Project based assessments in the Energy Saver Incentive

Transcription

1 Project based assessments in the Energy Saver Incentive

2 If you would like to receive this information/publication in an accessible format (such as large print or audio) please call the Customer Service Centre on , TTY , or Published by the Department of Primary Industries Energy Sector Development Division, June 2012 The State of Victoria This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act Authorised by the Department of Primary Industries 1 Spring Street, Melbourne Disclaimer This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication. For more information about DPI go to or phone the Customer Service Centre on

3 Contents 1. Introduction 4 2. Background 5 3. Issues PBA Methodologies Assessment of projects by PBA Assessors Verification of PBA findings 9 4. Next Steps 11 Appendix A Process Flow Chart (Draft) 12 3

4 1. Introduction The Department of Primary Industries (DPI) is responsible for providing policy advice to the Minister for Energy and Resources regarding the Energy Saver Incentive (ESI). DPI has produced this paper to investigate policy options regarding the possible inclusion of Project-Based Assessments (PBAs) in the ESI. The introduction of PBAs provides the potential to capture sites where general energy efficiency upgrades may contribute to the scheme target. Currently, only very specific energy efficiency measures such as installing a specific energy saving product or replacing a specific type of equipment with a high efficiency model are able to be recognised under the scheme and generate certificates. The potential inclusion of PBAs complements the expansion of the ESI to the business sector, as it may capture new opportunities in a range of sectors where participation is currently marginal. It will allow the possibility of more general site or process upgrades which incorporate a wide range of energy saving measures the key criteria will be that the greenhouse emissions resulting from energy use at the site are lower than the businessas-usual situation. Furthermore, the possible introduction of PBAs in Victoria delivers on an objective of the Victorian and New South Wales Premiers to harmonise elements of the NSW Energy Savings Scheme and the ESI scheme. 4

5 2. Background The ESI commenced operation on 1 January The scheme is established in the Victorian Energy Efficiency Target Act 2007 (the Act). The objectives of the Act are to: Reduce greenhouse gas emissions; Encourage the efficient use of electricity and gas; and Encourage investment, employment and technology development in industries that supply goods and services which reduce the use of electricity and gas by consumers. In May 2011 the annual ESI scheme target was doubled to 5.4 million lifetime tonnes of greenhouse gas emissions savings for the period of 1 January 2012 to 31 December Each tonne of greenhouse gas abatement is equal to one Victorian Energy Efficiency Certificate (VEEC). In December 2011, businesses were made eligible to participate in the scheme. There are now twenty-eight different energy saving activities available to businesses, including energy efficient lighting, efficient motors and refrigeration display cabinets, efficient refrigeration fan-units, water and space heating upgrades, standby power controllers and televisions, refrigerators and freezers. Additional Information on the range of activities currently available to business and non-residential sectors is available on The Act established that persons that may undertake ESI activities are Accredited Persons (APs), which are registered by the scheme administrator, the Essential Services Commission (ESC). ESI activities are prescribed in the Victorian Energy Efficiency Target Regulations 2008 (the Regulations), with the lifetime greenhouse gas abatement attributed to an activity defined in formulae contained in the Regulations. These formulae generally account for a range of variables including the number of installations, the rated capacity of the equipment being replaced, the size of the installation, climatic location and whether installations are undertaken in a regional or metropolitan location. These activities must be undertaken and submitted separately by APs for registration by the ESC. Currently, with the exception of the (business) Lighting Upgrades (Schedule 34) 1, the generation of all certificates is based on a straightforward Deemed Approach, whereby it is possible to calculate in advance the number of certificates which will be generated by undertaking a specific activity. This approach has the advantage of providing certainty regarding the conditions under which activities may be installed by APs and the total number of VEECs that may be claimed, upfront. However, prescribed activities are best suited to activities that are comparatively simple and commonplace and where the energy savings can be estimated with a reasonably high degree of certainty. For equipment replacements this generally requires widely used energy rating standards to be in place and good data on typical equipment use and efficiency. For energy efficiency measures which impact on an energy service, such as heating or water heating, it requires a good understanding of the typical energy requirements of the task. While these conditions are satisfied for many residential energy efficiency measures, and some business measures, there are many energy saving measures which could be implemented in businesses which do not meet these requirements. There is potential to broaden the scope of the scheme to include other energy efficiency upgrade opportunities that are not suited to prescribed terms. These include: 1 In this case it is first necessary to undertake an audit to determine the installed power of the initial lighting installation and to determine the installed power of the upgraded lighting installation. 5

