The Energy Savings Scheme

An Effective Model for a National Energy Savings Initiative?

Margaret Sniffin General Manager 29 February 2012

Today’s presentation

 What is the ESS?

 How does it work?

 Why participate?

 What does it cost?

 What is covered?

 How has it performed?

 What lessons have been learned?

 Is it an effective model for a national scheme?

Energy Savings Scheme – key facts

 ESS commenced on 1 July 2009 – in NSW only  Mandatory scheme – established by legislation Electricity retailers are the liable parties  Market based mechanism that involves the creation and trading of Energy Savings Certificates (ESCs)  Not a funding or grants program  IPART is both Scheme Administrator and Regulator we accredit companies to create certificates – we monitor compliance by obligated parties

Administrative Structure of ESS

Legislation:  Electricity Supply Act 1995 (the Act)  Electricity Supply Regulation 2001 (the Regulation)  Energy Savings Scheme Rule (ESS Rule) – define eligible activities  Will run to end 2020 unless replaced by a national scheme 4 4

How the Scheme works

 Obligation placed on electricity retailers to acquire energy savings. Can do this by:   carrying out energy savings activities themselves (for example street lighting upgrades) and have these recognised by IPART to create ESCs, or buying ESCs from other accredited providers  ESCs are created from activities in the residential, commercial and industrial sectors   must apply to IPART to be accredited to create ESCs ESCs trade for around $31 per certificate on spot market  Retailers surrender ESCs against their individual target (based on their share of total electricity sales in NSW), or pay a penalty

Scheme targets drive demand for ESCs



2011 target was 2.5% of annual liable electricity sales or approximately 1,400 GWh

 surrender of ~1.4 million ESCs to avoid paying penalties 

By 2014, target will be 5% of annual liable electricity sales or about 3,000 GWh per annum in energy savings

 surrender of ~3.0 million ESCs to avoid paying penalties 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 6

ESC Supply & Demand for CY2010 & 11

ESC registered as % of Annual Target. CY2011 includes un surrendered prior vintage ESCs – tight supply situation 100.00

80.00

60.00

40.00

20.00

0.00

CY2010 ESC creation CY2011 ESC creation to date CY2011 ESCs to come CY2011 Target with 10% carry over 1 July 31 December

Time

30 June

What obligations and costs do Accredited parties face?

 $500 Application Fee – once off  Annual Reporting – pro forma statement   Report future creation and any changes to project Not required for small projects with one-off creation of ESCs  Audits - based on risk assessment   Nature of project, ESC volume, compliance history Costs range from $8,000 - $25,000 per audit  ESC registration fee - $0.70 per certificate  Penalties enforced for contraventions 8

The lifecycle of a ESC

Registration, transfer and surrender of ESCs is done via the Registry at www.ess.nsw.gov.au

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ESC Spot Price History

 Certificate price theoretical ceiling: ~$35 set by the penalty rate 18 March – compliance deadline Trends in the ESC spot price over the period July 2009 to Dec 2011 (source: NextGen) 10

Cost effectiveness of ESS

 Databuild Research and Solutions study: looked at cost effectiveness of first 18 months of ESS operation. Findings:   Costs to participants and businesses small compared to ESC value Total net benefit of ~$24.50 per ESC 11

ESS Rule - Calculation Methods

 Applicants must use one of the specified Calculation Methods:

Metered Baseline Method(s) (MBM) Commercial Lighting Formula Default Savings Factors

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Equipment types and calculation methods

Activity

Residential Lighting Commercial Lighting Whitegoods Sales & Removals Showerhead Replacement Improved NABERS ratings Commercial equipment Industrial equipment Industrial sites & processes

PIAM

Yes Yes Yes Yes

MBM

Yes

DESM CLF DESM DSF

Yes Yes Yes Yes No Yes Yes Yes Yes Air Compressors HVAC Chillers Refrigeration 13

Accreditations in ESS – by year

104 accreditations; 160 projects in total. Showerhead programs no longer eligible

*As of 24 February 2012

Project Impact Assessment Method (PIAM)

Description: Project Impact

Engineering assessment or situation-specific data used to calculate energy savings from the intervention

