5. Using Energy More Efficiently
Summary
- Energy efficiency measures can reduce energy costs and greenhouse gases, enhance security of supply and provide other benefits to people, communities and the economy.
- The government's policies and objectives on energy efficiency, energy conservation and the use of renewable energy are set out in the replacement National Energy Efficiency and Conservation Strategy (NEECS), which is a subset of this strategy.
- New Zealand is not particularly efficient in the way it uses energy, and there is much room for improvement.
- The government believes everyone should make energy savings in areas where the savings are cheaper in the long run than the financial and environmental costs of generating more energy.
- A lower discount rate of 5% real per annum should be applied to economic cost-benefit assessment of government actions under the NZES rather than the 10% per annum rate used at present. This would significantly improve the uptake of energy efficiency technologies.
- Gaining better information on how and where energy is used is crucial to identify potential energy savings and to design energy efficiency measures.
- The government has a role in ensuring pricing and other incentives encourage energy efficient choices, and in ensuring it has addressed any significant market barriers to energy efficiency.
From Vision to Action
- The NEECS is developing actions based around the following objectives:
- Better products - using less energy and saving more money.
- Healthy homes - more comfortable with less energy.
- Smarter commercial buildings - more productive work environments.
- Increased energy productivity in industry.
- Sustainable agriculture - efficient and low carbon farms, orchards and vineyards.
- Going further on a full tank.
- Efficient freight movement.
- Living and working - better mobility and access, lifestyles and communities.
- Smart electricity networks - getting the most from our electricity sector.
- Government leading the way - partnership and innovation.
5.1 Our Present Direction
New Zealanders need an energy system that is reliable, resilient, and fairly and efficiently priced in the future. Energy efficiency will be an important part of achieving this goal.
Energy efficiency measures can:
- reduce energy costs, including the need to build more costly electricity generation capacity;
- reduce greenhouse gas emissions and other local emissions from the production and use of energy;
- potentially enhance security of supply by increasing the margin between supply of energy and demand, particularly at peak times;
- enable economic and environmental resources to be used more efficientl;
- provide other benefits to people and to communities, such as creating warmer homes that lead to better health;
- increase public awareness of energy issues and of the everyday energy efficiency measures that can contribute to our sustainable energy goals.
Our energy needs are affected by the design and performance of the equipment and infrastructure around us. Much of what we consume, from paper to processed food, requires significant amounts of energy to produce. The cost and environmental impact of this lifestyle is increasing, and unchecked demand growth affects our energy security.
The price of energy is likely to continue to rise as more expensive supply options are developed. Energy is produced remotely, so we tend not to notice the impacts of our energy use - which makes it easy to ignore the consequences of this growing demand.
New Zealand is not particularly efficient in the way it uses energy, so there are many opportunities to make improvements. Saving energy makes common sense in areas where the savings are cheaper in the long term than the financial and environmental costs of generating more energy.
Energy efficiency can be defined as the ratio of productive output to energy use. Improving our use of energy is about cost-effectively reducing the amount of energy required to create a given quantity of a product or service (such as a litre of milk, or a warm room).
Cost-effective energy efficiency measures are often a better way of dealing with the demand for more energy than building new generation capacity because they also contribute a broad range of other benefits. For example, improved building insulation can make people healthier, reduce heating costs and energy-related greenhouse gas emissions, and ease energy supply constraints in winter.
This chapter considers the potential of energy efficiency initiatives to reduce growth in demand for stationary energy, which includes all forms and uses of energy services other than transport and mobility.
