A Draft Plan to Save NSW Energy and Money - Energy ... your say We want your feedback on A Draft Plan to Save NSW Energy and Money and the preferred options we have suggested to achieve

A Draft Plan to Save

NSW Energy and Money

Energy efficient markets

Detailed analysis

Have your say

We want your feedback on A Draft Plan to Save NSW Energy and Money and the preferred options we have suggested to achieve the NSW energy savings target.

We have also identified some good options for further investigation that could save a significant amount of energy, and other ideas to stimulate discussion.

You may have other ideas, and we’re keen to hear them.

The NSW Government is interested in feedback on the following questions:

» Do you have any comments on the actions we are proposing to drive energy efficiency?

» Are there particular issues we need to consider to ensure these actions are effective?

» Are there particular communities or industry sectors we should be targeting to improve energy efficiency?

» Are there other opportunities for energy efficiency we should be encouraging?

You can participate in briefings and provide input via written submissions. Please complete submissions using the form provided. Further information on the process and how to get involved is available at https://engage.environment.nsw.gov.au/Environmental-Future-Consultation.

Public feedback from this process will be considered in the development of a new energy efficiency action plan for New South Wales.

Submissions close at 5pm on 16 December 2016.

Please note, we have also released a Draft Climate Change Fund Strategic Plan for comment, and will provide more detailed analysis supporting the actions in this plan on the Office of Environment and Heritage website.

About this document

A Draft Plan to Save NSW Energy and Money links to the Draft Climate Change Fund Strategic Plan’s chapter on national leadership in energy efficiency.

This document provides detailed analysis on some of the options that we estimate can achieve the NSW Government’s energy savings target.

Please visit our consultation website for:

» more detailed information on other options presented in A Draft Plan to Save NSW Energy and Money

» a submissions form with consultation questions.

https://engage.environment.nsw.gov.au/Environmental-Future-Consultation


Draft Plan to Save NSW Energy and Money Energy Efficient Markets

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NSW Climate Change Policy Framework

Draft Climate Change Fund Strategic PlanA Draft Plan to Save NSW

Energy and Money

Accelerating

advanced

energy

Preparing for

a changing

climate

National

leadership on

energy

efficiency

Energy

efficient

business

Energy efficient

government

and

infrastructure

Energy efficient

markets and

appliances

Energy efficient

homes

Energy efficient

markets


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© 2016 State of NSW and Office of Environment and Heritage

The State of NSW and Office of Environment and Heritage are pleased to allow this material to be reproduced in whole or in part for educational and non-commercial use, provided the meaning is unchanged and its source, publisher and authorship are acknowledged.

The Office of Environment and Heritage (OEH) has compiled this report in good faith, exercising all due care and attention. No representation is made about the accuracy, completeness or suitability of the information in this publication for any particular purpose. OEH shall not be liable for any damage which may occur to any person or organisation taking action or not on the basis of this publication. Readers should seek appropriate advice when applying the information to their specific needs. This document may be subject to revision without notice and readers should ensure they are using the latest version.

Published by: Office of Environment and Heritage 59 Goulburn Street, Sydney NSW 2000 PO Box A290, Sydney South NSW 1232 Phone: (02) 9995 5000 (switchboard) Phone: 131 555 (environmental information and publications requests) Phone: 1300 361 967 (national parks, general environmental inquiries and publications requests) Fax: (02) 9995 5999 TTY users: phone 133 677, then ask for 131 555 Speak and listen users: phone 1300 555 727, then ask for 131 555 Email: [email protected] Website: www.environment.nsw.gov.au

Report pollution and environmental incidents Environment Line: 131 555 (NSW only) or [email protected] See also www.environment.nsw.gov.au

ISBN 978 1 76039 626 8 OEH 2016/0769 December 2016

mailto:[email protected]

mailto:[email protected]


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Energy efficient markets

1 Energy efficient markets ....................................................................................................... 6

1.1 Opportunity .............................................................................................................................. 7

1.2 Barriers to the uptake of energy efficient opportunities .......................................................... 7

1.3 Case for action ........................................................................................................................ 8

1.4 Description of proposal ......................................................................................................... 10

Invest in market capacity to deliver innovative energy efficiency products and

services for small businesses ................................................................................ 10

1.5 Analysis ................................................................................................................................. 11

1.6 Summary ............................................................................................................................... 13


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Energy efficient markets and appliances Growing the market for energy efficiency while phasing out poorly performing products in New South Wales can improve consumer choice to manage energy use, empower and protect NSW consumers when making important purchasing decisions and deliver significant energy savings.

