vecci

Dear David,

Re: Review of the Energy Saver Incentive

The Victorian Employers Chamber of Commerce and Industry (VECCI) welcomes the opportunity to provide a submission to the review of the Energy Saver Incentive (ESI) scheme.

Drawing on research and VECCI's extensive experience in advising and working with Victorian businesses to improve their energy efficiency, this submission highlights performance of the ESI to date from the perspective of the business sector, and contains recommendations for the next phase of the scheme from January 2015.

Energy efficiency barriers and opportunities

A large pool of energy efficiency opportunities exist within the Victorian business sector. In undertaking energy audits for small businesses in 2012-13, VECCI found that by implementing simple, low cost measures, businesses could save on average over $4,000 per annum in reduced energy bills.

It is VECCI's experience that despite the high return on investment and cost savings presented by energy efficiency opportunities, there are still a range of barriers that prevent take up by businesses, particularly small and medium enterprises (SMEs). These include:

  • A lack of access to capital;
  • Lack of information on opportunities, products and suppliers;
  • Lack of time and resources to understand product options, navigate the complex grants and subsidies available, and build and consider a business case.

As noted by the International Energy Agency, effective energy efficiency policies unlock abatement potential otherwise untapped by the carbon price signal, delivering benefits to consumers at both an individual and market level. Additionally, with a more flexible scheme architecture, the ESI has the potential to accelerate the development and commercialisation of new technologies that can reduce carbon abatement costs in the future.

Addressing energy efficiency is widely regarded as one of the most cost effective forms of carbon abatement. Unlocking the energy efficiency potential in both the residential and business sectors will not only contribute to lower costs in the short term, but also has the potential to reduce wholesale electricity prices, lower network infrastructure investment and reduce costs associated with meeting national emissions reduction targets.

The performance of the ESI to date

VECCI actively works with Victorian businesses to assist them in improving their energy efficiency. In 2012-13, we provided over 600 Victorian businesses with advice and support on energy efficiency. Based on our experience, we offer the following observations:

  • There is virtually no awareness amongst the business sector as to the existence of the ESI and the opportunities and potential benefits present under the scheme. Business customers are very different to households and Accredited Persons (APs) are not experienced in communicating to businesses and reaching the decision maker. This is much easier to do in households, and as such, APs have focussed their efforts on low cost activities in the residential sector (such as the distribution of standby power controllers).
  • Where APs do provide products to businesses under the scheme, they are often not appropriate and therefore not used. For example, standby power controllers distributed to businesses under the ESI are often discarded due to the disruption caused by active power control (where the device, normally a TV, switches off after no changes to channel/volume are made within an hour). This was observed by VECCI Sustainability Services consultants undertaking energy audits in a number of accommodation providers.
  • The restriction on activities and methodologies allowable under the scheme has limited its effectiveness for businesses. While businesses in Victoria are generally not aware of the scheme and its potential benefit, this is in contrast to the equivalent scheme in NSW, where commercial upgrades have constituted a large proportion of certificates generated.
  • In more complex circumstances, the system is unwieldy and difficult to use. For example, commercial lighting upgrades are an area of large potential for businesses, but low certificate prices and burdensome regulatory requirements to date have dampened activity. In our own case, when VECCI sought quotes via our electrical contractor for lighting upgrades at our head office, , we had difficulty in obtaining transparent and meaningful information from the supplier on the ESI subsidy being offered. This was despite our internal knowledge and expertise in the area.

Energy efficiency schemes, if effective, have the potential to reduce wholesale electricity prices as well as the compliance costs associated with the carbon tax. However, it is difficult to isolate the impact that the ESI has had due to a range of factors that likely have an equal or greater impact on wholesale prices. Structural changes to the economy, sensitivity to rising energy prices, increased penetration of household solar PV and the carbon tax have all played a role.

The impact of the ESI is particularly difficult to discern at the retail level. Some businesses VECCI has spoken to have reported increases in energy tariffs attributed to the VEET scheme. The costs of the ESI are being clearly felt by some businesses, yet they are not able to derive any benefit. Business has shouldered a disproportionate burden of the costs of the scheme since the expansion in 2012.

Looking forward: The future of the scheme from 1 January 2015

Revising VEET Objectives and Regulations

To increase the benefits delivered by the scheme and ensure complementarity with the carbon tax consideration should be given to amending the objectives of the scheme to address peak demand as well as overall demand. In doing so, the potential benefits of the scheme can be amplified by reducing the need for costly investment in network infrastructure required to meet reliability standards.

For the scheme to be beneficial to business consumers, increased flexibility is required to allow for more complex energy efficiency projects. One way this could be achieved is through Project Based Assessments (PBAs), provided this activity is regulated in a way that minimises transaction costs and does not place a heavy regulatory burden on APs. Existing frameworks such as National Australian Built Environment Rating System (NABERS) or Energy Performance Contracting could be suitable for PBAs.

Interaction with other policy mechanisms

The ESI should not be discontinued in anticipation of a National Energy Savings Incentive (NESI), but rather when a national scheme comes into effect. If a NESI is implemented, it will be critical to ensure the ESI is discontinued to avoid duplication.

One of the key objectives of the act is to reduce greenhouse gas (GHG) emissions, overcoming the market failure to account for GHG emissions associated with energy consumption. With a federal mechanism to address carbon emissions, it is important to ensure that VEET is complementary to other federal policies and addresses other market failures such as information gaps and access to capital.

Consideration should be given to extending the scheme to large energy users, provided PBAs are an accredited activity, to distribute the costs and benefits of the scheme more widely. Results from the Environment and Resource Efficiency Plans (EREP) program showed large energy efficiency potential in this sector, with average payback period of less than one year across the program (EPA Victoria, 2012). With the discontinuation of this scheme, including large energy users in a market based scheme such as the ESI could reduce overall scheme costs and increase benefit to businesses. Implications for scheme target would need to be considered and subject to detailed modelling and cost benefit analysis.

Conclusions

  • Overall, the ESI has shown to be an effective scheme in the household sector, but has delivered minimal benefit to businesses.
  • Given the disproportionate costs borne by business in the current phase of the ESI, any subsequent phase should be designed to deliver benefit to and capitalise on energy efficiency opportunities in the business sector. This will require measures to overcome some of the barriers that currently exist for business.
  • There are significant economy wide benefits to assisting the take up of energy efficiency. Reduced wholesale electricity prices, reduced need for network infrastructure upgrades, reduced carbon emissions and/or reduced carbon price compliance costs.
  • With some regulatory changes, the ESI could effectively assist businesses in improving energy efficiency and correct prevailing market failures.

We would welcome the opportunity to discuss our response with you in detail, should it be required.

Yours sincerely,

John Griffiths
Business Analyst, VECCI Sustainability Services

Page last updated: 24/06/20