So now the NESS is dead and Queensland has announced they are considering schemes for energy efficiency and demand management, it is a good time to reflect on how such a scheme(s) should be established.
The Qld government can benefit from the experience of other states running such schemes for nearly 10 years. It will have noted that not only have significant savings of energy been delivered to over a million homes and thousands of businesses, but the schemes have also delivered a step up in the transition to energy efficiency in the economy. Australia is a laggard in energy productivity and these schemes go some way to directly addressing this issue. A Qld scheme will deliver jobs during the transition and encourage others to recognise the benefits of energy efficiency.
So what have we learned by running schemes for nearly 10 years in other states that can be used in Qld?
Lesson 1- Size the scheme appropriately
Given the “latent” demand for efficiency created by energy cost increases, the target will need to be substantial and established for the long term otherwise it will be delivered too quickly to create the longer term jobs and economic transition.
Qld, our third largest economy, should be looking at a scheme with a target of at least 10 million gigajoules which is about the size of the NSW ESS and half that of the Victorian Energy Efficiency Target. It should be measured in energy rather than emissions and legislated for at least a decade.
The NSW scheme has a trigger to enable increasing the target in the event of sustained oversupply; this is far more flexible than the Victorian target set in legislation. Whilst both are currently significantly oversupplied it only becomes an issue when this damages the longer term benefits.
Fortunately for Qld the costs involved in running the schemes have also fallen significantly due to an entire energy efficiency industry having been established. Compliance software has been developed and highly efficient products are now being imported in huge numbers at a fraction of the initial prices. This will keep the cost of a QLD scheme to a minimum whilst maximising the benefit allowing confidence in a bolder target.
Depending on the mix of activities, the scheme should deliver benefit to half a million households and several thousand businesses.
Lesson 2 – Legislate with care
A secondary lesson learned (mainly by Vic) is that the Qld scheme should be careful to build in flexibility by running most aspects of the scheme through rules rather than legislation. Legislation requires parliament to change whilst the rules are changed by the OK of the minister – easier and faster. The trade off, of course, is a degree of certainty.
The example of stating that only full certificates can be created (no rounding up) in the VEET Act stopped showerheads being replaced in Melbourne metro for a full year, even though everyone agreed that this was not intended.
As part of the Act this obviously needed change to allow the rounding had to go back to parliament. Many thousands of houses were being retrofitted with compact fluorescent lamps at the time and would have had showerheads replaced, but for this simple issue of lack of rounding. Few of these houses would be revisited – a terrible waste of opportunity. If the issue was a matter of a rule change a mistake like this could have been rectified far more quickly.
Lesson 3 – Build for the long term
The schemes provide an opportunity to build the infrastructure, knowledge and skill required to support the technical aspects like product accreditation in a manner that will continue to deliver benefit to Australian industry beyond the schemes.
Australia is coming from behind with many of the higher tech energy efficiency products and does not have much in the way of testing labs and specialist engineers to verify claims and establish standards.
The Essential Services Commission in Vic and Independent Pricing and Regulatory Tribunal in NSW have tried valiantly to build a bureaucracy capable of keeping up with technology developments with some degree of success. With no access to the ESC or IPART product teams those outside of the schemes cannot share the benefits and we lose the investment when the scheme stops!
QLD could take a position to support its own Queensland University of Technology by establishing it as the institution to test and verify the products used and charge accordingly. The governments in Vic and NSW are missing this opportunity and perhaps the QLD approach could provide the service to their southern neighbours.
Lesson 4 – Beware of unintended consequences
The energy efficiency schemes in full flight are incredibly effective at rolling out an activity en-masse. Prior to the introduction of the scheme LED tubes were replacing fluorescent tubes but once the scheme incentives were established, the changeovers leaped 100 fold.
The problem hiding behind this good news story is that for every new one installed to save energy there was an old one being removed and disposed of. Whilst the LED versions do not carry the highly toxic mercury and phosphors, the old do! (Australia is a signatory of the international treaty (Minamata) against the harmful effects of mercury. See mercuryconvention.org)
Initially, the requirement to prove correct disposal had not been included in the rules as it was already covered by the EPA. Unfortunately, the state based EPAs had been unable to effectively police the replacements prior to the scheme with an estimated 95 per cent of all old fluorescent tubes going to landfill. Correct disposal costs money, is more difficult than throwing them in a skip and there was little or no chance of being caught. With the huge numbers being replaced in the schemes we were not just facing a disaster but it would also contravene our obligations under an international treaty to avoid mercury poisoning.
The VEET moved reasonably quickly to require correct disposal.
Unfortunately, the NSW ESS still has not stepped up to require correct disposal in all cases.
The QLD scheme needs to enshrine correct disposal from day 1 – and police it carefully.
Lesson 5 – Ensure everyone can participate
One criticism of the schemes has been that while everyone pays for it, only some can share the benefits. There are lots of examples from the existing schemes but generally, the activities now in place are broad enough to appear to cover everyone.
Probably the best example of providing a pretence of coverage would be to industry with high efficiency motor activity. No benefits have been created for motors and yet they have been in the scheme for several years with the use of minimum energy performance standards (MEPS) as a baseline for calculation of electric motor efficiency rather than the actual, or an approximation of actual, energy use of the old motor.
This issue has robbed industry of the ability to gain a benefit for changing compressors, pumps and the like. While the improvement from a 10 or 20 year old motor may be 60 per cent or more, most of that is covered by the MEPS value, leaving a small five or 10 per cent for the scheme participant to try and encourage replacement. The argument is spurious and relates to additionality and is too involved to go through here.
But suffice to say that all Qld has to do to is provide a more realistic value for motors and industry will start upgrading and participating in the scheme.
Lesson 6 – Take Control
The geographical/demographical reality of Qld, with over half of the population in the bottom corner of the state, will challenge broad participation within the scheme, but it is not insurmountable. A small regional multiplier in the other states is an attempt to account for the additional costs involved, but the distances are so extreme in QLD it will take more than that to deliver activities in remote areas. A requirement built into the scheme in a similar manner to SA’s support for priority groups may be employed.
Qld should establish zones within the state and set a percentage of activities to be delivered by the obliged retailers from each.
Likewise if Qld wants to be sure households, or even priority householders benefit.
Lesson 7 – Last word
Qld (and WA, TAS and NT) is in a great position to adopt a scheme by copying one of the others or simply entering into an agreement with NSW to pay it to administer a QLD version of the ESS. IPART can do this whilst the Vic ESC cannot.
Give it a bold target, make it flexible, change it to require correct disposal, administer product registration from QUT and undertake the activities more broadly than just in and around Brisbane and you have a winner!
That makes a lot of sense to me.
Bruce Easton is chief executive of energy consultancy Ecovantage.