This announcement increases the previous targets for 2022 to 2025, announced in 2016, by 0.5% per year, meaning the 2025 target has increased from 8.5% to 10.5% of electricity supplied. This rate of increases continues year-on-year through to 2030, targeting savings of 13% of all electricity supplied to end customers. In line with previous target setting, the goal for 2030 to 2050 is currently set at 13% per year, but as the government has done before this likely to be reviewed at the five-yearly target setting. Importantly, this is the first time a target has been set more than ten years in advance and indicates that the ESS is likely to be a key part of NSW goal to achieve net-zero by 2050.

The final certificate target for 2020 is yet to be released by the regulator as the annual compliance deadline doesn’t fall until April, but the 2019 target was 4.6M ESCs. The creation for 2020 activities to date is 3.7M ESCs, down 24% on 2019 with the 2020 compliance surrender yet to be completed. If the 2020 target is similar to 2019, there will be a surplus of 4.3M ESCs – or another way to look at it the program is 11 months ahead of the target.

Looking forward it is hard to know what the annual ESC target will be, as the future energy consumption is not known, but based on the latest NSW consumption forecasts by AEMO out to 2030, the 2021 target could be 5.5M ESCs increasing to 8.4M ESCs per annum by the end of the decade.

During 2019, activities under the ESS saved 2.8 TWh of electricity, 520 TJ of gas, avoided 2.6M tonnes of green house gases, and saved NSW consumers $235M. The cost of the program to electricity customers was estimated to be $88-112M representing a return on investment of 109%. These savings also contribute to demand reduction across the state reducing the cost of transmission and distribution assets.

The Energy Savings Scheme is a market-based mechanism that was implemented in 2009 with the goal to provide financial incentives for business and residential consumers to undertake energy efficiency upgrades. The approved activities cover “deemed” upgrades – where there is a pre-determined level of savings based on the upgrade and is available for specific technologies – there is also the technology-neutral “Measurement and Verification” approach. Whilst an M&V approach is more complex and takes longer to complete it enables the full value of the savings to be realised. The program supports many types of upgrades ranging from industrial boilers, refrigeration, improving NABERS ratings, air-conditioning and HVAC, LED lighting, high-efficiency appliances, and many bespoke upgrades in the commercial and industrial sectors. The NSW government has continued to make the ESS an integral part of their energy strategy, expanding the program into the Energy Security Safeguard which will incorporate a future demand response mechanism.

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Energy efficiency equipment payback drastically reduced.  The payback period for many capital equipment purchases can be drastically reduced (40% or greater).  Be it Boilers, Chillers, HVAC, UPS, Motors, VSD, Compressors and Blowers.

The Federal Budget announced on the 6th of October that nearly all businesses will be able to fully deduct capital equipment purchases in operation by June 2022. If you couple this with the state based energy savings scheme (NSW, ESS, VIC, VEU) then a business can substantially reduce their energy costs, and achieve a much shorter payback.  With the added bonus of the higher reliability and lower maintenance that comes with new equipment.

Take for example the upgrade of a 6MW Gas-Fired Steam boiling is using say 45,000 GJ PA at recent prices of say $11.00 per GJ and hence $500,000 PA in gas charges.  The upgrade to a new high efficiency boiler with economiser, O2 trim could cost around $800,000.  The efficiency gains from moving from a 30 year old boiler to a modern one could be as high as 30%, but we’ll use a 25% reduction in gas usage for this example and hence annual gas savings of 11,250 GJ PA. Prior to the Federal Budget (and after June 2022) a new boiler asset would need to be depreciated over 20 years.

The figures for the new boiler commissioned by June 2022 are as follows

• Immediate tax writeoff 30% x $800,000 = $240,000
• Compared with tax write off over 20 years = $12,000 per annum 
• Energy Saving Certificates = $110,000
• Capital Costs (after tax writeoff and certificates)
  • $800,000 – $350,000 = $450,000
• Annual Gas Savings of $11.00 x 11,250 = $124,000

Compare the three scenarios

No tax cuts & not claiming environmental certificates

• Simple payback = $800,000 / ($124,000 + $12,000) = 5.9 years

Using tax cuts & not claiming environmental certificates

• Simple payback = ($800,000 – $240,000) / $124,000 = 4.5 years

Using tax cuts & environmental certificates

• Simple payback = ($800,000 – $240,000 – $110,000) / $124,000 = 3.6 years

Hence by performing the upgrade with the new Federal Budget changes reduces the outlay by more than 25% and brings down the payback period substantially. Also be aware that with the changes that allow companies to offset future losses against past profits for the financial years of 2020-2022 means that you can carry back losses (ie the capital cost) to reduce last year’s tax bill as well.

Boilers are one asset type that uses a large amount of energy and has the potential to save substantial energy, but the same applies to many other equipment upgrades that will drive substantial energy savings.  Consider these aging assets for replacement by using the immediate tax depreciation and NSW Energy Saving Scheme or Victorian Energy Upgrades to drive much short payback periods.

