Performance

| February 8, 2023

National Energy Performance Strategy Consultation Paper Submission

The Smart Energy Council is grateful for the opportunity to provide a submission to the Australian Government on the National Energy Performance Strategy.

The Smart Energy Council (SEC) is Australia’s peak independent body for renewables including solar, batteries, and renewable hydrogen. The Council has over 950 members and 65 years of experience in the sector having been established by the photovoltaic pioneers in the 1950 and 60s who designed and built some of the world’s first solar panels and solar hot water systems.

The SEC’s 950+ members provide us with real-world, empirical insights via thematic working groups which assist the SEC with drafting, testing and advocating for fit-for-purpose smart energy policy. The discussion and outputs of the SEC working groups provides the basis of evidence in this submission.

The Smart Energy Council has recently partnered with Rewiring Australia to ensure a timely and effective rollout of home and small business electrification with renewables.

 

Smart Energy Council Budget integrated recommendations

The Smart Energy Council has made a comprehensive Federal Budget Submission with a focus on initiatives that contribute to cost savings at the household level and anti-inflationary effects across the economy. The Smart Energy Council’s key priorities as they relate to home electrification and energy performance are:

1) $10 billion over 10 years to upgrade homes and support families and low-income earners in the take up of smart energy products.

  • Introduce a three Smart Energy Packages – through a $5 billion fund
    • Families Smart Energy Package – means tested low interest loans
    • Renters Smart Energy Package – incentives via Environmental Upgrade Agreements for landlords to upgrade investment properties, and an extension of the Government’s Solar Banks initiative
    • Healthy Smart Energy Package – grants to assistance with switching homes off gas
  • Public and Social Housing Package – Partnering with states and territories to upgrade public and community housing through a $5 billion Low Income New Energy scheme

 

The allocation of $10 billion over 10 years – $4 billion over the 4 year forward estimates – is consistent with the Energy Minister’s commitment to a “meaningful and substantial package” for home electrification in the forthcoming Budget.

2) National communications campaign on household energy efficiency and renewable energy to put downward pressure on energy bills – Provide $80 million package over 4 years for a national communications campaign.

3) Renewable Energy Storage Target – Develop a comprehensive approach to unleashing renewable energy storage at scale.

4) Smart Energy Workforce Plan – Establish a $500 million, 4-year package of grants to small business to increase workforce participation in the smart energy sector

Australia can lead the world. We are the first nation where using all electric zero emission appliances and vehicles will save every home money. We have access to the cheapest electricity in the world (smart, renewable energy) and this abundant energy can electrify our homes and buildings.

 

The following key principles should underpin the National Energy Performance Strategy:

  1. Consumer-centric Put consumers at the centre of energy planning and programs.
  2. Affordability Require law and policy makers, institutions (CEFC, AMECO) to publish the impact of decisions on consumer power bills (and other key consumer-centric metrics).
  3. Public/community housing first.
  4. Rest of residential next ratings tools, energy obligations, MEPs disclosure for renting and sales, finance for upgrades – means tested, resources to measure outcomes and inform future policy prioritisation, broaden appliances included in GEMS, EVs integration, incentives to get homes off gas, consumer tools to inform next action decision, accreditation for service providers to maintain industry trust.
  5. Demand management / flexible demand as a concept / not just energy efficiency.
  6. Remote, rural and First Nations focus– don’t leave anyone behind; look to provide disproportionate assistance because it’s needed and a priority for a just transition.

 

i. Energy Governance

  1. How can demand considerations be better integrated into Australian energy governance and what are the priorities for change?
  2. What new or modified coordination mechanisms or institutional responsibilities would be appropriate to better drive energy performance action in the future?

 

Establish an Electrification and Consumer Energy Resources Division within DCCEEW

This division would lead the Consumer Energy Resources related reforms set out in this plan. This division would encompass non exhaustively; electrification, EVs, demand management and flexing, DNSP reform and all smart connected devices and services being effectively integrated into our homes and businesses.

This new Departmental division should work collaboratively with the National Energy Transformation Partnership.

 

Why?

Electrification and Consumer Energy Resources can provide faster, cheaper decarbonisation if it is well integrated into the grid effectively. This outcome also delivers the most targeted and immediate energy bill relief.

