The Honourable Michael Egan MP
Treasurer and Minister for Energy
Parliament House
Sydney NSW 2000
Dear Minister
I have pleasure in submitting to you the final report of the Sustainable Energy Fund Working Group.
David J Crossley (Dr)
Chair, Sustainable Energy Fund Working Group
24 November 1995
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| APPENDIX A |
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| APPENDIX B |
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| APPENDIX C |
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| APPENDIX D |
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| APPENDIX E |
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| APPENDIX F |
Preliminary List of Intervention Activities Which Could be Funded by the SEF |
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| APPENDIX G |
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Introduction
One of the key components of the NSW Government's overall reforms to the NSW electricity industry is the establishment of a Sustainable Energy Fund (SEF).
The main role of the Sustainable Energy Fund is to intervene where market failure is raising barriers to the economically efficient utilisation and application of sustainable energy technologies.
The SEF is not intended to fund research activities, but rather to support those sustainable energy technologies:
The SEF will not seek to compete in markets where the operations of the private and utility sectors are likely to capture most of the market potential, but will facilitate business opportunities with these sectors through targeted programs of industry assistance and through equity participation, for example in joint ventures.
SEF Working Group
The Sustainable Energy Fund Working Group has been established to prepare recommendations on how the SEF should be established.
The Terms of Reference defined the main tasks of the SEF Working Group as being to make recommendations to the Minister on:
This document is the final report to the Minister by the SEF Working Group. It contains the Working Group's firm recommendations to the Minister on how the Sustainable Energy Fund should be established.
Public Consultation Process
The SEF Working Group commenced a public consultation process with a newspaper advertisement placed on 16 September 1995 seeking public comment on specific questions relating to the Sustainable Energy Fund. Fifty-five submissions were received and these were augmented in some cases by presentations and discussions with members of the Working Group.
SEF Mission
The SEF Working Group proposes the following as the Mission of the Sustainable Energy Fund:
Consistent with the principles of ecologically sustainable development, to reduce the level of greenhouse gas emissions and other adverse environmental impacts of energy use in NSW, and to increase economic efficiency, by facilitating: improved end-use energy efficiency; enhanced fuel substitution to more environmentally benign fuels; increased use of cogeneration; and accelerated development and commercial application of renewable energy technologies.
The Working Group has also proposed detailed Objectives for the SEF.
Administration of the SEF
Under the Sustainable Energy Development Bill 1995, the SEF will be administered by a statutory body representing the Crown to be known as the Sustainable Energy Development Authority (SEDA). The Authority will be a separate body with its own Executive Director reporting directly to the Minister.
The Working Group recommends that a business strategy for SEDA should be developed according to guidelines which acknowledge that:
In carrying out its activities, SEDA will need to establish procedures for delivering programs and projects. SEDA should be a proactive organisation which both initiates projects and actively seeks out funding proposals consistent with the objectives of the Sustainable Energy Fund. The Working Group recommends that SEDA should use a range of methods for program delivery, with an appropriate method being selected depending on the nature of the particular project.
Intervention Activities
The Working Group recommends that SEDA should promote and fund a wide range of intervention activities aimed at supporting the commercialisation of sustainable energy technologies. These activities should include:
Review of Existing Programs
The Working Group recommends that all existing government energy efficiency and renewable energy programs should continue at their present resource levels until after the establishment of SEDA. SEDA managers should then carry out a detailed review of existing programs using SEF priorities and selection criteria, including a review of projects funded by the State Energy Research and Development Fund (SERDF). Programs and projects which fall within the SEF priorities and selection criteria should then be transferred to SEDA.
The Working Group recommends that the future of the State Energy Research and Development Fund, in relation to the funding of projects remaining after projects have been transferred to the Sustainable Energy Fund, should be decided as an issue separate to the establishment of the SEF. In the event that SERDF is continued, overlap of functions and funding priorities between SERDF and the SEF should be minimised.
Sources of Funding
The Working Group has identified several options for funding sources for the Sustainable Energy Fund:
The Working Group recommends that the principal source of funding for the SEF should be the NSW Government Consolidated Fund, with funds being provided as budgetary allocations through the established process of three year rolling funding.
The Working Group recommends that a levy on the electricity and/or gas industry should be kept under review with the possibility of using a levy as a funding source in the future.
The Working Group recommends that SEDA should be empowered, with the approval of the Minister and the Treasurer, to invest in commercial joint ventures with project proponents where these are in conformity with the Mission and Objectives of the Sustainable Energy Fund and where appropriate analysis of the investment risks has been carried out. All net monetary returns from these investments should be allocated to the SEF for use in funding SEF intervention activities.
Funding Allocation
The Working Group recommends that monies from the SEF should be allocated to four portfolio categories on the basis of a target proportion of the total funding available after allowing for the administrative costs of SEDA. The portfolio categories should be:
The Working Group recommends that SEDA managers should develop a methodology for deciding the proportional allocation between portfolio categories.
Level of Funding
The SEF Working Group commissioned three expert consultancy studies to provide additional advice on appropriate funding levels in the portfolio categories of energy efficiency and fuel substitution; cogeneration; and renewable energy technologies.
Based on the results of the consultancy studies, the Working Group recommends that a target annual level of funding for the Sustainable Energy Fund should be set at $45 million (1995 dollars). This level of funding should cover the three portfolio categories of energy efficiency and fuel substitution, cogeneration and renewable energy plus expenditure on core programs and on the administrative expenses of the Sustainable Energy Development Authority.
The Working Group recommends that SEDA should develop its corporate plan on the basis of the following indicative expenditure profile (in 1995 dollars):
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First full year (1996/97) |
$ 7 million |
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Second year (1997/98) |
$12 million |
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Third year (1998/99) |
$20 million |
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Fourth year (1999/2000) |
$30 million |
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Fifth year (2000/01) and subsequent years |
$45 million. |
The Working Group recommends that annual funding levels for the Sustainable Energy Fund should be dependent on the performance of the Sustainable Energy Development Authority. Good performance should result in increases in funding. Poor performance should lead to analysis and rectification of the reasons for this poor performance with reductions in funding if the situation cannot be rectified.
Estimated CO2 Emission Reductions
The Working Group estimated the carbon dioxide emission reductions which would be achieved by the funding levels in the indicative expenditure profile and an indicative allocation between portfolio categories. When programs initiated by the Sustainable Energy Development Authority are fully operational, the carbon dioxide emission reductions accumulated over a three year period total an estimated 2.7 million tonnes. Therefore, the Sustainable Energy Fund would exceed the NSW Government's target of reducing emissions of carbon dioxide by 2 million tonnes accumulated over a three year period.
The emission reductions achieved by SEDA projects will accumulate rapidly. By the end of the seventh year, assuming the $45 million target expenditure figure is reached, the emission reduction achieved are estimated at 4.7 million tonnes of carbon dioxide per year. This is 2.7% of the total annual carbon dioxide emissions in NSW in 1990. This annual emission reduction will increase by an estimated 1.8 million tonnes for each year subsequent to the seventh year of operation of the SEF.
Selection Criteria for SEF Projects
The Working Group identified the following categories of selection criteria for various types of intervention activities:
Extension of the SEF to Other Energy Forms
The Working Group recommends that the Sustainable Energy Development Authority should investigate extending the Sustainable Energy Fund to other energy forms and systems, particularly gas and transport. When this investigation is completed, an additional funding allocation should be made to the SEF to cover these other energy forms and systems. (Back to contents page)
Mission and Objectives
Recommendation 1. The Working Group recommends that the Mission and Objectives for the Sustainable Energy Fund should be as outlined in this report.
