Using Energy More Efficiently
Objectives/Direction
Submitters commenting on this section of the NZES almost without exception recognised the importance of energy efficiency measures in reducing energy costs, reducing emissions and improving security of supply.
There was some discussion of the weighting that these measures should be given in the NZES (and NZEECS) with suggestions that:
- there was too little emphasis on energy efficiency - it should be prioritised over increases in supply as efficiency achieves better environmental outcomes
- Energy conservation was downplayed in favour of energy supply and efficiency.
One submitter, from the academic sector, noted that the significant threats of climate change, required large reductions in emissions. For this to be met purely by innovation would require technological change at a rate never seen before. Breaking the link between economic growth and energy consumption was what was required. Reducing economic growth was not the preferred solution; the focus they considered needed to be on behaviour change.
Barriers to consumers improving efficiency were reluctance of consumers to fund the up front costs of energy efficiency improvements which have a payback over a number of years, lack of information, and insufficient skilled advisers and installers.
There was divergence in opinion on whether government leadership should be in the form of awareness-raising and provision of information, regulation or a combination of both.
One view was that policy measures targeted explicitly at the energy sector or specific technologies that will facilitate development of renewable energy will be more effective then attempts to restrict individual energy usage through policies aimed at energy conservation. In fact, it was noted, suppressing demand might have a perverse effect of slowing the growth of renewable energy sources, e.g. wind farms.
Major users and some other business groups considered there was no clear case established for intervention and that Government's role should be limited to provision of information as this was a barrier to uptake of energy efficient technologies and behaviour change.
Some submitters noted that different measures were probably required for individuals and households, small to medium businesses and large users.
Major energy users noted the limited potential for efficiency gains many in this sector noted they are operating at or near world's best practice. Some suggested price based mechanisms might be most effective driver for larger firms to reduce energy inputs per unit of production while having less impact on households.
Targeting
Several submissions suggested ambitious targets are required e.g. 20% reduction by 2020. Another noted New Zealand's past performance in energy efficiency has been 0.5% to 1% pa, but that the NZEECS projects 1.5% to 2% improvement, at least double our previous performance. Given this, the final strategy needs to clearly demonstrate how energy efficiency targets are expected to be achieved, what specific measures will be introduced, who will be responsible for their delivery, and by when, and what remedial measures will be taken in the event that targeted savings are not achieved.
Low and fixed income earners
There was recognition that energy efficiency measures should be targeted initially at those least able to spend money on improved efficiency or energy supplies – the elderly and low-income earners.
Realising potential energy intensity reduction
There was criticism for some quarters of the figures in Table 5.1 – Potential for energy intensity reduction.5 It was suggested that further investigation of the potential was required before being used to support sector specific interventions. The limited potential for industrial energy and emissions efficiency, in particular, was recognised in the Sustainable Energy Value Project (Covec 2006) and this should be given prominence rather than the projections given in NZES table 5.1.
It was noted the levels indicated in table 5.1 will likely require a massive shift in investment and prices and Government must be mindful of the economic and social consequences at measures aimed at forcing the economy to meet the targets.
Major users expressed concern that the strategy confuses energy efficiency with intensity. Energy intensity is not a measure of inefficient use of energy it instead means adding value to goods. Using the term energy intensity is misleading – it implies that the biggest gains can be made by heavy industry efficiencies. There was a feeling that the importance of energy intensive industry to New Zealand's economy was under recognised.
Major energy users, while generally supportive of energy efficiency proposals, want existing energy efficiency achievements acknowledged. Many firms are operating at word's best practise or close to it. Energy intensive industries continue to improve their technology to remain internationally competitive, often have energy efficiency plans in place including negotiated greenhouse agreements, and have strong incentives to reduce energy inputs. Government should recognise the record of energy intensive companies in energy saving.
One major user noted that several energy efficiency projects have not been undertaken as the payback is not economic, in these cases, incentives might be useful.
