Environment and Natural Resources Committee
Inquiry into the Energy Services Industry
June 2006
Inquiry into the Energy Services Industry
Report of the Environment and Natural Resources Committee on the Inquiry into the Energy Services Industry
ORDERED TO BE PRINTED Victorian Government Printer 2006
Parliamentary Paper No. 204 Session 2003-06 Parliament of Victoria Environment and Natural Resources Committee Inquiry into the Energy Services Industry ISBN - 0-9757811-1-1
This report is printed on recycled paper. Table of Contents
List of Tables...... vi List of Figures...... vii
Committee Members...... ix The Environment and Natural Resources Committee...... xi
Terms of Reference...... xiii Chair’s Foreword...... xv
Executive Summary...... xvii
Table of Recommendations...... xxiii
Table of Findings...... xxix
Abbreviations...... xxxi
Chapter One: The Inquiry in context...... 1 Background to the Inquiry...... 1 The importance of improving energy efficiency...... 1 Energy consumption and energy efficiency...... 2 Cost reduction...... 5 Emissions...... 5 Peak power...... 6 Energy efficiency in the context of this Inquiry...... 7 What is energy efficiency?...... 7 Economic efficiency...... 8 Energy consumption, energy distribution and energy generation...... 8 Renewable energy...... 9 Stationary energy versus transport energy...... 10 Inquiry process...... 10 Energy efficiency services...... 11 Inquiry report...... 12
Chapter Two: A profile of the energy efficiency services industry ...... 13 The energy efficiency services industry...... 13 Core energy efficiency services...... 14 Participants in core energy efficiency services...... 14 Products and services offered by core organisations...... 15 Energy use analysis and energy efficiency upgrades...... 16 Energy auditing services...... 17
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Commercial and industrial energy auditing services...... 18 Household energy auditing services...... 19 Participants in the energy auditing services sector...... 19 Energy management services...... 20 Energy upgrade services...... 20 Participants in the energy upgrade services sector...... 21 Energy rating services...... 22 Home energy ratings...... 22 Participants in the home energy rating services sector...... 22 Commercial building energy ratings...... 22 Participants in the commercial building energy rating services sector...... 23 Demand-Side Management...... 24 DSM for reduced energy consumption...... 25 DSM for peak load management...... 26 Demand side response...... 29 Energy efficient appliances and products...... 29 Providers of energy efficient appliances and products...... 30 Products and services offered by non-core organisations...... 31 Non core energy efficiency services...... 31 Financial services...... 33 Government services...... 34 Fiscal instruments...... 35 Tradeable permits...... 36 Regulatory instruments...... 37 Voluntary agreements...... 38 Research development, demonstration and commercialisation...... 38 Information dissemination...... 39 Peak industry body services...... 40 Professional and trade related services...... 41
Chapter Three: Energy efficiency services in the OECD...... 43 Energy services and energy efficiency services...... 43 Changes in energy market structures...... 43 Energy efficiency services offered internationally...... 44 OECD energy service companies (ESCOs)...... 45 Europe...... 46 Japan...... 49 New Zealand...... 49 South Korea...... 50 United States...... 50 Energy auditing services...... 51 Energy rating services...... 52 Demand-Side Management (DSM) programs...... 53 Demand-Side Management in the United States...... 53 ii Table of contents
Public benefits energy efficiency policies in the United States...... 54 The energy efficiency commitment in the United Kingdom...... 55 DSM programs in other OECD countries...... 57 Energy efficiency funding from energy charges...... 58 Integrated resource planning...... 59 Energy savings targets...... 59 Pilot programs and government funding...... 59 Other measures initiated by, or affecting, utilities...... 60 Interval metering in the OECD...... 60 Government incentives and drivers for energy efficiency...... 61 European Union energy savings targets...... 61 Building standards...... 62 Trading schemes...... 62 Research and technology...... 63 Other policy instruments to encourage energy efficiency...... 64 Reduced rates loans...... 64 Rebates...... 65 Tax incentives...... 66 Voluntary agreements...... 66 Other energy efficiency policies and programs...... 67 Comparison of OECD and Australian energy efficiency services...... 67
Chapter Four: Barriers and drivers for the adoption of energy efficiency...... 69 Barriers to the adoption of energy efficiency...... 69 The energy efficiency gap...... 71 General barriers to energy efficiency...... 71 The price of energy...... 71 The cost of capital investment...... 74 Imperfect information about energy efficiency...... 76 Consumer information...... 76 Sources and timing of information...... 77 Performance measurement...... 78 Baseline measures...... 79 Labelling...... 80 Split incentives...... 80 Split incentives in building construction...... 81 Information asymmetries and information costs...... 81 The complexity of energy efficient solutions...... 81 Time costs...... 82 Behavioural and Cultural Factors...... 82 Inertia...... 82 Increasing demand for appliances...... 83 Limitations to ‘built in’ energy efficiency...... 84
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Other barriers to energy efficiency...... 85 Industry capability...... 85 Quality of energy auditing...... 86 Technology...... 86 The energy market...... 87 Program continuity and overlap...... 88 Barriers specific to the residential sector...... 89 Household design...... 89 Large numbers of small sites...... 89 Barriers specific to the commercial sector...... 90 Limited available capital for small business...... 90 Barriers specific to the industrial sector...... 91 Organisational issues...... 91 Drivers for energy efficiency...... 91 Energy efficiency targets...... 92 Emissions trading schemes and carbon price...... 92 Funding, subsidies and other incentives...... 93 Penalties, minimum standards and regulatory requirements...... 94 Information and awareness...... 95 Community and professional awareness and education...... 95 Demonstration of potential benefits from energy efficiency...... 95 Research and development...... 96 Competitive advantage...... 97
Chapter Five: Training and education for energy efficiency services ...... 99 Overview...... 99 The Australian Qualifications Framework...... 99 Education and training for energy efficiency services...... 100 Vocational Education and Training sector...... 101 Industry Skills Councils...... 101 The Victorian VET sector...... 102 Current national VET courses in energy efficiency...... 102 VET training for energy efficiency services occupations...... 104 Builders...... 104 Electricians...... 105 Energy auditors...... 106 Glaziers and window manufacturers...... 107 HVAC maintenance and service technicians...... 108 Plumbers...... 108 Renewable energy installers...... 109 Higher Education sector...... 110 Higher education training for energy efficiency services occupations...... 110 Architects...... 110
iv Table of contents
Engineers...... 111 Other training for energy efficiency services...... 112 Energy performance contracting accreditation...... 112 Bendigo local education on energy efficiency...... 112 Specialist centres...... 113
Chapter Six: Current government and industry measures affecting energy efficiency...... 115 Overview...... 115 The focus of current policy measures...... 115 National bodies and issues...... 116 A national approach to energy efficiency...... 116 National Framework for Energy Efficiency (NFEE)...... 117 Building Codes...... 120 Commonwealth...... 120 Taxation measures...... 121 Photovoltaic Rebate Program (PVRP)...... 122 Tradeable Permits...... 125 Minimum Energy Performance Standards...... 127 Energy Efficiency Opportunities Program...... 128 Greenhouse Challenge Plus...... 130 Victoria...... 130 Rebates and Subsidies for Energy Efficient products...... 131 Protocol for Environmental Management (Greenhouse Gas and Energy Efficiency in Industry) PEM(GGEE)...... 132 Victorian Five Star...... 134 Government office buildings and tenancies...... 136 Government leadership...... 137 Sustainability covenants...... 140 Energy efficiency targets within government...... 141 Local Government...... 144 Industry and peak organisations...... 146
Chapter Seven: Mechanisms to promote the uptake of energy efficient products and services...... 149 Internal government initiatives...... 149 Government DSR...... 149 Tradeable permits...... 150 Emissions Trading...... 150 National emissions trading scheme...... 151 NSW Greenhouse Gas Abatement Scheme...... 151 Green certificates...... 153 White certificates...... 154 Regulatory instruments...... 157
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Energy efficiency commitment...... 157 EER at point of sale or lease...... 158 Stamp duty rebate...... 160 Metering...... 161 Windows...... 165 Embedded generators...... 166 Research, development and commercialisation...... 168 Energy savings funds...... 168 SME energy management training...... 169 Peak Industry...... 171 Auditors...... 171 Installation and Commissioning...... 172
Bibliography...... 175
Appendix 1...... 183 List of submissions...... 183
Appendix 2...... 185 List of witnesses...... 185 Briefings...... 185 Public hearings...... 185 Interstate meetings...... 188
Appendix 3...... 191 Seminars and conferences...... 191
List of Tables
Table 1: Overview of current commercial building rating tools...... 23
Table 2: State/territory breakdown of the accredited rating assessors...... 24
Table 3: Selected demand-side management programs and related programs...... 28
Table 4: Numbers of ESCOs and main activities by country, European Union, 2004...... 48
Table 5: Energy efficiency program cost effectiveness, selected states, United States, 2004...... 55
Table 6: Number of measures installed and energy savings, Energy Efficiency Commitment 2002-2005, United Kingdom...... 57
vi Table of contents
Table 7: Main approaches to Demand-Side Management, selected OECD countries...... 58
Table 8: VET and higher education qualifications under the Australian Qualifications Framework...... 100
Table 9: Units relevant to energy efficiency in the UTE99 Electrotechnology Industry Training National Training Package...... 103
Table 10: Units relevant to energy efficiency in the draft UEE06 Electrotechnology Industry Training National Training Package...... 103
Table 11: Victorian Office Accommodation Guidelines – rating requirements...... 138
List of Figures
Figure 1: Projected energy intensity trends, Australia, Northern Territory and Victoria, 1989-90 to 2029-30...... 3
Figure 2: Changes in energy intensity effect in selected OECD countries...... 4
Figure 3: Core energy efficiency services...... 16
Figure 4: Energy use analysis and efficiency upgrades...... 17
Figure 5: Energy audit levels, AS 3598:2000 Energy Audits...... 18
Figure 6: Demand-Side Management...... 24
Figure 7: Energy efficiency appliances and products...... 30
Figure 8: Non-core energy efficiency services...... 32
Figure 9: Financial services...... 33
Figure 10: Government services...... 34
Figure 11: Types of emissions trading schemes...... 37
Figure 12: Peak industry body services...... 40
Figure 13: Professional and trade related services...... 41
Figure 14: Selected international residential electricity prices, 2004...... 72
Figure 15: Selected international industrial electricity prices, 2004...... 72
Figure 16: Key elements of NFEE individual implementation plan summaries...... 119
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Figure 17: Number of rebates claimed under PVRP, residential installations, Victoria 1999-2000 to 2005-06...... 124
Figure 18: Total installed watts through PVRP, residential installations, Victoria 1999- 2000 to 2005-06...... 124
Figure 19: Benefits and costs associated with introduction of the Five Star standard, Victoria 2006...... 134
viii Committee Members
This Inquiry was conducted during the term of the 55th Parliament. The Members of the Environment and Natural Resources Committee are: Ms Jenny Lindell, MP (Chair) Hon Andrea Coote, MLC (Deputy Chair) Hon Damian Drum, MLC Ms Joanne Duncan, MP Hon Geoff Hilton, MLC Hon Wendy Lovell, MLC Mr George Seitz, MP
Staff For this Inquiry, the Committee was supported by a secretariat comprising: Executive Officer: Dr Caroline Williams Until November 2005 Dr Vaughn Koops From November 2005 Research Officer: Mr Derek Benjamin Office Manager: Ms Vanessa Thomas
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x The Environment and Natural Resources Committee
The Victorian Environment and Natural Resources Committee is constituted under the Parliamentary Committees Act 2003, as amended.
The Committee comprises of seven members of Parliament drawn from both houses and all parties.
Its functions under the Act are to inquire into, consider and report to the Parliament on any proposal, matter or thing concerned with -
1.the environment;
2.natural resources;
3.planning the use, development or protection of land.
Committee Address Address: Level 8, 35 Spring Street Melbourne Victoria 3000 Telephone: (03) 9651 3533 Facsimile: (03) 9651 3537 Email: [email protected] Internet: http://www.parliament.vic.gov.au/enrc
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xii Terms of Reference
The Governor in Council under section 33 of the Parliamentary Committees Act 2003 refers Terms of Reference requiring the Environment and Natural Resources Committee of Parliament to inquire into the Energy Services Industry.
Energy efficiency services are commercial services that lead to improved energy efficiency, demand side management and greater use of renewable energy in the built environment. A healthy and competitive energy efficiency services sector is an essential prerequisite for an efficient, low-emissions economy, as it provides the skills, technologies, advice and services necessary for the transformation of the built environment.
In this context, the Environment and Natural Resources Committee is requested to inquire into and report to Parliament on:
1. the progress made to date in developing the energy efficiency services industry in Victoria, including its market size and characteristics, profitability, capacity and composition;
2. the range of services and technologies available and the diversity of business models, compared with those in other OECD countries;
3. the competitiveness of the Victorian energy efficiency services industry in the Australian and international contexts;
4. the main barriers to, and drivers for, the development and uptake of energy efficiency services in the residential, commercial and industrial sectors;
5. the adequacy of training, accreditation and performance guarantee arrangements for the sector, including the appropriateness of standards and protocols for performance measurement and identification of skills gaps;
6. measures to promote the energy efficiency services industry, including the production of data on the performance of various technologies and information to identify and facilitate investment in the energy services industry; and
7. the roles of State Government and Federal bodies in developing and regulating an energy efficiency services industry, including the impact that a future greenhouse gas emissions trading scheme might have.
The Committee is required to report to Parliament by 15 June 2006
Dated 27 July 2005
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Responsible Minister:
STEVE BRACKS
Premier
On 18 May 2006, the Governor in Council under section 33 of the Parliamentary Committees Act 2003, amended the reporting date to 30 June 2006, by order in Council.
xiv Chair’s Foreword
I am pleased to present the Environment and Natural Resources Committee’s report on its Inquiry into the Energy Services Industry.
There are significant opportunities for Victorians to improve energy efficiency in homes, businesses and industry. As the capacity of energy infrastructure is stretched and international pressure to control greenhouse gas emissions increases Victorians will need to look at ways to control growth in demand for energy. Energy efficiency and energy efficiency services will become increasingly important as Victoria moves towards an efficient, low-emissions economy. This report focuses on measures that can be taken to encourage energy efficiency and the energy efficiency services industry in Victoria.
This report contains 27 recommendations that the Committee believes will assist the energy efficiency services industry and promote improved energy efficiency in Victoria. Most of these recommendations are directed at measures to stimulate consumer demand for energy efficiency, and so strengthen the market for energy efficiency services.
One of the challenges for the Committee during this Inquiry was to decide on a definition for the ‘energy services industry’ that accommodated both the Terms of Reference for this Inquiry and the views of industry stakeholders. While investigating the industry it was clear that industry representatives, experts and analysts held different opinions on the extent of the industry, and exactly what services should be considered ‘energy efficiency services.’ Ultimately the Committee adopted a broad definition for energy efficiency services that encompasses most of the organisations that have an impact on consumers’ use of energy.
The purchase of a home presents an opportune moment to increase consumer awareness about energy efficiency issues, and to provide incentives for home owners to make their homes more energy efficient. The Committee has recommended that compulsory disclosure of energy efficiency should be introduced on the sale or lease of residential or commercial properties. The Committee also recommends that a rebate on land transfer stamp duties should be offered to people who purchase homes and install energy efficiency upgrades.
The Committee also believes that energy retailers in Victoria have an important role to encourage energy efficiency. Toward this end, the Committee has recommended that an energy savings target be introduced for energy retailers that requires them to achieve set targets for residential energy savings.
A number of witnesses told the Committee that the State Government must demonstrate leadership on energy efficiency issues. Accordingly the Committee has recommended that the State Government introduce new
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energy reduction targets for government departments, and that finance be made available for government departments to implement energy efficiency projects. The Committee also recommends that government departments seriously consider entering into commercial agreements with the energy efficiency services industry in order to achieve their energy reduction targets.
I would like to thank those people who shared their insights, information and time with the Committee. The Committee received 32 written submissions and evidence from 87 people during the course of this Inquiry. Several meetings were held interstate.
I would like to thank my fellow Committee Members for their contribution to the Inquiry – Hon Andrea Coote (Deputy Chair); Hon Damian Drum; Ms Joanne Duncan; Hon Geoff Hilton; Hon Wendy Lovell and Mr George Seitz. Finally, on behalf of my colleagues I would also like to thank the secretariat staff for their hard work and support throughout this inquiry – Caroline Williams, Vaughn Koops, Derek Benjamin and Vanessa Thomas.
Jenny Lindell, MP
Chair
xvi Executive Summary
Chapter 1 - The Inquiry in context The Committee received the Energy Services Industry reference in July 2005. Given the escalating concern over the effects of climate change and the impact of peak electricity demand on the electricity network, the reference is timely.
Governments around the world are struggling to cope with increasing demand for energy. In Victoria demand for stationary energy is expected to grow by an average of 1.9 per cent per year until 2010, and grow by an average of 1.5 per cent per year after that. Finding ways to accommodate demand for energy is an emerging challenge for governments across the world for a number of reasons. There is general acknowledgement that emissions produced through the generation of energy can have a negative effect on the global climate. Costs associated with the construction of new energy infrastructure are also onerous.
Improved energy efficiency offers one means by which the demand for energy can be controlled. In Australia conservative estimates indicate that energy efficiency gains in the order of 13 per cent are achievable in the residential sector, and energy efficiency gains of ten per cent and six per cent are achievable in the commercial and industrial sectors respectively. Improving energy efficiency can lead to substantial cost savings for consumers, and may also help to alleviate pressure on electricity networks. Increased energy efficiency may also provide one means for the control of greenhouse gas emissions produced through the consumption of energy.
Development of the energy efficiency services industry may facilitate improvements to energy efficiency throughout the residential, commercial and industrial sectors. As world economies move to account more carefully for the use of energy, services offered by the energy efficiency services industry will become increasingly important to maintaining a competitive economy.
Chapter 2 – A profile of the energy efficiency services industry There is no single resource that provides a comprehensive overview of all participants in the energy services industry. For the purposes of this report, the Committee considers the energy efficiency services industry under two broad categories: ‘core’ energy efficiency services and ‘non-core’ energy efficiency services.
Participants in the core energy efficiency services industry include organisations that have a principal focus on providing energy efficient products and services to the market. Participants in the core energy efficiency services industry may also include organisations that are required to conduct energy efficiency activities as part of their business. Core energy
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efficiency services include a range of companies and businesses, from self- employed energy auditors to large companies that provide advanced energy analysis services. Core energy efficiency services examined in Chapter Two include: energy auditing services; energy management services; energy upgrade services; energy rating services; demand side response and providers of energy efficient appliances and products.
Non-core energy efficiency services include businesses and organisations that offer energy efficient products and services to the market but do not consider the provision of energy efficiency services to be their core role. Programs and activities by government and non-government organisations that are directly focused on improving energy efficiency are also considered under this heading. While it is difficult to define the exact composition of the non-core sector, its influence on energy efficiency across the economy is substantial. Non-core energy efficiency services identified by the Committee include: financial services; government services, peak industry body services; and professional and trade related services.
Chapter 3 – Energy efficiency services in the OECD Like Australia, many OECD countries are experiencing significant changes in their energy market structures, with many moving away from traditional government-owned, vertically integrated electricity markets towards markets that separate the ownership of generation, distribution and retail assets. While these changes have often led to reduced energy prices, evidence suggests that these energy market structures provide few incentives for improving energy efficiency.
The range of energy efficiency services offered in OECD countries is roughly comparable to those offered in Australia. Some OECD countries, such as Germany, have highly developed Energy Service Company (ESCO) markets. However, some countries have made substantial gains in energy efficiency without a developed ESCO market, and it appears that commercial energy efficiency services are not a prerequisite for movement towards energy efficient economies.
Most OECD countries have introduced a range of measures to encourage the uptake of energy efficiency products, technologies and services. These include requirements for energy retailers to achieve energy savings targets, tax incentives for the installation of energy efficient products, and voluntary agreements between government and private and public organisations.
Throughout the OECD, market activity in the energy efficiency services industry appears to be closely linked with government activities to promote energy efficiency.
xviii Executive summary
Chapter 4 – Barriers and drivers for the adoption of energy efficiency Often consumers fail to take advantage of opportunities to use energy more efficiently. The reason often given for this failure is that certain barriers make it difficult for consumers to become more energy efficient.
The low price Australians pay for energy appears to be the most critical barrier facing the adoption of energy efficiency. The low price of energy means that finding ways to reduce expenditure on energy is not a high priority for most consumers. It also limits the range of cost-effective actions that can be offered to consumers by the energy efficiency services industry. The low price paid for energy extends the pay-back period for many energy efficient solutions. This can make the purchase of energy efficiency equipment appear to be a poor investment option compared to other available investment options.
Split incentives also pose a barrier to the adoption of energy efficiency. These occur when a purchaser of a product has no incentive to install an efficient product because he or she does not obtain any additional benefit from it. A range of other barriers, including consumer access to information, the complexity of energy efficient solutions, and behavioural problems which reinforce inefficient energy use patterns, are discussed in this chapter.
While there are numerous barriers facing the adoption of energy efficiency solutions, there are also a number of drivers for investment in energy efficiency. These include energy efficiency targets, market based trading mechanisms, subsidies, rebates and demonstration projects. Competitive advantage to businesses as a result of improved energy efficiency is also a driver for improved energy efficiency, and consequently for the energy efficiency services industry.
Chapter 5 – Training and education for energy efficiency services Ensuring that members of the energy efficiency services industry possess adequate knowledge and skills is critical to the delivery of energy efficiency.
Training in energy efficiency is delivered through three main sectors: higher education for professional education; vocational education and training (VET) for trade-related professions; and through industry training programs. There are a limited range of courses that focus exclusively on energy efficiency or related subjects. Training packages for some trades that influence demand-side energy efficiency, such as the electrical trades, may incorporate explicit consideration of sustainability issues in future.
In the higher education sector, qualifications for architects and engineers appear to provide students with sufficient knowledge of energy efficiency principles and techniques. The Committee was told, however, that there was limited demand for these skills in the market.
xix Inquiry into the Energy Services Industry
Several peak bodies and industry organisations have taken a proactive approach towards training and accreditation for energy efficiency. Peak bodies such as GreenPlumbers and the Australasian Energy Performance Contracting Association provide ongoing member training and/or accreditation in matters relating to energy efficiency.
Chapter 6 – Current government and industry measures affecting energy efficiency Several programs and policies have recently been implemented to encourage a range of demand side measures, including energy efficiency, with the overall aim of reducing peak electricity demand.
There is a great deal of overlap between many federal and state government programs. Work being undertaken on the National Framework for Energy Efficiency (NFEE) will contribute to the provision of a consistent national approach to energy efficiency. The current NFEE work program incorporates activities in number of areas including commercial/industrial energy efficiency, trade and professional training, and appliance and equipment energy efficiency.
The Commonwealth Government has implemented measures that either directly or indirectly encourage the adoption of energy efficiency. Measures of most benefit to the energy efficiency services industry include: the Photovoltaic Rebate Program; Minimum Energy Performance Standards; the Mandatory Renewable Energy Target; the Greenhouse Challenge Plus program; and the Energy Efficiency Opportunities Program.
The Victorian Government has also implemented measures that will benefit the energy efficiency services industry. These include: rebates and subsidies for energy efficient products; Five Star residential building requirements; sustainability covenants; government energy efficiency targets; and energy efficiency/greenhouse gas auditing requirements for EPA license holders.
Local government is also undertaking a variety of initiatives aimed at encouraging energy efficiency. Several industry and peak body organisations also promote energy efficiency among their members.
The Committee recommends a number of actions that can be taken to encourage energy efficiency activities and to promote the energy efficiency services industry. These include a recommendation that the Victorian Government sets new energy reduction targets for government agencies, and that a fund or finance be created for government departments to implement energy efficiency programs.
xx Executive summary
Chapter 7 – Mechanisms to promote the uptake of energy efficient products and services Market based instruments such as renewable energy trading schemes, energy efficiency trading schemes and emissions trading schemes are perceived to be effective policy measures for delivering energy efficiency and greenhouse gas reductions.
State and territory governments are currently investigating the feasibility of adopting a national emissions trading scheme. Preliminary investigations into the practicality of a national energy efficiency target, which includes an option for trading, is also being considered through the NFEE. Further investigations into the development of both an emissions trading scheme and a national energy efficiency target should be conducted.
Energy savings targets for energy retailers, such as the United Kingdom’s Energy Efficiency Commitment, place a requirement upon retailers to achieve energy savings for residential customers. An energy efficiency commitment is likely to stimulate the energy efficiency services industry and contribute to a more energy efficient economy for Victoria. The Committee believes that a energy efficiency commitment similar to the UK program should be introduced in Victoria.
A land transfer stamp duty rebate based on the energy efficiency of a house could provide a significant incentive for household energy efficiency retrofitting, and provide opportunities for development of the residential energy efficiency services industry. The Committee recommends that a rebate on land transfer stamp duties should be introduced for home buyers who make energy efficiency improvements to their properties.
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xxii Table of Recommendations
Recommendation 1:...... 74 That the Victorian Government introduces a pricing framework that promotes energy conservation and discourages energy retailers from offering declining block tariffs to consumers.
Recommendation 2:...... 77 That Sustainability Victoria develops a web-based application that details payback periods and/or comparative running costs for a range of energy efficient products. As a minimum, the application should include payback information on a range of solar hot water systems, photovoltaic systems, washing machines and air-conditioners. The website should be prominently highlighted on consumers’ energy bills.
Recommendation 3:...... 79 That the Victorian Government ensures all state-funded programs directed at the promotion and/or development of energy efficient technologies and services incorporate evaluative procedures that focus strongly on clear evidence in outcomes.
Recommendation 4:...... 95 That the Victorian Government lobbies within the National Framework for Energy Efficiency to consider the establishment of ‘rolling’ minimum energy performance standards wherever practicable.
Recommendation 5:...... 117 That the Victorian Government advocates for a national approach to energy efficiency programs and policy development as a preferred approach.
Recommendation 6:...... 122 That the Victorian Government advocates for the Ministerial Council on Energy’s Energy Efficiency Working Group to engage a suitably qualified consultant to: • undertake a review of existing taxation provisions at State and Commonwealth levels that discourage and/or encourage the adoption of energy efficiency measures; and • provide recommendations for possible amendments to the existing taxation regime that have the potential to encourage energy efficiency. The outcomes of this review should be formulated into a policy proposal for future consideration by the Ministerial Council on Energy.
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Recommendation 7:...... 132 That the Victorian Government determines the cost effectiveness of its rebates programs for high energy efficiency products and considers expanding the list of rebatable products to cover a wider range of technologies and approaches to deliver energy efficiency.
Recommendation 8:...... 133 That EPA Victoria urgently determines the proportion of measures in the Action Plans adopted by companies subject to the PEM(GGEE) program that been implemented. EPA Victoria should make a report on the results of the PEM(GGEE) program, including anticipated and actual outcomes, publicly available at the earliest possible opportunity following completion of the program’s implementation phase in December 2006.
Recommendation 9:...... 135 That as previously recommended in the Committee’s Sustainable Communities report, the Victorian Government takes a lead by revising the Five Star Energy Rating Scheme for new houses to include: • major renovations; and • major pieces of fixed equipment and appliances. The scheme should consider the occupancy/house size ratio, as is the case with the NSW Building Sustainability Index system, and consider a comprehensive range of measures, including water management, indoor environmental quality and building materials.
Recommendation 10:...... 139 That the Victorian Government continues to monitor world and Australian best practice in relation to building energy rating requirements and adopts more stringent measures when cost-effective to do so.
Recommendation 11:...... 139 That the Victorian Government continues to encourage government agencies to explore energy efficiency upgrade opportunities for government buildings.
Recommendation 12:...... 143 That the Victorian Government continues to encourage government departments to implement energy efficiency measures, particularly where those measures have a demonstrated and sufficient rate of return.
xxiv Recommendations
Recommendation 13:...... 143 That new energy reduction targets be established for Victorian government departments, either based on analysis of the capacity of particular departments for reduced energy consumption or under a system which allows departments to trade energy efficiency credits with one another.
Recommendation 14:...... 143 That the Victorian Government allows government departments to retain funds saved through energy efficiency projects provided that: • these funds are not used for the employment of additional staff; and • that government departments be encouraged to use these savings to extend energy efficiency measures within their departments.
Recommendation 15:...... 144 That Treasury makes a fund or finance available for government departments to implement energy efficiency programs, including Energy Performance Contracts, where a sufficient rate of return can be demonstrated.
Recommendation 16:...... 144 That Victorian government departments consider Energy Performance Contracting or other forms of commercial contracts designed to improve energy efficiency and reduce ongoing energy expenses; and that Government provides departments with guidelines for formulating Energy Performance Contracts, including examples of contracts and arrangements that have been successfully applied in other jurisdictions.
Recommendation 17:...... 150 That the Victorian Government investigates costs and benefits associated with the participation of government agencies in demand side response programs.
Recommendation 18:...... 153 That the Victorian Government continues to support the development of a national emissions trading scheme. The scheme should be designed to ensure that it: • is compatible with international emissions trading schemes; • encourages immediate investment in energy efficient technologies; • minimises bureaucratic procedures; and • introduces penalties that are comparable to international penalty rates.
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Recommendation 19:...... 154 That the Victorian Government introduces a Victorian based renewable energy trading scheme similar to the Commonwealth’s Mandatory Renewable Energy Target.
Recommendation 20:...... 157 That the Victorian Government, through its involvement in the National Framework for Energy Efficiency, continues to conduct investigations into the development of a national energy efficiency target.
Recommendation 21:...... 158 That the Victorian Government establishes an Energy Efficiency Commitment for energy retailers in Victoria, following the model employed in the United Kingdom. The Energy Efficiency Commitment should require energy retailers to achieve a set target for residential customer energy savings, with due consideration to: • individual energy retailer’s share of residential customers; • the capacity of energy retailers with large customer numbers to employ economies of scale; and • prioritisation of the needs of low income residential households for energy efficiency.
Recommendation 22:...... 160 That through representation on the National Framework for Energy Efficiency the Victorian Government seeks the introduction of a system for compulsory disclosure of energy efficiency on the sale or lease of residential and commercial property.
Recommendation 23:...... 161 That the Victorian Government investigates the introduction of a rebate of land transfer stamp duties for residential properties to offset costs associated with energy efficiency improvements. The investigation should consider: • appropriate criteria for rebate eligibility; • potential impact on the housing market; • potential impact on energy infrastructure; and • potential for greenhouse gas savings.
Recommendation 24:...... 166 That the Victorian Government requests that the Australian Building Codes Board introduces mandatory testing and labelling requirements of the thermal performance of windows into the Building Code of Australia.
xxvi Recommendations
Recommendation 25:...... 168 That the Victorian Government, in consultation with electricity retailers, negotiates a pricing structure for small embedded generators that better reflects their contribution to the electricity network.
Recommendation 26:...... 170 That the Victorian Government provides training workshops for small and medium enterprises with an emphasis on energy management. Training workshops should cover the following topics: • negotiating retail electricity supply contracts; • potential for demand aggregation between organisations; and • demand management strategies such as load deferral.
Recommendation 27:...... 172 That the Victorian Government initiates a series of meetings with commercial and industrial energy auditors and relevant state government departments to: • explore potential for the formation of a peak industry organisation to represent the energy auditing industry; and • consider accreditation standards for industry participants.
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xxviii Table of Findings
Finding 1:...... 68 The range of energy efficiency services available in OECD member nations does not appear to differ markedly from those in Australia.
Finding 2:...... 68 In OECD member nations, market activity by the energy efficiency services industry appears to be closely linked with government activities to promote energy efficiency.
Finding 3:...... 125 Long term support coupled with additional funding is needed to maintain the viability of the Australian photovoltaic industry.
Finding 4:...... 127 The Committee is of the opinion that an increase to the 2010 Mandatory Renewable Energy Target is essential to assist industry growth in the renewable energy sector.
Finding 5:...... 140 There are opportunities for the Victorian Parliament to provide leadership on energy efficiency by procuring energy efficient offices for lease as electorate offices.
Finding 6:...... 141 The overall effectiveness of Sustainability Covenants as a tool for promoting energy efficiency and positive environmental outcomes will remain low unless the Victorian EPA actively recruits private and public sector organisations.
Finding 7:...... 165 Interval meters with two-way communications capabilities potentially provide a mechanism for improved feedback on energy use for consumers, and promote greater awareness of energy use patterns.
Finding 8:...... 169 That the NSW Energy Savings Fund has significant potential to deliver energy efficiency improvements and to stimulate the energy efficiency services industry in New South Wales. If future evaluation of the NSW program finds that significant benefits to the energy efficiency services industry have occurred, the Victorian Government should consider introducing a similar program.
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xxx Abbreviations
Abbreviations ABARE Australian Bureau of Agricultural and Resource Economics
ABCB Australian Building Codes Board
ABGR Australian Building Greenhouse Rating
ABS Australian Bureau of Statistics
ACE Adult Continuing Education
ACT Australian Capital Territory
ACTHERS ACT House Energy Rating Scheme
AEEMA Australian Electrical and Electronic Manufacturers’ Association
AEPCA Australasian Energy Performance Contracting Association
AGGA Australian Glass and Glaziers Association
AGO Australian Greenhouse Office (now part of DEH)
AIRAH Australian Institute of Refrigeration, Air-Conditioning and Heating
AQF Australian Qualifications Framework
BASIX NSW Building Sustainability Index
BERS Building Energy Rating Scheme
BCA Building Code of Australia
BCSE Business Council for Sustainable Energy
CO2 carbon dioxide
COAG Council of Australian Governments
CSIRO Commonwealth Scientific and Industrial Research Organisation
CVGA Central Victorian Greenhouse Alliance
xxxi Inquiry into the Energy Services Industry
DEFRA Department of Environment, Food and Rural Affairs (UK)
DEH Department of Environment and Heritage (Cwlth)
DEST Department of Employment Science and Training (Cwlth)
DEUS Department of Energy, Utilities and Sustainability (NSW)
DIIRD Department of Innovation, Industry and Regional Development (Vic)
DITR Department of Industry, Tourism and Resources (Cwlth)
DIY Do it yourself
DNR Department of Natural Resources (Vic)
DOE Department of Energy (US)
DSE Department of Sustainability and Environment (Vic)
DSM Demand-Side Management
DSR Demand Side Response
EEC Energy Efficiency Commitment (UK)
EEO Energy Efficiency Opportunities
EE-Oz ElectroComms and EnergyUtilities Industry Skills Council
EET Energy Efficiency Titles
EPA Environment Protection Authority (Vic)
EPC Energy Performance Contract
ERAA Energy Retailers Association of Australia
ESC Essential Services Commission (Vic)
ESCO Energy Services Company
EU European Union
EUAA Energy Users Association of Australia
EU ETS European Union Emissions Trading Scheme
GBCA Green Building Council of Australia
GDP Gross Domestic Product
xxxii Abbreviations
GEEIP Government Energy Efficiency Investment Program
GEMP Government Energy Management Policy
GEMS Government Energy Management Strategy (QLD)
HEAT Home Energy Advice Team
HIA Housing Industry Association of Australia
HVAC Heating, Ventilation and Air-conditioning
ICLEI International Council for Local Environmental Initiatives
IEA International Energy Agency
IMRO interval meter roll-out
IPART Independent Pricing and Regulatory Tribunal
IRP Integrated Resource Planning
IRR internal rate of return
ISC Industry Skills Council
MCE Ministerial Council on Energy
MEFL Moreland Energy Foundation Ltd
MEPS Minimum Energy Performance Standards
MPMSA Mechanical Services Association of Australia
MRET Mandatory Renewable Energy Target
NABERS National Australian Built Environment Rating System
NAESCO National Association of Energy Service Companies (US)
NAGA Northern Alliance for Greenhouse Action
NatHERS Nationwide House Energy Rating Scheme
NEET National Energy Efficiency Target
NEMMCO National Electricity Market Management Company
NFEE National Framework for Energy Efficiency
NGAC NSW Greenhouse Abatement Certificate
NSW New South Wales
xxxiii Inquiry into the Energy Services Industry
NTP National Training Package
OECD Organisation for Economic Co-operation and Development
ORER Office of the Renewable Energy Regulator
PEM(GGEE) Protocol for Environmental Management (Greenhouse Gas Emissions and Energy Efficiency in Industry)
PV Photovoltaic
PVRP Photovoltaic Rebate Program
REC Renewable Energy Certificate
RMIT Royal Melbourne Institute of Technology
RRPGP Remote Renewable Power Generation Program
RTO Registered Training Organisation
SEAV Sustainable Energy Authority of Victoria (now SV)
SMEs Small to medium enterprises
SV Sustainability Victoria
TAFE Technical and Further Education
UK United Kingdom
UNFCCC United Nations Framework Convention on Climate Change
US United States
VAT Value Added Tax
VET Vocational Education and Training
VITAB Victorian Industry Training Advisory Bodies
VLESC Victorian Learning and Employment Skills Commission
WA Western Australia
xxxiv Abbreviations
Measurements kW Kilowatt
kWh Kilowatt hour
PJ Petajoule
MW Megawatt
MWh Megawatt hour
TWh Terawatt hour
xxxv Inquiry into the Energy Services Industry
xxxvi Chapter 1
The Inquiry in context
Background to the Inquiry On 29 July 2005 the Environment and Natural Resources Committee received a reference under the Parliamentary Committees Act 2003 to inquire into the energy services industry. The terms of reference state that the Committee is requested to inquire into and report to Parliament on:
1. the progress made to date in developing the energy efficiency services industry in Victoria, including its market size and characteristics, profitability, capacity and composition; 2. the range of services and technologies available and the diversity of business models, compared with those in other OECD countries; 3. the competitiveness of the Victorian energy efficiency services industry in the Australian and international contexts; 4, the main barriers to, and drivers for, the development and uptake of energy efficiency services in the residential, commercial and industrial sectors; 5. the adequacy of training, accreditation and performance guarantee arrangements for the sector, including the appropriateness of standards and protocols for performance measurement and identification of skills gaps; 6. measures to promote the energy efficiency services industry, including the production of data on the performance of various technologies and information to identify and facilitate investment in the energy services industry; and 7. the roles of State Government and Federal bodies in developing and regulating an energy efficiency services industry, including the impact that a future greenhouse gas emissions trading scheme might have. The Committee is required to report to Parliament by 15 June 2006. On 18 May 2006, the Governor in Council under section 33 of the Parliamentary Committees Act 2003 amended the reporting date to 30 June 2006 by Order in Council.
1 Inquiry into the Energy Services Industry
The importance of improving energy efficiency
It is estimated that a national program to reduce electricity consumption by 1% per annum would deliver $3.6 billion (in real terms) in annual savings by 2020…. The energy performance contracting industry has the potential to contribute a minimum 10% of such a 1% national energy efficiency program.1 For governments throughout the world, finding ways to improve energy efficiency is emerging as a critical component of energy policy. Energy efficiency is increasingly the focus of government attention due to concerns about the potential effect of emissions produced through the generation of energy on the global climate,2 security of supply issues regarding the source and capacity of energy generation,3 and (particularly regarding electricity supply) the effect of increased demand on the provision of generation and distribution infrastructures.4 There is also recognition in most countries that improvements to the way energy is used may enhance the competitiveness of industrial and commercial enterprises and reduce energy costs for residential consumers. Energy consumption and energy efficiency Demand for stationary energy in Victoria is expected to grow by an average of 1.9 per cent per year until 2010, and grow by an average of 1.5 per cent per year after 2010.5 Energy consumption, and the greenhouse gas emissions associated with energy consumption, is also expected to parallel growth in Gross Domestic Product (GDP) although at a reduced rate.6 While overall energy consumption has increased over time in Australia, there are some indications that energy is nevertheless being used more efficiently. One measure that is used to estimate energy efficiency over time is the ‘energy intensity’ measure, which is usually derived by examining the ratio of energy to GDP (or population, for example) over time, or in comparison to
1 Australian Energy Performance Contracting Association, Submission, no. 30, December 2005, p. 5. 2 Commission of the European Communities, Green paper on energy efficiency: or doing more with less, no. COM(2005) 264, Commission of the European Communities, Brussels, 2005, p. 5; Commonwealth of Australia, Securing Australia's energy future, Department of the Prime Minister and Cabinet, Canberra, 2004, p. 105; European Environment Agency, Europe's environment: the third assessment, no. 10, European Environment Agency, Copenhagen, 2003, pp. 30,91; State of Victoria, Greenhouse challenge for energy, Department of Infrastructure and the Department of Sustainability and Environment, Melbourne, 2004. 3 Commission of the European Communities, Green paper on energy efficiency: or doing more with less, no. COM(2005) 264, Commission of the European Communities, Brussels, 2005; Commonwealth of Australia, Securing Australia's energy future, Department of the Prime Minister and Cabinet, Canberra, 2004; State of Victoria, Greenhouse challenge for energy, Department of Infrastructure and the Department of Sustainability and Environment, Melbourne, 2004, p. 5. 4 Department of Energy Utilities and Sustainability, Demand management for electricity distributors, Department of Energy Utilities and Sustainability, Sydney, 2004; Energy Response Pty Ltd, Submission, no. 9, 26 October 2005; Independent Pricing and Regulatory Tribunal, Inquiry into the role of demand management and other options in the provision of energy services, no. Rev02-2, Independent Pricing and Regulatory Tribunal of New South Wales, Sydney, 2002; Alan Pears, Energy efficiency - its potential: some perspectives and experiences, Sustainable Solutions Pty Ltd, Melbourne, 2004. 5 State of Victoria, Greenhouse challenge for energy, Department of Infrastructure and the Department of Sustainability and Environment, Melbourne, 2004, p. 6. 6 State of Victoria, Greenhouse challenge for energy, Department of Infrastructure and the Department of Sustainability and Environment, Melbourne, 2004, p. 6.
2 Chapter One: The Inquiry in context other countries. A recent report on projected energy use for Australia by the Australian Bureau of Agricultural and Resource Economics (ABARE) found that the aggregate energy intensity of Victoria (measured as total primary energy consumption per dollar of GDP) was expected to fall at a greater rate than for Australia generally, largely because Victoria’s projected economic growth is less dependent on major energy intensive projects.7
Figure 1: Projected energy intensity trends, Australia, Northern Territory and Victoria, 1989-90 to 2029-30.8
Improvements in energy intensity are not exclusive to Australia, however, as the energy intensity of all Organisation for Economic Co-operation and Development (OECD) member nations has improved in past decades. While there are a number of factors that make the international comparison of energy intensity problematic, there is evidence that Australia has lagged behind other OECD nations in terms of energy intensity (i.e. ‘Energy Intensity Effect’ in Figure 2).9
7 Muhammad Akmal and Damien Riwoe, Australian energy: national and state projections to 2029-30, no. 05.9, ABARE, Canberra, 2005, pp. 25-26. 8 Muhammad Akmal and Damien Riwoe, Australian energy: national and state projections to 2029-30, no. 05.9, ABARE, Canberra, 2005, p. 25. 9 Howard Geller and Sophie Attali, The experience with energy efficiency policies and programmes in IEA countries, International Energy Agency Information Paper, Paris, 2005; Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006.
3 Inquiry into the Energy Services Industry
Figure 2: Changes in energy intensity effect in selected OECD countries.10
0 )
r -0.5 y % (
e
g Australia n
a Norway h c
-1 t n e c
r
e Finland p
l
a UK
u -1.5 France
n Japan Sweden n
a Denmark OECD-11 e US g Germany a r e v
A -2
Italy
-2.5
In Australia studies have determined that energy savings of up to 30 per cent could be achieved across the industrial, commercial and residential sectors.11 In 2003, the Ministerial Council on Energy’s (MCE’s) Energy Efficiency and Greenhouse Gas Working Group released a discussion paper on energy efficiency in which it was suggested that “energy consumption in the manufacturing, commercial and residential sectors could be reduced by 20-30% with the adoption of currently commercially available technologies with an average payback of four years.”12 Even conservative estimates of potential energy efficiency improvements show that if specific strategies are adopted to improve energy efficiency in the Australian economy, energy efficiency gains in the order of 13 per cent are achievable over and above expected energy efficiency improvements by 2015 in the residential sector under ‘business as usual’ conditions.13 According to these more conservative estimates, efficiency gains in the order of ten per cent are achievable across Australia’s commercial sector buildings by 2010,14 and
10 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, p. 558. 11 Energy Efficiency and Greenhouse Working Group, Towards a national framework for energy efficiency -- issues and challenges, Ministerial Council on Energy, Canberra, 2003; Sustainable Energy Authority Victoria, et al., Preliminary assessment of demand-side energy efficiency improvement potential and costs, no. V4.1, National Framework for Energy Efficiency, Melbourne, 2003. 12 Energy Efficiency and Greenhouse Working Group, Towards a national framework for energy efficiency -- issues and challenges, Ministerial Council on Energy, Canberra, 2003, p. 3. 13 EMET Consultants Pty Limited, Energy efficiency improvement in the residential sector, Report to Sustainable Energy Authority Victoria, Melbourne, 2004; George Wilkenfeld and Associates, NFEE -- energy efficiency improvement potential case studies: residential water heating, Report to Sustainable Energy Authority Victoria, Melbourne, 2004.
4 Chapter One: The Inquiry in context
gains in the order of six per cent are possible across Australia’s manufacturing sector by 2011.15
Over time, the economic benefits of improved energy efficiency for Australia are estimated to be substantial. A review of the Australian energy market in 2002 by the Council of Australian Governments (COAG) found that certain energy efficiency measures to address peak supply and energy consumption, such as implementing measures to facilitate the operation of demand management strategies, could increase GDP by more than $630 million per annum by 2010.16 In 2003 research undertaken for the Sustainable Energy Authority Victoria found that the economy-wide impacts of increased energy efficiency by various industries over a twelve year period could result in an increase in GDP of $1.8 billion.17
Cost reduction One of the most compelling reasons for government and private sector interest in increasing energy efficiency is the potential economic and social benefit from reducing costs associated with energy for consumers. Substantial benefits would likely accrue to consumers if savings in the order of between 10 and 30 per cent of energy costs were realised. 18 In the residential sector these savings may be realised as absolute reductions in energy consumption, while in the commercial and industrial sectors energy efficiency gains may be realised as absolute gains or as reduced energy use per unit of production.