Administration of the SEF
Recommendation 2. The Working Group recommends that the business strategy for the Sustainable Energy Development Authority should be developed according to the following guidelines:
Recommendation 3. The Working Group recommends that the Sustainable Energy Development Authority should use a range of methods for program delivery, with an appropriate method being selected depending on the nature of the particular project. These should include the effective use of trade allies in the private and public sector (ie consultants, contractors, equipment suppliers, utilities and others that have a financial interest in the program succeeding). SEDA staff should not work directly on program delivery, rather they should primarily function as project managers.
Recommendation 4. The Working Group recommends that SEDA management consider carefully the number and skills profile of staff engaged. The required skills profile of SEDA staff will change over time in response to changing circumstances and some skills may be better sourced through contracting in rather than maintaining permanent staff with these skills. The range of skills and experience required includes:
Intervention Activities
Recommendation 5. The Working Group recommends that monies from the Sustainable Energy Fund be used to achieve the Fund's Mission and Objectives by carrying out activities such as the following: providing information, education and training on sustainable energy technologies, techniques and practices; providing funding assistance for the commercialisation of sustainable energy technologies; assisting sustainable energy technologies increase their market share through market transformation activities; and providing assistance to sustainable energy industries.
Review of Existing Programs
Recommendation 6. The Working Group recommends that all existing government energy efficiency and renewable energy programs should continue at their present resource levels until after the establishment of the Sustainable Energy Development Authority. SEDA managers should then carry out a detailed review of existing programs using SEF priorities and selection criteria, including a review of projects funded by the State Energy Research and Development Fund (SERDF). Programs and projects which fall within the SEF priorities and selection criteria should then be transferred to SEDA.
Recommendation 7. The Working Group recommends that where energy efficiency and renewable energy programs have been developed and implemented by electricity utilities for primarily commercial reasons, and where the commercial drivers remain in place, these programs should be left with the utilities.
Recommendation 8. The Working Group recommends that, following the completion of the review of non-core businesses by Pacific Power, a further urgent review should be carried out of energy efficiency and renewable energy programs currently funded by Pacific Power. This review should determine:
Recommendation 9. The Working Group recommends that the future of the State Energy Research and Development Fund, in relation to the funding of projects remaining after projects have been transferred to the Sustainable Energy Fund, should be decided as an issue separate to the establishment of the SEF. In the event that SERDF is continued, overlap of functions and funding priorities between SERDF and the SEF should be minimised.
Sources of Funding
Recommendation 10. The Working Group recommends that the principal source of funding for the Sustainable Energy Fund should be the NSW Government Consolidated Fund, with funds being provided as budgetary allocations through the established process of three year rolling funding.
Recommendation 11. The Working Group recommends that a levy on the electricity and/or gas industry should be kept under review with the possibility of using a levy as a funding source in the future.
Recommendation 12. The Working Group recommends that if the funding of any programs is transferred from the State Energy Research and Development Fund and/or Pacific Power to the Sustainable Energy Development Authority, then monies should be provided to the Sustainable Energy Fund on a revenue neutral basis to cover the funding of the transferred programs. This funding should be additional to other program and general funding provided to the SEF and it should be continued for the life of the transferred programs.
Recommendation 13. The Working Group recommends that the Sustainable Energy Development Authority should be empowered, with the approval of the Minister and the Treasurer, to invest in commercial joint ventures with project proponents where these are in conformity with the Mission and Objectives of the Sustainable Energy Fund and where appropriate analysis of the investment risks has been carried out. All net monetary returns from these investments should be allocated to the SEF for use in funding SEDA intervention activities.
Recommendation 14. The Working Group recommends that the Sustainable Energy Development Authority should, where appropriate, establish joint funding arrangements with other funding bodies such as the Energy Research and Development Corporation (ERDC), the Australian Electricity Supply Industry Research Board (AESIRB), energy utilities, and Commonwealth Government agencies.
Funding Allocation
Recommendation 15. The Working Group recommends that monies from the Sustainable Energy Fund should be allocated to four portfolio categories on the basis of a target proportion of the total funding available after allowing for the administrative costs of the Sustainable Energy Development Authority. The portfolio categories should be: energy efficiency and fuel substitution, cogeneration, renewable energy, and core programs.
Recommendation 16. The Working Group recommends that SEDA managers should develop a methodology for deciding the proportional allocation between portfolio categories.
Level of Funding
Recommendation 17. The Working Group recommends that a target annual level of funding for the Sustainable Energy Fund should be set at $45 million (1995 dollars). This level of funding should cover the four portfolio categories of energy efficiency and fuel substitution, cogeneration, renewable energy and core programs plus expenditure on the administrative expenses of the Sustainable Energy Development Authority.
Recommendation 18. The Working Group recommends that SEDA should develop its corporate plan on the basis of the following indicative expenditure profile (in 1995 dollars):
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|
First full year (1996/97) |
$ 7 million |
|
|
Second year (1997/98) |
$12 million |
|
|
Third year (1998/99) |
$20 million |
|
|
Fourth year (1999/2000) |
$30 million |
|
|
Fifth year (2000/01) and subsequent years |
$45 million. |
Recommendation 19. The Working Group recommends that that SEDA should arrange for the external evaluation of various aspects of its performance as follows:
Recommendation 20. The Working Group recommends that annual funding levels for the Sustainable Energy Fund should be dependent on the performance of the Sustainable Energy Development Authority. Good performance should result in increases in funding. Poor performance should lead to analysis and rectification of the reasons for this poor performance with reductions in funding if the situation cannot be rectified.
Selection Criteria for SEF Projects
Recommendation 21. The Working Group recommends that a hierarchy of criteria be used by the Sustainable Energy Development Authority in selecting proposed projects for funding. Individual selection criteria should be developed and refined for each of the portfolio categories based on those identified in this report and a weighting factor developed for each criterion. The selection criteria should be reviewed on a annual basis to ensure that the criteria are effective in selecting projects with cost-effective measurable impacts.
Extension of the SEF to other Energy Forms
Recommendation 22. The Working Group recommends that the Sustainable Energy Development Authority should investigate extending the Sustainable Energy Fund to other energy forms and systems, particularly gas and transport. When this investigation is completed, an additional funding allocation should be made to the SEF to cover these other energy forms and systems. (Back to contents page)
The NSW Government announced its intention to introduce major reforms to the NSW electricity industry in its Electricity Reform Statement1, released by the Treasurer and Minister for Energy in May 1995. One of the key components of the Government's overall reforms is the establishment of a Sustainable Energy Fund (SEF).
The main role of the Sustainable Energy Fund is to intervene where market failure is raising barriers to the economically efficient utilisation and application of sustainable energy technologies.
The SEF is not intended to fund research activities, but rather to support those sustainable energy technologies:
The SEF will not seek to compete in markets where the operations of the private and utility sectors are likely to meet most of the market potential, but will facilitate business opportunities with the private and utility sectors through targeted programs of industry assistance and through equity participation, for example in joint ventures. (Back to contents page)
1 Hon Moichael Egan, 1995. Electricity Reform Statement. NSW Government, May.
A Sustainable Energy Fund Working Group was established to prepare recommendations to the Minister for Energy on how the SEF should be established. The Terms of Reference for the Working Group and a list of its members are attached as Appendices A and B.
