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8 July 2013

Dear David

Review of the Energy Saver Incentive: Issues Paper – June 2013

Thank you for the opportunity to provide a submission to the review of the Energy Saver Incentive: Issues Paper June 2013. NAGA supports the continuation and expansion of the scheme as a successful market-based mechanism to support energy efficiency implementation.

The Northern Alliance for Greenhouse Action (NAGA) is an alliance of nine councils in the northern metropolitan region of Melbourne and Moreland Energy Foundation (NAGA's members are listed in the footer). NAGA formed in 2002 as a network that shares information, coordinates emission reduction activities and cooperates on the research and development of innovative projects. NAGA's goal is to achieve significant emissions abatement by delivering effective programs and leveraging local government, community and business action. NAGA and its members have demonstrated significant emission reduction innovation at the local government and regional level. NAGA's 'Towards Zero Net Emissions' regional plan (TZNE), endorsed by its members and launched in April 2010, outlines a series of initiatives which focus on energy efficiency across the industrial, commercial and residential sectors.

NAGA and its members prioritise implementation of energy efficiency as a critical element of climate change action, and are therefore strongly supportive of the implementation of schemes such as the ESI that provide incentives and encouragement for implementation of energy efficiency actions and initiatives.

NAGA and its members have provided a number of submissions to the establishment of the VEET Act and subsequent reviews, demonstrating a long-standing interest and support for the scheme.

AGA members have worked with suppliers to promote and extend uptake of the scheme to residents and small businesses in their communities. This has included the provision of bulk buy schemes and programs to bundle products and to target specific residential sub-sectors including low-income and high-rise households.

NAGA's submission highlights some of the key issues related to ESI and local governments' involvement:

  • continuing barriers to energy efficiency, particularly information, finance, and split incentives;
  • recruitment of households and small businesses;
  • support for inclusion of streetlighting energy efficiency changeovers;
  • future opportunities: project-based approaches; expansion of complementary programs and initiatives to increase effectiveness of the scheme.

NAGA and its members would be pleased to provide additional information, based on our direct experience of working with larger and small energy users to assist the review process. Please contact me if you would like any further information, case studies or clarification on the issues raised in this submission.

Yours sincerely

Judy Bush

Executive Officer

Continuing barriers to energy efficiency, particularly information, finance, and split incentives

The barriers to implementation of energy efficiency have been well documented by many; these include information asymmetries, split incentives, access to capital for upfront costs (and the challenge of demonstrating long-term financial value even taking into account payback periods, in the face of short-term upfront costs), technology risks, regulatory barriers, energy pricing and behavioural barriers.

There appears to be continuing low levels of awareness of the ESI scheme and how it operates amongst a number of industry sector members (retailers and installers/tradespeople). The scheme should be promoted to this sector to enhance businesses' participation and understanding of how the scheme operates, resulting in increased residents' and businesses' access to opportunities through the scheme.

The scheme has suffered from miscommunication and confusion amongst consumers. A comprehensive communications strategy is required in future to inform and educate consumers on the benefits of the scheme, how it works and gains from greater energy productivity.

Addressing the split incentive issue for renters (both residential and business) is complex and requires a raft of measures, both within the ESI scheme as well as other complementary measures; as it stands, tenants are consistently excluded from participation in these schemes. Additional requirements include incentives, education and regulations for minimum standards).

Improving the energy efficiency of residential rental properties is a complex and multi-faceted undertaking. The split incentive issue is compounded by a general lack of knowledge among landlords, tenants and real estate agents about the sustainability profile of properties1. Further barriers identified by Environment Victoria2 include information barriers, upfront capital costs and lack of understanding of the benefits of efficiency measures. Research with landlords undertaken by the Australian Housing and Urban Research Institute found the barriers to investing in energy efficiency improvements cited by landlords include: high upfront costs; the lack of financial incentives to act if they are unable to recoup their expenditure; disinterested tenants; difficulties in accessing the property to undertake works; problems gaining agreement across strata-titled multi-unit developments; the condition of the building; the individual investor's situation; and a lack of awareness of the issue3. Furthermore for those properties under management, property managers often determine what information is passed from tenant to landlord, and the structure of their business may not necessarily prioritise the tenant's (or the landlord's) best interests.

From the perspective of the renter, a pilot energy retrofit program conducted in 2010 by Just Change4 found that low-income renters often miss out on funding for rental energy efficiency improvements; there was low awareness of the eligibility of rental properties for energy efficiency programs; and there was reluctance by renters to request energy efficiency improvements.

In order to address the complexity and interaction of multiple players and barriers involved in the rental market, programs should include legislation, financial incentives and financing mechanisms. Specific financial mechanisms have been designed to address the split incentive issue, including green lease and environmental upgrade agreements. Other financial incentives may include appliance rebates, a tax rebate, and free property audits. The future phases of the ESI scheme need to incorporate specific measures or actions targeted at low income renters or landlords of low income properties, and complementary features to address and overcome the barriers outlined above.

