Policy update March 2021 11 March 2021

Australian energy efficiency programs

By Rob-Murray Leach 

The big policy news for emissions reduction in the last month was Hon Matt Kean, the NSW Government’s Energy Minister, announcing a $750 million Net Zero Industry and Innovation Program. This program will focus on three areas, with a particular aim to reduce emissions from the State’s top 55 industrial facilities:

  • $380 million to support existing industries to re-tool with low emissions alternatives and future proof their businesses;
  • $175 million to set up low carbon industries such as green hydrogen to create the jobs of the future; and,
  • $195 million to research and develop new clean technologies so we decarbonise in ways that grow the economy.

The NSW Government will launch a confidential Registration of Interest (ROI) process by April 2020 – to register your details to receive updates on this program please click here.

Beyond this new announcement, governments continue to beaver away to refine their current programs and introduce the roughly $1.4 billion of programs that they committed to in 2020. The EEC has been engaging with governments around these programs, particularly the Victorian Government which is developing major programs for social housing upgrades and reverse cycle air conditioning replacements for low-income households.

In addition, the Federal Government has launched its $10.2 million program to help hotels reduce their energy costs, with grants of up to $25,000 for energy saving projects. Applications opened on 24 February 2021 and will close on 1 April 2021. For more information visit this site.

Energy efficiency schemes

There are a raft of changes afoot with the Victorian Energy Upgrades (VEU) Program. A major review of the Victorian Energy Efficiency Target Act 2007 is slated to commence in the middle of this year, which will look at extending the VEU beyond 2029 and issues such as providing additional rewards for energy flexibility.

However, the Victorian Government is also considering a range of smaller changes to the program. The government has started consultation to introduce a range of new activities into the VEU, including cool room equipment, lagging for hot pipes, energy management information systems and smart thermostats. The government has completed its first round of consultation and will consult on the specific regulations and specifications in the second half of the year.

The Victorian Government is also expected to engage with experts in 2021 on improving measurement and verification rules, providing support for heat pumps and supporting large energy users to improve their energy management.

The NSW Government is expected to continue its consultation on the development of a scheme that will provide incentives for reducing peak demand, which will complement the Energy Saving Scheme. However, no dates have yet been announced on when the decision paper on this peak reduction scheme will become public.

In South Australia, the Retailer Energy Productivity Scheme (REPS) formally commenced on 1 January 2020, replacing the Retailer Energy Efficiency Scheme. While energy efficiency providers have started to undertake some activity under the REPS, they have been seriously limited because the South Australian Government and the Essential Services Commission of South Australia still hasn’t released a range of details that are essential for the REPS scheme to start in earnest. The EEC will continue to work with our members and South Australian institutions to get the REPS on track.

Energy market reform in Australia

Australia’s energy market continues to change at a breakneck pace. On 10 March 2021 Energy Australia announced that it will close the 1,450MW Yallourn coal-fired power station in Victoria in mid-2028. Energy Australia also announced that it will build a large 350MW battery by 2026, which will be able to provide up to four hours of storage.

Yallourn is being closed four years earlier than previously announced. Recent analysis by Green Energy Markets and the Institute for Energy Economics and Financial Analysis (IEEFA) predicted that a number of coal plants in Australia, including Yallourn, were likely to close early, as the large amount of renewable generation expected to be added to the grid in coming years is expected to drop the price of electricity to the point that some coal generators will run at a loss.

All this highlights the importance of work being undertaken to reform Australia’s energy markets, as energy efficiency and energy flexibility will be critical to ensure that the exit of large generators doesn’t have a negative impact on energy affordability and reliability.

The Australian Energy Market Operator is continuing its work to finalise the details of the Wholesale Demand Response Mechanism (WDRM) which will come into operation in October 2021. In addition, the Australian Energy Market Commission (AEMC) is considering a range of changes to the energy market rules to create markets for Fast Frequency Response and Primary Frequency Response Incentive Arrangements. The EEC is sitting on the technical working group for these rule changes, with determinations expected later this year.

The Energy Security Board is continuing its work on longer-term changes to the energy market, and the members of the EEC’s Energy Markets Task Group are involved in virtually all of the Energy Security Board’s technical working groups for this ‘post 2025 framework’. The next public paper on the 2025 framework is expected later in this month.

