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Dear Mr Blowers

RE: Review of the Energy Saver Incentive: Issues Paper - June 2013

Momentum Energy welcomes the opportunity to provide comments in response to the Review of the Energy Saver Incentive: Issues Paper (the Issues Paper).

Momentum Energy is a second tier retailer with current retail electricity licences in Victoria, New South Wales, South Australia, Queensland and the Australian Capital Territory. Momentum Energy is fully owned by Hydro Tasmania, one of the largest clean energy producers in Australia.

Energy efficiency has multiple benefits at every level of the economy and is central to meeting the challenge of climate change. Momentum recognises that the creation of a market for energy efficiency via the Energy Saver Incentive Scheme (ESI Scheme) has contributed to a reduction in Victorian energy demand.

Momentum's position in relation to this Review of the ESI (the Review) is that the ESI Scheme is not itself efficient. I n fact, it is not operating in a manner that justifies either:

  1. its substantial and onerous administrative regime; or
  2. the cost imposition that it constitutes for consumers (in particular, consumers that are not directly benefiting from covered abatement activityL relative to energy efficiency delivered by more efficient means.

The review therefore comes at an opportune time to consider what reforms are needed to make the scheme function in a better way.

Barriers to uptake of energy efficiency measures

The barriers to uptake of energy efficiency measures that t'ere identified as justifying the creation of the ESI Scheme - in particular, the lack of depth and breadth of consumer understanding of the benefits of investment in energy efficiency (information gapsL and externalisation ofthe cost of carbon emissions - have reduced since the ESI Scheme commenced. In light of this, it is appropriate that the Regulatory Impact Statement (RIS) and the broader review process should:

  • assess whether the current ESI Scheme objectives are still appropriate;
  • identify whether current and expected issues can/will be addressed by changes to the ESI Scheme;
    and
  • determine if the ESI Scheme is the most suitable approach for achieving energy efficiency outcomes.

The fact that most energy customers do not face cost-reflective prices is a barrier to uptake of energy efficiency measures that is not listed in the Issues Paper. This barrier will be reduced by the impending roll out of widespread flexible pricing in Victoria, although Momentum notes that, at the time that the Victorian Government will make a decision on the future of the ESI Scheme, it will have at its disposal only limited data about the take up of and outcomes from widespread flexible pricing.

Performance of the ESI Scheme to date

A failing of the ESI Scheme to date is that it has been dominated by just two activities - residential lighting and standby power controllers (SPCs). In particular, the extent to which SPCs have overwhelmed the market for Victorian Energy Efficiency Certificates (VEECs) since early 2012, driving down the VEEC price, has crowded out non-household energy efficiency activity. Much has been written about the issue of whether SPCs are achieving the abatement conferred on them by the ESI Scheme. There is room for debate about the critiques but what is certain is that one can have much higher confidence in the real abatement of many of the energy efficiency activities crowded out by SPCs (eg business lighting).

Also, the fact that consumers have received residential energy efficient lighting and SPCs for free has made it more difficult than it otherwise would have been to engage consumers in relation to energy efficiency activities that require an up-front outlay.

When considered alongside a depressed VEET price due to SPC saturation, and this unrealistic expectation that the appropriate test as to whether an energy efficiency measure is worthwhile is whether it is free, the significant compliance activity that a business must implement to utilise the ESI Scheme is more likely to be seen as too onerous to be worthwhile.

This calls into the question whether there is sufficient let alone optimal alignment between the ESI Scheme's target and scope on the one hand, and the incentives at play for accredited persons and consumers, on the other hand.

Momentum notes that the inclusion of commercial and industrial customers within the ESI Scheme in 2012 failed to properly consider the interaction of the ESI Scheme with the Victorian Government's Energy and Resource Efficiency Plan Scheme. As previously noted, Momentum believes the existing definition of "relevant entity" has allowed a select few entrenched retailers to grab a large competitive advantage by utilising their secondary licences to retail a significant load to fewer than 5,000 customers in order to offer VEET-free deals to commercial and industrial energy users. The latter problem was recognised a very long time ago but the corrective legislation will commence on 10 July 2013.

The future of the ESI scheme

Momentum notes that the Issues Paper does not canvas the queestion of Victorian participation in a National Energy Savings Initiative (NESI) or moving forward with jurisdictional harmonisation with New South Wales. Our experience in relation to the development of the National Energy Customer Framework would indicate that the theory that a NESI would be an improvement would not necessarily translate to practical reality. Even so, it seems odd that there could be a full review of alternative options to the ESI Scheme with consideration of these options. Retailers that operate in multiple energy markets face inconsistent energy efficiency schemes, resulting in additional costs for end consumers. The many and varied energy efficiency schemes across the national electricity market would be more predictable and less costly for consumers, more attractive to energy efficiency operators, and less onerous for retailers if there was a common, mutually recognised approach to just a couple of basic system features like accreditation and deeming values for particular activities. For example, unlike in NSW, Victorian business are not able to receive recognition (and extra certificates) for extended hours lighting that is run for more than the allocated 3000 hours per annum. This is an area where the ESI Scheme could be altered to provide for harmonisation and to giveVictorian business greater incentive to participate.

If the ESI Scheme is to continue beyond 2014, it is imperative that the method/timetable for setting the Greenhouse Gas Reduction Rates (the GHGRR) is reformed. The GHGRR should be set by 31 October prior to the commencement of the compliance year. This would benefit retailers, as well as consumers, who would not have to face the billing adjustment necessarily imposed by the current process. This change would not compromise the objectives of the ESI Scheme, as the achievement of the scheme target could be balanced out the following year. This reform would match the Australian Government response to the Climate Change Authority's (CCA's) Renewable Energy Target Review Final Report, which agreed to implement the CCA's recommendation that the setting of the Renewable Power Percentage and Small-scale Technology Percentage be brought forward from 31 March of the current compliance year to 1 December of the preceding year, to allow liable entities to manage their RET liability with a higher degree of accuracy.

Momentum looks forward to reviewing the RIS later in 2013 and to contributing to action to reduce greenhouse gas emissions via the most effective, efficient and equitable possible mechanisms. We ask that decision makers give appropriate weight to the fact that retailers and other scheme participants desperately want regulatory certainty. If the outcome of the Review is that the ESI Scheme is closed on 31 December 2014, with or without replacement by an alternative mechanism, it is imperative that this happens within the timeline indicated in the Issues Paper. Also, by the time that the RIS is scheduled for release (December 2013), it will already be too late to close the scheme any earlier than 31 December 2014.

If you would like to discuss this submission or any other matter, please contact Momentum's Regulatory Manager Luke Brown on (03) 8612 6437 or luke.brown@momentum.com.au

Yours sincerely
Alastair Phillips
General Manager Regulatory and Compliance

PO Box 353 Flinders Lane Melbourne VIC 8009 Australia
T 1300 662 778 F (03) 9620 1228
info@momentum.com.au www.momentum.com.au
Momentum Energy Pty Ltd ABN 42100 569 159

Page last updated: 24/06/20