The National Energy Efficiency and Conservation Strategy
Detailed proposals for implementing the energy efficiency and conservation directions in the NZES were set out in the draft National Energy Efficiency and Conservation Strategy (NZEECS), released at the same time as the NZES. A number of submitters noted that detailed submissions on energy efficiency measures were included in separate submissions on the draft NZEECS.
This report does not focus on the details of policy proposals in NZEECS, which is information most appropriately handled by EECA, it does however cover some of the key areas noted by submitters in their statements or in response to the questions posed.
Government Discount Rates
There were divided views on the proposals to adopt lower discount rates for cost benefit analysis of energy efficiency and other activities proposed in the strategy.
Those supporting a lower rate commented:
- that it is in accordance with their assessment of the discount rate using the marginal social rate of time preference method as well as tying in with broad objectives for promoting sustainable development
- in social cost benefit analysis the discount rate should reflect societal preferences. This contrasts with a private investment analysis where only the financial costs and benefits are considered using a discount rate based on the cost of capital of the firm
- higher social discount rates bias analysis against approval because longer term benefits are heavily discounted
- it reflects the long term benefits of renewable energy and energy efficiency measures
- noted the move still falls behind international best practice (some suggested applying the 3.5% rate adopted in the UK)
- it should be applied to assessment of grid transmission upgrade proposals.
Those not supporting the rate, primarily business interests, considered in a commercial environment it is common for a much higher discount rate to be applied by companies. Adopting an artificially low discount rate could establish how much Government is prepared to subsidise projects, rather then determining which project should be given priority.
There was some discussion of the proliferation of interest rates for assessing projects, the 10% Treasury default rate, 7% rate used by the Electricity Commission for the Grid Investment Test and the proposed 5% rate. It was suggested specialist advice on the correct rate should be sought and the outcome of the Treasury review of discount rates awaited. Justification for the rate chosen should be included in the strategy.
Several questioned how widely the rate would be used and noted it could have broader implications across the public sector.
Transit NZ commented that the move to a 5% discount rate could have the effect of redistributing government expenditure to energy efficiency and saving activities and away from other government portfolios. Implications for Transit could be:
- less funding being allocated to construction and maintenance of state highways
- a change in prioritisation within the 10 year State Highway Forecast as some projects would be assessed using 5% others 10%.
Promoting Energy Efficiency
Pricing mechanisms
There were mixed views on the extent to which pricing mechanisms alone will influence consumer demand for energy. Some submitters from the business sector considered that price signals alone, and the effective internalisation of externalities in prices would be sufficient to change demand. Some noted that price signals could be a stronger driver for large industrial users, unless industrial processes are uninterruptible.
Others supported a mix of measures particularly where behaviour change is difficult to deliver (often for households and small business).
Smart meters were in general supported as a means of raising consumer awareness of cost.6
One energy company advocated smart meters for all new homes. They went on to suggest the following targets:
- X% of residential buildings receive a "smart pricing signal"
- Y% of commercial buildings receive a "smart pricing signal" and
- Z% of new buildings have "smart metering" installed.
One submitter provided a comprehensive study examining a series of energy efficiency investments that could potentially be financed by recycling revenue from a charge on GHG emissions. The study identifies smart metering as an early priority due to its ability to reduce demand directly and to facilitate additional savings when used in combination with other investments, including load management and distributed generation. The meters would cost around $400 million and could be installed in all households over 4 to 5 years, using close to 90% local manufacturing content.
Several submitters noted that the provision of smart meters should not be mandated through regulation. The market is already operating with respect to adoption of smart meters with energy companies providing or considering providing smart metering services to gain competitive advantage.
Information and labelling
There was widespread support for Government initiatives promoting provision of information to consumers. There was recognition that lack of information about the benefits of energy efficiency was a barrier to uptake. Full information both at the point of sale and prior to sale while consumers were making buying decisions was important.