There is significant potential to grow and transform the market for energy efficiency in New South Wales through energy savings upgrades for households, businesses and government agencies.

Investing in the energy efficiency market can increase its capacity to deliver low-cost energy efficiency and support sustained growth. This can make it easier for service providers to help households and businesses save energy and make it cheaper to deliver savings through the NSW Government’s largest energy efficiency program, the NSW Energy Savings Scheme (ESS).

Updating and extending appliance standards to phase out high-cost, low-efficiency appliances can deliver major benefits, including significant bill savings and reduced bill shock for consumers.

1 Energy efficient markets Invest in market capacity to deliver innovative energy efficiency products and services for small businesses

What are we consulting on?

» Targeted financial incentives to build the capacity of the energy efficiency industry to deliver low-cost technologies and services.

» Incentives would target technologies and services for small businesses that are not currently taken up under the Energy Savings Scheme.

Why act?

» Transaction costs to deliver new activities through the ESS are high.

» Experience with the ESS shows once an activity achieves a certain market share, the cost of delivering the activity comes down dramatically.

» More low-cost activities can reduce the costs of current or higher ESS targets.

Who could benefit?

» Targeted incentives could help energy service providers develop business models to improve learning rates, reduce transaction costs and overcome information barriers associated with efficient energy use.

» Consumers could benefit from a more diverse and sustainable energy efficiency services market.

» More small businesses could access the benefits of the scheme.

» Households and businesses could benefit from lower ESS costs passed through on their bills.

Estimated benefits of this action

» save around 77 gigawatt hours of electricity a year in 2020

» deliver around $160 million in bill savings between now and 2050

» deliver around $25 million in net benefit to NSW in present value terms

» at a benefit to cost ratio of 2.3.


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Have your say

Q32: Are targeted incentives an effective way to deliver energy savings and kick-start new activities in the Energy Savings Scheme?

Q33: Are there more effective ways to grow and transform the market for energy efficiency products and services?

Please visit our consultation website for:

» more detailed information on other options presented in a Draft Plan to Save NSW Energy and Money

» a submissions form with consultation questions.

Have your say

» Do you have any comments on the actions we are proposing to drive energy efficiency?

» Are there particular issues we need to consider to ensure these actions are effective?

» Are there particular communities or industry sectors we should be targeting to improve energy efficiency?

» Are there other opportunities for energy efficiency we should be encouraging?

1.1 Opportunity The energy efficiency market in New South Wales is emerging, and there is significant

opportunity for it to grow and transform.

Building the capacity of the energy efficiency industry to deliver new energy-efficient

technologies such as air conditioners and building management systems can accelerate

learning rates that reduce the costs of saving energy. This can unlock more benefits of

energy efficiency and improve equity of access to Energy Savings Scheme benefits,

particularly for small businesses in New South Wales.

1.2 Barriers to the uptake of energy efficient opportunities The NSW Energy Efficiency Action Plan (EEAP) identified a series of market barriers that

may be restricting market uptake of these opportunities, including:1

information gaps and asymmetry where consumers are not aware of opportunities available to them or cannot evaluate different offers from tradespeople and suppliers

lack of skills and time, or ‘hassle factor’, where the costs and time associated with gaining knowledge and organising energy efficiency actions prevent their uptake

high upfront costs for high-efficiency products and services which reduce their appeal and accessibility even though they could be the cheapest option over their useful life

split incentives where one party owns equipment that consumes energy but another pays the bills, leaving both without a reason to invest in more efficient equipment, such as owners and tenants

1 NSW Government, 2013, Energy Efficiency Action Plan, accessed at:

http://www.environment.nsw.gov.au/energyefficiencyindustry/energy-efficiency-policy.htm.



