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Victorian Energy Saver Incentive Issues Paper

The Energy Supply Association of Australia (esaa) welcomes the opportunity to make a submission to the Department of State Development, Business and Innovation's Review of the Energy Saver Incentive (ESI) Issues Paper.

The esaa is the peak industry body for the stationary energy sector in Australia and represents the policy positions of the Chief Executives of 36 electricity and downstream natural gas businesses. These businesses own and operate some $120 billion in assets, employ more than 51,000 people and contribute $16.5 billion directly to the nation's Gross Domestic Product.

The esaa supports greater efficiency and productivity across the Australian economy. This includes the use of energy itself. Energy efficiency is not an end in itself, but is worthwhile when the costs to achieve lower energy use are lower than the costs to produce and transport the energy saved.

In general, the users of energy should be best-placed to make that trade-off. There may be some barriers to their doing so, for example:

  1. static, inefficient and non-cost reflective consumer pricing;
  2. information asymmetries in consumer education;
  3. capital constraints faced by financially vulnerable consumers;
  4. split incentives (landlord/tenant) to install energy efficient products; and
  5. bounded rationality (limited understanding/interest dictating product purchase).

For the most part, these are similar to the barriers identified in the Issues Paper. There is one key barrier to energy efficiency that the Regulatory Impact Statement (RIS) for the ESI has missed: cost-reflective prices.

Victoria's retail gas and electricity markets may be deregulated but that does not necessarily mean that prices are entirely cost-reflective. With flat prices being the norm, the marginal cost of electricity does not change for the consumer. This could be despite a household choosing to run a dishwasher, for example, at a peak time in a network area reaching its capacity. The best incentive for households and businesses to use energy efficiently will be cost-reflective pricing. This will give customers the true signal they need to determine whether using energy at a particular time is efficient or not. A white certificate scheme is not needed to make this happen. We note that the moratorium on time of use prices in Victoria will be lifted as of July 1. This is an important shift in the retail energy market which will provide strong incentives for households to use energy more efficiently.

In addition, the esaa notes that cost-reflective pricing is the only price-based barrier to energy efficiency. With this in mind, it makes little sense to try to address the remaining barriers to energy efficiency through a market-based white certificate scheme.

The existing RIS also identifies the externality of greenhouse gas emissions as a barrier to energy efficiency. With a carbon price now in place in Australia, the esaa considers that this externality has now been internalised into electricity and gas markets. Given this, and given the ESI's metric of tonnes of carbon dioxide avoided, there is little justification for the scheme to continue as it is not complementary to the national carbon price. Additionally, emissions reductions policies are best addressed at a national or international level. It is inefficient for the Victorian Government to enact policies designed to reduce emissions when national level policies will provide the most efficient response.

The Issues Paper states that the extent to which the ESI is complementary to the carbon price is dependent on any residual market failures. As already mentioned, the other barriers to energy efficiency are non-price related, and so should not be addressed through a market-based white certificate scheme. There are a series of other federal and state government measures that seek to address the remaining barriers to energy efficiency. For example, the Australian Government's Home Energy Saver Scheme addresses informational gaps and provides no interest loans for low-income households, and on 3 July 2013, the Federal Government released details of $110 million worth of grants for energy efficiency projects as part of the Clean Energy Future package. There are ongoing developments in minimum performance standards for appliances and energy labelling which assist in both informational gaps and preventing households and businesses 'locking-in' energy inefficiency to some degree.

The esaa also has concerns with the mix of technologies contributing to reaching the target. There is a distinct lack of diversity in the ESI with just two activities – lighting and standby power controllers – responsible for creating the vast majority of certificates. Under certain circumstances, this could be an efficient response, with the market finding the most cost-effective technologies to meet scheme compliance. But, given that both activities rely on deeming and providing customers with the product for free, the Association queries how effective these technologies really are in creating long-lasting behaviour change. Providing products for free undermines the chances of customers engaging actively and choosing cost-effective outcomes for themselves. This situation also provides an incentive for technology developers to focus on marketing and having their product approved for eligibility rather than encouraging meaningful action from consumers.

In addition, the esaa understands that concerns have been raised about whether many standby power controllers (SPCs) are still in use. Unfortunately, the Essential Services Commission has not made the results of earlier audits into SPC installation available. We contend that given these devices represent a large proportion of certificates created, up-to-date studies should be carried out to assess whether these devices are still being used several months after their installation. It is important to gain robust information on the level of ongoing use of SPCs to be able to determine the efficacy of the ESI scheme to date.

With a variety of programs already addressing the non-price barriers to energy efficiency, the introduction of time of use pricing in Victoria from 1 July 2013, and the implementation of a carbon price in Australia, the esaa calls for the Victorian Government to sunset the ESI. The scheme is duplicative, non-complementary and fails to address the actual barriers to energy efficiency. The actual ongoing savings to those who participate are unclear, but the costs the scheme imposes on all users are not.

Any questions about our submission should be addressed to Ben Pryor, by email to ben.pryor@esaa.com.au or by telephone on (03) 9205 3103.

Yours sincerely

Andrew Dillon

General Manager,

Corporate Affairs

Page last updated: 24/06/20