Australia Needs to Recognise the Power of Energy Efficiency
Low income households have the most to lose from rising electricity prices and the most to gain from energy efficiency as they spend a higher proportion of their income on energy bills. A national energy efficiency initiative provides the opportunity for the certainty industry needs to invest in energy efficiency. Despite all the media attention on the impact of a carbon price on households, there has been surprisingly little attention to the major cause of electricity price rises – increased network costs associated with increased demand and peak load.
Don’t discount the power of efficiency
John Thwaites & Rob Murray-Leach in Climate Spectator (26 May 2011):
Low income households have the most to lose from rising electricity prices and the most to gain from energy efficiency as they spend a higher proportion of their income on energy bills. A national energy efficiency initiative provides the opportunity to assist these households, streamline programs and provide the certainty industry needs to invest in energy efficiency.
Energy prices are rising much faster than incomes and the CPI. The main contributor to this price rise is increased network costs associated with increased demand and peak load. A carbon price will have a much smaller impact on energy bills than network costs, which means that even though many households will be compensated for carbon price impacts, they won’t be compensated for the other factors driving up energy costs. Energy efficiency could help households manage price rises from all these factors as well as reducing the need for some of the expensive infrastructure that is driving up electricity bills in the first place.
A coalition of welfare, business, research, and union groups – including ACOSS, Brotherhood of St Laurence, ACTU, Clean Energy Council, Energy Efficiency Council, Property Council, the Climate Institute and ClimateWorks Australia – have released a statement calling on the federal government to implement a national energy efficiency program to assist household energy affordability.
These policies are important both for households and for the sustainable growth of the industry, ensuring Australia’s smooth transition to a low-carbon economy.
This coalition recommends a two-track strategy to increase the uptake of energy efficiency and help low income households manage energy bills.
The first involves targeted support for high-needs households, funded through carbon pollution price revenue. The program would target individual households at risk (e.g. households that are having difficulty paying their energy bills, or with very high electricity use) or high-risk communities (e.g. high electricity charges, no access to gas, high transport costs at urban fringe). The program should commence with an initial establishment, research and evaluation phase to ensure the most effective delivery. It could then be scaled up to reach between 250,000 to 500,000 homes by 2020.
The second involves a National Energy Saving Initiative (NESI) – as recommended by the Prime Minister’s Task Group on Energy Efficiency – that builds on and harmonises existing state-based schemes in NSW, Victoria and South Australia. This would place a requirement on energy retailers to pursue and facilitate energy efficiency projects in households, businesses and industry, and include a specific obligation to achieve a proportion of savings in low-income households.
Currently, the three existing state-based schemes operate differently. This means energy retailers are subject to additional transaction costs of operating in three different states and eligible energy efficiency products must go through separate and differing approval processes, again adding costs and inefficiency.
A NESI could directly accommodate these schemes in a nationally consistent framework and deliver economies of scale and lower compliance costs.
A NESI would provide benefits for households and businesses, including lower overall electricity costs – and even lower costs for individual households and companies that participate. For example, the Prime Minister’s Task Group estimated that the initiative would reduce average annual household expenditure on electricity by $87-$180 in 2020 and by up to $296 for households implementing two energy savings technologies.
Most importantly, a NESI would start to do something about rising network and generation costs driven by demand. It would reduce the need for new network and generation investment, reduce wholesale electricity costs and lower scheme costs by integrating state-based schemes into one national scheme.
A NESI ensures there is a long-term framework for the delivery of energy efficiency measures, rather than the on-again off-again policy schemes that have operated in this area in the past. It also has the advantage of being a scheme without direct government program delivery, providing certainty for the industry.
Barriers exist to low-income households participating in energy efficiency schemes such as a NESI. The NESI should therefore be designed to ensure greater uptake of energy efficiency by low-income and financially stressed households. It should also facilitate efficiency, innovation and equity by, for example, ensuring multi-sector coverage and facilitating energy efficiency projects by placing the obligation to find savings on holders of electricity and gas retail licenses.
Considerable effort will need to go into detailed design of a NESI. It would be sensible for the government to commit to a process allowing time to properly design the NESI while commencing it within this term.
Despite all the media attention on the impact of a carbon price on households, there has been surprisingly little attention to the major cause of electricity price rises – increased network costs associated with increased demand and peak load. The energy efficiency initiatives outlined provide the opportunity to reduce these costs, help households and contribute to Australia’s carbon pollution challenge.
John Thwaites is chair of Brotherhood of St Laurence, Climate Change and Equity program. Rob Murray-Leach is CEO of the Energy Efficiency Council.