5.1.1 Realising Potential Energy Intensity Reductions
There is substantial potential for the energy intensity and emissions intensity of the economy to reduce over time, although it varies by sector. A reduction in energy may reflect a change in the underlying composition of a sector (e.g. some types of business are by their nature more energy intensive) or an improvement in the energy efficiency within the sector. The most significant energy efficiency opportunities are when assets are replaced or upgraded. Some estimates of the realisable potential35 for energy intensity reduction in the intensity stationary energy demand sectors are shown below.36
Table 5.1: Potential for Energy Intensity Reduction
| Sector |
2030 |
| Energy intensity reduction |
Emission intensity reduction |
| Realisable potential |
Per year |
Realisable potential |
Per year |
| Homes |
29% |
1.1% |
19% |
0.8% |
| Commercial buildings |
25% |
1.0% |
17% |
0.7% |
| Light industry |
17% |
0.7% |
12% |
0.5% |
| Heavy industry |
35% |
1.4% |
33% |
1.3% |
| Total non-transport energy |
28% |
1.1% |
22% |
0.9% |
However, demand for energy services does not always drop after an energy efficiency improvement. For example, after insulating a home, people may prefer to use the same amount of energy to keep their rooms warmer for comfort and health reasons instead of cutting their energy usage. This can be a good outcome.
5.2 The Progress We've Made
Existing measures to encourage New Zealanders to use energy more efficiently in the stationary energy sector have centred around products, homes, buildings and industry:
- EnergyWise home grants have helped retrofit insulation in about 25,000 pre-1977 houses occupied by low-income families. The project has had major health benefits for the families involved, particularly for people with asthma or other respiratory illnesses.
- A home energy rating scheme is under development to give home-owners an incentive to make energy efficiency improvements and use renewable energy.
- The scheme will help ensure the value of improvements is recognised when homes are sold.
- The government's solar water heating finance assistance programme encourages people to use solar water heating technology and helps strengthen New Zealand's solar water heating industry.
- The EC runs a number of electricity efficiency initiatives including a compact fluorescent lamps campaign and pilot projects for water heating and the replacement of old, inefficient fridges. The EC's initiatives so far have already achieved savings of 208 GWh per annum at a cost of $8.12 million.
- The Department of Building and Housing is presently reviewing the Building Code to target significant energy efficiency improvements in houses and buildings.
- EECA is cooperating in the joint New Zealand and Australia minimum energy performance standards and labelling programme covering appliances and various types of machinery. Endorsement labelling has also been introduced for highly efficient products.
- EECA's Emprove programme provides energy audit grants and support to the country's 300 largest industrial energy consumers to identify and implement energy efficiency initiatives. Savings reported by consumers in 2005/2006 were 2.2 PJ.
- The EC is piloting an electricity efficiency project in commercial lighting, in addition to pilot projects for motors and air compressors in industry.
- EECA supports the Energy Intensive Business programme, which provides cash grants for demonstration projects for energy efficiency measures in target industries.
- The government has shown leadership in implementing energy efficiency measures in buildings, transport and appliances through the 47-agency Govt³ programme.
5.3 Our Choices
Barriers that slow down the rate at which we can improve our energy efficiency include:
- the lack of reliable information on costs and benefits, including energy prices that do not fully reflect all costs;
- the absence of appropriate incentives (for example, for architects, builders and landlords);
- the low priority of energy efficiency for consumers, which is partly because energy prices have historically been relatively low in New Zealand;
- competition for time and attention to implement opportunities;
- access to capital for energy efficiency investments.
These barriers are largest for smaller consumers, especially households, and smallest for major energy-intensive industries.
Rapid progress depends on government policies, market forces and public acceptance to:
- change behaviour around capital and technology investment decisions and consumer lifestyles and choices;
- deploy technologies particularly suited to New Zealand conditions;
- ensure energy efficiency is considered in the upgrade, design and management of processes, buildings and infrastructure.
5.3.1 The National Energy Efficiency and Conservation Strategy
The government's policies, objectives, targets and means for energy efficiency, energy conservation and the use of renewable energy are set out in the replacement National Energy Efficiency and Conservation Strategy (NEECS). The NEECS is a statutory document, and is a subset of this strategy.