Overseas energy efficiency programs focusing on low income and/or high need households have also been initiated by governments as a means to ensure those households are not subject to hardship as a result of increasing energy costs. Often energy efficiency improvements for low income households have been achieved by governments requiring that a fixed proportion of energy efficiency activities be directed at priority groups.19
Emissions Another important factor contributing to concern about issues surrounding energy supply and demand is international acknowledgement that greenhouse gas emissions associated with the generation of energy have a substantial effect on the global environment. Consequently there has been activity by governments and public and private sector organisations and groups to explore ways to contain and control these emissions. Some prominent actions to reduce greenhouse gas emissions include work 14 EMET Consultants Pty Limited, Energy efficiency improvement in the commercial sub-sectors, Report to Sustainable Energy Authority Victoria, Melbourne, 2004. 15 Energetics, NFEE: energy efficiency improvement, potential case studies -- industrial sector, Report to Sustainable Energy Authority of Victoria, Melbourne, 2004. 16 Commonwealth of Australia, Securing Australia's energy future, Department of the Prime Minister and Cabinet, Canberra, 2004, p. 108; Ministerial Council on Energy, Towards a truly national and efficient energy market, Council of Australian Governments, Canberra, 2002, pp. 44,252. 17 Allen Consulting Group, Economic impact analysis of improved energy efficiency, Report for Sustainable Energy Authority Victoria, Melbourne, 2003, p. v. 18 Bruce Rowse, Managing Director, Energy Doctor Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005. 19 International programs and instruments for energy efficiency are discussed in Chapter Three.
5 Inquiry into the Energy Services Industry
undertaken through the United Nations Framework Convention on Climate Change (UNFCCC) and the associated Kyoto Protocol,20 and in Europe, the development and implementation of the European Union’s (EU’s) Emissions Trading Scheme.21 There has been general recognition that one of the most cost-effective ways to achieve the goal of containing and/or reducing greenhouse gas emissions is by improving the efficiency with which we use energy.22 While measures to improve energy efficiency are an important component of strategies to reduce greenhouse gas emissions, they must also be implemented in concert with other programs and actions to reduce emissions.
Peak power EnergyAustralia, which is an energy retailer, states that the rise in peak power usage presents huge economic challenges for its company and others. They give as an example that 10 per cent of their network assets valued at $1 billion are used for only 1 per cent of the time.23 In Victoria, and Australia generally, another factor that contributes to a focus on improved energy efficiency is concern surrounding the generation and distribution of electricity, particularly at times when demand for electricity peaks (typically during hot days when residential air conditioning use increases).24 Analyses of peak electricity use in Australia show that up to ten per cent of electricity generation capacity is required for just three days of a typical year.25 As a consequence there are high costs associated with the inefficient use of electricity generation and distribution assets, both in terms of capital investment for under-utilised capacity, and in terms of high prices paid for electricity during periods of peak demand. In this context, increased energy efficiency focuses not only on reducing the amount of electricity used, but on distributing electricity use more consistently over time so as to reduce (high cost) ‘spikes’ in demand for electricity.
Energy efficiency in the context of this Inquiry One of the challenges for the Committee in the course of this Inquiry was to determine the extent of the energy efficiency services industry, and the
20 United Nations, 'The United Nations Framework Convention on Climate Change', viewed 23 March 2006,
6 Chapter One: The Inquiry in context
context in which it might operate. The Committee was also required to consider renewable energy in the context of this Inquiry, and issues surrounding this issue are examined in the following pages.
In the terms of reference for this Inquiry the Committee was required to inquire into energy efficiency services, which were defined as “commercial services that lead to improved energy efficiency, demand side management and greater use of renewable energy in the built environment.” As noted by witnesses to this Inquiry, the services encompassed by this definition could be very broad or quite limited, subject to interpretation.26
As there is no universally accepted definition for the energy efficiency services sector currently in Australia, one of the Committee’s first tasks was to determine the range of commercial services that it would consider in the course of this Inquiry. The Committee decided that, for the purposes of analysis and description, the ‘energy efficiency services industry’ would include commercial services that provided as part of their core services measures to improve demand-side energy efficiency, and also commercial services that did not necessarily regard energy efficiency as their core business but nevertheless affected the pattern of energy consumption. The focus of this Inquiry is also on energy consumption associated with stationary energy sources rather than transport energy. What is energy efficiency? The Committee determined that for the purposes of this Inquiry a very simple model of what comprised ‘energy efficiency’ would be adopted – energy efficiency is the practice of producing more for the same amount of energy, or producing as much or more for less energy.27 Essentially, ‘energy efficiency’ occurs when the ratio of production to energy increases, so that for example a company’s energy efficiency improves when it produces two items for the same energy it used to take to produce one.
The Committee notes that while most of the time energy efficiency is desirable it is not necessarily the case that improved energy efficiency is always practical or desirable. While means may be available to improve production relative to energy consumption, other factors such as the cost of improving energy efficiency may mean that certain actions are not economically efficient, as capital used to improve energy efficiency could be used for greater return elsewhere. Furthermore, energy efficiency may not always be socially efficient, in the sense that some improvements in energy efficiency may not always lead to the best outcomes for society as a whole.
Economic efficiency The Committee notes that while energy efficiency is not necessarily the same thing as economic efficiency, in practice they are often considered together. In the context of this Inquiry, for example, the focus is on
26 Dr Graham Redding, Submission, no. 10, 25 October 2005. 27 See also Bruce Rowse, Managing Director, Energy Doctor Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005, p. 69.
7 Inquiry into the Energy Services Industry
commercial services that facilitate energy efficiency, which implies that the energy efficiency measures to be considered during the course of this Inquiry should be commercially viable and competitive, or at least have the potential for commercial viability.
Some evidence presented to the Committee suggested that other considerations, such as social efficiency (which may include, for example, consideration of the cost of greenhouse gas emissions produced through the generation of energy on society as whole) should be excluded from the Committee’s analysis, as measures to improve energy efficiency are not always identical with measures to reduce greenhouse emissions.28
The Committee considers that the social context of energy efficiency provides one of the primary reasons for the present interest in energy efficiency – namely, the increasing threat of climate change induced by greenhouse gas emissions. Indeed, as noted by a number of witnesses before the Committee and in a number of contemporary government and non-government publications and statements, one of the main barriers to improved energy efficiency is the fact that greenhouse gas emissions associated with the generation of energy are not adequately accounted for in economic terms – that is, there is no price or value generally attached to the external costs of energy generation and consumption.29 Energy consumption, energy distribution and energy generation The focus of this report is on demand-side measures to improve energy efficiency in Victoria. That is, the issues considered of primary interest to the Committee surround the consumption of energy in Victoria by the residential, commercial and industrial sectors. Consequently the Committee has not conducted a detailed analysis of the capacity for improved energy efficiency in the energy generation and energy distribution industries.
The Committee’s understanding of the terms of reference for this Inquiry was that they arose from issues identified in the Committee’s last report on the Inquiry into sustainable communities.30 This report focused on measures to improve the sustainability of Victorian households. For this reason a focus on energy consumption or demand-side issues has been continued during the current Inquiry.
28 AGL, Submission, no. 20, 31 October 2005; Origin Energy, Submission, no. 17, 28 October 2005; TRUenergy, Submission, no. 26, 8 November 2005. 29 Deane Belfield, Member, Engineers Australia, Transcript of evidence, Melbourne, 20 February 2006; Ric Brazzale, Executive Director, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005; Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005; Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006; Bruce Rowse, Managing Director, Energy Doctor Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005; Bruce Thompson, Business Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005. 30 Environment and Natural Resources Committee, Inquiry into sustainable communities, Parliament of Victoria, Melbourne, 2005, pp. 239-281.
8 Chapter One: The Inquiry in context
The Committee also notes that the terms of reference for this Inquiry require that the report focus on demand-side management and services provided to the residential, commercial and industrial sectors. The Committee determined in this regard that an emphasis on issues relating to the consumption of energy would be appropriate. Renewable energy Renewable energy typically refers to the generation of energy without the consumption of limited or finite resources. Renewable energy refers to the means by which energy is generated or supplied, and so from a consumption or demand-side perspective it is not inherently energy efficient (or for that matter, energy inefficient). This is because the Committee’s ‘simple’ definition of energy efficiency measures efficiency in terms of how energy is used, rather than how it is generated.
However, the Committee recognises that the terms of reference for this Inquiry explicitly link greater use of renewable energy in the built environment to energy efficiency services. While the use to which renewable energy is put does not differ in any necessary way from the use of energy generated from any other source, renewable energy does possess other characteristics that may improve its efficiency relative to other forms of energy generation. Some characteristics of renewable energy that are inherently efficient include that the cost of ongoing resources required to generate renewable energy are negligible, that renewable energy generation has a minimal impact on the environment compared to energy derived from fossil fuels, and that some forms of renewable energy (such as photovoltaic systems and wind turbines) have improved potential to be used as distributed energy sources, thus reducing for example electricity losses through the use of long distance power lines.
While the Committee recognises that it is required to look at renewable energy as a subset of the energy efficiency services industry, and while the Committee does believe that renewable energy occupies an important place in the overall context of energy efficiency, the Committee also notes that services to provide energy efficiency are not always the same as services to provide renewable energy.
Given the focus on energy consumption in the residential, commercial and industrial sectors, this report will consider the use of renewable energy only in the context of distributed generation. Consequently, large-scale renewable energy sources that feed into the transmission networks (such as wind farms or large hydroelectric developments) will not be considered in this report. Stationary energy versus transport energy A final consideration for the Committee was the range of energy consuming activities that would be considered for this report. While the consumption of energy for transport is an important consideration for energy efficiency, the Committee was cognisant that the inclusion of issues surrounding transport
9 Inquiry into the Energy Services Industry
would increase the scope of the Inquiry substantially, and that in the interests of producing this report in a timely fashion the Committee’s efforts would be better focused on issues surrounding the use and consumption of stationary energy.
Inquiry process The Committee advertised the terms of reference and called for written submissions in Melbourne and regional Victorian newspapers in August 2005. The Committee received 32 written submissions (see Appendix One).
The Committee received briefings from the Department of Sustainability and Environment and the Department of Infrastructure prior to commencing public hearings for this Inquiry. Public hearings were held in Melbourne and Bendigo between November 2005 and April 2006. Meetings were also held in Canberra, Sydney and Brisbane. Details of hearings and meetings are provided in Appendix Two. The Committee took evidence from and met with 87 people representing 54 organisations during the course of the Inquiry including state and Federal government departments; statutory authorities; local governments; non-government organisations; peak industry groups; academics; community groups and businesses working in the energy efficiency services industry.
Committee members and staff attended seminars, site visits and a conference during the course of this Inquiry. These are listed in Appendix Three.
Many individuals and organisations contributed to this Inquiry by making written submissions and participating at hearings and meetings. The Committee is grateful to all these people for generously sharing their expertise and ideas.
Energy efficiency services
As a minimum, 20 per cent of the energy used by industry is wasted. The payback period on capital expenditure is usually under three years.31 Through the course of this Inquiry the Committee was told that substantial improvements in energy efficiency could be obtained through the energy efficiency services industry across the residential, industrial and commercial sectors. The Committee heard that currently there is substantial potential for improved energy efficiency, and it is likely that the energy efficiency services industry will become increasingly important as domestic and international demand for more effective use of energy increases.
One of the primary drivers for the energy efficiency services industry is the extent to which it can deliver strategies or products for the reduction of
31 Dr Assad Gargari, Director, EEP Management, Transcript of evidence, Melbourne, 3 April 2006, p. 2.
10 Chapter One: The Inquiry in context expenditure on energy in the residential, commercial and industrial sectors. While there are few analyses to date that document the financial benefits delivered through energy efficiency services at state or national levels, the Committee understands that energy efficiency services have developed significant energy cost savings projects for the New South Wales and Queensland governments, particularly through programs introduced in those states to encourage government agencies to pursue energy cost and energy-related emissions reduction strategies.
For example, in New South Wales the Mid-western Area Health Service entered into an energy performance contract in 2000 that produced 29,691 GJ of energy savings per annum and 19,690 kilolitre water savings, with annual cost savings of $437,414 per annum in first year rising to $547,563 per annum in year six. The total capital investment for this project was $2.1 million, which gave an annual rate of return of 20 per cent.32
The Committee was told that between 20 and 40 per cent of energy used by the Victorian industrial and commercial sectors is wasted, but if appropriate actions were taken this waste could be minimised, with capital expenditure on energy efficiency measures paid back within three years.33 In the residential sector, AGL indicated in a submission to the Productivity Commission that energy efficiency services delivered through its Business Energy Services division had produced more than $3 million in benefits to its customers through reduced energy use.34
Internationally, energy efficiency services such as energy performance contracting have been used extensively for more than 20 years. In the United States, for example, over $2 billion worth of projects were contracted with ESCOs (Energy Services Companies) in 2000 alone. Analysis of the industry showed that the median payback time for all projects was three years, with a benefit-cost ratio of 2.1.35
In this context, the Committee believes that serious consideration must be given to the development of the energy efficiency services industry in Victoria and throughout Australia. There appear to be substantial untapped opportunities for improved energy efficiency currently in the residential, commercial and industrial sectors. Moreover, as world economies move to account more carefully for the use of energy, particularly in the context of greenhouse gas emissions and increased demand for peak power electricity generation, services offered by the energy efficiency services industry will become increasingly important to maintaining a competitive economy.
32 RAIA Practice Services, 'Brief introduction to energy performance contracting', viewed 26 April 2006,
11 Inquiry into the Energy Services Industry
Inquiry report The aim of this chapter has been to highlight some of the issues surrounding energy efficiency, including the significant role that improved energy efficiency may play in future efforts to address problems associated with increasing energy consumption. This chapter has also provided an overview of the Inquiry process, the scope of the Inquiry, and provides a brief introduction to the energy efficiency services industry.
Chapter Two of the report describes the range of services offered by the energy efficiency services industry and provides an overview of market participants. The role of organisations and businesses that do not specialise in energy efficiency services, but nevertheless have a significant impact on patterns of energy consumption is also discussed.
In Chapter Three a brief overview of energy efficiency services and programs in OECD nations is provided. Chapter Four describes the main barriers and drivers for energy efficiency and the energy efficiency services industry.
Chapter Five describes provisions in vocational and higher education training for occupations in the energy efficiency services industry. Accreditation and private education for the energy efficiency services industry is also discussed.
Chapter Six describes current programs and industry measures that have an effect on the provision of energy efficiency services. Federal and State programs are discussed, as well as activities by industry and local government to promote energy efficiency services.
In Chapter Seven a range of mechanisms that could be employed to promote energy efficiency and the energy efficiency services industry are discussed.
12 Chapter 2
A profile of the energy efficiency services industry In this chapter some characteristics of the energy efficiency services industry are discussed, including a description of the range of services and products offered by the ‘core’ and ‘non-core’ energy efficiency services industry, and the number of participants in each sector of the industry.
The energy efficiency services industry
[Energy efficiency services are] services that deliver more productive use of energy than conventionally provided to the end user; and services which often have a contractual basis to improve the level of energy productivity.36 As noted earlier, there is no generally accepted definition for the energy efficiency services sector currently in Australia. Identifying companies and organisations in the energy efficiency industry is complicated because the ‘services’ that are relevant to energy efficiency are diverse and can be offered by a wide range of companies that may, or may not, consider the provision of energy efficiency to be their core function. There is no single resource available in the public domain that provides a comprehensive overview of current participants in the industry, and resources that do exist tend to consider energy efficiency services as a component of environmental services.37 A number of witnesses and submissions made a distinction between the incidental provision of energy efficiency services by businesses, and businesses that focused primarily on the provision of these services.38 For this reason, a distinction will be made throughout this report between core energy efficiency services and non-core energy efficiency services. Core energy efficiency services Core energy efficiency services include businesses and organisations that have a principal focus on providing energy efficient products and services to
36 Sustainability Victoria, Submission, no. 27, 11 November 2005, p. 3. 37 See for example Mark Ellis and Associates, Economic performance and contribution of the sustainable energy industry 2002, Report for SEDA, Wagstaffe, 2002. 38 Philip Harrington, Submission, no. 29, 5 December 2005; Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005; Alan Pears, Submission, no. 19, 28 October 2005; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006; Sustainability Victoria, Submission, no. 27, 11 November 2005.
13 Inquiry into the Energy Services Industry
the market. Participants in the core energy efficiency services industry may also include organisations that are required to conduct energy efficiency activities as part of their business. Core energy efficiency services include a range of companies and businesses, from self-employed energy auditors to large companies that provide advanced energy analysis services. Most of the companies currently offering energy efficiency services operate in the commercial and industrial sectors. Sustainability Victoria suggested that some of the types of companies that may be considered part of the energy efficiency services sector include:
energy auditors;
energy performance contractors;
energy management providers;
specialist equipment and services providers; and
consultancies with specialist energy expertise.39
The Committee notes that under the terms of reference for this Inquiry it was required to examine “measures to promote the energy efficiency services industry.” In the context of the core energy efficiency services industry, the Committee considers that measures to promote the industry include those directed at:
increasing consumer knowledge and utilisation of core energy efficiency services;
increasing competition and competency within the core energy efficiency services industry; and
increasing efficiency in the use of energy by consumers in the industrial, commercial and residential sectors as a result of employing core energy efficiency services participants. Participants in core energy efficiency services. Resources that exist in the public domain to identify businesses involved in energy efficiency tend to group businesses that undertake diverse activities together. The Australian Yellow Pages, for example, shows 181 businesses offering services to Victoria under the category “Energy Management Consultants &/or Services.”40 These businesses include a range of enterprises and professions, encompassing activities as diverse as home energy rating, co-generation services and energy performance contracting.
While it is difficult to obtain a complete overview of participants in the energy efficiency services industry, the Committee received evidence that provided an indication of the industry’s size and scale in Victoria. In its submission to
39 Sustainability Victoria, Submission, no. 27, 11 November 2005, p. 3. 40 Yellowpages Online, 'Yellowpages Online', viewed 21 March 2006,
14 Chapter Two: A profile of the energy efficiency services industry
the Inquiry, Sustainability Victoria referred to a survey undertaken for the Commonwealth Government that identified 156 companies operating in Australia as energy services companies (ESCOs) or energy auditors.41 According to this report, 76 per cent of these companies offered services in Victoria and 29 per cent had their home office in Victoria. The majority of these organisations were small, employing three or fewer staff.
In a separate study conducted in 2002 for the Sustainable Energy Development Authority in New South Wales, it was estimated that around 4,680 people were employed in the energy efficiency sector in Victoria.42 The authors of this study suggested that in comparison to other businesses operating in the sustainability sector, the ratio of revenue to employees was low within energy efficiency services, indicating that this sector was particularly labour intensive.43
The Committee understands from Sustainability Victoria that the Australian Bureau of Statistics has identified a need for increased discrimination in the collection of statistics on the environmental services industry, including the collection of statistical information about the energy efficiency services industry.44 In 2006 Australia will be adopting the US industry classification which has a code for energy consulting.45 It is hoped that this classification will facilitate future collection of data about the energy efficiency services industry. Products and services offered by core organisations The Committee decided that for the purposes of this report the core energy efficiency services industry would be considered by reference to the framework illustrated in Figure 3. In this framework services encompassed by the energy efficiency services industry are considered under three main categories: energy use analysis and energy efficiency upgrades; Demand- Side Management; and energy efficient products and services. Of these main categories, the range of services encompassed by ‘energy use analysis and energy efficiency upgrades’ is the most diverse, and includes energy auditing services, energy management services, energy upgrade services and energy rating services.
41 Sustainability Victoria, Submission, no. 27, 11 November 2005, p. 6. 42 Mark Ellis and Associates, Economic performance and contribution of the sustainable energy industry 2002, Report for SEDA, Wagstaffe, 2002, p. 34. 43 Mark Ellis and Associates, Economic performance and contribution of the sustainable energy industry 2002, Report for SEDA, Wagstaffe, 2002, p. 37. 44 Sustainability Victoria, Submission, no. 27, 11 November 2005. 45 Sustainability Victoria, Submission, no. 27, 11 November 2005, p. 6.
15 Inquiry into the Energy Services Industry
Figure 3: Core energy efficiency services.
Energy auditing services
Energy use analysis and Energy management energy efficiency upgrades services
Core energy Energy upgrade services efficiency services Energy rating services
Demand-side management Demand side response
Energy efficient appliances and products
Energy use analysis and energy efficiency upgrades The energy use analysis and energy efficiency upgrades sector of the energy efficiency services industry largely provides services to improve the energy efficiency of buildings, work environments and industrial processes. These may range from simple audits of energy use to ongoing commercial contracts that provide guaranteed energy efficiency improvements over specified time periods. A wide range of business models and approaches are offered in the sector, from simple fee-for-service arrangements to complex financing options for large scale energy efficiency upgrades.
The energy use analysis and efficiency upgrade sector is comprised of several distinguishable service types. For the purposes of this Inquiry, the Committee will discuss this component of the energy efficiency services sector under the following categories (see Figure 4):
energy auditing services;
energy management services;
energy upgrade services; and
energy rating services.
16 Chapter Two: A profile of the energy efficiency services industry
Figure 4: Energy use analysis and efficiency upgrades.
Energy auditing services
Energy use analysis and Energy management energy efficiency upgrades services
Core energy Energy upgrade services efficiency services Energy rating services
Demand-side management Demand side response
Energy efficient appliances and products
The Committee notes suggestions that many organisations lack the necessary in-house skills and resources required to manage energy consumption and realise potential energy savings.46 Energy efficiency services may provide an important means for organisations that lack necessary in-house expertise to identify and manage energy use patterns, identify potential savings and upgrade the efficiency of commercial and industrial facilities. Energy auditing services Energy auditing services cover a broad spectrum of commercial services that provide customers with detailed analyses of energy usage, potential savings, and costs associated with achieving savings. In general these analyses are presented to customers in the form of reports. Energy audits may be as simple as a walk-through of a facility, or a complex analysis of energy efficiency alternatives for a given facility’s production processes.47
There are two broad types of energy audits currently undertaken within Australia:
energy audits conducted for commercial and industrial facilities; and
energy audits conducted for households.
A range of private and public sector bodies offer various forms of accreditation for energy auditors in Australia. A standard has also been developed for the energy auditing services industry, which is referred to in a number of government initiatives to improve energy efficiency. The
46 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 123. 47 Bruce Rowse, Managing Director, Energy Doctor Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005, p. 63.
17 Inquiry into the Energy Services Industry
standard, AS 3598:2000 Energy Audits, was developed by government representatives and representatives from a number of peak industry organisations.
The standard sets out requirements for commissioning and conducting energy audits and identifying opportunities for cost effective investments to improve energy efficiency. It is intended for use primarily by energy users to assist them to sufficiently define the scope of an audit. The standard may be applied to the public, commercial and industrial sectors, and to a range of premises from complex industrial sites to single small buildings.48 AS 3598:2000 Energy Audits provides for three levels of energy audits as detailed in Figure 5:49
Figure 5: Energy audit levels, AS 3598:2000 Energy Audits.
Level 1: provides standards for the assessment of overall energy consumption at a site, and includes standards for evaluating whether energy use at a given site is reasonable or excessive. It also requires the preparation of initial benchmarks of energy consumption at a site so that the effect of measures to improve energy efficiency can be tracked and evaluated over time. Level 2: provides standards for the identification of the source(s) of energy use at a site, the amount of energy used and the purposes for which it is used. It also identifies areas where savings can be made, recommends measures to be taken, and provides a statement of costs and potential savings. Level 3: provides standards for detailed analyses of energy usage, potential savings, and cost associated with achieving identified savings. It may cover the whole site or may concentrate on an individual item, such as a specific service or industrial process.
Commercial and industrial energy auditing services Energy audits are one of the most common forms of energy efficiency service/product available, with audits for commercial and industrial facilities comprising the bulk of energy audits conducted in Australia. Energy audits identify cost-effective improvements which may include measures that:
lower energy expenses;
assist to increase production reliability;
assist organisations to overcome a lack of technical skills; and
reduce environmental impacts.
The Committee was also told by Dr Assad Gargari of EEP Management that commercial and industrial businesses could benefit from energy audits
48 Standards Australia Limited, AS/NZS 3598:2000 : energy audits, 2006. 49 Environment Protection Authority Victoria, Protocol for environmental management. Greenhouse gas emissions and energy efficiency in industry, Melbourne, January 2002, p. 3.
18 Chapter Two: A profile of the energy efficiency services industry
because they provided firms with expert advice about the use and installation of relatively new, proven and reliable technologies.
[The industrial] sector is very complex. Sometimes energy audits really help to bring new technology for them, never mind improving the energy efficiency and production processes.50 Household energy auditing services Energy audit services for households are typically conducted on a walk- through basis, with the auditor identifying areas for home energy improvement. There are a number of independent companies in Victoria that undertake this work. Typical recommendations identified in home energy audits include the installation of draft proofing, insulation, curtains and pelmets, and efficient hot water systems.51
In an effort to further encourage the uptake of efficiency measures in existing housing stocks, several state and local governments have developed and implemented programs that either directly or indirectly support the delivery of home energy audits. For example, the ACT Government’s ACT Energy Wise program, facilitated by the Home Energy Advice Team (HEAT), provides a service whereby a professional energy auditor from HEAT will visit households, examine features of the house that affect energy use and identify where savings can be made.52
Participants in the energy auditing services sector In the energy auditor sub-sector of the industry, the Australian Institute of Refrigeration, Air-Conditioning and Heating (AIRAH) provides a public register of accredited energy auditors, although at this stage just 14 auditors are listed on the AIRAH website. Ten of these auditors have Victorian addresses. Under the AIRAH program registered energy auditors are required to submit reports of a Level 3 standard as specified in AS 3598:2000 Energy Audits. The Committee notes that the NSW Department of Energy, Utilities and Sustainability also operates an energy audit register under the Energy Smart Allies Directory (www.energysmartallies.com) although no accreditation process is undertaken.
In the context of industrial and commercial auditing, information provided to the Committee by the Environment Protection Authority of Victoria indicates that just 20 auditing organisations were contracted to conduct approximately 500 audits required under the EPA’s Protocol for Environmental Management (Greenhouse Gas Emissions and Energy Efficiency in Industry) (PEM(GGEE)).53 All of these energy auditing services were undertaken on a fee-for service basis.54
50 Dr Assad Gargari, Director, EEP Management, Transcript of evidence, Melbourne, 3 April 2006, p. 3. 51 Rev Nick Frances, Chief Executive Officer, easybeinggreen, Transcript of evidence, Melbourne, 14 March 2006. 52 Home Energy Advice Team, 'Home energy audits', viewed 23 March 2006,
19 Inquiry into the Energy Services Industry
Energy management services For the purposes of this report, energy management services are defined as services that identify, analyse and manage energy performance, and facilitate energy efficiency solutions. Organisations providing energy management services, while often undertaking project management duties, will not typically undertake large infrastructure upgrade projects. As such, organisations that provide energy management services may often adopt a facilitative role to assist companies towards energy efficiency, or may provide relevant data and strategies to third-party businesses to assist them to implement measures to improve energy efficiency for clients.
Some of the products and services offered by this sector include:
development of computerised energy management systems that monitor and control energy use processes;
development of computer models that simulate different energy efficiency scenarios;
facilitation and project management for major energy efficiency upgrades;
assistance during negotiation or re-negotiation of energy contracts to better reflect an organisations specific energy use requirements; and
undertaking industry recognised assessments on behalf of clients, such as GreenStar and Australian Building Greenhouse Rating (ABGR).55 Energy upgrade services An Energy Service Company (ESCO) is a business that develops and implements projects designed to improve energy efficiency and reduce maintenance costs for facilities. ESCOs generally act as project developers for a wide range of tasks and assume the technical and performance risk associated with a given project.56
Activities performed by an ESCO typically include:57
conducting an energy audit, also known as a detailed feasibility study (DFS);
establishing baseline energy use for specific equipment, systems or the facility as a whole;
designing the project in conjunction with the customer;
55 The GreenStar and Australian Building Greenhouse Rating are discussed in Chapter Two. 56 National Association of Energy Service Companies, 'What is an ESCO?' viewed 15 February 2006,
20 Chapter Two: A profile of the energy efficiency services industry
supplying, installing and commissioning equipment;
training relevant client personnel;
operating and maintaining the equipment for the life of the contract;
conducting measurement and verification of actual savings; and
providing savings and equipment performance guarantees.
Large energy retrofits typically require a large initial capital investment with a lengthy payback period. An Energy Performance Contract (EPC) is a process whereby the ESCO identifies and guarantees the savings, with the customer repaying the ESCO through the savings generated during the course of the project – that is, the customer pays for the retrofit from the difference between pre-installation energy costs and post-installation energy costs.58 EPCs guarantee savings from the project, and so transfer risk from the client to the ESCO. If savings targets are not met, the ESCO pays the shortfall. Financing for the upgrade can be provided by either the ESCO or the customer, though typically the customer provides necessary capital. The key benefit of an EPC to the client is the promise of guaranteed savings and the subsequent transfer of risk (both technical, project and financial) from the customer to the ESCO.
Participants in the energy upgrade services sector Information provided to the Committee by ECS revealed that there are currently six Energy Service Companies (ESCOs) operating in the Australian market accredited under the banner of the Australian Energy Performance Contracting Association (AEPCA).59 Several of these organisations maintain a presence in most Australian states and territories, including Victoria. However, evidence provided by AEPCA to this Inquiry indicates that while 100 EPCs have been undertaken in Australia, only one EPC has been implemented in Victoria.60 The majority of EPCs undertaken within Australia have been in NSW and Queensland where programs to facilitate the uptake of EPCs within government agencies have been introduced.61 According to AEPCA’s submission to this Inquiry, as of March 2005 EPCs implemented in Australia accounted for a total capital expenditure of $206 million, annual energy savings of $36 million, and an 62 annual CO2 reduction of 282,000 tonnes.
58 National Association of Energy Service Companies, 'What is an ESCO?' viewed 15 February 2006,
21 Inquiry into the Energy Services Industry
Energy rating services Home energy ratings Since July 2005, all new houses built in Victoria must achieve a Five Star rating for building fabric and install either a rainwater tank or solar hot water system. All new dwellings need to be rated by an accredited assessor using the FirstRate or NatHERS rating tools. FirstRate is a house rating software tool developed by the former Sustainable Energy Authority Victoria (now Sustainability Victoria) using data obtained from the NatHERS building energy efficiency calculation engine. The NatHERS software program was developed by the CSIRO. It simulates the heat performance of buildings by referring to climate data for specific regions and user occupancy patterns. The simulation estimates the amount of heat that needs to be entered or removed to keep the building within a comfortable temperature range.
Energy raters apply to Sustainability Victoria in order to become accredited house energy raters in Victoria. In order to achieve accreditation, energy raters must:
be registered owners of FirstRate software, or its equivalent;
be proficient in the FirstRate software;
pass an exam in the FirstRate software and procedures;
have several ratings checked for accuracy each year; and
agree to operate under a Code of Conduct.
Participants in the home energy rating services sector In the energy rating sub-sector of the industry, Sustainability Victoria’s submission to the Committee noted that there are currently over 1,000 accredited energy raters to support Victoria’s Five Star standard. Sustainability Victoria’s website provides details of only 641 accredited raters, as not all accredited raters choose to be publicly listed. While no public analysis of home energy rating providers has yet been conducted, an examination of Sustainability Victoria’s website shows that some of the accredited raters provide this service as a core component of their business.
Commercial building energy ratings The use of rating tools by the commercial building sector has delivered significant opportunities for the energy efficiency services industry, particularly businesses that provide accredited rating services such as the Australian Building Greenhouse Rating (ABGR), National Australian Built Environment Rating System (NABERS) and Green Star. Table 1 provides an overview of these rating schemes.
The benefits of building rating tools to owners and tenants of commercial buildings include recognition of the environmental performance of buildings,
22 Chapter Two: A profile of the energy efficiency services industry
lower operational and tenancy costs and a potential competitive advantage compared to other non-rated buildings.
Table 1: Overview of current commercial building rating tools.63
Rating Descriptor Scheme ABGR ABGR scheme rates existing buildings from one to five stars with five stars representing exceptional greenhouse performance. Current market best practice in Australia is three stars. NABERS NABERS is a performance based rating system that measures an existing building’s overall environmental performance during operation. NABERS rates a building on the basis of its measured performance in areas such as energy, refrigerants, water, and sewage transport. NABERS Office incorporates ABGR for energy and greenhouse efficiency. Green Star Green Star Office ratings are designed to asses the environmental potential of office buildings. The rating establishes how the premises will perform under ideal circumstances based on design information and management processes.
Participants in the commercial building energy rating services sector Information obtained from the respective rating tools’ websites indicates that in Victoria there are four NABERS accredited assessors, 18 ABGR accredited assessors, and 121 Green Star accredited professionals (see Table 2).64 While Victoria has comparatively less accredited assessors than
63 National Australian Built Environment Rating System, 'FAQs', viewed 2 June 2006,
23 Inquiry into the Energy Services Industry
New South Wales, the Committee recognises that core members of the energy efficiency services industry operate across state boundaries, so that these services are often available to Victorian businesses and agencies regardless of where particular assessors are based.
Table 2: State/territory breakdown of the accredited rating assessors65
State or ABGR NABERS Green Star Territory ACT 6 0 37 NSW 69 9 158 QLD 10 1 67 SA 7 2 75 TAS 2 0 1 VIC 18 4 121 WA 21 1 43 TOTAL 133 17 502
Demand-Side Management (DSM) Figure 6: Demand-Side Management.
Energy auditing services
Energy use analysis and Energy management energy efficiency services upgrades Core energy Energy upgrade services efficiency services Energy rating services
Demand-side management Demand side response
Energy efficient appliances and products
In Australia, the phrase “Demand-Side Management” (DSM) has often been used in reference to measures implemented by, or on behalf of, electricity
Rating System, 'List of accredited assessors', viewed 26 May 2006, < http://www.nabers.com.au/Assessors/AccreditedLists/assessorsList.asp>. 65 Green Building Council Australia, 'Accredited professional directory', viewed 26 May 2006,
24 Chapter Two: A profile of the energy efficiency services industry
companies to reduce peak demand on electricity.66 However, a broader view of DSM adopted internationally is that DSM refers to “range of actions taken by generators, networks, retailers, other energy service intermediaries and end-users to alter the level or pattern of consumption of energy, the source of energy, or use of the distribution network.”67 In the US, where the term originated, DSM refers to a range of activities undertaken by energy utilities to both control electricity peak load and to reduce overall consumption of energy by consumers (i.e. the ‘demand side’). As DSM developed in the US it also came to refer to the activities of organisations directly contracted to energy utilities to deliver management of, and reductions in demand for, energy consumption.68 Although most discussion about DSM focuses on issues surrounding demand for electricity, DSM has also been employed by gas utilities.69
DSM for reduced energy consumption As DSM can refer generally to any activity by energy utilities to reduce energy demand and consumption, many of the strategies employed under DSM are similar to those employed by energy efficiency businesses, including energy audits, the procurement and installation of energy efficient appliances and fittings, and provision of information about energy consumption. Overseas, often a proportion of DSM activities by energy utilities focus on the provision of services to low income customers, and can include measures such as subsidised (or free) installation of insulation to homes, and improved water and home heating.70
DSM activities to reduce energy consumption are not widely practiced in Victoria. Some witnesses told the Committee that the regulatory structure of the Victorian electricity market provides little incentive for investment in DSM activities.71 The Committee received evidence from the Energy Retailers Association of Australia (ERAA) on a number of DSM programs that have been undertaken by energy retailers in Australia. Unfortunately none of these were Victorian initiatives. Some DSM activities cited by the ERAA include:
66 Charles River Associates (Asia Pacific) Pty Ltd and Gallaugher & Associates, Electricity demand side management study, Report prepared for VENCorp, Melbourne, 2001. 67 Department of Energy Utilities and Sustainability, Demand management for electricity distributors, Department of Energy Utilities and Sustainability, Sydney, 2004, p. 7. 68 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996. 69 For example, see Chapter Three. 70 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005; Department for Environment Food and Rural Affairs, A review of the Energy Efficiency Commitment 2002-2005, Department for Environment Food and Rural Affairs, London, 2005; Howard Geller and Sophie Attali, The experience with energy efficiency policies and programmes in IEA countries, International Energy Agency Information Paper, Paris, 2005; Martin Kushler, et al., Five years in: an examination of the first half-decade of public benefits energy efficiency policies, American Council for an Energy Efficiency Economy, Washington D.C., 2004. 71 Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006.
25 Inquiry into the Energy Services Industry
implementation of an energy reduction plan at Amcor facilitated by Origin Energy’s Energy Efficiency Team that saves the company $1.5 million in costs and 29,000 tonnes of CO2 annually (New South Wales);
assistance by Ergon Energy Ltd with the commissioning of a cogeneration plant for Suncoast Gold Macadamias. The cogeneration plant, which is fuelled by waste nut shells, exports enough electricity into the grid to power around 12,000 homes (Queensland);
assistance provided by AGL to Sunbeam Australia to identify savings in energy use and related areas. Total savings of $55,000 annually were identified (predominantly New South Wales);
a lighting project undertaken by the ENERGEX Energy Efficiency Projects Team at the Royal Brisbane Hospital that reduces energy costs by $110,000 and CO2 emissions by more than 1,100 tonnes annually (Queensland); and
development of a energy management tool by Aurora Energy, in partnership with Energetics Pty Ltd (Tasmania).
In Victoria, energy retailers facilitate or provide some energy efficiency services, often in accordance with regulatory obligations. Energy retailers in Victoria are required to provide customers experiencing payment difficulties with telephone information about energy efficiency.72 Retailers must also consider conducting an energy efficiency field audit for customers experiencing payment difficulties, provided the retailer and customer reach an agreement for an audit to be conducted. The retailer is able to impose a charge on the customer for this audit.73 Some of the energy efficiency services cited by TRUenergy in its submission to the Inquiry include:
the provision of customer advice on energy consumption;
referral services for customers to engage suitably qualified industry experts to assess energy use patterns and opportunities for energy gains; and
advice on interpretation and understanding consumption patterns.74
In addition to these services and functions, some Victorian energy retailers offer more comprehensive energy efficiency advisory services. For example AGL informed the Committee that it provides a range of energy efficiency services for its major customers.75 However, it appears that overall, and certainly in comparison to DSM activities throughout the OECD, there is very limited DSM activity currently occurring in Victoria.
72 Essential Services Commission, Energy retail code, Essential Services Commission, Victoria, 2006, p. 18. 73 Essential Services Commission, Energy retail code, Essential Services Commission, Victoria, 2006, p. 19. 74 TRUenergy, Submission, no. 26, 8 November 2005. 75 AGL, Submission, no. 20, 31 October 2005.
26 Chapter Two: A profile of the energy efficiency services industry
DSM for peak load management The traditional supply side approach to manage periods of electricity shortage and constraints in electricity networks has been to commission new infrastructure. This is an extremely costly approach, as infrastructure is typically commissioned to provide sufficient electricity up to (and in most cases in excess of) anticipated peak demand. The traditional supply side approach to electricity infrastructure planning means that our electricity system is designed to constantly operate at peak demand, and as such represents a massive under-utilisation of infrastructure assets.
[P]eaks occur for less than 0.2 percent of time and comprise less than 0.03 percent of the energy, cost at least 10 percent of the invested capital but earn less than 0.5% of the regulated revenue for network service providers.”76 One of the aims of DSM activities is to minimise the amount of infrastructure created specifically to service peaks in electricity demand. In this capacity, DSM may offer alternatives to investment in increased energy supply through technological and/or behavioural measures designed to manage the level and the timing of energy demand. Some of the measures employed through DSM programs for the management of peak load are described in Table 3 (page 28).
The value of DSM differs between distributors and retailers. For distributors, the principal benefit of pursuing DSM is its potential to alleviate network constraints, improve asset utilisation, improve reliability of supply and delay augmentation of the network.
Network driven demand management is generally used to manage local network constraints if and when demand management options are more cost-effective than network augmentation.77 Retail driven DSM options are generally used to aggregate demand response that can be used during periods of high demand to minimise exposure to high electricity pool prices for the unhedged portion of a retailers load. That is, energy retailers can use demand response programs to reduce energy demand during periods of high electricity costs. In its submission to the Productivity Commission, the ERAA argued that DSR (a form of DSM described below) could be used to reduce risk management and contract costs in cases where DSR is cheaper than contracting with an electricity generator.78
76 Energy Response Pty Ltd, Transcript of evidence, Melbourne, 7 December 2005. 77 Energy Networks Association, Submission, no. 15, 28 October 2005, p. 3. 78 Energy Retailers Association of Australia, Submission to the Productivity Commission's Inquiry into the Private Cost Effectiveness of Improving Energy Efficiency, Energy Retailers Association of Australia, Canberra, 2005, p. 14.
27 Inquiry into the Energy Services Industry
Table 3: Selected demand-side management programs and related programs.79
Demand side measure Description
Voluntary reduction Voluntary reduction (or voluntary load control) programs programs are targeted to larger commercial and industrial customers. During peak load, the retailer or network operator negotiates and compensates customers to reduce their load below an agreed baseline level.
Interruptible supply Utilities pay energy users or provide them with contracts discounts on the normal tariff rate in exchange for the right of the electricity retailer to interrupt electricity supplies as needed. Typically, the customer agrees to reduce electricity usage by a predetermined amount, and interruptions are limited to only a few hours per year.
Direct load control Similar to interruptible supply contracts, utilities pay customers for the right to interrupt from a distance the electricity use of one or more devices, such as air conditioners. Interruptions may last for an hour or more, and may be rotated through several appliances. Generally, these programs rely on a switch installed in the appliance that the retailer can remotely activate.
Demand bidding Demand bidding allows retailers and large customers to sell back into wholesale markets electricity that they otherwise would have consumed. Customers are not penalised if they do not bid, but they are penalised if they bid but fail to act on the agreed reduction.
Investment in energy Energy retailers can also sell a range of energy efficiency technologies efficient technologies to reduce demand during peak periods. For example, retailers will supply insulation and energy efficient appliances to households (and sometimes provide the up-front finance). This may be cheaper for the retailer than supplying the additional energy the household would have used.
Distributed generation and Distributed generation is sometimes used to reduce energy storage network congestion because the distributed generator bypasses the congested part of the network. Where distributed generators and energy storages are embedded with energy users, they can also provide a standby role.
79 Source: Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 334.
28 Chapter Two: A profile of the energy efficiency services industry
Demand side response Demand Side Response (DSR) is a specific form of DSM where customers are encouraged to reduce their energy use during periods of peak demand and are compensated for doing so. Aggregated DSR is then sold to those who need it (such as electricity retailers).
The benefits of DSR to electricity distributors and retailers include reducing the costs of energy to businesses, relieving stress on networks at times of peaks, assisting the deferral of network augmentation and new generator construction, and reducing greenhouse gas emissions.80 According to evidence received from Energy Response (a DSR company) DSR could save up to $2 billion per annum across Australia, and up to $700 million per annum in Victoria.81 This saving would be partly comprised of reduced energy expenditure by consumers, and partly from the benefits of deferred need for new electricity generation and distribution infrastructure.
At this point in time, DSR works by encouraging energy users to either shift energy usage to non-peak periods, utilise on-site generators during times of peak demand, or practice load curtailment. While the focus of DSR is currently on large energy users, the roll-out of interval meters recently mandated by the Victorian Essential Services Commission (ESC) may also provide significant opportunities for DSR aggregation in the residential sector.82
Energy efficient appliances and products While discussing energy efficient products it is important to remember that a particular product or appliance is typically referred to as efficient when it consumes less energy than a product that performs a similar function. For example, an air-conditioner is only efficient when it uses less energy than another air-conditioner with a similar cooling ability.
There are currently a range of products available in Australia that provide energy efficiency benefits compared to ‘traditional’ products. Most large manufacturers offer consumers at least one model from a product line that is promoted with reference to its energy performance. It is likely that the introduction of Minimum Energy Performance Standards (MEPS) and product labelling has created a marketing advantage for manufacturers of some energy efficient products.83
80 Ross Fraser, Chairman, Energy Response Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005; Michael Zammit, Managing Director, Energy Response Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005. 81 Ross Fraser, Chairman, Energy Response Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005; Michael Zammit, Managing Director, Energy Response Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005. 82 Energy Response Pty Ltd, Submission, no. 9, 26 October 2005. 83 MEPS and labelling are discussed further in Chapter Six.
29 Inquiry into the Energy Services Industry
Figure 7: Energy efficiency appliances and products.
Energy auditing services
Energy use analysis and Energy management energy efficiency upgrades services
Core energy Energy upgrade services efficiency services Energy rating services
Demand-side management Demand side response
Energy efficient appliances and products
During the course of public hearings witnesses noted that the range of products available in Australia was comparable to those offered in other countries. However, the Committee notes that the availability of products is not necessarily concomitant with installation or purchase of those products. For example, the AIRAH indicated that double glazing is readily available in Australia, but there are few incentives for people to install double glazing, and as a consequence sales of this product are low.84
Providers of energy efficient appliances and products One source of information about providers of energy efficient appliances and products is the Sustainable Manufacturing Directory, a public register that is maintained by Sustainability Victoria and provides some basic data on energy efficient appliances and products.85 To be listed in the directory, organisations must provide products or services that:
improve efficiency in the use of energy; or
enable energy-using activities to use forms of energy that minimise levels of greenhouse gas emissions and other adverse environmental impacts; or
facilitate the production of energy from renewable energy reserves; or
facilitate the production of energy in ways that minimise levels of greenhouse gas emissions and other adverse environmental impacts.
84 Australian Institute of Refrigeration Air Conditioning and Heating, Submission, no. 3, 5 September 2005; Ian Koochew, Executive Director, Australian Glass and Glazing Association, Transcript of evidence, Melbourne, 14 March 2006. 85 Sustainable Energy Authority Victoria, 'Manufacturing', viewed 21 March 2006,
30 Chapter Two: A profile of the energy efficiency services industry
Sustainability Victoria does not undertake a comprehensive assessment procedure for applicants wishing to be listed on this directory. As such, there is no independent assessment to determine which companies may be listed on the register.
Of the 82 organisations listed in this directory only 18 provide Victorian addresses as their principal point of contact. Forty-four businesses are principally based in New South Wales. Twenty-seven organisations undertake some form of energy management service, such as analysis of heating, ventilation and air-conditioning systems. Thirty-eight organisations manufacture and/or sell energy efficiency related products or services.
