Energy Saver Incentive Team

11 November 2015

Department of Economic Development, Jobs, Transport and Resources

Via email:

Proposed VEET Activity Regulation Changes October 2015

Australian Gas Networks Limited (AGN), is one of Australia’s largest natural gas distribution companies. AGN owns approximately 23,000 kilometres of natural gas distribution networks and 1,100 kilometres of transmission pipelines, serving over 1.2 million consumers in South Australia, Victoria, Queensland, New South Wales and the Northern Territory.

AGN’s Victorian gas distribution network has its origins dating back many decades in the form of the Gas and Fuel Corporation of Victoria. Today, we facilitate the safe and reliable supply of distributed natural gas to around 620,000 Victorian customers.

AGN welcomes the opportunity to make a submission to the Energy Saver Incentive Team within the Department of Economic Development, Jobs, Transport and Resources (the Department) regarding the Victorian Energy Efficiency Target (VEET)“Proposed Activity Regulation Changes October 2015”(the Paper). AGN understands that following this consultation period, the Energy Saver Incentive Team is seeking to change the VEET regulations to help facilitate improved access to existing energy savings activities and to ensure activities are correctly rewarded.

As outlined in our submission attached to this letter, distributed natural gas is a low cost, low carbon energy choice for Victoria. Our network delivers safe and reliable energy that is a fraction of the carbon intensity of Victorian mains electricity as evidenced by the proposed values of the “greenhouse gas abatement coefficients”. The availability of natural gas provides a more diversified energy mix,thereby increasing the security of energy supply to customers.

Importantly, there are multiple opportunities for Victoria’sgas distribution network to evolve beyond providing supply to traditional appliances in areas already reticulated, resulting in additional carbon savings as well as efficiencies for existing customers. These initiatives are explained further in our submission.

Please contact either Kristin Raman (08 8418 1117) or myself (08 8418 1129) if you would like to discuss the matters raised in this submission further.

Yours sincerely

Craig de Laine

General Manager – Regulation

Attachment – Detailed Response toProposed VEET Activity Regulation Changes October 2015

Background

Natural gas has long played an important role in the energy mix for Victoria and Australia, driven by its favourable characteristics of being an abundant local resource which is low cost, low carbon intensity and a preferred energy source for cooking and heating. These characteristics continue to make natural gas an important part of Victoria’s future energy mix. More specifically, distributed natural gas:

Provides reliable, base load energy supply to homes and businesses with our Victorian customers experiencing, on average, one supply interruption every 36 years.
Is base load in the nature of its supply, and as such, is an important complement to the more intermittent nature of renewable energy sources.
Delivers energy which is one quarter to one sixth of the carbon intensity of mains electricity.[1] Even at times of increasing renewable energy generation, as long as coal remains part of the electricity generation mix, distributed natural gas will continue to be preferential in terms of emissions. There are further opportunities to reduce emissions associated with distributed natural gas through the injection of renewable gas (biomethane from biogas plants) and/or synthesised natural gas (excess renewable power efficiently stored in the gas grid for future use).
Offers a more cost-effective solution to Victorian consumers as the price of gas is lower than electricity[2], and in many locations, gas prices are stable or falling[3]. This reflects the significant reduction in network charges, which account for around 50% of the retail gas price.[4] These reductions more than offset any forecast increase in wholesale gas costs.
Helps to mitigate peak electricity demand, limiting the need for further costly investment in the electricity network, therefore helping to minimise electricity prices. For example, the Energy Networks Association (ENA) estimates that infrastructure required for peak electricity demand is used for the equivalent of four or five days per year, with one network alone indicating that augmentation for peak demand cost $11 billion.[5] By way of comparison, the total value of gas distribution networks in Victoria is$3.5 billion.[6]
Represents the more efficient utilisation of historic investment in natural gas networks, which in-turn will lead to lower prices.
Is an essential input to certain commercial and industrial applications.
Is evolving past the traditional uses of heating (homes and water) and cooking to transport, gas-powered air conditioning, gas dryers and distributed generation.
Provides diversity and balance in energy supply, which is vital for ensuring the ongoing energy security for Victorian homes and businesses.
Supports jobs growth and economic investment in Victoria’s economy, through the utilisation of the state’s natural resources.

Given the above, distributed natural gas has an important role to play in assisting the Victorian economy’s transition to a low carbon future. To this effect, AGN encourages the Department to actively consider the role of distributed natural gas in a low carbon future. Further details on how we can achieve this in collaboration with the Victorian state government are provided in the following responses to the changes proposed in the consultation paper.

Schedule 7: High Efficiency Ducted Air to Air Heat Pump Replacing a Ducted Air to Air Heat Pump

Do you have any comment on the proposed amendments?