• Gas-fired Steam Boilers in Industrial process
• Gas-fired Hot Water Boilers for Commercial Buildings
• Chillers for Commercial HVAC
• UPS and CRAC upgrades for Data Centres
• Air Compressor upgrades
• Variable Speed Drives for large motors and fans (very fast payback)
• Warehouse and Orchard Coolroom upgrade 
• Installation of Large Scale Solar PV in Victoria under the VEU
  
  

All these assets can claim energy savings certificates using the Measurement and Verification methods under the different state-based schemes as well as under the Australian Carbon Farming Initiative (Carbon Solutions Fund).

Image courtesy of: couriermail.com.au

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ESS Commercial Lighting Requirement Changes – Effective November 1, 2018

A summary for the ESS Rule change effective from November 1, 2018.  Any existing activities must be registered with IPART prior to the 1st of November in order to claim the existing ESC quantities.

• There is now a cap on the Nominal Lamp Power (NLP) for High-Intensity Discharge (HID) Lamp i.e. Mercury Vapor Lamp, Metal Halide Lamp for use in indoor spaces at 400W. Lamps with a higher NLP can only be claimed at 400W.  Outdoor fittings on the external faces of buildings can be claimed at the full wattage.
• The table below shows how the asset lifetime values have been manipulated to stimulate growth in underserved areas. A discount rate has been applied to most metro installs to promote more regional installs. While car parks and certain types of factories have been bumped up to stimulate more installs in metro and regional areas.

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From October 6, 2018. APs undertaking activities under Schedule 34 – Building Based lighting upgrades must provide the following three additional pieces of evidence:

• Geo-tagged photographs of each upgraded space type showing the arrangement of at least 75% of the existing lighting equipment before removal from its original position
• Geo-tagged photographs of each upgraded space type showing the arrangement of at least 50% of upgrade lighting equipment after installation
• Where high-bay products are replaced, a close-up geo-tagged photograph of at least one existing high-bay product for each upgrade space type, before removal from its original position

Wattly is in the process of releasing a new version of the app that will request these additional photos. These additional requirements have come about due to increasing concerns about over claims or ineligible claims.

More details can be found in the Information Bulletin and in the ESC explanatory note for commercial lighting.

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The Victorian Energy Efficiency Target (VEET) Scheme has decided to make a change and rebrand with a new name and new regulations. The VEET Scheme, also known as the Energy Saver Incentive began in 2008 with a purpose to make energy efficiency improvements more affordable, reduce greenhouse gas emissions and encourage energy efficiency. The VEET Scheme has been well-known for offering Victorian’s free lighting upgrades and has said to have helped more than 70,000 businesses and 1.7 million households.

Why are they changing the name to Victorian Energy Upgrades Program

The ESC website explains this well. To put it simply, there was confusion on who administers and regulates the program and who set the program policy. The government rebranded the public-facing aspect of VEET to the Victorian Energy Upgrades Program, but the internal administrative side remains known as the VEET Scheme.

Changes for the Victorian Energy Efficiency Target Regulations

Fundamentally the scheme didn’t change, the purpose and objectives are relatively the same. The big difference is the scheme is moving with the times and as the industry evolves, the relevant methods change. The new scheme will now include several new activities including a customised way to measure energy savings. The changes in the program will also give previously excluded large energy users the opportunity to benefit from Victorian Energy Upgrades.

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After long delays in releasing the outcome of the VEET review, the Victorian Government announced last week that the VEET scheme will continue in 2015 with a reduced quota and finish at the end of the 2015 compliance year.  The market reacted to some final certainty by an increase in the VEEC price.  The VEEC creation rate has been low, and in fact the scheme administrator has made downlight globe replacement stricter.

In more detail

The scheme will have a reduced target of 2M VEECs in 2015  (down from 5.5M over the last three years) – this is better than the worst case scenario – there was a real possibility it would go to zero at the end of this year.

The current weekly creation rate is higher than needed to meet the 2M quote in 2015, which suggests the price could drop back.  Thankfully the ESC (who administer the VEET scheme) recently announced that electricians would be required to do any 21C (down light lamp only) upgrades – this protects the scheme against the situation that occurred with the Standby Power Controllers where free products flooded the market and smashed the wholesale VEEC price down to $11.

We expect the wholesale price to remain fairly steady until the election in November.  There is the opportunity for the Labour government, if elected, to reinstate the current quota and continue the scheme for 2015-18 period.

Wattly will continue to work with contractors and manufacturers and energy consumers over next 18 months to do commercial and industrial lighting upgrades.  The current price results in a reasonable rebate  of 10-30% of the project costs for commercial and higher for residential lighting upgrades.

Here is some of the press.

• Announcement – http://www.energyandresources.vic.gov.au/energy/about/legislation-and-regulation/energy-saver-incentive-scheme-management/esi-review
• Governments Claims Reducing Bills – http://www.premier.vic.gov.au/media-centre/media-releases/9996-coalition-to-reduce-power-bills.html
• Counter View – http://www.businessspectator.com.au/article/2014/5/21/smart-energy/vic-govt-axes-energy-efficiency-scheme

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