Products and services offered by non-core organisations
Non core energy efficiency services Throughout the course of this Inquiry witnesses drew the Committee’s attention to the fact that while a relatively small group of companies specialised in energy efficiency services, the total pool of commercial organisations that had an effect on energy efficiency is far larger. 86 For example, there are a range of companies, organisations and professions that may not recognise that they can have a substantial effect on patterns of energy consumption, such as plumbers and appliance retailers. For this reason the Committee decided to consider a range of businesses and organisations that may offer energy efficient products and services to the market, but that do not consider the provision of energy efficiency services to be their core role. Some of the commercial enterprises that may be considered part of this wider pool of energy efficiency services providers include:
banks and financial institutions;
plumbers, electricians, builders and other tradespersons;
appliance retailers and manufacturers; and
architects, engineers, town planners and related professionals.
86 Ric Brazzale, Executive Director, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005; Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005; Tony Forster, President, Australian Institute of Energy, Transcript of evidence, Melbourne, 14 March 2006; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006; Bruce Rowse, Managing Director, Energy Doctor Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005; Megan Wheatley, Head, Business Development, Sustainability Victoria, Transcript of evidence, Melbourne, 5 December 2005; Phil Wilkinson, Technical Manager, Australian Institute of Refrigeration, Air Conditioning and Heating, Transcript of evidence, Melbourne, 20 February 2006; Katrina Woolfe, Head, Best Practice Standards, Sustainability Victoria, Transcript of evidence, Melbourne, 5 December 2005.
31 Inquiry into the Energy Services Industry
Figure 8: Non-core energy efficiency services.
Financial Services Fiscal instruments
Government Services Tradable permits
Regulatory instruments Non-core energy efficiency services Voluntary agreements
Research development, demonstration and commercialisation
Information Peak industry body services dissemination
Professional and trade related services
While these non-core providers of energy efficiency services are more difficult to define that the core energy efficiency services industry discussed above, their collective effect on energy demand and consumption is substantial. Many OECD governments have achieved significant energy efficiency gains by promoting energy efficiency in non-core services through programs that, for example, attach incentives to the purchase of energy efficient equipment.87 Often the aim of these programs is to achieve ‘market transformation’ – that is, to alter the composition of the market so that energy efficient products and services become the ‘standard’ services and products, rather than niche or novelty products and services.88
Market transformation is a critical component of any effective strategy to improve energy efficiency. Successful measures to promote and encourage energy efficiency will also contribute to increased demand for the ‘core’ energy efficiency services discussed above. Due to the importance of market transformation for the attainment of improved energy efficiency outcomes, and due to the critical role that providers of services and products from a wide range of industries and sectors play in the promotion of energy efficiency, the Committee determined to examine ways in which the non- core energy efficiency services industry could be promoted in order to facilitate improved energy efficiency outcomes and market transformation.
87 See Chapter Three. 88 Lena Neij, 'Methods of evaluating market transformation programmes: experience in Sweden', Energy Policy, vol. 29, 2001.
32 Chapter Two: A profile of the energy efficiency services industry
Financial services Financial services that are relevant to the energy efficiency services industry include financial products that are designed to assist or provide favourable terms to customers seeking to improve energy efficiency, typically regarding the installation of energy efficient appliances or building energy efficiency upgrades. In response to a growing awareness of corporate and community responsibility, several financial institutions have now developed a range of ‘green’ financial products, or green loans, primarily focused at the residential end of the market.
Figure 9: Financial services.
Financial Services Fiscal instruments
Government Services Tradable permits
Regulatory instruments Non-core energy efficiency services Voluntary agreements
Research development, demonstration and commercialisation
Information Peak industry body services dissemination
Professional and trade related services
Green loans are marketed on the principle that the energy savings generated by the purchase of efficient products will generate increased disposable income for customers, thereby allowing them to either increase their debt, or repay the loan over a shorter time period, or at the very least, reduce the customer’s risk of forfeiture on the loan. Evidence provided to the Committee during the Inquiry revealed that at least two Victorian financial institutions offered green loans, Bendigo Bank and mecu. While witnesses did not divulge commercial data, Bendigo Bank and mecu did indicate that green loan products were commercially viable:
It is the right corporate social responsibility thing to do for the bank in terms of that CSR responsibility but it also makes good economic sense.89
89 Leigh Watkins, Strategic Markets Manager, Bendigo Bank, Transcript of evidence, Bendigo, 6 February 2006.
33 Inquiry into the Energy Services Industry
[mecu are] redesigning our core banking products to include features that encourage people to be more environmentally responsible and help alleviate social issues within our community. We believe that by doing that we will gain a competitive advantage. We believe this is a commercial opportunity.90 While green loans are currently offered for a variety of products such as efficient homes, fuel efficient cars and efficiency products such as solar hot water systems, their focus is firmly on the area of household energy efficiency.
The extent to which green loans create demand for energy efficient products and services is difficult to determine. However, the ongoing market viability of green loans offered in Victoria suggests that green loans may act as a potential driver for the energy efficiency services industry.
In addition to green loans, both mecu and Bendigo Bank have undertaken measures within their own operations that will stimulate demand for energy efficient products and services. For example, mecu has committed to retrofitting buildings owned by the company in all instances where the payback period is less than five years. 91 Government services Figure 10: Government services.
Financial Services Fiscal instruments
Government Services Tradable permits
Regulatory instruments Non-core energy efficiency services Voluntary agreements
Research development, demonstration and commercialisation
Information Peak industry body services dissemination
Professional and trade related services
90 Damien Walsh, Group Manager, Corporate Services, mecu Limited, Transcript of evidence, Melbourne, 20 February 2006; John Yardley, Group Manager, Personal Banking, mecu Limited, Transcript of evidence, Melbourne, 20 February 2006. 91 John Yardley, Group Manager, Personal Banking, mecu Limited, Transcript of evidence, Melbourne, 20 February 2006, p. 28.
34 Chapter Two: A profile of the energy efficiency services industry
Various levels of government may provide services for, and support, the energy efficiency services industry through mechanisms such as programs, regulation, trading schemes, government agency activities and support for industry training and research. The following discussion provides a brief overview of some of these mechanisms.
Government support for energy efficiency services ranges from simple rebate programs through to regulation and the provision of skills training. Issues surrounding skills, training and education for the energy efficiency services industry are discussed in Chapter Five. Commonwealth, state and local government policy instruments tend to focus on energy efficiency gains or greenhouse gas reduction, both of which may provide benefits to the energy efficiency services industry.
The following broad categorisation of policy instruments is adopted in the following discussion:92
fiscal instruments;
tradeable permits;
regulatory instruments;
voluntary agreements;
research development, demonstration and commercialisation; and
information dissemination.
Fiscal instruments Governments may provide taxation incentives for the adoption of energy efficient technologies in consideration of the broader social benefits that these technologies may provide, such as reduced pressure on electricity networks, reduced generation of greenhouse gas, and reduced pollution.
There are currently a range of taxation measures that may be used to encourage energy efficient outcomes. These include:
environmentally based levies and taxes;
tax allowances, tax holidays and tax credits;
accelerated depreciation rates and statutory caps on effective product life;
investment allowances;
development allowances; and
92 International Energy Agency, Dealing with climate change, International Energy Agency, Paris, 2002.
35 Inquiry into the Energy Services Industry
research and development concessions.
While tax incentives may encourage investment in efficient technologies, investment decisions are often based on a number of other factors such as the general state of the economy, level of competition in the industry, asset life, transaction costs, and so on.93
Subsidies and rebates are another fiscal instrument that may be used to promote the uptake of efficiency products, and potentially create demand for energy efficiency services. Most jurisdictions provide some form of energy efficiency related rebate to the industrial and residential sectors. For example, the Commonwealth’s Photovoltaic Rebate Program (PVRP) and the Victorian Government’s Solar Hot Water Rebate reduce cost barriers on selected products by use of financial incentives.
Tradeable permits Market based trading mechanisms are gaining favour as a cost-effective means to reduce greenhouse gas emissions and improve the efficiency of energy use. There are currently three main types of trading scheme: emissions trading schemes (sometimes referred to as brown or black certificate trading schemes); green certificate trading schemes; and white certificate trading schemes.
Emissions trading schemes are based on the premise that creating a price for carbon through the establishment of a market for emissions reductions provides a cost-effective way to move towards a low carbon economy.94 As outlined in the Greenhouse Challenge for Energy Position Paper, the Victorian Government supports the development of a national emissions trading scheme.95 In addition to Victoria, all state and territory governments now recognise the importance of working towards a low carbon economy and are currently investigating a national emissions trading scheme as a key mechanism for achieving a low carbon signature.
A national scheme that includes all State and Territory jurisdictions would maximise the number of participants in the market, leading to a deeper, more liquid permit market, which should help to reduce compliance and administrative costs and help maximise the offset opportunities available to participants.96 There are currently two models for emission trading schemes: ‘cap and trade’ and ‘baseline and credit’. Currently the preferred model for an emissions trading scheme is the ‘cap and trade’, an approach that has been adopted in the European Union Emissions Trading Scheme (EU ETS) and the United States’ sulphur dioxide trading scheme. Figure 11 provides a
93 Sustainability Victoria, personal communication, 4 April 2006. 94 European Commission, EU emissions trading: an open scheme promoting global innovation to combat climate change, European Commission, Brussels, 2005, p. 6. 95 State of Victoria, Greenhouse challenge for energy, Department of Infrastructure and the Department of Sustainability and Environment, Melbourne, 2004. 96 Inter-jurisdictional Emissions Trading Working Group, A national emissions trading scheme: background paper for stakeholder consultation, Inter-jurisdictional Emissions Trading Working Group, Sydney, 2005, p. 5.
36 Chapter Two: A profile of the energy efficiency services industry
simplified explanation of how ‘cap and trade’ and ‘baseline and credit’ emissions trading schemes work.97
Figure 11: Types of emissions trading schemes.98
Cap and Trade This system involves trading emission permits, where the total supply of permits is limited or ‘capped’. Participants in the scheme are free to buy or sell additional permits, but must obtain sufficient permits to cover their own emissions output as determined at the end of an acquittal period. Permit allocation methods can vary, encompassing auctioning, grandfathering and other options. Baseline and Credit This system specifies an emission baseline for each participant. Baselines can be projected on the basis of expected technological change, emissions growth and/or other abatement opportunities. At the end of the acquittal period emissions outcomes that are below the baseline earn emission credits. Generally, penalties are attached for failures to attain baselines. Emission credits can be traded to other participants in the scheme.
Green certificate trading schemes operate by creating a renewable energy target and imposing a renewable energy quota on liable parties. Under the scheme, green certificates are issued to renewable energy generators according to the amount of electricity they generate. Liable parties, typically retailers, are then required to surrender certificates commensurate with the target. An Australian green certificate trading scheme is established through the Mandatory Renewable Energy Target, which requires wholesale purchasers of electricity to proportionately contribute to the generation of 9,500 GWh of renewable energy per year by 2010.
White certificate trading schemes operate by placing an energy savings target upon liable parties. Liable parties, typically distributors, that achieve savings in excess of their target are granted certificates which can then be traded on the market. White certificate trading schemes are currently operated in Italy and the United Kingdom. The development of an Australian energy efficiency target is being investigated as part of Stage 2 of the National Framework for Energy Efficiency.
Regulatory instruments A range of regulatory instruments may be introduced by governments to compel people or organisations to abide by specified rules and conditions. Regulations may be introduced by governments to, for example, require
97 Inter-jurisdictional Emissions Trading Working Group, A national emissions trading scheme: background paper for stakeholder consultation, Inter-jurisdictional Emissions Trading Working Group, Sydney, 2005, p. 4. 98 Australian Greenhouse Office, National Emissions Trading: establishing the boundaries, Australian Greenhouse Office, Canberra, 1999, p. 10.
37 Inquiry into the Energy Services Industry
minimum energy efficiency standards for the construction of new buildings, or for companies to conduct regular analysis of energy consumption, or to introduce mechanisms (such as emissions trading schemes) that stimulate or create a market for energy efficiency services.
There are several regulations that affect the energy efficiency services industry in Victoria. These include the Commonwealth’s Energy Efficiency Opportunities Program, the Victorian Protocol for Environmental Management (Greenhouse Gas Emissions and Energy Efficiency in Industry) (PEM(GGEE)) and the Victorian Five Star housing requirements. The effectiveness of these regulations for facilitating the development of a Victorian energy efficiency services industry is discussed in Chapter Six.
Voluntary agreements Voluntary agreements establish partnerships between government and public or private organisations to reduce energy use. Voluntary agreements can be an effective alternative to more prescriptive approaches such as regulations. A key feature of voluntary agreements is that either party to the agreement can withdraw without penalty. Voluntary agreements may provide a marketing opportunity for organisations by allowing reciprocal branding opportunities.
While voluntary agreements can provide opportunities for market innovators to formalise a commitment to energy efficiency or environmental objectives, in general voluntary agreements tend to encompass only a portion of organisations within a given market or field of interest. Incentives may improve participation in voluntary agreements with government. A major benefit of voluntary agreements for government is that participants in such programs often provide excellent case studies for government to publicise and encourage other market participants to adopt best practice.
Research development, demonstration and commercialisation Government often plays a key role in development and support for new technologies for energy efficiency, including subsequent demonstrations of the application and commercialisation of these technologies. Government support can be provided through direct assistance to commercial enterprises, but more often this support is provided through research centres within education institutions and government agencies. The NatHERS software for building energy performance ratings was developed through the CSIRO and is a good example of the important role that government can play to support energy efficiency research and commercial technologies.
There are a variety of research, development, demonstration and commercialisation funds available for the promotion of energy efficient technologies. However, the primary function of most of these funds is to promote greenhouse gas reductions or renewable energy technologies. Initiatives include:99
99 Department of Infrastructure and Department of Sustainability and Environment, Driving investment in renewable energy in Victoria: options for a Victorian market-based measure, Department of
38 Chapter Two: A profile of the energy efficiency services industry
the Renewable Energy Support Fund (Victoria);
the Renewable Energy Commercialisation Program (Commonwealth);
funding for the Centre for Energy and Greenhouse Gas Technologies (Victoria); and
the Victorian Solar Innovation Initiative (Victoria).
In the 2005-06 Victorian budget, an allocation of $100 million was made to the Energy Technology Innovation Strategy.
Sustainability Victoria undertakes several demonstration programs that are relevant to the energy efficiency services industry. These include:100
the Business Energy Innovation Initiative;
the Commercial Office Building Energy Innovation;
Sustainable Energy Innovation in Education Facilities; and
The Commonwealth Government also provides a variety of funding mechanisms such as the Low Emissions Technology Demonstration Fund and Renewable Energy Showcase Funding. Both levels of government also provide business advice services and funding to overcome a variety of barriers to business development.
Information dissemination The provision of information on energy efficiency is a critical component of programs to encourage the uptake of energy efficient products. The Committee notes that a variety of government departments, peak industry bodies and environmental organisations provide information on energy efficiency. Information is available on websites, information sheets, at shop fronts and on phone help lines.
While information on energy efficiency is relatively easy to obtain, the Committee was told that information was often not delivered to consumers when it was needed most – such as during purchase of replacement hot water systems, for example. The Committee also found that there are a wide range of rating schemes, labels and standards for energy efficiency. The absence of a single standard for the assessment of energy efficiency may act as a barrier for the adoption of measures to improve energy efficiency. Peak industry body services Peak industry bodies have an important role to play in the promotion and delivery of energy efficiency services. Peak industry bodies for the energy efficiency industry are the most obvious advocates for promotion of the
Infrastructure and Department of Sustainability and Environment, Melbourne, 2005, p. 27. 100 Sustainability Victoria, Submission, no. 27, 11 November 2005, p. 11.
39 Inquiry into the Energy Services Industry
sector. However, as a large proportion of industries that influence energy efficiency do not consider their core business to be energy efficiency, there is a role for the promotion of energy efficiency through a wide range of peak industry bodies. The Committee was encouraged to learn that a number of peak industry bodies convene committees or sub-branches within their organisations that give special attention to energy efficiency, either in its own right, or in the context of wider environmental issues.
Figure 12: Peak industry body services.
Financial Services Fiscal instruments
Government Services Tradable permits
Regulatory instruments Non-core energy efficiency services Voluntary agreements
Research development, demonstration and commercialisation
Information Peak industry body services dissemination
Professional and trade related services
With the exception of the Australasian Energy Performance Contracting Association (AEPCA), the Committee is unaware of any peak industry body dealing solely with energy efficiency matters. However, there are a number of peak industry groups that promote energy efficiency. For example, the GreenPlumbers program began as an initiative of the Masters Plumbers and Mechanical Services Association of Australia. The aims of the GreenPlumbers program are to:
develop training programs to assist plumbers to understand their role in relation to environmental and public health; and
provide advice on the latest technology and energy saving appliances and the environmental impacts of plumbing services, appliances and household practices.
To date, over 3,800 plumbers representing more than 1,800 plumbing businesses across six states have completed one or more of the GreenPlumbers training programs.101
101 GreenPlumbers, 'About the GreenPlumbers', viewed 23 March 2006,
40 Chapter Two: A profile of the energy efficiency services industry
Professional and trade related services The Committee heard that professional and trade related services can have a substantial effect on energy efficiency, as it is often the case that people or organisations working within these sectors are responsible for advising, or conducting work for, consumers on a range of activities that have a direct effect on energy consumption.
Figure 13: Professional and trade related services.
Financial Services Fiscal instruments
Government Services Tradable permits
Regulatory instruments Non-core energy efficiency services Voluntary agreements
Research development, demonstration and commercialisation
Information Peak industry body services dissemination
Professional and trade related services
The design, construction methods, construction materials, and fit out of residential, commercial and industrial buildings is often dependent upon the education and experience of contractors. For this reason the abilities and inclinations of individual tradespeople and/or companies can have a substantial influence on building efficiency and demand for energy efficient services and products.
Similarly, the choices made by professionals such as architects and engineers can have a significant market influence on the uptake of energy efficiency measures. Like their counterparts operating in the trade services industry, choices made by architects and engineers have the potential to significantly influence the long term energy usage of buildings, products and systems.
The Victorian education system currently provides some training on energy efficiency for tradespeople, primarily through the TAFE system, with the bulk of training provided at apprentice level. The level of exposure to energy efficiency matters in higher education is variable, depending for example on particular courses and subjects offered by individual universities.
41 Inquiry into the Energy Services Industry
The Committee notes that the National Framework for Energy Efficiency Training and Accreditation Committee is investigating whether educational exposure to energy efficiency matters is adequate to meet the needs of the energy efficiency services industry. At least one member of the energy services industry provided evidence that graduate engineers require on the job training, often over some time, in order for them to acquire adequate expertise for work in the sector.102
102 EEP Management, Submission, no. 8, 18 October 2005.
42 ChapterChapter 3
Energy efficiency services in the OECD In this Chapter characteristics of energy efficiency services industries throughout the OECD are considered. ‘Core’ energy efficiency services, as discussed in Chapter Two, are considered in some detail throughout this chapter. In addition, an overview of programs and activities affecting ‘non- core’ energy efficiency services is provided, although the sheer number of activities and programs in this field is too large to provide a comprehensive overview in the context of this report. Energy services and energy efficiency services The Committee notes that usually the commercial services referred to in this report as ‘energy efficiency services’ are encompassed by the term ‘energy services’ in a number of OECD countries. The Committee has tended to use the term ‘energy efficiency services’ throughout this report as it is a term used frequently in the Inquiry terms of reference.
Changes in energy market structures The energy markets of many OECD countries have experienced profound changes in structure that parallel changes that have occurred in Victoria, particularly in the movement toward competitive reform of markets for the provision of energy. Restructuring of the Victorian market, such as through the vertical disaggregation of generation, distribution and retail services, has been more complete than in most energy sectors throughout the OECD.
Some observers of these changes to energy markets have argued that restructuring has led to substantial improvements in the efficiency of those markets, as the movement away from vertically-integrated, government- owned monopolies “ensures far greater responsibility in the allocation of capital, better pricing information, and enhanced consumer choice.”103 One of the means by which increased efficiency is expressed in markets where competitive reforms have occurred is through lower prices and, in many cases, a more diverse range of services offered on the market. This appears to have occurred in Victoria, and in other Australian jurisdictions, following reform of energy marketS.
103 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, p. 46.
43 Inquiry into the Energy Services Industry
As discussed by the Committee in Chapter Four, however, reductions in the price of energy to consumers may act as a disincentive for improvements to energy efficiency. Essentially, reduced energy prices undermine one of the primary incentives for consumers to undertake energy savings – that is, the cost of energy. Furthermore, observers have argued that the introduction of competitive reform to markets discourages energy efficiency services provision by energy utilities, as “energy utilities in a competitive marketplace are in the business of selling energy – not dissuading people from buying energy.”104
Some witnesses suggested to the Committee that there was a tendency within competitive markets for an emphasis on increased sales, and hence consumption, of energy in order to increase profits.105 Others argued, however, that within competitive markets the provision of energy efficiency services allowed energy providers to differentiate their product, and so increase market share.106 According to these witnesses, increased market share to individual energy providers would offset any reduction in overall energy sales to consumers. While it is conceivable that in a perfectly competitive market energy retailers may have adequate incentives to provide energy efficiency services, this is by no means assured given some of the informational and other barriers described in Chapter Four. Furthermore, DSM activities may require additional investment which, if it is to be recouped by a company, would have to be incorporated into the energy price paid by consumers. The increased price per unit of energy may disadvantage companies who employ DSM programs if consumers are not aware that the higher price they pay for energy will be offset by reduced consumption of energy.
In practice, other incentives may be required to encourage energy providers, such as retailers, to supply energy efficiency services – or alternately, to encourage energy consumers to demand energy efficiency services.
Energy efficiency services offered internationally The range of services offered in the energy efficiency services industry in Victoria is roughly comparable to the range of services offered throughout the world. As discussed in Chapter Two, a wide range of different business models and service types are currently available in Australia. These range from fee-for-service energy audits to large scale energy performance financing arrangements. However, while services available in Victoria are broadly comparable to those available internationally, there are some differences in the structure of the industry that are worth considering.
104 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, p. 50. 105 Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006. 106 Energy Retailers Association of Australia, Submission, no. 24, 4 November 2005, p. 2.
44 Chapter Three: Energy efficiency services in the OECD
OECD energy service companies (ESCOs) As discussed in Chapter Two, energy services companies (ESCOs) provide specific services to the market for the reduction of energy consumption. While there are a number of interpretations of what kinds of commercial services are included under this term, there is some agreement that ESCOs offer services that may include:
project management;
energy audits;
engineering design;
equipment installation;
financing, or assistance in obtaining financing; and
guaranteed energy savings.
The Committee notes that the while the services offered by ESCOs may form an important part of strategies to improve energy efficiency, international evidence does not yet provide a clear indication that ESCOs will emerge as the primary driver or source of expertise for the implementation of actions to improve energy efficiency. For example, participants in a recent international conference on energy efficiency made the following observation on the role of energy services for the provision of energy efficiency:
Energy services could have a particular part to play in relation to the new and expensive technologies and may mitigate some of the perceived risk by spreading the cost. For the more mature technologies other methods, such as regulation may be the way forward. The Netherlands and Denmark have some of the lowest numbers of ESCOs in Europe but have nevertheless made large savings. ESCOs are simply one solution among a number.107 In a review of ESCO activity throughout Europe it has been noted that Denmark and the Netherlands have become leaders in energy efficiency through the introduction of mandatory demand-side management requirements placed upon utilities, and through numerous projects implemented through those countries’ respective national energy agencies.108 The success of these government-mandated and supported energy efficiency activities has meant that there were few market opportunities available for ESCOs to establish a presence in these countries.109
107 UK and European Commission, 'Energy services for the commercial and industrial sectors and the domestic sector', viewed 16 May 2006,
45 Inquiry into the Energy Services Industry
In Germany, which has one of the most active ESCO markets in the OECD, the government has introduced a wide range of policies and programs that directly support and/or subsidise the energy efficiency services industry.110 These include support for private-sector energy efficiency projects in public buildings, various loans and incentives, and significant support for renewable energy generation such as residential and distributed photovoltaic electricity generation systems.111
A notable feature of the ESCO industry is that many of the most prominent companies are multinational companies, and so offer services across many of the countries considered in the following discussion. Some of these companies also provide energy efficiency services in Australia. These companies are able to leverage funds to provide financing for large-scale energy efficiency projects.
The international comparison of ESCOs (and other energy efficiency services companies) is problematic in a number of respects due to variations in criteria applied to define these companies. One of the most recent studies conducted in the European Union (see below) adopted a limited view of ESCOs as companies that are remunerated on the basis of actual performance.112 Descriptions of ESCOs in other countries define these companies more broadly to include fee-for-service companies, or alternately, provide no explicit definition of ESCOs.
International comparison of energy services companies is further complicated by relationships between the public and private sectors in various countries. In some studies, even where the ESCOs are narrowly defined, the activities of private and public sector enterprises are inconsistently distinguished. For this reason, comparative studies of ESCOs should be interpreted as indicative of the relative status of the industry in specific countries.
Europe The European Commission has promoted the potential utility of ESCOs since 1988, when it recommended the promotion of ESCOs and third party financing in member states. In 1992 the European Commission issued a Directive for member states to design programs to promote third party financing in the public sector. In 1996 two standard ESCO contracts (for buildings and industry respectively) were developed by the European Commission in all of the languages of the European Union.
110 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005; Stefan Thomas, Energy efficiency programmes and services in the liberalised EU energy markets, Wuppertal Institut fur Klima Umwelt Energie, Berlin, 2003. 111 Staffan Jacobsson and Volkmar Lauber, 'The politics and policy of energy system transformation - explaining the German diffusion of renewable energy technology', Energy Policy, vol. 34, 2006. Germany’s Renewable Energy Sources Act 2000 makes it compulsory for operators of power grids to give priority to feeding electricity from renewable energies into the grid and to pay fixed prices for this. This has led to a boom in a variety of renewable energy technologies, including photovoltaic systems. 112 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005.
46 Chapter Three: Energy efficiency services in the OECD
In 2004, the first survey of ESCOs in Europe was undertaken by the European Commission.113 This review noted that the majority of ESCO projects undertaken in Europe had been in the public sector, “because the public sector is perceived as having ‘safer clients’ that do not go out of business, but… also as a result of national or local authorities and energy agencies taking a lead in retrofitting public sector buildings.”114 The majority of ESCOs identified in the survey offered financing and guaranteed performance services.
In the 2004 review ESCOs were defined as companies that:
guaranteed energy savings and/or the provision of the same level of energy service at a lower cost;
derived remuneration directly from energy savings achieved;
typically financed, or assist in arranging financing for an energy project; and
retained an ongoing role measuring and verifying savings over the period of an agreement.
This review also distinguished between ESCOs and Energy Service Provider Companies (ESPCs), which were defined as companies that undertake the same types of activities as ESCOs, but on a fee-for-service basis. Thus, ESPCs are distinguished from ESCOs mainly on the basis that financial compensation for services is not linked to the performance of the specific measure or advice provided.
In Europe most ESCOs were formed by large companies, or subsidiaries of large companies. There is substantial variation in the number of ESCOs operating in various countries of the European Union (EU). Due to the particular characteristics of different countries within the EU, the types of services offered by ESCOs and the market characteristics in which ESCOs operate may not be directly comparable between countries. With this observation in place, the numbers of ESCOs identified in various countries of the EU are identified in Table 4.
Table 4: Numbers of ESCOs and main activities by country, European Union, 2004.115
Country ESCOs Main energy efficiency activities of ESCOs Austria 40 EPCs for public (federal and municipal) buildings Belgium Few Lighting projects and services for industry and large buildings
113 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005. 114 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005, p. 33. 115 Source: Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005, pp. 41-56.
47 Inquiry into the Energy Services Industry
Bulgaria Few Municipal sector schools and public lighting Croatia 2 Public administration and industry projects Cyprus 0 Na Czech Republic 15+ Projects in industrial facilities and municipal and state owned facilities Denmark Few Few Estonia 20 Consultancies Finland 3 Services to the process industry and the municipal sector. France 60 Facility management contracts in the tertiary sector. Germany 480 EPCs for public and commercial buildings Greece Few Few Hungary 29 District heating systems and lighting projects for municipalities Ireland Few Few Italy 50 Cogeneration for local health boards, heating for public buildings, lighting and cogeneration and heating for the industrial sector Latvia 2+ EPCs for municipalities and state properties Lithuania 3+ Few Malta 0 not available Netherlands Few Few Norway 10 Services for the public sector Poland 13-15 Public building and infrastructure projects for municipalities Portugal 7 CHP projects for medium and large industries Romania 20 Cogeneration projects Slovakia 32 District heating projects and hospital EPCs Slovenia 8 Public building projects Spain 10+ Renewable energy projects, Energy Performance Contracts (EPCs) for heat generation and distribution. Sweden 10+ District heating and cooling projects Switzerland Few Heating plant projects United Kingdom 20 Large energy consumers in the private and public sectors.
Most of the projects undertaken by ESCOs in Europe to date have focused on cogeneration, public lighting, HVAC and energy management services. Most of these projects have also been undertaken in the public sector.116
The most successful market for ESCOs in Europe is the German market. The annual turnover of ESCOs in Germany is estimated at around 3 billion €uro, with projects covering around 280,000 sites in 2005.117 Recent growth in the ESCO industry has been driven through a move to outsource energy- related tasks for public buildings. The German government has also actively supported energy efficiency services through research and development
116 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005. 117 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005, p. 45.
48 Chapter Three: Energy efficiency services in the OECD
programs, loans and funding schemes, and incentive programs for renewable energy.118
Japan Japan’s representative body for ESCOs (JAESCO) had a membership of 58 companies in 2003, although not all of these companies were experienced in the implementation of energy performance contracts.119 Most of the ESCOs in Japan have been established by large companies, or by subsidiaries of large companies. ESCOs have not been widely utilised by local or central government in Japan, and the majority of ESCO contracts entered into by Japanese companies are self-financed, which means that to date market activity has generally been directed at large companies.120
Nevertheless, the value of the ESCO industry in Japan appears to be expanding, with the total value of projects increasing from around 170 million yen in 1998 to 665 million yen in 2001.121 Energy efficiency for industry has also been encouraged through the use of financial and tax incentives, which has also facilitated development of the energy services industry.122
New Zealand There is limited data available on ESCOs currently offering services in New Zealand. Approximately 25 companies are listed on the Energy Efficiency and Conservation Authority’s website as offering energy performance contracting services, although some of these companies are relatively small scale operations and may have limited capacity for identifying or providing financing services.123 In New Zealand ESCOs do not appear to play a prominent role in strategies to improve energy efficiency, and do not feature prominently in government policy and strategy documents considering energy efficiency issues.124
South Korea In South Korea the ESCO market has been slow to develop, as most ESCOs are small to medium size enterprises with limited access to funds for project funding. The South Korean Government has made low interest loans available to assist the industry, although low credit ratings for most ESCOs have meant that this measure has not produced significant incentives for the
118 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005, p. 45. 119 Japan Association of Energy Service Companies, 'JAESCO', viewed 16 May 2006,
49 Inquiry into the Energy Services Industry
uptake of ESCO services. ESCO projects in South Korea to date have largely focused on the following activities:
lighting;
cogeneration;
process improvement; and
heat recovery steam generators.
No contemporary statistics for ESCO numbers in South Korea are available, although in 2000 sources reported that 108 ESCOs were active. This number likely included companies that undertook fee-for-service activities, however, and as such is not directly comparable to ESCO numbers reported for the EU (above) and US (below).
United States According to the United States’ National Association of Energy Service Companies (NAESCO), annual revenues for the US ESCO industry are between US $1.9 billion and US $2.1 billion.125 In the United States ESCOs are characterised as companies that offer performance-based contracting, where the ESCO’s compensation, and often the project's financing, are directly linked to the amount of energy that is actually saved.
Currently, the NAESCO has 29 registered members. This accounts for most of the large private sector ESCOs currently operating in the United States, although in most states a number of smaller ESCOs also exist. The NAESCO has an accreditation program in which companies must apply to a committee of industry experts and undergo a rigorous examination of their core competencies and business practices. This program is voluntary, and its main purpose is to provide assurance to potential customers, although NAESCO does not certify that “any accredited company's customer(s) will, in fact, realize cost savings by that company; or that any accredited company has any particular level of financial strength or viability.”126
A survey of ESCOs operating in California in 2004 found that the number of participants in the industry had declined significantly between 1999 and 2004, from 50 companies in 1999 to just 17 in 2004.127 A proportion of the ESCOs present in the market in 1999 were owned by utilities, which were often state-owned. This survey also found that more than half of ESCO customers in California were public agencies, and that the main incentive for
125 National Association of Energy Service Companies, 'What is an ESCO?' viewed 15 February 2006,
50 Chapter Three: Energy efficiency services in the OECD
customers to engage an ESCO was the “availability of financial incentives.”128 Californian ESCOs generally do not provide financing to customers, and the authors of this survey suggested that as most public agencies qualified for tax exempt financing in California they did not need this facility.129 In California most ESCO customers demand comprehensive services in which a range of strategies are employed by ESCOs on behalf of customers to achieve increased energy efficiency.
Observers have attributed the recent decline in the number of utility-owned ESCOs serving in California and throughout the US to the medium-to-long term effects of deregulation of the energy market in the 1990s. During deregulation a number of large utilities either created or purchased ESCOs in anticipation of increased demand for energy efficiency services, which led to a dramatic increase in the number of utility-affiliated ESCOs. However, many of these ESCOs lacked the experience or infrastructure to offer adequate services to the market, and over time utilities have refocused business priorities on areas other than the energy services market.130 Energy auditing services There are large numbers of participants in the energy auditing services industry throughout all of the OECD countries. While most OECD countries do not have specific energy auditing programs or requirements, many require energy audits to be conducted in the context of energy efficiency or energy savings programs.
One of the most comprehensive international surveys of energy auditing services was the AUDIT II project, undertaken in 2002. This study collated data about energy auditing and related programs from 29 countries, focusing mainly on Europe. The survey indicated that the energy auditing industry was comprised of a diverse range of service providers, not all of whom considered energy auditing to be their core business. There was also a great deal of variation between countries in accreditation standards (from none to national standards), auditing tools, training and performance evaluation criteria. Where energy audits are required in the context of government regulation or programs audit standards and quality are often closely linked with the criteria and requirements of those programs. For this reason there is often considerable variation in the content and methodology employed in energy audits.
Partly in response to analysis of this and other surveys, the European Union is currently proposing a Directive on energy end-use efficiency and energy services that includes a requirement that member states clarify and refine auditing standards and methodologies:
128 Virginia Lew, Summary of energy services companies summary of responses, California Energy Commission, Los Angeles, 2005, p. 2. 129 Virginia Lew, Summary of energy services companies summary of responses, California Energy Commission, Los Angeles, 2005, p. 3. 130 Phil Musser, 'Utility-affiliated ESCOs: is the honeymoon over?' viewed 16 May 2006,
51 Inquiry into the Energy Services Industry
… develop high-quality energy auditing systems aimed at determining which measures can be taken to improve energy efficiency and which energy services it must be possible to provide, and to prepare for their implementation.131 In Denmark energy network companies are required to provide a range of energy efficiency services to consumers, including a requirement that ten per cent of large customers using more that 20 MWh/year or ten per cent of total commercial consumption must be audited every year. 132 These audits are paid for from the Public Service Obligation levy, which is an energy charge paid by consumers (energy charges are discussed below). Audited companies volunteer for audits. According to one source, around five per cent of the total audited consumption is saved every year due to this program.133 Energy rating services As is the case for energy auditors, there are a great number of individuals and businesses that offer energy rating services across OECD countries. Energy rating services tend to be more specialised than energy auditing services, as they are linked to particular rating tools, which are often specific to countries and/or states. For example, the Green Star rating tool used in Australia is designed specifically for the Australian property market, although it incorporates lessons learnt from the British Building Research Establishment Environmental Assessment Method and the United States’ Leadership in Energy and Environmental Design.134 Required qualifications for industry participants in regard to energy rating services are therefore dependent on the ratings tools and requirements current in any particular country. For this reason, the comparison of this component of the energy efficiency services industry is problematic. Demand-Side Management (DSM) programs The term “Demand-Side Management” (DSM) emerged in the US in the 1980s, and referred principally to activities undertaken by utilities to reduce and manage demand on energy consumption. Later the term referred to energy efficiency programs contracted out to companies by utilities, and was distinguished from Energy Services Companies (ESCOs) because the activities of ESCOs were not funded by utilities. The actual measures undertaken under DSM programs (or contracts) and ESCOs were in many cases quite similar, being distinguished largely by the contractual arrangements surrounding the commercial agreements.
As noted in Chapter Two, DSM measures can include activities that are principally focused on network security, efficiency gains associated with
131 Proposal for a directive on energy end-use efficiency and energy services 2003 (Commission of European Communities), 2003/0300(COD). 132 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, p. 20. 133 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, p. 21. 134 Elena Kosheleva, Green Building Council of Australia, personal communication, 24 April 2006.
52 Chapter Three: Energy efficiency services in the OECD
avoiding the construction of electricity infrastructure, and the avoidance of electricity transmission and generation inefficiencies associated with peak power generation. With the emphasis of DSM programs on maintaining efficiency for energy retailers, networks and generators, measures such as interval metering are also often categorised as DSM internationally.
Demand-Side Management in the United States The United States has historically had one of the most developed energy efficiency services industries in the world. The United States was largely responsible for the evolution of formalised structures for DSM from the late 1970s, which were developed in the context of government-owned, vertically integrated electricity utilities. These utilities were able to take full advantage of DSM strategies because vertical integration meant that the costs of reduced revenue, for example, associated with improving consumers’ energy efficiency was offset by reduced costs associated with the need for new infrastructure.
DSM programs in the United States were largely initiated by various State legislatures, which required utilities to improve energy efficiency. Utilities were able to pass on additional costs associated with DSM programs to consumers. Energy efficiency investments were considered an integral component of measures toward this end, where the cost of measures to improve demand side efficiency were balanced against the cost of increasing supply side resources (such as through building additional power plants), a process known as integrated resource planning (IRP). Regulators also encouraged and/or required that utilities implement energy efficiency programs as a means of reducing supply-side costs.
From 1985-1995, more than 500 utilities implemented DSM programs for a total saving of over 29 GW peak load. A report by the Rand Corporation in 2000 found that DSM programs operated in the United States since 1977 had provided benefits to the economy of around $US 875-1300 per capita and had reduced air pollution emissions from stationary sources by around 40 per cent.135
The restructuring of utilities in the 1990s to facilitate competitive markets led to a dramatic reduction in ratepayer funded energy efficiency programs, from expenditure of $1.6 billion in 1993 to $900 million in 1997.136 This change in expenditure was largely linked to the elimination of regulatory requirements for utilities to conduct energy efficiency programs or IRP. In some states regulators responded to these changes by introducing charges on the provision of electricity to fund energy efficiency projects.
135 Barbara Finamore, et al., Demand-side management in China, National Resources Defence Council, Peking, 2003, p. 9; S Nadel, Utility energy efficiency programs: a brief synopsis of past and present efforts, American Council for an Energy-Efficient Economy, Washington, D.C., 2000. 136 Barbara Finamore, et al., Demand-side management in China, National Resources Defence Council, Peking, 2003, p. 9; Dan York and Martin Kushler, State scorecard on utility and public benefits energy efficiency programs, American Council for an Energy-Efficient Economy, Washington D.C., 2003.
53 Inquiry into the Energy Services Industry
Public benefits energy efficiency policies in the United States. Until the late 1980s, US DSM companies tended to bid for contracts to implement programs designed by utilities. However, through the 1990s the market developed and DSM companies began to conduct research and develop their own business models for energy savings and energy efficiency, and offer these (expressed in terms of energy reductions promised in MW) for utilities to bid for on the market. The main advantage for utilities from contracting out for DSM in this way was that the risk associated with any given measure was transferred to the DSM company offering its services. With changes to the electricity market in many US states, discussed above, DSM programs have been maintained largely through the provision of funds through “public benefits” charges.
In the US 18 states have introduced measures to encourage or require energy utilities to implement energy efficiency activities for consumers. An instrument employed by two-thirds of the states that have regulatory measures for energy efficiency is the “public benefits” or “system benefits” charge, which is a small non-bypassable per-kilowatt-hour charge on the electricity distribution service. This charge provides funds for energy efficiency activities which are either administered by utilities, government or community organisations, depending on the state. In various states funding is also allocated toward assistance for low income households and the use of renewable energy. The states that do not have a public benefits charge obtain funding for energy efficiency through flat monthly fees or additional charges on electricity rates.
Public benefits charges (and other similar measures) were introduced along with the move towards deregulation of electricity utilities in the US. Individual states were concerned that the deregulated environment would produce few incentives for utilities to promote energy efficient activities or products, or in many cases, to provide special assistance to accommodate the needs of low income households and consumers. Traditionally, state-owned utilities had expended a proportion of revenue on such activities. In many cases these charges were introduced for a limited period as the intention was that they would assist market transformation towards energy efficiency. 137 In practice, most public benefits schemes have been extended as, according to one study, this market transformation has not occurred.138
In states with comprehensive programs for energy efficiency, the level of funding through public benefits charges tends to be around one to three per cent of total utility revenues. The performance of energy efficiency programs across participating states has been difficult to determine as unanticipated events have affected the conduct of energy efficiency activities.139 However, a limited number of cost-benefit analyses have been produced by some
137 James Sullivan, An overview of DSM and energy services activity in U.S. utilities, World Energy Efficiency Agency, Paris, 1996; Dan York and Martin Kushler, State scorecard on utility and public benefits energy efficiency programs, American Council for an Energy-Efficient Economy, Washington D.C., 2003. 138 Martin Kushler, et al., Five years in: an examination of the first half-decade of public benefits energy efficiency policies, American Council for an Energy Efficiency Economy, Washington D.C., 2004, p. 17.
54 Chapter Three: Energy efficiency services in the OECD
states that indicate that energy efficiency programs are very cost effective (see Table 5).
Table 5: Energy efficiency program cost effectiveness, selected states, United States, 2004.140
Benefit / cost Cost of Benefit / Benefit / cost commercial and saved State cost all residential industrial energy programs programs programs ($/kWh) California na na na 0.03 Connecticut na 2.4 – 2.6 1.5 – 1.7 0.023 Maine 1.3 – 7.0 na na na Massachusetts 2.1 2.4 – 2.7 1.3 – 2.1 0.04 New Jersey na na na 0.03 New York na na na 0.044 Rhode Island 2.5 3.3 1.5 na Vermont na na na 0.03 Wisconsin 3.0 2.0 4.3 na
The energy efficiency commitment in the United Kingdom In the United Kingdom a requirement was placed on electricity and gas retailers to achieve energy savings of 62 TWh in domestic households between 1 April 2002 and 31 March 2005 under the Energy Efficiency Obligations Order 2001.141 At least 50 per cent of this savings target had to be met through energy savings delivered to a priority group of consumers, which included people who received certain tax and income-related benefits. The overall energy savings target was set in fuel-standardised, lifetime discounted energy savings.
This requirement applied to all energy retailers with at least 15,000 domestic gas or electricity customers.142 The targets were apportioned to retailers according to a formula defined in the Order, in which energy retailers and suppliers with higher numbers of customers were allocated progressively higher targets. The rationale for this apportionment system was that energy suppliers with large customer bases would have an increasing capacity to achieve economies of scale in the delivery of energy savings.143 While suppliers were able to link energy savings measures to existing programs, suppliers also had to demonstrate that all activities under this requirement
139 Martin Kushler, et al., Five years in: an examination of the first half-decade of public benefits energy efficiency policies, American Council for an Energy Efficiency Economy, Washington D.C., 2004, p. 17. 140 Source: Martin Kushler, et al., Five years in: an examination of the first half-decade of public benefits energy efficiency policies, American Council for an Energy Efficiency Economy, Washington D.C., 2004, p. 30. 141 Department for Environment Food and Rural Affairs, A review of the Energy Efficiency Commitment 2002-2005, Department for Environment Food and Rural Affairs, London, 2005. . 142 Department for Environment Food and Rural Affairs, A review of the Energy Efficiency Commitment 2002-2005, Department for Environment Food and Rural Affairs, London, 2005, p. 2. 143 Department for Environment Food and Rural Affairs, A review of the Energy Efficiency Commitment 2002-2005, Department for Environment Food and Rural Affairs, London, 2005, p. 2.
55 Inquiry into the Energy Services Industry
were in addition to business as usual activity.144 No requirements were placed on suppliers in addition to the energy savings targets, so that for example, energy suppliers were not required to commit a minimum spend to activities undertaken as part of the Energy Efficiency Commitment (EEC) under the Order.
In 2004 the EEC was extended for the period 2005-2008. A new target of 130 TWh was established for this period, again on fuel-standardised, lifetime discounted energy savings. The Department of Environment, Food and Rural Affairs (DEFRA), which sets targets under the EEC, has indicated that a new EEC will also be introduced for a further three years between 2008 and 2011.
The EEC appears to have been very successful, with energy suppliers installing or providing energy efficiency measures that were estimated to result in an energy saving of 86.8 TWh, exceeding the target savings by more than 24.8 TWh. Around 48.5 per cent of energy efficiency measures (42 TWh) were delivered to the Priority Group households. Energy efficiency measures to households were largely delivered through improved insulation (56%) and lighting (24%). Appliance activities accounted for eleven per cent of energy savings and improved heating for nine per cent of savings. 145 While suppliers did undertake some measures that provided free services or products to households, such as compact florescent light bulbs, a large proportion of measures were achieved through promotional activities and/or partially subsidised services or products. A number of innovative partnerships were formed between energy suppliers and other groups during the course of the EEC, including community groups, government, supermarkets, department stores and housing developers.146 A summary of measures installed and energy savings achieved through the 2002-2005 EEC is provided in Table 6.
Table 6: Number of measures installed and energy savings, Energy Efficiency Commitment 2002-2005, United Kingdom.147
Number of measures installed Energy savings Measure Priority group Non-priority group (GWh) Cavity wall insulation 441,213 350,311 25,069.271 Loft insulation (top up) 343,467 185,029 4,138.786 Loft insulation (new) 142,361 83,884 9,696.905 DIY loft insulation (m2) 1,999,548 13,979,819 8,101.492 Draught stripping 15,516 7,227 38.561
144 Department for Environment Food and Rural Affairs, A review of the Energy Efficiency Commitment 2002-2005, Department for Environment Food and Rural Affairs, London, 2005, p. 5. 145 Department for Environment Food and Rural Affairs, A review of the Energy Efficiency Commitment 2002-2005, Department for Environment Food and Rural Affairs, London, 2005, p. 11. 146 Department for Environment Food and Rural Affairs, A review of the Energy Efficiency Commitment 2002-2005, Department for Environment Food and Rural Affairs, London, 2005, pp. 47- 56. 147 Source: Department for Environment Food and Rural Affairs, A review of the Energy Efficiency Commitment 2002-2005, Department for Environment Food and Rural Affairs, London, 2005, p. 47.