The Terms of Reference defined the main tasks of the SEF Working Group as being to make recommendations to the Minister on:
The SEF Working Group submitted an interim report to the Minister on 22 September 1995. The interim report outlined the Working Group's thinking at that time on how the Sustainable Energy Fund should be established but did not include any recommendations.
This document is the final report to the Minister by the SEF Working Group. It contains the Working Group's firm recommendations to the Minister on how the Sustainable Energy Fund should be established. (Back to contents page)
3. PUBLIC CONSULTATION PROCESS
The SEF Working Group commenced a public consultation process with a newspaper advertisement placed on 16 September 1995 seeking public comment on the following issues:
The Working Group invited written submissions from interested people to be received by 16 October 1995. Fifty-five submissions were received and these were augmented in some cases by presentations and discussions with members of the Working Group.
The Working Group found the public consultation process to be most useful and appreciated the thoughtful submissions which were made. Appendix C outlines the main issues raised in the submissions and shows how the views expressed have been considered for incorporation into the Working Group's recommendations. (Back to contents page)
4. POLICY BACKGROUND
4.1 State and National Greenhouse Policies
Governments have acknowledged the potentially significant impact of climate change resulting from an enhanced greenhouse effect. The National Greenhouse Response Strategy (NGRS), together with the National Strategy for Ecologically Sustainable Development endorsed by the Council of Australian Governments in December 1992, represent the current agreed State and Commonwealth greenhouse gas emissions policy and are the principal means by which Australia intends to meet its international obligations under the Framework Convention on Climate Change.
Under the NGRS, Governments agreed to the decision by Australia to adopt an interim planning target "...to stabilise greenhouse gas emissions (not controlled by the Montreal Protocol on Substances that Deplete the Ozone Layer) based on 1988 levels, by the year 2000 and to reduce these emissions by 20 per cent by the year 2005...subject to Australia not implementing response measures that would have net adverse economic impacts nationally or on Australia's trade competitiveness, in the absence of similar action by major greenhouse producing countries."
The NGRS set key objectives in the energy area, including:
The NGRS initiated some national priority actions under these objectives, such as minimum energy performance standards for some major domestic appliances.
In March 1995, the Commonwealth Government announced a further package of measures, called 'Greenhouse 21C', including a White Paper on Sustainable Energy, a Cooperative Research Centre on renewable energy and a program of Cooperative Agreements with industry.
The Commonwealth Government launched its Greenhouse Challenge program to promote the abatement of greenhouse gas emissions in October 1995. Under this program, organisations are encouraged to sign voluntary Cooperative Agreements which commit them to undertake specific actions to reduce greenhouse gas emissions. The Sustainable Energy Fund may well be able to assist organisations to meet their commitments under these Agreements, provided that this fits with the corporate plan, program priorities and project selection criteria established by the SEF managers.
In New South Wales, most electricity produced is generated by the burning of black coal. Coal is a non-renewable resource and its combustion produces the greenhouse gas carbon dioxide (CO2). As the generation of electricity in the State accounts for around 49% of the total emissions of CO2, measures that reduce the greenhouse gas emissions associated with electricity and other energy use will positively affect NSW's overall position regarding the national and international targets.
The NSW Government has made a commitment to reduce CO2 emissions by a total of two million tonnes accumulated over three years. This target and the Government's commitment was reconfirmed by the Minister when the Electricity Reform Statement was released.
The NSW Government is also contributing to the identification of opportunities for further 'no-regrets' actions to address Australia's international commitments and the actions identified in the National Greenhouse Response Strategy. These measures will be presented in November 1995 to the Inter-Governmental Committee for Ecologically Sustainable Development (ICESD).
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Commonwealth of Australia, 1992. National Greenhouse Response Strategy. Australian Government Publishing Service, Canberra, December. |
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3 |
Commonwealth of Australia, 1992. National Strategy for Ecologically Sustainable Development. Australian Government Publishing Service, Canberra, December. |
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4 |
Commonwealth of Australia, 1995. Greenhouse 21C: A Plan of Action for A Sustainable Future. Australian Government Publishing Service, Canberra, March. |
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5 |
Commonwealth of Australia, 1995. Greenhouse Challenge. Australian Government Publishing Service, Canberra, October. |
4.2 Market Barriers
While the Commonwealth and State governments have set targets and objectives in the areas of greenhouse gas emissions, energy efficiency and renewable energy, there are a number of barriers to the introduction of these technologies. The most notable include:
In addition, barriers to the continuing development and commercial application of renewable energy technologies include:
While structural and pricing reforms will be important factors in overcoming past regulatory failures and improving technical efficiency in the electricity sector, the continuing existence of most of the above barriers will require additional mechanisms to ensure that the majority of cost-effective opportunities for sustainable energy technologies are taken up. The Sustainable Energy Fund is one of the mechanisms that will be used to reduce the barriers to these technologies.
4.3 Reform of the NSW Electricity Supply Industry
The NSW electricity supply industry currently operates within a highly regulated market. Structural reforms within NSW are aimed at positioning the NSW electricity industry for a competitive national wholesale market. The overriding objective of the electricity reforms is to establish a lightly regulated competitive market structure that drives productivity improvements and leads to efficient prices, thereby lowering the true costs of energy services and allowing an expansion in economic output and employment.
Key components of the national reform agenda include: the separation into individual businesses of the four operational functions of the electricity supply industry, namely generation, transmission, distribution and retail supply; the separation of natural monopoly elements of the electricity industry from the competitive sectors; and the separation of the operational and regulatory functions of the industry.
Strategic possibilities for competition in retail energy services and for competition in the wholesale energy market may change the nature and extent of economies of scale and economies of scope in electricity distribution. The reforms will remove some, but not all, of the barriers to the adoption of environmentally superior demand management and supply technologies.
Two major reviews have been carried out by the NSW Government on the restructuring of the NSW electricity supply industry.
A Generation Review Group investigated the appropriate structure for the electricity generation sector in NSW and recommended that Pacific Power be disaggregated into two or three generating companies. The Government has announced that two generating companies will be established.
The second review by the Distribution Review Group recommended that the existing 25 Electricity Distributors be amalgamated into six new distribution businesses which will also be corporatised. The network and retail energy services components of the distribution businesses will be ring fenced within the new distribution companies. The Government Pricing Tribunal will oversee the operation of the franchise part of the retail energy services business and all of the operation of the network services of the new distribution companies. The Distribution Review Group further recommended that the corporate governance principles established for distribution businesses enable these businesses to provide a full range of energy services including gas supply and demand management. This recommendation provides the opportunity for the retail supply sector to make an enhanced range of energy services available to customers though, by itself, it does not guarantee this outcome. The Government has accepted these recommendations and they are currently being implemented
The electricity reform process will deliver savings in retail electricity prices from two main sources. Firstly, reductions in the wholesale price paid to generators and the introduction of competition in the generation sector are expected to deliver a lower wholesale price than the regulated price set by the Government Pricing Tribunal. Secondly, the savings from economies of scale arising from the amalgamations of the distribution businesses are estimated to be $80 to $130 million per annum. Further improvements in productivity over the next five years will also save up to $100 million per annum by the end of that period.
The SEF Working Group notes that a reduction in electricity prices may add to the difficulty faced by energy businesses in marketing energy efficiency and renewable energy technologies. However, in addition to changes to the distribution business structures, other changes may occur over time, including a change in customers' perception of energy services. This may assist the marketing and application of energy efficiency and renewable energy technologies to customers in spite of reduced energy prices.
