wattly

1 Introduction

Wattly is an Accredited Persons under the VEET scheme for the purpose of Incandescent (Schedule 21) and Commercial Lighting (Schedule 34) activities. Wattly¡¯s vision is to bring to provide Cloud Computing and Mobile Computing solutions to help drive energy efficiency and carbon abatement. Wattly was founded (by professionals from the energy and IT sectors) in 2012 and became accredited in June 2013 under the both the VEET scheme and NSW ESS Schemes. It took just under 12 months to prepare the application and then achieve accreditation (8 months). Wattly¡¯s focused is LED lighting upgrades and the use of mobile devices to collect all the paperwork required for each of the activities. Wattly¡¯s solution includes the ability to create reflected ceiling plans on the device and an accredited method to estimate lux levels to aid in AS/NZS 1680 Lighting Standards compliance.

Wattly as an Accredited Persons actively supports the continuation and expansion of the ESI scheme. Our main concerns are that activities and products in a market based scheme should promote long term sustainable energy and carbon savings through;

  1. Applying consistent regulatory standards (& costs) across activities & products
  2. Ensuring that the schemes administrator and the public have a high degree of confidence that the activities are achieving the claimed savings.
  3. Avoiding free products that distort the market and impact the long-­©\term savings ¨C consider VEECs funding up to a max percentage (eg 75%) of the costs of a project.
  4. That long term / sustainable energy & carbon savings are promoted over activities with questionable lifetime savings.
  5. Improving the public perception of the scheme by banning door knocking, free disposable products, and promoting the benefits & long-­©\term savings of the scheme.
  6. Increased VEECs quota for Relevant Entities to drive further energy & carbon savings with low cost VEECs from 60-­©\80M downlights, a wide range of commercial lighting, and clear data of increased VEEC creation from non-­©\SPC activities over the past six months
  7. Increased engagement of business sector via project assessment, meter baseline activities and extended operating hours for commercial lighting for VEEC creation.
  8. Mechanisms to provide greater certainty for business investing in the scheme

This response is structured with two sections.

  1. A summary of response & our recommendations after reviewing the Issues Paper.
  2. Detailed response to the specific questions asked in the issues paper.

For any questions or further feedback from this response please contact Hamish McGovern of Wattly (0416 296 827, 1300 878 500, Hamish@wattly.com.au).

2 Summary & Recommendations

2.1 Benefits & Complimenting with National Schemes

From reported measures the ESI scheme has contributed to reducing the overall consumption of power of Victoria and as a consequence reduced greenhouse gas emissions.

The scheme is complimentary to national schemes such as carbon tax or future emissions trading schemes in that it provides a concentrated incentive to be proactive, as opposed to a penalty across the board for in action.Public opinion continues to move towards acceptance of human induced global warming and the need to reduce GHG emissions, and hence the public will further embrace well-designed schemes such as ESI scheme if administered and executed well.

The ESI concentrates investment for proactive early movers in new technologies and helps to offset some of the high costs & risks at the start of a technology adoption curve, as well as accelerating adoption to the mass market for energy saving products.

Wattly¡¯s main customer Gruber Lighting has a high quality LED lamp & driver for the commercial market, and due to the VEET scheme Gruber is developing a lamp only replacement with a novel design for residential downlights replacements. This innovation would not have occurred without the existing of the Energy Saving Incentive to drive demand.

The VEET scheme has provided a specific set of requirements around which Wattly and our technology has been formed. Wattly¡¯s has developed significant expertise in the creation of mobile forms and greater understanding in the mobile & cloud technologies. We plan to apply these technologies to other applications outside of the VEET scheme.

There are huge energy and GHG savings that can be achieved at acceptable costs through the rapidly maturing LED lighting in commercial & residential buildings. Over 20 companies have invested to become accredited under commercial lighting with over 400 products approved and many more in the pipeline. Before even considering commercial, industrial or street lighting, there are 60-80M downlights alone in Victoria (equivalent to 50M VEECs).