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Tank insulation 98,650 97,182 433.501 Radiator panels (m2) 27,574 11,304 13.392 Solid wall insulation 17,352 6,378 972.597 Other insulation 617 2,008 21.145 Energy efficient cold 589,357 2,366,727 7,381.189 appliances Energy efficient wet appliances 671,693 2,880,044 2,260.324 Other appliances 19,932 73,905 42.496 A and B rated boilers 104,364 174,627 2,361.905 A and B rated boilers with 22,769 64,728 1,233.475 heating controls Heating controls upgrade 631,711 1,734,417 1,220.49 Fuel switching 20,432 20,645 2,763.325 CHP / Communal heating 403 212 39.037 Other heating 126 76 4.663 CFLs 24,203,630 15,533,940 20,976.794
DSM programs in other OECD countries A range of DSM programs and mechanisms operate throughout OECD countries, with most countries employing more than one means of encouraging utilities to conduct energy efficiency programs. The main types of DSM employed include:
energy efficiency funding from energy charges;
integrated resource planning (IRP);
energy savings targets;
pilot programs and government funding; and
utility managed programs.
Table 7: Main approaches to Demand-Side Management, selected OECD countries.148
Energy Pilot Country Energy IRP savings programs / Other charges targets govt funds measures Australia ● Belgium ● ● Denmark ● ● ● France ● Germany ● Greece ● Ireland ● Italy ● ●
148 Source: Proposal for a directive on energy end-use efficiency and energy services 2003 (Commission of European Communities), 2003/0300(COD); Barbara Finamore, et al., Demand-side management in China, National Resources Defence Council, Peking, 2003.
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Japan ● Mexico ● Netherlands ● ● ● New Zealand ● Norway ● ● ● Portugal South Korea ● Spain ● ● Sweden ● United Kingdom ● United States ●
Energy efficiency funding from energy charges A number of countries have elected to fund DSM programs through a charge or levy on the price of energy. As discussed in relation to the “public benefits charges” operating in the United States above, this provides funds that may be used by utilities or other parties approved by government to implement actions for energy efficiency. In Denmark, funding for DSM activities is obtained through a surcharge on residential and public service sector tariffs that is paid to a trust, and private companies, consultants and energy companies are then invited to tender to design and implement DSM projects.149 In Ireland the vertically-integrated electricity supplier, the Electricity Supply Board, is required to conduct energy efficiency programs with funds obtained through its regulated revenue stream. In the Netherlands, Belgium, Italy, Norway and Spain DSM programs are partly financed through a levy on energy tariffs.150
Integrated resource planning Integrated resource planning is most feasible where utilities retain some degree of vertical integration, and are therefore able to capture the benefits at the supply side of measures to encourage energy efficiency. IRP has not been restricted to vertically integrated utilities however, as distribution companies in Denmark and Spain are required to conduct IRP and prepare and implement DSM programs. Greece, which retains a vertically integrated monopoly electricity industry, requires that IRP be conducted to develop least-cost medium term development plans, incorporating specific consideration of DSM programs. In Belgium, each year transmission and distribution grid operators are required to save one per cent of the energy sold two years earlier in their area.151
Energy savings targets Energy savings targets are imposed on energy distributors or retailers. The energy efficiency commitment currently operating in the United Kingdom,
149 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, p. 18. 150 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, pp. 14,36. 151 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, p. 16.
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discussed above, is an example of an energy savings target program directed at energy retailers. In Belgium and Italy, electricity distributors are required to achieve energy savings targets.152 In the Netherlands, energy distributors are also targeted to implement DSM programs, although the target is based on emissions reductions rather than reductions in the consumption of energy.
Pilot programs and government funding Although most OECD countries conduct pilot programs and provide government funding for DSM projects, for a small number of countries these approaches form the main strategic approach for the provision of DSM. In New Zealand the Government provides a fund of between NZ $1.5 – $1.8 million per annum for DSM programs, with local government, government agencies and others competing for these funds. In France a number of large-scale programs have been implemented by government for DSM, including three national campaigns and 19 regional programs. In 1997 Germany entered into an agreement with utilities for the provision of compact florescent light bulbs for the domestic sector which produced savings of 550 GW.153 In Mexico, pilot programs in DSM (principally in the provision of compact florescent light bulbs) have been conducted by the national electricity utility. The Norwegian government also makes a substantial contribution to a fund for DSM activities, although this contribution is in addition to the energy tariffs levy on distributors noted above.
Other measures initiated by, or affecting, utilities In Japan electricity utilities have provided energy efficiency consulting services and subsidies for investment in energy efficient equipment as a means to improve load factor and the public image of individual utility companies. In South Korea, the Government allows utilities to include the cost of DSM activities in operating expenses accounts and so compensate utilities for part of their lost revenue. Norway has introduced a revenue cap for electricity distribution and transmission companies, based on historical costs related to network activity and adjusted to account for efficiency improvements.154 In Sweden utilities provide performance contracting and other energy services in order to increase market share. Tariffs in Sweden are also evaluated using a model that takes into account the value of installations and the need for new investment. Finally, in Italy the tariff structures for certain customer classes are designed so that utility revenue is partially dependent on customer numbers, and not solely proportional to the amount of energy sold. Only 25 per cent of total revenues from these
152 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, p. 16; Barbara Finamore, et al., Demand-side management in China, National Resources Defence Council, Peking, 2003. 153 Proposal for a directive on energy end-use efficiency and energy services 2003 (Commission of European Communities), 2003/0300(COD), section 19. 154 Proposal for a directive on energy end-use efficiency and energy services 2003 (Commission of European Communities), 2003/0300(COD), section 20.
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classes are proportional to total energy sold, which produces powerful incentives for utilities to implement energy efficiency programs.155
Interval metering in the OECD Interval meters, including meters with communications facilities, have been trialled in a number of countries throughout the OECD. In a study and review of interval metering technologies, Owen and Ward found that in “Victoria [Canada], Ontario, California and the Netherlands the assessment is that the benefits [of ‘smart’ energy meters] exceed the costs when societal or economy wide benefits are taken into account.”156 A ‘smart’ meter was defined in the study as a meter that “measures electronically how much energy is used and can communicate this information to another device.”157 This review found that the main societal and economy wide benefits of smart meters were:
reductions in peak demand leading to better security of supply – less risk of blackouts (California, Ontario, Victoria, Italy);
reductions in peak demand leading to lower costs due to less need for peaking plant and power imports and avoided investment in distribution and transmission network upgrades (California, Ontario, Victoria);
improved balance between supply and demand leading to greater efficiency of the electricity wholesale market (Victoria);
customers enabled to switch supplier more easily, plus new service offers made possible by smart meters (Netherlands, Victoria, Sweden); and
environmental benefits from reduced power demand (Sweden).158
It appears that the provision of interval meters, and particularly meters with the capacity for two-way communication may have substantial benefits for energy efficiency through shifting electricity demand away from peak periods. Notably, however, only one of the international examples citing the benefits of smart meters suggested that reduced overall demand could be obtained through this technology.159
155 ACIL Economics and Policy Pty Ltd and Redding Energy Management Pty Ltd, Facilitation of a competitive energy efficiency services industry, ANZMEC - EMTF, Canberra, 1996, p. 28. 156 Gill Owen and Judith Ward, Smart meters: commercial, policy and regulatory drivers, Sustainability First, London, 2006, p. 22. 157 Gill Owen and Judith Ward, Smart meters: commercial, policy and regulatory drivers, Sustainability First, London, 2006, p. 17. 158 Gill Owen and Judith Ward, Smart meters: commercial, policy and regulatory drivers, Sustainability First, London, 2006, p. 22. 159 Gill Owen and Judith Ward, Smart meters: commercial, policy and regulatory drivers, Sustainability First, London, 2006, p. 22.
60 Chapter Three: Energy efficiency services in the OECD
Government incentives and drivers for energy efficiency European Union energy savings targets Under the European Union’s proposed Directive on energy end-use efficiency and energy services, also discussed above, member states will be required to meet a target of one per cent savings of the amount of energy distributed and/or sold to final customers at commencement of the Directive. These savings must be attributable to “energy services, energy efficiency programs and other energy efficiency measures” including the adoption of defined products or behaviours.160 The public sector of each country will be required to achieve energy savings targets of 1.5 per cent. The Directive includes provisions to ensure that:
energy distributors and retailers do not impede the development of the energy efficiency services sector;
barriers that impede the use of third-party financing for energy efficiency and energy performance contracting be removed; and
all states ensure the availability of appropriate qualification, accreditation and/or certification schemes for energy services providers.161
The impetus behind the proposed Directive is that the energy efficiency services industry in the European Union should be promoted in order to achieve desired energy savings and efficiency gains. In part, the Directive justifies this measure by observing that:
The liberalisation of the retail markets for end-use customers for electricity, natural gas, coal and lignite, heating and… district heating and cooling have almost exclusively led to improved efficiency and lower costs on the energy generation, transformation and distribution side. This liberalisation has not led to significant competition on the basis of products and services which could have resulted in improved efficiency on the demand side.162 Building standards Building standards can provide a strong impetus for energy efficiency, and consequently for commercial services to fill this demand. Building standards across the OECD generally place higher requirements on the energy efficiency of buildings than those placed on buildings in Australia. In Germany, for example, a recent commitment to improve the energy efficiency of new buildings by 30 per cent, combined with government support for the outsourcing of energy-related tasks for public buildings
160 Proposal for a directive on energy end-use efficiency and energy services 2003 (Commission of European Communities), 2003/0300(COD), section 26,35-36. 161 Proposal for a directive on energy end-use efficiency and energy services 2003 (Commission of European Communities), 2003/0300(COD), section 28-29. 162 Proposal for a directive on energy end-use efficiency and energy services 2003 (Commission of European Communities), 2003/0300(COD), section 22.
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(referred to above) has lent substantial support to the development of the energy efficiency services industry.
In Denmark, house owners are required to conduct an energy audit if the buildings has an area of 1500m2 or less. Building owners pay all costs associated with obtaining energy labelling for their buildings. Audits of houses typically include recommendations on how the energy efficiency rating could be improved.163 This program, and a similar program applying to large commercial buildings, has provided substantial stimulation to the auditing sector of the energy efficiency services industry. Trading schemes To date a limited number of trading schemes have been implemented, and the effect of these programs on the energy efficiency services industry is yet to be determined.
Currently, the UK, Italy and France have existing or planned “white certificate” (energy efficiency) trading schemes to achieve energy savings. In these schemes, tradeable white certificates are created when end-users undertake certain eligible energy efficiency activities. Each certificate represents a verified ‘unit’ of energy savings arising from these activities. The requirement to purchase and deliver to the regulator a set number of white certificates is placed on some target group (typically energy suppliers) during each compliance period.164
White certificate trading schemes have not been in place for very long, so it is not possible to yet establish the effect of these schemes on the energy efficiency services industry. However, it is reasonable to assume that these schemes will act as a driver for increased energy efficiency measures and programs within participating countries.
The European Union’s Emissions Trading System (EU ETS) recently commenced in January 2005, and it is thought that this will also produce some benefits to the energy efficiency services industry in terms of increased business opportunities. The EU ETS is currently the world’s largest emissions trading program, with around 11,000 installations from the energy industry and most other carbon-intensive industries scheduled to participate in the scheme.165 However, while the EU ETS may provide some businesses drivers for the energy efficiency services industry, it is primarily 166 directed at CO2 abatement rather than energy consumption. An analysis
163 Helen O'Neill and Andrew Warren, Energy efficiency report, Association for the Conservation of Energy, London, 2001, p. 22. 164 David Harrison, et al., Interactions of the EU ETS with green and white certificate schemes: summary report for policy makers, European Commission Directorate-General Environment, London, 2005, p. 14. 165 Joachim Schleich and Regina Betz, 'Incentives for energy efficiency and innovation in the European Emission Trading System', in ECEEE 2005 summer study, ECEEE, Stockholm, 2005, p. 1495. 166 Joachim Schleich and Regina Betz, 'Incentives for energy efficiency and innovation in the European Emission Trading System', in ECEEE 2005 summer study, ECEEE, Stockholm, 2005, p. 1496.
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of the potential for the EU ETS to produce technological improvements for energy efficiency found that “…existing rules provide only modest incentives for technological innovations. Instead… the first phase of the EU ETS may… lead to low-risk and low-cost strategies like fuel switch and to institutional and organisational changes within companies.”167 However, as strategies such as fuel switching and institutional and organisational changes can often form an important component of energy efficiency measures, the EU ETS may still contribute to the development of the energy efficiency services sector in Europe. Research and technology The United States Department of Energy (DOE) has historically been one of the main contributors to the development of energy efficient technologies, with the department spending more than US $7 billion (1999 dollars) on energy efficiency research between 1978 and 2000.168 This research led to the development and commercialisation of products such as low-emissivity windows, electronic lighting ballasts, and high-efficiency appliances. Research conducted through the DOE also contributed to the development of a number of energy efficient building technologies.169 The DOE also funds research and development projects in partnership with energy-intensive sectors (such as aluminium, glass and metal casting) to examine means by which energy efficiency can be improved.170
Most Western European countries have also adopted research and development programs, with funding for such programs equal to or exceeding US investment in the 1970s and 1980s. Government-funded research contributed to the development of energy efficiency technologies such as heat pumps, combined heat and power technologies, and new building materials and designs.171 Most Western European countries have continued or expanded energy efficiency research and development programs, in addition to pursuing other energy efficiency incentive programs.172 Other policy instruments to encourage energy efficiency A number of OECD countries have employed a range of measures to encourage energy efficiency activities by consumers through various incentive programs, such as grants, tax incentives, and rebates schemes. A notable feature of most policies is that they are primarily directed at 167 Joachim Schleich and Regina Betz, 'Incentives for energy efficiency and innovation in the European Emission Trading System', in ECEEE 2005 summer study, ECEEE, Stockholm, 2005, p. 1504. 168 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, p. 564. 169 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, p. 564. 170 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, p. 564. 171 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, p. 566. 172 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, pp. 566,567.
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stimulating demand for energy efficiency. As such the effect on the energy efficiency services industry is not direct, although in practice the energy efficiency services sector will provide products and services that accommodate the increased demand for energy efficiency. As a large range of policy measures have been introduced to address energy efficiency in the OECD, only selected policies are discussed here.
Reduced rates loans In the United States, the Federal Government and more than 24 states offer special rate loans for energy efficient projects and appliances. The US Federal Government through the Federal Housing Authority provides loan insurance up to US $8,000 for energy efficiency improvements on home mortgages, provided the loan does not exceed the projected savings from the energy efficiency upgrade. The State of California offers reduced rate loans of up to US $3 million for energy saving measures and audits, including loans for renewable energy installations. In Nebraska, when individuals seek a loan from their financial institution for energy efficiency, half of the loan is bought by the State Energy Authority at zero per cent interest, so that from the individual’s perspective the total interest on the loan is halved. In New York, the New York State Energy Research and Development Authority provides reduced interest rate loans to finance renovation or construction projects that improve a facility’s energy efficiency or incorporate renewable energy systems. The interest rate reduction is four per cent below the lender rate over ten years.173
Rebates In countries that fund DSM projects through utilities, including through levies on energy consumption, rebates are often employed as an energy efficiency measure. In this Chapter most of these rebates are not discussed in detail, but do form part of the strategies discussed in relation to DSM above.
In the Netherlands a rebate scheme was introduced in concert with the government’s tax on CO2 emissions from household energy use. Households can claim the rebate (which is a tax rebate on the CO2 tax) through the purchase of certain energy efficient products, such as appliances. The tax is collected from households by energy companies, less rebates on energy efficient products, and the energy companies subsequently claim the rebate from the government. By 2001, one third of Dutch households had claimed the rebate.174 According to one study:
The introduction of the [rebate scheme] has led to an enormous growth of the supply of A-labelled appliances. The market share of A-labelled washing machines has grown from 40 to 88% over the 1999-2001 period. For refrigerators this is from 26 to 67%. This increase is most likely due to the [rebate scheme] and has led to a
173 NC State University, 'Database of state incentives for renewable energy', viewed 16 May 2006,
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situation where retailers very often advise their customers to buy an A-labelled appliance as the best on offer.175 Belgium also offered appliance rebates on the purchase of energy efficient refrigerators, provided they had an ‘A’ rating on the EU energy efficiency label. In Germany, rebates were also offered throughout the 1990s for energy efficient cold appliances (refrigerators, freezers) and clothes and dish washers, although an evaluation of that program found that only rebates on cold appliances were cost effective.176 One important finding from the German rebate schemes was that “the rebate acts as a kind of quality mark from a trustworthy institution, proving to the customer that the energy efficient appliance is a good choice, rather than as an economic benefit explicitly changing the customer’s economic calculation and choice.”177
In the United States, rebates are typically offered for the purchase of energy efficient equipment and appliances. A large number of states offer rebates of various kinds for energy efficient products. In Louisiana, the Home Energy Rebate Option program provides people who construct new energy efficient homes, or who conduct energy efficiency upgrades on existing homes, with a rebate based on estimated energy savings. The state of Wisconsin offers “cash back” rebates to businesses and homeowners for the installation of energy efficient equipment and appliances, including (in the case of residential appliances) up to US $150 for energy efficient clothes washers, US $50 for refrigerators, and US $2 for energy efficient light bulbs.
Tax incentives Tax incentives are widely employed in the United States to encourage the purchase of energy efficiency products and the retrofit of buildings to make them more energy efficient. In 2005 the US Federal Government established a tax deduction for energy efficient commercial buildings that will remain in effect between January 2006 and December 2007. In order to be eligible for the tax reduction of US $1.80 per square foot of floor space, buildings must ensure that the building’s total energy consumption is less than 50 per cent of a benchmark building standard. Tax credits of up to US $2,000 are also offered to builders and manufacturers of homes built prior to January 2008, and other tax incentives are also available to people who perform energy efficiency upgrades on existing homes. More than 17 US states also offer various forms of tax deductions for the purchase of energy efficient appliances or for the construction of energy efficient buildings and energy efficiency upgrades to existing buildings. In California a personal tax deduction equivalent to 100 per cent of the interest of loans obtained through public utility financing can be claimed for energy efficient products.
In the United Kingdom, 5% Value Added Tax (VAT) rates are applied to: DIY energy saving materials; energy efficient equipment; most microgeneration
175 Stefan Thomas, Energy efficiency programmes and services in the liberalised EU energy markets, Wuppertal Institut fur Klima Umwelt Energie, Berlin, 2003, pp. 33,34. 176 Stefan Thomas, Energy efficiency programmes and services in the liberalised EU energy markets, Wuppertal Institut fur Klima Umwelt Energie, Berlin, 2003, p. 51. 177 Stefan Thomas, Energy efficiency programmes and services in the liberalised EU energy markets, Wuppertal Institut fur Klima Umwelt Energie, Berlin, 2003, p. 51.
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technologies; and the supply and installation of energy efficient products or materials in non-grant schemes when households employ contractors (the standard VAT rate is 17.5 %).
In France, various systems intended to save energy or to produce energy through cogeneration have been eligible for accelerated depreciation (depreciation over 12 months since 1991). Depending on the life of the installation the equivalent value of this tax measure is equivalent to a two-to- five per cent subsidy on the cost of the system.178
Voluntary agreements In a number of OECD countries, including Japan, Denmark, Germany, Sweden, France and the Netherlands, voluntary agreements between government and industry have been formed to promote energy efficiency. In Europe voluntary agreements were introduced as a way for participating countries to ensure they met emissions reductions targets under the Kyoto commitment, without implementing policy instruments for CO2 reduction that appeared too costly or politically unacceptable.
Voluntary agreements have often been introduced with incentives for participation by industry and/or business. In Germany, incentives have included low interest loans for business energy efficiency improvements and an agreement from government to postpone increases to taxes on manufacturing firms.179 In the Netherlands a very successful voluntary agreement program was the ‘Long Term Agreements’ program, in which the government provided industries with technical and financial assistance for energy efficiency upgrades.180
Other energy efficiency policies and programs While a great number of alternate policy approaches to the provision of energy efficiency are employed throughout the world, the Committee was interested to note that the city of Santa Clara, in California, established the Solar Hot Water Program, where the city supplies, installs and maintains solar water heating systems for residents and businesses, with the customer paying an installation fee and thereafter renting the facility from the city.
Comparison of OECD and Australian energy efficiency services Generally, the range of services and products available to Australian and Victorian consumers from the energy efficiency services industry is comparable to the range of services offered throughout the OECD. There are some important differences, however, in some characteristics of the Australian energy efficiency services market. One of these differences is in the ESCO sector. The Committee was told that in Australia the commercial
178 Stefan Thomas, Energy efficiency programmes and services in the liberalised EU energy markets, Wuppertal Institut fur Klima Umwelt Energie, Berlin, 2003, p. 40. 179 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, p. 567. 180 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, p. 567.
66 Chapter Three: Energy efficiency services in the OECD practice of profit sharing revenue derived from energy savings with customers is not widely employed.181 In the OECD generally, however, profit sharing is regarded as a defining characteristic of ESCOs.182
DSM programs (those initiated by or performed on behalf of utilities) are not well developed in Australia, and that although energy companies are becoming more active in DSM activities the level of activity is much lower than in leading OECD countries. Utility companies have taken a leading role through DSM for the provision of energy efficiency services in a number of OECD countries that lead the world in energy efficiency, including the Netherlands, Denmark, and in the US, California.
Germany has made substantial progress towards energy efficiency by encouraging the commercial provision of energy efficiency services through ESCOs. The number of ESCOs active in Germany far exceeds the number of ESCOs in any other OECD country. However, it is notable that the ESCO industry in Germany has been substantially assisted by government policies and programs that support commercial energy efficiency services.
International comparison of energy efficiency services is problematic due to the wide variety of factors that impact on the industry, including the historical development of each country’s energy sector, government activity in the sector, and the extent to which energy efficiency has been embraced by companies and citizens. However, it is clear from this analysis that all countries that have successfully encouraged expansion of the energy efficiency services industry have done so with substantial government intervention in the market, through various regulatory and policy instruments.
Finding 1:
The range of energy efficiency services available in OECD member nations does not appear to differ markedly from those in Australia.
Finding 2:
In OECD member nations, market activity by the energy efficiency services industry appears to be closely linked with government activities to promote energy efficiency.
181 Peter Szental, Chairman, Szencorp Group, Transcript of evidence, Melbourne, 14 March 2006. 182 Paolo Bertoldi and Silvia Rezessy, Energy service companies in Europe, Institute for Environment and Sustainability, European Commission, Brussels, 2005.
67 Chapter 4
Barriers and drivers for the adoption of energy efficiency In this chapter a range of issues surrounding barriers and drivers for energy efficiency and the energy efficiency services industry are considered. It is crucial that the effects of these impediments to, and opportunities for, the provision of energy efficiency services are understood in order to produce an environment that is conducive to the industry. Among the issues discussed in this chapter are the effect of low energy prices on energy efficiency, the importance of adequate consumer information about energy efficiency and energy efficiency services, and the role of incentives such as energy savings targets for achieving improved energy efficiency.
Barriers to the adoption of energy efficiency In energy services literature and in economic literature more generally, a distinction is often made between market failures and market barriers.183 Market failures occur where there are flaws in the way markets operate that contribute to the slower adoption of energy efficiency investments. 184 Commonly cited examples of market failures include imperfect information for consumers, misplaced incentives and undervalued price signals for energy.185 According to some economic literature, market barriers are not due to an inherent failure of the energy efficiency market but limit the adoption of energy efficiency measures nonetheless, and include things such as consumer apathy and the cost of capital.186 Many economic analyses regard market barriers as normal features of markets, and often the proponents of these analyses argue that the development of special
183 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, pp. 14 – 15; International Energy Agency, The experience with energy efficiency policies and programmes in IEA countries: learning from the critics, International Energy Agency, Paris, August 2005, p. 23; Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005. 184 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, p. 33; Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 47. 185 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, p. 14. 186 International Energy Agency, The experience with energy efficiency policies and programmes in IEA countries: learning from the critics, International Energy Agency, Paris, August 2005, pp. 24-25.
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measures to rectify perceived problems with the market is inappropriate.187 Special measures may include, for example, various forms of government intervention in the market.
It has been argued that only impediments which are a result of market failure may warrant intervention from government, and only then provided the social benefits of intervention outweigh the social costs.188 Where government decides that market intervention is warranted, an understanding of market barriers is a critical component of efforts to design energy efficiency programs and policies that address market failure.189 A recent report by the Productivity Commission, The private cost-effectiveness of improving energy efficiency, argued that government intervention in markets, including energy efficiency services markets, was only justified if net benefits to the community can be achieved through intervention.190 The report also argued that the primary case for government intervention in energy markets rested on the benefits of reducing “harmful environmental externalities.”191 The terms of reference for the Productivity Commission Inquiry did not allow it to consider these externalities in its analysis of the cost effectiveness of energy efficiency.
While the Committee recognises that a useful distinction can often be made between market failures and market barriers, it also recognises that the extent to which various features of the energy efficiency market fall into each of these categories is contested. For example, a number of witnesses suggested that the price paid for energy in Australia was a substantial impediment to the uptake of energy efficiency services. However, should the low price of energy be considered a market barrier, because the low price of energy makes energy efficiency less cost effective to consumers, or a market failure, because the low price of energy does not account for the external costs associated with energy generation and supply?
For the purposes of this report, the Committee uses the term barriers to encompass both market failures and market Barriers are not mutually exclusive and it is often a combination of factors that prevent the uptake of energy efficiency. The energy efficiency gap Research conducted into the efficient use of energy commonly distinguishes between consumers’ actual and optimal energy use. In some energy efficiency literature this difference is referred to as the ‘energy-efficiency
187 Alan Stanstad, et al., 'End-use energy efficiency in a 'post-carbon' California economy: policy issues and research frontiers', in Managing greenhouse gas emissions in California, The California Climate Change Centre, Berkeley, 2006, pp. 6-10. 188 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. x. 189 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 45. 190 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 45. 191 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 54.
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gap.’192 In simple terms, the energy efficiency gap refers to the observation that there are often opportunities for energy consumers to use energy more efficiently but for various reasons consumers do not take advantage of these opportunities.
A large range of impediments have been identified that contribute to the energy efficiency gap. Understanding these impediments is important in the context of developing initiatives that encourage the residential, commercial and industrial sectors to use energy more efficiently. In general, energy efficiency policies and programs work best if they are integrated into market transformation strategies and address a range of barriers that are present in the market.193 An important component of a successful market transformation strategy is the development of tools to understand why consumers act, or do not act, in a certain way.
General barriers to energy efficiency The price of energy … the price of energy is not what it is all about. The total cost of supply of energy services, your total bill and the indirect impacts and costs of the supply of it, is what the real economic issue is.194 During the course of this Inquiry most witnesses told the Committee that a major barrier to the adoption of energy efficiency was the low price paid for energy by Australian consumers.195 Australian energy prices are among the lowest in the OECD, and the price of electricity to Australian consumers is one of the lowest in the world to the extent that industrial electricity prices in a number of European countries are more than double the price paid in Australia (see Figure 14 and Figure 15).196 Natural gas prices in Australia are also relatively low by OECD standards.197
192 Adam Jaffe and Robert Stavins, 'The energy-efficiency gap: what does it mean?' Energy Policy, vol. 22, no. 10, 1994, p. 804. 193 Howard Geller, et al., 'Policies for increasing energy efficiency: thirty years experience in OECD countries', Energy Policy, vol. 34, 2006, p. 571. 194 Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 193. 195 Energy and Thermal Services Pty Ltd, Submission, no. 1, 15 August 2005, p. 4; Office of the Commissioner for Environmental Sustainability, Submission, no. 22, 4 November 2005, p. 1; Megan Wheatley, Head, Business Development, Sustainability Victoria, Transcript of evidence, Melbourne, 5 December 2005, p. 54. 196 AGL, Submission, no. 20, 31 October 2005, p. 4; Productivity Commission, The private cost- effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 37. 197 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 37.
70 Chapter Four: Barriers and drivers for the adoption of energy efficiency
Figure 14: Selected international residential electricity prices, 2004.198
0.25
0.2
h 0.15 W k / S
U 0.1 $
0.05
0 A K T U P S U G F I J I D t r a a u o a o p r e S K e e a p l s i l r a l y n r w a a e n * a t m i m n n n r a a c n a d d a n e a l n i r a k y
*
Figure 15: Selected international industrial electricity prices, 2004.199
0.16
0.14
0.12
0.1 h W k
/ 0.08 S U
$ 0.06
0.04
0.02
0 A S G U F K T P U D I J I r t a a u p o a r o e S K e e a p l s a r i l l n y r w a a e n * a t i m m n n n r c a a n a d d a n a e l i n r a k y
* The price paid for electricity in Australia does not fully reflect externalities associated with its generation and use. ‘Energy externalities’ is a phrase that refers to the costs and benefits of energy consumption that are not typically taken into account by the producers and consumers of energy. 200 Energy
198 Source: Invest Australia, 'Energy costs in Australia', viewed 21 April 2006,
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externalities include the cost of effects associated with energy generation and consumption borne by society and the environment, including air pollutants, greenhouse gases, water pollution and waste generation.201 Many consumers pay for power on averaged price tariffs that do not signal fluctuations in the cost of electricity according to time and location.202 For these reasons the price paid by consumers for energy generally does not reflect the true cost of supply.203
The low price of energy can encourage increased consumption and weakens incentives that encourage the uptake of energy efficiency and/or alternate sources of energy generation that have less external effects.204 The competitiveness of renewable energy, for example, is inhibited because it is more expensive for consumers to purchase energy from renewable sources than energy derived from fossil fuels.
The disincentive to pursue energy efficiency produced by low energy prices may be exacerbated by the use of declining block tariffs by energy retailers. Declining block tariffs lower the per-unit price of energy as energy consumption increases.
… the electricity industry’s natural drive is towards high fixed charges and preferably declining block pricing because the more you use, the cheaper you are to look after. That suits those industries, but again that works very much against energy efficiency and in fact in the 1980s when I was in the Victorian government we went through a lot of work looking at fair pricing structures and concluded that relatively low fixed charges and flat tariffs, or even inclining block tariffs like we are getting in the water supply area now, were the right kinds of way to go.205 The Committee agrees that declining block tariffs fail to reflect the true cost of energy and provide little incentive for consumers to pursue energy efficient outcomes.
The issue of declining block tariffs was also considered in the Committee’s report on the Inquiry into Sustainable Communities, where the Committee recommended that a pricing framework that discourages energy retailers from offering declining block tariffs be introduced. The Government Response to this recommendation was that the “Government position requires further consideration.” The Committee feels that this is an issue of
201 Energy Futures Australia Pty Ltd, Mechanisms for promoting societal demand management, Report for the Independent Pricing and Regulatory Tribunal of NSW, Sydney, 2002, pp. 3-4. 202 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, p. 28. 203 Energy Retailers Association of Australia, Submission, no. 24, 4 November 2005, p. 3. 204 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, p. 30. 205 Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 192.
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direct relevance to the current inquiry, and so repeats the recommendation made in the last report.
Recommendation 1:
That the Victorian Government introduces a pricing framework that promotes energy conservation and discourages energy retailers from offering declining block tariffs to consumers.
To a certain extent the demand for energy is inelastic. While energy consumption may decline and energy efficiency be more actively sought if the price of energy were to increase, there will always be a certain level of demand for energy regardless of price. Some witnesses suggested that moderate increases in residential energy prices would probably not have a significant effect on demand for energy efficiency, or for services provided by the energy efficiency services industry.206 The cost of capital investment The amount of money individual consumers spend on energy usually accounts for a small proportion of their total expenditure. In Australia energy costs represent less than three per cent of total turnover for the majority of industry subgroups in Victoria and approximately three per cent of household expenditure.207
However, for low income households energy expenditure can constitute a significant share of total household expenditure. The average annual household energy bill is $1,300, which is generally billed quarterly.208 Identifying energy efficiency opportunities can be particularly important to these households.
Witnesses told the Inquiry that some consumers do not see energy efficiency as particularly cost effective.209 Often the initial investment required to improve energy efficiency appears high and poor value for money compared to the cost of energy, and so may be viewed as an investment risk.
In some cases payback periods can be used to rationalise energy efficiency measures. In the long term the energy savings can pay for the cost of capital investment, but as Mr Mick Bourke, Chairman of the Environment Protection Authority Victoria, told the Inquiry the initial cost can be a barrier:
206 Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 48; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 40. 207 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005; Department of Sustainability and Environment, The greenhouse challenge for energy., Department of Sustainability and Environment, Melbourne, 2004, p. 14; Engineers Australia, Submission, no. 16, 28 October 2005. 208 Sustainable Energy Authority Victoria, 'Energy task force homepage', viewed 15 March 2006,
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What often drives the industry is quality of product, time to market — those types of demands — rather than looking for the smaller operational savings or those other areas, so rather than dedicate their resources to those areas, they dedicate them to market issues. Certainly the investment dollars are always relatively tight.210 However, the Committee heard evidence that energy efficiency investments are not always adopted by households and companies even when it appears economically sound to do so. Witnesses told the Committee that one reason households and companies often do not adopt energy efficiency measures is because they take a short term view of energy consumption and expenditure, and tend to focus on the up-front costs of energy efficiency rather than the total cost of efficient versus inefficient products over the period of use.211 In the context of the HVAC industry, a submission to the Inquiry by the AIRAH noted that:
Builders and developers are mainly interested in short term payback on building projects [and] as a result of this, the majority of HVAC designs are currently measured on their capital cost value, with full life cost very rarely a consideration at the design phase…. Innovative design solutions that do get considered are often not adopted due to the initial capital cost forecasts by project managers.212 The Committee was told by Reverend Nick Frances, of easybeinggreen, that householders also emphasise the immediate cost of implementing energy efficiency actions over the long term savings of those actions. For this reason householders generally set an extremely low threshold on the investment they are prepared make in energy efficiency:
…we were giving away these energy efficiency packs in NSW. There is about $70 worth of equipment [in the packs] which saves about $150 a year. We were giving them out for $10. I did it for a couple of months and the most I ever sold in a day was 90 at $10. That is $70 worth of equipment for a $150 annual saving. We now just pitch up in a supermarket and we do 1000 a day because there is no cost. A $10 price point on an effective $200 saving in the first year is the difference between 90 people and 1000 people and a queue. So the pricing around this is really important.213 There is evidence emerging from economic literature that part of the reason why energy efficiency is not adopted more widely is because people tend to
210 Mick Bourke, Chairman, Environment Protection Authority Victoria, Transcript of evidence, Melbourne, 5 December 2005, p. 92. 211 Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 46; International Energy Agency, The experience with energy efficiency policies and programmes in IEA countries: learning from the critics, International Energy Agency, Paris, August 2005, p. 26; Steve Sorrell, 'Understanding barriers to energy efficiency', in The economics of energy efficiency, Steve Sorrell, et al. (eds), Edward Elgar, Cheltenham, 2004. 212 Australian Institute of Refrigeration Air Conditioning and Heating, Submission, no. 3, 5 September 2005, p. 3. 213 Rev Nick Frances, Chief Executive Officer, easybeinggreen, Transcript of evidence, Melbourne, 14 March 2006, p. 19.
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place a heavier emphasis on losses than gains.214 In the case of energy efficiency, this means that people may not always make the most ‘logical’ choice when balancing the short term costs of implementing energy efficiency versus the long term benefits of being energy efficient. This also means that orthodox approaches to understanding how people make economic decisions may not adequately explain actual behaviour. This can create substantial barriers for the energy efficiency services industry, because it may mean that mechanisms must be found to minimise the cost of services and/or project implementation. Imperfect information about energy efficiency Consumer information The role of information for increasing awareness of energy efficiency was raised throughout the Inquiry. The Committee agrees that the provision of relevant and practical information to consumers is a critical component of any measure to improve the uptake of energy efficiency. Insufficient information regarding products, benefits, and payback periods, for example, is likely to result in an underinvestment in energy efficient technologies, processes and products.215 The key issues related to information are its availability, timing and the source.
Varied views were expressed on the availability of information for consumers. Some witnesses regarded existing sources of information as adequate, but noted that information alone was not sufficient for consumers to implement energy efficiency measures.216 Other witnesses thought that energy efficiency information was not reaching consumers, or that it was inaccessible, and so prevented consumers from making energy efficient decisions.217
The Committee recognises that there is a wide variety of information on energy efficiency available in the public domain, and that a number of commercial, community and government organisations also act as intermediaries to bring energy efficiency information to the public. However, finding information about energy efficiency can be time consuming, so that often consumers are not able to dedicate enough time to identify appropriate information, or do not value (or are not aware of) the potential savings to be
214 Steve Sorrell, 'Understanding barriers to energy efficiency', in The economics of energy efficiency, Steve Sorrell, et al. (eds), Edward Elgar, Cheltenham, 2004, pp. 48-50. 215 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, p. 33. 216 Rev Nick Frances, Chief Executive Officer, easybeinggreen, Transcript of evidence, Melbourne, 14 March 2006, p. 19; Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 44; Leigh Watkins, Strategic Markets Manager, Bendigo Bank, Transcript of evidence, Bendigo, 6 February 2006, p. 155. 217 Australian Building Codes Board, Submission, no. 23, 4 November 2005, p. 6; Australian Institute of Refrigeration Air Conditioning and Heating, Submission, no. 3, 5 September 2005; Energy Retailers Association of Australia, Submission, no. 24, 4 November 2005; Environment Protection Authority Victoria, Submission, no. 13, 28 October 2005; Moreland Energy Foundation, Submission, no. 14, 28 October 2005; The Australian Gas Light Company, Submission, no. 20, 31 October 2005; TRUenergy, Submission, no. 26, 8 November 2005.
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obtained through energy efficiency, and so do not allocate time to this kind of research. A trade-off is sometimes made where the effort to do the research is not seen as worth the potential benefits.218 Too much information can be overwhelming and create confusion.
Overcoming information barriers is a key challenge to the energy efficiency services industry. A large proportion of government activity is directed at overcoming these barriers to ensure that information flows between all market participants. As such, both state and federal governments provide information on energy efficient technologies and services. For example, the Committee notes that Sustainability Victoria produces a fact sheet that discusses the operating costs of electrical appliances. The brochure provides a monthly cost breakdown for variety of appliances such as fridges, space heaters and air conditioners. The Committee notes that this information is valuable to those who intend to purchase products, and that it complements the range of products labelled under the National Appliance and Equipment Energy Efficiency Committee.
The Committee believes that this information could also be usefully presented to the public through the development of a simple web based application to complement existing information resources. The web application should allow consumers to scroll through a suite of appliance categories, choose the relevant appliance, enter relevant personal data and have the tool provide an indication of potential costs and savings associated with the product, including lifetime cost. In addition to the broad suite of products listed on Sustainability Victoria’s fact sheet, energy statistics for individual model types should be included where energy use information is available. The tool should be placed in a prominent space and ideally, the web address for the application should be prominently highlighted on consumers’ electricity bills.
Recommendation 2:
That Sustainability Victoria develops a web-based application that details payback periods and/or comparative running costs for a range of energy efficient products. As a minimum, the application should include payback information on a range of solar hot water systems, photovoltaic systems, washing machines and air- conditioners. The website should be prominently highlighted on consumers’ energy bills.
Sources and timing of information The timing and source of information is important too. Receiving a random pamphlet about solar water heaters in the mail is less effective than receiving advice from a plumber about solar options at the time the hot water system needs replacing. Mr Gary Workman, National Manager,
218 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, pp. 48–49; Science and Technology Policy Research Unit, Reducing barriers to energy efficiency in public and private organisations: final report February 1998 to June 2000, University of Sussex, England, 2000, p. 31.
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GreenPlumbers, told the Committee about the importance of just-in-time information (when the decisions are being made), but also acknowledged:
One of the big problems within our industry is the replacement market. If there is an existing electric hot water unit which costs $800 to replace and your customer rings up wanting hot water on that night, the simplest thing is to replace like for like. That is by far the cheapest option. The Committee heard from a number of witnesses that even when information about energy efficient products was available, the products were not always obtainable. This could undermine efforts to promote the use of energy efficient products.
In relation to information on individual energy use, some witnesses suggested that retrospective billing was a barrier to energy efficiency. Retrospective billing makes it difficult for people to understand their energy use as price signals are hidden by the time delay between consumption and billing.219 This means that consumers do not know the price they are paying for energy when they use it and this delay makes it difficult to identify sources of inefficiency.
Performance measurement Performance measurement involves assessing the results of using a particular product, service or program. It can be used to see whether use of a particular product has led to improved energy efficiency outcomes, or as a means of comparing products or services. A number of witnesses told the Committee that a barrier to the uptake of energy efficiency opportunities was that often information about the effectiveness of energy efficiency measures was inconsistent or absent.220 While a number of programs, initiatives and technologies currently address energy efficiency issues, there is often a lack of quantitative data available on the effectiveness of these measures. This makes it difficult to demonstrate the benefits of energy efficiency to potential participants/purchasers. During the Inquiry many witnesses spoke anecdotally about the success of various programs, but acknowledged robust evaluations of programs and initiatives were often unavailable, and that more substantive data on the outcomes of these activities would be useful.221
The Committee agrees that more robust approaches to the evaluation of government initiatives to promote energy efficiency and the energy efficiency services industry should be adopted. In particular, the State Government should ensure that clear objectives are identified for all programs, and that methodologies and plans for evaluating programs are built in during the project design phase. This will ensure that government,
219 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005, p. 11. 220 Sustainability Victoria, Submission, no. 27, 11 November 2005, p. 9; Gary Workman, National Manager, GreenPlumbers, Transcript of evidence, Melbourne, 12 December 2005, p. 115. 221 Mick Bourke, Chairman, Environment Protection Authority Victoria, Transcript of evidence, Melbourne, 5 December 2005, p. 92; Tamara Marwood, Project Manager, Sustainable Energy Information Partnership, Bendigo Access Employment, Transcript of evidence, Bendigo, 6 February 2006, p. 138.
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the public and industry will receive information that clearly demonstrates what works, and what doesn’t, in the promotion of energy efficiency and the energy efficiency services industry.
Recommendation 3:
That the Victorian Government ensures all state-funded programs directed at the promotion and/or development of energy efficient technologies and services incorporate evaluative procedures that focus strongly on clear evidence in outcomes.
Baseline measures One of the most problematic hurdles associated with performance measurement is establishing a basis to measure from. Mr Nick Alsop, Greenhouse Program Coordinator, City of Melbourne, talked about problems associated with selecting an appropriate baseline prior to gathering and analysing data on energy efficiency programs:
That is a recurrent theme in greenhouse, energy and sustainable communities policies — that is, the issue of getting good quality data from the ground up — where we can actually come up with good projects, track them, monitor them and set targets for them.222 The BCSE told the Committee that energy efficiency research has been neglected, and as such there is limited data on which to assess energy efficiency.223 The BCSE told the Committee that this prevents further development of the energy efficiency services industry because outdated data, which does not reflect growth in appliance ownership (such as air conditioners), results in conservative assessments and projections relating to energy efficiency gains.224
The Australian Building Codes Board (ABCB) also described the limited availability of energy data and fragmented approaches to funding energy efficiency research initiatives as a barrier to the development of the energy efficiency services industry. During the development of the energy efficiency provisions for the Building Code of Australia, the ABCB found that some technical and policy decisions had to be determined on limited or anecdotal evidence due to a lack of robust energy data.225 This lack of data makes it difficult to establish baseline measurements, and in turn makes it hard to measure and compare the effectiveness of energy efficiency activities.
The Committee recognises that there are some problems associated with the appropriate measurement of reduced consumption resulting from energy efficiency measures. The Committee hopes that robust evaluation of energy efficiency programs referred to in Recommendation 3 will provide important
222 Nick Alsop, Greenhouse Program Coordinator, City of Melbourne, Transcript of evidence, Melbourne, 20 February 2006, p. 4. 223 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005, p. 5. 224 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005, p. 5. 225 Australian Building Codes Board, Submission, no. 23, 4 November 2005, p. 10.
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information for the development of baseline statistics and the development of sensitive tools for assessing energy efficiency performance that are applicable to Victoria. The Committee hopes that industry will also use this information during the development of energy efficiency projects.
Labelling Some witnesses also suggested that more products should be labelled to provide consumers with information about the energy efficiency of those products. They suggested that labelling was particularly appropriate for products that were relatively homogenous, because for these products an indication of energy efficiency may have a more substantial influence on the purchasing decisions of consumers. The Australian Glass and Glaziers Association told the Committee that price rather than efficiency is the main determinant for consumers when assessing glass purchases, and that compulsory disclosure of glass thermal performance may go some way to improving consumer choices about glazing.226 In reference to the implementation of state building regulations and performance measurement, Mr Gary Workman, National Manager, GreenPlumbers, told the Committee that:
… when it comes time to do the inspections, the people who do them are more worried about the installations instead of the performance of the appliance. They are looking at whether bolt A is correctly connected to bolt B and whether it complies with occupational health and safety rather than looking at the environmental considerations of the performance of the appliance.227 Split incentives Split incentives arise when the person purchasing an energy saving technology is different from the person who will benefit from its use.228 Split incentives occur in the residential, commercial and industrial sectors predominantly through a landlord–tenant relationship where building owners are responsible for investment decisions but tenants pay energy bills.229 For example, in the residential sector, owner-occupiers have more certainty about their long term future than renters who lease a property. Without a long term lease there is little incentive for a tenant to invest in improving the energy efficiency of a property. They often cannot take the improvement with them when they leave and they may not occupy the premises long enough to see a return on their investment. Landlords on the other hand do not necessarily benefit financially from improving the energy efficiency of the property.
226 David Perkins, Chair, Energy Subcommittee, Australian Glass and Glazing Association, Transcript of evidence, Melbourne, 14 March 2006, p. 5. See also Chapter Seven. 227 Gary Workman, National Manager, GreenPlumbers, Transcript of evidence, Melbourne, 12 December 2005, p. 114. 228 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 52. 229 International Energy Agency, The experience with energy efficiency policies and programmes in IEA countries: learning from the critics, International Energy Agency, Paris, August 2005, p. 25.