6 Custom upgrade opportunities, that are suited to a unique environment, such as agricultural and dairy processes; Energy efficiency retrofits that are undertaken in a holistic way, so that inter-dependent processes may be better harmonised such as projects that may be undertaken under an Energy Performance Contracting (EPC) methodology; Opportunities to upgrade custom machinery and industrial processes such as pump upgrades, compressors and large electric motors. It is expected that there is significant, untapped potential to improve energy efficiency in these areas by including an appropriate incentive through the ESI. 6

7 3. Issues There are a number of issues that require further exploration, consultation and resolution in order to realise the potential of PBAs in the scheme. These include: 1. PBA methodologies 2. Assessment of projects by PBA Assessors 3. Verification of PBA Assessor findings Each of these issues is explored in turn below. A potential process flow-document for PBAs in VEET is contained in Appendix A. 3.1 PBA Methodologies Amendment to the Regulations is required to enable PBAs to be captured. The current practice of including new activities in the Regulations has been to add a Schedule for each new activity that defines the measure, sets out any minimum eligibility requirements and describes the method of calculation. However, as previously described, PBAs cannot easily be captured using this same approach as there are too many variables to be defined in a practical and useful manner. As an alternative approach, it may be possible to make a regulatory amendment to allow the ESC to determine PBA methodologies that may be included in the scheme, with the ESC releasing PBA process documents on new methodologies as they are developed. For example, there may be separate PBA process documents describing methodologies such as EPCs or the utilisation of the NABERS building ratings system. PBA methodologies may be developed so that total greenhouse gas abatement is determined by a Deemed Approach upfront, following calculation of the lifetime abatement derived from the project being undertaken. In this way, it would follow the same principal that governs all other VEET activities. Alternatively, a new approach may be used where certificates are awarded for a project periodically, based on monitoring and verification of actual energy reduction at a given site. For example, metering may be installed to examine annual savings, with VEECs awarded for the difference in energy consumption against an agreed pre-upgrade baseline. This may be referred to as a Metered-Baseline approach. Both approaches are currently used in the NSW Energy Savings Scheme (ESS). There is one key additional challenge involved in implementing a Metered-Baseline approach in VEET. VEET differs to the ESS in that the scheme targets are set in three year phases following evaluation of target levels through preparation of a Regulatory Impact Statement (RIS). This framework would effectively limit the life of Metered-Baseline projects in VEET to three years, as the potential for VEEC creation beyond that period would be subject to a RIS. It may therefore be desirable in Victoria to focus initially on a Deemed Approach to PBAs and separately investigate Metered-Baseline approaches for inclusion at a later date. The PBA process documents may provide specific criteria by which certificates may be created for each methodology. It may describe matters such as: the process for calculating greenhouse gas abatement whether a Deemed Approach or a Metered- Baseline Approach the method by which PBAs must be undertaken including technologies, processes and other eligibility factors 7