The NEECS will set out actions to promote more efficient use of energy in the stationary demand sector. It focuses on implementation by sector, identifying the main measures, policy instruments and who is responsible.
In the energy efficiency area, the NZES has two main priorities that guide the actions of the NEECS.
The first priority is maintaining security of energy supply. For electricity, this is essential for both dry-year energy and peak demand. Energy efficiency can improve energy security by reducing demand and reducing peak load.
The second priority is to facilitate investment in energy efficiency measures that are cheaper in the long run than the costs of building extra generation capacity, including environmental external impacts (such as the cost of greenhouse gas emissions), which are presently unpriced.
5.3.2 Information Gaps
Gaining information on how and where energy is used is crucial in identifying potential energy savings and in designing energy efficiency measures. More information is becoming available on homes, but significant gaps exist in the commercial and industrial sectors. To establish whether large-scale investment in energy efficiency to reduce demand is cheaper than new supply, it is important to have reliable information on the net benefits of saving energy. This includes the cost of programmes with consumers, the value of the energy saved and any co-benefits.
5.3.3 Government Discount Rates
EECA has determined the extent of energy efficiency potentials using cost-benefit analysis. As the costs and benefits accrue over many years, a discount rate has been applied that places a lower value on those costs and benefits occurring in the future. Currently, government cost-benefit analysis typically uses discount rates of 10% real. The 10% rate undervalues long-term savings. The discount rate used for energy efficiency initiatives in the United Kingdom has recently been revised to 3.5% real per annum. This strategy recommends that a discount rate of 5% real per annum be adopted by government for cost-benefit analyses of energy efficiency and other measures under the NZES.
5.3.4 Opportunities for Greater Energy Efficiency
The EC is undertaking an electricity efficiency potentials study to identify the cost-effective electricity efficiency potential of the New Zealand economy, and how the EC might make use of some of this potential. The information produced by the potentials study will underpin the EC's future electricity efficiency activities. The EC study will be completed before the NEECS is finalised and will provide further data for making final policy decisions. Ongoing analyses by EECA and the EC will identify and improve estimates of realisable energy efficiency potentials.
5.3.5 Promoting Energy Efficiency
A step change in energy efficiency will require government leadership and action from firms and individuals. Individuals and firms can improve their choices when making energy-related investments. People will be more able to make choices that are cost-effective if they have the right information when they buy a product. Better alignment of incentives to encourage people to minimise costs over the life-cycle of their assets, rather than just initial costs, will also improve energy efficiency.
5.3.5.1 Pricing Mechanisms
Accurate prices are necessary to signal the actual costs of energy supply. The government has a role to ensure that all costs, including the cost of external factors, are reflected in prices. At present, smaller electricity consumers and householders do not have the smart metering technology and tariffs to enable time-of-use electricity pricing. There may be a case for minimum standards to support the introduction of smart meters and compatible electricity pricing options. The government can also provide estimates of future prices to support firms and individuals making investments in energy-using plant and equipment.
5.3.5.2 Information and Labelling
Existing appliance labelling and the proposed home energy rating scheme emphasise energy efficiency when people are making purchases. These initiatives help people to make better energy choices and provide a basis for the possible introduction of minimum performance standards and incentives.
For new buildings and other long-lived assets where energy use is locked in for decades, it is important that high-quality information and analysis supports design decisions. Up-to-date minimum energy performance requirements for buildings and the use of best practice standards can improve design decisions at low transaction costs.
Equipment suppliers and the energy industry are well positioned to help consumers make even better choices in future, provided they have clear drivers to do so. The government also has a role in helping consumers make cost-effective investments, which includes providing independent information and maintaining programmes that demonstrate the value of new technologies and energy-efficient assets. In some cases, this may require energy performance disclosure.
Government support for initiatives based on information and monitoring may be especially justified where initiatives also offer significant health and social benefits, such as with the EnergyWise home insulation project.