Distributed Energy Resources will supply at least ¼ of electricity by 2050 and ¾ of dispatchable supply by 2050. Consumer Energy Resources require specific policy and regulatory focus and a division within DCCEEW to drive the reforms set out in this plan. The key barriers and areas of reform outlined in the proceeding sections require institutional change.  A national champion is required to drive the following reforms appropriately and at the pace required by our emission reduction objectives and goals. The current framework of energy institutions lack the expertise, focus and agency to drive the necessary reforms for energy performance across the economy.

 

Reform of the regulatory Institutions

Commission a review of the energy market institutions led by eminent Australians and international energy experts. Considering the following matters:

  • Consideration of the AEMC and the AER as fit for purpose energy market institutions.
  • A full government board on AEMO, as opposed to 40% industry representation.
  • A new expert Independent Technical Authority to lead on regulatory reform in the fast-evolving Consumer Energy Resources sector.
    • Establish a properly resourced Independent Technical Authority responsible for Consumer energy resources standards, cybersecurity, interoperability and integration and reform. It could also include key tasks related to emerging policy initiatives (like advice around the appropriate governance and operating models for community / neighbourhood batteries).
    • If DER technical standards are embedded in the national energy rules or a subordinate instrument under the rules, their compliance can be enforced by the regulator.
  • Establish a stand-alone Consumer Energy Resources Regulator

Why?

The Governance of the NEM is overly complex and does not sufficiently reflect consumers best interests. The structure of the NEM energy bodies has also seen the governing institutions fall behind the pace of the energy transition. In a time of rapid change, amalgamated institutions, such as the rule maker (AEMC) and the regulator (AER) should be considered for reform into one new independent body, to drive the transition to a distributed and variable renewable energy system in a streamlined and co-ordinated manner.

Specific issues include: 40% of AEMO’s board being industry representatives, the slow pace of AEMC rule change reviews (averaging 2 years), having a separate rule maker and regulator (which exists nowhere else in the world). Noting the average rule change every two years, the AEMC has a distinct lack of vision, forward planning and innovation, and this is evident in the AER which does not see itself responsible for the regulation of consumer energy resources. Furthermore, there is a lack of Distributed energy resources expertise at all three energy market institutions.

Improved governance, fewer institutions and an enhanced vision of moving towards net zero as soon as possible, will significantly improve the investment environment for consumer energy resources, both for consumers and innovators. A reformed governance structure will drive an accelerated energy transition and over the medium to long term lower costs for consumers.

A renewed approach to regulation and compliance of consumer energy resources is required to enhance system visibility for the AEMO and DNSPs. Poor and substandard installations have resulted in broken and an unreliable distributed network of assets. A renewed approach, to addressing the regulation and compliance of consumer energy resources will deliver better system security, optimization of the investment that consumers put into energy performance, and reduced risk of power outages. This is a fundamental pillar to an effective energy system, and all the energy reform, and innovation will be made relatively redundant without a compliant network of devices and services with effective monitoring.

 

ii. Residential Uptake – Opportunities and Barriers

  1. What are the key opportunities to improve the energy performance of new and existing residential buildings?
  2. What opportunities are there to improve or streamline existing policies aimed at empowering consumers to undertake energy performance improvements in their homes?
  3. What are key financial and non-financial barriers to the uptake of energy performance improvement opportunities? How can these barriers be overcome? 
  4. How can demand management and electrification support lowering energy bills and emissions? 
  5. How does poor energy performance impact on disadvantaged communities?

 

Q.3 What are the key opportunities to improve the energy performance of new and existing residential buildings? + {Qs 4,6,7]

Our energy institutions and any bodies established under the NEPS must prioritise the following in order to drive least cost system wide energy performance, and support low-cost technologies to drive down energy bills.

  1. Legislate for a demand response capability for large household appliances (such as air conditioners) in the Commonwealth Greenhouse and Energy Minimum Standards (GEMS) Act so they can be used as a resource to benefit households, by providing grid stability as a service.
  2. Support and drive the AEMC to make a rule that the demand response mechanism; Include aggregated household consumer energy resources to enable household participation in the wholesale Demand Response Mechanism.
  3. Provide greater resources to fast-track improving GEMS standards and recognition of new technologies.
    Better and more reflective rating of innovative systems such as Solar Air-conditioners, or solar heating devices.

  

 

Why?

Without demand response capability supported by the GEMS Act and recognised by energy markets, household appliances don’t have the opportunity to participate in maximising energy performance in Australia. As our energy system becomes increasingly dominated by variable and distributed energy resources, demand side management becomes increasingly valuable and critical. Demand side management and flexibility goes hand in glove with a least cost energy transition to net zero. Households must be given access and support to optimize demand flexibility. This not only provides significant savings back to consumers but also provides grid stability at the least cost.