4.4 Role of Demand Management and Energy Efficiency in the Competitive Electricity Market
There has been substantial work carried out on identifying the opportunities for demand management and energy efficiency in the competitive electricity market in Australia.
A well-functioning competitive electricity market in southern and eastern Australia will enable customers to choose between electricity suppliers on the basis of the services they offer (including energy efficiency services) as well as price. Achieving true competition between demand-side and supply-side options will require action to encourage the establishment of a competitive energy services industry in Australia, including some collaboration between participants in the competitive electricity market. At the same time, enabling the monopoly electricity network businesses to carry out energy efficiency programs will require some changes to the current regulatory structures.
The structural reform of the NSW electricity supply industry and the establishment of the Sustainable Energy Fund are complementary. Structural reform removes some of the old regulatory biases against energy efficiency and opens up the opportunity for electricity retailers to broaden their businesses into providing energy services. The SEF provides a specific stimulus to the energy efficiency and renewable energy industries which are needed for a true energy services market but which are still in their infancy.
Amalgamation and corporatisation of the NSW electricity distributors provides an opportunity for the incorporation into the new institutional arrangements of incentives for electricity distributors to broaden their retail supply businesses beyond the provision of electricity as a commodity. Indeed, some distributors are already re-orienting their retail supply businesses towards selling energy services and are becoming involved in providing their customers with energy efficiency and renewable energy solutions to their energy services needs.
One role of the Sustainable Energy Fund will be to encourage, facilitate and support this trend among electricity retailers and also to encourage electricity network businesses (both distribution and transmission) to consider energy efficiency and renewable energy options for cost-effectively deferring the need to augment their systems.
On a broader scale, the SEF will stimulate the development and establishment of viable and competitive businesses providing sustainable energy technologies and services by removing barriers and influencing demand. It is envisaged that these businesses will be established both within and outside the electricity supply industry. Once fully established, these energy services businesses will be able to compete on a more equal basis with businesses supplying electricity as a commodity. (Back to contents page)
5. Mission and Objectives
5.1 Mission
The Working Group proposes the following as the Mission of the Sustainable Energy Fund:
Consistent with the principles of ecologically sustainable development, to reduce the level of greenhouse gas emissions and other adverse environmental impacts of energy use in NSW, and to increase economic efficiency, by facilitating: improved end-use energy efficiency; enhanced fuel substitution to more environmentally benign fuels; increased use of cogeneration; and accelerated development and commercial application of renewable energy technologies.
5.2 Objectives
The Working Group proposes the following Objectives for the Sustainable Energy Fund:
5.3 Recommendation
Recommendation 1. The Working Group recommends that the Mission and Objectives for the Sustainable Energy Fund should be as outlined in this report. (Back to contents page)
6.1 Legislation
The Sustainable Energy Fund will be established under its own Act of Parliament. The Sustainable Energy Development Bill 1995 was introduced into the NSW Parliament by the Government on 23 November 1995. The Bill is attached as Appendix D.
Under the Sustainable Energy Development Bill, the SEF will be administered by a statutory body representing the Crown to be known as the Sustainable Energy Development Authority (SEDA). The Authority will be a separate body with an advisory Board (Sustainable Energy Advisory Board) and its own Executive Director reporting directly to the Minister. The Bill also establishes the Sustainable Energy Fund to provide energy development assistance to persons engaged in the development, commercialisation, promotion and use of sustainable energy technology.
'Sustainable energy technology' is defined in the legislation to mean products, processes, practices and designs:
(a) to improve efficiency in the use of energy;
(b) to facilitate the production of energy from renewable resources;
(c) to facilitate the production of energy in ways that minimise levels of greenhouse gas emissions and other adverse environmental impacts;
(d) to enable energy-using activities to use forms of energy that minimise levels of greenhouse gas emissions and other adverse environmental impacts.
'Energy development assistance' is defined in the legislation as being information, education and training, loans, grants, subsidies and financial guarantees, and other assistance in connection with the development, commercialisation, promotion and use of sustainable energy technology.
The functions of the Sustainable Energy Development Authority are described in the legislation as being:
(a) to investigate matters relating to the development, commercialisation, promotion and use of sustainable energy technology;
(b) to engage in the development, commercialisation, promotion and use of sustainable energy technology;
(c) to provide energy development assistance to persons engaged in the development, commercialisation, promotion and use of sustainable energy technology;
(d) to advise other persons on matters relating to the development, commercialisation, promotion and use of sustainable energy technology.
The Sustainable Energy Development Bill 1995 also:
The Bill also provides for the Sustainable Energy Advisory Board to advise the Minister on relevant matters. The Board will be appointed by the Minister and will comprise of at least three and not more than seven members with appropriate qualifications or experience in relation to one or more of the following:
(a) energy or energy related services;
(b) consumer or community interests;
(c) environmental protection;
(d) financial management.
6.2 Business Strategy
The legislation makes clear the main parameters within which the Sustainable Energy Fund and its administrative agency the Sustainable Energy Development Authority will operate. However, a detailed business strategy for SEDA will need to be developed.
The Working Group recommends that the business strategy for SEDA should be developed according to the following guidelines:
6.3 Program Delivery
In carrying out its activities, SEDA will need to establish procedures for delivering programs and projects. SEDA should be a proactive organisation which both initiates projects and actively seeks out funding proposals consistent with the objectives of the Sustainable Energy Fund.
The Working Group recommends that SEDA should use a range of methods for program delivery, with an appropriate method being selected depending on the nature of the particular project. These should include the effective use of trade allies in the private and public sector (ie consultants, contractors, equipment suppliers, utilities and others that have a financial interest in the program succeeding). SEDA staff should not work directly on program delivery, rather they should primarily function as project managers.
The types of program delivery mechanisms that could be used by SEDA include:
6.4 Staffing
SEDA should minimise the proportion of funds expended on administration, and should maintain flexibility in its structure and administration procedures in order to respond to changes in the market place and the need to focus on particular barriers and gaps from time to time. Since SEDA will have the power to employ its own staff, it is important that SEDA management consider carefully the number and skills profile of staff engaged.
SEDA will need to maintain a core group of people to:
To carry out these tasks, SEDA staff should have a range of skills and experience. The required skills profile of SEDA staff will change over time in response to changing circumstances and some skills may be better sourced through contracting in rather than maintaining permanent staff with these skills. The range of skills and experience required includes:
6.5 Role of the Advisory Board
While the advisory body established by the legislation is currently termed a 'Board', it is intended that it should function like an advisory council or committee rather than as a governance Board. The legislation specifies that the Board provides advice directly to the Minister. It is envisaged that the Board will also provide advice to the Sustainable Energy Development Authority through the Executive Director who will be expected to attend all Board meetings.
The Board will provide advice in relation to the development, commercialisation, promotion and use of sustainable energy technology and the provision of assistance to facilitate this. While the Board will provide advice on the SEDA draft corporate plan, it will be concerned with broad policy matters rather than with operational details. For example, the Board may well suggest priority areas for action and comment on whether a particular program design is likely to be effective, but it would not decide whether to fund particular projects.
6.6 Recommendations
Recommendation 2. The Working Group recommends that the business strategy for the Sustainable Energy Development Authority should be developed according to the following guidelines:
Recommendation 3. The Working Group recommends that the Sustainable Energy Development Authority should use a range of methods for program delivery, with an appropriate method being selected depending on the nature of the particular project. These should include the effective use of trade allies in the private and public sector (ie consultants, contractors, equipment suppliers, utilities and others that have a financial interest in the program succeeding). SEDA staff should not work directly on program delivery, rather they should primarily function as project managers.