Incentives
There was widely based support for minimum performance standards for new capital stock where there were weak incentives for the market to deliver solutions with net public benefits. Support was frequently cited for:
- the current and proposed review of the building code
- a star rating system for homes and buildings to help make improvements more economically viable by creating capital value
- minimum energy efficiency standards for appliances.
It was noted that energy efficient building standards already exist in some countries. The "PassiveHaus" or Passive House standard is one example. The costs of construction in Germany are competitive with conventional designs. Adoption of this standard for new homes would be a relatively inexpensive way to achieve the goals of keeping houses warm, improving the health of the occupants and greatly reducing energy use.
There was recognition that it was not always realistic to force updating of existing stock as cost was often a barrier. Incentives for retrofitting and extension of existing programmes for insulation and solar collectors were often cited as positive measures.
Improvements in health resulting from warmer homes were recognised as an important co-benefit of improved insulation. As such strategies to improve homes should target low income populations who are more likely to have poor health.
There was some support for introducing a requirement that prior to sale existing buildings be upgraded to present building code standards but also recognition that cost could be a barrier.
Commercial organisations, as noted above, said there are commercial incentives for efficiency improvements but enhanced minimum standards coupled with subsidies or tax incentives would help with installation of new or expensive technology.
Incentives were not however supported across the board with submitters noting that once climate change costs have been internalized all that might be warranted is information. One set of New Zealanders should not be taxed or levied to provide benefits to another.
Institutional arrangements – energy efficiency obligation
There were mixed views around the imposition of an energy efficiency obligation on energy suppliers.
Energy companies were almost unanimous in there view that a mandatory obligation to provide energy efficiency services was not called for. Many companies indicated their own initiatives in this area e.g. energy audits, home insulation, ecobulbs, respiratory health survey, carbon calculator. It was noted that energy efficiency services are already being provided without government support or leadership.
Other submitters against intervention noted that domestic and commercial energy users have economic incentives to improve energy efficiency, there were incentives on retailers to gain a competitive advantage by offering energy efficiency services, and that providing energy efficiency services was not electricity retailers core business – if compulsory it might not be well done. Positive incentives should be created.
Investigation of mandatory energy efficiency obligations on energy suppliers was supported by others on the basis that there were few incentives in a competitive market for firms to encourage reduced energy usage – private firms focus is the bottom line and maximising shareholder returns.
Others suggested it was a positive move as:
- it assigned responsibilities to agents with resources and capabilities to act
- high energy users and activities could be targeted
- it could mitigate public concerns about expansion of supply and transmission capacity often this has local effects that can not be mitigated
- incentives on vertically integrated energy suppliers to work with consumers on energy efficiency issues are currently weak.
Institutional arrangements EC & EECA
There was little comment generally in this area. Some energy companies noted however that dealing with both EECA and EC on energy efficiency initiatives was confusing and time consuming and advocate consolidation under one agency. One thought EECA should be the appropriate vehicle for delivering energy efficiency initiatives rather than EC.
Others suggested Government departments ensure there are no overlaps or gaps in policy design, implementation and accountability.
Other policy proposals
Other recommendations for policy included:
- Government investigating the barriers to commercial plant owners upgrading their capital plant to support energy efficiency improvements and possibly providing incentives e.g. accelerated depreciation
- Generate funds for energy saving through an Electricity Demand Fund
- require all state agencies to become carbon neutral including State Owned Enterprises
- establish Energy Savings Ambassadors to provide advice on energy savings to households and technical expertise to businesses
- instigate social research to understand how to change consumer behaviour and the impact of that behaviour
- use demonstration farms to illustrate efficient technologies in the farming sector
- many suggested incentives (subsidies or low interest loans) for a variety of energy efficiency improvements such as insulation, thermal blankets for hot water cylinders, energy efficient light bulbs, solar heating, and heat pump installation.
Back to Top