Demand response with the appropriate market signals and governance is the cheapest form of managing distributed energy networks, with significant cost savings capable of distribution among the entire energy network and participating households.

The distribution of cost savings is critical.  The benefits of a distributed energy grid are often captured unfairly by system operators, and this trend requires attention from the aforementioned proposed DCCEEW division for Consumer Energy Resources. Without proper protection of consumer rights throughout this transition the benefits will be captured by incumbent stakeholders, rather than households and low-income earners.

Recognition of demand response in the GEMS Act and energy markets is key to proliferating cost-effective energy saving devices in our homes and rewarding the innovation that is occurring in this space. These two reforms are also instrumental to signal future investment and innovation in demand management devices in our homes and businesses.  This is a vital step towards a two-sided electricity market.

This needs to be legislated as a priority to ensure smart appliances are installed as soon as possible to provide consumers with the opportunity to monetise their flexible demand.

The Greenhouse and Energy Minimum Standards Act has been a major success story, but progress has slowed on recognising improvements in energy efficiency and flexibility of household and commercial appliances, devices and services.

Regulatory reform and acceptance of Aggregators as an emerging market stakeholder to manage demand responsive devices is also a key priority for connecting these devices to energy markets.

 

Families Smart Energy Package

Introduce a new package of means-tested low-interest loans for household solar, flexible demand management systems, battery storage, energy efficiency, heat pumps, battery electric vehicles, electric bicycles, and to electrify homes. The initiative would be modelled on the highly successful Sustainable Households Scheme in the ACT and rather than duplicate where programs exist, extend the total that can be borrowed such that qualifying households can utilise the credit to purchase electrification devices and other larger cost energy systems. The Australian Government should work with those jurisdictions that have established similar programs and assist States and Territories that are yet to implement these programs.

 

Healthy Smart Energy Package

The Healthy Smart Energy Package seeks to support households with their transition to an all-electric, healthy home by contributing to the cost (approximately $1,000 per home) of removing gas supply from cooking, space heating and water heating from homes. Aside from the emissions savings resultant from this Package, the Commonwealth would also be improving indoor air quality and the health and lives of Australian families and their children. This would be a cooperative investment with the States and Territories.

 

Q5. What are key financial and non-financial barriers to the uptake of energy performance improvement opportunities? How can these barriers be overcome?

The Distribution Network Service Providers (DNSPs) and their role in energy transformation:

  1. Revenue Regulation.
  2. Insufficient funding and direction to modernise the energy grid

 

 

Revenue Regulation

DNSP’s hold very significant power over the cost recovery and distribution of revenue at the Distribution level of energy. This seriously limits how much consumers can benefit from improved energy performance.

Distribution Network Service Providers (DNSP) revenue regulation has not been fit-for-purpose for over a decade and needs a complete overhaul to be performance-based for consumer outcomes, rather than focused on capital spending. Revenue regulation focused solely on capital spending was relevant for a one-sided electricity market. The regulatory framework must adapt to an evolving two-sided market, which must prioritise managing distributed resources rather than simply building more distribution infrastructure.

 

Case Study:

A positive initiative of the AER has been the development of a regulatory reform test kit, for new market rules, where energy innovators are encouraged to test new market rules and services which can enable market innovation to optimize consumer energy resources. However, any new rule change is subject to DNSP approval.

The issue here is that as consumer-based devices and market innovation re-distribute energy savings into households, DNSPs will have a reducing return on their capital and investment. This is an example of the well-studied phenomenon of the downward spiral of utilities as their market share declines, their need to retain profit from remaining service provision increases at the expense of the remaining customers. Therefore, they have a clear incentive to block innovation which may distribute energy savings to consumers rather than themselves. This power imbalance requires redress.

 

Why?

With appropriate reform energy consumers will see a fairer portion of the savings from investment in energy performance. The distribution network will also be able to provide better service, faster DER integration, and a more resilient grid.

 

How to overcome the barrier?

Review distribution network (DNSP) revenue regulation to support Consumer energy resource integration, adjusting revenue regulation to optimize energy performance for consumer outcomes. This reform requires DER expertise managed by the aforementioned Electrification and Consumer Energy Resources division within DCCEEW.