Recommendation 4. The Working Group recommends that SEDA management consider carefully the number and skills profile of staff engaged. The required skills profile of SEDA staff will change over time in response to changing circumstances and some skills may be better sourced through contracting in rather than maintaining permanent staff with these skills. The range of skills and experience required includes:
In determining what activities should be pursued by the Sustainable Energy Development Authority, the Working Group examined the operations of some other initiatives which are similar to the Sustainable Energy Fund. Descriptions of three of these other initiatives are presented in Appendix E.
The Working Group also considered submissions from the public consultation process which addressed the question of what activities should be funded by the SEF. A wide range of activities were proposed in the submissions. The Energy Research and Development Corporation proposed that activities to be funded by SEF over its first five years should be aimed at creating reliable markets for, and reducing the costs of, sustainable energy use and supply technologies and products. Orion Energy said that all energy production and use activities that can displace greenhouse gas emissions, are part of an industry Cooperative Action Program, and whose implementation is clearly hindered by barriers should be considered for facilitation (but not necessarily funding). The Rainbow Power Company Ltd suggested that priorities should include the encouragement of sustainable energy technologies through promotion, education, RAPAS schemes, energy cards and buy back incentives. The EcoDesign Foundation suggested that priority should be given to raising awareness and knowledge of renewable energy, passive solar design and energy efficiency and their inter-relation with the commercial sector at large. The Lighting Controls Association of Australia Ltd supported the concept of subsidies for seminars, promotions, education and training programs, not only for end users but for market intermediaries such as energy auditors, installation contractors and consultants.
The main role of SEDA will be to intervene where barriers or market failures are hindering the economically efficient utilisation and application of sustainable energy technologies. The Working Group recommends that the Sustainable Energy Fund should be used to promote and fund a wide range of intervention activities. Following are descriptions of the main types of intervention activities which the Working Group recommends should be carried out by SEDA. Some examples of specific intervention activities, categorised by market sector, are listed in Appendix F.
7.1 Information, Education and Training
These activities seek to influence consumers at key points in the decision making process relating to the purchase of appliances and equipment, and the design and purchase of dwellings and other buildings. The target audience for these activities comprises energy end-users and key intermediaries in the residential, commercial or industrial sectors. Proposed activities include:
7.2 Technology Commercialisation
Activities in this category will be directed at particular technologies or services which are proceeding towards commercialisation. The target audience for these activities comprises developers of technology and manufacturers. Proposed activities include:
7.3 Market Transformation
Activities in this category will be directed towards increasing the market penetration of newly commercialised technologies and services where increased penetration is being prevented by barriers and where intervention is cost-effective for society. The target audience for these activities will mainly comprise end-users, though a small percentage of activities may be directed towards retailers or other market intermediaries who market a particular product or service. Proposed activities include:
7.4 Assistance to Sustainable Energy Industries
Activities in this category will be directed towards increasing the competitiveness of the energy efficiency and renewable energy industries. The target audience comprises firms in these industries and the personnel of these firms. Proposed activities include:
7.5 Recommendation
Recommendation 5. The Working Group recommends that monies from the Sustainable Energy Fund be used to achieve the Fund's Mission and Objectives by carrying out activities such as the following: providing information, education and training on sustainable energy technologies, techniques and practices; providing funding assistance for the commercialisation of sustainable energy technologies; assisting sustainable energy technologies increase their market share through market transformation activities; and providing assistance to sustainable energy industries. (Back to contents page)
8. REVIEW OF EXISTING PROGRAMS
The SEF Working Group is not in a position to carry out a major review of all existing energy efficiency and renewable energy programs in NSW. However, the Working Group has come to some preliminary conclusions in relation to certain existing programs. In addition, the Working Group has recommended selection criteria to be used by Sustainable Energy Development Authority managers when reviewing existing programs, once SEDA is established. These criteria are described in section 13 below.
8.1 Energy Efficiency and Renewable Energy Programs
The Working Group recommends that all existing programs should continue at their present resource levels until after the establishment of SEDA. SEDA managers should then carry out a detailed review of existing programs using SEF priorities and selection criteria, including a review of projects funded by the State Energy Research and Development Fund (SERDF). Programs and projects which fall within the SEF priorities and selection criteria should then be transferred to SEDA.
The Working Group has also discussed whether all energy efficiency and renewable energy programs currently carried out by electricity utilities should be transferred to the SEDA. The important determinant of whether a particular program should be transferred is whether the program is best delivered by an electricity utility or by another organisation. Some energy efficiency and renewable energy programs have been developed and implemented by electricity utilities for primarily commercial reasons and, where the commercial drivers remain in place, these programs should be left with the utilities.
8.2 Pacific Power Programs
Some energy efficiency and renewable energy programs which are currently being funded by Pacific Power may not have an obvious home once Pacific Power is disaggregated. Energy efficiency and renewable energy programs are not necessarily part of the core business of generating electricity and therefore may be inappropriate for a generation business. Some of the programs which fall into this category are described below.
Pacific Power is currently carrying out its own review of the future of its non-core businesses and may seek to retain some or all of the energy efficiency and renewable energy programs in the generation sector. However, the Working Group believes that the potential of these programs to contribute to reducing greenhouse gas emissions must not be compromised. One way of maximising the programs' contributions to this objective would be to source their funding from the Sustainable Energy Fund once SEDA is established.
If it is proposed to source the funds from the SEF, the existing programs should be reviewed to determine whether they conform to the priorities and selection criteria which have been established for the SEF. Following the review, it may be necessary to discontinue some of the existing programs, and to modify others.
The Working Group recommends that, following the completion of the review of non-core businesses by Pacific Power, a further urgent review should be carried out of energy efficiency and renewable energy programs currently funded by Pacific Power. This review should determine:
8.3 SERDF
The Energy Administration Act 1987 enables the NSW Government to provide funding for energy research, development and demonstration projects through the State Energy Research and Development Fund (SERDF) via a levy on the electricity and gas industries (though the levy on the electricity industry is not currently implemented).
At the outset, the Working Group specifically excluded research activities from the range of projects which might receive SEF funding. However, some projects currently funded by SERDF may be related to Sustainable Energy Fund objectives and fall within SEF selection criteria. Therefore the Working Group recommends that current SERDF projects be included in the review of programs to be carried out by SEDA managers and relevant SERDF projects be transferred to the SEF.
The Working Group also recommends that the future of the State Energy Research and Development Fund, in relation to the funding of projects remaining after projects have been transferred to the Sustainable Energy Fund, should be decided as an issue separate to the establishment of the SEF. In the event that SERDF is continued, overlap of functions and funding priorities between SERDF and the SEF should be minimised.
8.4 Recommendations
Recommendation 6. The Working Group recommends that all existing government energy efficiency and renewable energy programs should continue at their present resource levels until after the establishment of the Sustainable Energy Development Authority. SEDA managers should then carry out a detailed review of existing programs using SEF priorities and selection criteria, including a review of projects funded by the State Energy Research and Development Fund (SERDF). Programs and projects which fall within the SEF priorities and selection criteria should then be transferred to SEDA.