Use when:

a) Savings are small compared to overall site consumption b) Unexplained variation in baseline energy consumption is high c) Data for a site’s electricity consumption is not available

Sectors:

Commercial, Industrial, (Not typically residential)

It is possible under the PIAM to create ESCs for up to 5 years in advance, with some discounting of expected future ESC volumes

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PIAM Projects

Discrete upgrade of a small part of a site Energy Savings achieved are small relative to whole site, perhaps the savings are ‘lost in the noise’ Forward creation of ESCs is possible, providing early cash flows. Discounting is used to calculate the upfront ESCs, with top-ups available to ensure full crediting over time 16 16

PIAM Case Study: Out Performers Penrith City Council Chiller Upgrade



Council replaced 2 chillers with 1 ultra efficient two stage centrifugal compressor Key facts:



Saves 331 MWh per year



Generates certificates worth $8,771 (or 350 ESCs) per year



Engaged an aggregator



Used Project Impact Assessment Method

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Metered Baseline Method (MBM)

Baseline

Per unit of output Unaffected by output Normalised

Use when

Usage depends on production volumes

Sector

Commercial Industrial Usage independent of production volumes, eg: in commercial office or school campus Usage variable, can be normalised by factors other than per unit of output Commercial Industrial Commercial Industrial NABERS NABERS ratings - offices, hotels and shopping centres Commercial 18

MBM Projects

A large number of small discrete projects Together the Energy Savings achieved are significant relative to whole site Significant administrative simplicity is achieved by not using PIAM for each initiative An income stream can be generated from the Energy Savings Certificates 19 19

MBM Case Study: Knowledge Global - Fitness First Efficiency Verification Program

Includes a series of energy efficiency activities:



behavioural changes and reporting



lighting and controls upgrades



HVAC maintenance and upgrades Key facts:



Will save 4,528 MWh per year



Will generate certificates worth $120,000 (or 4,800 ESCs) per year

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Deemed Energy Savings Method

Four deemed sub-methods

Baseline Use when

Default Savings Factors a) Installing new efficient standard appliances b) Replacing inefficient appliances c) Removing surplus appliances

Sector

Residential Commercial Industrial Commercial Lighting Formula Lighting retrofits Commercial Industrial High Efficiency Motor Formula Sale/installation of motors that that meet the high efficiency levels of AS/NZS1359.5:2004 Power Factor Correction Formula Install power factor correction equipment in an electricity distribution network Commercial Industrial Commercial Industrial 21

CLF Case Study: Demand Manager – Lighting Upgrade Australian Technology Park  Target of reducing energy consumption by 15% by June 2012  Range of energy saving measures identified, including implementation of efficient lighting solutions  An example of these measures is the replacement of light fixtures for a 180m exterior walkway Key facts:  Saved 7.9 MWh per year  Generated certificates worth $2,100 (or 84 ESCs) per year 22

How has ESS performed?

Vintage 2009 2010 2011 2012 Total created Total forfeited* Forfeit rate 278,179 22 916,972 685,527 16,619 (to date) 0 112,748** 3,385 *Note: total forfeits include incorrectly registered ESC creation **2010 total forfeits largely due to showerhead over-creation 0.01% 12.30%** 0.49% 0.00% 23

Lessons learned

 Balance between upfront assessment & ongoing compliance audits    Encouraging applications from long-term / sustainable businesses – especially industrial sector Tailoring audit regime to project risk e.g. phone surveys for 3 rd party business models Importance of clear Scheme documentation – new website, new application documents  Improving efficiency of application assessment process - pre-application workshops  Being responsive to changes in market (ie growth in commercial lighting) 24 24

Is the ESS an effective model for a national scheme?

Satisfies a number of criteria including:  Encourages least cost solutions  Uses tradeable certificates  Broad based sectoral coverage – residential, commercial and industrial  Broad range of eligible activities with scope to expand  Broad range of methodologies to calculate savings – Deeming, upfront calculations, on-going assessment  Robust audit and compliance regime – Use of 3 rd party independent auditors

For more information: visit our new Website: www.ess.nsw.gov.au

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www.ess.nsw.gov.au

Independent Pricing and Regulatory Tribunal www.ipart.nsw.gov.au