NSW leads the nation with its commitment to a peak demand reduction scheme and a boost to its energy savings scheme target. Other jurisdictions are making similar noises, writes Rod Woolley, president of the Energy Savings Industry Association.

Australia’s most populous state is leading the way in energy efficiency, with a commitment to launch a peak demand reduction scheme to align with its strengthened Energy Savings Scheme (ESS), which will be increased from 8.5% of electricity sales in 2020 to 13% in 2030. The ESS will be extended to 2050 to align with NSW’s net zero emissions target to 2050.

This is a very encouraging – and is a stark comparison to a national silence on serious energy efficiency policy. Energy efficiency is a primary driver for delivering energy bill savings and emissions reductions. It also conveniently avoids unnecessary investment in poles and wires and new gas peaking plant. Energy efficiency can also contribute to supporting closure of old coal plants sooner.

Every jurisdiction in Australian now has a net zero emissions target by 2045 or 2050, except the federal government. While we continue to hope for coherent climate policy from Canberra, we are supporting the states to introduce and strengthen energy efficiency and peak demand reduction programs from 2021 to 2030 at least.

With climate change predicted to result in more extreme temperatures, our electricity system will be put under more stress. Now is the time to focus on peak demand reduction initiatives that will deliver significant benefits for consumers in the next few years.

National noises just too far off

There are some potential delivery opportunities in the Climate Solutions Package (CSP) that was taken to the federal election in May 2019 and which could be filled by robust energy efficiency policy and programs, including a national energy savings scheme and a peak demand reduction program. But at best, something may materialise for scoping from 2021.

The Emissions Reduction Fund, rebadged the Climate Solutions Fund (CSF) after the 2019 federal election, has been almost totally ineffective in delivering any energy efficiency projects.

The Energy Savings Industry Association (ESIA) was pleased to be invited to participate in the federal government’s targeted consultation (by invitation only) by an expert panel examining opportunities for further abatement in late 2019. Further consultation is yet to occur before a final report.

There has been consultation on planned changes to NEM design post-2025 and consultation on an update to the Climate Change Authority’s advice to government on Australia’s progress towards its 2030 emissions commitments. And issues about how international carbon abatement units may be used will be considered in the government’s committed climate change strategy to be developed in 2020.

But all of this could deliver nothing tangible to drive the significant energy savings that can be delivered by strengthening existing state-run energy savings schemes and now NSW’s peak demand reduction scheme.

Reviews of state schemes

Those states that have an energy savings scheme – Victoria, NSW, South Australia and the ACT – are all under review for post-2020 options on targets and the types of energy upgrades that will attract financial incentives.

Appetite for increasing targets and strengthening these programs is looking promising. But we need to keep driving for rapid change, because the barriers to undertaking energy upgrades are still high. Many businesses and households lack the capital for upgrades and are not aware of the energy and bill savings achievable.

Energy retailers have a mixed commitment to the schemes given that they are in the business of selling energy not saving it and are also obliged to support a quota of energy savings under the energy savings schemes, based on their annual energy sales. That said, governments have generally received positive support from major retailers to strengthening the schemes.

How the states stack up

  • NSW launched its NSW Electricity Strategy in late November 2019, committed to strengthening its Energy Savings Scheme and extending the targets from 2025 to 2050. A peak demand reduction scheme will also be introduced and both initiatives will be branded the Energy Security Safeguard. The current ESS scheme’s five-yearly review is timed for early 2020 with decisions to be published by May 2020. This will provide a tight transition period for the product supply and upgrade sector which has invested heavily in product efficiency improvements, training and employing energy efficiency experts and installers.
  • Victoria launched its review of the Victorian Energy Upgrades (VEU) program target setting from 2021-25 in early December 2019. The consultation paper indicated a preferred option which, if chosen after consultation, will deliver the most ambitious targets since the program’s start in 2009. The cumulative impact of the favoured option will avoid 40.6 mega tonnes (Mt) of emissions in Victoria and be a significant lever in achieving the state’s net zero emissions target by 2050. Households participating in the program during 2021-25 are expected to save $3.12 billion on their energy bills; commercial and industrial businesses are expected to save more than $8 billion. Modelling indicates energy consumption in 2025 will be 10% lower than in 2021. Up to 50% of the 2025 target is expected to be delivered through fuel switching activities.
  • South Australia launched its review of the Retailer Energy Efficiency Scheme (REES) in October 2019, with a post-2020 consultation paper indicating that the REES is likely to be continued from 2021 to at least 2026. There are indications that a peak demand initiative may be included.
  • In 2019 the ACT committed to extend the Energy Efficiency Improvement Scheme (EEIS) from 2020 to 2030, and most recent activities added include new insulation and business heating and cooling. There are indications a demand reduction incentive may be included.
  • Queensland has committed to an energy savings scheme announcement before the next state election in late October 2020. What form it may take is yet to be revealed. State-owned Energex, which services part of South-East Queensland, has a PeakSmart program which provides incentives up to $400 for replacing or purchasing air-conditioner units with demand response mode.

