Mr Liam Ryan Energy Savings Scheme Review 2015 Department of Trade and Investment GPO Box 7060 SYDNEY NSW 2001

Transcription

1 Mr Liam Ryan Energy Savings Scheme Review 2015 Department f Trade and Investment GPO Bx 7060 SYDNEY NSW 2001 Via energysavings.scheme@trade.nsw.gv.au 22 May 2015 Re: Energy Efficiency Cuncil - ESS Review 2015 Dear Mr Ryan, The Energy Efficiency Cuncil ( the Cuncil ) welcmes the pprtunity t prvide input n the Review f the NSW Energy Savings Scheme Part 1: Draft Statutry Review Reprt ( ESS Statutry Reprt ) and the Review f the NSW Energy Savings Scheme Part 2: Optins Paper ( Optins Paper ). The Cuncil is the peak bdy fr energy efficiency in Australia, and brings tgether ur natin s tp experts in this area t supprt the develpment f sensible, stable and ecnmically prudent energy efficiency plicy and prgrams. The attached submissin sets ut ur views in detail. In summary, the Cuncil: Supprts the Energy Savings Scheme (the ESS) as an imprtant mechanism t address a cmbinatin f distrtins in energy markets and barriers t investment in energy efficiency. Crrecting these distrtins results in a mre cst-effective balance f supply-side and demandside investments, lwering csts fr energy cnsumers. Recmmends that the Gvernment adjust its mdelling, and estimate additinal targets f up t 24 per cent, fr three reasns: The prpsed NSW target f 8 per cent is arund 40 per cent smaller than the current Victrian Energy Efficiency Target (VEET) n a per capita basis. New mdelling by the Victrian Gvernment fund that the VEET shuld be raised even further t deliver the greatest net benefits, which suggests that an ptimum NSW target wuld be in this range. While we endrse the apprach f separately mdelling the size f the target, the length f the target and inclusin f gas t identify key parameters, this will underestimate the benefits f a higher target. We recmmend that mdelling team estimate the best target fr a scheme that runs t 2025 and includes gas. Sensitivity mdelling needs t be carried ut n all externalists. In particular, the mdelling underestimates energy market benefits caused by the current transfrmatin f the energy sectr, substantially under-estimates the value f carbn mitigatin, whether that value is set as a scial cst f carbn r a likely future carbn price and health impact csts are at the lwest range f internatinal estimates. Recmmends that the ESS include prjects that use waste heat t ffset electricity r gas use, irrespective f whether the waste heat is used directly r cnverted int electricity. Utilisatin f waste heat in industry is an imprtant targeted slutin t reduce grid energy cnsumptin, particularly in the industrial sectr. Including savings frm electricity generated by waste heat in the ESS will nt lead t any duplicatin with the Renewable Energy Target. Energy Efficiency Cuncil Inc. Suite 2, 490 Spencer Street, West Melburne VIC 3003 ABN

2 Recmmends raising the reginal netwrk factr t 1.1. The prpsed reginal netwrk factr f 1.03 fr activities undertaken frm the 2016 cmpliance year nwards des nt reflect the csts f undertaking prjects in reginal areas. Additinally, the limitatin f the reginal netwrk factr t the Essential Energy distributin netwrk area shuld be remved. Recmmends a much mre pr-active apprach t peak demand management by setting minimum required levels f investment fr Distributin Netwrk Service Prviders t invest in lcalised demand-side prjects that ffset the need fr mre expensive netwrk augmentatin prjects. Supprts the increase in registratin fees, applicatin fees and prduct registratin fees, as lng as these increases in fees are accmpanied by a substantial imprvement in service. Hwever, we ppse the intrductin f the $1,000 investigatin fee t assess nvel r highly cmplex applicatins that require additinal assessment effrt. These investigatin fees wuld be a barrier t the develpment f diverse and innvative prjects under the ESS. Strngly recmmends harmnisatin f the ESS with energy efficiency schemes in Victria, Suth Australia and the ACT. The ESS is currently the best-designed scheme in the cuntry, and we are encuraging ther states t adpt many features frm the ESS, including the use f Measurement and Verificatin methdlgies. Hwever, there are a number f administrative features frm ther jurisdictins that are significantly mre efficient. The Cuncil s highest pririty fr harmnisatin is in the registratin f prducts, which will significantly reduce timelines and csts and lwer the cst f the ESS. Ideally, we recmmend that NSW and Victria wuld set up an independent expert-based rganisatin that registers prducts fr bth schemes but at minimum mutual recgnitin shuld be seriusly cnsidered as it wuld substantially reduce the administrative burden. The Cuncil lks frward t wrking clsely with the NSW Gvernment in enhancing and expanding the ESS. If yu require any further infrmatin please cntact Shauna Cffey, Manager, Plicy and Advcacy at shauna.cffey@eec.rg.au r Yurs sincerely Luke Menzel Chief Executive Officer Energy Efficiency Cuncil Energy Efficiency Cuncil Inc. Suite 2, 490 Spencer Street, West Melburne VIC 3003 ABN

