Background

The Victorian Energy Efficiency Target (VEET) scheme commenced on 1 January 2009. The scheme, marketed as the Energy Saver Incentive, sets a target for energy savings and establishes a competitive market for the reduction of greenhouse gas emissions through energy efficiency.

The VEET is collectively met by Relevant Entities (REs) through greenhouse gas emissions liabilities imposed on REs under the Victorian Energy Efficiency Target Act 2007 (the Act). RE liabilities are calculated with reference to "scheme acquisitions" and the "Greenhouse Gas Reduction Rates" (GHGRR) in accordance with the formula set out under section 31 of the Act. The GHGRRs are set with regard to the greenhouse gas emissions attributed to electricity and gas end-use consumption. The GHGRRs for a compliance year are set by an Order in Council made by 31 May in that calendar year, based on energy consumption in the previous full calendar year.

In April 2012, the former Department of Primary Industries (DPI) released an Issues Paper: Liabilities for Relevant Entities in response to two key issues raised by stakeholders relating to the method by which scheme liabilities are calculated and apportioned to relevant entities under the Act.

The Department invited submissions from targeted stakeholders on the two issues and received 19 submissions from:

  • AGL Energy Limited
  • Amcor Australasia
  • Aurora Energy
  • The Australian Industry Group
  • Australian Power & Gas
  • Carter Holt Harvey Woodproducts Australia
  • Cement Concrete & Aggregates Australia
  • CSR Limited
  • ERM Power Limited
  • Energy Retailers Association of Australia
  • Energy Users Association of Australia
  • Lumo Energy
  • Major Energy Users, Inc
  • Momentum
  • Origin Energy
  • Simply Energy
  • Sugar Australia Pty Ltd
  • TRUenergy
  • Visy

The two key issues investigated by the Department and discussed in the Issues Paper were:

1. Calculation of "scheme acquisitions"

A discrepancy exists between the scope of the consumers whose energy consumption contributes to the calculation of RE liabilities (i.e. scheme acquisitions) and the scope of consumers who are eligible to participate in the scheme. Section 3(1) of the Act defines scheme acquisitions to mean: "the purchase for on-sale to a prescribed customer or prescribed class of customers in Victoria of [electricity or gas]".

In accordance with the class of customers prescribed under regulation 121 of the Victorian Energy Efficiency Target Regulations 2008 (the Regulations), RE liabilities are currently calculated based on an RE's energy acquisitions for all of its customers, except for gas sold to gas-fired electricity generators.

However, large businesses that are subject to the Environment Protection Authority's (EPA) Environment and Resource Efficiency Plan (EREP) program are not eligible to participate in the VEET scheme2.

A situation has arisen where REs are seeking to apply a VEET pass-through cost to business sites listed on the EREP register despite those business sites being excluded from participating in VEET. This action by REs was not envisaged in the modelling for the Regulatory Impact Statement (RIS) published in March 2011.

2. Definition of Relevant Entities

Stakeholders have requested that the criteria that determines whether a retailer is an RE be reconsidered. Specifically, stakeholders have questioned the suitability of the criterion that imposes a liability on energy retailers where retailers hold 5,000 customers or more as set out under paragraph (b) of the definition of relevant entity under section 3(1) of the Act.

Issues Arising from Submissions to the Issues Paper

1. Calculation of "scheme acquisitions"

The Department received a number of submissions supporting the exclusion of EREP sites from the calculation of scheme acquisitions under VEET, as these sites are ineligible to participate in the scheme. Submissions were varied regarding the timing of this exclusion: some respondents sought retrospective application (i.e. to commence prior to the making of new regulations that are necessary to provide the exclusion) while others requested commencement of the exclusion from the 2013 compliance year.

Some respondents also requested a refund or reimbursement of charges paid to date for EREP sites.

Further, it was proposed that if EREP sites were excluded, exclusion needed to be site specific (i.e according to National Meter Identifier) so that REs would be better able to determine which sites are exempt. This was seen by respondents as necessary as the EREP register currently only lists company name and suburb.

Issues were also raised that other large energy users that are not currently defined as EREP should also be excluded from the calculation of scheme acquisition. In addition, it was suggested that those businesses that voluntarily participate in the EREP program should be excluded.

Victorian Government Response

Following consideration of the submissions received, the Victorian Government has decided to proceed with the proposal to exclude from the definition of 'scheme acquisitions', energy consumed at sites listed on the EPA's EREP register of participating sites. This exclusion has been implemented through amendments to the VEET scheme regulations which came into effect on 1 July 2012. The regulations do not have the power to apply this exclusion retrospectively.

As a result of this decision and on the basis that the scheme target will not be varied3, the greenhouse gas reduction rates for 2012 referred to in section 32 of the Act were adjusted with due regard to that decision. The greenhouse gas reduction rates for 2012 were published in the Victoria Government Gazette on 31 May 2012 in accordance with the requirements of the Act.

