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Phasing out fossil gas won’t work unless ACT fixes its energy efficiency scheme

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Following the ACT election on 17 October, the Labor-Greens alliance has re-committed to phasing out fossil gas by 2045 at the latest, as part of the ACT’s goal of reaching net zero emissions by 2045.

Now that the ACT has achieved 100% renewable electricity, gas represents 22% of the ACT’s remaining emissions and is therefore a major target for emission reductions, along with transport, which accounts for 62% of the ACT’s emissions.

The Labor-Greens’ Parliamentary & Governing Agreement states that the phase-out of fossil gas will be facilitated by interest-free loans of up to $15,000 for households and non-profits to invest in various technologies including efficient electrical appliances.1

Phasing out gas will bring multiple benefits. Apart from cutting emissions, it will dramatically improve energy efficiency and slash household energy bills.

Gas appliances are far less energy efficient than renewables-based heat pump appliances

The fact is that gas appliances are woefully inefficient. Modelling studies have shown that gas space heaters use 5 times as much energy as heat pumps (reverse cycle air conditioners) to warm our homes.2 It’s the same with water heating, with gas systems using 3-4 times as much energy as heat pump water heaters.3

The ACT could sharply reduce residential energy use

ACT households are currently the second-highest energy users in Australia after Victoria, averaging 18,000 kWh (taking in both gas and electricity) per residence per year, as we can see from Figure 1, using 2014 data for electricity and gas:4

This shows total residential energy use by Australian jurisdictin and end use

Total energy use per dwelling by Australian jurisdiction

Figure 1: Total energy use per dwelling by jurisdiction and end use, 2014.

 

As is the case with Victoria and Tasmania (the other cool climate jurisdictions), space conditioning (mostly heating, but also cooling) dominates energy use. In the ACT it makes up about 60% of all residential energy use, and most space heating is delivered through inefficient ducted gas appliances. Water heating is typically the second highest energy use; in the ACT it takes up around 15%, again mostly delivered through inefficient gas or traditional electric hot water systems.

Space conditioning and water heating are therefore the obvious targets for achieving reductions in energy use, and that is what the ACT Government is targeting.

The ACT could be a national leader in energy efficiency

A bold but achievable target for the ACT would be to slash these energy uses by 50% by 2030. Household energy bills would be slashed by a similar margin. That would be easily achievable by phasing out gas appliances for home heating and hot water.

The ACT is already a national leader through our achievement of 100% renewable electricity in 2020. By phasing out gas appliances, the ACT could once again be a national leader, this time in energy efficiency.

We don’t need any reminders of Australia’s woeful record on energy efficiency. We constantly hear appeals for us to do better, not least from Chief Scientist Alan Finkel,5 and energy expert Hugh Saddler.6

To add insult to injury, in 2018, the International Energy Agency ranked Australia worst in the world among developed countries for energy efficiency.7

But wait, doesn’t the ACT already have an energy efficiency scheme?

Yes, we do! We have the Energy Efficiency Improvement Scheme (EEIS), which is quite progressive in that it aims to transition households away from gas to efficient electrical appliances.

But sadly, the EEIS is performing poorly. Left to be implemented by energy retailers who have little interest in reducing energy use, it supported just 98 heat pump hot water installations in 2018-19.8

How many hot water systems are replaced annually in the ACT?

To place that figure in context, we need to understand the overall size of the water heater replacement market in existing homes. (The market for new homes is not relevant as efficient hot water systems are required by regulation). According to 2016 Census data, the ACT residential housing stock was as follows:

 

 

 

 

 

 

 

 

 

Figure 2: Dwelling structure in the Australian Capital Territory, 20169

 

The homes that would be suitable for replacements with efficient hot water systems are the separate houses and semi-detached dwellings. Adding the two top rows, we have a housing stock of around 120,000. Assuming a 20-year life-span for water heating appliances, we arrive at an annual turnover of around 6,000 hot water systems.

Since the EEIS supported just 98 installations out of around 6,000 annual hot water replacements in the ACT, it means that the vast majority of hot water replacements would have been gas appliances. We need to bear in mind that given the lifespan of such appliances, each new gas appliance locks in fossil gas for another two decades.10

This also means that the EEIS should aim to support up to 6,000 efficient hot water installations a year, if it is to facilitate the transition from gas to energy efficient residential hot water systems. To the extent that residents are not replacing old systems with heat pump hot water systems, they will mostly be replacing them with cheap but inefficient traditional electric or gas hot water systems, locking in energy inefficiency for many years to come.

EEIS performance in replacing residential gas heaters

In relation to phasing out old gas heaters, the EEIS performed somewhat better, replacing 672 gas heaters in 2018/19. This sounds better, but it’s just a drop in the bucket, with around 6,000 heaters a year being replaced in ACT homes. Many new gas heaters are still being installed, again locking in gas usage for up to 25 years into the future.11

Thus the EEIS at best plays a marginal role. To achieve any serious impact in the ACT, it would need to facilitate thousands of replacements every year, both for hot water and home heating.

Why is the EEIS performing so poorly?

The fact is, the ACT Government has taken their eye off the ball and allowed the scheme to drift without purpose.

The main component of the scheme is managed by ActewAGL, at an annual cost of almost $10 million, paid for by Canberra households through their electricity bills. The money is ostensibly used to fund rebates of $750 – $1200 for hot water installations, and $1000 for reverse cycle heating installations.