8 the expected lifetime of the appliances, products, technologies or systems used in the activity, taking into account the manufacturer s rated lifetime, the expected hours of use and any expected maintenance service level agreements any other factors that the ESC determines will affect the greenhouse gas abatement for the activity Development of the PBA process documents would necessitate substantial analysis to ensure the activities are undertaken in a manner consistent with the objectives of the scheme. Extensive consultation would also be required. There may be an opportunity for the Victorian Government to collaborate closely with industry in the development of various PBAs. Finally, it may be possible to utilise the energy audit standard (AS/NZS3598) in the development of PBA methodologies. This standard currently defines three levels of energy audit (Level 1, Level 2 and Level 3) with the requirements becoming progressively more stringent and the estimates progressively more accurate. Questions: What other methodologies may be considered for PBAs? Is there an existing framework that may be referenced or leveraged in the development of VEET PBA process documents (published by the ESC)? What other factors should be considered when distinguishing between Deemed and Metered-Baseline approaches to PBAs? Are there any criteria that should be included which would be used to exclude projects from a PBA methodology? What are some examples to demonstrate where this may be desirable? Should energy audit standard AS/NZS3598 be used as the basis of developing PBA methodologies? 3.2 Assessment of projects by PBA Assessors There would need to be an assessment process to ensure PBAs meet the criteria stipulated in the relevant PBA process documents produced by the ESC. While the ESC is ultimately responsible for determining whether VEECs are to be created, in the case of PBAs it may be preferable to establish an independent external panel of expert PBA Assessors to perform assessments on its behalf and advise the ESC regarding the number of VEECs generated in each case. Individual PBA Assessors would be contracted by APs to act as an intermediary on behalf of the ESC. The use of an independent panel of PBA Assessors has two key benefits. Firstly, it may avoid bottleneck issues stemming from a limited number of ESC technical staff that may be allocated to the task of assessing PBAs. Secondly, the panel may utilise a cost-recovery framework so that APs fully fund the additional administrative costs associated with including PBAs as a VEEET activity. As an example, an independent panel of approved PBA Assessors may undertake the following tasks, which may be viewed as milestones in the process: Assess whether a project proposal meets the criteria in the relevant PBA process document In the case of a Deemed Approach, provide a preliminary assessment of total lifetime VEECs that may be created against a project proposal, and advises both the ESC and the AP Following completion of works, assess works to confirm completion, undertake final assessment of lifetime VEECs which may be created and provide recommendation to the ESC 8

9 The above tasks indicate the facilitation role of the PBA Assessor. However, the ESC would not in any way be bound to a recommendation provided by the PBA Assessor; at all times, the ESC would maintain ultimate discretion (to the extent permitted by the legislation and regulations) regarding project eligibility and the number of VEECs to be created. For example, it may undertake its own auditing measures to verify savings and reach a different conclusion to the PBA assessor regarding the number of VEECs to be created. However, in order to provide certainty to APs it may be necessary for the ESC to provide a pre-implementation approval for a project, based on the preliminary assessment of the PBA Assessor. This pre-implementation approval by the ESC may ratify: The baseline that is to be used to establish greenhouse gas abatement; The PBA methodology that is to be used to assess the project at the completion of works; and In the case of a Deemed Approach, the total lifetime abatement that is calculated for a project. It would be important that PBA Assessors are suitably qualified to undertake assessments and that they are sufficiently independent - that is, they should be able to demonstrate that they can manage any perceived or real conflict of interest in making recommendations. There may be inherent incentives for PBA Assessors to favourably assess projects at different process milestones, and careful rules would therefore need to be established to avoid unscrupulous actions between an AP and their contracted PBA Assessor. One way to mitigate compromised outcomes would be to make the assessment process as transparent as possible. As indicted above, the PBA Assessor should for example undertake a preliminary assessment of potential greenhouse gas abatement that is provided to both the ESC and the AP. This assessment may follow an agreed, standard format that clearly identifies the reasoning behind the assessment, which could then be analysed by all parties. These first steps would also serve to vet projects, so that early indication may be given to APs whose projects do not meet PBA criteria under VEET. Questions: How can independence of PBA Assessors be verified? What sorts of conflicts of interest may materialise and how can they be managed? What skills and qualifications should a prospective PBA Assessor possess? Is there a sufficient supply of persons that may qualify as a PBA Assessor? How should fee-for service arrangements be managed? Should there be milestone fees for each of the key steps identified? If so, how can the incentive on the part of a PBA Assessor to progress unsuitable projects to receive additional milestone payments be managed? How should fees be set? Should fees be determined by PBA Assessors in competition with other panel members or should they be fixed centrally by the ESC? Would fee setting need to vary according to each project? What process may be established to ensure the independent assessment is sufficiently transparent? 3.3 Verification of PBA findings The ESC would need to verify claims for VEECs for all PBAs through a separate auditing process. This may involve continued liaison with the PBA Assessor, the AP and the customer, or all parties. Measurement and verification of the savings against an established baseline may be one of the steps taken by the ESC in its evaluation. 9