Recommendation 7. The Working Group recommends that where energy efficiency and renewable energy programs have been developed and implemented by electricity utilities for primarily commercial reasons, and where the commercial drivers remain in place, these programs should be left with the utilities.
Recommendation 8. The Working Group recommends that, following the completion of the review of non-core businesses by Pacific Power , a further urgent review should be carried out of energy efficiency and renewable energy programs currently funded by Pacific Power. This review should determine:
Recommendation 9. The Working Group recommends that the future of the State Energy Research and Development Fund, in relation to the funding of projects remaining after projects have been transferred to the Sustainable Energy Fund, should be decided as an issue separate to the establishment of the SEF. In the event that SERDF is continued, overlap of functions and funding priorities between SERDF and the SEF should be minimised. (Back to contents page)
9.1 Options for Funding Sources
The Working Group has identified several options for funding sources for the Sustainable Energy Fund:
The Working Group recognises that stability in relation to continuity of funding is the main requirement for the funding arrangements for the Sustainable Energy Fund. The majority of SEDA intervention activities will have time horizons extending over several years. Continuity of funding over the life of SEDA projects is essential to achieve confidence on the part of project proponents, end-use customers, and the other investors in joint projects.
The Working Group has therefore examined each of the identified funding sources to determine how stable they might be in relation to continuity of funding. The Working Group recognises that there can be no absolute guarantee of continuity of funding. However, an absolute guarantee is not particularly desirable since SEDA needs to be able to respond to changing circumstances and these changes may require alterations in the source and/or level of funding. Therefore, the Working Group is concerned to recommend funding sources which combine a reasonable degree of stability with the ability to respond to changing circumstances.
9.2 NSW Government Consolidated Fund
The Sustainable Energy Fund could be funded directly through the NSW Government Consolidated Fund with funds being provided as budgetary allocations through the established process of three year rolling funding. This method would be subject to policy decisions by the government of the day. However, the effects of any major changes in government policy which reduced the level of funding to the SEF would be ameliorated by the provision for three year rolling funding.
The Working Group generally favours the use of government budgetary allocations as the principal funding source for the SEF. Budgetary allocations provide a relatively stable funding mechanism which is responsive to changing conditions through government policy and the parliamentary process. Budgetary allocations would also be subject to auditing requirements.
9.3 Levy on Energy Utility Revenue
In 1990, the Commonwealth Government set up nine Ecologically Sustainable Development (ESD) Working Groups to consider the implementation of ESD principles in the most resource-intensive sectors of the national economy. The Working Groups reported to the Prime Minister in November 1991. One of the Working Groups was concerned with energy use and among its recommendations was:
"...that for an initial period of five years, a minimum amount equivalent to one per cent of utility revenue be spent on a range of least-cost demand-side options identified by the integrated least-cost planning process".
Since the publication of the ESD Working Group reports, various other policy studies have proposed a levy on the revenue of energy utilities as a mechanism for funding energy efficiency and renewable energy programs. Several submissions to the Working Group also proposed such a levy, including those from environmental groups, the Australian Consumers' Association and Dr David Mills. Other submissions argued against a levy, including those from the NSW Minerals Council. AGL Gas Companies stated that any levy should not duplicate (existing) levied charges on energy suppliers.
The SEF Working Group considered the possibility of a levy on energy utilities as a funding source for the Sustainable Energy Fund.
An argument in favour of such a levy is that it would be imposed directly on the energy supply industries which are a major source of greenhouse gas emissions. Also, a levy on utility revenue would not be subject to government budgetary restrictions.
However, if the SEF gained a major portion of its funding from such a levy, the energy supply industries would be likely to exert strong pressures to reduce the amount of the levy and to ensure that the funds are spent on programs directly related to the energy industry providing the funding. For example, the submission by AGL Gas Companies stated that funds levied on AGL should be substantially directed to encourage natural gas substitution for electricity from coal and petroleum fuels, support cogeneration and other forms of natural gas utilisation and energy efficient gas appliances. Such pressures would both threaten the stability of funding continuity and possibly bias the portfolio of SEF projects towards particular energy technologies.
Further, recent cases in the High Court of Australia have thrown doubt on the legal and constitutional ability of State Governments to impose levies on the revenue or profits of trading enterprises. On behalf of the SEF Working Group, the NSW Treasury sought a legal opinion on this issue from the NSW Crown Solicitor. This opinion supports the contention that imposing such a levy could be difficult for legal and constitutional reasons.
There is also an argument that the SEF Mission and Objectives are directed towards achieving a general social good (reduction in greenhouse gas emissions) and that therefore, funding should be derived from society as a whole through general tax revenue rather than singling out one sector of the economy.
Finally, the imposition of a levy could disadvantage NSW-based electricity utilities in the competitive electricity market if such a levy were imposed only in NSW.
| 7 |
Ecologically Sustainable Development Working Groups, 1991. Final Report - Executive Summaries. November, Australian Government Publishing Service, Canberra, p80.. |
|
8 |
ANZMEC IRP Management Committee, 1994. Least
Cost Energy Services for Australia. April. |
For these reasons, the Working Group does not favour the imposition of a levy on the energy utilities as a source of funding for the Sustainable Energy Fund at this time. However, the Working Group recommends that this funding source be kept under review with the possibility of using a levy as a funding source in the future.
9.4 Gas Industry Funds
Under the Energy Administration Act 1987, the gas industry in NSW must pay a percentage of gas sales revenue to the Crown. These monies are currently used to fund the State Energy Research and Development Fund (SERDF).
The relationship between SERDF and the Sustainable Energy Fund was discussed in section 8 above where it was recommended that current SERDF projects be included in the review of programs to be carried out by SEDA managers and relevant SERDF projects be transferred to the SEF. The Working Group also recommended that the future of the State Energy Research and Development Fund, in relation to the funding of projects remaining after projects have been transferred to the Sustainable Energy Fund, should be decided as an issue separate to the establishment of the SEF.
The SEF Working Group has considered the possibility of using some or all of the monies contributed by the gas industry to fund the SEF. However, this is a specific example of a levy imposed on energy utilities and the Working Group does not favour this method of funding for the reasons outlined above.
However, if some projects are transferred from SERDF to the Sustainable Energy Development Authority, monies should be provided to the SEF on a revenue neutral basis to cover the funding of the transferred programs. This funding should be additional to other program and general funding provided to the SEF and it should be continued for the life of the transferred programs. This does not imply that the actual funding mechanism for SERDF (the levy on the gas industry) should be transferred to the SEF.
9.5 Pacific Power Funding
Following the disaggregation of Pacific Power, there may be no obvious home for certain programs which are in conformity with the Mission and Objectives of the Sustainable Energy Fund. This issue was discussed in section 8 above. If it is decided to transfer the funding of some or all of these programs to the Sustainable Energy Fund, monies should be provided to the SEF on the same basis as monies provided to fund transferred SERDF projects.
9.6 Returns on Investments
Because the Sustainable Energy Development Authority will be targeting technologies and services which are either already, or are close to being, commercially viable, there is an opportunity for the Sustainable Energy Fund to become partly self-funding over time. This could be achieved through establishing commercial joint ventures with project proponents where a share of the benefits is returned to SEDA.
The Working Group sees this as a potentially important source of funding, commencing once projects have had time to come to fruition several years after the establishment of SEDA. The commercial conditions covering the returns to the SEDA could be set up to ensure stable continuity of funding. Therefore, the Working Group recommends that SEDA should be empowered, with the approval of the Minister and the Treasurer, to invest in commercial joint ventures where these are in conformity with the Mission and Objectives of the SEF and where appropriate analysis of the investment risks has been carried out. All net monetary returns from these investments should be allocated to the SEF for use in funding SEF intervention activities.
