Independent Review into the Future Security of the National Electricity Market Blueprint for the Future, Jun 2017

6.6 Improved energy efficiency

Energy efficiency can contribute to improving reliability and affordability and reducing emissions through:

Reducing demand, which can reduce the costs of delivering infrastructure to meet reliability standards.

Reducing consumer bills through direct savings and also through downward pressure on long-term costs in the energy system.

Avoiding fossil fuel generation and reducing the investment needed in new infrastructure to meet a given emissions target.

Energy efficiency activities are driven by a wide range of consumer choices and can require coordination of many small decisions and investments to have impact. There are also many well recognised barriers to the uptake of energy efficiency by consumers, such as information failures and transaction costs. For these reasons, there remains a large potential for accessing untapped energy efficiency improvements.

Many successful energy efficiency activities, such as minimum energy efficiency standards for appliances and buildings, can have a strong impact on energy consumption and costs. Average household electricity use in Australia has been falling for the last decade, despite increasing numbers of appliances, due in part to energy efficiency standards. For example, modern refrigerators and air conditioners use significantly less energy than older models, and combining them with modern homes with improved insulation further reduces energy consumption.

The energy efficiency of new buildings has an even longer-term effect as most buildings built today will be standing long after 2050. ‘Split incentives’ can result in cost-effective measures not being undertaken voluntarily, with builders more likely to be focused on short-term costs while building owners and tenants manage long-term energy costs.

Some energy efficiency improvements can be delivered in the short-term. In particular, large industrial energy savings projects to reduce electricity peak demand, or to reduce gas use to free it up for other uses, including electricity generation, could have strong reliability benefits in the short-term while also reducing the energy bills of large consumers.

Substantive opportunities have been identified in the large consumer sector for cost-effective investment in energy efficiency measures. While the most energy-intensive users have a strong commercial incentive to manage energy closely, industrial energy users may not invest in these projects to the most efficient levels without some form of support or intervention because some of the benefits accrue to the wider energy system, for example through improved reliability.

There are currently a number of government programs targeting improved energy efficiency. For example:

In December 2015, the Australian Government and the Energy Council published the National Energy Productivity Plan 2015-2030. The National Energy Productivity Plan sets out a high-level framework and initial steps to attain the target of a 40 per cent improvement in energy productivity by 2030.³⁴¹

Energy savings schemes currently exist in New South Wales, Victoria, South Australia and the Australian Capital Territory. These schemes encourage uptake by creating demand for energy savings measures, and a market of service providers who identify household and business consumers who can benefit and offer services to support the uptake of these measures.

In December 2016, the South Australian Government launched the South Australian Energy Productivity Program, which includes funding for large businesses to undertake energy audits and implement energy efficiency measures.

The other area in which government actions could assist is to improve the availability of energy efficiency advice for consumers. There are a number of barriers in this area, including the growing complexity of consumer options, the lack of trust consumers currently have in energy retailers delivering value for money, and barriers to third parties accessing consumers’ energy usage data.

A range of recent pilots with both small business (through the Energy Efficiency Information Grants) and vulnerable consumers (through the Low Income Energy Efficiency program) have provided research to improve the way advice is provided to these sectors. Governments could build upon this research to target improvements in these sectors and ensure affordability benefits reach those who most need them.

Despite these existing programs, a large number of submissions called for more to be done on energy efficiency and there appears to be considerable scope for greater use of energy efficiency to improve reliability, security and affordability.

Recommendation 6.10

Governments should accelerate the roll out of broader energy efficiency measures to complement the reforms recommended in this Review.

Chapter 7: STRONGER GOVERNANCE

Overview

A strong and resilient system of governance will be central to ensuring a secure and reliable low emissions future. Good governance requires trusted, capable, empowered and accountable institutions. We need energy market bodies to respond in a coordinated and timely way to rapid changes that will occur in the NEM. To do this they will need clear strategic direction from the COAG Energy Council and to have shared accountability for whole-of-system outcomes.

To help achieve this, the Panel recommends that the COAG Energy Council endorse a national strategic energy plan for the NEM informed by the Blueprint in this report and agree to the formation of a new Energy Security Board to coordinate action.

The Energy Security Board will provide a single point of responsibility and accountability. It will drive implementation of the recommendations of this report, and release an annual Health of the NEM Report. The Energy Security Board will draw on the expertise of market bodies and coordinate how they exercise their separate accountabilities to keep pace with the rate of change. More rapid rule-making processes will help keep pace with the rate of change in the NEM.