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Split incentives in building construction Split incentives also occur in the construction market where decisions about building design and features are made by people not responsible for paying the energy bills.230 Where this is the case, the adoption of energy efficiency technologies will only occur if the landlord or developer can recover that investment from those who receive the energy savings.231 The AIRAH noted in its submission to the Committee that:
In the majority of cases the developers and financial backers of projects are driving the building market and their prime concern is maximising short-term profit. It would appear that there is very little input from other stakeholders at the design stage of any project. This leads to a short-term view being taken in the design process.232 Split incentives can limit the uptake of energy efficiency opportunities and as such may result in the undersupply of energy efficient technologies and services.233
Information asymmetries and information costs Information asymmetry has been identified as a possible factor contributing to split incentives.234 One of the parties might have information on the costs and benefits of energy efficiency investments, but may have problems conveying it to the other party.235 If both parties have access to the same information it has been argued that the transaction costs of overcoming their different incentives and coming to an agreement make the process complex and costly and may result in no action being taken as the costs outweigh the benefits.236 The complexity of energy efficient solutions Energy commodities represent a simple, unchanging, easy to understand and homogeneous product which is purchased from a small number of large, well established and trusted firms.
230 Deane Belfield, Member, Engineers Australia, Transcript of evidence, Melbourne, 20 February 2006; International Energy Agency, The experience with energy efficiency policies and programmes in IEA countries: learning from the critics, International Energy Agency, Paris, August 2005, p. 26. 231 Adam Jaffe and Robert Stavins, 'The energy-efficiency gap: what does it mean?' Energy Policy, vol. 22, no. 10, 1994, p. 805. 232 Australian Institute of Refrigeration Air Conditioning and Heating, Submission, no. 3, 5 September 2005, p. 4. 233 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 47. 234 Adam Jaffe and Robert Stavins, 'The energy-efficiency gap: what does it mean?' Energy Policy, vol. 22, no. 10, 1994, p. 805; Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 52; Science and Technology Policy Research Unit, Reducing barriers to energy efficiency in public and private organisations: final report February 1998 to June 2000, University of Sussex, England, 2000, p. 21. 235 Science and Technology Policy Research Unit, Reducing barriers to energy efficiency in public and private organisations: final report February 1998 to June 2000, University of Sussex, England, 2000, p. 21. 236 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 52; Science and Technology Policy Research Unit, Reducing barriers to energy efficiency in public and private organisations: final report February 1998 to June 2000, University of Sussex, England, 2000, p. 21.
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Purchases are made regularly, market information is widely available and ‘performance’ is judged largely on price…. In contrast, delivering the same service through energy efficient investment requires the purchase of one or more complex, heterogeneous and unfamiliar goods from markets with multiple suppliers and intermediaries.237 A factor that may act as a barrier to the incorporation of energy efficient design is that energy efficient solutions are often complex. While investment in energy efficiency can prove to be economically and environmentally prudent, the ‘traditional’ response to energy demand is not to examine ways to use energy more efficiently, but to simply consume more energy. This is particularly the case for larger industrial sites where a variety of energy processes are undertaken simultaneously. As a consequence, identification and implementation of energy efficient solutions can be time consuming, and involve significant financial investment.
While increased complexity is an inherent feature of some energy efficient measures, this is not always the case. Often simple energy efficiency solutions are available but they may involve increased ‘search’ costs for consumers because they are not part of ordinary approaches to satisfying demand for services. In this context the energy efficiency services industry can play a crucial role in facilitating energy efficiency, because the industry can apply its expertise in this area to reduce the search costs for consumers.
Time costs Another factor in the building construction industry that contributes to the existence of split incentives is the effect of opportunity and time costs associated with the adoption of energy efficiency. In the context of commercial building developments, for example, the AIRAH noted that there was a tendency for developers to stick with orthodox building design because the design phase could be completed in the least time and for the least cost:
The short time frame allowed for the services design phase (services to tender) restricts the possibility for innovative/energy efficient solutions to be developed. Designs could be improved with more time and increased fees. Currently there is not enough time in the project cycle given to explore innovative solutions for projects.238 Behavioural and Cultural Factors Inertia Inertia refers to a tendency to retain the status quo and avoid change or taking action. Energy is necessary for household and business operations but often its use is given little thought by consumers. While a number of 237 Steve Sorrell, 'Understanding barriers to energy efficiency', in The economics of energy efficiency, Steve Sorrell, et al. (eds), Edward Elgar, Cheltenham, 2004, p. 60. 238 Australian Institute of Refrigeration Air Conditioning and Heating, Submission, no. 3, 5 September 2005, p. 4.
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Victorians are actively seeking to reduce their ‘energy footprint’ through energy efficiency, the Committee was told that, generally speaking, consumers are apathetic about energy efficiency.239 Several explanations for this inertia were presented to the Committee.
Witnesses told the Committee that the concept of ‘energy’ can be difficult to understand and the comparison of energy to water in the context of encouraging efficiency was made several times.240 Mr Deane Belfield, a member of Engineers Australia commented that:
We have seen great changes starting to happen with water. Why? Because we can touch it, we can drink it, we can feel it, we can relate to it, and we have got regulations that tell us when we can and cannot water our gardens….It is very tangible. We see there is a consequence when our lawn goes yellow….. We also know that when petrol prices rise by 20 per cent everybody screams blue murder and says, ‘This is unacceptable’, because we feel it.241 Some witnesses suggested that energy, unlike water, is intangible to consumers and so does not tend to elicit an emotional response. While dry river beds and drought affected land are visible and provide evidence of the need to conserve and use water more wisely, many consumers do not make the connection between their energy use and its environmental impact.242 For many consumers energy is a means to an end. Energy enables heating and cooling, refrigeration and powers machinery, for example. As Mr Phil Harrington, Deputy Secretary (Infrastructure), Department of Infrastructure, Energy and Resources, Tasmania, explained:
Essentially consumers are not interested in purchasing energy; they are interested in purchasing services, which may or may not use energy…Often the consumption of energy, let alone any environmental emissions associated with that consumption of energy, is a very long way from the thought process that is involved in acquiring a TV or an air-conditioner.243 Compared to water, energy is often perceived as something that is manageable. Water is in finite supply and the weather dictates when and where it rains. Energy on the other hand is seen as more controllable - if the demand for energy cannot be met then the capacity to supply energy can be increased by building another generator for example.
239 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005, p. 11; Rev Nick Frances, Chief Executive Officer, easybeinggreen, Transcript of evidence, Melbourne, 14 March 2006, p. 23. 240 Megan Wheatley, Head, Business Development, Sustainability Victoria, Transcript of evidence, Melbourne, 5 December 2005, p. 60; Euan Williamson, Household Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005, p. 23. 241 Deane Belfield, Member, Engineers Australia, Transcript of evidence, Melbourne, 20 February 2006, p. 171. 242 Office of the Commissioner for Environmental Sustainability, Submission, no. 22, 4 November 2005, p. 2. 243 Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 44.
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Increasing demand for appliances The availability of, and increasing demand for energy using appliances is one of the most significant challenges to energy efficiency. The Committee was told that producers of certain energy using appliances are currently working to address energy efficiency issues.244 Nevertheless, the cumulative effect of energy using products on the electricity network remains a major concern.
The generic market barrier to energy services is the ubiquity (and unending proliferation) of energy-consuming products and services on the one hand, combined with the invisibility of the environmental damage they cause over their lifetime when supplied with fossil-fuel based power.245 Consumer fascination with technology has seen a boom in demand for energy using products over recent decades. High levels of demand, stimulated by product and brand marketing, have enabled manufacturers to lower the purchase price of products, and so further stimulate demand. This has led in turn to increased demand for energy through existing energy infrastructure.
Limitations to ‘built in’ energy efficiency Some witnesses told the Committee that there were limitations to the extent that ‘built in’ measures could lead to improved energy efficiency, as people had to ensure that their behaviour was conducive to energy efficiency as well. For example, an efficiently insulated home would provide little benefit for heating efficiency if the residents always left the doors and windows open.246 Some witnesses suggested that up to half of the potential energy savings in residential buildings was dependent on behavioural change.247
Witnesses told the Committee that there were a number of factors that could encourage people to change their behaviour in order to improve energy efficiency. The Committee was told that government had a particularly important role to encourage behavioural change by using such mechanisms as information campaigns, demonstration programs, various financial and other incentives, and regulations and legislation. Engineers Australia argued that there were flow-on effects associated with the promotion of energy efficiency, so that while a specific program may not have a huge effect on energy efficiency, the cumulative effect of all actions to improve energy efficiency could encourage widespread behavioural change:
From a behavioural communication point of view, a great deal can be done with a little. With the 5 star rating the government has introduced — which started last year in about June, and this year in the commercial building sector — once again it is a drop in the
244 Philip Harrington, Submission, no. 29, 5 December 2005. 245 Philip Harrington, Submission, no. 29, 5 December 2005, p. 7. 246 Nick Alsop, Greenhouse Program Coordinator, City of Melbourne, Transcript of evidence, Melbourne, 20 February 2006, p. 163. 247 Nick Alsop, Greenhouse Program Coordinator, City of Melbourne, Transcript of evidence, Melbourne, 20 February 2006, p. 163.
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ocean in terms of the megatonnes of carbon dioxide released or saved. The behavioural impact of that is very significant. Suddenly people start using the jargon and talking about getting 5 stars for their new building, and that will flow through. You will see people starting to value buildings — and their own dwellings and others — in a way that has not happened before.248 The Committee heard that the conduct of energy audits, or business participation in energy awareness programs, could also lead to people taking energy efficiency issues more seriously, and consequently adopt behaviours to improve energy efficiency. This could sometimes occur as the unintended effect of particular programs and measures. Other barriers to energy efficiency Industry capability A number of witnesses and submissions to the Committee commented that the energy services sector in general lacked appropriate expertise and that there were not enough people skilled in energy efficiency in the workforce.249 Some viewed the industry as being small and specialised in nature, making it difficult to locate staff with appropriate skills.250 This perceived lack of capacity implies that the industry can not deliver the required services and products and may act as a factor inhibiting the uptake of energy efficiency.
It is important to note here the distinction made in Chapter Two between core and non-core energy services organisations. Applying these distinctions to the evidence provided, it could be concluded that people working for core organisations, where energy efficiency products and services are the main focus of their work, were generally considered to be adequately skilled in energy efficiency but too few in number. People working for non-core organisations, who may only be involved in the energy services industry periodically, were considered to need more general knowledge of energy efficiency and basic skills to carry out energy efficiency projects.
In its submission to the Inquiry, the Northern Alliance for Greenhouse Action noted that a high proportion of the energy services sector have a minimal knowledge of energy efficiency products and measures.251 A lack of formal and ongoing education for those involved in the non-core energy efficiency services industry was given as one explanation for this. Mr Gary Workman, National Manager, GreenPlumbers said:
One of the issues we noticed very early on within the GreenPlumbers program is there is no mandated requirement for
248 Deane Belfield, Member, Engineers Australia, Transcript of evidence, Melbourne, 20 February 2006, p. 16. 249Peter Szental, Chairman, Szencorp Group, Transcript of evidence, Melbourne, 14 March 2006, p. 30; The Australian Gas Light Company, Submission, no. 20, 31 October 2005, p. 5; Megan Wheatley, Head, Business Development, Sustainability Victoria, Transcript of evidence, Melbourne, 5 December 2005, p. 54. 250 The Australian Gas Light Company, Submission, no. 20, 31 October 2005, p. 5. 251Northern Alliance for Greenhouse Action, Submission, no. 11, 27 October 2005, p. 1.
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continuing professional development in a licensed trade. Most other licensed industries such as dentists, doctors and lawyers all have a professional development requirement to renew their licence to continue practising.252 Other witnesses felt that the skill level of the energy efficiency services industry was adequate.253 The Department of Education and Training was satisfied that the range of training currently available addresses the needs of the energy services industry.254 The adequacy of education and training is discussed in Chapter Five.
Most stakeholders that participated in consultations for the National Framework for Energy Efficiency disagreed with the suggestion that the there was a lack of technical energy efficiency expertise. They suggested that the main barrier to energy efficiency was that organisations did not recognise the need for energy efficiency, and so did not seek appropriate services from the market.255 Similarly, the BCSE told the Committee that Australia has a large body of experienced people to support the energy efficiency services industry. However, the BCSE is of the opinion that the market for energy efficiency services is underdeveloped and constrained by an environment that does not recognise and reward the benefits provide by the energy efficiency services industry.256
Quality of energy auditing While the Committee heard from a number of witnesses that the core energy efficiency services industries were adequately skilled, some witnesses suggested that there was substantial variation in the quality of energy auditing. These witnesses noted that energy efficiency auditors sometimes provided clients with very generic advice, and that the advice provided by some auditors failed to take into account specific business processes and priorities. As a result, audits produced through this process were ignored and ‘stayed on the shelf”.257 Issues surrounding the quality and applicability of energy audits to businesses are discussed further in Chapter Seven.
Technology Many witnesses held conflicting views regarding the availability of energy efficient technology. Some felt that a wide range of technology and products were available in Australia.258 Others told the Committee that there were significant gaps in the market.259
252 Gary Workman, National Manager, GreenPlumbers, Transcript of evidence, Melbourne, 12 December 2005, p. 111. 253 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005; TRUenergy, Submission, no. 26, 8 November 2005, p. 3. 254 Department of Education and Training, sub attachment p. 2 255 Energy Efficiency Working Group, National Framework for Energy Efficiency: stakeholder consultation report, Canberra, August 2004, p. 9. 256 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005, p. 6. 257 Dr Assad Gargari, Director, EEP Management, Transcript of evidence, Melbourne, 3 April 2006. 258 Tony Forster, President, Australian Institute of Energy, Transcript of evidence, Melbourne, 14 March 2006, p. 362; Carlos Ogues, Director, Mr Solar, Transcript of evidence, Melbourne, 3 April 2006, p. 405. 259 CSIRO Energy Technology, Submission, no. 4, 8 September 2005, p. 1; Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 45.
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High energy consuming technologies are becoming more accessible and cheaper, creating a greater demand for energy.260 For example, the proportion of Victorian homes with air-conditioners has risen to nearly 60%, which is almost double the proportion of homes with air-conditioners one decade ago.261 As Mr Phil Harrington told the Committee:
We have an ever expanding range of typically lower cost energy consuming products and services – air conditioners would be a good example; I would imagine that they have probably dropped to a third of their price of a couple of years ago. There is a ready availability of energy consumption on one hand, typically at a lower price; on the other hand there is a virtually complete invisibility of the environmental damage caused by those energy using devices.262 Another barrier identified during the Inquiry surrounded the performance of technology. Poorly installed or inappropriate technologies can have a lasting effect on the way consumers view energy efficient products.263 Mr Vin Ebejer, National Director Training Services and Programs, Master Plumbers and Mechanical Services Association of Australia told the Committee that:
One of the issues we have for solar is 20-odd years ago we had a very strong push in Victoria. However, the products and the installation techniques at the time really put a lot of people off. That caused problems in the industry, products failed and there were very poor installations. People still remember that and they have been very slow in coming forward.264 As mentioned previously, often non-core organisations lack some of the skills required by the energy efficiency services industry. These organisations and groups, including tradespeople, may have limited experience with energy efficiency technology and be less aware of new products as energy efficiency constitutes only a small part of the work they do. In part, this explains why installations of energy efficiency technology have at times been problematic.
The energy market The Committee was told that the energy market itself prevents the uptake of energy efficiency opportunities.265 Energy retailers have limited incentives to encourage their customers to be more energy efficient. Electricity retailers may have an interest in reducing peak demand levels, but essentially their
260 Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 46; Alan Pears, Submission, no. 19, 28 October 2005, p. 1. 261 Geoff Strong, 'Heat's on to cut air-conditioner use', The Age, 2 December 2005. 262 Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 46. 263 Vin Ebejer, National Director Training Services and Programs, Master Plumbers and Mechanical Services Association of Australia, Transcript of evidence, Melbourne, 12 December 2005, p. 118; Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005, pp. 32-33; Marbletrend, Submission, no. 7, 14 October 2005, p. 1. 264 Vin Ebejer, National Director Training Services and Programs, Master Plumbers and Mechanical Services Association of Australia, Transcript of evidence, Melbourne, 12 December 2005, p. 118. 265 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005, pp. 11-12.
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business is selling energy. Mr Bruce Thompson, Business Program Coordinator with the Moreland Energy Foundation told the Committee:
Broadly, one of the fundamental barriers to the work we do is that in a privatised market there is no incentive demonstrated for an energy retailer or distributor to actually sell less of their product. This is the reality. While those utilities will engage in programs, and we try to work and find ways we can have partnership, it is a fundamental economic principle for them to work around.266 The Committee heard similar comments from other participants during the Inquiry regarding the disincentives for many involved in the energy sector to encourage energy efficiency.267
Mr Alan Pears, Director, Sustainable Solutions, believes that this is the result of the market itself, and that the finger can not be exclusively pointed at the generators, distributors or retailers if they promote cheap energy and do not support energy efficiency. He explained:
I believe the rules of the energy markets that we have put in place are wrong. They work against energy efficiency, so in a very competitive marketplace it is very difficult for an energy supplier to be able to support energy efficiency because they lose.268 This means that, given current market arrangements, it may not be in the interests of businesses in the energy industry to pursue or implement energy efficiency strategies.
Program continuity and overlap Several witnesses told the Committee that a barrier to energy efficiency was the discontinuous nature of many of the programs or initiatives aimed at promoting energy efficiency.269 It was felt that this sent confusing messages to consumers about the importance of energy efficiency and showed a lack of government commitment. The Committee heard evidence that the energy efficiency services industry is partly driven by government subsidies and regulations and unless programs are phased in and out gradually they create surpluses and shortages of capacity.270 Mr Tony Forster, President, Australian Institute of Energy told the Committee that the introduction of the Mandatory Renewable Energy Target led the energy services industry to increase its capacity to install wind turbines, but now the industry is experiencing a downturn in demand for these skills.271
266 Bruce Thompson, Business Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005, p. 25. 267 Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005, p. 30; Tony Forster, President, Australian Institute of Energy, Transcript of evidence, Melbourne, 14 March 2006, p. 360; Moreland Energy Foundation, Submission, no. 14, 28 October 2005, p. 21. 268 Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 192. 269 EEP Management, Submission, no. 8, 18 October 2005, p. 2; Dr Graham Redding, Submission, no. 10, 25 October 2005, p. 1. 270 Tony Forster, President, Australian Institute of Energy, Transcript of evidence, Melbourne, 14 March 2006, p. 360.
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Engineers Australia told the Committee that the potential of existing programs is compromised by inconsistencies, contrasts and overlaps in various energy efficiency programs throughout Australia, resulting in less greenhouse gas reductions and community confusion.272 Stakeholder consultation conducted as part of the NFEE reiterates this view as stakeholders identified a lack of consistency across jurisdictions of regulations, policies and programs directed at the commercial sector to increase energy efficiency.273
Barriers specific to the residential sector Household design Poor household design was identified as a barrier to energy efficiency.274 As one witness told to the Committee, “poor house design is chronic”.275 Poor design can make a house uncomfortable and require more energy for heating and cooling. While there are initiatives to reduce poor building design in Victoria, notably Five Star requirements, one of the challenges identified by several witnesses was addressing energy efficiency in the existing housing stock and major alteration market.276 Large numbers of small sites While residential energy use accounts for between one-quarter and one- third of all energy use in Australia, energy use is dispersed over a great number of individual sites and locations. One consequence of this is that the potential energy savings for each residence is relatively low compared to the potential energy savings for each business or site in the manufacturing sector, for example. This also means that costs associated with analysing the potential for energy efficiency in the residential sector as a whole can account for a significant proportion of potential short term gains from those savings.
The Committee heard from Reverend Nick Frances, of easybeinggreen, that in practice a relatively limited number of energy efficiency actions were commonly undertaken in people’s homes. Reverend Frances also told the Committee that in general, people preferred specific advice and quotes for improved energy efficiency, rather than a ‘shopping list’ of suggested energy efficiency improvements:
271 Tony Forster, President, Australian Institute of Energy, Transcript of evidence, Melbourne, 14 March 2006, p. 360. 272 Engineers Australia, Submission, no. 16, 28 October 2005, p. 14. 273 Energy Efficiency Working Group, National Framework for Energy Efficiency: stakeholder consultation report, Canberra, August 2004, p. 8. 274 Moreland Energy Foundation, Submission, no. 14, 28 October 2005, p. 10. 275 Euan Williamson, Household Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005, p. 18. 276 Australian Institute of Refrigeration Air Conditioning and Heating, Submission, no. 3, 5 September 2005, p. 6; Rev Nick Frances, Chief Executive Officer, easybeinggreen, Transcript of evidence, Melbourne, 14 March 2006, p. 17; Euan Williamson, Household Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005, p. 18.
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The interesting thing is that people do not want information. They do not want to stay at home and wait for us to tell them what to do. Now we mostly organise free quotes. After two years of doing this I know what they want. They want to think about draught proofing, insulation and what they do about hot water. With water they are going to think about a tank for either toilet flushing or watering the garden, and they might want to think about grey water. There are five things every single time, so why would you go out and spend $185 to learn that? Why would you not send out somebody to give them a free quote to do any one of those jobs, and organise it for them? So that is what we do.277 Given the relatively limited number of energy efficiency projects generally feasible for residential buildings, there may be opportunities for participants in the energy efficiency services industry to refocus efforts on putting energy efficiency improvements in place rather than offering comprehensive audit services. There may also be an opportunity for building, plumbing and electrical services (among others) to provide collaborative services to the market for a suite of home energy efficiency renovation services.
Barriers specific to the commercial sector Limited available capital for small business Many small businesses are cash focused. This means that they need to carefully consider upfront costs compared to rates of return. Small businesses tend to focus on short term pay back periods for energy efficiency investments.278 Mr Bruce Thompson, Business Program Coordinator, Moreland Energy Foundation, told the Committee that implementing energy efficiency actions for small businesses can present a challenge:
While you may be able to work in conjunction with the larger industrial companies and discuss issues about payback periods, some of the[small] businesses that we work with are happy to invest but they do not have that initial capital to be able to invest in projects. It is usually the larger equipment on site that is the main energy consumer – from milk bar refrigeration through to supermarkets or small foundries that have locked in their capital for the next 10 years.279 In addition, because energy is often not a significant expenditure item for small businesses even energy efficiency improvements that have a relatively good rate of return may not be considered. Small business owners will often focus on overheads and expenses that account for a larger proportion of
277 Rev Nick Frances, Chief Executive Officer, easybeinggreen, Transcript of evidence, Melbourne, 14 March 2006, p. 21. 278 Bruce Rowse, Managing Director, Energy Doctor Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005, p. 66. 279 Bruce Thompson, Business Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005, p. 20.
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cash flow, and because their time is often limited, potential energy cost savings will often be neglected.280
Electricity is not a big cost in terms of overhead at the moment for a lot of small businesses, so the drive and the arguments directed at small business make sense on paper but require a commitment beyond the bottom line for a lot of companies to get involved.281
Barriers specific to the industrial sector Organisational issues One of the barriers to energy efficiency opportunities being undertaken in the commercial and industrial sectors relates to the tenure of managers. Managers typically remain in a position for a relatively short period time and their incentive structures are typically biased toward short term performance.282 This limits the uptake of energy efficiency investments that do not offer short term returns.283 Furthermore, decision making within organisations is often dispersed, so the implementation of energy efficiency measures will often involve multiple decision makers.284 This may mean that energy efficiency options that are good for an organisation as a whole may not be pursued because individual decision makers have different priorities within the organisation.285 For example one unit may be responsible for the purchase of equipment and as such have an incentive to minimise the capital costs of the purchase, but not be accountable for the equipment’s running cost.286
Drivers for energy efficiency The Committee was also told during the course of this Inquiry that there were a number of opportunities for the promotion of energy efficiency through positive means. Some drivers for the promotion of energy efficiency 280 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, p. 40. 281 Bruce Thompson, Business Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005, p. 20. 282 Science and Technology Policy Research Unit, Reducing barriers to energy efficiency in public and private organisations: final report February 1998 to June 2000, University of Sussex, England, 2000, p. 37. 283 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, p. 38. 284 Allen Consulting Group, The energy efficiency gap: market failures and policy options, Report to the Business Council for Sustainable Energy, the Australasian Energy Performance Contracting Association and the Insulation Council of Australia and New Zealand, Australia, November 2004, p. 36. 285 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 59. 286 Science and Technology Policy Research Unit, Reducing barriers to energy efficiency in public and private organisations: final report February 1998 to June 2000, University of Sussex, England, 2000, p. 37.
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are already in place, and include such measures as the adoption of energy efficiency targets by agencies and organisations, and acknowledgement of market opportunities for the development and application of innovative technologies or organisational models. Often a careful mix of incentives and penalties are applied as drivers for the implementation and encouragement of energy efficiency. Energy efficiency targets Energy efficiency targets are a very direct and explicit driver for energy efficiency improvement. Governments throughout Australia have adopted energy efficiency targets in various forms as an effective means to focus activities within organisations and to provide a measure of success or failure for energy efficiency. The Committee heard from witnesses that targets were an important driver for improved energy efficiency in business as well, provided that there was sufficient support for the target from executives within the organisation.287
The Committee also heard that while targets were an important tool for focusing people and organisations on actions required to improve energy efficiency, targets were most effective when they were linked to appropriate incentives and/or penalties. These could range from financial reward or public recognition through to the threat of fines or prosecution. In Queensland, for example, the Government’s GEMS program has made use of a number of these incentives, by setting clear targets for energy efficiency improvements, allowing government agencies to retain savings, and through explicit endorsement of energy efficiency by the Minister.288 Emissions trading schemes and carbon price It is likely that any measure that attaches a price to the cost of emissions associated with the use of energy will increase interest in energy efficiency services. This is because any increase in the price paid for energy would improve the financial competitiveness of energy efficiency as a means to reduce operating costs, particularly in the commercial and industrial sectors. Mr Bruce Rouse, Director of the Energy Doctor, argued that a carbon tax would produce substantial benefits to the industry:
The biggest barrier to our business is cheaper energy because when you say it is going to take you five years to pay back people are just not interested. Businesses in particular are interested in a two year payback, maybe three if you push them. With a carbon tax you can have two benefits: you can improve paybacks and energy efficiency measures and you will provide funds for investment in renewables.289
287 Australian Energy Performance Contracting Association, Submission, no. 30, December 2005, p. 13. 288 The GEMS program is discussed further in Chapter Six. 289 Bruce Rowse, Managing Director, Energy Doctor Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005, p. 66.
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However, while other witnesses accepted that the introduction of a means to put a price on emissions would benefit the industry, they did not anticipate that this alone would achieve sufficient energy efficiency gains.290 In particular, some witnesses argued that the effect of an emissions trading scheme on the net cost of energy to small businesses and households would be small (also see above). As a result, an emissions trading scheme may produce incentives for large energy consumers to engage the energy efficiency services industry, but may not produce adequate incentives for the small business and residential sectors to do so. As a result, other mechanisms will still be required to facilitate and encourage increased energy efficiency activities by these groups. Funding, subsidies and other incentives Another important driver for energy efficiency is the provision of financial or other incentives for households, businesses or other groups to undertake actions to improve energy efficiency. These incentives are often provided through government, but may also be delivered through private enterprise, such as in the case of loans for energy efficient goods offered at favourable rates by financial institutions.
Examples of government funding incentives include the Commonwealth PVRP scheme, and in Victoria, initiatives such as rebates offered through Sustainability Victoria for the installation of energy efficient water heating products. Another incentive for improved energy efficiency in Victoria occurs under voluntary Sustainability Covenants, which are agreements between the EPA and self-nominated public and private organisations that focus on a range of commitments for sustainable practices, including energy efficiency. The EPA provides public and private organisations that enter into a sustainability covenant with advice and other support on the implementation of appropriate actions. These programs and others are discussed in detail in Chapter Six.
While incentives are an important component of strategies to improve energy efficiency, the Committee was told that it was important that incentives are appropriately focused to ensure the best return for financial (or other) investments.291 For example, Mr Alan Pears suggested that in order to encourage increased uptake of energy efficient appliances, financial incentives could be directed toward the people who sold those products, rather than the purchasers of those products:
If you give the money to the appliance manufacturer, they can pay a commission to the salesperson that makes a big difference to their behaviour. Giving money to a customer does not do that….. An effective incentive means you ask yourself the question, ‘Does every person in that chain want to help me buy an efficient product
290 Philip Harrington, Submission, no. 29, 5 December 2005, p. 11; Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 48; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 39. 291 Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 38.
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or do they want to help me buy something else?’ and by getting the incentives further up the chain you are making that more possible.292 The Committee agrees that financial incentives, when appropriately applied, are a critical component of actions to encourage the uptake of energy efficiency services. Financial incentives can be effective as a measure to encourage ‘best practice’ measures or innovation in energy efficiency services, particularly when they are directed toward market transformation, or linked to a competitive tendering process. Penalties, minimum standards and regulatory requirements Penalties, minimum standards and regulatory requirements can also offer incentives for households, businesses and other organisations to undertake actions for energy efficiency. In Victoria some of the most prominent regulatory measures for improving energy efficiency include the Five Star building requirement for new homes and the PEM(GGEE) mandatory audit and implementation program run by the Victorian Environmental Protection Agency (EPA).
While penalties and regulatory requirements can be an effective means to ensure that specified minimum standards for energy efficiency are met, some witnesses suggested to the Committee that they encouraged a ‘compliance’ approach to energy efficiency, rather than a ‘best practice’ approach. The Committee was told that a compliance approach was appropriate in certain cases, such as mandated energy efficiency audits, where companies (for example) are compelled to obtain independent information about the energy efficiency of their operations.293 In other circumstances regulatory requirements were regarded as less appropriate by witnesses, as they argued that people who were compelled to undertake energy efficiency actions would only do what was required of them and that regulations unnecessarily imposed requirements upon organisations that already operated efficiently.294
While there is no obvious incentive for best practice in energy efficiency with penalties, minimum standards and regulation, the Committee recognises that there is a place for these measures in circumstances where other incentives are not expected to obtain similar benefits. There is also a role for mandatory measures where the output associated with the requirement is not heavily dependent on the level of commitment or enthusiasm of the organisation to which it is applied. Again, an example of this may be a requirement for businesses to conduct compulsory energy audits, which can be contracted to independent energy efficiency auditors. However, the Committee heard that even in the case of mandatory energy audits there
292 Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 38. 293 Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006. 294 Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006.
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could be a tendency toward compliance rather than excellence, with businesses selecting least-cost, and consequently often least-quality, auditors.295 For this reason, where mandatory measures are introduced it may be necessary for government to provide mechanisms to ensure that the quality of energy efficiency services is adequate, such as by means of formal accreditation or monitoring of results.
In Chapter One the Committee noted that due to technological and other factors there is a general tendency toward increased efficiency in energy consuming products. Experience with minimum energy performance standards in Australia and internationally has shown that standards should be periodically reviewed. The Committee notes that some innovative measures have been introduced internationally to ensure that minimum energy performance standards remain relevant, such as requirements that ‘best practice’ energy performance becomes ‘minimum’ energy performance over a set time period. The Committee believes that the use of a ‘rolling’ minimum standard in this way provides an appropriate means to ensure forward momentum for energy efficiency, provided that the cooperation of stakeholders (such as industry participants) is secured throughout the process of setting standards.
Recommendation 4:
That the Victorian Government lobbies within the National Framework for Energy Efficiency to consider the establishment of ‘rolling’ minimum energy performance standards wherever practicable. Information and awareness While the Committee has considered the role of imperfect information as a barrier to the adoption of energy efficiency, appropriately directed information to promote energy efficiency services can also act as a driver for the industry. Through information and awareness raising campaigns, government can often play a significant role in raising the profile of energy efficiency and energy efficiency services.
Community and professional awareness and education An important driver for energy efficiency can be the engagement of members of the public by community groups and professionals with issues surrounding energy efficiency. The Committee heard from a number of community groups and professionals about actions they are undertaking to improve uptake of energy efficiency measures. Moreland Energy Foundation, for example, conducts a wide range of programs directed at promoting environmental sustainability, including a number of measures that encourage improved energy efficiency in households. The Moreland Energy Foundation and other groups are considered in more detail in Chapter Six.
295 Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006.
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Demonstration of potential benefits from energy efficiency Government and business can play a very important role for the promotion of energy efficiency through demonstrations of energy efficiency projects and developments. A number of these kind of programs have been introduced in Victoria, including the Small business energy efficiency – regional pilot program and the Household behavioural change – regional pilot program. The former program explores new approaches to the delivery and funding of audits for small business in South West Victoria, and the latter program focuses on ways to encourage energy efficiency through behaviour change in North Central Victoria. Regarding energy efficient buildings, the Committee also recognises demonstrations of the practical application of energy efficiency and environmental projects by the City of Melbourne in development of its new council offices (CH2) and by Szencorp with its six star (Green Star) rated building renovation. At a national level, the Commonwealth Government is to provide support for large scale energy efficiency demonstration projects through the Solar Cities program.
These projects and programs can act as drivers for energy efficiency by providing useful case studies on the benefits of implementing energy efficiency. They can also act to ‘raise the bar’ for environmental and energy efficiency performance by other organisations and businesses. Finally, these projects can also provide industry participants (such as architects, builders and electricians) with invaluable experience in practical matters associated with the installation of energy efficient products. Research and development Research and development of new technologies that are more energy efficient, or that are specifically directed at improving energy efficiency, are another important driver for the adoption of energy efficiency. In part, many of the significant gains in the ratio of energy use to production, described in Chapter One, are due to improved technologies. Development and demonstration of these technologies are equally important processes and can ensure that new technologies are introduced to the market in a mature state.
The Committee received a submission from the CSIRO that detailed the important role that technology and research can have on the market for energy efficiency services. For example, the CSIRO was part of a consortium that conducted trials for the viability of demand response aggregation in Australia, and has facilitated the appearance of Australia’s first demand response aggregator in the market.296
While some work is currently being conducted on technologies for improved energy efficiency, the Committee heard that more could be done to develop this field of knowledge in Australia. The CSIRO told the Committee that it had identified “numerous gaps in the availability and diversity of technologies and services in Australia.”297 Other witnesses told the
296 CSIRO Energy Technology, Submission, no. 4, 8 September 2005, p. 1. 297 CSIRO Energy Technology, Submission, no. 4, 8 September 2005, p. 1.
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Committee that although work was being conducted to promote technologies and business models for energy efficiency, much more work could be done in this area to stimulate market interest in the promotion and delivery of new services.298 For this reason, the Committee believes there is an opportunity for Sustainability Victoria to raise awareness of the market potential for energy efficiency services among firms that might participate in the industry. Competitive advantage Another driver is the potential for business to obtain competitive advantage from improved energy efficiency. In competitive markets, businesses that are able to reduce operational or production costs through reduced expenditure on energy are likely to obtain a competitive advantage. Indeed, there is evidence to suggest that energy efficiency upgrades can actually lead to increased production levels. Furthermore, as public concerns about levels of greenhouse gas emissions increase, and as costly electricity generation and distribution infrastructure upgrades are considered, the public profile of businesses that adopt energy efficient practices may be improved to their advantage. For example, corporate involvement in reporting schemes such as the Global Reporting Initiative, Dow Jones Sustainability Index and the Corporate Responsibility Index is increasingly viewed as a marketing and management advantage.
… there is no doubt that measuring and reporting on our non- financial performance is driving improvements in the way we manage our business.299 As noted above, currently one competitive advantage for Australian businesses is the low price of energy. The Committee heard that the low price paid for energy in Australia also means that potential savings from energy efficiency may not be significant for some businesses. However, while currently the low price of energy is advantageous to Australian businesses, it is likely that over time the price of energy will increase to accommodate ‘external costs’ associated with its use, and that competitive advantage will be eroded through this process.
A recent report released by the Australian Business Roundtable and written by the CSIRO argued that the cost to Australia of delaying actions to reduce greenhouse gas emissions will be far greater than if such actions are taken immediately. As an important source of reductions in greenhouse gas emissions is likely to be obtained through energy efficiency, Australia’s long term competitiveness may be improved if immediate action is taken to reduce energy use. Thus concerns about the long term competitiveness of Australian businesses are also a potential driver for improved energy efficiency.
298 CSIRO Energy Technology, Submission, no. 4, 8 September 2005; Dr Assad Gargari, Director, EEP Management, Transcript of evidence, Melbourne, 3 April 2006, p. 3; Alan Pears, Submission, no. 19, 28 October 2005, p. 5. 299 Westpac Banking Corporation, Sustainable value: 2005 stakeholder impact report, Westpac Banking Corporation, Sydney, 2005, p. 2.
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97 Chapter 15
Training and education for energy efficiency services In this chapter the Committee considers the range of training and education services currently provided in Victoria for the energy efficiency services industry.
Overview Training for trades and professions in Victoria is delivered through three main sectors – higher education, vocational education and training, and industry training. Planning, coordination and monitoring of higher education is controlled by the State Government, with the Commonwealth Government primarily responsible for funding higher education. State governments are primarily responsible for activities in the vocational education and training (VET) sector. A variety of different organisations and sector representatives, including industry, peak bodies and community groups may also offer training either informally or as registered training organisations (RTOs).
Higher education providers are typically universities, which generally offer courses leading to bachelor and post graduate degrees and awards such as graduate certificates and diplomas. The VET sector typically offers competency-based education provided as institution-based and/or workplace-based training resulting in nationally recognised qualifications. Colleges and institutes of Technical and Further Education (TAFEs) comprise the majority of VET providers.
The Australian Qualifications Framework The Australian Qualifications Framework (AQF) is a national system for qualifications in the schools, VET and higher education sectors. A range of qualifications are provided through the AQF for the VET and higher education sectors, arranged hierarchically from Certificate I to Doctoral degrees. A list of qualifications provided under the AQF for the VET and higher education sectors is provided in Table 8.
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Table 8: VET and higher education qualifications under the Australian Qualifications Framework.300
VET sector Higher education sector Doctoral Degree Masters Degree Vocational Graduate Diploma Graduate Diploma Vocational Graduate Certificate Graduate Certificate Bachelor Degree Advanced Diploma Advanced Diploma, Associate Degree Diploma Diploma Certificate IV Certificate III Certificate II Certificate I
The Committee notes that while the VET and higher education sectors have traditionally offered different types of qualifications as described in Table 8, both sectors now offer qualifications from outside their ‘traditional’ specialities. For example, a number of VET institutions offer graduate diploma courses and some universities offer Certificate I-IV qualifications. Education and training for energy efficiency services. In analysing training and education for energy efficiency services the Committee draws on an audit of energy efficiency education for relevant trades and professions conducted by the National Centre for Sustainability for the National Framework for Energy Efficiency (NFEE), and on evidence received from witnesses during the course of this Inquiry. The Committee notes that the NFEE audit regarded the following professions as having “the most influence on energy efficiency across all sectors.”301
architects;
builders;
electricians;
energy auditors;
engineers;
facilities Managers;
glaziers;
300 National Centre for Sustainability, Audit of current Australian and international trades and professional training in energy efficiency and estimation of influence on national energy efficiency, Report for the National Trades and Professional Training Initiative Project, Melbourne, 2005. 301 National Centre for Sustainability, Audit of current Australian and international trades and professional training in energy efficiency and estimation of influence on national energy efficiency, Report for the National Trades and Professional Training Initiative Project, Melbourne, 2005, p. 2.
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HVAC installers and service technicians;
plumbers; and
renewable energy installers.
The Committee also notes that the range of trades and professions considered in the NFEE report include representatives from both the core and non-core sectors considered in Chapter Two of this report. These trades and professions are considered below, with occupations traditionally regarded as ‘trades’ considered under the VET sector, and ‘professional’ occupations considered in the discussion on higher education.
Vocational Education and Training sector Programs offered in the VET sector focus on ensuring that students and/or apprentices acquire sets of competencies relevant to the field in which the qualification is sought. Qualifications are based on national standards or, where national standards are not yet developed, on competency standards developed by relevant industry, community or other groups. The assessment for qualifications in the VET sector focuses on the acquisition of competencies specified within National Training Packages or the accredited course.
National Training Packages (NTPs) are sets of nationally endorsed standards and qualifications for recognising and assessing people’s skills. National Training Packages are developed by industry through national Industry Skills Councils (ISCs), which determine relevant qualifications for sets of national competency standards. State and territory course accrediting organisations or RTOs (provided they have delegated authority to self-manage accreditation) may also determine qualifications for combined sets of NTPs or other sets of competencies. Where no relevant national training packages exist, state and territory accrediting bodies determine relevant qualifications on competency standards developed by industry, enterprise, community and professional bodies.
National Training Packages developed by Industry Skills Councils must be approved by the Commonwealth Department of Employment Science and Training (DEST). Formerly this function was performed by the Australian National Training Authority until it was abolished on 1 July 2005 and its functions assumed by DEST.
Industry Skills Councils There are ten national Industry Skills Councils that provide advice on qualifications and competencies for the VET sector. ISCs are recognised national bodies providing advice on industry training and skills development needs to government and industry. They provide information to the VET sector about current and future skill needs and training requirements, and support the development, implementation and continuous improvement of nationally recognised training products and services, including National
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Training Packages. ISCs produce Industry Skills Reports which give information about the scope and nature of the industry, the trends and directions of the industries, and the demand for skills and workplace development.
The ISC most relevant to the energy efficiency services industry is the ElectroComms and EnergyUtilities Industry Skills Council (EE-Oz). Industries covered by this Council include:
gas supply;
electricity supply – generation and transmission/distribution;
electrotechnology, including: communications; computer systems; data communications including networks, fire and security; electrical; electronics; electricity supply; instrumentation; lifts; refrigeration and air conditioning; and renewable/sustainable energy. The Victorian VET sector In addition to national programs for the VET sector, the Victorian Government provides courses that meet the needs of local industry or the local community that are not accommodated by national training packages. These courses are accredited by the Victorian Qualifications Authority, although qualifications obtained from these courses are nationally recognised.
As National Training Packages are reviewed regularly, it is anticipated that over time less state accredited programs will exist, and that the national training packages will be expanded to incorporate state and territory-specific qualifications.302
Key bodies in the Victorian VET sector include the:
Victorian Learning and Employment Skills Commission (VLESC);
Victorian Industry Training Advisory Bodies (VITAB). Current national VET courses in energy efficiency The key National Training Package for the energy efficiency services industry is UTE99 Electrotechnology Industry Training. This training package includes the following qualifications:
Certificate I in Sustainable Energy (Electrotechnology);
Certificate IV in Electrotechnology Renewable Energy;
302 National Centre for Sustainability, Audit of current Australian and international trades and professional training in energy efficiency and estimation of influence on national energy efficiency, Report for the National Trades and Professional Training Initiative Project, Melbourne, 2005, p. 19.
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Diploma of Electrotechnology Renewable Energy (can specialise in Energy Efficient Building Design).
Each qualification is comprised of core units which are compulsory, and of elective and specialisation units which can be chosen from various subject groupings. Units relevant to the energy efficiency services industry are described in Table 9.
Table 9: Units relevant to energy efficiency in the UTE99 Electrotechnology Industry Training National Training Package.
Unit identifier Description UTE NES061 A provide basic sustainable energy solutions for energy reduction in domestic premises UTE NES219 A coordinate maintenance of renewable energy apparatus and systems UTE NES305 A undertake commissioning procedures of renewable energy apparatus and systems UTE NES411 A assess renewable energy apparatus and systems UTE NES412 A test renewable energy apparatus and systems UTE NES413 A reduce energy consumption within a building UTE NES506 A diagnose and rectify faults in renewable energy apparatus and systems UTE NES709 A design a renewable energy system UTE NES710 A plan the installation of renewable energy apparatus and systems
The Electrotechnology Training Package is currently being reviewed. A new draft package (UEE06) is available on the EE-Oz website but it is still to be endorsed by the state training authorities and the Department of Education, Science and Training. It was expected that the package would be implemented in 2007, but the review process has experienced a number of delays and may not be adopted in time to meet that implementation date. The draft package includes a new qualification, the Advanced Diploma of Renewable Energy, which includes units described in Table 10.
Table 10: Units relevant to energy efficiency in the draft UEE06 Electrotechnology Industry Training National Training Package.
Unit identifier Description UEENEEK032A develop strategies to address sustainability issues UEENEEK041A develop strategies for effective energy reduction in buildings UEENEEJ036A evaluate and report on energy management UEENEEJ047A audit energy use for commercial HVAC/R systems
VET training for energy efficiency services occupations In this section occupations that commonly receive qualifications through training in the VET sector are considered. In the NFEE audit of energy
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efficiency qualifications, the occupations included under the VET sector included builders, electricians, energy auditors, glaziers, HVAC installers and service technicians, plumbers and renewable energy installers.
Builders In each state and territory a licence must be obtained from the relevant authority in order to run a building contracting business. To register as a builder and obtain a license, an individual must obtain a relevant building qualification, have sufficient building experience (assessed by the relevant licensing authority), and complete a builder registration course. According to the NFEE report, none of the key competencies associated with the qualification for builders specifically considers energy efficiency. The Committee notes, however, that one unit toward BCG50103 – Diploma of Building Surveying does cover energy efficiency as an “imported” unit – BCGSV5013A Apply principles of energy efficient design to buildings.
During the course of this Inquiry the Committee was told that there was an emphasis on basic skills acquisition at the introductory level of training for builders. However, the Committee was pleased to learn that the training provided for builders does incorporate consideration of sustainable (including energy efficient) practice, as described by Mr Bart Scheen of Holmesglen Institute of TAFE:
In our advanced building technology area courses cover from certificate IV to degree programs and graduate certificate programs. They cover a wide range of subjects that relate to the building process or the built environment. Many subjects directly relate to sustainable building practices and materials, and I will go through some of them. In our diploma of building, incorporating certificate IV, we have subjects called materials 1 and 2, and construction 1, 2, 3 and 4. They look at current building materials and current construction practices. Where those building materials relate to sustainable principles, they will cover them. We look at sustainable practices such as the orientation of buildings and new appliances that are covered as construction subjects.303 Nevertheless, while Mr Scheen did indicate that sustainable practice was incorporated into training for apprentices and pre-apprentices, trade level training could provide more content on sustainable practice, including energy efficiency:
In the trade areas we do not do as much as we probably should, but again we are really dictated to by the level of our ability to service what the industry wants us to do. If the industry came to us and said, ‘This training package now has 80 hours of sustainable building practices built into the program’, then the trade areas would deliver that. At the moment it does not, and we are funded on the hours that are in the training package.304
303 Bart Scheen, Manager, Enterprise Development, Building Industry Training Centre, Holmesglen Institute of TAFE, Transcript of evidence, Melbourne, 12 December 2005, pp. 96-97. 304 Bart Scheen, Manager, Enterprise Development, Building Industry Training Centre, Holmesglen Institute of TAFE, Transcript of evidence, Melbourne, 12 December 2005, p. 99.
