Response to Setting Future Victoria Energy Efficiency Targets Consultation paper
Green Energy Trading welcomes the opportunity to provide a submission to the Department of Economic Development, Jobs, Transport and Resources on the consultation paper released in April 2015.
About us
Green Energy Trading is one of Australia's largest environmental certificate agents, and is committed to making incentives for renewable energy and energy efficiency activities more accessible to Australians.
Green Energy Trading was established in 2007 and supports its clients in accessing incentives available through market mechanisms, including the Energy Saver Incentive (Victorian Energy Efficiency Target), the NSW Energy Saving Scheme and the federal Renewable Energy Target.
Green Energy Trading is a registered agent that creates, purchases and trades environmental certificates for customers of solar PV, solar hot water, small wind and other renewable energy, commercial lighting and other energy efficiency projects.
Green Energy Trading became an Accredited Person (AP) of the VEET scheme in early 2009, shortly after the scheme commenced. As an independent agent we create, purchase and trade VEECs for households and businesses that have chosen to upgrade to eligible solar water heater, high efficiency space heater, and lighting products.
In addition to certificate creation, a large part of our involvement in the VEET scheme has been as a knowledge leader providing education and information on the VEET scheme and how it works to householders and installers. We have also worked with the Energy Efficiency Certificate Creators Association (EECCA) and the Essential Services Commission on compliance issues that improve scheme integrity.
Our Submission
Green Energy Trading is a member of the EECCA and has participated in the development of its submission. We endorse the EECCA submission and provide feedback on the following questions.
1. What should the new VEET target be?
We firmly believe that the target level should be set for at least the next five years. To drive long term investment businesses will need to be confident that the scheme is going to be in place for some time. This is particularly important for project based activities where project proponents will want to contract the sale of certificates over a period of time with liable parties.
We believe that the target should be 10 million tonnes per annum as this will have the greater net benefits once we allow for:
• Compliance costs have been over-stated (refer to item 2 below); and
• Certificate costs have also been significantly over stated at $85 per certificate
Concern over the ability to ramp up to meet a higher target could be dealt with by a phasing in of the 10 million tonnes over the first two years.
If the government has concerns that the price may exceed the penalty at any point and that liable parties will pay the penalty instead of purchasing VEECs, then to mitigate against the lost abatement, the act should be amended so that the funds from penalties paid are channelled back into energy efficiency projects (instead of going into consolidated funds) so the energy efficiency targets can still be achieved.
2. Comments are invited on the modelling approach used to determine the costs and benefits of the VEET scheme.
We have specific comments on the follow items:
• Compliance costs have been assumed to increase as the level of the target increases. The costs of purchasing certificates and reporting are inherently fixed and we cannot see how they should be based on a proportion of certificate costs. The only variable cost that we can ascertain is the cost of brokerage for certificates that have been acquired through the wholesale market. Yet this cost is estimated to be 5 cents per certificate (or less) which is not material.
• Certificate costs – we are concerned that the modelling has significantly overstated the cost of activities required to meet the scheme targets. As an example under the 10 million tonne scenario assumed a certificate price of $85 per tonne. This seems extreme and at this price a wide range of activities would be free.
o The modelling appears to have not considered the change in business models and innovation in product and service delivery that would result from “free activities” becoming available as the price increases above $40 per certificate. As an example, if we were to consider commercial lighting for example installations would be free at a certificate price above $40.
o There are a range of other fuel switching technologies that become attractive at higher certificate prices such as (i) air sourced heat pumps in business applications that displace gas and LPG; and (ii) conventional high efficiency heat pumps that replace gas used in boilers as well as (iii) gas fired cogeneration.
o Based on the analysis that was presented in Table 4, we estimate that assuming a 9 million tonne per annum target would deliver higher net benefits. 9 million tonnes is the target level that we estimate would result in a certificate price approximately equal to the tax effective penalty of $64 per certificate.
3. Which greenhouse gas coefficient should be used to quantify the reduction in greenhouse gas emissions achieved by the VEET scheme?
Any changes to the greenhouse gas coefficient should impact both the target and certificate abatement values. As a result, changes should have minimal impact on the overall scheme. Ideally the greenhouse gas coefficient should reflect emissions which are not being generated as a consequence of energy efficiency carried out under the VEET scheme. However, since this will fluctuate based on a large variety of outside influences and is overly complicated to work out, it is better just to set a fixed coefficient, whether it is the current marginal coefficient or the adjusted marginal coefficient, for at least the next target period.
4. The Department has valued greenhouse gas emissions reductions attributed to the VEET scheme by adopting a carbon valuation series that was produced by the Federal Climate Change Authority as part of its 2014 Targets and Progress Review.
The CCA approach seems reasonable given the uncertainty around mitigation costs.
5. Is there a case to exclude any business sector(s) from participation in the VEET scheme?
All business sectors should be able to participate in the VEET scheme to allow Victorians all possible opportunities to lower the states emissions. In particular the large energy users (formally known as EREP sites) which have been traditionally excluded should be included, as there are significant energy efficiency opportunities that can be realised in this sector.
Whether these large energy users should also have a liability is a separate issue. Only those that are energy intensive trade exposed industries have a case for exemption as this could impact the net economic benefits of the scheme to Victoria.
6. Should the VEET scheme be amended to better ensure support for low income households?
The VEET scheme has been helping support energy efficiency in low income households since its commencement. If the VEET scheme is amended to support low income households, there needs to be an additional mechanism complementing the VEET to allow the low income households to access the energy efficient systems that have a capital cost such as high efficiency water heaters and space heaters and base building upgrades (insulation, double glazing, weather sealing).
7. In addition to expanding the range of energy efficiency activities available in VEET, should any other action be taken to target participation by certain groups?
There should be a greater focus on businesses during this next phase of the scheme, as businesses have been included in the scheme since 2012 in terms of liability but have not had the same opportunity as residential to access the scheme’s benefits.
8. Please suggest up to five activities that should be prioritised for revision or introduction to the VEET scheme.
1. Adopt the NSW methodologies for Project Based Methodologies (PBAs). PBAs have been in the pipeline since 2012 and it is absurd that we still do not have this methodology in Victoria when NSW have provided a comprehensive model to follow.
2. Adopt the NSW abatement methodology for commercial lighting technologies which allocates operating hours based on building and activity type and more fairly represents the energy savings occurring in businesses operating longer than 3000 hours per year. (refer to Attachment 1). In particular, hours should be given as per Table A10.2 and A10.3 in the NSW Energy Saving Scheme Rule 2014 (Attachment 2).
3. Re-assess the abatement factors of T5 adapters and T8 LED tubes compared with full luminaire replacements and adjust the abatement factors so that they fairly represent the additional abatement occurring for full luminaire replacements.
4. Re-instate insulation activities as soon as possible.
9. Please suggest up to three changes which should be made to improve the VEET scheme.
We advocate strongly for harmonisation between the NSW ESS and the VEET in Victoria. Varying compliance requirements in each state make it more complex and costly to work in the schemes.
Yours sincerely
Ric Brazzale
Managing Director
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