3 REVIEW OF THE NSW ENERGY SAVINGS SCHEME - SUBMISSION FORM Name f submitter Is this a cnfidential submissin? Energy Efficiency Cuncil N Please set ut yur respnses against the sectins f interest, referring t sectins by number where pssible. Submissins shuld be sent t: energysavings.scheme@trade.nsw.gv.au. The final date fr submissins is 5:00pm n Mnday 18 May Part 1: Draft Statutry Review Reprt Objective 1 - t create a financial incentive t reduce the cnsumptin f electricity by encuraging energy saving activities Is there any ther evidence that shuld be cnsidered that wuld indicate whether r nt this bjective is being met and remains valid? In an ideal market, energy users wuld ptimise their investments in energy services by balancing investment in energy (supply-side) and appliances (demand-side). Hwever, market failures that interact with distrtins in the energy market result in ver-investment in supply and under-investment in the demand-side. The Energy Savings Scheme (the ESS) is a key mechanism t address a number f barriers t ptimal investment in demand-side services and prducts by: Enabling third-parties t help cnsumers undertake crdinated demand-side activities at scale, addressing a cmbinatin f infrmatin failures and biases in energy markets; Creating an incentive fr third-parties t find ways t vercme well-knwn market failures that prevent the take up f privately cst-effective energy efficiency; Creating a vital incentive that addresses rganisatinal failures and skill gaps in energy users, supprting the take-up f scially cst-effective energy efficiency; and Overcming a range f intersecting market failures t enable market transfrmatin in the supply f energy efficiency gds and services. The Draft Statutry Review Reprt cntains ample evidence that the ESS is creating a financial incentive t reduce the cnsumptin f electricity by encuraging energy saving activities and that this gal is still valid. 1

4 Objective 2(a) - t assist husehlds and businesses t reduce electricity cnsumptin and electricity csts Is there any ther evidence that shuld be cnsidered that wuld indicate whether r nt this bjective is being met and remains valid? The Draft Statutry Review Reprt cntains ample evidence that the ESS is assisting husehlds and businesses t reduce electricity cnsumptin and csts and that this gal is still valid. Objective 2(b) - t cmplement any natinal scheme fr carbn pllutin reductin by making the reductin f greenhuse gas emissins achievable at a lwer cst Objective 2(c) - t reduce the cst f, and the need fr, additinal energy generatin, transmissin and distributin infrastructure Is there any ther evidence that shuld be cnsidered that wuld indicate whether r nt this bjective is being met and remains valid? Is there any ther evidence that shuld be cnsidered that wuld indicate whether r nt this bjective is being met and remains valid? The Draft Statutry Review Reprt cntains ample evidence that the ESS is cmplementary t the ERF, is lwering the cst f emissins reductin and that this gal is still valid. The Draft Statutry Review Reprt cntains ample evidence that the ESS is helping t reduce expenditure n netwrk infrastructure, and this gal remains valid. It is ntable that expenditure n netwrk infrastructure was the main factr driving up energy prices in the perid