10 The outcome of ESC verification of findings may broadly lead to two possible outcomes: the assessment is verified or it is refuted. If it is the former, the ESC may then proceed to register and create certificates in the normal manner. However, additional steps would follow if the assessment is refuted, and those steps would depend upon the grounds for refutation. For example, it is conceivable that refutation may follow from one or all of the following factors: the PBA does not follow the criteria of the relevant process document that describes the methodology; the PBA Assessor s calculations are incorrect; the completed project works are found not to deliver the assessed energy savings. There may be several other factors that contribute to an ESC decision to reject a PBA, or otherwise reduce the level of deemed savings. The ESC may undertake audit investigations at any stage in the PBA process, however, the focus of investigations would usually follow from the final assessment of the PBA Assessor at the conclusion of project works. A possible outcome from independent ESC assessment might be a deviation between the savings claimed by the PBA Assessor and the ESC. It would therefore follow that it is not possible for an AP to determine with any certainty the number of VEECs that may be produced for a given project until the ESC has verified the project - after completion of the works. This deviation may be managed by the use of a Confidence Factor by the ESC to account for the risk of an overstatement of savings by the AP or the PBA Assessor. This mechanism may be used, for example, so that the ESC can account for specific project circumstances, such as whether technologies are proven and tested or comparatively untried. Default Confidence Factors may be applied across all projects if a conservative approach is to be adopted. Confidence Factors may be included in a PBA methodology, so that they are applied to an initial estimate of greenhouse gas savings for a given project and applied to a calculation to determine lifetime VEECs. They would thus operate in a similar way to Discount Factors, which are currently applied under Section 19 of the Act. Depending on the level and reasons for the deviation between the PBA Assessor and the ESC assessment, the ESC may take remedial action to minimise future deviations. This might require punitive action against the PBA Assessor, for example revocation of the assessor s accreditation. Additional disciplinary action may be required in cases where deliberate rorting has been attempted, which would require investigation of the adequacy of ESC powers to take action in such circumstances. Questions: What steps may the ESC reasonably take to verify savings claims by either the independent assessor or the AP? Are there any time limits that should apply between initiation of PBAs and completion of works? Is there a maximum deemed period that should apply to PBAs? Is there a minimum or maximum number of certificates that may be created for each PBA? What evidence may be demonstrated or produced to verify changes in energy consumption against a baseline? Is there an existing methodology that may be utilised for this purpose? At what point should VEECs be created for PBAs utilising: Deemed Approach Metered-Baseline Approach. 10

11 4. Next Steps DPI is interested to learn from scheme stakeholders, participants and other observers, the policy options put forward in this paper. Stakeholders may choose to focus their responses on the specific questions that have been posited in this paper, or alternatively put forward new questions and considerations that have not been included. Stakeholders are asked to respond by , utilising the subject header Response to Issues Paper - Project Based Assessments in the Energy Saver Incentive, to energysaverincentive@dpi.vic.gov.au Responses should be submitted by 22 February DPI will consider the possibility of introducing PBAs into VEET and determine further process steps following consideration of responses. 11

12 Appendix A Process Flow Chart (Draft) Regulations amended to provide for the ESC to determine PBA methodologies ESC publishes PBA process documents on VEET PBA methodologies ESC establishes a panel of approved PBA Assessors to assess project against methodologies APs engage PBA Assessor ESC provides a pre-implementation approval for the project based on the preliminary assessment by the PBA Assessor End Not eligible for VEET Eligible for VEET PBA Assessor provides recommendations to ESC/AP regarding preliminary assessment of certificate creations against each project PBA Assessor assesses project* AP undertakes works PBA Assessor creates a certificate of completion and completes a final assessment of certificate creations for project ESC audits works ESC registers VEECs End * APs fund panel on fee- for-service basis Process Document Decision Terminate 12

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