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While the Committee is pleased that pre-apprentices and apprentices are receiving training that incorporates sustainable practice, the Committee also recognises that apprentices will not always be in a position to put these practices into effect on worksites. The Committee hopes that as a result of the NFEE review of energy efficiency training and education, industry representatives will be strongly encouraged to incorporate sustainable practice, and particularly energy efficiency principles, into required competencies for building and construction. The Committee is encouraged by moves by the ElectroComms and Energy Utilities Industry Skills Council (EE-Oz) to integrate energy efficiency and sustainable practice into qualifications for electricians (see below) and encourages the Construction and Property Services Industry Skills Council to do the same for its builder qualifications.
The Committee recognises that a number of programs have been initiated by builder educators and training providers to develop skills and awareness in energy efficiency. Housing Industry Australia runs the GreenSmart program, which provides skills training and information for builders in the construction of energy efficient and sustainable buildings. The Master Builders Association also convenes a number of activities in association with the Australian Greenhouse Office’s ‘Energy-Wise Dollar Wise’ program, which is directed at training builders in techniques to reduce greenhouse gas emissions from commercial and industrial buildings.
Electricians Licensed electricians are required to undertake a four year apprenticeship, complete a relevant Certificate III or Certificate IV level course, and complete a licensed electrical mechanics assessment. The NFEE review of VET criteria for electricians found that none of the units for the minimum qualification for electricians (Certificate III in Electrotechnology Systems Technician) specifically mention energy efficiency.305 This also applied for the more specialised Certificate IV qualifications for electricians.306
The NFEE report did note, however, that EE-Oz has revised the core Certificate III qualification to become an electrician so that assessors will be required to “apply sustainability and environmental principles and practices in the assessments they conduct.”307 Thus EE-Oz is seeking to integrate energy efficiency and sustainability principles into all components of the electrician qualification, rather than introduce discrete units of competencies within those qualifications. The National Training Package that incorporates these changes is currently being considered by the Department of Education Science and Training, and has been referred to an independent consultant
305 National Centre for Sustainability, Audit of current Australian and international trades and professional training in energy efficiency and estimation of influence on national energy efficiency, Report for the National Trades and Professional Training Initiative Project, Melbourne, 2005, p. 30. 306 National Centre for Sustainability, Audit of current Australian and international trades and professional training in energy efficiency and estimation of influence on national energy efficiency, Report for the National Trades and Professional Training Initiative Project, Melbourne, 2005, p. 30. 307 National Centre for Sustainability, Audit of current Australian and international trades and professional training in energy efficiency and estimation of influence on national energy efficiency, Report for the National Trades and Professional Training Initiative Project, Melbourne, 2005, p. 31.
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for evaluation following “concerns raised by several parties”.308 The EE-Oz considers this delay in the implementation of the national training package as “the major outstanding issue for EE-Oz Training Standards.”309
The Committee regards the proposal by EE-Oz for the incorporation of energy efficiency (and sustainable) principles into training for electricians as extremely positive, as it promises a more integrative and holistic approach to encouraging energy efficient practice. The Committee also looks forward to the outcome of the consultant’s evaluation of the National Training Package, and hopes that DEST and the State Training Authorities will approve the integration of sustainable and energy efficient evaluative principles into electricians qualifications without delay.
The Committee notes that a range of sustainable energy qualifications are available under the Electrotechnology National Training Package, and that these do provide options for professional training in energy efficiency. However, the Committee also considers that energy efficiency skills and knowledge should be encouraged for ‘mainstream’ electricians as well as those who choose to specialise in sustainable and/or renewable energy.
The Committee received evidence about a pilot program to provide energy efficiency information to electricians called EnergySmart electricians. This program was developed by the Moreland Energy Foundation, RMIT, the Alternative Technology Association and the Northern Alliance for Greenhouse Action with support from the Australian Greenhouse Office.310 Fifty-six electricians participated in this program.
Energy auditors There is currently no provision for the training of energy auditors under any National Training Package. Accreditation for energy auditors is provided through the Australian Institute of Refrigeration, Air Conditioning and Heating (AIRAH) which is also a Registered Training Organisation (RTO). The AIRAH requires energy auditors seeking accreditation to have worked within the industry during the previous five years, and to submit a detailed evidence portfolio that complies with Level 3 of the Australian Standard AS 3598:2000 Energy Audits. According to Mr Phil Wilkinson, Technical Manager of the AIRAH:
AIRAH accredits energy auditors for non residential and industrial buildings. It is a national scheme. We accredit against the highest level of the Australian standards for energy auditing.311
308 EE-Oz Training Standards, Autumn newsletter 2006, EE-Oz Training Standards, Surrey Hills, 2006, p. 8. 309 EE-Oz Training Standards, Autumn newsletter 2006, EE-Oz Training Standards, Surrey Hills, 2006, p. 8. 310 Moreland Energy Foundation, Submission, no. 14, 28 October 2005; Northern Alliance for Greenhouse Action, Submission, no. 11, 27 October 2005; Bruce Thompson, Business Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005. 311 Phil Wilkinson, Technical Manager, Australian Institute of Refrigeration, Air Conditioning and Heating, Transcript of evidence, Melbourne, 20 February 2006, p. 177.
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The Committee understands that Sustainability Victoria and the EPA have piloted a training program for industrial energy auditors that was developed following experiences delivering the EPA SEPP (AQM) program. According to Sustainability Victoria:
This program will be submitted to the Victorian Qualifications Authority for accreditation. Once accredited, the course will be available to be delivered nationally by Registered Training Organisations (RTOs) and may form the basis of national accreditation.312 The Committee believes that the introduction of a national qualification for energy auditing services will be of particular benefit to this sector of the energy efficiency services industry. If this qualification proves to be successful, the Committee would also encourage Sustainability Victoria and other stakeholders to consider the development of a similar qualification for the residential sector.
Glaziers and window manufacturers The minimum qualification for glaziers requires an apprenticeship in flat glass installation and completion of a Certificate III in Glass and Glazing. A pre-apprenticeship qualification is also available. None of the units for the minimum glazier qualification cover energy efficiency.
While the minimum qualifications for glaziers do not necessarily incorporate energy efficiency considerations, the windows and glaziers industry has introduced a number of initiatives to promote energy efficiency skills. The Australian Window Association has developed a number of courses in window design, fabrication and installation, with explicit consideration of energy efficiency issues. The Insulating Glass Manufacturers’ Association requires its members to undergo a certification course where they learn how to manufacture and install insulating glass (including double glazing) to international standards. Continuing professional education is also offered by the Australian Glass and Glaziers Association (AGGA).
The Committee is pleased that the windows, glass and glaziers industry appears to have taken an active role in the promotion and development of energy efficiency skills. The Committee hopes that the promotion of double glazing and other energy-efficient glass and window technologies will eventually lead to the introduction of energy efficiency competencies in the minimum qualifications for glaziers.
HVAC maintenance and service technicians As noted in the NFEE evaluation of energy efficiency services qualifications, a wide range of tradespeople and professionals are employed in the HVAC industry, including engineers and plumbers. These occupations are discussed elsewhere in this chapter.
312 Sustainability Victoria, Submission, no. 27, 11 November 2005, p. 11.
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The relevant qualification for service technicians and maintenance tradespersons in HVAC systems is the Certificate III in Refrigeration and Air Conditioning. This qualification falls under the National Training Package determined by EE-Oz. While energy efficiency is not specifically referred to in units for this qualification, there is a unit on energy usage monitoring in this qualification.
While there is currently limited coverage of energy efficiency in minimum qualifications for HVAC service technicians and maintenance, the Committee notes that these qualifications fall under the same National Training Package as qualifications for electricians. As noted above, proposals by EE-Oz for the National Training Package include provisions that require all assessments to be conducted with regard for environmental and sustainability principles. As noted above, the Committee believes that this would be an very positive development for training in the industry.
The Committee notes that a number of continuing professional development programs are offered through the AIRAH for people working in the HVAC industry. These include various introductory courses, and accreditation for energy auditors mentioned above. The Committee notes that the AIRAH also convenes a course for the Graduate Certificate in Air Conditioning, which includes a number of modules that specifically consider environmental sustainability principles.
Plumbers The minimum qualification for plumbers is the Certificate III in Plumbing. Plumbers seeking registration must undergo an apprenticeship and be licensed and registered with relevant state authorities. There is no specific unit covering energy efficiency measures in the minimum qualification for plumbers. The Committee was told by Mr Gary Workman, National Manager of GreenPlumbers that apprenticeships in plumbing tended to focus on basic skills and safety over energy efficiency and sustainability:
The current apprenticeship focuses on hands on and installation and occupational health and safety requirements; there is little attention to any environmental considerations…. [Environmental considerations] are to be included in training packages, but we find that under the current national training package arrangement these tend to happen a long way after the industry actually needs them; they are probably a good four to five years behind and because you are trying to rely on every state to agree on what the training packages should represent, they tend to be very general and holistic in their outcomes.313 The Committee notes, however, that there has been significant effort from within the plumbing profession to provide continuing professional development in environmental sustainability and energy efficiency. The Master Plumbers and Mechanical Services Association of Australia (MPMSAA) initiated the GreenPlumbers program, which has resulted in
313 Gary Workman, National Manager, GreenPlumbers, Transcript of evidence, Melbourne, 12 December 2005, p. 115.
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training in energy efficiency for around 2,000 plumbers in Victoria, comprising approximately 14 per cent of registered plumbers in the state.314
The Five Star GreenPlumbers program is a training and accreditation program run by GreenPlumbers that provides national accreditation, and deals explicitly with energy efficiency issues in plumbing. Topics in some of the units provided under this program include the identification of the benefits from selecting solar hot water appliances, energy use audits relating to domestic plumbing, and the compilation of information on appliance energy efficiency.
The Committee commends GreenPlumbers and the MPMSAA for the work currently undertaken to improve the profile of energy efficiency among plumbers, and the capacity of plumbers to provide energy efficiency services to customers. The Committee also encourages the industry to further expand the number of plumbers that have expertise in the delivery of energy efficiency services to customers.
Renewable energy installers Qualifications for renewable energy installers through National Training Packages are obtained under the Electrotechnology Training Package, which like the electricians and HVAC services trades are managed by EE- Oz. The current National Training Package defines four qualification levels: Certificate I, II and IV, and a diploma qualification. In particular, the Certificate IV and diploma qualifications have units that are directly relevant to energy efficiency.
Industry accreditation for renewable energy installers is provided by the Business Council for Sustainable Energy (BCSE). Accreditation is provided by the BCSE for renewable energy installers who have:
a recognised electrical qualification;
demonstrated competency across several TAFE models developed by the BCSE; and
submitted three case studies completed over a two-year period for peer assessment.
Accreditation through the BCSE allows renewable energy installers to install renewable energy systems for the Photovoltaic Rebate Program (discussed in Chapter Six). The BCSE conducts a wide range of continuing professional development activities, including seminars and conferences on energy efficiency issues.
314 Gary Workman, National Manager, GreenPlumbers, Transcript of evidence, Melbourne, 12 December 2005, p. 119.
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Higher Education sector In comparison to the VET sector, higher education institutions have more autonomy over qualification content and delivery. Whereas VET sector qualifications are directed towards the acquisition of specified competencies which are often focused on particular vocations, higher education qualifications tend to focus on academic and professional education. As noted above, however, the distinction between the roles of the VET and higher education sectors is not clear cut, and during the past decade institutions have tended to offer qualifications that cut across the traditional divide between sectors. Higher education training for energy efficiency services occupations In the higher education sector qualifications of the most relevance to the energy efficiency services industry are architecture and engineering degrees. Other professions with higher education qualifications that are discussed in the NFEE audit of qualifications for energy efficiency, such as facilities managers and HVAC designers, either have few energy efficiency course components (in the case of facilities managers), or have qualifications that fall under engineering or VET HVAC qualifications discussed elsewhere in this chapter.
Architects Registration is required for all practising architects with the relevant Architects’ Board in each state and territory. In order to register, architects are required to complete an undergraduate degree in architecture, obtain two years practical experience, and sit an architectural examination. Alternatively, people without undergraduate degrees but possessing industry experience may undertake a series of assessments and apply for registration as an architect.
As architecture qualifications are taught at higher education institutions, each institution determines the content of courses subject to peer review requirements and other considerations. For this reason, there is no universal course structure for architecture degrees across Australia. However, while there is no requirement for energy efficiency in architecture courses, a number of the competency standards on which architecture programs are based include explicit consideration of issues relevant to energy efficiency.
Engineers In Australia three categories of engineers are defined by Engineers Australia:
professional engineers (possessing undergraduate degrees in engineering);
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engineering technologists (possessing a three year bachelor of technology qualifications); and
engineering associates (with Advanced Diploma qualifications from the VET sector or RTOs).
A large number of institutions across Australia offer undergraduate engineering degrees. According to the NFEE audit of energy efficiency qualifications, 31 institutions across Australia offer a total of 250 accredited undergraduate engineering courses, with 15 of these courses in Environmental Engineering.
According the NFEE report, “members of the accreditation department and Chair of the Environmental College of Engineers Australia indicated that there is currently very little coverage of energy efficiency in the majority of engineering courses.”315 However, Engineers Australia suggested to the Committee that energy efficiency concepts were already embedded in engineering education practice:
Energy efficiency is by no means as new to engineers as it is to public policy. The position Engineers Australia takes is that there is no lack of engineering knowledge and experience in respect of energy efficiency in Australia. To the contrary, the engineering solutions to common energy efficiency problems have been known to the profession for some time…. Professional engineers are trained to deal with problems at a conceptual and generic level. What is commonly lacking in respect of issues such as energy efficiency is a lack of consistent standards and the associated political and community commitment.316 Skilled engineers comprise a major proportion of people working in the energy efficiency services industry. In particular, engineers feature prominently in energy auditing and energy performance contracting / energy management services. Most of the industry witnesses that the Committee consulted with said that while engineering graduates often required one to two years of on the job training to develop skills in the provision of energy efficiency services, the main problem with engineers for the industry was that they were in short supply. Engineering graduates generally possessed adequate basic skills for the industry, but competition for engineers from other market sectors meant that it was difficult retaining engineers within energy efficiency services businesses.317
While energy efficiency does not form an explicit component of many undergraduate engineering degrees, the Committee notes that the requirements for professional engineers to achieve Chartered status include that they must understand and employ environmental principles for sustainable development. Engineering Associates are also required to
315 National Centre for Sustainability, Audit of current Australian and international trades and professional training in energy efficiency and estimation of influence on national energy efficiency, Report for the National Trades and Professional Training Initiative Project, Melbourne, 2005, p. 34. 316 Engineers Australia, Submission, no. 16, 28 October 2005, p. 7. 317 Peter Szental, Chairman, Szencorp Group, Transcript of evidence, Melbourne, 14 March 2006.
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demonstrate knowledge and application of sustainable principles in the development of engineering systems.
Other training for energy efficiency services
Energy performance contracting accreditation The Committee notes that the Australian Energy Performance Contracting Association provides accreditation for Energy Services Companies (ESCOs). The accreditation process is overseen by a private firm, Australian Business Research, which is part of Australian Corporate Reporting. As of May 2006, five firms were accredited by the AEPCA, all of which were also AEPCA members.
Bendigo local education on energy efficiency The Committee was told that in Bendigo an energy efficiency program had been initiated under the Sustainable Energy Information Partnership between the SEAV (now Sustainability Victoria) and Bendigo Access Employment. This program focused on providing information to communities across the region on behavioural and other actions people could take to reduce their energy consumption.318 In Bendigo the Energy Taskforce Project trained local people to conduct home energy auditing and retrofits for specified households at no cost. Households that were retrofitted during the program included properties that were:
publicly owned and occupied by public housing tenants;
privately owned and occupied by people with a Health Care card; and
privately rented and occupied by people with a Health Care card.
Work teams conducted the energy audits and returned later to complete the retrofits. In addition to this, the occupants were provided with information about the benefits of the retrofits and other ways to reduce energy use in their home.
Specialist centres The Committee notes that in Victoria a number of specialist centres have been established in educational institutions to develop and demonstrate sustainable and energy efficient technologies. At Holmesglen TAFE, a BuildSmart show house was built by more than 200 Holmesglen students as part of their vocational training. The house showcases environmentally sustainable housing design and construction to Victoria’s building industry and is intended to act as an educational resource for primary, secondary and tertiary students, building practitioners and the wider community. The Committee heard that the show house had provided valuable lessons to
318 Tamara Marwood, Project Manager, Sustainable Energy Information Partnership, Bendigo Access Employment, Transcript of evidence, Bendigo, 6 February 2006.
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students and provided valuable insight into the potential for energy efficiency and sustainability among builders and building materials providers.319
The Committee believes that initiatives such as the BuildSmart specialist centre provide an important focus for efforts to educate both students and the industry on the potential benefits of energy efficiency, and on the practicalities associated with putting energy efficiency into practice. The Committee encourages private industry, the education sector and government to continue to develop innovative demonstration projects for energy efficiency such as the BuildSmart show house.
319 Bart Scheen, Manager, Enterprise Development, Building Industry Training Centre, Holmesglen Institute of TAFE, Transcript of evidence, Melbourne, 12 December 2005.
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Current government and industry measures affecting energy efficiency The following chapter examines a variety of government and non- government measures which either directly or indirectly promote energy efficiency and/or facilitate development of the energy efficiency services industry. Some consideration is also given to programs and measures that influence the use of renewable energy in Victoria. While not an exhaustive list of measures, the analysis provides an examination of the impact of the major measures affecting the energy efficiency services industry in Victoria.
Overview The focus of current policy measures Government action on energy efficiency, at both the Commonwealth and State/Territory level, has typically been directed through measures to bring about reductions in greenhouse gases. Current policies tend to advocate greenhouse gas reductions as the primary aim or benefit of a given program or policy, with energy efficiency often viewed as an indirect or secondary benefit.
With concern about the impact of peak power demand on the existing electricity network rapidly increasing, there is evidence to suggest that energy efficiency is becoming a policy issue in its own right. For example, considerable work has been undertaken on energy efficiency through the Ministerial Council on Energy’s National Framework for Energy Efficiency (NFEE), and in 2005 the Productivity Commission released its report entitled The private cost-effectiveness of improving energy efficiency.320 Given predictions for continued increases in peak energy demand, it is likely that additional policies and programs specifically focused upon energy efficiency will be developed.
National bodies and issues In this section the Committee considers national bodies and issues that may affect the implementation of energy efficiency activities in Victoria. These bodies and issues are not the responsibility of a particular jurisdiction or
320 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005.
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government within Australia, but nevertheless may have an important role for the future promotion of energy efficiency. A national approach to energy efficiency Some submissions received by the Committee argued that there is a need for a coordinated approach to energy efficiency policy development and implementation.321 For example, in its submission to the Inquiry AGL suggested that many energy efficiency initiatives “overlap and impose unnecessary costs on business.”322 Similar sentiments were expressed by TRU Energy which argued that a national approach to energy efficiency “is essential to ensure an efficient outcome and to avoid inevitable duplication and overlap.”323 Some witnesses drew the Committee’s attention to the similar goals and procedures of EPA Victoria’s PEM(GGEE) scheme currently implemented in Victoria (see below) and the Commonwealth Government’s Energy Efficiency Opportunities (EEO) program that is about to commence.324 The Committee notes that a number of programs and measures with similar goals are undertaken in Australian states using diverse tools and mechanisms. For example, the instruments used to evaluate house design and environmental performance (including energy performance) vary widely between the states.
As noted in Chapter Two, the Committee received evidence that a significant proportion of participants in the energy efficiency services industry conduct business in two or more state jurisdictions. It is reasonable to assume that inter-jurisdictional variations in regulations and programs increase the complexity of operating businesses within the energy efficiency services sector, and that any measures to reduce differences between jurisdictions would reduce business costs associated with the provision of services across state boundaries. Therefore, the development and adoption of nationally consistent regulations may provide some assistance to the development of Australia’s energy efficiency services industry.
The Committee was told that while nationally consistent approaches for legislation and regulation are generally preferable, individual States had also historically facilitated the development of national approaches by being the first to implement and trial new programs and policies.325 Individual states have in the past played an important role by ‘trailblazing’ policy and program innovations that are subsequently adopted across the country and benefit all Australians, such as the appliance labelling schemes pioneered by Victoria and New South Wales. For this reason the Committee acknowledges that there may sometimes be a role for states to undertake regulatory and
321 AGL, Submission, no. 20, 31 October 2005; Origin Energy, Submission, no. 17, 28 October 2005; TRUenergy, Submission, no. 26, 8 November 2005. 322 AGL, Submission, no. 20, 31 October 2005, p. 6. 323 TRUenergy, Submission, no. 26, 8 November 2005, p. 1. 324 Roman Domanski, Executive Director, Energy Users Association of Australia, Transcript of evidence, Melbourne, 14 March 2006; Tony Forster, President, Australian Institute of Energy, Transcript of evidence, Melbourne, 14 March 2006, pp. 360-361. 325 Philip Harrington, Transcript of evidence, Melbourne, 5 December 2005, p. 48; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 37; Peter Szental, Chairman, Szencorp Group, Transcript of evidence, Melbourne, 14 March 2006, p. 30.
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legislative actions to improve energy efficiency without waiting for a national consensus or agreed framework to be formed.
The Committee notes that some important inter-jurisdictional activities are already taking place to develop a nationally consistent environment for energy efficiency. One of the most important of these is the National Framework for Energy Efficiency (NFEE), which is discussed below. As a general principle the Committee agrees that a nationally coordinated approach is important, and may facilitate the development of legislation, regulations and programs that have minimal negative impacts upon participants in the energy efficiency services industry.
Recommendation 5:
That the Victorian Government advocates for a national approach to energy efficiency programs and policy development as a preferred approach. National Framework for Energy Efficiency (NFEE) The National Framework for Energy Efficiency (NFEE) was endorsed by the Ministerial Council on Energy (MCE) in November 2002 to “define the future direction of energy efficiency policies and programs in Australia”.326 With the involvement of all government jurisdictions, the NFEE covers a range of policy measures designed to overcome the barriers and challenges that prevent the market delivering the actual economic potential of energy efficiency.
In December 2004, the MCE approved eight high level implementation plans for NFEE stage one measures for the period 2005-2007. These implementation plans cover the following areas:
Buildings;
Commercial/industrial energy efficiency;
Commercial/industrial capacity building
Appliance & equipment energy efficiency;
Trade and professional training & accreditation;
Government energy efficiency;
General consumer awareness; and
Finance sector awareness.
A summary of the key individual plan summaries is provided in Figure 16.
326 Energy Efficiency Working Group, National Framework for Energy Efficiency: stakeholder consultation report, Canberra, August 2004, p. 1.
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A December 2004 statement on Stage One measures by the MCE indicates that the NFEE has the potential to save around 50PJ of energy per year by 2015, reduce greenhouse gas emissions equivalent to taking 900,000 cars off the road and provide GDP benefits of up to $400 million per year.327
The Committee recognises that NFEE programs and policies will result in significant benefits for the energy efficiency services industry and that long term implementation of these policies will provide certainty for, and assist in sustaining, the energy efficiency services industry. In particular, the Committee is encouraged by work under the NFEE to provide increased skills for trades and professions in energy efficiency issues.
As the implementation plans run throughout the 2005-2007 period, it is difficult to ascertain the effectiveness of the NFEE. However, the Committee commends the national approach being undertaken through the NFEE and anticipates positive results when progress reports become available.
327 Ministerial Council on Energy, Statement of the NFEE overview plan of stage one measures 2005- 07, Ministerial Council on Energy, Canberra, 2004, p. 1.
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Figure 16: Key elements of NFEE individual implementation plan summaries.328
328 Ministerial Council on Energy, Statement of the NFEE overview plan of stage one measures 2005- 07, Ministerial Council on Energy, Canberra, 2004, p. 2.
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Residential and Commercial Buildings Nationally consistent minimum standards adopted and enhanced over time with nationally consistent 5-star standards for all homes and appropriate standards for commercial buildings adopted in all jurisdictions by no later than August 2007. Agreed method(s) for measuring building energy performance on a “like-with-like” basis with a nationally consistent legislated regime for mandatory disclosure of energy performance of residential and commercial buildings in place no later than December 2007. Commercial/Industrial Energy Efficiency The requirement for large energy consumers to undertake mandatory energy assessments and report on the energy efficiency opportunities that these identify, as announced in the Australian Government's Energy White Paper. Nationally coordinated training and accreditation for energy assessors and energy performance contractors. Commercial & Industrial Sector Capacity Building \Develop and make available to jurisdictions a demonstration model to generate highly visible examples of energy efficient equipment or processes in key industrial sectors and new or refurbished commercial buildings. Link industry and government to key centres for leading edge energy efficiency research and development. Nationally coordinated energy efficiency best practice networks. A nationally consistent and streamlined reporting framework on energy use and emissions. Appliance & Equipment Energy Efficiency Expanded electrical appliance & equipment program, through regulating new products for MEPS &/or labelling, and increasing the stringency of regulations for existing products Inclusion of gas appliances & equipment in National Appliance & Equipment Energy Efficiency Program Increased focus on industrial products Government Energy Efficiency Development of a nationally consistent and standard approach to measuring and reporting the outcomes of government energy efficiency programs. Mandatory reporting of the energy performance of government agencies with a nationally consistent reporting process and format. Encourage government agencies to implement energy efficiency programs and to facilitate greater investment in energy saving by government agencies. Enhanced energy performance standards for government owned or leased buildings. Trade and Professional Training and Accreditation The development of an accreditation protocol that ensures consistent standards. Specific accreditation schemes for identified trades and professions. Incorporation of energy efficiency into formal qualification training curriculum and ongoing professional development courses. Recognition and requirement by professional organisations and government agencies for accreditation and related training. General Consumer Capacity Building A requirement for energy retailers to provide benchmark data on household energy bills. Development of a nationally coordinated network to facilitate easy and timely access to high quality and relevant energy efficiency information. Development of a NFEE website. The integration of energy efficiency concepts into educational resource materials. Finance Sector Awareness The package involves working with the finance sector to identify methods to ensure the sector is aware of and acts appropriately to address energy efficiency opportunities.
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Building Codes Energy-efficiency measures for residential and commercial buildings will be introduced into the Building Code of Australia (BCA) on 1 May 2006. The changes will provide benefits to the environment through reduced greenhouse gas emissions and to owner/occupiers through reduced energy costs. There is no compulsion on jurisdictions to adopt BCA provisions.
The Building Codes Regulation Impact Statement indicates that over the life of the regulation (2007–2016) more than 1.1 million houses will be constructed.329 Adherence to the code will see an increase in housing construction costs, though these costs are likely to be recouped through energy savings within a relatively short time frame.
The Committee heard that Five Star requirements would benefit the energy efficiency services industry.330 The largest effect of these standards is likely to be on overall competence in energy efficient practices throughout the residential design and building sector. While these benefits may not be observed as increased employment in a particular sector, the Committee believes there will be substantial benefit to the Victorian economy over time as a result of improved energy efficiency practices throughout the building industry.
The Committee notes that the new energy requirements for commercial buildings are likely to result in more pronounced benefits for the energy efficiency services industry due to their focus on fit-out equipment. The commercial building requirements focus on glazing, heating, ventilation and air-conditioning systems, hot water systems, power allowances for lighting and electric power saving features, and access to certain energy efficiency equipment for maintenance purposes.331 The energy efficiency services industry is likely to benefit significantly from the introduction of these commercial building energy efficiency measures.
Commonwealth In this section programs and policies affecting energy efficiency services and the renewable energy sector that are exclusively under the control of the Commonwealth government are discussed. These include taxation measures, programs to promote the use of renewable energy and energy efficiency, and the development of energy performance standards. Taxation measures With the exception of duties, pay-roll tax, land tax and debit tax, Australian states are constrained “from levying taxes on the production or consumption
329 Regulation Impact Statement: Proposal to amend the building code of Australia to include energy efficiency requirements for class 5 to 9 buildings RD(2004-02). 330 Euan Williamson, Household Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005, p. 39. 331 Australian Building Codes Board, 'Australian Building Codes Board', viewed 7 April 2006, < http://www.abcb.gov.au/index.cfm?fuseaction=DocumentView&DocumentID=170>.
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of goods, with the power to levy income tax taken over by the Commonwealth during World War II”.332 As such, the Commonwealth has immediate control over the development of most taxation instruments that may either directly or indirectly enhance the financial attractiveness and subsequent uptake of energy efficient products for commercial enterprises.
While some witnesses to this Inquiry recommended that the taxation system could be amended to provide greater incentive to purchase energy efficient capital equipment, few provided information on how the existing arrangements affected their operations.333 However, a submission to the Inquiry from the Australian Energy Performance Contracting Association (AEPCA) described how some tax provisions worked against improvements to energy efficiency in commercial and industrial enterprises.334 The AEPCA noted that depreciation rates were higher for machinery than buildings, so that for example, an air-conditioner would attract depreciation at a higher rate than the installation of double glazing in a building. Furthermore, the AEPCA suggested that current tax provisions can encourage the retention of inefficient equipment:
… where a business replaces or repairs faulty equipment with similar equipment, it can claim the cost as maintenance, and receive a full tax deduction for that year. But if they upgrade efficiency, the Tax Officer considers this to be a capital investment, so the business can only claim depreciation. For businesses focused on cash flow, this is a major barrier.335 Materials are available in the public domain that provide some guidance on tax deductions associated with energy efficiency improvements, although notably these refer to general tax provisions and the application of these to energy efficiency improvements, rather than tax provisions designed specifically to encourage energy efficiency.336 The Committee believes that there is an opportunity for tax measures that affect the provision of energy efficiency to be documented and evaluated, to give policy makers a comprehensive overview of the context in which business and household tax decisions about energy efficiency are made, and to explore possible means of improving incentives for energy efficiency through the tax system.
332 Government of Western Australia, Reforming Western Australia's taxation system, Perth, 2003, p. 2. 333 Bruce Rowse, Managing Director, Energy Doctor Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005, p. 65. 334 Australasian Energy Performance Contracting Association, Submission, no. 30, 22 December 2005, p. 14. 335 Australasian Energy Performance Contracting Association, Submission, no. 30, 22 December 2005, p. 14. 336 Australian Greenhouse Office, 'Tax deductions for energy efficiency improvements in rental properties', viewed 18 April 2006,
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Recommendation 6:
That the Victorian Government advocates for the Ministerial Council on Energy’s Energy Efficiency Working Group to engage a suitably qualified consultant to:
• undertake a review of existing taxation provisions at State and Commonwealth levels that discourage and/or encourage the adoption of energy efficiency measures; and
• provide recommendations for possible amendments to the existing taxation regime that have the potential to encourage energy efficiency.
The outcomes of this review should be formulated into a policy proposal for future consideration by the Ministerial Council on Energy. Photovoltaic Rebate Program (PVRP) In contrast to solar hot water systems and other energy efficient products, photovoltaic systems serve a dual role because they alleviate pressure on electricity networks by generating their own power and they also have the ability to feed power back into the grid at times when peak demand for electricity is high. However, unlike the relatively short pay back period associated with solar hot water systems (between four and ten years in Victoria), photovoltaic systems have a long payback period (between ten and twenty years). This is largely due to the high cost of producing photovoltaic systems coupled with Australia’s very low cost of electricity.
The Commonwealth Government currently offers two photovoltaic rebate programs, the Remote Renewable Power Generation Program (RRPGP) for the installation of photovoltaic systems in remote areas of Australia, and the Photovoltaic Rebate Program (PVRP) for photovoltaic systems installed in buildings that have access to the main electricity network. The RRPGP provides rebates for the installation of renewable generation equipment in remote parts of Australia that rely on fossil fuel for electricity generation, and is not utilised in Victoria.
The PVRP provides rebates to householders, owners of community use buildings, display home builders and housing estate developers who install grid-connected or stand-alone photovoltaic systems. Installers of these systems must be accredited with the Business Council for Sustainable Energy (BCSE). The rebate presently pays $4 per watt of installed capacity, and is capped at $4,000 (1kW). Rebates are also available on upgrades of existing systems at a rate of $2.50 per watt of installed capacity, up to $2,500. As of early 2006, the Commonwealth Government intends to incrementally reduce this rebate to $3.50 per watt of installed capacity (capped at $3,500), with funding to cease in 2007.
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In 2004 a report by the Mandatory Renewable Energy Target (MRET) Review Panel noted that the Photovoltaic Rebate Program was an important driver for the installation of photovoltaic systems in Australia.337 The MRET Review Panel also noted that members of the photovoltaic industry told them that the reduction of the PVRP rebate from $5 per watt with a cap of $7,500 to $4 per watt with a cap of $4,000 in 2002 resulted in a significant drop in sales, and adversely affected upstream industries such as PV manufacturers, installation and retail organisations.338 In 2005, the House of Representatives Standing Committee on Environment and Heritage also examined the PVRP program. In its Sustainable cities report, the Standing Committee on Environment and Heritage recommended that the Australian Government “double the photovoltaic rebate to further encourage the uptake of photovoltaic systems.”339
During the course of this Inquiry, the Committee was also told that the installation of photovoltaic systems fluctuated according to the level of the PVRP rebate, and that as the rebate was reduced, the installed capacity of new photovoltaic systems demanded by customers decreased.340 Statistics made available to the Committee by Sustainability Victoria show that over the seven years that the PVRP program has been run there have been substantial fluctuations in the number of rebates claimed.341 The greatest number of rebates claimed during a single financial year was in 2000-2001, although it should be noted that this was the first full financial year that the scheme had run (the scheme commenced on 1 January 2000). It is probable that the high numbers of rebates claimed during 2000-2001 reflect large numbers of people who wanted photovoltaic systems prior to introduction of the scheme installing photovoltaic systems soon after the program was introduced. From 2001 the numbers of photovoltaic systems rebates claimed under PRVP has remained relatively stable, with a peak in 2003- 2004. The proportion of total power provided by grid-connected photovoltaic systems has increased during that time (see Figure 17 and Figure 18, page 123).
337 Mandatory Renewable Energy Target Review Panel, Renewable opportunities: a review of the operation of the Renewable Energy (Electricity) Act 2000, Australian Greenhouse Office, Canberra, 2003, p. 187. 338 Mandatory Renewable Energy Target Review Panel, Renewable opportunities: a review of the operation of the Renewable Energy (Electricity) Act 2000, Australian Greenhouse Office, Canberra, 2003, p. 187. 339 Standing Committee on Environment and Heritage, Sustainable cities, Australian House of Representatives, Canberra, 2005, p. 135. 340 Carlos Ogues, Director, Mr Solar, Transcript of evidence, Melbourne, 3 April 2006. 341 Sustainability Victoria, personal communication, 4 April 2006.
122 Chapter Six: Current government and industry measures affecting energy efficiency
Figure 17: Number of rebates claimed under PVRP, residential installations, Victoria 1999-2000 to 2005-06.342
600
500
d 400 e m i a l c
s e t a
b 300 e r
f o
r e b m u
N 200
100
0 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Year
Grid connected systems Stand alone systems
Figure 18: Total installed watts through PVRP, residential installations, Victoria 1999-2000 to 2005-06.343
300000
250000 ) s t
t 200000 a w (
y t i c a p a c
150000 d e l l a t s n i
l a t 100000 o T
50000
0 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Year Grid connected systems Stand alone systems
342 Source: Sustainability Victoria, personal communication, 4 April 2006. Note: 2005-06 data is incomplete, with statistics provided as of April 2006. The PVRP scheme commenced 1 January 2000, so data for 1999-2000 only refers to rebate claims for half of that financial year. 343 Source: Sustainability Victoria, personal communication, 4 April 2006. Note: 2005-06 data is incomplete, with statistics provided as of April 2006. The PVRP scheme commenced 1 January 2000, so data for 1999-2000 only refers to installed capacity for half of that financial year.
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While the Committee was concerned to hear anecdotal reports that installations of photovoltaic systems were adversely affected by reductions in rebates offered under PVRP, there appears to be little conclusive data to show whether this is the case or not. Conversely, there is also little evidence to suggest that the industry will be able to sustain itself at current or increased levels without the PVRP rebate.
The Committee is cognisant of comments made by some witnesses that the industry is hampered by short term programs that create a boom-bust cycle in the energy efficiency industry.344 The Committee is also concerned that termination of the program in 2007, while the rebate stands at $3.50 per watt, may result in significantly reduced demand for photovoltaic systems over a relatively short period of time and may affect the viability of some photovoltaic systems businesses. For this reason the Committee supports the comments and recommendations contained within the House of Representatives’ Standing Committee on Environment and Heritage Sustainable cities report in that long term support coupled with additional funding is required to maintain the growth of the photovoltaic industry .
Finding 3:
Long term support coupled with additional funding is needed to maintain the viability of the Australian photovoltaic industry. Tradeable Permits The Commonwealth’s Mandatory Renewable Energy Target (MRET) requires wholesale purchasers of electricity to proportionately contribute to the generation of 9,500 GWh of renewable energy per year by 2010. The objectives of the MRET are to:
(i) encourage the additional generation of electricity from renewable sources; (ii) reduce emissions of greenhouse gases; and (iii) ensure that renewable energy sources are ecologically sustainable.345 Electricity wholesalers and retailers and large wholesale electricity purchasers are required to purchase Renewable Energy Certificates (RECs) in proportion to their share of total energy purchases in order to meet the renewable energy target for a particular year. RECs are created when accredited renewable energy is generated and registered, and are also created through the purchase of solar water heaters (on grounds that these displace electricity generation). The program is administered by the Office of the Renewable Energy Regulator (ORER).
344 Business Council for Sustainable Energy, Submission, no. 25, 8 November 2005; Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005; Dr Assad Gargari, Director, EEP Management, Transcript of evidence, Melbourne, 3 April 2006. 345 Renewable Energy (Electricity) Act 2001 (Commonwealth), section S3.
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While delivering significant greenhouse gas abatement, MRET is not a measure that is aimed at greenhouse abatement, nor should it be viewed as a cost-effective means of encouraging energy efficiency.
The MRET scheme in particular, by focusing exclusively on renewable energy rather than relatively greenhouse-friendly fossil fuels such as gas, is an inefficient means of encouraging abatement346 The focus of the MRET is to assist the Australian renewable energy sector to achieve economies of scale and develop commercially viable technologies for renewable energy. It has facilitated development of the renewable energy sector, with the 9,500 GWh renewable energy target likely to be met well in advance of 2010.
The MRET scheme has had a significant influence on the uptake of solar hot water systems. With the exception of hydroelectric generation, solar hot water has been the largest beneficiary of the MRET. According to the BCSE, the market share of solar hot water has risen steadily from 13 per cent of RECs created in 2001 to 29 per cent of RECs created in 2004.347 Figures cited in the International Energy Agency’s examination of Australia’s energy policies provide a slightly different estimate, quoting a figure of 21 per cent of RECs sourced from the ORER.348 Given the introduction of more stringnet national housing requirements that will increase demand for solar hot water systems, the solar hot water industry will likely continue to increase its market share under the MRET.
The impact of the MRET upon the the photovoltaic industry has been fairly minimal, with RECs accredited through the purchase of photovoltaic systems producing a two per cent to five per cent discount. Statistics cited by the Business Council for Sustainable Energy show that annual photovoltaic installations have been growing by about 17 per cent per annum but total system installations have increased by only three per cent in 2004.349 While the deeming arrangments for photovoltaics are changing to allow for increased upfront RECs for photovoltaic systems and the advent of the Solar Cities program may stimulate demand for photovolatic systems it is unlikley that the MRET will deliver any rapid market growth for photovoltaic electricity generation under the current 9,500 GWh target.
In its 2004 report the MRET Review Panel recommended that the Commonwealth Government retain and increase the MRET in order to increase market demand for, and supply of, renewable energy in Australia.350 In 2005, the House of Representatives Standing Committee on 346 Allen Consulting Group, Assessing the relative efficiency and cost effectiveness of a stationary energy emissions intensity requirement, Report for Sustainability Energy Authority Victoria, Melbourne, 2003, p. 6. 347 Business Council for Sustainable Energy, Renewable energy certificate report, Business Council for Sustainable Energy, Melbourne, 2005, p. 2. 348 International Energy Agency, Energy policies of IEA countries: Australia 2005 review, International Energy Agency, Paris, 2005, p. 85. 349 Business Council for Sustainable Energy, Renewable energy certificate report, Business Council for Sustainable Energy, Melbourne, 2005, p. 15. 350 Mandatory Renewable Energy Target Review Panel, Renewable opportunities: a review of the operation of the Renewable Energy (Electricity) Act 2000, Australian Greenhouse Office, Canberra,
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Environment and Heritage examined the MRET and other Commonwealth Government initiatives to increase the use of renewable energy and recommended that “the Australian Government further develop its commitment to energy sustainability, particularly in the area of increasing the use of renewable energy.”351 The Committee supports these recommendations and encourages the Commonwealth Government to further consider actions to develop the use of renewable energy throughout Australia.
Finding 4:
The Committee is of the opinion that an increase to the 2010 Mandatory Renewable Energy Target is essential to assist industry growth in the renewable energy sector. Minimum Energy Performance Standards Minimum Energy Performance Standards (MEPS) are regulatory tools that specify the performance requirements of a range of products and prohibit the sale of poorly performing products. MEPS programs are currently in operation throughout the world. In Australia, the MEPS program is managed by the National Appliance and Equipment Energy Efficiency Committee, which is ultimately under the auspices of the Ministerial Council on Energy.
In Australia technical requirements for MEPS are established under the relevant product standard and given legislative power though relevant state and territory legislation. MEPS are often employed in conjunction with labelling that indicates the energy use of the product relative to competing appliances. The rationale behind labelling is that it assists consumers to overcome information barriers.
Products manufactured in, or imported into, Australia that are required to meet MEPS are:352
refrigerators;
freezers;
mains pressure electric storage water heaters;
small mains pressure electric storage water heaters and low pressure and heat exchanger types;
three-phase electric motors;
single phase air-conditioners;
2003, p. 187. 351 Standing Committee on Environment and Heritage, Sustainable cities, Australian House of Representatives, Canberra, 2005, p. 137. 352 Commonwealth of Australia, 'Minimum Energy Performance Standards (MEPS) regulations in Australia - overview', viewed 18 April 2006,
126 Chapter Six: Current government and industry measures affecting energy efficiency
three-phase air-conditioners up to 65kw cooling capacity;
ballasts for linear fluorescent lamps;
linear fluorescent lamps;
distribution transformers; and
commercial refrigeration.
Other products such as home electronics and office equipment are currently being considered for inclusion under the MEPS.
As MEPS may result in changes to production, testing, administration and registration costs the application of MEPS to particular products may increase final retail cost. However, the Committee is of the opinion that energy savings payback and overall public good benefits stemming from MEPS outweigh increased costs associated with implementation of MEPS for a specific product line. Where government has determined that market intervention is warranted in order to improve the energy efficiency of products, MEPS is often a preferable approach to other forms of market intervention because it can provide industry with an opportunity to develop a long term strategic outlook to energy efficiency.
The broad categorisation of the energy efficiency services industry adopted for this report includes those manufacturers of products that produce energy efficient products. While it is likely that many manufacturers were producing efficient products prior to the introduction of MEPS, MEPS has clearly created an incentive for all market players to improve product efficiency. As such the MEPS initiative has played a vital role in creating demand for energy efficient products which in turn has stimulated the energy efficiency services industry. The Committee commends the work being progressed by the National Appliance and Equipment Energy Efficiency Committee. Energy Efficiency Opportunities Program The Energy Efficiency Opportunities program was announced in the Commonwealth Government’s Securing Australia’s Energy Future in 2004.353 The program will place a legal requirement on companies that use more than 0.5 petajoules per year to undertake an energy audit every five years and to publicly report on their energy use.354 The Department of Industry, Tourism and Resource’s website indicates that Energy Efficiency Opportunities will require approximately 250 companies to participate in the program with most firms operating in the mining, resource processing, manufacturing, construction, commercial and transport sectors.355 It is
353 Commonwealth of Australia, Securing Australia's energy future, Department of the Prime Minister and Cabinet, Canberra, 2004. 354 Commonwealth of Australia, Securing Australia's energy future, Department of the Prime Minister and Cabinet, Canberra, 2004. 355 Department of Industry Tourism and Resources, 'About Energy Efficiency Opportunities', viewed 18 April 2006,
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anticipated that Energy Efficiency Opportunities will begin operation by mid- 2006.
Some companies affected by the Energy Efficiency Opportunities program have argued that it imposes unnecessary requirements on industry, as managers of large energy using companies already give significant attention to energy efficiency issues.356 The Productivity Commission also suggested there may be problems with the program, including that the program’s trigger is based on large energy users rather than inefficient users and that the program will be resource intensive to administer.357 Similar programs also operate in New South Wales and Victoria through the NSW Energy Savings Action Plans and the Protocol for Environmental Management (Greenhouse Gas and Energy Efficiency) (PEM(GGEE)) respectively.
Over the past few years, Bluescope Steel has carried out audits of both energy and utility use by production departments. Bluescope Steel is also currently in the process of drafting energy plans for our operations to meet both internal and NSW Government requirements to identify energy efficiency opportunities. Accordingly, we believe there is limited benefit from merely reporting these to government and thereby resulting in additional compliance costs.358 One of the major differences between the Energy Efficiency Opportunities program and current state-based programs is that it requires high level decision makers to sign-off audits conducted under the program. This is likely to be an important provision as it attempts to overcome the barrier of middle management inertia to create a level of corporate ownership.
The Energy Efficiency Opportunities places no obligation on businesses to implement energy efficiency improvements.359 From the energy efficiency services industry perspective, a legislative requirement to implement cost- effective measures, as per the Victorian PEM(GGEE) requirements, would have provided a significant boost to the energy efficiency services industry. The Australasian Energy Performance Contracting Association also highlights this point, advocating that a Detailed Facility Study should qualify as the reporting and verification for Energy Efficiency Opportunities requirements, noting that a Detailed Facility Study contains a contractual obligation to implement recommendations.360
The program will require most companies to undertake an energy assessment within five years of the trigger year (most likely the commencement year of 2005-2006). While many of the companies that are subject to the EEO program have sufficient capacity to conduct energy 356 Australian Senate Economics Committee, Provisions of the Energy Efficiency Opportunities Bill, Australian Senate Economics Committee, Canberra, 2005. 357 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 148. 358 Bluescope Steel, Submission to the inquiry into provisions of the Energy Efficiency Opportunities Bill, Australian Senate Economics Committee, Canberra, 2005. 359 Australian Senate Economics Committee, Provisions of the Energy Efficiency Opportunities Bill, Australian Senate Economics Committee, Canberra, 2005, p. 4. 360 Australian Energy Performance Contracting Association, Submission to the inquiry into provisions of the Energy Efficiency Opportunities Bill, Australian Senate Economics Committee, Canberra, 2005.
