
V Topp and T Kulys, Productivity in Electricity, Gas and Water: Measurement and Interpretation , Productivity Commission Staff
Working Paper, March 2012, Canberra, p.XIV.
142
In comparison, the analysis of Option A: No Further Intervention indicated that, in the absence of a national Energy Savings Initiative, the operation of schemes in jurisdictions with existing schemes with targets consistent with those in effect for those schemes when the modelling exercise commenced could result in savings of around $650 million due to reduced investment in electricity networks over the evaluation period compared to the hypothetical baseline scenario, which assumes that jurisdiction-based schemes cease to operate.
143 Commonwealth Department of Resources, Energy and Tourism, Energy White Paper 2012: Australia’s energy transformation , 2012.
144
Renewable Energy (Electricity) Act 2000 (Cth), Part 3.
145
The Australian Government has identified that COAG’s Standing Council on Energy and Resources would be the appropriate body to progress the development of a possible national Energy Savings Initiative.
146 Energy Savings Initiative Working Group Terms of Reference: www.climatechange.gov.au/government/initiatives/energy-savingsinitiative/terms-of-reference.aspx
147 Council of Australian Governments, Complementarity Principles for Climate Change Mitigation Measures , 2008, available at: www.coag.gov.au/node/244 .
148
This does not preclude technologies currently supported by the RET being transferred to a national Energy Savings Initiative, should one be implemented.
149 Australian Energy Market Commission, Power of choice – giving consumers options in the way they use electricity: Draft Report, 2012, p.166-67.
150 See for example the comments of Mark Collette (Group Executive Manager Energy Markets, TRUenergy) at the Grattan Institute and
Melbourne Energy Institute’s
The Future of Electricity Demand in Australia (Seminar) , Melbourne, 22 August 2012, available at: http://grattan.edu.au/events/event/melbourne-the-future-of-electricity-demand-in-australia/ .
151 Australian Energy Market Commission, Power of choice – giving consumers options in the way they use electricity:, Draft Report , 2012, p.169.
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152
Australian Energy Market Commission, ‘ Power of choice – giving consumers options in the way they use electricity: Directions Paper
’,
2012.
153
Refer to http://www.scer.gov.au/workstreams/energy-market-reform/demand-side-participation/ for more details.
154
J Daley, T Edis and J Reichl, 2001, Learning the hard way: Australian policies to reduce carbon emissions , Grattan Institute, Melbourne, p. 37.
155
A detailed discussion of additionality is contained in the Energy Savings Initiative Progress Report (Section 8.1), which is available at: www.ret.gov.au/energy/efficiency/savings/nesi-progress/Pages/index.aspx.
156 Australian Government, Securing a Clean Energy Future: The Australian Government’s Climate Change Plan , July 2011, p.126.
157
Australian Government, National Energy Savings Initiative Progress Report , August 2012, p.42.
158
Self-generation is defined as electricity that an entity produces (generally on-site) for its own consumption. The entity may sell any surplus electricity it generates to the market or, when it does not produce sufficient electricity for its own needs, may purchase the balance from the market. Electricity may be self-generated in a number of ways, including by a rooftop solar photovoltaic system, a diesel generator, a co-generation or tri-generation plant or a gas-fired electricity generator. Electricity that is produced by generators for the primary purpose of selling it to the market is not considered to be self-generation.
159
The Australian Energy Market Operator provides a standing exemption from registration for generating systems with a combined nameplate rating of less than 5 MW in accordance with its guidelines, under provisions in the National Electricity Rules; Australian Energy
Market Operator, NEM Generator Registration Guide , December 2010, p.1.
160 It is recognised that, given the range of self-generation arrangements that exist, there may be impacts from the exclusion of selfgeneration, as well as from the proposed capacity threshold, that have not been considered. These issues would be explored further, and eligibility criteria would be determined should a decision be taken to implement a national Energy Savings Initiative.
161 Australian Government, Progress Report – National Energy Savings Initiative , August 2012, pp. 68-71.
162 The electricity networks are the National Electricity Market (NEM) and the South West Interconnected System (SWIS), and the major gas pipeline networks in southern and eastern Australia, Western Australia and the Northern Territory.
163
The target base for Option D1 also includes the electricity consumption of ‘small users’ on other large grids (Mount Isa, Darwin-
Katherine Interconnected System and the North West Interconnected System), where ‘small users’ are defined as those that consume less than 160 MWh of electricity or 1 TJ of gas per year.
164 In the National Electricity Market (NEM), users who purchase electricity directly from the NEM are registered as Market Customers. In the Wholesale Electricity Market (WEM) in Western Australia, which is operated by the Independent Market Operator (IMO), electricity is traded through bilateral contracts, the Short Term Energy Market (STEM) or the Balancing Market. Wholesale customers in the WEM may purchase electricity directly from a supplier through a bilateral contract or they may purchase it through the trading market.
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165
In the NSW ESS, liable entities include electricity customers who have registered as Market Customers with AEMO under the National
Electricity Rules . Refer Electricity Supply Act 1995 , section 101.
166 In order to capture the energy use of small users on the Mount Isa grid, for example, an obligation could be placed on the electricity supplier on this grid. In addition, in the NSW ESS, liable entities include some specified ‘direct suppliers of electricity’ to cover electricity sold under bulk supply contracts that were entered into prior to current licensing arrangements being established. These types of contractual arrangements would also need to be considered further. Refer Electricity Supply Act 1995 , section 179 and Electricity Supply (General)
Regulation 2001 , section 78B.
