VEU latest industry news

8 July 2025

Commercial and industrial heat pump water heater activity changes

On 8 July 2025, the Department of Energy, Environment, Climate Action (the department) released the Victorian Energy Upgrades (VEU) Specifications 2018, Version 20.0 (the Specifications) which introduces changes to the C&I HPWH Activity (Part 44), effective from 11 July 2025.

Changes have been made to the minimum product requirements of Part 44 to remove duplication of eligible products under the domestic HPWH activities (Parts 1D and 3C):

• Only HPWHs with an insulated storage volume greater than 700 litres (L) will be eligible to be installed under Part 44.
• For HPWH systems consisting of multiple insulated tanks, the average insulated storage volume of the system must be greater than 700 L.

Adjustments have been made to the calculations used to determine the number of Victorian Energy Efficiency Certificates (VEECs) for eligible upgrades under Part 44:

• Registered products with an insulated storage volume greater than 700 L and a heat pump thermal capacity above 10 kilowatts (kW) are unaffected.
• Registered products that meet the new minimum product requirements, but which have a heat pump thermal capacity below 10 kW, will now be subject to a scaling load factor, with a maximum value of one (1).

Other changes to Part 44 include:

• An increase to the minimum co-payment from $200 to $1,000.
• While manifolding may be suitable in some situations, eligibility criteria now refer to the average values for insulated storage and heat pump thermal capacity of each registered product.

To demonstrate the impacts to registered products under Part 44, see the following examples:

• Product A consists of two insulated storage tanks with a combined volume of 2,000 L. As the average insulated storage volume is greater than 700 L, Product A is not impacted by the changes to Part 44.
• Product B consists of a single insulated storage tank with a volume of 650 L but uses a heat pump compressor with a thermal capacity over 20 kW, and no boosting element. Product B is not impacted by the changes to Part 44.
• Product C consists of four insulated storage tanks with a combined volume of 1,500 L. Product C has an average insulated storage volume less than 425 L. Product C is no longer eligible for installation under Part 44, regardless of the thermal capacity of its heat pump compressors.

These changes take effect 11 July 2025. Products installed after this date that do not meet the requirements will not be eligible to create VEECs. Please review the VEU Specifications for all details.

The changes are aimed at recalibrating the activity to better align product eligibility with the original policy intent of supporting medium-to-large C&I businesses to upgrade to efficient commercial-sized HPWH technologies.

Any relevant product that is no longer be eligible for Part 44, may apply for registration under Parts 1D or 3C. Many commonly installed products were registered under all of Parts 1D, 3C and 44. This registration overlap highlighted the need to better distinguish between domestic and commercial HPWH offerings available under the VEU program.

The department has become aware that incentives for domestic-sized HPWHs under Part 44 may have been over-calibrated in favour of small business uses of heat pump sizes suitable for residential applications and that inappropriately sized smaller heat pumps were dominating Part 44 installations when incentives under Parts 1D and 3C which apply to both residential and small business applications provided more suitable levels of discount.

This required a recalibration of specifications to ensure that Part 44 was better suited to larger commercial and industry uses and to ensure the integrity of the activity and the VEU program. Industry stakeholders have recently raised concerns with the department about potential over-incentivisation of domestic-sized HPWHs under Part 44, which may have contributed to an increase in complaints and allegations of poor participant behaviour in recent months.

Analysis of installation data has shown that on average, HPWHs installed under Part 44 have a smaller tank capacity (244 L) than HPWHs installed in residential and small business properties under the Part 1D and Part 3C activities (264 L), which does not align with the purpose and policy intent of Part 44.

The department has made changes to ensure that:

• The objectives of the Victorian Energy Efficiency Target Act 2007 are supported, including the reduction of greenhouse gas emissions. This includes the removal of eligibility for domestic-sized HPWHs to ensure that Part 44 represents the genuine emissions savings expected of commercial-sized HPWHs.
• The energy savings are representative of the scale of upgrade and businesses are being provided with fit for purpose products that represent genuine energy savings.
• The policy intent of the activity is maintained and the integrity of the VEU program is upheld.

Smaller heat pumps will continue to be discounted under VEU under the appropriate activities – namely Parts 1D and 3C, and these will be able to continue to be installed in both residential and business settings under these activities.

As general practice, the department aims to engage in public consultation for changes to the Specifications where businesses may be affected by incoming changes.

However, in this instance and for the above reasons, changes to the C&I HPWH activity have been made without consultation to minimise the risk of further upgrades that may not align with the objectives of the VEET Act or the policy intent of the activity.

Our overarching objective is to ensure customers receive quality upgrades that are appropriate for their needs and where they are protected and the integrity of the VEU program is maintained.

For customers that may be affected by the recent update to the C&I HPWH activity please contact your accredited provider for further discussion.

The department invites stakeholders to report concerns or matters that may affect the integrity of the VEU program to energy.upgrades@deeca.vic.gov.au or to contact the Essential Services Commission at veu@esc.vic.gov.au.

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Page last updated: 08/07/25