10. Using Energy More Efficiently
Summary
- The NZEECS is the dedicated and detailed action plan for whole-of-system energy efficiency.
- This chapter sets out an overview 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, which is covered in Chapter 7 of this action plan.
- Historically, New Zealand has not been particularly efficient in the way it uses energy.
- 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 EC's draft Electricity Efficiency Potentials Study and the cost-benefit analysis of the NZEECS provide a more robust guide to cost-effective energy efficiency improvements.
- 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 supplying more energy.
- The NZES applies a discount rate of five per cent real per annum to economic cost-benefit assessment of government actions under the NZEECS rather than the ten per cent per annum rate. This will better reflect the long-term benefits of energy efficiency.
- Improving information on how and where energy is used is crucial in designing energy efficiency measures.
- The government has a role in ensuring pricing and other incentives encourage energy efficient choices, and in addressing any significant market barriers to energy efficiency.
- The government will continue to assess the costs and benefits of actions to improve energy efficiency to ensure they give value for money at a national level.
| From vision to action |
Lead agency |
Timing |
| The government will clarify roles and accountability arrangements for energy efficiency policy development and programme delivery. |
MED |
2007 |
|
The NZEECS contains programmes to improve energy efficiency for both stationary and transport energy based around the following objectives:
- Energywise homes
- Energywise business
- Energywise farms and rural communities
- Energywise transport
- Our renewable and efficient electricity system
- Government leading the way.
|
EECA |
2007/08 |
10.1 Our 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 effects from the production and use of energy
- 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 efficiently
- 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.
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 generally produced remotely, so we tend not to notice the impact of our energy use.
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).
New Zealand is not particularly efficient in the way it uses energy, and 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.
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 can offer 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.
10.2 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 over 30,000 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.
- The government's solar water heating finance assistance programme encourages people to use solar water heating and strengthens the industry.
- The EC's electricity efficiency initiatives include a compact fluorescent lamps campaign and pilot projects for compressed air systems and motors in industry. These initiatives have already made savings of 208 GWh per annum at a cost of $4.58 million.
- The Department of Building and Housing is reviewing the Building Code to target significant energy efficiency improvements in houses and buildings. Public consultation on the review will include the possibility of using carbon dioxide emissions as a measure of the whole-of-life resource efficiency.
- 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 introduce energy efficiency initiatives. Savings reported by consumers in 2005/06 were 2.2 PJ.
- The EC has completed an economic assessment of barriers to using electricity-efficient technologies in commercial buildings.
- 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.
10.3 Our Actions
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
- energy price signals are often weak and do not sufficiently encourage some households and businesses to take cost-effective measures, especially at times of peak demand
- the absence of appropriate incentives (for example, for architects, builders and landlords)
- the low priority of energy efficiency for consumers, which is partly because of relatively low historic energy prices
- 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.
The government supports households and businesses voluntarily investing in energy efficiency improvements, but has a more active role to play when there are barriers that prevent cost-effective energy efficiency investments being made, for example, it will help fund the retrofitting of older houses occupied by low income families.
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.
Interventions will be guided by the principles and framework set out in this strategy and in the NZEECS and will be subject to detailed analysis of their costs and benefits.
10.3.1 The New Zealand 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 NZEECS, a statutory document that is a subset of this strategy.
The NZEECS sets out actions to promote more efficient use of energy. It focuses on implementation by sector, identifying the main measures, policy instruments and who is responsible for them.
In the stationary energy efficiency area, the NZES has two main priorities that guide the actions of the NZEECS.
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 and network capacity, including environmental impacts such as the cost of greenhouse gas emissions.
10.3.2 Filling Information Gaps
Gaining information on energy use is crucial 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 for consumers,49 the value of the energy saved and any co-benefits.
Analysis carried out by the EC and EECA has significantly improved the information needed to design energy efficiency programmes, and will continue to be refined and updated. A significant project is under way to improve our understanding of energy use in commercial buildings.
10.3.3 Government Discount Rates
Energy efficiency initiatives are assessed using cost-benefit analysis. As the costs and benefits accrue over many years, a discount rate places a lower value on those costs and benefits occurring in the future. Currently, government cost-benefit analysis typically uses discount rates of ten per cent real, which undervalues long-term savings. The discount rate used for all government policy-making in the United Kingdom has recently been revised to 3.5 per cent real per annum. Using the same approach as the United Kingdom, this strategy has adopted a discount rate of five per cent real per annum for cost-benefit analyses of energy efficiency and other measures under the NZES.50
10.3.4 Opportunities for Greater Energy Efficiency
The EC's draft Electricity Efficiency Potentials study identifies the cost-effective electricity efficiency potential of the New Zealand economy, and the EC's role in realising this potential. The information produced by the potentials study will underpin the EC's future electricity efficiency activities.