Part of this review should focus on where and how to move to Stand Alone Power Systems (SAPS) and microgrids for remote and vulnerable parts of the grid, as has been done in Western Power’s region.

 

Insufficient funding and direction for modernisation

The future distributed energy grid, with high VRE is dependent upon a visible and interoperable energy network.

The Transmission Network has received 20 billion in Federal Funding to transform and decarbonise the energy grid. Investment in the Distribution Network is an opportunity for cheaper, faster decarbonisation, expected to supply ¾ of dispatchable energy supply by 2050. Nonetheless, the distributed network is currently receiving no financial support to unlock the cheapest form of decarbonisation. The difference between transmission network investment and distribution level investment (subject to DNSP revenue reform) is the latter redistributes the money from our energy sector into everyday energy consumer as they continue to invest in energy performance.

 

DNSPs need the direction and funding to invest in modernizing their grid:

  • IT upgrades
    • Monitoring and software
  • Substation upgrades, i.e., tap changes at substations
  • EV charging infrastructure support
  • Capacity to install and establish microgrids or stand-alone power systems for remote and vulnerable regions.

 

Why?

An optimal grid:

  • Optimisation of consumer energy resources, software management and control are required to maximise energy performance across energy.
  • Lower bills for consumers
  • Faster return on investment for consumer energy resources and electrification of households.
  • Faster decarbonisation.
  • Reduce losses from solar cut-off policies.
  • Greater energy reliability and safety.

 

iii. Low-income households

  1. What are the opportunities to improve the energy performance of residential buildings for low-income households?
  2. What are the financial and non-financial barriers to uptake of energy efficiency upgrades for low-income households, and what can be done to overcome them?
  3. What actions should be prioritised to assist low-income households to improve energy efficiency in their homes?
  4. What delivery mechanisms would be most effective to provide targeted support?

 

Public and Social Housing Package (A Low-Income New Energy scheme)

In Australia, State and Territory Governments play a significant role providing and maintaining public and social housing. Despite the social, environmental and medium-term budgetary benefits from doing so, funding for energy upgrades has been inadequate.

Today an estimated 790,000 people live in 440,000 public and community owned and managed dwellings; low-income households that already receive government payments towards meeting the costs of their utility bills. A portion of these payments could be redirected to finance capital upgrades of these homes making them more comfortable, healthier and cost effective to operate, including through the installation of renewable energy systems.

A bulk retrofit of public and social housing could be delivered by an off-budget reallocation of state and territory government utility assistance payments (e.g., in NSW Low Income Household Rebate). This should be combined with Clean Energy Finance Corporation funds, paid to accredited and efficient energy service providers who install the upgrades. The SEC estimates a project budget of $500 million per year out to 2030 would be needed with only a portion of that coming from the Australian Government’s own budget. The SEC has not costed in the savings to the states and Commonwealth in reduced energy subsidies nor to the whole economy through lowering demand across the energy grid or improving the health of public and community housing residents.

The retrofit package should cover:

  • PV systems
  • Storage systems, electricity or heat
  • Energy efficiency retrofits
  • Internet Access
    • Reliable Internet access is often missed but is necessary to connect an electrified home to the two-sided market, connecting low-income earners to more savings from demand flexibility and other services.
  • EV charge points where appropriate

Evidence shows that Solshare a program that allows tenants to share renewable energy across apartment rooftops, has allowed the elderly and people living with disability to buy and use air conditioners for the first time as they perceive it is now an affordable amenity for the social housing tenant to utilise. Given the physical impacts of climate change – intensifying and more frequent heatwaves for example – this is an opportunity to ensure a just transition, with social equity as a key pillar.

 

iv. Renters

  1. What are the key opportunities to improve energy performance of residential buildings for renters?
  2. What options are available to overcome the split incentive for renters and landlords?
  3. What options are available to support public and community housing tenants?
  4. How can the energy performance of rental homes be made more transparent to prospective tenants?
  5. How can governments and private sector support renters to improve energy performance?

 

Q.13 What options are available to overcome the split incentive for renters and landlords?

 

Renters Smart Energy Package

Aiming to address the split incentive that exists between landlords and their tenants, particularly those living in apartments and ensuring we move forward together, the SEC recommends that apartment owners are provided a discounted line of credit to undergo smart energy upgrades. The program would be modelled on the successful City of Melbourne ‘Environmental Upgrade Agreements’ and provide blended finance to apartment owners via their Local Council rates billing system.

