CLIMATE SPECTATOR: An energy windfall for Baillieu

Upgrading one million Victorian homes from 2 to 5-star energy efficiency could save the Victorian government $2.5 billion in energy bill concessions, with ramifications for the rest of Australia.

Climate Spectator

It used to be said that there were only two certainties in life: death and taxes. As a result of the inefficient management of our electricity network, to those two inevitabilities can be added a third – rising energy bills.

We all know that utility bills are rising – and none more so than for electricity. With significant increases in the amounts allowed for distribution and transmission businesses to build and operate more network assets, the era of rising electricity bills is likely to be with us for some time. And with the international demand for gas starting to drive domestic prices, gas bills are likely to follow a similar trend in the coming years.

And we all know that it is those families and households on the lowest incomes that are hardest hit by rising energy bills.

Whilst energy efficiency measures may make economic sense to this sub-set of consumers, they typically do not have the required upfront capital to invest in energy efficiency technologies, or they do not have discretion over the volume or timing of their electricity consumption to benefit from tariff structures that incentivise efficiency or load shifting.

There is one obvious measure however that can ease the burden on families and pensioners labouring under high power bills – a government drive to drastically improve the energy and water efficiency of homes.

Given the amount of money that state governments typically pay to subsidise low income households in the form of concessions on their electricity and gas bills, such a program would result in savings to these concession budgets.

The Alternative Technology Association has joined forces with Environment Victoria and the Victorian Council of Social Service in a coalition of social service, church and environment groups under the banner of the ‘One Million Homes’ Campaign to advocate for a mass program of home retrofitting.

Focused initially in Victoria, such a program would be designed to prioritise low-income earners who are least able to afford improvements to their homes as well as elderly people and people with chronic health conditions who are hardest hit by extreme weather events like heatwaves.

In Victoria, 96 per cent of houses were built before the introduction of the five-star energy efficiency standard and about 1.9 million homes built before 2004 still have energy ratings of two stars or less.

But how to pay for such a program? How does government find the upfront capital to roll out energy efficiency investments?

As part of the Campaign, the ATA undertook research into the likely savings to the Victorian Energy Concessions Budget from an increase in the energy performance of existing low income households from an average of 2 Stars to an average of 5 Stars. And the results were pretty interesting.

The ATA utilised publicly available datasets to inform the research regarding:

– current and projected State Budget costs;
– likely average energy use reductions from 2 to 5 Star upgrades;
– existing energy consumption by low income households; and
– future energy demand and price scenarios.

Conservative assumptions were made where possible and a number of additional Concession Budget items were not included where additional savings to the Victorian Government would be realised in reality.

The table below outlines the results of the research, in the form of annual and cumulative savings to the Victorian Energy Concessions Budget, based on an assumed level of retro-fitting over a 10 year period.

The model assumes that the program would start off slow, with a pilot-type approach to retro-fit 20,000 households in year one, rising to 125,000 households annually by year four until year 10.

Table 1: Annual & Cumulative Savings on Concessions Budget

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The estimated annual savings to the Victorian Energy Concessions Budget from retro-fitting one million low income households to a 5-star rating over ten years grows each year from about $1.8 million in the first year (2013) to almost $157 million in the tenth year.

Those savings continue to grow beyond ten years (against what would have been ‘business as usual’ for the concession budget) as energy costs continue to rise.

The cumulative estimated savings to the concessions budget reach:

– Approximately $92 million after five years (2017);
– Over $600 million after ten years (2022);
– Over $1.4 billion after 15 years (2027); and
– Almost $2.5 billion after 20 years (2032).

These savings could be considered for re-investment by the Victorian government to help fund a long-term retro-fit program for low income households.

At an average $3,000 cost per household retrofit, $2.5 billion would fund over 830,000 retro-fits.

Other policy mechanisms such as the Victorian Energy Efficiency Target, that is already reducing the cost of energy efficiency technologies to Victorians, could also be targeted at such a retro-fit program to further reduce the cost of the installed technologies.

And the good news is that the idea of such a program is not a new one. As part of its 2010 election commitment to all Victorians, the Baillieu Government committed to ‘support the transition of all existing housing stock to meet an average of 5-star energy rating as soon as possible’*.

So we look forward to the Victorian Government commencing a pilot project for 20,000 households, in the context of a large scale retro-fit program, in 2013.

Damien Moyse is the energy policy manager at the Alternative Technology Association.