Other avenues for low cost energy savings include greater engagement with commercial and industrial businesses through project based assessment or meter baseline approaches to energy savings.

2.2 Challenges

2.2.1 Free Products Distort the Market and Undermine objectives

Allowing free products under the scheme distorts both buyer and supplier behaviour to the use the cheapest products that meet approval criteria, but create neither long term energy or carbon savings and result increased products in landfill.

Door knocking coupled with free products greatly undermines the value of the scheme. There is an obligation by the consumer to take the product to save energy, but there is no buy-in or feeling of ownership by the consumer, no information about alternative products, and no quality comparison or judgement for fit for purpose has been made (no economic rational decision making occurs). As a result there is very little disincentive to discard the product if it in anyway decreases the consumers existing experience, especially if the change is easily reversed.

Where products are available for free under the scheme suppliers act rationally to make products as cheaply as possible, with as lowest skilled labour to build / installer, targeting the VEEC price to maximise profits without consideration to quality, long term energy or carbon savings, since they know that the consumer makes no quality judgement is made at the time of acquisition.

Free products drives investment towards the cheapest products and skills sets, it does not encourage investment (either by the AP or the consumer) in quality products with greater long- term savings, greater innovation or greater skills sets.

2.2.2 Disparity between activities costs and long term energy savings value

Disparity of product approval criteria: There is a large disparity between the requirements for product approvals in the different activities of the scheme. The products with high approval criteria are expected to have long term savings, but have a high upfront cost to APs. The products / activities with low approval criteria have the potential for short lifetime savings (due to the cheap nature of the products & the potential for them to be free).

Disparity of activity administrative & installation overhead: There is a high degree of disparity in installation effort, documentation and audit trail required for different activities. Upgrade activities product in and product out (decommission receipts) that are fixed in place and large amount of paperwork & proof result in a high confidence of long term sustainable energy savings. Products with minimal paperwork, limited proof that are easily reversed and installed using low skilled staff are less likely to achieve claimed long term energy savings. (EG Hotwater, Space Heating, Commercial Lighting vs SPC)

2.2.3 Disparity between business and residential

The bulk of the activities to date have engaged residential households and not business, leaving business with the claim (fairly?) that they are paying for all the residential savings under the scheme.

2.2.4 Business Investment Challenges

Three yearly reviews create large uncertainty and make business investment very risky, it also affects the stability of the VEEC price.

Highly variable VEEC price coupled with long accreditation and product approval timelines makes new business investment into the scheme risky.

Wattly argues that whilst SPCs are a cheap source of a very high percentage of VEECs the longevity (rate of retention over the next ten years and the actual savings) are unlikely to meet the number of tons of CO2 abated and have suppressed investment in activities with more sustainable savings.

Wattly has spoken to about 20 lighting contractors, retailers, wholesalers in the past two months and most see the price is too low for the level of effort required to engage them in commercial lighting (schedule 34) some can justify it under schedule 21 for downlights, but even many of them don¡¯t think it is worth the hassle. Lighting is clearly a long term energy saving that is not moving forward due to the VEEC prices has dropped drastically over the past 18 months due to the flood of SPCs.

2.3 Recommendations

Products should not be free. Either VEECs fund (a percentage eg 75%) of the upgrade or there is a minimum cost associated with products & installation. Where the customer pays for a product normal market behaviour will occur (decision making, judgement, ownership, responsibility).

Door knocking with free products should be prohibited. The majority of consumers don¡¯t like it and are put in a position where they do not have the information on hand to judge the products. Banning free products will help drive investment in products higher up the value chain greater innovation and more skilled workers.

Use deemed / fixed number of VEECs where no external proof of savings exist. Products where the installer has the ability to determine the number of VEECs with no external proof should have a deemed number of VEECs per install. Installers will always estimate the highest number of VEECs. (eg SPCs allows the installer to overestimate through the types of devices claimed to be plugged in).