5 Part 2: Optins Paper Sectin 2.2: Targets n the preferred ptin t increase targets frm 5 per cent t 6.5 per cent frm 2016 nwards, t maximise the net ecnmic benefit f the ESS. The Cuncil supprts setting targets at the pint at which they deliver maximum net ecnmic benefit t the NSW ecnmy. The Cuncil des nt supprt a target that is t lw, as it wuld drive a subptimal number f energy efficiency measures. By the same tken, a target that is t high shuld be avided, as it wuld result in higher certificate prices. While we supprt the verall apprach f the NSW gvernment n mdelling the target, we believe the mdelling underestimated the level f the target that delivers maximum net ecnmic benefit. We believe the maximum net benefit wuld be delivered by a target in the regin f 8 t 15 per cent (including gas), because: The prpsed NSW target f 8 per cent is arund 40 per cent smaller than the current Victrian Energy Efficiency Target (VEET) n a per capita basis. New mdelling by the Victrian Gvernment fund that the VEET shuld be raised even further t deliver the greatest net benefits, which suggests that an ptimum NSW target wuld be in this range. Separately mdelling the size f the target, length f the target and inclusin f gas will have underestimated the benefits f a higher target. We recmmend that mdelling team estimate the best target fr a scheme that runs t 2025 and includes gas. Sensitivity mdelling needs t be carried ut n all externalists. In particular, the mdelling underestimates energy market benefits caused by the current transfrmatin f the energy sectr, substantially underestimates the value f carbn mitigatin, whether that value is set as a scial cst f carbn r a likely future carbn price and health impact csts are at the lwest range f internatinal estimates. Therefre, the Cuncil recmmends that the NSW Gvernment revise its mdelling and mdel additinal targets up t 24 per cent (including gas), allwing the Gvernment t cnsider this higher target alngside ther ptential targets when making a final decisin. We als nte that substantial increases in the target culd be intrduced in steps ver a number f years. 3

6 Sectin 2.3: Penalty rates n the preferred ptin t increase penalty rates frm the tax effective penalty rate frm $37 t $42 frm 2016, t reflect the avided shrt run marginal csts f electricity supply. The Cuncil supprts in the increase in the increase penalty rates frm the tax effective penalty rate frm $37 t $42 frm Sectin 2.4: Future apprach t setting targets and penalty rates The NSW Gvernment has cmmitted t regular reviews f the ESS targets and penalty rates. n the preferred ptin which is t prescribe by regulatin quantitative threshlds fr when the cnditins in the Act, which allw the Minister t amend targets and penalty rates by regulatin, have been met. The Cuncil supprts the NSW Gvernment s preferred ptin f cdificatin f cnditins requiring an adjustment in targets r penalty rates and annual review and reprting. We recmmend that the target set is a minimum target, and that the target shuld be raised if versupply ccurs fr ver 12 mnths. Hwever, we d nt supprt dwnward adjustment f the target, as the penalty price already prvides a safety valve t address this issue. Sectin 2.5: Scheme duratin The NSW Gvernment has cmmitted t extend the ESS t n the prpsal t refrm the ESS Rule t prevent prjects creating certificates using a baseline under the Metered Baseline Methd that is mre than 10 years ld. The NSW Gvernment s decisin t extend the duratin f the Scheme until 2025 will prvide greater certainty t industry, including retailers and energy efficiency prviders, allwing fr the develpment f mre innvative delivery mdels and reduce the cst f delivering energy efficiency. The Cuncil believes the ESS shuld remain in place until there is a package f measures intrduced that cmprehensively addresses the supply-side bias in energy markets and ther market failures, r until there is a natinal white certificate scheme in place. 4

7 Sectin 3: Fuel cverage The NSW Gvernment has cmmitted t expand the ESS t prvide financial incentives t save gas. n the preferred mechanism t expand the ESS t gas by increasing targets fr existing scheme participants t 7 per cent frm 2016, increasing t 8 per cent by 2018, and t prvide a certificate cnversin factr fr gas savings t create certificates. Stakehlders are als encuraged t prvide feedback n the prpsed gas certificate cnversin factr, the treatment f fuel switching activities and the need, if any, t refrm exemptins fr emissins intensive trade expsed activities under an expanded scheme. The Cuncil supprts the primary fcus f the ESS n electricity savings, but recgnises the benefits f expanding the ESS t include gas efficiency n a transitinal basis t help husehlds and businesses adjust t the rapid jump in east cast gas prices. Gas efficiency activities shuld include prcess imprvements as well as and the replacement f inefficient gas bilers and lw-efficiency electric bilers with highefficiency bilers and cgeneratin. Hwever the ESS shuld nt supprt husehlds switching frm electric bilers t gas bilers, as rising gas prices mean that gas bilers with lw upfrnt csts culd have very high running csts. Further, thrugh the inclusin f gas savings in the ESS, it wuld appear that the ESS is set t allw capture and re-use f waste heat t ffset gas use. Therefre it wuld be lgical t allw the use f waste heat t ffset electricity use at a site as well. The ESS currently excludes electricity generatin as an eligible activity and as a result sme significant energy saving pprtunities have been lst. As an example, the waste heat frm fd prcessing culd be used t pre-heat water used in that prcess, reducing the need fr gas-fired pre-heating. This type f prject wuld result in a ttal reductin f energy use (electricity and/r gas) and shuld be eligible under the ESS thrugh prject-based measurement and verificatin. It appears that the ESS allws this type f prject, but this shuld be clarified. A waste heat electricity generatin prject wuld use waste heat frm a prcess t prduce electricity, which reduces r replaces electricity inputs in anther prcess. Fr example, an industrial site culd use waste heat frm a kiln t generate electricity thrugh an Organic Rankine Cycle generatr, which is then used t reduce electricity cnsumptin n that site. There is n sund basis fr excluding this type f prject simply because it cnverts waste heat int electricity. Helping energy users generate their wn electricity frm waste heat is a speciality f a number f EEC members, and a cre part f the energy efficiency technlgy suite. The Cuncil recmmends that the ESS include prjects that use waste heat t ffset electricity r gas use, irrespective f whether the waste heat is used directly r cnverted int electricity. We nte that the NSW Gvernment has reasnable cncerns that allwing generatin int the ESS wuld result in the ESS being used t supprt prjects that it was nt intended t supprt (e.g. imprvements in the efficiency f calfired generatrs). Hwever, utilisatin f waste heat in industry is an imprtant targeted slutin t reduce grid energy cnsumptin, particularly in the industrial sectr. Including savings frm electricity generated by waste heat in the ESS will nt lead t any duplicatin with the Renewable Energy Target. 5