Regarding the issue raised by respondents relating to the specific details of which EREP sites are excluded, the Victorian Government expects that retailers should be able to reasonably ascertain from the EREP public register those sites which are their customers and accordingly deduct the energy volumes from their scheme acquisition data. A copy of EREP registered sites can be found on the EPA website. While it is acknowledged that this is an additional compliance step, the low numbers (and high energy consumption volumes) of EREP sites should allow it to be a straightforward process.

In terms of requests for refunds, the Victorian Government does not regulate energy prices in the retail market. Energy tariffs are the subject of contractual arrangements between energy retailers and their customers. Claims for refunds or reimbursement of any previous VEET charges paid are matters that customers should take up directly with their retailer.

Action will not be taken to exclude large energy users which are not subject to the EREP program. EREP sites have a statutory obligation to implement actions that achieve environmental benefits. Large energy users do not have this obligation and are able to participate in the VEET scheme. Similarly, voluntary EREP sites will not be excluded on the basis that there is no statutory obligation that follows from voluntary registration.

2. Definition of Relevant Entities

Submissions generally supported a change in the definition of REs. Responses differed in their suggestions on the treatment for the definition, including:

  • removing the threshold altogether so that all Victorian licence holders/retailers are liable;
  • consumption-based threshold only;
  • consumption-based threshold as well as 5,000 customer threshold (some suggestions of whichever reached first);
  • include the SECV shell and gas fired generators; and
  • only energy sales made to customers who are able to benefit from the scheme.

A number of differing threshold calculations were also provided.

In addition, the responses on timing also varied considerably - ranging from immediately to July 2013. Some respondents who requested immediate amendment also queried the former DPI's view (as stated in the Issues Paper) that a Business Impact Assessment (BIA) may be required. Respondents that supported the amendments being made over a longer time period, suggested this would be necessary, in order to gather further evidence to support the change in definition. If a change to the definition was to occur, some submissions requested enough lead time in order to manage the change.

Victorian Government Response

The Department has prepared a separate discussion paper addressing options for amending the definition of REs. Responses to the matters mentioned above are detailed in the former DPI's Definition of Relevant Entities Discussion Paper.

If an amendment to the definition of RE is required it is likely that legislation implementing this amendment would proceed in 2013. (The Issues Paper made clear that a change to the definition of RE in the Act was unlikely to occur before the end of 2012).

3. Other Issues

The Issues Paper listed a number of other issues related to the allocation of VEET related liabilities. These are explored below.

(a) Setting of GHGRR

The majority of respondents requested a change in timing of GHGRRs to the end of October in the year prior to the liability year.

Victorian Government Response

It was noted that bringing forward the timing of setting GHGRR (to establish each RE's liability) would better align with retailer tariff-setting cycles. However, setting the timing of GHGRRs earlier could be problematic in regards to accuracy of the data.

Some respondents suggested that there may be administrative means to approximate RE liabilities earlier, which can assist retailers without the need for legislative or regulatory amendments.

The Department will further explore this issue with retailers through further consultation in the coming months.

(b) Scheme Target

There were varied responses in regards to the scheme target. A number of submissions urged a reduction in the target commensurate with the EREP exclusion whilst others noted that a reduction is not necessary as the 5.4 million tonne target was set on the basis that EREP's were excluded already.

Victorian Government Response

Modelling completed by ACIL Tasman for the Regulatory Impact Statement on the expansion of the VEET scheme in March 2011 made assumptions about how costs would be passed through.

The modelling concluded that all energy users, including large energy users, will benefit from suppressions in wholesale electricity prices resulting from reduced demand and deferral of new generation investment. The benefits were based on the assumption that the range of activities that would be available to VEET participants would be taken up according to the estimations contained in the RIS, and that this take up would not be dependent on participation by large businesses. It is therefore concluded that the proposed exclusion of EREPs will not, in itself, impact on these results.

Therefore, maintaining the current annual target of 5.4 million tonnes of greenhouse gas abatement is consistent with this modelling. A reduction in the scheme target as a result of EREP site exclusions from VEET is therefore not warranted.

(c) Exclusion of EITEs and EEOs

The Issues Paper considered whether Emissions Intensive Trade Exposed (EITE) businesses should be specifically exempt from liabilities under the VEET scheme. This was examined in the context of the exclusion of EITEs from the NSW Energy Savings Scheme (ESS).

As outlined in the Issues Paper, ACIL Tasman found that 99.3% of EITE businesses were also listed on the EREP register and that their analysis assumes that all EITE businesses are listed on the EREP register. The Department invited stakeholders to comment on that assumption and submissions overwhelmingly supported ACIL Tasman's findings. It was noted, however, that there are certain prescribed circumstances where a business can be granted an exemption from the requirement to register under the EREP scheme and that in those circumstances and where the business is also an EITE business, the exempted EREP site should also be excluded from retailer liability calculations.