Include a range of commercial and industrial activities under the scheme to incentivize businesses in long term savings. Consider project based assessment, or metered baseline as per NSW ESS scheme.

Wattly agrees with the recommendation (raised in the AP round table) to move to quarterly or bi-annual surrender for the relevant enties to match demand with supply to help stabilise prices

Based on the estimated 60-80M downlights in VIC & commercial lighting opportunities along low ESC price in NSW (with no SPCs) it¡¯s clear that there is a large number of VEECs that can be created around < $20. Wattly recommends a doubling of the VEEC target to 11M along with bring commercial, industrial with project & metered baseline activities as well as including EREP sites into the scheme.

We recommend that extended operating hours be included in the commercial lighting schedule 34 to increase participation by business and ensure this activity, which has a the highest administrative overhead, is a good source of VEECs.

We recommend that the schemes administrator have the authority to impose greater penalties and to be able react faster when APs are found to operating at odds with the design of the scheme. Issues around SPCs and operators in door knocking have been raised, but as far as we are aware very few penalties for poor practices have occurred, nor has the value of VEECs generated by SPCs been re-examined with high anecdotal evidence indicating a much higher removal rate than planned.

The value of the scheme deserves promotion to create greater awareness and public buy-in. General public understanding of the scheme, the value and the activities available is low. It is mostly known through the interaction with SPCs giving it a perception of cheap / disposable.

3 Detailed Response (answers to Issues Paper questions)

We¡¯ve provided our response in bullet format against the questions in the Issues Paper.

3.1 Barriers to Uptake of energy efficiency measures

3.1.1 Informational Gaps

Informational gaps continue to be an issue.

  • Public Opinion on the reason for Energy Efficiency (and Carbon Abatement) lags scientific research.
    • 97% of scientific papers agree human-induced global warming is occurring but public opinion in Australia is around 50-60%. http://iopscience.iop.org/1748- 9326/8/2/024024/article
    • Publications like the Critical Decade by the Climate Commission, Barack Obama recent speech on Climate Change, China¡¯s greater push into sustainable energy and a reduction in coal all help to move the public¡¯s opinion.
    • With increasing energy prices, scientific consensus and more visible evidence of global warming, public opinion will move toward greater demand for schemes such as VEET.
  • The VEET scheme perception has been damaged by door-to-door knocking with free, unsustainable & disposable products that have failed to gain long term consumer buy-in.
    • The VEET / ESI scheme has provided substantial energy and carbon savings and these benefits need to be marketed to the Victorian public.
    • Consumers approach by door-to-door distribution of free products lack information at the time of accepting the product regarding alternative products.
  • Informational benefit: Advertising and Door knocking does promote understanding of the scheme and goals.

3.1.2 Access to Capital

Business investment and capital raising requires a stable and level regulatory environment.

  • The three yearly cycle of the scheme along with the 12 months to achieve accreditation creates a significant level of uncertainty and barrier to investment.
    • Wattly¡¯s has invested between $250-300K to achieve accreditation, which cost more and took longer than anticipated, during this time the VEEC price has dropped substantial and the regulatory uncertainty has increased. We are yet to recoup any of this investment and potential have a limited timeframe in which to do so.
    • Funding for Wattly¡¯s business was drawn from director¡¯s mortgages. Other sources of funding (due to the scheme¡¯s level of uncertainty) were difficult to obtain.
  • On the positive side, the VEET incentive does aid to reduce the costs (& hence risk) for early movers in a new technology (-> move along technology adoption curve faster).
    • The incentive helps to offset some of the higher early costs (for new technologies ¨C eg LED lighting) and hence new energy efficient products reach the mass-market sooner.
  • The annual surrender date for liable entities of VEECs under the scheme causes a mismatch between supply and demand throughout the year and hence variability of VEEC price, this makes investment more risky for businesses.

3.1.3 Behavioral

Whilst free products have aided high penetration rates, they have the following behavioral issues.