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data as a public good, where no market participant has the resources or incentives to collect and analyse energy efficiency data even though many would benefit from new opportunities being identified.

The actions committed to in the EEAP support the development of a sustainable energy

efficiency products and services market by setting in place the right structures, incentives,

tools and skills. This will help product and service providers address these barriers so that

NSW households, businesses and government can use energy more efficiently.

1.3 Case for action

There is an opportunity for the NSW Government to provide targeted investment to kick-start industry capacity to deliver new energy savings opportunities and bring down transaction costs.

Facilitating the availability of new lower cost energy efficiency opportunities in NSW can:

deliver energy savings towards the 16,000 GWh target (where activities are additional to those undertaken to meet the current ESS targets)

help to introduce new low cost energy efficiency opportunities into the ESS, lowering the costs of the scheme

make sure new low-cost activities are available over time as low-cost activities currently delivered through the ESS are exhausted

improve equity of access to the ESS, particularly for small businesses

create a more diverse and sustainable energy efficiency services market.

Targeted investment in market capacity for innovative energy efficiency may reduce the costs of the ESS

The NSW Energy Savings Scheme (ESS) is a market based mechanism known as a white certificate scheme, established in 2009 under the Electricity Supply Act 1995. The ESS is NSW’s premier energy efficiency program to drive the uptake of energy saving opportunities and is the largest single NSW contributor to the 2020 energy savings target.

The principal objective of the ESS is to create financial incentives to reduce the consumption of electricity by encouraging energy saving activities. The ESS is technology neutral and allows the market to find the lowest cost energy savings opportunities.

The ESS has already supported projects expected to deliver more than 14,700 gigawatt hours of energy savings and $2.1 billion in bill savings over the next decade. It has already locked in around 1,900 GWh of electricity savings towards the 2020 target and has been a key driver of growth in the energy efficiency service industry since its introduction in 2009.

There are now around 100 accredited service providers in NSW helping households and businesses save energy through the ESS. ESS financial incentives reduce barriers by addressing the upfront cost of energy efficiency projects, shorten their payback and provide a reason for energy efficiency service providers to overcome information barriers and raise consumer awareness of the benefits of energy efficiency.

However, as shown below in Figure 1, there are significant energy efficiency opportunities that may need a higher incentive than the current estimated average ESS certificate price of around $24 to drive uptake.

Because the ESS market functions in a way that the marginal cost of delivering energy

savings sets the certificate price, increasing ESS targets to a level to capture these new

activities would see all certificates receive a higher price. This would increase the overall


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costs of the ESS, which could result in a higher ESS cost pass-through for households and

businesses.

Building market capacity outside of the ESS can bring down costs of delivering new energy

efficiency activities through the ESS without impacting the overall costs of the ESS.

Figure 1 Cost curve for the estimated electricity efficiency opportunity in NSW2

Addressing high transaction costs to deliver new opportunities through the ESS

Delivering new types of energy efficiency opportunities through the ESS requires a

significant investment of resources in establishing a business model, record keeping

process, databases, quality management systems and completing the application form and

supplementary materials. This is in addition to a $2500 application fee.

This can often represent a significant investment of time and resources for a business that

has no guarantee that they will receive a return on this investment, especially for new energy

efficiency opportunities.

Providing targeted support for specific energy efficiency opportunities can help to overcome

the transaction costs involved in establishing a business model through the ESS and provide

some short-term certainty of demand for products and services.

Energy efficiency service providers have proven that once an activity reaches critical mass

through a market mechanism in NSW, the cost of delivering the activity comes down

dramatically. This can be seen reflected in the example of commercial lighting upgrades

through the ESS.