167
These wholesale gas markets are the Victorian Declared Wholesale Gas Market (DWGM) and the Short Term Trading Market that are operated by the Australian Energy Market Operator (AEMO), and the Western Australian Gas Retail Market that is operated by the Retail
Energy Market Company (REMCo).
168 Under the carbon pricing mechanism, liability for emissions from natural gas is placed on large gas consuming facilities, with natural gas suppliers being responsible for the remaining emissions from natural gas used by other end-use customers. A ‘large gas consuming facility’ is a facility with annual emissions from natural gas of at least 25,000 tonne of CO
2
-e. To facilitate the management of these liabilities (and exemptions), an Obligation Transfer Number (OTN) system is used. In some circumstances, there is flexibility for medium-sized gas users to quote an OTN and assume liability for their natural gas emissions, instead of their supplier. Refer Clean Energy Bill 2011 Explanatory
Memorandum, pp.77-99.
169
Large gas consuming facilities that are electricity generators would not have an obligation as the electricity they generate would be captured in the target base as electricity consumption.
170
NERA Economic Consulting & Oakley Greenwood, Analysis of Compliance Costs for a national Energy Savings Initiative- Final Report for the Department of Climate Change and Energy Efficiency , November 2012.
171 For the purposes of this study, the compliance costs for retailers were considered to include establishment and on-going costs in relation to the administration of their obligations under a scheme, and exclude the costs of undertaking energy efficiency activities.
172
Under the ACT EEIS, ‘Tier 2’ retailers (with less than 5,000 customers or annual sales of less than 500,000 MWh) may participate in the scheme or discharge their obligation through the payment of an Energy Savings Contribution fee equal to the estimated marginal cost of participation of the Tier 1 retailer (ActewAGL). Refer Energy Efficiency (Cost of Living) Improvement Act 2012 and Environment and
Sustainable Development Directorate, Energy Efficiency Improvement Scheme - Regulatory Impact Statement , March 2012.
173 The Victorian Government's discussion paper considers the option to remove the threshold and notes that, with the ongoing expansion of the VEET to the non-residential sector and the examination of opportunities to harmonise with the NSW ESS, a deeper review of the scheme design might evaluate the desirability of removing the threshold; that this would promote alignment between the expanded scope of consumers eligible to participate and the retailers who supply their energy. However, the significant delay in carrying out a detailed analysis of the option was noted, and the need to provide a timely response to the issues raised by stakeholders. Refer Department of Primary
Industries, Victorian Energy Efficiency Target – Definition of Relevant Entities Discussion Paper , June 2012.
174
Under option D1 exemptions would be applied to electricity and gas consumed off-grid and by EITEs companies.
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175
Any personal information acquired through the operation of a national Energy Savings Initiative would be handled and stored in a way consistent with best practice privacy controls and protections. This would include any access to private data. While some sensitive information, such as the location of certificates created, may be required to assist with scheme monitoring and verification, protection of individual privacy would be a paramount consideration to the management of this information.
176
This need not be a substantial reporting burden as it could be simply reported in a number of ways, such as through selecting a preapproved methodology from a drop-down menu in an electronic form. Clever design of reporting templates will be important to ensure minimum reporting burden for scheme participants.
177
For obligated parties in the National Electricity Market, this may require amending section 54(c) Disclosure required or permitted by law etc.
of the National Electricity (South Australia) Act 1996 to add a national Energy Savings Initiative scheme administrator to the list of agencies to which disclosure of protected information by AEMO is authorised. Similarly, for obligated parties in the South West Integrated
System, this may require amending Chapter 10 Market Information , sub-section 10.2 Information Confidentiality Status of the Independent
Market Operator Market Rules to ensure that the legislation establishing a national Energy Savings Initiative complies with its requirements for releasing data to the scheme administrator. This streamlining opportunity would not exist in the Northern Territory as there is no electricity market operator (Northern Territory Utilities Commission, Power System Review 2010-11 , 2012, p10).
178
Including electronic forms and interfaces.
179
An example of a design feature is how often, and on what dates, obligated parties would surrender certificates to the scheme administrator. For example, if the scheme compliance period was a financial year, streamlining opportunities would exist for those electricity retailers that had obligations under both the Renewable Energy Target (RET) and a possible national Energy Savings Initiative, for the scheme administrator to: obtain data on electricity sales from the RET; and use the existing information technology infrastructure of the RET to streamline reporting processes.
180 The Australian Energy Market Operator provides a standing exemption from registration for generating systems with a combined nameplate rating of less than 5 MW in accordance with its guidelines, under provisions in the National Electricity Rules; Australian Energy
Market Operator, NEM Generator Registration Guide , December 2010, p.1.
181 Note that a threshold for energy use to be included in the target base of a possible national Energy Savings Initiative is being investigated as part of this analysis process. This information would only be required from gas suppliers (as opposed to gas retailers) should a threshold be applied.
182 This may simply be a requirement to select from a pre-determined menu of methodologies, approved by the scheme administrator.
183
Refer to discussion of the treatment of self-generators in Chapter 5.
184 NERA Economic Consulting and Oakley Greenwood, Analysis of compliance costs and cost benefit analysis for a national Energy
Savings Initiative – Final Report , December 2012
185 SKM MMA, Economic Benefits from a National Energy Savings Initiative , March 2013
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