9.7 Joint Funding
The Working Group has also identified the possibility of increasing the results achieved from application of SEF funds through joint funding arrangements with other funding bodies such as the Energy Research and Development Corporation (ERDC), the Australian Electricity Supply Industry Research Board (AESIRB), energy utilities, and Commonwealth Government agencies.
While strictly this is not a funding source since no additional funds will flow to the SEF, joint funding could have significant potential for leveraging increased results from existing SEF funding. Therefore, the Working Group believes that the SEDA should, where appropriate, establish joint funding arrangements with other funding bodies.
9.8 Recommendations
Recommendation 10. The Working Group recommends that the principal source of funding for the Sustainable Energy Fund should be the NSW Government Consolidated Fund, with funds being provided as budgetary allocations through the established process of three year rolling funding.
Recommendation 11. The Working Group recommends that a levy on the electricity and/or gas industry should be kept under review with the possibility of using a levy as a funding source in the future.
Recommendation 12. The Working Group recommends that if the funding of any programs is transferred from the State Energy Research and Development Fund and/or Pacific Power to the Sustainable Energy Development Authority, then monies should be provided to the Sustainable Energy Fund on a revenue neutral basis to cover the funding of the transferred programs. This funding should be additional to other program and general funding provided to the SEF and it should be continued for the life of the transferred programs.
Recommendation 13. The Working Group recommends that the Sustainable Energy Development Authority should be empowered, with the approval of the Minister and the Treasurer, to invest in commercial joint ventures with project proponents where these are in conformity with the Mission and Objectives of the Sustainable Energy Fund and where appropriate analysis of the investment risks has been carried out. All net monetary returns from these investments should be allocated to the SEF for use in funding SEF intervention activities.
Recommendation 14. The Working Group recommends that the Sustainable Energy Development Authority should, where appropriate, establish joint funding arrangements with other funding bodies such as the Energy Research and Development Corporation (ERDC), the Australian Electricity Supply Industry Research Board (AESIRB), the energy utilities, and Commonwealth Government agencies. (Back to contents page)
Once the Sustainable Energy Development Authority is established, SEDA managers will take responsibility for determining funding priorities and deciding which projects should be funded.
Several submissions to the Working Group addressed the question of determining priorities between competing sustainable energy technologies. Pacific Power suggested that an assessment is needed of the range of available technologies in terms of carbon dioxide mitigation effectiveness, dollars needed to commercialise the technology, and likelihood of market uptake in order to determine a priority ranking. AGL Gas Companies indicated that priority areas for funding should be those that maximise greenhouse gas reduction strategies. In a combined submission, Friends of the Earth, Australian Conservation Foundation, the Total Environment Centre and the Nature Conservation Council of NSW stated that the SEF should invest in a mixture of conservation focussed non-price demand management and enlargement of the market for renewable energy production.
The Working Group believes that it is important that SEDA strikes a balance between funding projects which can contribute towards the long-term goal of developing and commercialising sustainable energy technologies and funding projects that can achieve a short-term, demonstrable result in terms of greenhouse gas emission reduction, such as projects promoting increased energy efficiency. To assist with this process, the Working Group has developed an appropriate methodology for allocating funding.
10.1 Portfolio Funding
The Working Group recommends that this balance should be achieved through the adoption of a portfolio funding approach. This will involve identifying a small number of portfolio categories for classifying the projects proposed for funding. Funds will then be allocated to each of these portfolio categories on the basis of a target proportion of the total funding available after allowing for the administrative costs of SEDA. Within each of the portfolio categories, proposed projects would be ranked according to defined selection criteria which will be described in section 13 below.
Many submissions to the Working Group suggested that energy efficiency, fuel substitution, cogeneration and renewable energy be highly placed in funding priorities for the Sustainable Energy Fund. Therefore, the Working Group has identified four portfolio categories:
Portfolio Category: Energy Efficiency and Fuel Substitution
Energy efficiency projects:
Fuel substitution projects:
Portfolio Category: Cogeneration
Cogeneration projects:
Portfolio Category: Renewable Energy
Renewable energy projects:
Portfolio Category: Core Programs
Core programs:
10.2 Allocating Funding Between Portfolio Categories
Funds should be allocated to each of the four portfolio categories on the basis of a target proportion of the total funding available after allowing for the administrative costs of the SEF. The Working Group recommends that SEDA managers should develop a methodology for deciding the proportional allocation between portfolio categories.
To assist with this process, the Working Group suggests an indicative funding allocation for the first three year corporate plan in the form of a set of percentage ranges applied to each portfolio category. In developing this indicative funding allocation, the Working Group has considered the consultants' reports described in section 11 below which provide estimates of available funding opportunities and of the relative costs for reducing carbon dioxide emissions.
The Working Group's indicative funding allocation is:
|
|
Energy efficiency and fuel substitution |
40 to 60% |
|
|
Renewable energy technologies |
25 to 35% |
|
|
Cogeneration |
5 to 15% |
|
|
Core programs |
5 to 15%. |
10.3 Recommendation
Recommendation 15. The Working Group recommends that monies from the Sustainable Energy Fund should be allocated to four portfolio categories on the basis of a target proportion of the total funding available after allowing for the administrative costs of the Sustainable Energy Development Authority. The portfolio categories should be: energy efficiency and fuel substitution, cogeneration, renewable energy, and core programs.
Recommendation 16. The Working Group recommends that SEDA managers should develop a methodology for deciding the proportional allocation between portfolio categories. (Back to contents page)
11.1 Continuity of funding
One of the questions which must be resolved in establishing the SEF is how much money will be needed to ensure its effectiveness. The key to attaining the SEF's objectives is to achieve sufficient increases in the existing usage levels of sustainable energy technologies to permanently reduce barriers so that the momentum of change eventually becomes self-sustaining.
In submissions to the Working Group, environmental groups and several participants in the renewable energy industry proposed levels of funding between $50 million and $200 million per annum. These recommendations were primarily aimed at achieving the Commonwealth/State interim planning target of a 20 percent reduction in greenhouse gas emissions from their 1988 level by the year 2005. These proposals deserve further assessment, particularly once the first few years of operation by the Sustainable Energy Development Authority demonstrate how rapidly it is feasible to expand SEDA's intervention activities.
The Working Group recognises that making an accurate judgement about funding levels is a complex matter and is subject to a number of variables depending on the range and nature of projects being funded. As noted in section 9 above, the Working Group is also aware of the importance of establishing continuity of funding for SEF. There needs to be a long term commitment to the SEF in order to establish public, participant and industry confidence.
The SEF Working Group has approached the issue of recommending appropriate levels of funding for the Sustainable Energy Fund by:
11.2 Background Information
The NSW Government, through the Department of Energy, is currently spending around $4.7 million per annum on energy efficiency activities, research and development (through SERDF), information and publication services, greenhouse activities and a scheme promoting stand-alone systems for remote area power supply (the RAPAS scheme). Some of these program activities would meet criteria established for SEF funding.