8 Sectin 4.1 Supprt fr Reginal Custmers The NSW Gvernment has cmmitted t prviding a reginal netwrk factr f 1.03 and t prvide reginal crdinatrs t link energy efficiency service prviders with reginal cmmunities. n the preferred ptin t apply the reginal netwrk factr t electricity savings in the Essential Energy distributin netwrk area. The NSW Gvernment intends t assist reginal custmers t undertake energy efficiency prjects by intrducing a reginal netwrk factr f 1.03 fr activities undertaken frm the 2016 cmpliance year nwards. The Cuncil supprts recgnitin f the additinal value f saving energy in reginal areas, but believes a factr f 1.1 wuld be mre apprpriate t reflect the csts f delivering prjects in the regins. The prpsed factr f 1.03 is insufficient t incentive significant additinal activity in reginal areas, depriving these cmmunities f energy efficiency savings. In additin, the limitatin f the reginal netwrk factr t the Essential Energy distributin netwrk area shuld be remved. Reginal barriers t uptake and reginal cmmunity benefits f energy efficiency are nt cnfined t this gegraphic area. There are als challenges in accurately defining the Essential Energy distributin netwrk area and requiring this delineatin is likely t result in significant additinal administrative burden. Sectin 4.2 Supprt fr vulnerable husehlds Sectin 4.3 Energy Savings at Peak n the preferred ptin t prvide supprt fr vulnerable husehlds thrugh supplementary prgrams rather than intrducing a sub-bjective int the ESS. n the preferred ptin t wrk with industry stakehlders and netwrk service prviders t cllect and publish infrmatin that culd be used t value the benefit f energy efficiency prjects in cnstrained netwrk lcatins. Vulnerable husehlds face a number f specific barriers t energy efficiency, particularly access t capital. The Cuncil strngly supprts the NSW Gvernment s lw incme husehld energy efficiency package t cmplement the ESS and believes prgrams such as this are the mst efficient and effective way t supprt vulnerable husehlds. It will be critical that prgram funding is maintained ver time. If the lw incme husehld energy efficiency package were t be discntinued at any time, alternative supprt t lw incme husehlds wuld be required. The Cuncil agrees that the ESS shuld nt include a peak multiplier. We nte that the NSW Gvernment s preferred ptin fr addressing peak demand is prviding infrmatin t energy efficiency service prviders and netwrk service prviders n cnstrained netwrk lcatins and the impact f energy efficiency n peak demand in the hpe that imprved infrmatin will vercme market barriers. The Cuncil des nt supprt this apprach t addressing peak demand. Prviding infrmatin will be highly ineffective at vercming the entrenched energy market incentives that result in pr management f peak demand. As such, the Cuncil recmmends a mre practive apprach, setting minimum required levels f investment fr Distributin Netwrk Service Prviders t invest in lcalised demandside prjects that ffset the need fr mre expensive netwrk augmentatin prjects. 6