  • Door-to-door distribution of free products on the spot face the following challenges
    • Obligation: Free product for energy savings obliges the consumer to take the product without accessing it.
    • Lack of Judgment: If the consumer is required to make a decision on the spot they have no time to judge or compare the product for fit-for-purpose
    • Lack of Buy-in: If the consumer feels pressured into accepting the product and make no judgment, they do not feel any emotional buy-in and hence easy to remove
    • No Cost to disposal: In the consumers mind there is no cost to using the product and disposing of it if it fails to meet their expectations ¨C creating more landfill
    • Ease of removal: Free products that are easily removed and impact the users experience / comfort are likely to be removed.
  • Free / Low quality products will appeal most to the lower income earners.
    • It potentially reduces the middle and upper income earners participation in the scheme, as they are more likely to question the quality of the products or search for higher quality longer-term products.
  • Recommendations:
    • Prohibit door-to-door sales & install under the scheme ¨C consumers, retailers and most APs are not in favor of this since it undermines the perception of the scheme. This is the number #1 complaint from the consumers doing the most damage.
    • IF free products are offered, there is either a separation (in time) between the marketing & sales step and the installation step (ie no on the spot sell & install). This would allow the consumer to obtain information, judge the product and create buy-in and hence long term retention.

3.1.4 Complementarity with the National Emissions Reductions Schemes

The VEET scheme is complimentary with National schemes both with the Carbon Tax (or emissions trading scheme) and with the CTIP (Clean Technology Investment Program).

  • Carbon tax represents a ¡°penalty¡± or stick for everyone using electricity, but represents effectively 2.3c per KW (or approximately 10% of retail tariff) moving to an Emissions Trading Scheme (ETS) the price is expected to drop substantially ¨C in either case it creates only a minor incentive for investment in energy saving - since it is spread across the entire energy consuming population.

3.2 The performance of the ESI to date

3.2.1 Impact on Energy Consumption & Retail Prices

Anecdotal evidence is that VEET has contributed only 1-2% to the retail prices. Our calculations show the VEET scheme with 5.5M certificates at an average cost of $20 represents a $110M additional cost per annum in a $8-10B industry (IBISWorld indicates AU has $32B Retail Electricity Market). This is consistent with the ~2% added costs to retail prices.

3.2.2 The mix of activities to maximise energy efficiency uptake

  • There is a significant diversity of activities and products in the scheme. Some of which have questionable long term energy & greenhouse gas saving
  • YES for the more substantial long term hard to remove or higher investment activities (eg water & space heating, mostly for lighting and showerheads)
  • NO - the scheme has promoted activities that include non-lasting / unsustainable activities that whilst provided at a very low cost are unlikely to remain in use for claimed lifetime either through a lack of consumer buy-in or limited lifetime, (eg SPCs, Chimney Balloons, Lightweight weather sealing).
  • NO - due to evolving technology some activities will not achieve claimed savings. EG On average SPCs claim 100W (8 VEECS) per installed house (from VEEC registry) for the next 10 years. Current generation of consumer electronics (AV & IT) all have drastically lower power standby than previous generation, and next generation will be much lower again. The energy / carbon savings (where the SPC device remains in use) will be drastically lower than estimated 8 tons of Co2.

There is a significant disparity in cost between accreditation, product approval and in costs between activities that incentivise less sustainable activities over longer term activities.