AGN acknowledges the Paper’s comments about the improvement in Ducted Air to Air Heat Pump energy efficiency performancesince 2008,and further, that this improvement should providea higher level of greenhouse emissions abatementper unit when compared to the lower efficiency units that may currently exist in natural gas areas.

AGN supports open access to all appliance types to actively compete within the VEET scheme, on their respective emissions abatement merits. However, AGN also raises a concern about the potential of these amendments on growth in peak demand on the Victorian electricity network. Although it is difficult to model appliance uptake, summer peak air-conditioning load from space cooling is a key contributor to peak demand on the Victorian electricity network.Additionally, the Australian Energy Market Operator continues to forecast increasing peak demand in Victoria.[7]

In the recent consultation in regard to the Review of the New South Wales Energy Savings Scheme (ESS), the review was particularly conscious of inadvertently rewarding appliances that could increase peak demand in the state.[8] This is evident in the following excerpt from the Options Paper released as part of the Review[9]:

In summary, AGN encouragesthe Department to be cautious about supportingthe broad uptake of demand sensitive electric-powered devices to achieve emissions reduction objectives, in isolation from other key market developments. Otherwise, even with the best of intentions, Victorian electricity customers could experience further electricity price rises.

As an example of this point, ducted heat pump units similar to those encouragedfor heating cycles are currently discouraged in relation to cooling underthe VEET program’s “Activity 23-Ducted Evaporative Cooler Replacing of Refrigerative Air Conditioner”. By way of background, the worked example on this heating activity provided 12.9 certificates. Coincidentally,using the VEET website calculator for Activity 23 (with parameters similar to those replacing theappliance installed in the above example),would generate twelve certificatesof similar benefit.[10]Accordingly, the VEET assistance for installation of Electric Ducted Air to Air Heat Pumps may assist the abatement target on the heating cycle but equally detract fromthe cooling cycle compared to other appliance options that may be appropriate for the situation.

Are any other changes warranted? Please provide details?

The Schedule does not define whichtypes of Ducted Air to Air Heat Pumpsarewithin the scope of the activity and would like to make the Energy Saver Incentive Team aware that there are Gas Powered Air-Conditioning (GPAC) products unable to participate in the schemes, given that abatement factor tables in the regulation, have been based solely on electric units Coefficient of Performance (CoP) data.

This is an area for potential improvement in the VEET scheme and as suchit is AGN’s intention to lodge a submission inthe third opportunity for comment on the VEET consultation program, due 11 December 2015.In this future submission, AGN will encourage the Victorian government to include GPAC in the amended VEET scheme and highlight the current gap in product coverage for this activity.

General Comments in relation to Schedules 8, 9 and 10

The remainder of this submission consolidates comments in relation to the following Schedules:

Schedule 8: High Efficiency Ducted Air to Air Heat Pump Replacing Central Electric Resistance Heater
Schedule 9: Gas or Liquefied Petroleum Gas Space Heater
Schedule 10: Space Air to Air Heat Pump

In relation to these Schedules (and similar to that mentioned above), AGN encourages the Department to consider GPAC productsthat have been unintentionally excluded from the VEET scheme, due to abatement factor tables based solely on CoP dataof electric units. AGN considers it important that natural gas appliances have an equal opportunity to participate in the VEET scheme for the reasons outlined earlier in this submission.

Furthermore, AGN expects to prepare a submission to the Department in relation to the third consultation activity of this program, in order to highlight this gap in product coverage.

[1]Page 13 and 19, National Greenhouse Account Factors, Department of Environment, December 2014.

[2]For example, AGN analysis indicates that the annual retail bill associated with powering a gas hot water service, gas cooker and gas ducted heater is less (~$1,000) than powering equivalent electric appliances (~$1,400).

[3]For example, in New South Wales over the next five years, Jemena’s New South Walescustomers will see an average saving of $118 per year due to a34% reduction in network charges, whilst In South Australia, we (AGN) have proposed an11% reduction in residential network charges in 2016 equivalentto a $46 saving on the annual bill.

[4]Energy and Water Ombudsman Victoria,

[5]ENA 2014, “Electricity prices and networks costs”.

[6]Australian Energy Regulator, “State of the Energy Market Report 2014”, page 113.

[7]Australian Energy Market Operator, “National Electricity Forecasting Report Overview 2015”, June 2015.

[8]Review of the NSW Energy Savings Scheme – Part 2:Options Paper – April 2015 – page 65

[9]Ibid.

[10]Parameters used are: EER=14, System size= 24kW, in Regional Victoria Cold changing out for an Evaporative unit.