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audits with in-house expertise, a proportion of these firms are likely to outsource audits, thereby creating additional demand for auditors in the energy efficiency sector. There may also be opportunities for other energy efficiency services to implement energy efficiency measures identified during the course of the audits, should company executives decide to pursue these measures. Greenhouse Challenge Plus Greenhouse Challenge Plus is a voluntary program run by the Australian Greenhouse Office (AGO) which encourages companies to report on their greenhouse gas emissions. Information available on the AGO’s website shows that over 700 agreements have now been entered into.361 The aims of the program include greenhouse gas reduction, energy efficiency, and the incorporation of energy concerns into business decision making.362 Benefits to industry members include energy savings, technology savings and recognition of participation through the Greenhouse Challenge Plus Members’ Logo.
In future the Greenhouse Challenge Plus is to be modified in order to overcome compliance barriers facing voluntary agreements by placing a requirement upon organisations who receive fuel excise credits of over $3 million to participate in the program. This measure is being introduced as a means to ensure that large companies participate in the program.
The Greenhouse Challenge Plus has generated demand for energy efficiency services among companies, and the extension of the program to compulsorily include some large companies in the future is also likely to lead to increased demand for energy efficiency services.
Victoria In this section the Committee considers programs and measures currently under the control of the Victorian government. The topics discussed in this section include rebates and subsidies for energy efficiency products, the PEM(GGEE) scheme run through EPA Victoria, building regulations and government department building energy reduction targets. Rebates and Subsidies for Energy Efficient products One of the principal policy tools used to influence consumer behaviour and achieve subsequent greenhouse gas reductions and energy efficiency gains are rebates for energy efficient products, particularly solar hot water systems. Apart from the greenhouse and energy benefits arising from consumer adoption of energy efficient products, rebates are also seen as a
361 Australian Greenhouse Office, 'About the Australian Greenhouse Office', viewed 18 April 2006,
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vehicle to enhance product credibility, overcome market barriers, and assist energy efficient product manufactures to gain increased market penetration.
Rebates for energy efficient products, particularly rebates for solar hot water, have been adopted by nearly all Australian states and territories in the past. The Victorian Government through Sustainability Victoria currently offers three rebates for high efficiency products. These are the: Solar Hot Water Rebate; High Efficiency Gas Hot Water Rebate; and High Efficiency Gas Heater Rebate. These products have demonstrated benefits from energy efficiency, and have relatively short payback periods. The Committee notes evidence received from Sustainability Victoria that the existence of the rebate for solar hot water systems has had a positive effect on market competitiveness for these products:
[Sustainability Victoria] put in a requirement that if you were replacing a gas water heater, you could not put in a solar electric system because that would result in a potentially perverse greenhouse outcome. You had to put in a solar gas, and as a result of the rebate, we have seen the introduction of quite a range of solar heating units on the market. There was really only one manufacturer who was manufacturing solar gas before then.363 The South Australia and Western Australia governments currently provide rebates for the installation of solar hot water systems, although Queensland, NSW and the ACT have now discontinued rebates for solar hot water installations.364 Solar hot water installations able to generate renewable energy certificates under the MRET program, and building requirements in many states provide additional encouragement for the installation of these systems.
The Committee notes that the Australian Capital Territory’s ACT Energy Wise program provides a flexible approach to traditional rebates by encouraging energy efficient product choice.365 The program offers a capped rebate on a suite of energy efficient products, thereby enabling consumers to choose which technology best suits their current circumstances.
Given the relatively short payback period associated with solar hot water, high efficiency gas hot water and high efficiency gas installations, along with (in the case of solar hot water) financial and other incentives to install products, the Committee believes that these rebates should be evaluated to determine whether they are critical to product uptake and industry viability, or whether the cost and benefits of technologies such as solar hot water has now reached a stage that they are market competitive without the need for rebates. The Committee would also like government to explore whether there is potential for other technologies and markets to be developed in Victoria by decoupling rebate funds from this limited range of products and
363 Megan Wheatley, Head, Business Development, Sustainability Victoria, Transcript of evidence, Melbourne, 5 December 2005, p. 59. 364 Sustainable Energy Development Office, 'Solar hot water subsidy', viewed 18 April 2006,
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offering consumers a wider range of energy efficiency technologies under the rebate scheme.
Recommendation 7:
That the Victorian Government determines the cost effectiveness of its rebates programs for high energy efficiency products and considers expanding the list of rebatable products to cover a wider range of technologies and approaches to deliver energy efficiency. Protocol for Environmental Management (Greenhouse Gas and Energy Efficiency in Industry) PEM(GGEE) The Victorian Government’s Protocol for Environmental Management (Greenhouse Gas and Energy Efficiency in Industry) is a greenhouse gas abatement program aimed at achieving abatement through industry adoption of energy efficiency measures. The Protocol is a statutory based program which requires existing EPA license holders to report on their annual energy usage and greenhouse gas emissions and undertake an energy audit if usage and emissions are above a certain threshold. All identified actions with a financial payback of three years or less must then be incorporated into an action plan.366 To date, according to EPA Victoria, this program has produced significant improvements in energy efficiency.
Greenhouse gas emissions committed to under action plans approved by the EPA amount to approximately 1.1 million tonnes of CO2e annually. The estimated total annual energy savings to business from approved actions is $34 million, with an average financial payback of 17 months.367 Like the Commonwealth’s Energy Efficiency Opportunities Program, the PEM(GGEE) requires industry to undertake an examination of their energy use. However, unlike the Commonwealth program, the PEM(GGEE) requires industry members to implement energy efficiency measures that have a payback of less than three years.
As a result of the PEM(GGEE) over 500 EPA licensees have undertaken energy audits. The majority of these audits have been undertaken by approximately 20 auditing companies on a fee-for-service basis.368 In response to these audits the 500 EPA licensee companies have proposed over 2,500 actions to be conducted as a result of the program.
The Committee notes that while a large number of energy efficiency actions have been approved by EPA Victoria it is not able to confirm how many actions have been implemented to date.369 According to EPA Victoria:
EPA Victoria does not have exact information on the total number of actions under the Action Plans that have been implemented to date.
366 Environment Protection Authority Victoria, Submission, no. 13, 28 October 2005. 367 Environment Protection Authority Victoria, Submission, no. 13, 28 October 2005. 368 Environment Protection Authority Victoria, personal communication, 22 December 2005. 369 Environment Protection Authority Victoria, personal communication, 22 December 2005.
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However, based on the time lines included in approved Action Plans, 51 per cent of the total greenhouse gas reductions committed to under action plans were scheduled to have occurred in 2004. A further 24 per cent of reductions are scheduled to have occurred by the end of 2005, and the remaining 25 per cent will occur in 2006 according to the Action Plan time lines.370 In December 2005 EPA Victoria indicated that it was conducting an audit of some high energy use sites to determine levels of adherence to Action Plans. However, the Committee is concerned that there appears to be limited information on the implementation of licensee commitments, despite a requirement for EPA client managers to ensure that implementation occurs. The Committee believes that EPA Victoria should take steps to confirm the extent to which all EPA licensees have adhered to their licensing requirements in this matter. The Committee also believes that it will be of substantial interest to energy efficiency policy makers and the public for the outcomes of the PEM(GGEE) program to be made publicly available upon its completion.
Recommendation 8:
That EPA Victoria urgently determines the proportion of measures in the Action Plans adopted by companies subject to the PEM(GGEE) program that have been implemented. EPA Victoria should make a report on the results of the PEM(GGEE) program, including anticipated and actual outcomes, publicly available at the earliest possible opportunity following completion of the program’s implementation phase in December 2006.
While the PEM(GGEE) has undoubtedly been of benefit to the energy efficiency services industry (and in particular, the energy efficiency auditing sector of the industry) the Committee notes the suggestion of some witnesses that the structure of the program has engendered a boom or bust environment for the industry. With all licensees’ Action Plans expected to be completed in 2006 it is likely that without an additional regulatory requirement demand for services provided by the energy efficiency services industry will decline. The Committee notes that the introduction of the Commonwealth’s Energy Efficiency Opportunities Program may supplement demand for the energy efficiency services, although the organisations involved in these programs may differ. Victorian Five Star From 1 July 2005 Five Star housing requirements came into effect in Victoria. The standard requires that all new residential buildings have:
a five star rating for the buildings fabric; and
a rainwater tank or solar hot water system.
370 Environment Protection Authority Victoria, personal communication, 22 December 2005.
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The adoption of the Building Council of Australia’s Five Star requirements in Victoria will result in little change to the Victoria’s existing building requirements, although it will provide additional flexibility through a range of deemed-to-satisfy provisions. Compliance with the standard is though accredited software programs - FirstRate or NatHERS, although alternate programs such as BERS will also be eligible to apply for accreditation from 1 May 2006.371 The Victorian Five Star requirement does not include extensions and alterations to buildings, although the BCA does require that extensions be in accordance with Three Star standards.
Figure 19: Benefits and costs associated with introduction of the Five Star standard, Victoria 2006.
Benefits Costs
Lower greenhouse gases. Increase in housing/apartment costs, estimated to be between approximately Decreased risk of power supply $1,100 and $3,300 per dwelling for 5 star. shortages in summer. Decline in consumer demand for some Stimulus to Victoria’s economic growth. industries, such as electricity supply, gas Increase in employment with up to 1,100 distribution, agriculture and petroleum new jobs. refining. Lower energy use and costs for Installation costs $1,830 – $2,260 higher customers. than conventional appliance for solar water heaters. Up to 20% reduction in water usage. Additional costs of installing rain water tanks of $1,895.
In 2006, the Victorian Building Commission released a regulatory impact statement on the costs and benefits associated with adoption of the Five Star standards in Victoria. Benefits and costs identified in this statement are summarised in Figure 19 (above).
As indicated above, modelling undertaken by Allen Consulting for Sustainability Victoria in 2002 predicted an increase in new part-time and full time jobs of between 600-1,100 by 2021 as a result of introduction of the Five Star standard.372 This report did not specify the sectors in which these jobs were likely to be created, although it is likely that rating requirements will generate demand for accredited house energy raters. It is likely that the demand for energy efficient technologies and designs mandated by the standard will, over time, lead to increasing competency in energy efficient practice throughout the building industry.
371 Victorian Building Commission, Regulatory Impact Statement: building regulations 2006, Victorian Building Commission, Melbourne, 2006, p. 172. 372 Allen Consulting Group, Cost benefit analysis of the new housing energy performance regulations, Report prepared for Sustainability Energy Authority Victoria, Melbourne, 2002, p. 41.
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However, the Committee also believes that the energy efficiency industry in general would benefit from an expansion of the Five Star standard to consider major renovations, major pieces of fixed equipment and appliances, and occupancy/house size ratio. Recommendations addressing these issues were made in the Committee’s Sustainable Communities report. The Committee notes that the Government Response to this recommendation was that the “Government position requires further examination”. The Committee remains of the opinion that regulatory incentives, as described above, need to be introduced in the housing sector to ensure that a minimum level of household energy efficiency is achieved.
Recommendation 9:
That as previously recommended in the Committee’s Sustainable Communities report, the Victorian Government takes a lead by revising the Five Star Energy Rating Scheme for new houses to include:
• major renovations; and
• major pieces of fixed equipment and appliances.
The scheme should consider the occupancy/house size ratio, as is the case with the NSW Building Sustainability Index system, and consider a comprehensive range of measures, including water management, indoor environmental quality and building materials.
The Committee also noted suggestions that the energy efficiency industry (particularly energy auditors) would benefit from the introduction of measures for compulsory disclosure of energy efficiency upon sale or lease of properties. There is currently a requirement for energy efficiency disclosure in the ACT upon the sale of residential property. The ACT scheme requires that:373
an energy efficiency rating statement must form part of the contract for sale, and be available on view as part of the contract once the property is placed on the market; and
the energy efficiency rating value is to appear in all sale advertisements for the premises.
The Committee notes that the NFEE is investigating disclosure of residential and commercial energy ratings at time of sale and at lease as part of its Stage One work program.374 One of the key elements of the NFEE Building Implementation Committee’s goals is to establish “agreed method(s) for measuring building energy performance on a ‘like-with-like’ basis with a nationally consistent legislated regime for mandatory disclosure of energy
373 ACT Planning and Land Authority, 'Development application and design guidelines', viewed 18 April 2006,
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performance of residential and commercial buildings in place no later than December 2007.”375 The Committee believes that these measures, if introduced, will be of great assistance to the energy efficiency services industry. Government office buildings and tenancies As a major property owner and leaser, the Victorian Government is well situated to increase demand for energy efficient products and services through its own operations. The Committee believes that the Government is in a position to promote the energy efficiency services industry by placing energy efficiency requirements on their properties and tenancies.
In addition to creating business for accredited raters, it is likely that greater business opportunities for the entire energy efficiency services industry could be generated if more businesses conducted analyses of existing buildings and subsequently installed energy efficient technologies. Because ABGR and NABERS are developed to analyse the energy performance of existing buildings, these tools would likely provide greater drive for the energy efficiency services industry than Green Star.376 Nevertheless, the Committee recognises that significant energy savings could be achieved if buildings were Green Star rated before construction, ensuring that an efficient building was constructed and thereby negating the need for expensive retrofit options.
The Committee recognises that operational rating tools, such as ABGR and NABERS, and design rating tools such as Green Star are complementary and form a valuable feedback partnership to ensure that building design and operation is as energy efficient and environmentally benign as possible. While the Committee expects both ABGR and NABERS to remain in the market to cater for differing industry needs, the Committee also recognises that the NABERS rating tool incorporates a more holistic approach to the environmental management of buildings, and that it also incorporates ABGR standards.
In considering issues surrounding the rating of buildings, some witnesses suggested to the Committee that performance based rating tools were superior to rating tools that analyse the design of buildings. These witnesses observed that for a variety of reasons the actual performance of buildings could vary substantially from estimates of performance produced during planning:
[GreenStar] has a lot of advantages in the design process. Its drawback is there is no performance measure and no accountability. If I wanted to, I could have got a set of as constructed drawings stamped and had them rated, and what I built was my business and nobody would be any the wiser.377
375National Framework for Energy Efficiency, 'Introduction', viewed 18 April 2006,
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Government leadership The Committee was told by a number of witnesses that government often played an important role in the promotion of energy efficiency by demonstrating the benefits of implementing energy efficiency improvements to the industrial, commercial and residential sectors. The Committee notes that one way government is providing leadership to the private sector is through endorsement of various energy efficiency rating tools during the procurement of buildings and leases for government agencies.
While no national rating requirement for commercial building energy performance currently exists, some State and Territory governments have introduced requirements for their own buildings and tenancies. The following section outlines requirements in Victoria, NSW and WA.
As noted in the Victorian Government Office Accommodation Guidelines 2005, there are several design principles for government owned office and tenancies.378 Table 11 provides an outline of the guidelines in relation to building energy use (page 136).
Table 11: Victorian Office Accommodation Guidelines – rating requirements
Rating tool Building application Rating required Green Star Office design 4 Stars Green Star Office interiors 4 Stars Australian Building Base building – existing offices 4 Stars Greenhouse Rating Australian Building Base building – new offices 4.5 Stars Greenhouse Rating Australian Building Tenancies – new or existing 5 Stars Greenhouse Rating offices
NSW have taken a similar approach to Victoria with the use of an ABGR requirement for government buildings, with Memorandum no. 2004-04: greenhouse performance of government office buildings and rental properties requiring that:379
existing agency owned buildings achieve a 3 star building rating by 1 July 2006 and commitment to a minimum 4 star rating when undertaking major upgrades;
378 Victorian Government Property Group, Victorian Government office accommodation guidelines 2005, Department of Treasury and Finance, Melbourne, 2005, p. 12. 379 New South Wales Government, Memorandum no. 2004-04: greenhouse performance of government office buildings and rental properties, New South Wales Government, Sydney, 2004.
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agencies that build new government offices are to achieve a 4.5 star rating; and
where an agency is a tenant, the agency must achieve a 4 star tenancy rating by 1 July 2006 and endeavour to occupy premises where the building is rated at least 3 stars.
The Western Australian Government has also developed ABGR requirements. The WA Government’s office accommodation policy requires that all proposals for new office accommodation shall include an ABGR rating.380 From 1 July 2006, the Government will tighten this requirement, and “will only consider proposals to accommodate an agency in a premises that achieve a 3.5 star ABGR base building rating or better”. 381 By 2006 all government tenancies are also required to achieve a minimum 4 star ABGR rating where cost-effective to do so.382 The Government extends the requirements to new buildings with a 4.5 star base building rating required where cost effective to do so. A commitment to examine the possible adoption of Green Star rating system in 2006 was also made.383
The Committee commends the approach to government building efficiency adopted in Victoria, and notes that it is comparable to or exceeds the requirements currently applied in other states. The Committee also encourages the Victorian Government to continue to set ambitious targets for government building energy use.
Recommendation 10:
That the Victorian Government continues to monitor world and Australian best practice in relation to building energy rating requirements and adopts more stringent measures when cost- effective to do so.
While the Committee recognises the actions of the Victorian Government to ensure that buildings occupied by it are energy efficient, the Committee also notes that the Government’s Office Accommodation Guidelines 2005 place no energy efficiency requirement upon existing government offices.384 The Committee believes that the potential for energy efficiency improvements in existing government offices should be explored, particularly given the long term effects of energy efficiency (and energy inefficiency) in the built environment. The Committee has made recommendations in this chapter encouraging the government to commit to, and facilitate, energy efficiency improvements throughout government departments and agencies. If these
380 Western Australian Government, Office accommodation policies, Western Australian Government, Perth, 2004, p. 20. 381 Western Australian Government, Office accommodation policies, Western Australian Government, Perth, 2004, p. 20. 382 Western Australian Government, Office accommodation policies, Western Australian Government, Perth, 2004, p. 21. 383 Western Australian Government, Office accommodation policies, Western Australian Government, Perth, 2004, p. 23. 384 Victorian Government Property Group, Victorian Government office accommodation guidelines 2005, Department of Treasury and Finance, Melbourne, 2005.
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recommendations are supported by Government, it is likely that government agencies will make further improvements to building energy efficiency. However, the Committee believes that in any case the State Government should continue its commitment to energy efficiency in government buildings.
Recommendation 11:
That the Victorian Government continues to encourage government agencies to explore energy efficiency upgrade opportunities for government buildings.
There is also potential for the Victorian Parliament to provide leadership on energy efficiency by procuring, wherever practicable, tenancies for electorate offices in energy efficient buildings. There is no energy efficiency requirement for electorate offices under the existing electoral office leasing requirements. The Committee recognises that a host of factors can limit the choice of a lease for electorate offices, including for example requirements to secure offices in particular locations, and the relatively short-term nature of electorate office leases. While the Committee recognises that it will not always be possible for Parliament to secure energy efficient offices in every electorate, the Committee encourages Parliament to give serious consideration to the energy efficiency of proposed electorate offices when determining lease arrangements.
Finding 5:
There are opportunities for the Victorian Parliament to provide leadership on energy efficiency by procuring energy efficient offices for lease as electorate offices. Sustainability covenants The Victorian EPA promotes voluntary agreements with organisations though Sustainability Covenants. Sustainability Covenants cover a broad range of environmental concerns, of which greenhouse and energy concerns comprise a segment.
Sustainability covenants are voluntary statutory agreements through which the EPA and a company, group of companies, an organisation or an industry sector can explore creative ways of improving resource use efficiency and reducing the ecological impact of products and services.385 The EPA’s website shows that eight Sustainability Covenants covering public and private sector organisations have been entered into.386 The Committee feels that this is an extremely low level of involvement.
385 Environment Protection Authority Victoria, Submission, no. 13, 28 October 2005. 386 Environment Protection Authority Victoria, 'Sustainability covenants', viewed 18 April 2006,
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However, the Committee regards sustainability covenants as a positive means to encourage better environmental practice by companies and other organisations across a range of areas, including energy efficiency. The Committee was told by EPA Victoria that those companies that had entered into covenants were producing positive results in their own operations, and for the energy efficiency services sector:
…the commitments under the sustainability covenants are creating incentives for participating businesses to increase their uptake of those energy efficient products and also the services that are necessary to facilitate those products, and are again helping to develop a market for the energy efficiency services industry.387 The Committee encourages EPA Victoria to continue to actively recruit private and public sector organisations to develop Sustainability Covenants.
Finding 6:
The overall effectiveness of Sustainability Covenants as a tool for promoting energy efficiency and positive environmental outcomes will remain low unless the Victorian EPA actively recruits private and public sector organisations. Energy efficiency targets within government In the Victorian greenhouse action plan strategy update the Victorian Government indicated that it was pursuing actions across all of its departments to reduce energy use in buildings by 15 per cent. In 2006, most departments anticipated that these energy use reduction targets would be met or exceeded. The Committee is encouraged that Victorian departments have been able to identify opportunities to improve energy efficiency, and believes that these activities should be continued in future.
The Committee notes that programs have also been introduced in NSW and Queensland to encourage government departments to improve energy efficiency. In Queensland, the Government Energy Management Strategy (GEMS) is a whole-of-Queensland Government energy efficiency initiative launched in December 2003, with a primary focus on energy use. GEMS seeks to improve government agencies’ use of energy and water in order to produce financial and environmental benefits.
One of the key characteristics of GEMS is that government agencies are permitted to keep any money they save under the initiative to spend on core functions (excluding funding of staff). However, agencies are encouraged to reinvest ongoing savings into further energy efficiency measures.388 Government departments are able to apply for finance from the Queensland Treasury at a ‘reasonable’ interest rate. The scheme is measured on annual savings targets which are set at:
387 Damon Jones, Senior Policy Officer, Atmosphere and Noise Unit, Environment Protection Authority Victoria, Transcript of evidence, Melbourne, 5 December 2005, p. 91. 388 Queensland Government, Government Energy Management Strategy: a reference guide for Queensland Government agencies, Department of Public Works, Brisbane, 2004.
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$2M by June 2005;
$6M by June 2006;
$12M by June 2007; and
$22M by June 2008.
To date these targets have been met or exceeded.389
New South Wales has adopted the Government Energy Management Policy (GEMP) program in order to facilitate improved energy efficiency in its government departments. Government agencies are required to reduce total energy consumption in Government buildings (owned and leased) by 15 per cent of their 1995 levels by 2001 and by 25 per cent by 2005 where cost effective.390 A component of this program is the Government Energy Efficiency Investment Program (GEEIP), which is an initiative of DEUS and NSW Treasury to provide NSW Government agencies with finance for small- scale energy efficiency upgrades. Projects between $10,000 and $500,000 in value that provide a minimum twelve per cent Internal Rate of Return (IRR) can access finance through the program and repay the capital with the resultant energy savings.391
A substantial component of both the GEMS and GEMP programs is the focus on the use of energy performance contracts (EPCs) to secure energy savings in government departments. In NSW, EPCs are anticipated to play a significant role in meeting energy savings targets, and the NSW Treasury made available $20 million per annum in order to finance EPCs for certain government agencies. In Queensland, the Treasury will also make loans available for financing EPCs.
The Committee heard that, while energy performance contracting is utilised widely by governments in Queensland and NSW, to date Victorian government departments have made very little use of EPCs.392 The Committee is concerned that, as government departments appear not to be making use of EPCs, an important component of the energy efficiency sector is at risk of becoming underdeveloped in this state. The Committee notes comments by representatives of the BCSE in this regard:
I think that [market development] is an area where government purchasing programs can actually be quite useful. They have been quite useful in New South Wales, Queensland and South Australia in
389 Queensland Government, Government Energy Management Strategy: a reference guide for Queensland Government agencies, Department of Public Works, Brisbane, 2004. 390 Department of Energy Utilities and Sustainability, 'Government energy management policy', viewed 18 April 2006,
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setting up standards…. It is the same with energy performance contractors. If they know they can get a bit of a jumpstart there with being able to provide some services within the government sphere, they can then build up their business, hire their staff, build up and train their skills and then move out and widen their area of services.393 The Committee understands that in meeting their energy reduction targets, Victorian government departments have made use of energy efficiency services sector, including auditors and analysts. The Committee is pleased that, as a result of this, the energy efficiency services sector has benefited from government activities to improve its energy efficiency. However, the Committee also believes that contractual arrangements for energy efficiency, as currently practiced in energy performance contracts, will form an important component of future efforts to improve energy efficiency in the Victorian economy. For this reason, the Committee believes that Government should consider encouraging government departments to enter into energy performance contracts where a strong business case can be made for the benefits (financial and otherwise) of such an action.
The Committee also believes that the Victorian government should make provisions to ensure that its departments are adequately motivated to continue efforts to save energy after the 2006 energy targets have been met. Provisions currently in place in New South Wales and Queensland to encourage energy efficiency appear to be effective, and the Committee recommends that the Victorian Government examine these jurisdictions and consider implementing similar programs in this state. The Committee also considers that new energy efficiency or savings targets should be determined by government, in order to provide government departments with clear goals for energy efficiency improvement.
Recommendation 12:
That the Victorian Government continues to encourage government departments to implement energy efficiency measures, particularly where those measures have a demonstrated and sufficient rate of return.
Recommendation 13:
That new energy reduction targets be established for Victorian government departments, either based on analysis of the capacity of particular departments for reduced energy consumption or under a system which allows departments to trade energy efficiency credits with one another.
393 Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005, pp. 29-30.
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Recommendation 14:
That the Victorian Government allows government departments to retain funds saved through energy efficiency projects provided that:
• these funds are not used for the employment of additional staff; and
• that government departments be encouraged to use these savings to extend energy efficiency measures within their departments.
Recommendation 15:
That Treasury makes a fund or finance available for government departments to implement energy efficiency programs, including energy performance contracts, where a sufficient rate of return can be demonstrated.
Recommendation 16:
That Victorian government departments consider Energy Performance Contracting or other forms of commercial contracts designed to improve energy efficiency and reduce ongoing energy expenses; and
that Government provides departments with guidelines for formulating Energy Performance Contracts, including examples of contracts and arrangements that have been successfully applied in other jurisdictions.
Local Government The Committee was encouraged to hear of a number of activities initiated at local government level that have a direct effect on, or support, the energy efficiency services industry. One of the lead groups in this regard is the International Council for Local Environmental Initiatives (ICLEI) Cities for Climate Protection program, who told the Committee about some of the activities it currently engages in to improve energy efficiency in local government:
We develop tools that council use that input a description or the information that is necessary — how many lights and what wattage et cetera before and after, so they can calculate the benefit of the project we might be doing. We provide those tools to councils on an ongoing basis, and they are welcome to send them in at any time. Once a year we go through a process of surveying intensely for two or three months and put out a report every year on the range of
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things that are being done across Australia, by state and by sector, whether it is industrial, commercial or residential et cetera or within their own operations.394 The Committee also heard from representatives of the City of Melbourne, who described their activities to improve the utilisation of green energy and energy efficiency within the city.395 The City of Melbourne told the Committee that an important function of the council’s new building, CH2, was to provide a practical demonstration of energy efficient technologies to the market:
We went to a property sector briefing recently put on by one of the corporate real estate agents and they talked about greenhouse just broadly. They said, ‘We should do energy efficiency’. At the end of it someone at the back of the room put up their hand and said, ‘Show us the technologies, how do we do this?’. They said that the innovation in the technologies has been around for 20 years, that is not the problem. It is actually trying to package it up, getting it across to the marketplace — which is hopefully something we can do with CH2 as well. A lot of the technology is there. It just needs that market leverage and critical mass to then bring down the costs and that sort of thing.396 The Committee also heard that the Northern Alliance for Greenhouse Action has conducted training sessions for electricians to improve their knowledge of energy efficiency.397 A pilot program for this training is intended to inform the development of training modules and accreditation for electrical tradespeople, and to assess the potential for the development of trade association structures similar to the GreenPlumbers initiative (see below).
The City of Greater Bendigo has run a number of programs in cooperation with industry and government to encourage better energy efficiency practice, such as its partnership for energy and climate care with Origin Energy, a component of which included running an energy efficiency program with local businesses to identify and implement energy management opportunities.398 The Central Victorian Greenhouse Alliance has also conducted a lot of work in energy efficiency, most prominently through coordinating a bid on behalf of the region for the Commonwealth’s Solar Cities program.399
394 Stephen Kenihan, Consultant Technical Advisor, ICLEI - Local Governments for Sustainability, Transcript of evidence, Melbourne, 20 February 2006. 395 Nick Alsop, Greenhouse Program Coordinator, City of Melbourne, Transcript of evidence, Melbourne, 20 February 2006. 396 Nick Alsop, Greenhouse Program Coordinator, City of Melbourne, Transcript of evidence, Melbourne, 20 February 2006, pp. 7-8. 397 Judy Bush, Coordinator, Northern Alliance for Greenhouse Action, Transcript of evidence, Melbourne, 3 April 2006; Northern Alliance for Greenhouse Action, Submission, no. 11, 27 October 2005. 398 City of Greater Bendigo, Submission, no. 31, 3 February 2006; John Pollock, Ecological Sustainable Development Project Officer, City of Greater Bendigo, Transcript of evidence, Bendigo, 6 February 2006. 399 Terry White, Executive Officer, Central Victorian Greenhouse Alliance, Transcript of evidence, Bendigo, 6 February 2006.
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Moreland Energy Foundation, which was established by the Moreland City Council in 2002, also convenes a large range of energy efficiency projects.400 These include Home Energy Action, a program in which volunteers are provided with training in domestic energy reduction techniques for their own homes, and then encouraged to provide a Home Energy Action service to their friends, family and neighbours.401 Moreland Energy Foundation is also conducting research on energy use within households through the Home Energy Star program, where people that are interested in reducing energy use are audited and then encouraged to conduct actions to improve household energy efficiency, with these actions tracked over time.402
The Committee is pleased that local government and associated organisations are taking constructive steps to improve energy efficiency among households and businesses. Local government is to be congratulated for innovation in this area, and for providing a positive example to the community on the benefits of improving energy efficiency.
Industry and peak organisations The Committee also recognises that measures to improve energy efficiency have also been initiated within industry and peak bodies, including activities such as the provision of information on energy efficiency, training for people engaged in work that may have an effect on the use of energy, and so on.
Energy retailers, such as AGL, provide a range of energy efficiency services to its major customers. According to AGL’s submission to the Inquiry, services include, for example:
Comprehensive energy efficiency programs;
Energy performance contracting;
Energy conversions; and
Heating, Ventilation and Air-conditioning studies and lighting surveys.403
The Committee notes that, under the Electricity Retailers Code of Practice and the Gas Retailers Code of Practice in Victoria, energy retailers are required to make energy efficiency advice available to customers that are struggling to meet gas and/or electricity payments.
Peak organisations for industries that have relevance to energy use include the Australian Institute of Refrigeration, Air-conditioning and Heating
400 Moreland Energy Foundation, Submission, no. 14, 28 October 2005; Bruce Thompson, Business Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005; Euan Williamson, Household Program Coordinator, Moreland Energy Foundation Ltd, Transcript of evidence, Melbourne, 14 November 2005. 401 Moreland Energy Foundation, Submission, no. 14, 28 October 2005. 402 Moreland Energy Foundation, Submission, no. 14, 28 October 2005. 403 AGL, Submission, no. 20, 31 October 2005.
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(AIRAH), the Housing Industry Association (HIA), the Master Plumbers’ and Mechanical Services Association of Australia (MPMSA), the Australian Energy Performance Contracting Association (AEPCA), and the Australian Business Council for Sustainable Energy (BCSE). Of these organisations a number currently run programs to promote energy efficiency.
The AIRAH convenes a range of training seminars for professionals in the air-conditioning and refrigeration industry, and also provides accreditation and training for energy auditing that includes consideration of energy efficiency issues.404 The HIA runs the GreenSmart program in association with the AGO and the DEH, which is a two day environmental awareness construction course for builders.405 Participation in this course allows builders to market themselves as a GreenSmart professional. GreenPlumbers is a program that was developed by the MPMSA with seed funding from the AGO and other stakeholders which provides a series of workshops to enhance plumbers’ skills and knowledge about environmental issues during the course of their work.406
A number of these peak industry groups also run conferences on energy efficiency issues periodically, and so provide opportunities for the dissemination of information and debate on energy efficiency.
The Committee commends the work of industry and peak organisations to promote energy efficiency. These groups fulfil an important function for the delivery of improved energy performance in Victoria and in Australia generally.
404 Australian Institute of Refrigeration Air Conditioning and Heating, Submission, no. 3, 5 September 2005; Phil Wilkinson, Technical Manager, Australian Institute of Refrigeration, Air Conditioning and Heating, Transcript of evidence, Melbourne, 20 February 2006. 405 Janine Nechwatal, Assistant Director, Environment and Planning, Housing Industry of Australia, Transcript of evidence, Melbourne, 14 March 2006. 406 Vin Ebejer, National Director Training Services and Programs, Master Plumbers and Mechanical Services Association of Australia, Transcript of evidence, Melbourne, 12 December 2005; Gary Workman, National Manager, GreenPlumbers, Transcript of evidence, Melbourne, 12 December 2005.
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146 Chapter 7
Mechanisms to promote the uptake of energy efficient products and services Previous chapters have examined the effectiveness of existing measures for promoting the uptake of energy efficient products and services, and recommended ways in which these measures could be improved.
Based predominantly upon the advice provided to the Committee by witnesses, this chapter examines a variety of additional mechanisms that have the potential to promote the uptake of energy efficient products and services in Victoria. Some witnesses also made suggestions about how future programs should be implemented in Victoria. Potential measures discussed in this chapter include the use of tradeable certificates, stamp duty rebates and interval meters. Whilst by no means an exhaustive list of measures, the chapter does provide an overview of key measures currently used in other national or international jurisdictions which could readily be applied in Victoria.
Internal government initiatives Government demand side response As discussed in Chapter Two, demand side response (DSR) is a specific form of Demand-Side Management (DSM) where customers are encouraged to reduce their energy use during periods of peak demand and are compensated for doing so. The benefits of DSR include lower energy costs to business, reduced stress on networks, and lowered risk of exposure to high electricity prices.
The Committee was told by Energy Response, a DSR company, that DSR can potentially play an important role for controlling peak load demand on electricity.407 The Committee notes that NEMMCO has entered into a DSR contract that will provide approximately one-third of the electricity network’s reserve capacity for Victoria and South Australia over the summer of 2006- 2007.408
407 Energy Response Pty Ltd, Submission, no. 9, 26 October 2005. 408 Energy Response Pty Ltd, 'Energy Response wins major contract to secure supply', viewed 12 May 2006,
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Evidence provided by Energy Response to the Committee indicated that across government facilities there is at least 45 MW of electricity that could be made available to DSR programs.409 Participation in DSR programs may provide extra revenue to government agencies, but more importantly, may delay the need for additional infrastructure to cope with electricity demand. The Committee believes that the Victorian Government should examine costs and benefits associated with participation of government agencies in DSR programs.
Recommendation 17:
That the Victorian Government investigates costs and benefits associated with the participation of government agencies in demand side response programs.
Tradeable permits Tradeable instruments currently used throughout the world are generally categorised into three categories: emissions trading schemes (sometimes referred to as black or brown certificates); green certificates (representing renewable energy trading schemes); and white certificates (representing energy efficiency trading schemes). These are discussed in turn below. Emissions Trading …if the polluters had to pay for the cost that they impose on the community, then it would make energy efficient applications like co generation much more attractive. You either tax or penalise the polluters or create an incentive for those who are doing the right thing and reducing emissions..410 Emissions trading operates on the premise that the creation of a cost for carbon through the establishment of a market for emissions reductions offers a cost-effective way for organisations to invest in low emissions technologies and practices. As noted in the quote above, witnesses that appeared before the Committee suggested that one of the key responses of companies to emissions trading requirements would be to increase energy efficiency. As such, the potential benefits from emissions trading for the energy efficiency services industry are significant.
There is enormous potential for business investment and growth, which lies in identifying innovative ways of reducing emissions and delivering not only energy savings and environmental benefits, but also additional value to shareholders.411 An emissions trading scheme is a key element of the Kyoto Protocol, with several Kyoto compliant trading schemes currently in development or in
409 Energy Response Pty Ltd, Submission, no. 9, 26 October 2005, p. 14. 410 Ric Brazzale, Executive Director, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005, p. 34. 411 Ali Gurkok, 'Linking the Kyoto Project-based mechanism with the EU ETS', Paper presented at the United Nations Industrial Development Organisation, United Nations, Vienna, 2005.
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operation in a variety of countries. For example, the European Union’s emissions trading scheme began operation on 1 January 2005 and is the key mechanism for achieving greenhouse gas reduction in Europe.
National emissions trading scheme As indicated in the Commonwealth Government’s white paper, Securing Australia’s energy future, the Commonwealth is reluctant to commit itself to an emissions trading scheme at this point in time.
Australia will not impose significant new economy-wide costs, such as emissions trading in its greenhouse response at this stage. Such action is premature, in the absence of effective longer-term global action on climate change, and given Australia is on track to meet its Kyoto 108 per cent target. Pursuing this path in advance of an effective global response would harm Australia’s competitiveness and growth with no certain global climate change benefits.412 In the absence of any Commonwealth support for placing a pricing signal on the cost of carbon, Australian state and territory governments have embarked upon their own investigations into emissions trading. The Inter- jurisdictional Emission Trading Working Group was established in 2004 to investigate and develop an agreed model for emissions trading.
The Committee notes that the Inter-jurisdictional Emissions Trading Working Group is progressing in its work towards development of a cap and trade emissions trading scheme, and that issues such as coverage, permit allocation and compatibility with the Kyoto Protocol and its mechanisms are still under consideration. The Committee is supportive of the work being undertaken by the Inter-jurisdictional Emission Trading Working Group.
NSW Greenhouse Gas Abatement Scheme An emissions trading scheme is currently active in New South Wales and the Australian Capital Territory. The NSW Greenhouse Gas Abatement Scheme commenced on 1 January 2003, and in 2005 the ACT mirrored the NSW model in the ACT Greenhouse Gas Abatement Scheme. Witnesses to the Inquiry told the Committee that these schemes are an effective mechanism for reducing greenhouse gas emissions, and that Victorian participation in an emissions trading scheme could promote the Victorian energy efficiency services industry.
The NSW Greenhouse Gas Abatement Scheme imposes mandatory greenhouse gas benchmarks on all NSW electricity retailers and certain other parties to reduce the emission of greenhouse gases associated with electricity consumption. Participants are required to reduce greenhouse gas emissions to benchmark levels by offsetting excess emissions through the surrender of abatement certificates (NGACs) which can then be traded with other benchmark participants.413
412 Commonwealth of Australia, Securing Australia's energy future, Department of the Prime Minister and Cabinet, Canberra, 2004, p. 25. 413 Greenhouse Gas Abatement Scheme, 'Overview of the NSW greenhouse gas abatement scheme', viewed 5 April 2006,
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Some energy efficiency initiatives have been implemented through the program by abatement certificate providers carrying out demand side activities that result in greenhouse savings. For example, the Committee was told by easybeinggreen that it was able to implement residential energy efficiency improvements through its business activities as an abatement certificate provider.414
Seventeen of the ninety-three accredited projects undertaken in 2004 under the NSW scheme were focused on demand side measures for reducing emissions. These projects only accounted for ten per cent of all NGACs created in that year.415
In a review of the NSW scheme, MacGill et al. argued that the program had a number of weaknesses, including that it was too complex, and that the choice of ‘baseline and credit’ over a ‘cap and trade’ mechanism was inappropriate, as were its sequestration requirements and baseline calculations.416 The Centre for Energy and Environmental Markets in its Analysis of the NSW Greenhouse Gas Abatement Scheme argued that the scheme does not appear to have driven significant abatement to date. 417 Modelling undertaken by the Energy Retailers Association of Australia (ERAA) suggested that the scheme placed a disproportionate burden on NSW residents, as the scheme’s abatement activities benefited all Australians. The ERAA argued that the combined effects of the scheme and the MRET resulted in increased electricity costs for NSW consumers:
It has been estimated that in 2010 residential customers in NSW will face additional costs of between $5.37/MWh and $7.19/MWh (the highest of all jurisdictions) compared to additional costs of between $1.79/MWh and $2.35/MWh) for residential customers in Victoria and South Australia (the lowest of all jurisdictions).418 The Committee is aware of the challenges and problems facing the NSW Greenhouse Gas Abatement Scheme and its apparently negligible impact upon the energy efficiency services industry. The Committee commends New South Wales for being the first state to implement an emissions trading scheme. However, the Committee feels that a national approach to emissions abatement is needed and that the work being undertaken by the Inter-jurisdictional Working Group on a ‘cap and trade’ emissions trading system is preferable to the NSW system.
414 Rev Nick Frances, Chief Executive Officer, easybeinggreen, Transcript of evidence, Melbourne, 14 March 2006; Independent Pricing and Regulatory Tribunal, NSW Greenhouse Gas Abatement Scheme: compliance and operation of the scheme during 2004, Independent Pricing and Regulatory Tribunal, Sydney, 2005, p. 3. 415 Independent Pricing and Regulatory Tribunal, NSW Greenhouse Gas Abatement Scheme: compliance and operation of the scheme during 2004, Independent Pricing and Regulatory Tribunal, Sydney, 2005, p. 14. 416 Ian MacGill, et al., 'Some design lessons from market-based greenhouse gas regulation in the restructured Australian electricity industry', Energy Policy, vol. 34, 2006, pp. 11-25. ‘Baseline and credit’ and ‘cap and trade’ mechanisms are described in Figure 11, page 37. 417 Centre for Energy and Environmental Markets, Analysis of the NSW Greenhouse Gas Abatement Scheme, University of New South Wales, Sydney, 2005, p. 1. 418 Energy Retailers Association of Australia, A report on the cost to consumers of greenhouse emissions abatement schemes, Energy Retailers Association of Australia, Sydney, 2005, p. 13.
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Recommendation 18:
That the Victorian Government continues to support the development of a national emissions trading scheme. The scheme should be designed to ensure that it:
• is compatible with international emissions trading schemes;
• encourages immediate investment in energy efficient technologies;
• minimises bureaucratic procedures; and
• introduces penalties that are comparable to international penalty rates. Green certificates Green certificate trading schemes operate by creating an overall renewable energy target and imposing a renewable energy quota on liable parties. Under the scheme, green certificates are issued to renewable energy generators according to the amount of electricity generated. Liable parties, typically retailers, are then required to surrender certificates commensurate with the target. An Australian green certificate trading scheme has been established through the Mandatory Renewable Energy Target, which requires wholesale purchasers of electricity to proportionately contribute to the generation of 9,500 GWh of renewable energy per year by 2010.
The Victorian Government is committed to increasing the capacity of renewable energy generation by setting a target of ten per cent renewable generation. An issues paper describing a proposed market-based scheme for Victoria, similar to the existing MRET scheme, was released in December 2005.
The Committee agrees with views put forward in the Victorian Government’s Driving Investment in Renewable Energy in Victoria that technologies currently receiving adequate government support should be excluded from a Victorian scheme.419 Solar hot water, for example, is currently supported by rebates, and in part through Victorian requirements for new residential buildings.
The Committee is of the opinion, however, that a Victorian renewable energy target should provide support for other low emissions, renewable embedded energy generators, such as residential photovoltaic systems and wind turbines. The Scheme should establish ambitious long term objectives to provide the renewable energy industry with investment security and include these electricity generation systems as an eligible generation technology. As the existing MRET target is likely to be met in the immediate
419 Department of Infrastructure and Department of Sustainability and Environment, Driving investment in renewable energy in Victoria: options for a Victorian market-based measure, Department of Infrastructure and Department of Sustainability and Environment, Melbourne, 2005, p. 16.
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future, the development of a Victorian Scheme should be seen as a high priority to avoid industry decline.
Recommendation 19:
That the Victorian Government introduces a Victorian based renewable energy trading scheme similar to the Commonwealth’s Mandatory Renewable Energy Target. White certificates White certificates is a term used to describe any means of exchanging (trading) quantified energy savings resulting from the introduction of energy efficiency measures.420 The main characteristics of a white certificate trading system are:
the imposition of an energy saving obligation on liable parties such as large energy users, retailers or distributors;
the creation of an instrument such as a certificate (the white certificate) that indicates energy savings have been achieved; and
the creation of a market that allows the trading of certificates.421
White certificate trading systems are now used in several European nations. For example, the white certificate scheme in Italy has established an energy savings target that each distributor is obliged to achieve. Energy savings are certified through tradeable permits known as Energy Efficiency Titles (EETs).422 At least half of the target set for a single year is achieved through reductions in electricity and gas end use, with the remainder achieved through primary energy savings in other sectors.423
Australia’s policy response to energy efficiency concerns has so far been through the adoption of a suite of state and Commonwealth energy efficiency and greenhouse policies. However, an energy efficiency target is being investigated as a Stage 2 component of the National Framework for Energy Efficiency. White certificate trading could be included in a National Energy Efficiency Target (NEET), although this is not a necessary feature of such targets.
Modelling undertaken by McLennan Magasanik Associates for the Sustainable Energy Authority of Victoria (SEAV) indicates that a one per cent National Energy Efficient Target would deliver $3.5 – $4 billion in Net
420 Session 1 Breakout Group 3, 'International energy efficiency trading and white certificates ', Paper presented at the International Energy Efficiency Conference, London, 2005. 421 Paolo Bertoldi, 'Energy service companies and white certificates: the use of market forces to unlock investments in energy efficiency', Paper presented at the International Energy Efficiency Conference, London, 2005. 422 Vlasis Oikonomou and Martin Patel, An inventory of innovative policies and measures for energy efficiency, Copernicus Institute, Utrecht University, Utrecht, 2004, p. 49. 423 Paolo Bertoldi, et al., 'White, green and brown certificates: how to make the most of them?' Paper presented at the ECEEE Summer Study 2005, European Council for an Energy Efficient Economy, France, 2005, p. 4.
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Present Value savings for the electricity market over the period 2005- 2014.424 The Allan Consulting Group also conclude that a NEET would provide significant benefit:
Achieving annual energy savings of one per cent beyond 'business as usual' (a one per cent NEET) would deliver an increase in consumption of approximately 0.18 per cent by 2014 ($1.0 billion), while reducing electricity prices to end users and saving 16.5 Mt CO2e of greenhouse gases. The total net present value of increased real consumption in the economy over the life of the investments initiated by a one per cent NEET is more than $8 billion dollars.425 Based upon the modelling assumptions, the adoption of a NEET therefore has the potential to encourage improved energy infrastructure utilisation, reduce greenhouse gas emissions, reduce supply costs, improve the security of supply, and assist in deferring new capital investment until cleaner and greener technologies become more cost-effective.426
Apart from the obvious regulatory imposition upon liable parties, the development of a white certificate trading scheme poses numerous challenges. For example, the establishment of a suitable baseline target and liable parties is procedurally difficult and contentious.