  • Disparity between Product Standards and Approvals: The very high standard required for the products under some activities penalizes these activities against other activities with lower standards and hence lower costs.
    • EG LED Lighting under Schedule 21 requires almost 20 criteria to be met with testing performed by accredited laboratories. The costs for all the tests is nearly $10,000.
    • Compare with Chimney Balloons which require a photograph, specification sheet and manufacturers fit for purpose statement. No independent testing is required
    • Recommendation: All products have a high bar for product quality and longevity to ensure the energy efficiency measures meet the deemed lifetime and longer.
  • High variability between barriers to entry for different activities & products and different underlying costs structure between activities do to disparity in regulations
    • Schedule 34 (Commercial Lighting) ¨C represents enormous amount of paperwork, schematics, lighting levels along with recycling required during upgrade. They also require highly trained resources to perform the installation (electricians).
    • Schedule 29 (SPCs) and 15 (Chimney Balloons) have minimal paperwork and fairly low standards for installers are easily removed along with no decommissioning or recycling to add to the audit trail.
    • Recommend that high standards be in place for all installers and consistent quality of installation standards across different activities.
  • Fixed vs Easy to remove
    • Certain activities are easy to install and easy to remove compared with others that are wired or physically fixed in place giving long term sustainable savings.
    • Recommend that products that are easy to reverse have a substantial discounted carbon abatement factor and discouraged as it erodes the longevity of the energy and carbon savings.
  • Over estimates vs One in ¨C One out and Recycling
    • Activities where no existing product is replaced (ie 1 in 1 out) are open to gaming /scamming - very difficult to determine if the conditions claimed matched reality. The installer will always claim the highest possible situation ¨C it is very difficult to safe guard against this.
    • Activities that require recycling and have a one for one replacement have a very clear audit trail and hence are must more likely to achieve the specified savings.
    • Recommendations: Have a fixed incentive per installation for activities where there is no independent verification through 1:1 upgrade. EG SPCs ¨C fixed savings per installed household.

3.2.3 Can you provide evidence of the impact the scheme has had on investment, employment and technology development in industries that supply goods and services which reduce the use of electricity and gas by consumers?

Yes

  • Examining Schedule 34 (Commercial Lighting) there are over 1,000 applications for product approvals, 400 approved products and over 20 APs accredited. The lighting industry has invested a significant level of effort and expense (many millions) into leveraging this scheme whilst less than 40,000 VEECS have been created in the first 12 months due to the complexity of this schedule coupled with the VEECs from SPCs driving the VEEC price down.
  • Lighting manufacturers, installers and APs in this space are anticipating the next wave of VEECs will come from lighting upgrades.
  • There has been a large investment by LED lighting companies (especially new entrants) ramping up to replace Halogen downlights and inefficient commercial lighting in Australia.
  • (our company) has been formed to leverage Cloud Computing and Mobile Computing in driving Energy Efficiency to business and household and we focussed all our investment on providing tools for and systems for the VEET and ESS schemes.

3.2.4 Is there evidence you can provide that suggests that there are barriers to the participation of specific groups in the ESI?

Yes

  • Being a market based scheme the ESI has focused APs and suppliers on the activities on the lowest hanging fruit (lowest cost / highest return). Rural, Business and Industry are disadvantaged by some of the low cost activities - eg SPCs

3.2.5 Further Information

3.3 Looking forward from 1 January 2015

3.3.1 ESI Target

3.3.1.1 Under the scheme to date there has been a very strong uptake of low cost activities. Can you provide information and data on the remaining demand for these activities?

Yes

Wattly argues that whilst SPCs are a cheap source of a very high percentage of VEECs the longevity (rate of retention over the next ten years and the actual savings) are unlikely to meet the number of tons of CO2 abated and have suppressed investment in activities with sustainable savings.

There is continued opportunity for low cost certificates (and hence carbon abatement) based on the following facts.

  • Victoria has an estimated 60-80M Halogen Downlights in Victoria ~60-80M VEECs (based on the Lighting Council Australia estimates 300M downlights in Australia)
  • EG Vic Households 2.1M x 15 per house = 30M downlights (conservative)
  • Commercial & Retail Lighting opportunities aside from downlights are at least equal to this number, especially when the long operating hours of retail, caf顯s, hotels and shopping centres are taken into account.
  • EG Retail shops ¨C A single Jewellery shop that Wattly is working on of 100 sqm

has 65 x 150W Metal Halide lights and 150 x 50W Halogen lights upgrading these to LED lighting yields a total of almost 350 VEECs.