9 Sectin 4.4 Emissins Intensive Trade Expsed Industry n the preferred ptin t retain existing exemptins fr Emissins Intensive Trade Expsed Industry activities, and t nt impse restrictins n certificate creatin at exempt sites. The Cuncil supprts the retentin f existing exemptins fr Emissins Intensive Trade Expsed Industry activities, and t nt impse restrictins n certificate creatin at exempt sites. Sectin 5.1: Scheme administratr respnsibilities The NSW Gvernment will frmally appint IPART as the scheme administratr and scheme regulatr n the prpsed additinal functins and reprting requirements fr IPART The Cuncil supprts the NSW Gvernment s preferred ptin t clarify IPART s respnsibilities in the administratin f the ESS. The Cuncil als recmmends similar clarificatin f respnsibilities fr the NSW Office f Envirnment and Heritage and the Department f Trade and Investment. Sectin 5.2: Enhancing cmpliance pwers n the preferred ptin t enhance IPART s cmpliance pwers. In particular, stakehlders are encuraged t prvide feedback n apprpriate settings fr penalty ntices fr the ffences listed in the Act. Stakehlders are als encuraged t prvide feedback n apprpriate setting fr the requirement fr an undertaking t set aside certificates. The Cuncil supprts the NSW Gvernment s preferred ptin t enhance IPART s current range f regulatry and nn-regulatry enfrcement tls. Sectin 5.3: Certificate price transparency and trading regularity n the preferred ptin fr IPART t estimate average csts paid fr certificates thrugh an annual survey f scheme participants. The Cuncil supprts greater transparency f certificate prices, but des nt have a preferred ptin at this time. 7

10 Sectin 5.4: Funding and cst recvery n the preferred ptin t increase existing fees charged by IPART by a mdest amunt, and t set fees fr services that are currently prvided fr free. The NSW Gvernment is prpsing t increase r intrduce fees t cver csts assciated with scheme administratin frm 2016 nwards. The Cuncil is generally supprtive f the prpsed fee changes prvided they are linked t a service guarantee that wuld eliminate sme f the current frustratins n service time and lack f standardisatin. Hwever, the Cuncil ppses the intrductin f the $1000 investigatin fee t assess nvel r highly cmplex applicatins that require additinal assessment effrt. The NSW Gvernment shuld be encuraging innvatin and a diversity f prjects under the ESS and such a fee wuld be a significant barrier. Rather, the fcus shuld be n supplying sufficient detail f required infrmatin in nvel r highly cmplex applicatins t ease the assessment prcess. Sectin 6.1: Cntinuus imprvement f the Energy Savings Scheme The NSW Gvernment has cmmitted t cntinuusly imprving the ESS including regular updates t the ESS Rule, implementing a cmprehensive evaluatin, mnitring and verificatin framewrk, and engaging with industry s they understand the pprtunities under the ESS. n the prpsed apprach fr an annual Rule change cycle, what the scpe f the evaluatin, mnitring and verificatin framewrk shuld be and hw best t engage with industry n the ESS. The Cuncil supprts the NSW Gvernment s preferred ptin f cdificatin f cnditins requiring an adjustment in targets r penalty rates and annual review and reprting. We recmmend that the target set is a minimum target, and that the target shuld be raised if versupply ccurs fr ver 12 mnths. Hwever, we d nt supprt dwnward adjustment f the target, as the penalty price already prvides a safety valve t address this issue. Sectin 6.2: Interactin with the Emissins Reductin Fund The NSW Gvernment will wrk with the Cmmnwealth Gvernment t establish frmal infrmatin sharing arrangements between the tw schemes t harmnise the schemes and prevent duble cunting f energy savings. The Cuncil agrees that energy efficiency prjects that access the Emissins Reductin Fund ( ERF ) shuld nt be eligible fr financial incentives under the ESS. Hwever, prjects that cntain multiple, separate elements (e.g. landfill prjects and energy efficiency) shuld be able t bid thse separate parts int the ESS and ERF. In either scenari, there is nt a significant risk f verlap given the unsuitability f the ERF fr supprting efficiency measures in cmmercial buildings, small t medium manufacturers and many ther types f energy efficiency prjects. Nevertheless, we supprt the prpsal that the NSW and Cmmnwealth gvernment wuld share infrmatin t prevent duble cunting f energy savings frm the ESS and ERF. 8

11 General Cmments Stakehlders are encuraged t prvide any ther cmments n the Optins Paper. 9