Finkel drops ball on NESS, 14 June 2017
By Hamish McGovern, Published by Renew Economy
Energy customers can rightly be disappointed that Dr Finkel failed to make a recommendation to immediately roll out a National Energy Savings Scheme (NESS) in his 9 June report. A NESS was recommended to the Federal Minister for Energy and Climate Change by the Climate Change Authority report released on 2 June 2017. Let’s hope the seven day gap between reports gave too little time for Finkel to even note such a concrete option. The monkey is now on Josh Frydenberg’s back to act now and mobilise a NESS to rapidly and immediately combat soaring energy bills.
The energy crisis solution must provide complementary emphasis on driving down consumption, not just on providing more generation. To achieve this, a Clean Energy Target (CET) recommended by Finkel must be complemented with a NESS. A NESS would provide much-needed focus and action on managing consumption and would empower customers to access infinite options to save energy. A NESS would be a beacon amidst the continuing haze of generation mix and incentives.
NESS at no net cost now
The Commonwealth Government could implement a NESS within one year which would incentivise households and businesses across Australia to immediately install more energy efficient lighting, air conditioning and refrigeration which are the big energy guzzlers.
In 2016, the activities installed under the current schemes in Vic, NSW, ACT and SA accounted for 909GWh of demand reduction over the course of the year (Review of the NEM in 2016, GEM). That’s on par with solar PV for the same period. More research will show the significant offset potential to new generation - but that’s no reason to delay.
A NESS is very low risk, has been proven through existing state schemes and has no net cost. A NESS could be modelled on, dovetail with and complement, existing successful schemes in Australia, and provide access to Australians in Qld, WA, NT and Tas.
Existing schemes have been operating successfully since 2009 with proven legislative and regulatory frameworks. The schemes have proven to be one of the most effective policy measures for delivering - at lowest cost - energy consumption reductions in tandem with reducing customer bills and greenhouse gas emission reductions. So for the energy trilemma: security, low cost and reduced emissions: a NESS kicks all three goals, it’s that simple. In addition, our schemes are amongst world’s best practice and compare favourably with over 50 similar schemes worldwide, including more than 26 in the USA.
Energy efficiency schemes are legislated policy mechanisms that are implemented to directly address market barriers that prevent energy customers from installing more efficient products. Key barriers include not understanding energy efficiency, lack of upfront capital for equipment replacement (for example to change out lower performing lights with the latest LED technology) and energy has historically been a small component of household and business budgets. Put simply, it’s not easy and people “don’t fix things that aren’t broke”. The primary objectives of schemes are to reduce customer bills, put downward pressure on energy consumption and therefore peak and baseload demand, and to reduce greenhouse gas emissions. The schemes require obligated parties, which are generally energy retailers, to purchase a certain number of energy efficiency (white) certificates every year to achieve the target. The schemes are market-based ensuring the lowest cost abatement and the funding mechanism is the same as for the Renewable Energy Target and the proposed CET. Targets may be set as a percentage of electricity sales or as greenhouse gas emission abatement. Since 2015, the targets of the existing schemes have been increased significantly, and expanded to include more installation types. This has been based on rigorous regulatory impact assessments which have demonstrated net economic benefits.
Low income households in particular can be included, as has been successfully legislated by the SA and ACT schemes at around 20 per cent. Insulation has proven to be an effective inclusion given its capacity to drastically reduce the need for heating and cooling.
The schemes are also drivers of technology and business model innovation which simply would not otherwise occur. They have stimulated an estimated 4,000 jobs since 2009, with more jobs to come as the energy efficiency market evolves.
VEET scheme showcase
The Victorian Energy Efficiency Target (VEET) is the largest scheme and in 2016, it exceeded its annual target by 50 percent. The target is based on greenhouse gas emission reductions (one certificate represents one tonne of carbon dioxide equivalent abatement (CO2-e)). The VEET achieved over 8 million tonnes of abatement instead of the 5.4 million tonnes of CO2-e targeted. This emissions reduction was achieved at a 30 per cent lower cost than initial estimates based on the 2016 average spot price of certificates at $18.50 compared to $29.60. The certificate price is currently in the $11 to $12 range. To provide a snapshot of how successful and how low-cost energy savings can be, in 2016 the VEET delivered installed activities that provide 513GWh of electricity savings and 128 MW of demand reduction. Lighting installations alone, largely LED installations, accounted for 93 per cent of installed activities. LEDs can reduce consumption by up to 80 per cent and costs have fallen as dramatically as for solar PV technology, a fact that is little known by policy makers. This year, 2017 is on track to again significantly exceed the target with major potential to tap into high bay lighting upgrades in commercial premises.
The tragedy of the energy policy debate is that energy efficiency is more difficult to grasp than generators that burn coal, gas and biomass, or solar PV and wind turbines that produce clean, green power. The concept of consumption reduction and avoidance is much harder to explain - and get excited about. And it requires the efforts of many, even in small ways, the sum of which is potentially immensely significant in driving down generation needs.
Those that stand to act and benefit the most - consumers - largely don’t know about the schemes. This is because the schemes are marketed mainly by scheme participants including product manufacturers, installers and certificate creators. These businesses have worked out the most effective way to market to prospective customers which is great. But it means general knowledge of the benefits of the schemes amongst policy makers and energy consumers is not high. The lack of profile means the schemes have not been awarded the attention and credibility they deserve: the faceless candidate waiting for a decent seat at the policy table.
Short term grants versus ESS
Various government programs across Australia provide grants for energy audits and installations, primarily for large energy users and low income groups. This provides short term focus, positive policy announcements with some immediate and longer term savings if audits convert to installations.
In contrast, energy savings schemes don’t cost governments money, are driven by industry, ensure installations actually occur, can include a more diverse range of installation types, and are available to a much greater range of residential, commercial and industrial customers. Schemes also provide ongoing certainty for the energy efficiency industry to stay and grow their businesses in Australia, to keep innovating and employing and training staff locally where uptake is occurring.
Hamish McGovern is President of EECCA and Managing Director of energy efficiency certificate creator Wattly.