  • Our estimate is that retail shop will have over 200-500 VEECs per store with at least 10,000 stores in Victoria -> 2.5M VEECs from retailing.
  • Industrial Highbay lights 400W MH -> 200W LED generate about 6 VEECs per lamps hence large warehouses could easily generate 1000-2000 VEECs
  • Downlight LED Lighting prices have been falling steadily and will continue to do so with quality products being available for $10-20 range.

Our recommendation is that the VEET target should again be raised from 5.5M to 11M VEECs to drive further adoption of LED lighting. Lighting is estimated to consume 10-15% of the total energy and is an area for cheap VEECs to be generated and large carbon abatement to occur.

3.3.1.2 Can you provide information and data on current or new types of activities that may be taken up once these opportunities are exhausted? What would the energy savings be associated with their uptake?*

Yes

  • Industrial & Commercial Project Based Energy Savings whilst few in number have the ability to generate a large number of VEECs per project and provide a more even playing field for Industry to access savings under the VEET scheme.

3.3.1.3 With scheme costs and technology limitations in mind, if the scheme were to continue what would be an appropriate target for its next phase?

11M based on estimate of VEECs available from lighting and adding additional business & industrial activities. It¡¯s imperative that Australia achieves greater carbon abatement.

3.3.2 Large Energy Users under ESI

3.3.2.1 Is the ESI the most appropriate scheme in which to encourage energy efficiency uptake for large energy users?

Yes

Large energy users have the ability through lighting and if project based assessment (or the metered baseline approach) was implemented they could generate very large numbers of VEECs to help reduce their energy costs and drive investment.

Overlap between projects that are funded under the Clean Technology Investment Program and VEET scheme would need to be investigated. The approach (if any) taken under the NSW ESS scheme should be followed for consistency / harmonisation of the programs.

3.3.3 Alternative to ESI

3.3.3.1 Do you consider there to be alternatives to the ESI that would achieve the same objectives in a more cost effective or efficient way? What are they and why?

A national scheme would be a possible alternative. This would help reduce barriers and administrative costs to businesses operating in multiple locations.

3.3.3.2 What issues do you anticipate if the ESI were not to be continued? How should these issues be addressed to ensure the scheme¡¯s equitable closure?

The large investments made by businesses in becoming recently accredited for commercial lighting would be lost. In Wattly¡¯s case this represents personal loans made by directors to get the business off the ground.

A significant loss of jobs in the sector and reduction in innovation being driven by the scheme would occur.

A loss of carbon abatement and increased difficulty in Australia achieve its committed reduction in carbon emissions.

If the scheme was to be discontinued a tapered approach to the VEEC target over the next period would provide the correct message to the market, whilst enabling recent entrants to recover some of their investment in this space (eg 5.5M in 2015, 4M in 2016, 2.5M in 2017).

Conclusion

Wattly supports the continuation and expansion of the ESI scheme. Wattly recommends that the that activities and products in a market based scheme promote long term sustainable energy and carbon savings through;

  1. Applying consistent regulatory standards (& costs) across activities & products
  2. Ensuring that the schemes administrator and the public have a high degree of confidence that the activities are achieving the claimed savings.
  3. Avoiding free products that distort the market and impact the long-term savings ¨C consider VEECs funding up to a max percentage (eg 75%) of the costs of a project.
  4. That long term / sustainable energy & carbon savings are promoted over activities with questionable lifetime savings.
  5. Improving the public perception of the scheme by banning door knocking, free disposable products, and promoting the benefits & long-term savings of the scheme.
  6. Increased VEECs quota for Relevant Entities to drive further energy & carbon savings with low cost VEECs from 60-80M downlights, a wide range of commercial lighting, and clear data of increased VEEC creation from non-SPC activities over the past six months
  7. Increased engagement of business sector via project assessment, meter baseline activities and extended operating hours for commercial lighting for VEEC creation.
  8. Mechanisms to provide greater certainty for business investing in the scheme

Page last updated: 24/06/20