ActewAGL conducts `open tenders’ for heat pump hot water installers, but somehow only the ActewAGL Energy Shop ever wins. As for their air conditioning tenders, just two firms ever win: the Energy Shop and one other firm.

How is it possible that in a city of 450,000 people, just one firm is capable of installing heat pump water heaters, and only two firms are capable of installing air conditioners?

In the absence of competition, the Energy Shop’s prices for heat pump water heaters – even after subtracting the $750 rebate – are no lower than other installers’ prices.

As for EEIS-supported air conditioners, the prices are somewhat lower than the going market rate of around $2700. After the $1000 rebate, customers pay around $2300 and receive discounts on electricity bills. That leaves plenty of scope for further price reductions.

But isn’t the ACT Government keeping an eye on things?

All this takes place while ACT government agencies studiously gaze in the other direction. The Environment and Planning Directorate says that the way ActewAGL implements the EEIS is entirely a matter for ActewAGL.12

Nor does the ACT’s Independent Competition and Regulatory Commission see any issues. Even as ActewAGL made the Energy Shop the monopoly supplier of EEIS-supported hot water systems, they found nothing untoward.13

The smaller component of the EEIS, targeting second-tier electricity retailers, does not function at all. These retailers opt to pay the ACT Government a $2 million penalty (sourced from their customers) rather than achieve energy savings. The Directorate, which accredits installers to work with these retailers, has not approved a single firm in 8 years.14
Indeed the Directorate has actively made it difficult for ACT installers to participate. To deliver energy savings in the ACT, installers are required, inexplicably, to hold accreditation in Victoria or NSW.15

Conclusion

There’s a simple logic to all this. If we want to phase out fossil gas in the ACT, we need to stop installing gas appliances.

And we need to start now, given their long lifespan. That means perhaps 10,000 replacements a year. To achieve this, the high upfront costs of efficient electrical appliances must be addressed. Clearly that is what the EEIS rebates were intended to achieve, but this purpose has been forgotten. The ACT Government needs to re-vamp the EEIS, opening it up to competition so that market forces can drive prices down for the benefit of Canberra households.

References

[1] Parliamentary & Governing Agreement, 10th Legislative Assembly Australian Capital Territory, November 2020, p. 9.  https://www.cmtedd.act.gov.au/__data/assets/pdf_file/0003/1654077/Parliamentary-Agreement-for-the-10th-Legislative-Assembly.pdf

[2] Alternative Technology Association May 2018, Household fuel choice in the National Energy Market.  The table on p. 41 compares energy use of gas space heaters with reverse cycle air conditioners for various Australian cities.  It shows that a stay-at-home family in Canberra using gas heating consumes 60,308 MJ or 16,750 kWh/yr, while the same family using a reverse cycle air conditioner would use just 2,908 kWh.

[3] Ibid.  The table on p. 47 compares energy use of gas hot water systems with heat pump water heaters for various Australian cities on p. 48.  It shows that a stay-at-home family in Canberra using instant gas hot water consumes 10,638 MJ or 2,950 kWh/yr, while the same family using a heat pump water heater would use just 648 kWh.  A study by EnergyConsult August 2010, Estimated hot water system running costs in Victoria, produces a similar in comparing gas water heaters with heat pumps for Climate Zone 4 in Victoria.  See p. 12.

[4] Paul Ryan and Alan Pears 2019, `Unravelling home energy use across Australia’, Renew, Issue 147, based on Energy Consult 2015, Residential Energy Baseline Study: Australia.  Prepared for Dept of Industry and Science.

[5] https://www.theguardian.com/australia-news/2020/jun/21/chief-scientist-joins-calls-for-australia-to-dramatically-boost-energy-efficiency

[6] https://theconversation.com/australia-has-failed-miserably-on-energy-efficiency-and-government-figures-hide-the-truth-123176

[7] Castro-Alvarez, F., Vaidyanathan, S., Bastian, H. and King, J. 2018, The 2018 International Energy Efficiency Scorecard, American Council for an Energy Efficient Economy.

[8] Report on the operation and administration of the Energy Efficiency (Cost of Living) Improvement Act 2012, ACT EPSDD 2019, 2018-19 Annual report, p. 271.   ActewAGL’s compliance data for calendar 2019, which is due to be provided to the ACT Government during March 2020, would provide further detail.  We do not have this information, but it is unlikely to show much improvement.

[9] ABS Census QuickStats, 2016 Census, at: https://quickstats.censusdata.abs.gov.au/census_services/getproduct/census/2016/quickstat/CED801

[10] Electric and gas hot water systems often last 20 years or more. One study assumes an 18-year lifespan. Strategy Policy Research 2017, ACT Transition to net zero emissions – Stationary energy/Buildings, p. 14.

[11] Strategy.Policy.Research. 2017, ACT Transition to net zero emissions – Stationary energy/Buildings, p. 13.

[12] EEIS Administrator Gene McGlynn to Erik Olbrei, 28 April 2020.

[13] Independent Competition and Regulatory Commission, June 2020, Retail electricity price investigation 2020–24. Final report, Report 9 of 2020, p. 44.

[14] https://www.environment.act.gov.au/energy/smarter-use-of-energy/energy-efficiency-improvement-scheme/registers/register-of-approved-abatement-providers , accessed 6 Nov 2020.

[15] See EEIS Approved Abatement Provider application guide here: https://www.environment.act.gov.au/__data/assets/pdf_file/0007/1405690/AAP-registration-guide-v1.pdf

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