Energy efficiency for residential buildings: Nathers heating and cooling load limits Consultation ris

Appendix CRegulatory impact analysis of proposed heating and cooling load limits

C.1Tony Isaacs’ preliminary impact report

The heating and cooling load limits were deliberately designed to have minimal regulatory impact. TIC was requested to produce a preliminary impact report. The report examined 6 dwelling types (four houses and two apartments) and a total of 44 scenarios where either the proposed heating or cooling loads were not met. The report also included 3 to 6 different practical options for each scenario to achieve compliance.

This report confirmed that the extent of design and specification change required to achieve compliance with the proposed heating and cooling load limits is minimal. The report suggested solutions for outliers to meet the heating or cooling load limits could be achieved with low or even no cost solutions, however costs were not identified as part of this analysis.

The report identified a number of reasons why no significant costs will be imposed from the proposed load limits. These include:

The amount of energy reduction required to achieve the heating or cooling load limits is not large. The average heating energy reduction required across all climate zones is 2.5 MJ/m².annum and the average cooling energy reduction is 4.3 MJ/m².annum.

Some options may actually reduce cost, such as slight trimming of window size in highly glazed houses or replacing underfloor insulation with the insulation of subfloor walls.

Load limits are typically exceeded when performance in the opposite season (either winter or summer) is particularly good. This occurs where designers have focused their attention on the performance of the dwelling in one particular season.

The performance can be relaxed for the season that is well below the limit, which can possibly offset the cost for an improvement required for the other season.

Introducing heating and cooling load limits also highlights the level of performance that is considered to be poor for each season. This provides valuable diagnostic information to designers to help improve designs.

C.2Regulatory Impact Assessment

Further to TIC’s preliminary impact report, Strategy.Policy.Research (SPR) was commissioned to examine the regulatory impacts and quantify the costs and benefits of the proposed heating and cooling load limits. The attached Consultation Regulation Impact Statement (RIS) assessed two options:

Option A: Regulatory Option (i.e. incorporating the heating and cooling load limits into the NatHERS compliance option, complemented with an information/education program)

Option B: Non-Regulatory Option (i.e. implementing an information/education campaign).

The key assumptions of the benefit cost analysis of the Consultation RIS are summarised below.

Proposed heating and cooling load limits will apply for 10 years and then be subject to regulatory review. This means that costs associated with the implementation of load limits will be calculated for 10 years.

The lifespan of dwellings is 40 years, meaning the energy savings from the proposed measure will persist over 40 years.

Energy savings calculated were taken from TIC’s preliminary impact report, based on the energy reduction required for outliers to be adjusted to meet the load limits. Assuming the measure takes effect in 2019, the savings will be counted from FY2019/20.

The projection of electricity prices is sourced from the Australian Energy Markets Operator with the assumption that new dwellings will generally use electricity for space conditioning.

For Option A the take-up percentage is 100 per cent as the requirements will be mandatory. A 5 per cent annual take-up rate applies to Option B (non-regulatory option) for each of the first three years and then the percentage drops to 2.5 per cent for the remaining 7 years.

External benefits, including a carbon price and avoided network costs, have been taken into account.

Compliance costs for Option A are primarily the additional cost of modifying dwelling designs to meet the load limits, which are estimated for all practical options suggested in TIC’s preliminary impact report. The additional costs are divided into three categories: ‘least cost’, ‘highest cost’ and ‘average cost’.

Compliance costs for Option B are the estimated costs incurred for providing information/ education products.

The analysis uses a discount rate of 7 per cent. Sensitivity analysis has also been undertaken to test the volatility of outcomes when key assumptions change, including testing the outcomes when using a 3 per cent and 10 per cent discount rate.

Results from the analysis are presented in Tables 2 and 3.

C.3Option A – Regulatory Option

Table Option A results

Building classification	Present Value of energy savings and external benefits	Present Value of construction cost savings	Net Present Value
Class 1	$14,887,000	$26,478,000	$41,366,000
Class 2	$7,404,000	$46,504,000	$53,908,000

The total benefits for new Class 1 and 2 buildings is $95 million in Net Present Value terms. This comprises of energy and related externality savings of $22.3 million, together with construction cost savings of $73 million.

For these benefits to be realized, it has been assumed that owners of impacted dwellings will adopt least cost options—that is, an option that reduces construction costs when compared to current practice. See the Appendix A: Construction cost implications of design changes of the attached Consultation RIS for the list of solutions examined⁹. A tolerance test was also conducted, concluding that provided at least 68 per cent of new Class 1 dwellings and 67 per cent of new Class 2 dwellings use least cost solutions, the proposal will still demonstrate net benefit.

The Consultation RIS emphasises the importance of providing information and education to encourage uptake of the least cost options, as an adjunct to the regulatory proposal.