Inside the NSW showcase

The ESS target for 2018 was 8% of all electricity purchased for supply to end-use customers in NSW, up from 7.5% in 2017. Targets have been met each year (see first chart).

How the increasing ESS targets have been met

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Source: NSW Energy Savings Scheme Annual Report 2018, IPART NSW 2018.

The latest ESS annual report for 2018, released in November 2019 by the NSW Independent Regulatory and Pricing Tribunal, stated that since the ESS commenced in July 2009 a total of 28,928,327 energy efficiency certificates have been created for energy saving activities implemented under the program.

These certificates represent 27,003,987MWh of electricity savings and 779,745MWh of gas savings. Some of these savings may be realised in future years because some of the methods for calculating savings estimate future savings for a deemed period relevant to the energy upgrades. For example, seven years of savings for a certain type of lighting upgrade.

Energy savings calculation methods are based on the type of upgrade, such as a deemed method for commercial lighting, or project impact assessment with measurement and verification method for energy management system upgrades (see second chart).

Certificate creation by calculation method and vintage

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Source: NSW Energy Savings Scheme Annual Report 2018, IPART NSW 2018.

No incentive, no upgrade

Mark Ploenges, director of energy upgrade installation business Ozwide Group, estimates supermarket chains have delivered 90% of their lighting upgrades in jurisdictions with energy savings schemes but not elsewhere. The payback periods are still not attractive enough otherwise. Clients are investing tens of thousands upfront on LED lighting upgrades, including high bays and tubes, across every one of their retail stores where they attract financial incentives under energy savings schemes.

This is working well for those businesses with good facility and energy management teams, but many others haven’t been reached yet and are unlikely to be aware of the energy and bill savings opportunities. Service providers are getting more enquiries from businesses wanting to reduce their carbon footprint in response to a growing awareness of the need to contribute to climate change solutions. Lighting upgrades are an obvious choice given the clearly definable bill savings, and the added benefit of improving customer instore experience.

Adrian Uberti, CEO of lighting and energy efficiency consultant UNIfied, says a walk-through in any capital city will quickly verify that many second-tier office buildings are yet to upgrade to efficient lighting technologies. Go a little further out of town and opportunities remain there as well. The same goes for many government buildings. Sensor lighting is now increasing major savings opportunities available for offices, car parks and public spaces.

Millions of LED high bays have been installed in warehouses and factories mainly in Victoria and NSW. South Australia has a cap on commercial lighting upgrades limited to 900Gj per site, but there are indications the cap will be lifted from 2021. There are warehouse sites in the state with partial conversion to LED where building managers are waiting to replace all the units but need more support as they can’t access upfront capital otherwise.

Households and renters

Low-income households continue to be a key target for governments for retrofit energy upgrades. The building stock is often very old with poor heating and cooling, poor weather sealing and no insulation. Lighting can be an immediate high impact upgrade option that reduces the renter’s bill immediately.

It gets tricky when the owner is asked to pay for energy upgrades – this situation is referred to as a split incentive challenge. Many low-income households are renters and they don’t generally invest in property improvements as they either aren’t empowered to do so or don’t have the money to invest even if it reduces their bills and payback periods may be very attractive.

All governments with schemes are looking at ways to overcome these issues. Renters generally are similarly constrained, even in wealthy postcodes, and apartments with strata titles throw up other barriers.

New builds are a different story. Major lighting suppliers of energy efficient products accredited under existing energy savings schemes across Australia are clear that the retrofit market is way behind the new-build market.

Regarding the retrofit market, which is being spearheaded by the schemes, it is encouraging to see that the Victorian government is committed to routinely removing the less efficient products accredited under the VEU. Notably, these products are still generally much more efficient than product readily available in retail stores and via wholesale suppliers not committed to high-efficiency products to the trade, who in turn may not be aware that more efficient products are available at lower cost elsewhere.

Regarding the new-build market, minimum product efficiency standards are helping new-build designers and developers to improve their efficiency choices. However, without strict compliance and penalties, sub-optimal efficiency installations remain the norm. Australia is waiting to follow the lead of Europe on minimum efficiency standards for lighting. Until there is strong leadership on mandatory phaseout from the federal government, high volume imports of inefficient products will continue well into the next decade.

Ready for demand response

The energy savings schemes, with their extensive range of highly efficient products accredited to attract financial incentives, will continue to drive technology transformation behind the meter and stimulate further product development and installation of the most energy efficient products available in the Australian market.

The emerging appetite for peak demand incentives is set to transform yet another aspect of the smart technology industry, from demand response enabled devices for energy efficient appliances (including air-conditioners, pool pumps and electric hot water systems) to batteries and electric vehicle charging technologies. Watch this space.

Rod Woolley is president of the Energy Savings Industry Association and managing director of Yellow Door Consulting.

With thanks to ESIA and members for contributions to this article.