Large energy users may also be subject to the Commonwealth Government's Energy Efficiency Opportunities (EEO) program. EEO requires that corporations whose business uses more than 0.5 petajoules (500 TJ) of energy per year, must be registered with EEO and publish performance reports relating to their energy efficiency.

Given these factors, stakeholders were generally supportive of a position that there was no need to specifically exclude EITEs from the calculation of RE liabilities in addition to excluding EREP registered sites. Conversely, a number of stakeholders expressed the view that EITE and EEO businesses should also be excluded. These positions were normally based on the consideration of the cumulative costs of the measures.

Victorian Government Response

Action will not be taken to exclude EITE or EEO businesses.

The EEO scheme does not mandate the undertaking of energy efficiency actions and the actions taken by EEO businesses are therefore voluntary. As such, there is no reason to exclude EEO businesses in the same way as EREP businesses which are subject to mandated obligations.

It is also important to distinguish energy efficiency actions at EEO business sites that are subject to EREP obligations and those that are not subject to EREP obligations. From an administrative point of view, excluding the latter category of EEO sites from the calculation of RE liabilities would be administratively complex as there is no easily accessible register of where they are located. The process for identifying those EEO sites is therefore likely to add to compliance costs for VEET participants.

On the other hand, the EEO business sites that are subject to mandatory EREP obligations can be easily identified by reference to the published EREP register. These sites would be automatically excluded by the exclusion of EREP registered sites.

Based on submissions received, there does not appear to be any widespread evidence of significant EITE operations that are not also EREP registered sites. This supports the conclusion that excluding EREP registered sites will effectively exclude EITE sites. Any non-EREP EITE sites that do exist, whether because they do not exceed the EREP trigger threshold or are exempted from EREP registration remain technically eligible to participate in VEET. Accordingly, it is unnecessary to separately exclude EITE sites from the calculation of RE liabilities.

(d) Range of Activities

A small number of submissions noted that VEET activities are mainly targeted at the residential sector and do not benefit large energy users.

Other issues raised by stakeholders included:

  • reintroducing ceiling insulation as an activity (through the removal of the discount factor which currently applies to the activity);
  • adopting an approach similar to NSW which provides for measured outcomes e.g. for commercial and industrial projects; and
  • the regulatory process for approval of applications is too slow which could potentially lead to higher certificate prices.

Victorian Government Response

On 17 May 2012, business specific activities were introduced into the VEET scheme.

New activities include:

  • commercial lighting;
  • high efficiency motor replacing an electric motor;
  • high efficiency refrigerated display cabinet replacing a refrigerated display cabinet; and
  • refrigeration fan replacement.

The Department is considering the introduction of more activities to enable projects to be captured in a similar way to that used in the NSW ESS scheme.

The Department prepared an Issues Paper regarding the re-introduction of ceiling insulation into the VEET scheme. Analysis of the issues raised during public consultation is currently being undertaken. Further details on this will be made available on the Environment, Land, Water and planning Website.

The means for approval of applications is a regulatory process that is administered by the Essential Services Commission (ESC). The ESC must perform the necessary due diligence before approving applications to maintain the integrity of the scheme.

(e) Additional Stakeholder Issues

Other issues stakeholders raised as part of the consultation included:

  • requests to review VEET charge costs being levied by retailers; and
  • support for harmonisation of a national framework on energy efficiency.

Victorian Government Response

The Victorian Government supports retail competition as the most efficient means of keeping energy costs down and in a de-regulated retail market, does not have any mandated role in overseeing negotiations between large private companies and energy retailers on the supply of energy. Accordingly, the Victorian Government is not in any position to intervene in negotiations between energy retailers and large energy users on energy charges.

In December 2011, the Premiers of NSW and Victoria agreed to pursue an interstate reform partnership for energy efficiency. The Premiers agreed to increase consistency between the NSW ESS and the VEET. DPI has accordingly been working with NSW to review aspects of both schemes that may be greater harmonised.  A working group established to undertake this work will provide a report on progress by the end of the year.

The Victorian Government will also continue to closely monitor the Commonwealth Government's work on the National Energy Savings Initiative, and provide further comment as options are developed.

Conclusion

The Victorian Government is satisfied that the amendment regulations to exclude EREP registered sites will close the unintended loophole that currently exists.

DPI would like to thank all stakeholders for their valuable contributions on calculating scheme liabilities.

Footnotes

1 Regulation 12 provides: "For the purpose of the definition of scheme acquisition in section 3(1) of the Act, the following are prescribed customers-

  1. all of a relevant entity's customers of electricity in Victoria;
  2. all of a relevant entity's customers of gas in Victoria, other than customers who are engaged in the activity of owning, controlling or operating a gas-fired electricity generator connected to the interconnected national electricity system and who, for the purposes of  section 11(1) of the National Electricity (Victoria) Law are Registered participants, or are exempt from the requirement to be a Registered participant, in relation to that activity."

2 See regulation 10(1)(ab)

3 refer to discussion of the Scheme Target under "3. Other Issues".

Page last updated: 24/06/20