This expenditure, together with indicative funding levels for similar initiatives to the Sustainable Energy Fund, are summarised in Table 1 and expressed on a per capita basis. The equivalent per capita annual funding levels scaled to the NSW population, total annual funding, and expenditure over 5 years are also listed in the Table.
| Table
1: Expenditure on Policy Initiatives and |
||||||
| Initiative |
Annual expenditure early years |
Five year expenditure at actual or projected rate |
Population (1995) |
Annual expenditure early years |
Annual expenditure early years scaled to NSW population |
Five year expenditure at actual or projected rate scaled to NSW population |
|
|
A$ millions/ year |
A$ millions |
millions |
A$/capita |
A$ millions/ year |
A$ millions |
| NSW Government: Current expenditure on energy efficiency and renewable energy activities |
|
|
6.2 |
0.76 |
4.7 |
24 |
| Australia: ESD Working Group on Energy Use recommendation of 1% of utility revenues |
|
|
6.2(c) |
7.58 |
47.0 |
250 |
| Australia: Energy Research and Development Corporation |
15 |
75 |
18 |
0.83 |
5.1 |
25.5 |
| Victoria: SECV Demand Management Action Program |
10 |
50 |
4.6 |
2.17 |
13.5 |
67 |
| Queensland: Government Energy Efficiency and Alternative Energy Program |
15 |
50(a) |
3.2 |
4.68 |
29.0 |
97 |
| New Zealand: Energy Efficiency and Conservation Authority |
10.9 |
55 |
3.6 |
3.03 |
18.8 |
94 |
| United Kingdom: Energy Saving Trust and other initiatives |
130 |
870(b) |
56.0 |
2.32 |
14.4 |
96 |
| Thailand: Government energy efficiency program |
69 |
1,070 |
60.0 |
1.15 |
7.1 |
111 |
(a) $35M three year government program plus $3M/yr program by electricity utilities.
(b) $130M/yr plus assumed $22M per year increase in renewables funding from Non-Fossil Fuel Obligation levy.
(c) NSW population only.
The scope of the initiatives is different in each case listed in Table 1, and it is possible that some activities which would come within the 'sustainable energy' ambit have been excluded. With the exception of the current NSW expenditure, the expenditures tabulated also exclude energy research and development activities of the kind funded in NSW by SERDF.
11.3 Energy Efficiency and Fuel Substitution Study
The energy efficiency and fuel substitution study was carried out by SRC International Pty Ltd who have recently completed several studies of the potential for energy efficiency and the costs involved in realising this potential for government and utility clients in NSW, Queensland, South Australia, New Zealand and the Philippines.
The study investigated the potential for projects to increase the existing levels of energy efficiency and fuel substitution in NSW in ways which are cost-effective to society and which would be unlikely to occur in the absence of the Sustainable Energy Fund. The study also investigated the appropriate level of funding which should be devoted to these projects over the next ten years given the current capacity to carry out such projects in NSW, and assuming a reasonable ramp up of this capacity over time.
The consultants estimated the maximum cost-effective potential for energy efficiency and fuel substitution in NSW using a set of 'average' estimates of the cost of energy efficiency measures by end-use which had been calculated by the National Institute of Economic and Industry Research (NIEIR) from a wide range of data sources. In estimating cost-effectiveness, NIEIR selected only measures which were capable of providing energy efficiency at or below the long run marginal cost of electricity which was estimated at 6¢/kWh. This is a fairly rigorous approach to estimating cost-effectiveness. Using this methodology may have lead to a relatively high value for the average cost of reducing carbon dioxide emissions through energy efficiency and fuel substitution measures.
In estimating the levels of energy efficiency and fuel substitution which could be expected to occur in the absence of SEF funding, the consultants accounted for the impacts of a number of initiatives that are already in progress, including appliance labelling and minimum energy performance standards for certain types of energy-using equipment, the national Home Energy Rating Scheme, the Commonwealth Government's energy card, the voluntary Building Energy Code of Australia, and the voluntary Cooperative Agreements on greenhouse gas emission abatement to be initiated under the Commonwealth Government's Greenhouse Challenge program.
In particular, the consultants accepted Commonwealth Government claims that Cooperative Agreements will achieve total carbon dioxide emission reductions of 15 megatonnes accumulated throughout Australia by the year 2000 for an expenditure of $9.7 million over four years. Based on historical experience, these claims seem extremely optimistic. Further, it is likely that SEF funding, together with funding from several other sources, will be used to assist organisations to meet their obligations under the Cooperative Agreements. To avoid double counting, the estimates used in this study for CO2 emission reductions achieved by Cooperative Agreements should be significantly reduced.
The effect of the high estimates used by the consultants was to artificially limit the level of energy efficiency and fuel substitution available for capture by SEF funding, particularly in the commercial and industrial sectors. Reducing the Cooperative Agreements estimates to zero would approximately double the level of energy efficiency and fuel substitution available in NSW for capture by SEF funding. However, since the consultants found that the level of achievable energy efficiency and fuel substitution was limited much more by the availability of investment funding than by the resource potential, the high estimates used by the consultants for CO2 emission reductions attributed to Cooperative Agreements have no effect on their estimates of the level of energy efficiency and fuel substitution which could be achieved by the SEF.
While NIEIR provided an average cost for all measures that provide energy savings at or less than long-run marginal costs, these data could not be used as the costs to SEF of achieving energy efficiency and fuel substitution impacts. Initiatives that are already underway in the marketplace will attract end-users to the most cost-effective energy efficiency measures, a phenomenon known as 'cream skimming'. The measures remaining for capture by the SEF would therefore have a higher average cost. In addition, the SEF would not have to pay the full cost since it would be expected that SEF funding would leverage funding from other sources, such as end-users paying part of the capital cost of energy efficient equipment and appliances.
In estimating the costs to the SEF of achieving energy efficiency and fuel substitution impacts, SRC International accounted for both of these factors. Adjustment for the higher average cost that would be faced by the SEF was made by reducing the available potential at the cost levels estimated by NIEIR. Leverage of SEF funding was estimated by reference to the leverage achieved in the Demand Management Action Plan implemented by the former State Electricity Commission of Victoria (SECV). This ensured that the results were reflective of Australian market characteristics rather than those of other countries.
In framing their recommendations on the appropriate level of SEF funding for energy efficiency and fuel substitution, the consultants referred to the levels of funding applied in two similar initiatives, the New Zealand Energy Saver Fund and the SECV Demand Management Action Plan. The consultants concluded that, in the NSW context, an annual level of funding of $25 million would be appropriate. This is a proportional level of funding to the New Zealand Energy Saver Fund, after adjusting for the differences in the size of the residential sector between NSW and New Zealand and the fact that the SEF is meant to address all sectors while the New Zealand initiative focuses only on the residential sector. The consultants regarded their proposed level of funding as conservative, given that the New Zealand initiative does not address fuel substitution and nor will it offer programs in the areas of training, technology commercialisation or assistance to sustainable energy industries.
An annual level of funding of $25 million would capture after 10 years about 800 gigawatt-hours per annum of additional energy efficiency and fuel substitution. This is about 11% of the (artificially limited) annual cost-effective maximum resource potential for energy efficiency and fuel substitution available in NSW after 10 years.
Table 2 summarises the results of the study.
| Table
2. CO2 Emission Reductions with SEF Funding of |
||||||
| Sector |
Maximum
Annual Cost Effective Resource Potential for Energy Efficiency and Fuel
Substitution |
Annual Level of Energy Efficiency and Fuel Substitution Achievable through non-SEF measures after 10 Years |
Additional Annual Level of Energy Efficiency and Fuel Substitution Achievable through Recommended SEF Funding after 10 years |
Recommended Annual SEF | ||