Short-term, targeted financial incentives could kick-start market capacity building to deliver

new energy savings opportunities by accelerating learning rates, reducing the transaction

costs associated with these opportunities and improving economies of scale. It can also

2 NSW Government, Review of the NSW Energy Savings Scheme Part 2: Options Paper, p.120, accessed at

http://www.resourcesandenergy.nsw.gov.au/energy-consumers/sustainable-energy/efficiency/scheme?a=558865.


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improve access to the ESS for households and small businesses, while creating a more

diverse and sustainable energy efficiency services market.

Overcoming barriers to delivering small business energy savings

Market barriers may be particularly acute for small businesses, especially high costs, lack of

information and lack of skills and time barriers. Small businesses may bear disproportionate

costs for an energy efficiency upgrade relative to the savings.3 Evaluation of the NSW

Government’s Energy Efficiency for Small Business Program showed that even with a rebate

incentive, many energy efficiency opportunities for small businesses were not realised.4

These incentives could prioritise opportunities in small businesses, such as energy

management services or air conditioning upgrades (described below).

1.4 Description of proposal

Invest in market capacity to deliver innovative energy efficiency products and services for small businesses

An objective of NSW Government action on energy efficiency is to encourage sustainable

growth and diversity in the energy efficiency industry.5 Government support to build market

capacity can accelerate learning rates that reduce the cost of saving energy. This can also

help to improve the equity of the ESS by improving access to the benefits of the scheme for

households and small businesses.

Under this proposal, the NSW Government could deliver short-term, targeted financial

incentives to build market capacity in delivering low cost small business technologies not

currently taken up through the ESS. This would deliver savings towards the 16,000 GWh

target. Once the market builds capacity, this proposal would increase uptake of these low-

cost activities through the ESS, increasing its efficiency and effectiveness. These targeted

incentives would replace the role of ESS incentives for participants in this program.

As discussed in Section 1.3, the marginal cost of activities in markets such as the ESS sets

the price of certificates. By kick-starting targeted energy efficiency opportunities outside of

the ESS, this proposal can help to reduce the cost of energy efficiency opportunities without

impacting on the whole of the ESS certificate price.

Low-cost energy efficiency opportunities

Targeted activities could include:

controls systems to better manage hot water use

insulating windows to reduce energy required for heating and cooling

variable speed drives to reduce energy required by fixtures with motors

energy management services to reduce unnecessary energy use, such as adaptable building management systems for businesses or information and automation services under the ESS Aggregated Metered Baseline Method to help households save energy

3 Databuild, 2012, Energy Efficiency for Small Business: Evaluation of the Program - Phase II, prepared for NSW Office of

Environment and Heritage. 4 ibid. 5 NSW Government, 2015, Review of NSW Energy Savings Scheme: Part 2 Options Paper, p. 17,

http://www.resourcesandenergy.nsw.gov.au/__data/assets/pdf_file/0010/558865/part-2-options-paper-april-2015.pdf.


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if extended to help households save energy, replacing low efficiency pool pumps and air conditioners with higher efficiency models when they fail.

Scale of incentive

This proposal would provide a direct incentive for service providers to build capacity to deliver these activities and still generate a net economic benefit to NSW through the energy savings.

The NSW Government would provide sufficient incentives to drive uptake of particular opportunities. The scale of incentive could be targeted by a cap on funding or energy savings, by sector or technology type.

Based on analysis by Energeia, a specialist energy consultancy contracted by the NSW

Government, investing in incentives to deliver low-cost, energy efficient technologies and

energy management options could drive around 77 GWh of savings per year towards the

2020 target at a BCR of 2.34.

Implementation and delivery

Under this proposal, it is anticipated that the NSW Government could run competitive tender rounds for energy efficiency projects, measurement and monitoring in small businesses, based on a similar model to the NSW Government’s gas efficiency program. These tenders would be open to small businesses and product and service providers for a range of technologies without deemed savings factors in the ESS, or for cost effective energy savings opportunities with no, or limited, uptake through existing ESS methods.

1.5 Analysis

In 2016, the NSW Office of Environment and Heritage contracted a specialist energy consultancy, Energeia, to develop a model that could assess the costs and benefits of policy and program options to meet the 16,000 GWh target. Some of the results of this analysis are presented below.

