In our June 2015 Sustainability & Climate Change Quarterly Update, we considered the State-based energy efficiency schemes operating in Victoria. You can access that article here. In this article, we outline details of the review of NSW energy efficiency scheme – ‘Energy Savings Scheme’ (ESS).

State energy efficiency schemes

The ESS was established under Part 9 of the Electricity Supply Act 1995 (NSW) (ES Act) and commenced operation on 1 July 2009.

The equivalent scheme in Victoria – the Victoria Energy Efficient Target (VEET) scheme – was established under the Victoria Energy Efficiency Target Act 2007 (VIC) and commenced operation on 1 January 2009.

The South Australian government recently established the Retailer Energy Efficiency Scheme (REES) under the Electricity Act 1996 (SA) and the Gas Act 1997 (SA), which replaced the Residential Energy Efficiency Scheme. The REES commenced on 1 January 2015. The Residential Energy Efficiency Scheme ceased operation in 2014.

Review of the NSW ESS

A review of the ESS has been underway by the NSW Government since November 2014. The Final Statutory Review Report (Statutory Review Report) was released in June 2015 and was also supported by an Options Paper, which was released in April 2015 (Options Paper).

Amongst other items, the Options Paper recommended:

  • extending the ESS to 2025
  • introducing a regional network factor
  • expanding the ESS to include gas.

The Statutory Review Report formally recommended[1]:

  • that the ESS be expanded to support gas efficiency, by amending Objective 1 of the ESS within s 98(1) of the ES Act to state:

‘Objective (1) – The principal object of this Part is to create a financial incentive to reduce the consumption of energy by encouraging energy saving activities’

  • the ESS be expanded to allow gas efficiency activities to access financial incentives from 2016, by amending Objective 2(a) within section 98(2)(a) of the ES Act to state:

Objective 2(a) – to assist households and businesses to reduce energy consumption and energy costs’

  • that objective 2(b) within section 98(2)(b) of the ES Act, which required the ESS to complement any national scheme for carbon pollution reduction (i.e. Australia’s Emission Reduction Fund (ERF)) by making the reduction of greenhouse gas emissions achievable at a lower cost, was being met and no legislative amendments were required
  • that objective 2(c) within s 98(2)(c) of the ES Act, which required the ESS to reduce the cost of, and the need for, additional energy generation, transmission and distribution infrastructure, was being met and no legislative amendments were required.

The Statutory Review Report found that, between 2009 and 2013, in relation to the creation of a financial incentive to reduce electricity consumption and assisting households and businesses to reduce electricity consumption and costs:

  • accredited certificate providers created 8.8 million energy saving certificates, equivalent to around 8,291 gigawatt hours of electricity saved over the life of the implemented energy efficiency activities
  • scheme participants chose to purchase certificates rather than pay penalties for 92 percent of their obligation under the ES Act
  • the weighted average price for certificates was $24.02, well above the estimated $2.72 administrative cost to create them
  • accredited certificate providers created certificates for energy saving activities in the residential (0.7 million certificates or 701 gigawatt hours), commercial (6.7 million certificates or 6333 gigawatt hours) and industrial (1.3 million certificates or 1182 gigawatt hours) sectors
  • actual energy savings are estimated to be worth $1.2 billion to the participating households and businesses over their project lifetimes.

Further important findings of the Statutory Review Report included in relation to the national scheme for reduction of greenhouse gas emissions:

  • the predicted abatement task required to meeting Australia’s 2020 emissions reduction target has reduced from 166 MtC02-e to 131 MtC02-e in 2020, in part from a reduction in greenhouse gas emissions trends from the NSW energy sector
  • the estimated actual energy savings from the ESS will have contributed to 0.9 MtC02-e in annual reductions in 2020
  • the ESS has contributed to a decline in demand growth for electricity in NSW
  • a reduction in demand growth has helped to postpone requirements for new energy generation infrastructure
  • energy efficiency has been a factor in transmission and distribution network service providers downgrading their investment in avoidable infrastructure during and since the 2009 to 2014 period
  • Ausgrid now includes the ESS in its forecasts for energy consumption and peak demand.

Our June 2014 update compared the ESS and VEET, and stated that the notable difference was that the VEET covers activities in the gas and electricity sector, whereas, the ESS only focuses on the latter. Given the recent release of the Statutory Review Report, the ESS is now proposed to cover activities in the gas sector as well.

Some further important differences between the ESS, REES and VEET are:

  • the sectors covered by the ESS include residential, commercial and industrial sectors. The REES only covers the residential and small business sectors and the VEET covers residential and business sectors[2]
  • the ESS covers all holders of electricity retail licenses, and is now proposed to include gas retailers[3]. The REES and VEET narrow the coverage, based on the number of customers of the retailer and the amount of energy retailed
  • the ESS target is relative and based on the current year sales of electricity of each retailer, and exempts sales to emissions-intensive trade-exposed industries or activities. Whereas, the REES and VEET targets are absolute.

Having regard to the above, it is clear that:

  • the ESS covers the broadest range of sectors
  • the ESS covers the broadest range of electricity retailers, and it is probable that the proposed amendments to the ESS will cover a broader range of gas retailers.

There have been investigations into the establishment of a national energy efficiency scheme. A national scheme may be preferable to State-based schemes for the following reasons[4]:

  • a larger market provides for greater liquidity and lower, more stable prices
  • a larger market allows economies of scale to reduce costs of energy efficiency
  • consistent administration reduces costs for businesses involved in schemes in more than one jurisdiction
  • some of the infrastructure savings of the state schemes are already spread across other National Electricity Market jurisdictions
  • capabilities developed by NSW businesses could be used in other states to mutual economic benefit.

Nevertheless, given the lack of progress in establishing a national scheme, the NSW government has committed to continue to work with other jurisdictions to harmonise the State-based energy efficiency trading schemes.