Will self interest close biggest, cheapest, cleanest power station?

Saving money is supposed to be a good thing. Reducing costs on consumers is supposed to be even better. But in Victoria, an energy efficiency scheme that delivered more than $250 million in savings to households and small businesses in 2012 – and could save billions more in years to come – may come under threat because of government inertia, and because it doesn’t suit the business models of some utilities.

The Victorian Energy Efficiency Target  scheme (VEET) – also known as the Energy Saving Incentive – has been in operation since 2009, and has helped more than half the homes in Victoria reduce their bills.

Energy efficiency – or simply reducing the amount we consume for a given task – is considered an essential element of any attempt to decarbonise the world’s energy systems, or to just avoid the tens of billions of dollars of new money that would be required to cater for business-as-usual growth.

The IEA, for instance, suggests that energy efficiency may have to account for up to half of the emissions reductions out to 2020, and further afield. In other words, it says, the biggest source of power in the future should eventually be the power we don’t use.

The IEA, in its recent clean energy update, says unleashing this potential is the “easy win”, but it requires stronger economic incentives and more ambitious regulation. It doesn’t mean foregoing lifestyle choices or wearing hair shirts, or living in caves, but it does encourage users to install technology that they might otherwise have ignored.

This turns out to be relatively cheap and efficient: Even spending $12 trillion on such measures (new technology), will deliver $18 trillion in savings worldwide.

In Victoria, the policy measures have included creating a certificate based scheme that helps with the upfront cost of efficient showerheads, doors seals and chimney balloons (for weather sealing), more efficient lighting, more efficient pool pumps, and stand-by-power controllers, which have been installed in more than one million homes in the state, reducing their energy consumption and costs.

According to the Australian Energy Market Operator, the scheme will reduce electricity consumption by 7.3 per cent, or nearly 4,000GWh, by 2021/22, and by 5,404GWh (9.2 per cent) a decade later.  That is the equivalent to a 800MW power station.

But industry players suggest the impact may be far greater, pointing to EnergyAustralia data which showed that average consumption per household in Victoria fell 10 per cent in 2012 alone – a combination of the energy efficiency scheme, rooftop solar,  and moves by customers to moderate their usage in the face of higher electricity costs.

But if being more efficient seems an obvious thing to do in a time of spiraling electricity prices, the concept runs into problems because of the way the energy market has been structured for the last century, and the way companies that generate, transmit, distribute and sell electricity are rewarded.

Lower demand means lower revenue and lower market prices – and makes it harder for utilities to generate a return on their investments. It is for this reason that many generators and network operators have argued strongly against renewable energy incentives, and energy efficiency schemes – at state and at national level – that they say serve to reduce the value of assets that have already been paid for.

The future of the VEET scheme is beyond the end of 2014 is uncertain, and many in the industry worry that it will be reduced or even closed, under pressure from incumbents.

As with renewable energy targets and solar feed in tariffs, generators and network operators point to the cost of such schemes on consumers. They argue that a carbon price means other schemes are not required, although supporters say this position ignores the barriers to such investments – up front capital; split incentive (tenants); and a lack of information.

These were the same problems identified on a global scale in the recent IEA report. It said high upfront capital costs, customer indifference, and lack of awareness or capacity, leave much cost-effective energy-efficiency potential untapped. “Economic incentives are crucial to drive change,” it wrote.

Ric Brazzale, from Green Energy Trading, says that in the case of energy efficiency, the benefits clearly outweigh the cost – the pass through costs of the scheme were about $50 million a year to 2011, and $135 million in 2012 (that is considerably less than expected and compares to the $250 million in savings).

Brazzale says delays in including the commercial sector in the energy efficiency scheme,particularly in relation to lighting efficiency for businesses, local government and community groups, have meant that  those potential savings have not been realized.

Bruce Easton, from Ecovantage, says efficient pool pumps for homes, for instance, are delivering electricity bill savings of up to $800 a year and a payback period of around one year, even though the scheme only covers around 15 per cent of the upfront cost of the pumps.

In commercial situations, the savings have been even more dramatic. One supermarket in Mildura achieved a payback period of 10 months after using the certificates to defray one third of the up-front cost of more efficient refrigeration fans and motors.

Brazzale says the scheme has supported more than 1,000 new jobs in Victoria [we need to do some more work on confirming likely range], as well as helping make the electricity system more secure, reducing the exposure to fluctuating and expensive gas prices, and helping the state meet long term carbon reduction targets.

“VEET is a good news story on energy efficiency,” he says. “It is a demonstration of a well regulated market scheme.”

Bryn Dellar,  from Energy Makeovers, says household residential efficiency measures are among the lowest cost ways to reduce carbon emissions. “And it is very empowering to involve the community at the grass roots level in the fight against climate change. There is a sort of collective psychological benefit across the community through direct participation and action”

“Under the VEET scheme, many of the activities listed above require no upfront investment by the householder and are installed free of charge in the home by qualified installers who can explain to the household ho