Note that all figures, including the BCR, are additional to the savings, costs and benefits already delivered by the ESS under current settings.6

Table 2 Cost benefit analysis summary

Parameter Invest in market capacity to deliver innovative energy efficiency for small businesses

Electricity savings in 2020 (GWh/yr) 77

Gas savings in 2020 (GWh/yr) (primary energy)

0

Electricity savings in 2025 (GWh/yr) 38

Gas savings in 2025 (GWh/yr) (primary energy)

0

Energy bill savings to 2050 ($m)

$160

Economic costs to 2050 ($m, NPV)

$19

Economic benefits to 2050 ($m, NPV)

$45

BCR of incremental change 2.34

6 These savings are based on an assumption that the scale of incentives support uptake of 5 per cent of the opportunity for

targeted technologies and 10 per cent for energy management services.


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Parameter Invest in market capacity to deliver innovative energy efficiency for small businesses

Net benefit ($m, NPV) $25

Effectiveness

The proposal for target investment in energy efficiency delivers a significant energy saving (77 GWh) in 2020. This reflects the scale of opportunity available for technologies that would benefit from a kick-start to transition to the ESS.

Additionality

Targeted investment in market capacity will deliver additional energy savings above and beyond the ESS. When these short-term incentives to kick start market capacity come to an end, it is anticipated that service providers will start to deliver these opportunities through the ESS. Once service providers are expected to have reached sufficient learning to deliver these opportunities at a relatively cost effective level, the incentives would be withdrawn. This is estimated to be when about 5 per cent of the technology opportunity has been implemented and 10 per cent for energy management opportunities. The program could also have a cap on incentives for targeted opportunities, by technology or sector.

Efficiency

The proposal for targeted investment in market capacity is expected to efficiently deliver savings. Based on the ability to kick-start new technologies and services and overcome initial transaction costs of delivering energy efficiency through the ESS, as well as on the impact of accelerated learning rates under similar programs in the renewable energy sector, this proposal may reduce the cost of meeting ESS targets.

Experience with the development of technology in the past (automobiles, semiconductors,

mobile phones, solar PV, battery storage) has shown that the capital costs of these

technologies decrease over time because of ‘learning by doing’. This occurs where

knowledge about making and implementing technologies reduces capital and installation

costs. This learning by doing applies to both global manufacturing and local deployment. It

results in lower prices and promotes further deployment, continuing to increase knowledge

and cost reduction.

Administrative simplicity

The development of incentive programs targeting specific activities would require some administrative effort to establish. The administrative resources required to implement the proposal could be minimised by designing the program based on existing ESS administrative processes where possible.

Participation would be voluntary, so no additional regulatory burden would be imposed.

Equity

Energy efficient technologies and services considered under the proposal will primarily target small businesses. Targeted incentives will help energy service providers develop business models to improve learning rates, reduce transaction costs and overcome information barriers associated with efficient energy use in these sectors.

By kick-starting new energy efficiency activities to access ESS incentives and broadening

the range of options under the scheme, this proposal can also help to improve equitable

access to the benefits of the ESS for households and businesses and reduce the overall

costs of the scheme.


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1.6 Summary It is recommended that the NSW Government invest in developing market capacity to deliver

specific energy savings technologies and energy management options.

This proposal is recommended because it is estimated to:

effectively and efficiently deliver around 77 GWh of energy savings per year in 2020 towards the target

overcome transaction costs, accelerate learning rates and reduce the future costs of the ESS

improve the equity of the ESS by helping small businesses to access the benefits of the scheme.

This proposal is reflected in the “Invest in market capacity to deliver innovative energy efficiency products and services to small businesses” in A Draft Plan to Save NSW Energy and Money and A Draft Climate Change Fund Strategic Plan priority area to “Support small businesses to increase their energy productivity.”

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A Draft Plan to Save NSW Energy and Money - Energy ... your say We want your feedback on A Draft Plan to Save NSW Energy and Money and the preferred options we have suggested to achieve