Recruitment of households and small businesses

As a market-based certificate scheme, ESI does not include significant levels of support for recruitment of participating households and businesses.

Much of the activity beyond the simple, one-off activity in the residential sector has relied on additional resources from local government (including in some cases grant funded projects) to enable a program to be conducted. This local government involvement has supported and resourced the recruitment, information, promotion and evaluation of the energy efficiency activities undertaken through the scheme. In the NAGA region, a number of NAGA's members have committed resources in this way, including Cities of Melbourne and Yarra (with specific targets for low income households); Moreland Energy Foundation (Concession Assist program that specifically targeted low income households), and a number of programs run by Darebin City Council, Nillumbik Shire Council and others that targeted particular household and small business sectors.

NAGA and its members believe that with recruitment support, and increased marketing and promotion provided as part of or complementary to the scheme, the scheme's reach could be significantly increased.

Support for inclusion of streetlighting energy efficiency changeovers

Whilst upgrades of open space, metered lighting in parks, sporting clubs and car parks have now been included in the ESI, supporting local governments' energy efficiency programs, streetlighting (unmetered) is not yet being rolled out as part of the scheme. Streetlighting constitutes the single largest source of greenhouse gas emissions for many local governments, and the State Coalition Government's pre-election announcement of financial support, and subsequent budget allocation for streetlighting changeovers (through the Green Light program) was welcomed by the sector. The removal of that funding before any had been allocated was extremely disappointing, and has delayed many local governments' plans (and financial capacity to undertake) the energy efficiency streetlighting changeovers. The inclusion of streetlighting as an eligible activity in ESI, and its rollout across the state, will be of great significance for many Victorian local governments.

Future opportunities: project-based approaches; expansion of complementary programs and initiatives to increase effectiveness of the scheme.

The evidence is becoming clearer that the greatest economic and energy savings come from 'deep' retrofits that incorporate a range of retrofit targets rather than single product installations. The ideal scheme would facilitate and encourage this approach. To be effective, the package of measures would need to incorporate assessment, baselines audits and financing.

Additional complementary benefits could be achieved if the scheme allowed specific identification and targeting of areas of electricity network constraint; costly network upgrades could potentially be delayed or avoided through targeted efficiency measures, enabling a net benefit to not only individual consumers but also to all customers in the network.

Consideration could be given to a 'hybrid' of the NSW and Victorian certificate schemes to make ESI more inclusive to a wide variety of SMEs, and to keep administrative costs lower.

One of the advantages of the ESI scheme is its ability to add (or remove) particular products or technologies as they become available, providing ongoing flexibility and responsiveness to technology developments and changing costs.

Researchers have noted that: "well designed schemes may be able to play a useful role in a coherent and comprehensive energy efficiency policy framework that includes a range of different policy measures. [Such schemes] have some attractive characteristics including their inherent measurement of policy outcomes, support for scaling up energy efficiency activities and their potential role in facilitating motivated, knowledgeable and skilled ESCOs to assist often poorly motivated, unknowledgeable and unskilled energy consumers in undertaking appropriate energy efficiency opportunities."5 NAGA strongly supports the continuation of ESI, and its strengthening through integration with a range of complementary programs and measures to address the other continuing barriers that ESI (and similar certificate schemes) cannot address.

Priorities for implementation of comprehensive and effective energy efficiency programs and schemes

  • Provide a comprehensive approach; schemes which address only the 'low hanging fruit' (easily implemented, short payback period) fail to engage the full potential benefits of a comprehensive approach;
  • Include both financing and supply components; disaggregated programs have limited impact for take up, except for early adopters;
  • Maximise local ownership and delivery to support green local jobs;
  • Utilise opportunities for local scale delivery, including bulk buy schemes; NAGA's members have delivered a number of such programs that have proved more effective that some of the larger less targeted schemes (such as VEET and the insulation rebate), by undertaking selection and quality control of installations, best value and project management;
  • Develop longer implementation timeframes to avoid the short-term, stop and start programs that have already tarnished public confidence in these energy efficiency programs;
  • The provision of a holistic approach incorporating sustained information campaigns, targeted marketing, incentives, industry engagement based on actual consumption for users across various sectors including SMEs, improved billing and benchmarking data and pricing changes which support lower consumption are all key ingredients to effect change in awareness and behaviour.

Footnotes

Gabriel, M. et al. (2010), The environmental sustainability of Australia's private rental housing stock, AHURI Positioning Paper No.125. Melbourne: Australian Housing and Urban Research Institute.

2 http://environmentvictoria.org.au/library/towards-climate-safe-homes

3 Gabriel, M. et al. (2010) The environmental sustainability of Australia's private rental housing stock, AHURI Final Report No. 159. Melbourne: Australian Housing and Urban Research Institute.

4 http://www.justchangeaustralia.org

5 http://ceem.unsw.edu.au/sites/default/files/documents/eceee_wceect_MacGill_final.pdf

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