The EC's potentials study is yet to be finalised, and the results presented in this strategy are subject to review. The draft report shows economic potential for electricity savings of up to 13 per cent of base electricity use by 2016, and that savings51 of five per cent of base electricity use are achievable and cost effective through electricity efficiency programmes that the EC could implement. Achievable potential takes into account market barriers and reflects consumer discount rates.
The EC work also suggests that long-term savings could be much higher, with increased uptake and developments in technologies.
EECA has also produced analysis of potential energy efficiency gains, which reflects a wider range of benefits.52 The value of co-benefits, such as reduced greenhouse gas emissions and outcomes for householders such as health benefits from warmer houses and cleaner air, are important inputs into assessment of the net benefits of government interventions. Studies have shown, for example, that household retrofit programmes can deliver a two-for-one benefit by improving the health of vulnerable families.
EECA's analysis shows economic potential for energy savings in residential and commercial sectors of around 18 per cent of projected baseline demand (see Figure 10.1).
The actions set out in the NZEECS are supported by the cost-benefit analysis by the EC and EECA.
Figure 10.1: Potential for energy efficiency improvements
Source: Ministry of Economic Development
10.3.5 Promoting Energy Efficiency
Government leadership and action from firms and individuals will be needed to substantially improve energy efficiency. People will be more able to make cost-effective choices if they are given the right information when they buy a product. Incentives to encourage people to minimise costs over the lifecycle of their assets, rather than just the initial costs, will also improve energy efficiency.
Government Leadership
The government will continue encouraging the wider public service to take energy efficiency and conservation measures and to use renewable sources of energy. The core public service is already taking steps to enable it to be carbon neutral from 2012. Govt3 is a programme for core central agencies, departments and ministries, focusing on four key areas:
- recycling/waste minimisation
- buildings
- transport
- office consumables and equipment.
There are also two major cross-cutting themes – sustainable procurement (also known as sustainable purchasing) and energy efficiency.53
Pricing Mechanisms
Accurate prices are necessary to signal the actual costs of energy supply. The proposed ETS will incorporate the cost of greenhouse gas emissions in energy prices, but the energy efficiency initiatives set out in the NZES and the NZEECS can help reduce the impact on power bills.
At present, smaller electricity consumers and householders do not have the smart metering technology and tariffs to enable time-of-use electricity pricing. The EC is working on setting out guidelines for the introduction of smart meters. The government will also continue to provide estimates of future prices to help firms and individuals make decisions on investing in energy-using plant and equipment.
Information and Labelling
Existing appliance labelling and the proposed Home Energy Rating Scheme emphasise energy efficiency. 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. The ongoing review of the Building Code and the use of best practice standards will improve design decisions at low transaction costs.
Equipment suppliers and the energy industry can help consumers make even better choices in future, provided they have clear drivers to do so. The government also helps consumers make cost-effective investments by providing independent information and maintaining programmes that demonstrate the value of new technologies and energy efficient assets.
Government support for information and monitoring initiatives are especially justified where initiatives also offer significant health and social benefits, such as with the Energywise Home Grants Programme.
Incentives
The government provides direct financial incentives for investment in energy efficiency measures that offer substantial net public benefits and would not occur without government support. The electricity industry levy, for example, can support investment to achieve electricity savings that are cheaper than the cost of new supply. The government is particularly active in improving residential energy efficiency by providing grants and interest-free loans for insulation, clean heating and solar hot water.
For businesses, grant and subsidy programmes to upgrade industrial motors and compressed air will be expanded. In the rural sector, the FIDA for bioenergy and distributed generation will be extended.
Standards
Where there are weak incentives for the market to deliver solutions with net public benefits, the government has a role in setting minimum standards. There are already minimum energy performance standards at point of sale for some appliances and for building construction.
The government will extend the current Minimum Energy Performance Scheme (MEPS) through the NZEECS to include several new product classes and update stringency levels for existing product classes.
Institutional Issues
Government agencies that support improved energy efficiency in the stationary demand sector 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 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 that overlap.
Private firms are to be applauded for investing in measures to help consumers become more energy efficient. However, there is scope for even more effort, particularly from energy companies and retailers, through leveraging off existing commercial relationships and through government partnering with third parties. The government has allocated a substantial amount of additional funding to deliver a wider range of residential energy efficiency through third parties.
Local government will continue to play a valuable role in delivering programmes and policies, including administering the Building Code and the RMA, and making decisions on urban form and transport planning.
ACTION: The government will clarify roles and accountability arrangements for energy efficiency policy development and programme delivery.
10.4 Into the Future
Measures to improve energy efficiency are described in detail in the NZEECS.
Energy-saving Prisons
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.
Image courtesy of the Department of Corrections.
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