Policy update April 2021 07 April 2021

Policy update

by Rob Murray-Leach

Over the last month there have been big global developments on the energy management front, in the United States, the United Kingdom and Europe.

In the US, on 31 March President Biden released a new Infrastructure Plan. While most developed countries announced major stimulus plans in 2020 in response to COVID-19, the US was deeply mired in its election crisis. Biden’s Infrastructure Plan is effectively the US’s delayed stimulus plan, and it aims to invest US$2 trillion over eight years, paid for by increased corporate taxes over a fifteen-year period.

The US has a serious issue with underinvestment in its aging public assets, and the Infrastructure Plan proposes ‘once-in-a-generation’ investments in infrastructure such as bridges, roads and telecommunications. However, alongside these traditional forms of infrastructure, it also proposes to invest in areas such as workforce development.

Energy efficiency forms a large element of the Plan (wordsearch the Plan to find out!), and key measures include:

  • US$213 billion to “build, preserve and retrofit” more than 2 million affordable homes and commercial buildings, with strong focus on ensuring that homes are ‘weatherised’ – a US term that means safe, comfortable and energy efficient;
  • US$100 billion to build or upgrade public schools, again with a strong focus on energy efficiency, air quality and ventilation;
  • US$46 billion of federal government purchasing to drive US manufacturing of heat pumps, electric vehicles and similar technologies;
  • US$85 billion for public transport and US$80 billion for railways;
  • US$174 for electric vehicles; and
  • Establish an Energy Efficiency and Clean Electricity Standard (EECES) “aimed at cutting electricity bills and electricity pollution.”

The White House has only published very broad details of these measures to date, and it’s not clear how much of this agenda Biden will be able to deliver. For example, it’s not clear what an ‘EECES’ actually is, although it’s likely to be a federal version of a ‘portfolio standard’.

A ‘portfolio standard’ is a requirement for an energy utility to invest in a minimum level of energy efficiency and source part of their energy from renewable sources, similar to Australia’s Renewable Energy Target and the energy efficiency schemes in NSW, Victoria, South Australia and the ACT. Over 29 US states already set utilities ‘portfolio standards’, so one of the many details that we have yet to see is how the EECES would interact with existing state-based schemes. 

Biden’s Infrastructure Plan continues the trend from 2020, with developed countries directing their stimulus spend towards measures that positively transform their society, such as energy efficiency.

Across the pond, the release of the United Kingdom’s Industrial Decarbonisation Strategy marked a major milestone in the UK Government’s march to Glasgow; the strategy includes a lot of detailed thinking on how the UK will get industry to net zero; on energy efficiency it reveals the plans to support the rollout of energy management systems, and ramp up heat recovery and re-use, especially for high temperature processes.

Finally, in Europe, on 10 March the European Parliament approved a resolution backing the development of a Carbon Border Adjustment Mechanism (CBAM). A CBAM would effectively place a carbon price on carbon-intensive goods at the border, such as cement, steel, aluminium and chemicals, providing a strong incentive for countries outside the European Union to introduce carbon pricing mechanisms. While there are still many hurdles for a CBAM to cross before it comes into being, it has gone from pipe-dream to realistic proposition extremely rapidly.

Building policy

There is a huge amount of work underway at the state, territory and national level to implement the national Trajectory for Low Energy Buildings.

Work on residential energy efficiency includes:

  • A major update to residential energy efficiency requirements in the National Construction Code in 2022;
  • Mass media communication, with the ‘Renovate or Rebuild’ program appearing on commercial television in mid-2021;
  • Improving rating schemes for homes (including integrating fixed appliances into NatHERS and refining a tool to rate existing buildings);
  • Developing a National Disclosure Framework, with a draft expected in mid-2021. The Framework will set out the broad goals and directions for disclosing the energy efficiency of homes in Australia;
  • Developing a National Framework for Minimum Rental Requirements, which will be completed in 2022. The Victorian Government is currently improving minimum standards for rental properties in Victoria, and this work will be a critical input into the National Framework; and
  • Developing an energy rating for space heaters sold in Australia and New Zealand.

In commercial buildings, work underway includes:

  • Developing climate files and other data to support any refinements to commercial building energy efficiency requirements in the National Construction Code in 2025;
  • Developing and rolling out NABERS tools to new sectors, with a short-term focus on residential aged care and retirement living, and a longer-term expansion to other sectors including industrial buildings, supermarkets and retail stores;
  • Updating the 2012 Commercial Building Baseline Study;

Victorian energy efficiency policy

The Victorian Government is currently undertaking extensive work on designing and implementing energy efficiency programs, many of which were announced in late 2020. These include:

  • The Victorian Business Recovery Energy Efficiency Fund (BREEF) will provide up to $31 million to large energy users to improve their energy productivity. We understand that a large number of applications have been received, and expect that the Victorian Government will make announcements on the distribution of these funds in the not-too-distant future. It is not clear if there will be any further rounds of funding;
  • Large energy users in Victoria can currently opt-out of contributing to the cost of the Victorian Energy Upgrades (VEU) program. The Victorian Government is consulting on whether large energy users should be required to demonstrate that they have an effective energy management system in place in order to opt out of the VEU;
  • Solar Victoria is continuing to work on the details of the $335.5 million program to support 200,000 low-income households to install high-efficiency heating systems. Solar Victoria has announced that it will provide a base rebate of $1,000 toward installing systems, and some units may be eligible for further incentives through the Victorian Energy Upgrades program;
  • The Victorian government is continuing to design its $112 million program to upgrade a large number of social housing units; and
  • As noted above, the Victorian Government is leading national work on minimum standards for rental homes.

Energy efficiency schemes (retailer obligations)

A range of consultations will occur in the coming months on Australia’s energy efficiency schemes. We expect that the NSW Government will soon release its overall directions for its ‘Energy Security Safeguard’, which potentially includes the development of a ‘peak demand reduction scheme’ to complement the Energy Savings Scheme (ESS). I’d expect that this paper will lead to a range of consultations on the ESS.

In Victoria, the Government has introduced a Small Business Energy Saver Program which provides additional incentives for small businesses to upgrade equipment under the VEU. The Government has also published the Victorian Energy Upgrades Specifications – Version 7.0, which include a 35 per cent reduction for activities under Part 21 (Incandescent Lighting) from 30 June 2021.

The Victorian Government will also shortly release its response to stakeholder consultations on four new activities under the VEU (cold rooms, energy management information systems in commercial buildings, lagging on pipework heated by gas appliances and smart thermostats for residential heating and cooling systems). We anticipate that the Government will start detailed consultation on these new activities in the second half of 2021, along with consultation on a range of other changes to the VEU.

The Essential Services Commission of South Australia has finally set retailers targets and sub-targets for the Retailer Energy Productivity Scheme (REPS). The EEC’s Energy Efficiency Schemes Task Group will be engaging with governments around the country in coming months to support the implementation and improvement of these schemes. Reach out if you are a member and want to get involved.

Energy market reform

Finally, there is a huge amount of work going on in relation to energy markets. On 23 March the Australian Energy Market Operator (AEMO) released the Wholesale Demand Response Guidelines, which will come into operation on 24 June 2021. However, further work needs to be undertaken to complete the baseline methodologies that will be needed when the mechanism comes into operation in October 2021.

The Australian Energy Market Commission (AEMC) is continuing its work to expand the markets for Frequency Control Ancillary Services (FCAS), and the Energy Security Board (ESB) is continuing their work on the ‘Post 2025’ framework. We expect that the ESB will publish a major consultation on their Post 2025 framework in April or May. 

This article was originally published in the April edition of Efficiency Insight.