5.3.5.3 Incentives
Where energy efficiency investments have a net public benefit but are not necessarily cost-effective to the consumer, there may be a case for incentives or minimum performance standards. The electricity industry levy, for example, can support investment in electricity savings that are cheaper than the cost of new supply.
Where there are weak incentives for the market to deliver solutions with net public benefits, the government may have a role in setting minimum standards. There are already minimum energy performance standards at point of sale for some appliances and the construction of buildings.
5.3.5.4 Institutional Issues
A number of government agencies have responsibilities that support improved energy efficiency in the stationary demand sector. These include EECA, the EC, the Ministry for the Environment, the Department of Building and Housing, and Housing New Zealand Corporation. EECA and the EC have a common objective: to promote the use of electricity in an efficient and environmentally sustainable manner.
EECA's main roles are to deliver energy efficiency programmes, provide policy advice to the Minister on energy efficiency in general, and give advice on how energy could be used more efficiently. The EC's main roles are to act as regulator of the electricity industry and to ensure that electricity is produced, delivered and used in an efficient, fair, reliable and environmentally sustainable manner.
The two agencies have developed a memorandum of understanding setting out the way they will manage the areas of overlap.
Action: The government to ensure that roles and responsibilities are clear and distinct.
As in other OECD countries, notably the UK, electricity and gas retailers could play a greater role in delivering energy efficiency programmes to support their customers, leveraging off their existing commercial relationships. One option would be to require retailers to implement programmes through an energy efficiency obligation. The UK Energy Efficiency Commitment focuses on addressing fuel poverty by targeting energy savings at low-income customers.
5.4 Into the Future
The measures discussed above will be considered in some detail in the draft replacement NEECS, which takes the lead in promoting the efficient use of energy. The replacement NEECS will identify and develop a series of actions, for both the short term and long term, as listed in the "Vision to action" text box at the start of this chapter.
New Zealand's prisons are modelling energy-saving ideas. A Christchurch prison recycles the leftover heat from its laundry dryers, while an Auckland prison has installed sensors that switch off lights when rooms are empty. Several prisons use solar heating systems instead of gas to provide hot water. Energy-saving initiatives have been adopted in 18 major sites and in 94 Probation Service and Offender Services offices, while energy efficiency is being incorporated into the design and construction of four new prisons
Energy Manager Cees Ebskamp Examines Solar Panels at Rimutaka Prison
Photo courtesy of the Department of Corrections.
5.5 Have Your Say
This chapter outlines the issues around using energy more efficiently. The government welcomes feedback on this issue through its consultation on the replacement National Energy Efficiency and Conservation Strategy. It also welcomes comments on questions raised in this draft, such as:
On priorities:
How should energy efficiency measures be evaluated and compared, both against other energy and climate change actions and against other types of energy efficiency measures?
Specifically, do you agree there is a need to compare different forms of energy in terms of their potential to reduce greenhouse gas emissions?
On capital stock:
What actions should be taken to increase energy efficiency in capital stock (buildings and appliances)? How urgent and stringent should these actions be?
What barriers exist presently to further measures to increase energy efficiency in capital stock? How could these be removed?
On institutional issues:
Should energy suppliers have an obligation to carry out energy efficiency activities with their customers? If so, how should the obligation be implemented and targeted at customer groups?
Chimpanzees at Hamilton Zoo are benefiting from an unusual energy efficiency measure. Hamilton City Council circulated LPG-heated water through the insulated walls of the new chimp enclosure, keeping the animals warm. The project helped the council win a highly commended award in the public sector category of the 2006 EECA EnergyWise Awards. The council's other innovations have included installing two co-generation engines at its wastewater treatment plant, establishing a landfill gas-to-energy co-generation plant at a landfill, and using energy-efficient light bulbs in many council-owned buildings.
The Chimpanzee Enclosure at Hamilton Zoo
Photo courtesy of Hamilton City Council.
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