The National Energy Performance Strategy consultation should require all rental properties to disclose their energy and climate ratings at the time of listing.  This change would mean work to improve the quality of residencies for renters could start immediately. The Government may also wish to consider legislative reform to allow landlords to recoup some of their capex by on-charging tenants for part of their energy bill savings.

One more additional consideration is the extension of the Solar Banks initiative beyond the Commonwealth’s $100m commitment to benefit more than the existing 25,000 apartment dwellers for which is currently budgeted. As this is a co-investment style initiative it is a great example of leveraging private capital to deliver an economy-wide lift in efficiencies and flexible demand management.

 

Low-income private renters

Fund a nationwide pilot for low-income rental upgrades. Ahead of potential implementation of mandatory rental standards, we propose a pilot program to retrofit rental dwellings, delivered through third party providers and the community sector to target private rentals housing people on low incomes. The Government would provide financial incentives and conditions regarding tenure length, no eviction and rental caps, to provide benefits to people on low-incomes and allow an appropriate evaluation of the pilot. The program would build experience, test tools and gather better data on the most cost-effective residential energy interventions in different locations around Australia, measure health and bills savings, engage landlords and support people on the lowest incomes.  A pilot should aim to reach around 10,000 households of different types in a variety of climate zones over three years. The NLEPP provides a basis for how this could be rolled out.

 

vi. Regional, Remote and First Nations

  1. How are communities in different geographic locations impacted by poor energy performance and what needs to be done to ensure access to improvements?
  2. What are the key opportunities to ensure the benefits of improved energy performance are available to First Nations Australians, and Australians located in remote communities?

 

The First Nations Clean Energy Network should lead in setting the priorities for empowering First Nations people to improve the energy performance of their communities.

 

ix. Supply chains and workforce

Questions for consultation

  1. What support is needed for Australian manufacturing or other supply focused businesses to improve energy performance?
  2. What are the most critical supply issues hindering energy efficiency action?
  3. What is needed in the finance sector to help accelerate the uptake of energy performance investments? 

 

The scope of the workforce challenge cannot be understated. Australia cannot meet its 43% emissions reduction target by 2030 or its 82% renewables by 2030 target unless substantially more people can be found, trained, and engaged to work in the sector. Some reports indicate there is a shortfall of up to 15,000 electricians in the system right now and potentially 41,000 engineers not to mention the jobs required throughout to support those roles. (Infrastructure Australia (2021, Oct), Market Capacity for electricity generation and transmission projects).

According to Reputex’s modelling of the Government’s Powering Australia policy to transform Australia’s energy grid to 82% renewable by 2030 (to meet our national ambition of reducing greenhouse gas emissions by 43%), 600,000 direct and indirect workers are required by 2030. The Smart Energy Council is very concerned that by 2030, without significant intervention and investment the total workforce deficit will cripple our efforts to transform our energy network.

The Smart Energy Council urges the establishment a new $500 million, 4-year package of grants for industry, particularly small businesses, to increase workforce participation in the smart energy sector.

There is a clear need for an all of industry plan to embrace these challenges in order to solve the ecosystem of workforce shortages and to set Australia up to become a smart energy superpower.

The Australian Government should co-invest with the smart energy sector in industry programs to promote the take up of smart energy jobs throughout our economy. Provide a package of grants for industry to increase workforce participation, training and development to ensure the workforce is available to implement our renewable energy targets.
This work can commence with the ‘10,000 New Energy Apprentices program’ and the ‘New Energy Skills Program’ prioritising

  • Installing and servicing consumer energy resources and electrification processes.
  • Focus on energy storage installations
  • Electric Vehicle servicing

 

Program recommendation:
Development of a ‘R&D and Deployment program’ to fast-track the streamlining of electrification, solarisation and energy efficiency upgrades of the existing housing fleet.

 

Why?

While it is obviously economic to install solar, conduct a few energy efficiency upgrades and electrify existing homes the consumer driven market is too slow. We need to upgrade 1 million homes per year to meet emissions reduction targets and there are insufficient skilled people in Australia to enable this to happen. Therefore research, development and deployment are needed to create the efficiencies in supply chains, consumer energy performance offerings and installation processes to reach 1 million homes per year.

 

Further consultation

The Smart Energy Council, in conjunction with Rewiring Australia has a broad membership base across the entire industry delivering energy performance in Australia. The Council operates a number of active Working Groups to address the key issues and opportunities for the industry. We would welcome and encourage engagement to effectively inform the National Energy Performance Strategy.

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