Texas Power Crisis

Looking outside Australia, the biggest energy story this month was the power crisis in Texas. At the peak of the disaster, over 4.5 million homes and businesses were left without power, in some cases for days. Thousands of people were left freezing, over twenty people died and electricity prices soared, with some people receiving power bills of several thousand dollars.

Many politicians and journalists have talked absolute nonsense about this crisis, so it’s worth detailing the basic facts before we think about the implications for Australia. To put this together I’ve drawn on a number of excellent reviews of the Texas crisis, including reviews by the International Energy Agency, Wood Mackenzie and the Regulatory Assistance Project.

In February, Texas faced a genuinely unprecedented winter storm. The daily high temperature of Dallas fell 25°C lower than normal for February, the temperature at Dallas’ international airport reached -19°C, and over 50 sites in the US recorded their lowest ever temperature. Climatologists believe that this storm was likely caused by climate change disrupting air streams that normally prevent cold air from the artic flowing over the US.

This cold weather dramatically increased demand for heating – electricity demand in Texas in February normally peaks at around 55GW, but it jumped to a whopping 74GW. Texas has more than enough capacity to service a summer peak demand that regularly exceeds 70GW, but some of this capacity was down for scheduled maintenance, and the cold weather impacted both generators and gas supplies.

The commentators that have claimed that ‘renewables’ caused the outages are, to put it mildly, bad at maths. While output from wind turbines was down by around 3 GW, the major issue was that up to 31 GW of gas generation capacity in the state was unavailable. In addition, around 6 GW of coal plants were unavailable (about 40 per cent below their rated capacity) and one of the four nuclear units in the state shut down.

One of the causes of these outages is that many generators in Texas were not designed for sub-zero temperatures. While much of the media has focussed on the lack of de-icing equipment on wind turbines, cold weather impacted all forms of generation, including coal and nuclear.

However, a much larger factor was that the cold weather reduced gas production in the region by around 15 per cent while increasing demand for heating, dramatically affecting both the availability and price of gas in Texas. This is considered to be a major reason why many gas generators did not supply to the market.

As Texas has an energy-only market, high demand for electricity coupled with low supply meant that electricity prices soared from their normal average of around US $50 per MWh to US $9,000 per MWh for several days. This meant that some energy users that had chosen lower tariffs in exchange for being exposed to the electricity spot-price ended up with energy bills of several thousands of dollars. In addition, some retailers face serious financial challenges, including insolvency.

The design of Texas’ electricity system is very similar to Australia’s National Electricity Market (NEM), so it’s important to consider what the lessons are for Australia. Key lessons include

  • Governments, regulators and electricity companies need to plan for extreme weather events that are becoming more severe and more common due to climate change;
  • Planning for extreme events needs to consider upstream and downstream impacts on electricity systems, such as simultaneous disruptions to fuel supplies (e.g. gas) and increases in demand for heating and cooling;
  • Planning needs to consider emergency conditions - rather than just thinking about what it takes to ensure optimum operation of the energy system, we need to think about how to maintain essential services when the grid can’t operate normally;
  • As part of the previous point, energy flexibility is critical for emergencies. The type of energy flexibility that we need to optimise the energy system (e.g. price responsive demand response) is quite different to reducing non-essential energy use during a genuine crisis in order to maintain essential services such as safe temperatures in homes;
  • Our buildings are part of our energy system and need to be resilient. A key issue in the Texas crisis was that much of their building stock is terrible. Many Texan buildings rely on large inputs of energy to keep them habitable and, as soon as external temperatures dropped, these buildings became freezing. Australia needs to ensure that our buildings have enough thermal stability to stay safe during disruptions in energy supplies in extreme weather events;
  • Wholesale electricity markets provide good signals for the development of generation capacity, and Texas had theoretically more than enough capacity to meet demand during this emergency. However, there are limits to the power of wholesale markets in planning for emergencies, and the wholesale market may need to be managed during emergencies. Unlike Texas, the NEM allows the Australian Energy Market Operator to set an administered price during a crisis, and this type of mechanism should be preserved and potentially enhanced; and
  • Resilient energy systems involve a mix of local generation and interconnection – a major issue for Texas was the weak interconnection between their grid and nearby electricity systems.


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