To determine the energy savings resulting from an energy efficiency activity, the eventual energy consumption has to be compared to a baseline (reference situation) without additional saving efforts. The choice of the reference scenario – in terms of reference consumption and conditions – raises some challenges. These are related to issues such as determining the relevant system boundary, minimizing the risk of producing leakage, the practicality and cost effectiveness of a baseline methodology, and treating no-regret measures in the baseline determination.427 Determining appropriate monitoring and verification procedures may also be a complex and resource intensive process. This may result in higher transaction costs and could undermine the effectiveness of any white certificate trading scheme.428
In addition to the difficulties highlighted above, the Productivity Commission argued that:
424 McLennan Magasanik Associates Pty Ltd, National Energy Efficiency Target, Report for Sustainable Energy Authority Victoria, Melbourne, 2004, p. 2. 425 Allen Consulting Group, Economic Impacts of a National Energy Efficiency Target, Melbourne, 2004, p. vi. 426 McLennan Magasanik Associates Pty Ltd, National Energy Efficiency Target, Report for Sustainable Energy Authority Victoria, Melbourne, 2004, p. 10. 427 Paolo Bertoldi and Silvia Rezessy, Tradeable certificates for energy savings (white certificates): theory and practice, Institute for Environment and Sustainability, Brussels, 2006; Paolo Bertoldi, et al., 'Tradable certificates for energy savings: opportunities, challenges, and prospects for integration with other market instruments in the energy sector', Energy and Environment, vol. 16, no. 6, 2005, p. . 428 Session 1 Breakout Group 3, 'International energy efficiency trading and white certificates ', Paper presented at the International Energy Efficiency Conference, London, 2005.
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the introduction of a NEET could result in the unfair treatment of organisations who currently operate efficiently;429 and
should a NEET be imposed upon a retailer, then it is probable that the retailer would pass the costs of complying with the scheme (the costs of certificates, energy efficiency improvements and administrative procedures) on to customers. As such, the NEET would effectively operate as a tax.430
The Committee understands that there is currently a great deal of research being undertaken in Europe regarding the potential interaction between white certificates, green certificates and emissions certificates.431 Concerns have been raised concerning the interoperability of green and white certificates, which operate under a baseline-and-credit model, compared to an emission trading scheme which tend to operate under a cap-and-trade model.432 Concerns regarding double counting and the harmonisation of the certificates have also been raised. However, the Committee believes that if these issues can be resolved, the combination of certificate schemes has the potential to deliver the lowest possible abatement and efficiency costs to liable parties. Nevertheless, governments should adopt a cautious approach to the implementation of more than one trading scheme in close succession. The Committee supports and encourages the continuing involvement of the State Government in discussions surrounding the establishment of a national energy efficiency target.
Recommendation 20:
That the Victorian Government, through its involvement in the National Framework for Energy Efficiency, continues to conduct investigations into the development of a national energy efficiency target.
Regulatory instruments Energy efficiency commitment In Chapter Three, the Committee noted that the United Kingdom introduced an energy efficiency commitment for electricity and gas retailers in 2002 to achieve energy savings for domestic energy customers. An energy savings target of 62 TWh (terawatt hours) between 2002 and 2005 was set by the Department of Environment Food and Rural Affairs (DEFRA). One of the conditions of the energy efficiency commitment was that 50 per cent of the
429 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 313. 430 Productivity Commission, The private cost-effectiveness of improving energy efficiency, Commonwealth of Australia, Canberra, 2005, p. 310. 431 Paolo Bertoldi, et al., 'White, green and brown certificates: how to make the most of them?' Paper presented at the ECEEE Summer Study 2005, European Council for an Energy Efficient Economy, France, 2005, p. 10; Vlasis Oikonomou, A qualitative analysis of white, green certificates and EU CO2, Copernicus Institute, Utrecht University, Utrecht, 2004, p. 110. 432 See Figure 11, Page 37 for a description of these models.
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target was to be met through ‘priority group’ customers, including consumers receiving certain income-related benefits and tax credits. The program was expected to reduce domestic carbon dioxide emissions by one per cent per annum.
Activities undertaken by energy retailers to reach the energy savings target focused largely on insulation improvement (38% of savings) and lighting improvement (34% of savings). Energy efficiency improvements to appliances accounted for 16 per cent of savings, and efficiencies in heating accounted for twelve per cent of savings.
This program appears to have been a successful measure for obtaining energy efficiency gains in the domestic sector. A commentator on the program observed that while energy retailers had initially been reluctant to endorse the program, over time they obtained a positive market profile as a result of activities undertaken to reach the target, and became more enthusiastic participants.
The Committee recognises that the EEC program has delivered significant energy efficiency benefits in the United Kingdom. The Committee also believes that if a similar program were implemented in Victoria there would be substantial benefit to the energy efficiency services sector, and in particular, to businesses that provide services such as building insulation and energy efficient lighting. A program similar to the energy efficiency commitment may also stimulate demand for energy efficient appliances. For these reasons, the Committee believes that the Government should implement an energy efficiency commitment program in Victoria that requires energy retailers (including gas and electricity retailers) to obtain energy savings targets in proportion to a State target.
Recommendation 21:
That the Victorian Government establishes an Energy Efficiency Commitment for energy retailers in Victoria, following the model employed in the United Kingdom. The Energy Efficiency Commitment should require energy retailers to achieve a set target for residential customer energy savings, with due consideration to:
• individual energy retailer’s share of residential customers;
• the capacity of energy retailers with large customer numbers to employ economies of scale; and
• prioritisation of the needs of low income residential households for energy efficiency. EER at point of sale or lease The environmental impact of existing housing stock compared to new housing stock is significant. While much work has been undertaken to encourage energy efficiency in new housing stock by means of Victoria’s
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five star regulations, there has been little incentive to pursue energy efficiency improvements in existing houses.
Mandatory disclosure of a premise’s energy rating provides one means to overcome information asymmetries between the seller and the buyer or lessor and lessee. By providing information on the energy performance of a residential property, a prospective buyer/lessee is made aware of the property’s energy performance and is able to evaluate this information against a range of other criteria such as location, price, and aesthetics. In this way, existing property owners may be encouraged to improve the efficiency of their property in the hope of receiving additional financial reward from the sale or rental of the property.
The energy efficiency services industry may benefit in two ways from the mandatory disclosure of energy efficiency at point of sale. Professional house energy raters will experience increased demand for their services, and the suppliers of energy efficiency products and services may also experience increased demand as people who sell their properties seek to improve the energy rating of their houses.
The disclosure of an energy rating on the sale of apartments and houses in the ACT has been a legislative requirement since 1999. The ACT also places an energy rating disclosure requirement on certain leased properties, with the Residential Tenancies (Amendment) Act 1997 requiring “that if a property that has been energy rated is advertised for lease, then the energy rating must be disclosed to prospective tenants.”433
A 2001 review of the ACT energy efficiency disclosure at point of sale requirement concluded that:
a high proportion of buyers and sellers were aware of the program. This is considered to be the single most important effect of the program, as it has been found to significantly raise public awareness of house energy efficiency;
mandatory disclosure may provide the market incentive to lift the average energy efficiency of new homes above the minimum four star level. A lifting of the fraction of new homes rating five star from 2% to 5% was noted over the first 18 months of the Act’s effect; and
mandatory disclosure may also cause an increase in the rate of retrofit insulation in existing housing stock, up to 3.5% per annum from a baseline of 1% which occurred prior to this legislation.434
433 Energy Strategies Pty Ltd, et al., ACT Greenhouse Strategy: 2002 review of performance and options for the future, Energy Strategies Pty Ltd, Canberra, 2003, p. 87. 434 Energy Strategies Pty Ltd, et al., ACT Greenhouse Strategy: 2002 review of performance and options for the future, Energy Strategies Pty Ltd, Canberra, 2003, p. 25.
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This review also noted that in relation to rental advertisements, the legislation was not being enforced, evidenced by the lack of energy efficiency ratings in the paper rental sections.435
The NFEE also recognises the importance of raising the awareness of household energy efficiency and improving the energy performance of existing housing stock. As part of the NFEE’s Stage One initiatives, the Australian Greenhouse Office is examining possibilities for implementing a disclosure program for residential buildings that delivers market value to more energy efficient buildings.436
The Committee supports the principles behind mandatory disclosure of a residential property’s energy rating at time of sale or lease. However, as evidenced by the ACT program, it is important that a suitable model, supported by relevant housing and real estate bodies, is developed and that appropriate monitoring and administration systems are in place. The Committee can see no reason why a similar scheme would not work in the commercial building sector, though it considers it to be prudent to delay mandatory implementation of such a scheme until evaluation of any possible residential scheme is undertaken.
The Committee is supportive of work being undertaken under the NFEE into the possible introduction of an household energy efficiency disclosure program and looks forward to seeing the results of the NFEE investigations. The Committee also notes that during the course of its Inquiry into Sustainable Communities the issue of mandatory disclosure of energy efficiency in residential buildings was considered. In the report of that Inquiry, the Committee recommended that the introduction of a mandatory disclosure system should be considered by Government. The Committee notes that the Government Response to this recommendation was that “further investigation and cost benefit analysis is required prior to implementation of a number of NFEE initiatives.”
The Committee believes that a system for compulsory disclosure of building energy performance in the residential and commercial sectors should be introduced, possibly linked with a program that provided incentives for energy efficiency upgrades upon purchase of new homes, such as a stamp duty rebate discussed below.
Recommendation 22:
That through representation on the National Framework for Energy Efficiency the Victorian Government seeks the introduction of a system for compulsory disclosure of energy efficiency on the sale or lease of residential and commercial property.
435 Energy Strategies Pty Ltd, et al., ACT Greenhouse Strategy: 2002 review of performance and options for the future, Energy Strategies Pty Ltd, Canberra, 2003, p. 88. 436 National Framework for Energy Efficiency, 'Areas of focus', viewed 4 May 2006,
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Stamp duty rebate The Victorian stamp duty on land transfers, including buildings, generated $2.337 billion in 2005 and is one of the main sources of revenue for the Victorian Government.437 One witness to the Inquiry raised the possibility of providing a stamp duty rebate to encourage the construction and retrofit of energy efficient measures into current and future housing stocks.438
The Committee believes that the State Government should explore this proposal as a means to encourage Victorians to improve the energy efficiency of existing houses. However, the Committee is also mindful that a number of factors will have to be considered in depth before introducing such a measure, including:
developing appropriate criteria by which the level and type of energy efficiency improvement could be determined;
determining the balance between upgrading existing homes and new homes; and
determining an appropriate rebate level.
The Committee recognises that the introduction of a residential property energy efficiency rebate would complement the introduction of mandatory energy efficiency disclosure on purchase of residential properties. If a rebate were introduced, it would provide an incentive for home purchasers to take notice of a building’s energy rating, and to explore ways in which it could be improved.
Even if a requirement for mandatory energy efficiency disclosure is not introduced, the Committee believes that the introduction of an energy efficiency rebate will provide an incentive for people purchasing homes to implement energy efficiency measures. Furthermore, an energy efficiency rebate is likely to provide the energy efficiency services industry with increased opportunities to deliver valuable services to the market. The Committee is of the opinion that an energy efficiency stamp duty rebate scheme has significant merit and warrants further investigation.
437 Victorian Government, '2004-05 Financial Report', viewed 4 April 2006,
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Recommendation 23:
That the Victorian Government investigates the introduction of a rebate of land transfer stamp duties for residential properties to offset costs associated with energy efficiency improvements. The investigation should consider:
• appropriate criteria for rebate eligibility;
• potential impact on the housing market;
• potential impact on energy infrastructure; and
• potential for greenhouse gas savings. Metering Interval meters enable retailers and customers to measure real time electricity consumption and to send and respond to the cost- related price signals that are essential for the market responses needed to underpin more sustainable and efficient energy supply and consumption practices and patterns. The responses of electricity demand to cost-related prices should contribute to: - smoothing the peaks in the electricity load profile, thus reducing the volatility of energy prices; - improving the efficiency of the operation of the electricity wholesale market; - improving the balance between supply and demand in the wholesale market; and - lowering the cost of energy by delaying investments in new infrastructure to satisfy the future growth of, and peaks in, the demand for electricity.439 Traditional electricity meters show accumulated energy use, with energy use calculated by subtracting a meter’s previous reading from the current reading. Customers who have a traditional meter have “no direct link between the retailer’s cost of providing electricity to each customer, when the electricity is actually used and the price paid for it.”440
Interval meters operate by recording half hour electricity consumption figures and “allow retailers to structure tariffs that more closely reflect the cost of purchasing power in the wholesale market, in which costs can vary on a half-hourly basis.”441 Consumers are also able to participate in the market, though the participation level is determined by meter functionality. If sufficient meter functionality is available, consumers may be provided with
439 Essential Services Commission, Mandatory rollout of interval meters for electricity customers: final decision, Essential Services Commission, Melbourne, 2004, p. 1. 440 Essential Services Commission, Mandatory rollout of interval meters for electricity customers: final decision, Essential Services Commission, Melbourne, 2004, p. 34. 441 Essential Services Commission, Mandatory rollout of interval meters for electricity customers: final decision, Essential Services Commission, Melbourne, 2004, p. 2.
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an opportunity to alter demand use patterns and shift certain activities from periods of high electricity prices to lower electricity prices.
It is therefore anticipated that the overall cost of electricity to customers can be lowered by the installation of electricity meters that allow customers to benefit from reducing their consumption at times of high cost electricity.442 In July 2004, the Victorian Essential Services Commission (ESC) mandated the roll-out of interval meters for Victorian electricity consumers. Under the mandated roll-out the ESC required that interval meters be installed:
by 2008 for all large customers;
by 2011 for all small business and large residential customers with off- peak metering or three-phase metering;
by 2013 for all small business and residential customers with off-peak metering or three-phase metering; and
on a new and replacement basis for all small business and residential customers with single phase, non-off-peak metering (typically residences or small offices devoid of electric hot water).443
Evidence received by the Committee was supportive of the mandatory roll- out of interval meters in Victoria.444 However, several witnesses expressed concern over the functionality of the metering system, with many witnesses advocating that the roll-out was an opportunity to install interval meters with two-way communication functionality and associated time-of-use pricing structures.
The essential services commissioner has mandated the rollout of interval meters, starting in 2006, for households and small businesses. The opportunity is to roll out smart meters rather than dumb meters. We would regard the interval meters as dumb meters. They are useful to the distributor, useful for the retailer but not useful to the householder. We believe that what is happening now is that we are driving our households without a dashboard. We would not drive a car without a dashboard, but there is no equivalent of a dashboard in the house at the moment. Consequently we can have 10 lights on and be unaware of that. If we had an in house dial which registered by colour — red, amber or green — the load on our household system and which registered audibly, by a beep or an alarm system, when we have the system on overload, then we could potentially have households that were
442 Essential Services Commission, Installing interval meters for electricity customers - cost and benefits, Essential Services Commission, Melbourne, 2002, p. 10. 443 Essential Services Commission, Mandatory rollout of interval meters for electricity customers: final decision, Essential Services Commission, Melbourne, 2004, p. 2. 444 Deane Belfield, Member, Engineers Australia, Transcript of evidence, Melbourne, 20 February 2006, p. 170; Alan Pears, Director, Sustainable Solutions Pty Ltd, Transcript of evidence, Melbourne, 20 February 2006, p. 197; Greg Wilson, Chair, Essential Services Commission, Transcript of evidence, Melbourne, 5 December 2005, p. 71.
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far more sensitive to their consumption and use of electricity and the price. 445 Although the ESC mandated the roll-out of interval meters in 2004, the functionality requirements for meters are still yet to be decided. For example, a draft report prepared for the Department of Infrastructure highlighted differing approaches to the roll-out.
The Interval Meter Rollout (IMRO) decision does not require any communications equipment to be installed as part of the rollout. Although this does not itself prevent the rollout of meters with communications capability, distributors are intending to rollout meters that are manually read.446 Similarly, the ESC’s Installing Interval Meters for Electricity Customers – Costs and Benefits – Position Paper, highlights the issues associated with the installation of interval meters with two-way communications at the roll- out phase.
For example, where the 2-way communication technology is installed with interval meters for these customers and all meter types over two years, the net benefit is estimated to be $441 million, 47% greater than the net benefit where the 2-way communication is not installed of $301million. However… the present value of the incremental cost of installing interval meters with 2-way communications for these customers increases by 70%, from $47 million to $80 million under this scenario.447 Clearly, the functionality requirements of the interval meter roll-out need to be finalised so that a standardised interval meter for similar customer types can be provided by distributors.
Witnesses suggested to the Committee that the provision of interval meters with the capacity for remote reading, two-way communications and time-of- use tariffs would enable customers to participate in the market to a much greater level than a standard interval meter.448 The ESC told the Committee that:
[d]eployment of remotely-read interval metering combined with two-way communication extends the functionality significantly and opens the door to a wider array of potential benefits, including the full-range of dynamic pricing options, interface with enabling technologies that can produce much greater demand response, and operational improvements in meter reading and billing functions.449
445 Terry White, Executive Officer, Central Victorian Greenhouse Alliance, Transcript of evidence, Bendigo, 6 February 2006, p. 131. 446 CRA International, Advanced interval meter communications study, CRA International, Melbourne, 2005, p. 1. 447 Essential Services Commission, Installing interval meters for electricity customers - cost and benefits, Essential Services Commission, Melbourne, 2002, p. 21. 448 Terry White, Executive Officer, Central Victorian Greenhouse Alliance, Transcript of evidence, Bendigo, 6 February 2006, p. 131; Greg Wilson, Chair, Essential Services Commission, Transcript of evidence, Melbourne, 5 December 2005, p. 71; Michael Zammit, Managing Director, Energy Response Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005, p. 79. 449 Essential Services Commission, Installing interval meters for electricity customers - cost and benefits, Essential Services Commission, Melbourne, 2002, p. 68.
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The use of an interval meter with one-way communications is of significant benefit to electricity retailers but its benefit to consumers is limited. Without two-way communication capabilities, consumers will simply see half hour energy use figures from the previous month on their electricity bill. In other words, and as noted in Chapter Four, the time lag between the energy use and the bill prevents proactive energy management by the customer.
The Committee is of the opinion that two-way communications capabilities provide a much improved feedback mechanism to consumers, and will promote greater awareness of energy use patterns. The development of a time-of-use pricing structure, ideally complemented with an in-house display mechanism that displays cost and consumption data, will further enhance consumer awareness of the cost of electricity, and will encourage greater uptake of demand side response initiatives.
Country Energy’s Home Energy Efficiency Trial which involved an 18 month trial of metering technologies in NSW supported the use of two-way metering technology in conjunction with time-of-use pricing.450 Data available from the Period 2 Survey Results indicates that there has been a dramatic increase in energy awareness by participants, that the majority of participants have changed their energy consumption behaviour so that they use energy during off-peak times, and during times of critical peak pricing participants turn off a number of appliances with most doing so for the duration of the critical peak pricing.451
Though likely to provide significant benefit to the electricity network, the benefits of the interval meter roll-out to the energy efficiency services industry are likely to be less significant. There may, however, be opportunities for local companies to develop metering and complementary technologies that enable consumers and retailers to monitor energy consumption more accurately. Depending on the technology employed, and upon efforts made to inform consumers of the potential benefits of new metering technologies, the roll-out may also increase consumer awareness of energy use. The Committee believes that this will encourage many consumers to not simply shift their energy use from peak to off-peak energy usage, but also examine energy reduction strategies such as energy efficiency retrofits. As such, industry members that provide energy efficiency retrofits or services will also benefit from the roll-out, though to what degree will be dictated by a variety of issues such as the overall price of electricity and the consumer’s commitment to energy management practices.
Finding 7:
Interval meters with two-way communications capabilities potentially provide a mechanism for improved feedback on energy use for consumers, and promote greater awareness of energy use patterns.
450 Country Energy, 'The Country Energy home energy efficiency trial: metering technologies, costs, applications and results', Paper presented at the Business of Energy Efficiency Conference, Business Council for Sustainable Energy, Melbourne, 2005. 451 Country Energy, Home Energy Efficiency Trial (HEET): period 2 survey results, Country Energy, Sydney, 2005, p. 20.
162 Chapter Seven: Mechanisms to promote the uptake of energy efficient products and services Windows The Committee received evidence from the Australian Glass and Glazing Association (AGGA) about the capacity of the industry to supply the market with energy efficient glass and windows, particularly double glazed windows. The AGGA informed the Committee that the industry currently has the capacity to provide energy efficient glazing for every new building in Victoria at least twice over.452
The introduction of the Victorian Five Star housing requirement and the use of associated modelling tools such as FirstRate have provided a significant boost for the industry, with the industry now able to supply double glazed windows for a small price increase compared to traditional glazing.
If we look at pricing as an example, we see that double-glaze units right now can be purchased in Victoria for just $25 a square metre over and above the cost of bottom-of-the-range glazing. That represents about $1000 for a complete house.453 Unlike many of the large industries that provide building materials such as cement and steel, the Committee heard that the glass and glazing industry is comprised of a number of small family-owned companies.454 The Committee was told that this characteristic meant that the glass and glazing industry faced some challenges coordinating activities and achieving compliance.
The AGGA also told the Committee that the industry would benefit substantially if compulsory disclosure of the thermal performance of windows was introduced. This would place a requirement upon all window suppliers to undertake laboratory testing and mandatory labelling of windows. While likely to add additional costs to the window production and installation process, the Committee believes that such a system would provide information to the consumer and builders about window energy performance, while at the same time ensuring that compliance is achieved. The Committee acknowledges that such a measure will have little impact upon the overall size of the glass and glazing industry as total demand for glass will remain constant. However, mandatory disclosure will hopefully increase consumer and builder demand for energy efficient windows thereby encouraging a shift in production processes from traditional to more energy efficient windows.
452 Ian Koochew, Executive Director, Australian Glass and Glazing Association, Transcript of evidence, Melbourne, 14 March 2006, p. 353. 453 Ian Koochew, Executive Director, Australian Glass and Glazing Association, Transcript of evidence, Melbourne, 14 March 2006, p. 353. 454 Ian Koochew, Executive Director, Australian Glass and Glazing Association, Transcript of evidence, Melbourne, 14 March 2006, p. 355.
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Recommendation 24:
That the Victorian Government requests that the Australian Building Codes Board introduces mandatory testing and labelling requirements of the thermal performance of windows into the Building Code of Australia. Embedded generators Embedded generators are typically small generators that feed electricity into the distribution network rather than the transmission network. While connection to the network, including contractual agreements, can be complex, the use of small embedded generators is generally seen to provide positive benefits such as the improved use of electricity infrastructure, deferring investment into the electricity transmission system, lower transmission losses and improved security of supply.
Retailers, networks and end use customers can derive benefits from the efficient use of embedded generation: retailers can potentially lower their exposure to peak prices in the wholesale electricity market; networks can benefit from the improved use of assets; and an end user can benefit from lower electricity costs and the potentially increased quality of supply.455 The Climate Action Network Australia, in their submission to the Ministerial Council on Energy’s Renewable and Distributed Generation Working Group, also highlight the benefits of embedded generation to the energy efficiency services industry noting that embedded generation results in “improved employment opportunities, with small-scale renewable projects providing more jobs per MWh of electricity produced than conventional energy source.”456
While the majority of evidence provided to the Committee has focused on photovoltaic systems as embedded generators, technologies such as wind turbines, fuels cells, on-site diesel generators and a variety of other generation types are all classified as embedded generators.
As highlighted by the Alternative Technology Association, small embedded generators in Victoria face numerous impediments including:
slow return on investment;
lack of information in what can be a complex process;
unnecessarily complex technical regulations;
little incentive for retail or distribution business to actively encourage small renewable embedded generation; and
455 Essential Services Commission, Guideline for embedded generation: final decision, Essential Services Commission, Melbourne, 2004, p. 1. 456 Climate Action Network Australia, Submission to the Ministerial Council on Energy on the Draft Code of Practice for Embedded Generation, Climate Action Network Australia, Sydney, 2006, p. 2.
164 Chapter Seven: Mechanisms to promote the uptake of energy efficient products and services
a market that does not recognise the true value of electricity.457
In July 2003, the Essential Services Commission began an investigation into issues surrounding the connection of embedded generators to the electricity distribution networks. In 2004 the ESC released its final decision which required that “distributors initially jointly develop a standard contract for the connection of small embedded generators” and that these contracts be offered to embedded generators.458 Due to delays in the establishment of a National Code of Practice for the Connection of Embedded Generation, the development of standardised contracts has been delayed, with the ESC anticipating that the contracts should be in place by late 2006.459
The Committee believes that the use of standardised contracts provides all stakeholders with a ‘level playing field’, and will assist in reducing connection delays, reduce complexity, increase consistency, provide a level of assurance, build industry confidence and reduce the likelihood of conflict. As such, the Committee welcomes the introduction of standardised contracts for small embedded generators.
While the Committee was told of a number of barriers to the purchase of photovoltaic systems by consumers, including problems with billing, metering requirements and poor customer service, evidence received by the Committee indicated that one of the major concerns was the variability of buy-back rates for electricity exported to the grid:
System owners must analyse the different tariffs for export and import of electricity (which are often different) from each retailers as well as consider the variance in conditions (such as contract length and conditions and method of payment for net export).460 Anecdotal evidence provided to the Committee also suggested that some electricity retailers make a profit on energy purchased from embedded generators by buying the exported electricity at a standard purchase rate then on-selling the electricity as green electricity.
Improved buy-back rates have the potential to reduce system pay back periods and encourage enhanced uptake of embedded generation technologies. This will provide benefits to the existing network, such as a decrease in transmission losses, while also increasing the capacity of the energy efficiency services industry. While technical difficulties associated with increased grid-connected embedded generation may need to be addressed, the Committee believes that these difficulties should be overcome when shown to be cost-effective to do so.
457 Jeff Washusen and Kane Thornton, Impediments to grid connection of solar photovoltaic: the consumer experience, Alternative Technology Association, Marsden Jacob Associates, Melbourne, 2005, p. 6. 458 Essential Services Commission, Guideline for embedded generation: final decision, Essential Services Commission, Melbourne, 2004, p. 7. 459 Greg Wilson, Chair, Essential Services Commission, Correspondence, 31 January 2006 460 Jeff Washusen and Kane Thornton, Impediments to grid connection of solar photovoltaic: the consumer experience, Alternative Technology Association, Marsden Jacob Associates, Melbourne, 2005, p. 26.
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The Committee understands that as part of the Commonwealth’s Solar Cities project, grid-connected photovoltaic technologies will be trialled using more cost-reflective pricing approaches.
The trials will also involved the use of pricing and other market arrangements that better reflect the value of using solar energy and other ‘demand side’ action. These arrangements would include time-of-day pricing, interval metering and cost-reflective buy back arrangement for electricity.461 The Committee can see significant merit in these trials and encourages the Victorian Government to monitor the results of the trials. However, the Committee does not believe that the Victorian Government should await the outcome of the Solar Cities trials before investigating cost-reflective buy- back rates for small embedded generators.
Recommendation 25:
That the Victorian Government, in consultation with electricity retailers, negotiates a pricing structure for small embedded generators that better reflects their contribution to the electricity network.
Research, development and commercialisation Energy savings funds There are a variety of research, development and commercialisation programs currently provided by Commonwealth, state and local governments. Programs include: the Renewable Energy Commercialisation Program; Solar Cities; Greenhouse Gas Abatement Program; Queensland Sustainable Energy Innovation Fund; Victorian Renewable Energy Support Fund; Commercial Office Building Initiative; and funding provided to the Centre for Energy and Greenhouse Technologies. The Committee believes that it is important to assist fledgling technologies and services to overcome market barriers and commends the development and implementation of targeted programs. Notably, most of the programs listed above do not focus on promotion of the energy efficiency services industry as a core objective, though it is recognised that these programs do provide indirect benefits to the energy efficiency services industry.
The Committee believes that the NSW Government’s Energy Savings Fund offers significant opportunities for the energy efficiency services industry. The Energy Savings Fund offers $40 million per year over five years for projects which save energy and reduce peak electricity demand in New South Wales. It provides funding for projects which:462
461 Department of Prime Minister and Cabinet, 'Securing Australia's energy future fact sheet.' viewed 22 May 2006,
166 Chapter Seven: Mechanisms to promote the uptake of energy efficient products and services
reduce overall electricity consumption and related greenhouse gas emissions;
reduce peak electricity demand;
stimulate investment in innovative energy savings measures; and
increase public awareness of energy savings measures.
The Committee was told by a number of witnesses that the potential benefits for the energy efficiency services industry resulting from programs like the NSW energy savings fund are significant:
New South Wales is clearly a jurisdiction that is doing a lot in this area with their energy savings fund. We have projects there worth a total of $40 million over five years [sic] — through that fund that we have applied for. We are quite hopeful of at least getting some of those projects through.463 The Committee believes programs that offer incentives for best practice energy efficiency have significant potential to assist the commercialisation of energy efficient and demand side technologies and services. While the Committee believes the NSW Energy Savings Fund will deliver enhanced business opportunities to the energy efficiency services industry in NSW, and that a similar program may produce positive results in Victoria, the Committee also believes that Victoria should not introduce such a scheme until the costs and benefits of the NSW program have been properly evaluated.
Finding 8:
That the NSW Energy Savings Fund has significant potential to deliver energy efficiency improvements and to stimulate the energy efficiency services industry in New South Wales. If future evaluation of the NSW program finds that significant benefits to the energy efficiency services industry have occurred, the Victorian Government should consider introducing a similar program. SME energy management training Throughout the course of the Inquiry the Committee received evidence that many organisations, particularly small to medium enterprises (SMEs), lacked the necessary in-house skills to cost-effectively manage their energy use. For example, research undertaken by the Moreland Energy Foundation Limited (MEFL) has shown that more than “half of businesses [SMEs] who considered environment an important consideration were unaware of actions they could take to reduce greenhouse gas emissions, while only a small number of business had accessed or were planning to access programs to assist in energy reduction.”464 The Central Victorian Demand Tariff Energy
463 Michael Zammit, Managing Director, Energy Response Pty Ltd, Transcript of evidence, Melbourne, 5 December 2005, p. 77. 464 Moreland Energy Foundation, Submission, no. 14, 28 October 2005, p. 14.
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Project facilitated by the City of Greater Bendigo and the Bendigo Manufacturing Group supports MEFL findings by noting that:
site inspections conducted by the consultants during the project revealed a number of poor energy management practices, including equipment being left on unnecessarily;
of the customers surveyed about 30 per cent of sites were paying retail electricity rates that were at least 25 per cent higher than comparable operations across Victoria; and
23 per cent of the sites reviewed were on the wrong network tariff.465
The Committee believes that Government is well positioned to assist SMEs to overcome what are essentially information and skills barriers by providing some form of training workshops. While a number of organisations currently provide a level of energy management training to SMEs such as the MEFL’s Business Energy Action Project, the Committee believes that a coordinated state based approach is needed in this area. At a minimum, the training program should provide information on negotiating effective retail electricity supply contracts and demand management strategies. Training should be provided to SMEs free of charge and delivered at suitable times.
Recommendation 26:
That the Victorian Government provides training workshops for small and medium enterprises with an emphasis on energy management. Training workshops should cover the following topics:
• negotiating retail electricity supply contracts;
• potential for demand aggregation between organisations; and
• demand management strategies such as load deferral.
Peak Industry Auditors Some witnesses told the Committee that the quality of energy audits varied substantially between providers. Often, witnesses suggested that some form of accreditation was required to establish standards for the industry.
I want to make another point in terms of the training. Lots of people talk about conducting energy audits and while Engineers Australia accredits a lot of the university-based courses I am not aware of any benchmarking standard that is enforced for energy audits. Anyone can go out and conduct an energy audit if a client wants to pay for it, certainly at the small and medium enterprise level. There 465 Key Energy and Resources, Central Victorian demand tariff project Bendigo, project funded by City of Greater Bendigo, 2005, p. .
168 Chapter Seven: Mechanisms to promote the uptake of energy efficient products and services
is credibility attached to that and professional organisations will make sure they have the appropriate standards in place.466 In relation to energy audits, the Committee believes that a certain level of service quality is necessary to ensure customer satisfaction, to assist in facilitating energy efficiency improvements, and to ensure the long term credibility and subsequent viability of the energy auditing industry. This could be achieved in a number of ways such as a through the development of an energy auditing industry code of practice and/or an accreditation process administered by a peak body or government department.
While a code of practice has merit, codes of practice are not specific in nature and tend to apply to a wide variety of behavioural and operational issues. Accreditation on the other hand is much more focused, and ensures that service providers are qualified in a particular area and are able to provide a guaranteed level of skill in a specific operation to customers. It is worth noting that both a code of practice and an accreditation process may obviate the need for government involvement in an industry.
The Committee believes that at this stage the development of a wide ranging energy auditing industry code of practice is unnecessary and unwarranted. Instead, the Committee believes that the immediate focus should be upon ensuring the rapid development of an industry accreditation program that provides a level of certainty to customers.
…there are a great multitude of businesses out there that say they do energy management but that are a bit in and out; sometimes they are around and sometimes they are not. They can certainly do an energy audit for you if you would like one in a business, but the quality is variable. That is not just feedback that we have received; it is feedback that I believe SEAV has received as well, and has seen through energy audits through the Victorian Environment Protection Authority SEPP scheme. There really is no professional association managing the level of services in this area or some way of deciding the performance we need to achieve in order to deliver a minimum level of standard of performance for our clients.467 While several organisations currently provide some level of accreditation for energy auditors, such as the AIRAH’s accreditation for non-residential and industrial building auditors, there is no comprehensive industry wide accreditation process for energy auditors.468 The Committee feels that the establishment of a peak industry organisation representing the energy auditing industry is an important first step in developing industry accreditation. The industry body would ideally represent all energy auditors throughout Australia.
466 Deane Belfield, Member, Engineers Australia, Transcript of evidence, Melbourne, 20 February 2006, p. 171. 467 Tristan Edis, Manager, Policy and Research, Business Council for Sustainable Energy, Transcript of evidence, Melbourne, 14 November 2005, p. 29. 468 Phil Wilkinson, Technical Manager, Australian Institute of Refrigeration, Air Conditioning and Heating, Transcript of evidence, Melbourne, 20 February 2006, p. 179.
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Recommendation 27:
That the Victorian Government initiates a series of meetings with commercial and industrial energy auditors and relevant state government departments to:
• explore potential for the formation of a peak industry organisation to represent the energy auditing industry; and
• consider accreditation standards for industry participants. Installation and Commissioning To ensure the longevity of the energy efficiency services industry, it is important that customers see the industry as providing an overall benefit to their business operations with minimal imposition on their core activities. As such, it is important that any technology provided by a member of the energy efficiency services industry is installed and commissioned appropriately so that optimal performance is achieved within realistic time frames. As noted in Chapter Four, failure to do so is likely to undermine the credibility of the industry.
Evidence provided to the Committee by the AIRAH and GreenPlumbers indicated that certain participating members of the energy efficiency services industry have failed to correctly install or commission energy efficient products:
With the existing regulations we have in Victoria we have seen a lot of activity with the main solar hot water manufacturers and big builders that might build 5000-plus homes across Australia. The wording in our regulations is so generic that they are finding loopholes on putting in products that meet the minimum requirements, but it is not the intent of the regulations at all. Undersizing is a big issue. Most of our homes are 30 squares these days, and we are putting in products that are for one and two-family homes.469 While the Committee acknowledges that both of these organisations are working towards ensuring their members correctly install and commission appropriate technologies, the Committee is of the opinion that there remain opportunities for improving industry competence in the installation and commissioning of energy efficient technologies. As such, the Committee encourages all peak organisations involved in the energy efficiency services industry to examine the potential for an industry driven accreditation program for the installation and commissioning of appropriate energy efficient technologies.
The report was adopted by the Committee on Monday 5 June 2006.
469 Gary Workman, National Manager, GreenPlumbers, Transcript of evidence, Melbourne, 12 December 2005, p. 117.
170 Chapter Seven: Mechanisms to promote the uptake of energy efficient products and services
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Department of Infrastructure and Department of Sustainability and Environment, Driving investment in renewable energy in Victoria: options for a Victorian market-based measure, Department of Infrastructure and Department of Sustainability and Environment, Melbourne, 2005. Department of Sustainability and Environment, The greenhouse challenge for energy., Department of Sustainability and Environment, Melbourne, 2004. EE-Oz Training Standards, Autumn newsletter 2006, EE-Oz Training Standards, Surrey Hills, 2006. EMET Consultants Pty Limited, Energy efficiency improvement in the commercial sub-sectors, Report to Sustainable Energy Authority Victoria, Melbourne, 2004. EMET Consultants Pty Limited, Energy efficiency improvement in the residential sector, Report to Sustainable Energy Authority Victoria, Melbourne, 2004. Energetics, NFEE: energy efficiency improvement, potential case studies -- industrial sector, Report to Sustainable Energy Authority of Victoria, Melbourne, 2004. Energy Efficiency and Greenhouse Working Group, Towards a national framework for energy efficiency -- issues and challenges, Ministerial Council on Energy, Canberra, 2003. Energy Efficiency Working Group, National Framework for Energy Efficiency: stakeholder consultation report, Canberra, August 2004. Energy Futures Australia Pty Ltd, Mechanisms for promoting societal demand management, Report for the Independent Pricing and Regulatory Tribunal of NSW, Sydney, 2002. Energy Retailers Association of Australia, A report on the cost to consumers of greenhouse emissions abatement schemes, Energy Retailers Association of Australia, Sydney, 2005. Energy Retailers Association of Australia, Submission to the Productivity Commission's Inquiry into the Private Cost Effectiveness of Improving Energy Efficiency, Energy Retailers Association of Australia, Canberra, 2005. Energy Strategies Pty Ltd, et al., ACT Greenhouse Strategy: 2002 review of performance and options for the future, Energy Strategies Pty Ltd, Canberra, 2003. Environment and Natural Resources Committee, Inquiry into sustainable communities, Parliament of Victoria, Melbourne, 2005. Environment Protection Authority Victoria, Protocol for environmental management. Greenhouse gas emissions and energy efficiency in industry, Melbourne, January 2002. Essential Services Commission, Installing interval meters for electricity customers - cost and benefits, Essential Services Commission, Melbourne, 2002.
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179 Appendix 1
List of submissions Australasian Energy Performances Contracting Association Australian Building Codes Board AGL Australian Institute of Refrigeration, Air Conditioning and Heating Business Council for Sustainable Energy City of Greater Bendigo CSIRO Energy Technology David Chadderton Department of Education and Training Department of Infrastructure Dr Graham Redding EEP Management Electrical Electronic Industry Training Ltd Energy & Thermal Services Pty Ltd Energy Doctor Pty Ltd Energy Networks Association Energy Response Energy Retailers Association Engineers Australia Environment Protection Authority Victoria Housing Industry Association Ltd Local Governments for Sustainability Australia/New Zealand Marble Trend Moreland Energy Foundation Mr Solar Northern Alliance for Greenhouse Action Origin Energy Philip Harrington
180 Bibliography
Sustainability Victoria Sustainable Solutions Pty Ltd The Office of the Commissioner for Environmental Sustainability TRUenergy
181 Appendix 2
List of witnesses Briefings Melbourne 2 November 2005 Mr Mark Dess Manager Ms Sarah Stephen Policy Officer Greenhouse Policy Department of Sustainability and Environment
Mr Peter Clements Manager, Retail Markets Dr Helen Murphy Principal Policy Analyst Energy and Security Division Department of Infrastructure Public hearings Melbourne 14 November 2005 Mr Euan Williamson Household Program Coordinator Mr Bruce Thompson Business Program Coordinator Moreland Energy Foundation Ltd
Mr Ric Brazzale Executive Director Mr Tristan Eddis Manager, Policy and Research Business Council for Sustainable Energy
Mr Barton Williams Urban Designer VicUrban Melbourne 5 December 2005 Mr Phil Harrington
Ms Megan Wheatley Head, Business Development Ms Katrina Woolfe Head, Best Practice Standards Sustainability Victoria
Mr Bruce Rowse Managing Director Energy Doctor Pty Ltd
Mr Greg Wilson Chair Essential Services Commission
Mr Michael Zammit Managing Director Mr Ross Fraser Chairman Energy Response Pty Ltd
182 Appendices
Mr Mick Bourke Chairman Mr Damon Jones Senior Policy Officer, Atmosphere and Noise Unit Environment Protection Authority Victoria Melbourne 12 December 2005 Mr Bart Scheen General Manager Vocational Education and Training Division Holmesglen Institute of TAFE
Ms Jan Trewhewlla General Manager Vocational Education and Training Division Dr Wendy Timms Assistant General Manager Planning and Industry Relations Strategic Directions Division Ms Margaret Burdeu Project Development Manager New and Emerging Skills Branch Vocational Education and Training Division Mr Edward Hardman Curriculum Consultant, Training Packages Training and Operations Division Office of Training and Tertiary Education Department of Education and Training
Mr Gary Workman National Manager GreenPlumbers
Mr Vin Ebejer National Director Training Services and Programs Master Plumbers and Mechanical Services Association of Australia
The Committee inspected the Holmesglen Institute of TAFE facility Bendigo 6 February 2006 Mr John Pollock Ecological Sustainable Development Project Officer Mr Jeff Bothe Industry Development Officer Economic Development Unit City of Greater Bendigo
Mr Terry White Executive Officer Central Victorian Greenhouse Alliance
Ms Tamara Wood Project Manager Sustainable Energy Information Partnership Bendigo Access Employment
Mr Andrew Walker Manager Assets & Property Bendigo Regional Institute of TAFE
Mr Leigh Watkins Senior Manager Strategic Markets Bendigo Bank
183 Inquiry into the energy services industry
The Committee inspected domestic solar power installations at the residence of Shelly Cohn and Simon Perrin in Bendigo Melbourne 20 February 2006 Mr Nick Alsop Greenhouse Program Coordinator Mr John Tunney Manager, City Sustainability Branch City of Melbourne
Ms Alison Coe Executive Director, Victoria Division Mr Andre Kaspura Policy Analyst, National Office Mr Deane Belfield Member Engineers Australia
Mr Phillip Pryor Chief Executive Mr Phil Wilkinson Technical Manager Australian Institute of Refrigeration, AirConditioning and Heating
Mr Damien Walsh Group Manager, Corporate Services Mr John Yardley Group Manager Personal Banking mecu Limited
Mr Alan Pears Director Sustainable Solutions Pty Ltd
Mr Stephen Kenihan Consultant Technical Advisor Mr Peter Whittle Finance Manager ICLEI—Local Governments for Sustainability Melbourne 14 March 2006 Mr Ian Koochew Executive Director Mr David Perkins Chair, Energy Sub-Committee Australian Glass and Glaziers Association
Mr Tony Forster President Mr Sankar Bhattacharya Australian Institute of Energy
Rev Nick Frances Chief Executive Officer Mr Nick Brass Business Development Easy Being Green
Mr Peter Szental Mr Mark Lister Policy and Strategy Advisor Szencorp
Ms Janine Nechwatal Assistant Director, Environment and Planning HIA Greensmart Victoria
184 Appendices
Mr Roman Domanski Executive Director Energy Users Association of Australia Melbourne 3 April 2006 Dr Assad Gargari Director EEP Management
Mr Carlos Ogues Director Mr Solar
Ms Judy Bush Coordinator Northern Alliance for Greenhouse Action Interstate meetings Canberra 7 March 2006 Ms Louise Vickery Manager, Energy Efficiency Opportunities Ms Clare Walsh Manager, Energy Efficiency Policy Ms Jenny Barnes Energy Efficiency Policy Department of Industry, Tourism and Resources
Mr Barry Sterland First Assistant Secretary Industry, Communities and Energy Division Mr Stephen Berry Chair, Steering Committee, Your Home Project Building and Energy Efficiency Policy Mr Shane Holt Director, Equipment and Appliances Australian Greenhouse Office Department of Environment and Heritage
Mr Angus Robinson Chief Executive Australian Electrical and Electronic Manufacturers Association
Ms Alexandra Curran Manager, Network Policy Energy Networks Association
Mr Peter Ottesen Executive Director Mr Alan Traves Senior Manager, Energy Policy ACT Office of Sustainability
Mr Neil Savery Chief Planning Executive ACT Planning and Land Management
Dr Hugh Saddler Managing Director Energy Strategies
185 Inquiry into the energy services industry
Sydney 8 March 2006 Mr Gavin Gilchrist Director Big Switch
Mr Jonathan Jutsen Director Energetics
Ms Andrea Gaffney Government Relations Manager BP Solar
Mr Deane Gudsell National Manager, Asset Solutions Mr Bruce Precious National Sales Manager Australasian Energy Performance Contracting Association
Mr Patrick Gibbons Executive Director Mr Alistair Phillips Director, Policy Research Energy Retailers Association of Australia Brisbane 9 March 2006 Mr Brad Hall Queensland Manager Energy Conservation Systems
Mr Terry McConnell Manager, Energy Efficiency Group Energex
Mr John Quinn Director, Sustainable Industries Program Environmental Protection Agency Queensland
Ms Wendy Miller Manager Queensland Sustainable Energy Industry Development Group
Mr Toby Hutcheon Coordinator Queensland Conservation Council
Dr Holgar Willrath Principal Solar Logic
Mr Bob Walters Acting Manager Government Energy Management Strategy
Mr James Brockhurst Manager Mr Ron Benson Ms Jacinta Wells Ms Melissa Omedei Mr Brian Rosenburg The Good Guys Discount Warehouses Capalaba, Queensland
186 Appendices
187 Appendix 3
Seminars and conferences Western Port Greenhouse Alliance, “Climate Change and Adaptation: how will it affect you?”, 23 August 2005
Larry Acker and Gary Klein, “Minimising Waste With Domestic Hot Water”, 7 September 2005
Business Council for Sustainable Energy, “MRET and REC Update 2005”, 20 October 2005
Department of Industry, Tourism and Resources, “Energy Efficiency Opportunities”, 8 November 2005
Business Council for Sustainable Energy, “The Business of Energy Efficiency 2005: great hope or green mirage?”, 22 and 23 November 2005
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