Energy efficiency could save Australia billions… but that’s not news

On Friday, the federal government released its modelling on the economic impacts of a National Energy Savings Initiative for Australia. In many ways, this isn’t really big news.

Firstly, it’s another report confirming the nearly incontrovertible fact that improving energy efficiency would save households money and boost businesses’ productivity. Secondly, the report is really just looking a replacing existing state-based energy efficiency schemes with a national scheme, something that is almost universally supported. Third, this report is just another step in replacing these state-based schemes; the Australian government is still considering whether it will support a national scheme and, if it does, it has flagged it will only introduce one if the states support it.

Given that introducing a national scheme is just a sensible bit of legislative tidying-up that has significant economic benefits, and neither Labor nor the Coalition have opposed it, this isn’t going to be a big election issue. While a National Energy Savings Initiative would bring major benefits to energy users and the energy efficiency sector, introducing a scheme like this is the kind of work-a-day politics that tends to be dealt with once the political dust has settled.

The modelling itself is extremely conservative, but despite that it still finds that a national energy saving scheme would deliver $1.5 to $5.3 billion in benefits to the economy between 2015 and 2050. Participants benefit from saving energy and all parties benefitting from reduced wholesale prices and reduced need to build infrastructure to meet peak demand. The costs come from administration, buying certificates and splitting the (reduced) costs of the electricity network between fewer units of energy.

Overall, the modelling concluded that, for non-participants, costs and benefits would net out, so that the “overall impact of the national ESI on retail electricity prices would be negligible,” while participants would benefit from electricity bills that were around 10 per cent lower in 2020.

The modelling is an extremely complex exercise and, like all modelling over a long period, it needs to make a lot of assumptions. Where there was disagreement on an assumption, the team working on the modelling decided that it was best to err on the side of caution and pick the option that meant the scheme delivered less benefits. While I generally lean toward conservative assumptions in modelling (it’s always better to under-promise and over-deliver), the modelling team made some assumptions that are so conservative they don’t pass the common-sense test.

For example, the modelling assumes that, despite a big increase in the uptake of energy efficiency services and products, the costs of these services and products don’t decrease. Anyone familiar with the price of solar PV over the last decade would know this is pretty a pretty bizarre assumption. Similarly, most of the scenarios assume that, while the scheme will help people buy much more efficient products between 2015 and 2030, after the scheme closes in 2030 they go back to buying inefficient products that probably wouldn’t even be available in shops any more.

Furthermore, while it looks like the modelling tests a number of scenarios, it really only has one electricity market model. Granted, it’s not clear at the moment whether the electricity market will be highly centralised or decentralised in the future, but this model just looks at one option. Given that energy efficiency schemes deliver significant benefits by reducing the risk of stranded assets if we (very likely) shift between different types of electricity system, this modelling doesn’t examine that kind of benefit at all.

The list of highly-conservative assumptions is long but, despite this, the modelling still found a significant benefit to cutting red-tape, lowering energy bills and boosting productivity. Who would have thought?