Policy Watch: Energy Efficiency Opportunities

Big news for large energy users at the moment is the start of a new Energy Efficiency Opportunities  cycle. “Assessment Plans” for the second cycle are due at the end of December and about 300 corporations are pulling theirs together as I write.

A small disclaimer: the company I work for does quite a bit of work for EEO and probably benefit from its existence. However, as I will argue, I think it’s a good policy despite this. But it’s good to have everything out in the open eh?

The Energy Efficiency Opportunities Act (EEO) mandates that large energy users publicly report their energy use each year, and identify cost-effective energy efficiency opportunities with a less than 4-year simple payback. “Large energy user” means greater than 0.5PJ a year, which captures about 300 corporations. The program has been running for 5 years (the First Cycle) with the second officially commencing on 1 July 2012. So everyone that used more than 0.5PJ in 2011/12 is now captured.

In the first cycle, electricity generators were exempted from the program, and were instead covered by something called the Generator Efficiency Standards. This program focused on optimising their equipment at steady-state operation; so there were standards for boilers and turbines, which plants were bench-marked against. Many argued that this was no longer appropriate as the plants don’t really operate at steady-state much and that muc of the benchmarking value was lost due to fuel differences, and a new program was required. So now they are in EEO, for better or worse. Their inclusion expands the energy use covered by the program significantly; during the first cycle the 300 corporations involved used about 2000PJ a year. Adding the 40 generating companies doubled that coverage to almost 4000PJ.

The big energy users are the large coal plants which produce the vast bulk of our electricity; big miners and resource processors like aluminium smelters and steel producers; and large transport companies like Qantas. Largest energy using sites are the big coal plants, Bayswater, Hazelwood, Torrens Island gas plant in SA is the largest natural gas using site in the southern hemisphere; Port Kembla used to be the biggest single site but now that they’ve shut down a few furnaces that has dropped markedly. The Moombah Gas plant was the single largest last time I checked, but that will be dwarfed once the NW Shelf projects come on line (Gorgon in particular) and the Tomago aluminium smelter is the largest electricity using site. New development has dropped off on the grid, but the desal plants are big users, and some of the new mines proposed for Queensland will be on the grid. Off grid there are the various gas plants, and expansion projects like Olympic Dam will be significant.

The program came from some research around the year 2000 suggesting that Australia lagged other parts of the world in energy productivity. Initially it was thought that this was because our electricity was so cheap, but even then corporations were spending tens, if not hundreds, of millions of dollars on energy. With that much money being spent and the identified low energy productivity, there simply must be cost effective ways of reducing energy use, so why weren’t they being implemented?

More research suggested that “information barriers” were the main barriers to implementation; many corporations just didn’t know how to manage large energy bills, nor find opportunities to reduce them. Part of the cause stemmed from where the energy management function sat. As energy was often managed as another cost item, like staff and raw materials, it was separated from engineering, which was where the opportunities would be developed.

The solution to the problem was quite canny, in terms of industry engagement and cost to government. Rather than give them money to find opportunities, which can be costly and ineffective, legislation was introduced which would teach corporations how to manage energy more effectively, and find cost effective opportunities to reduce energy use. Apologies for not being able to find the reference, but in terms of cost to government EEO has delivered the second lowest cost greenhouse gas abatement, after giving away lightbulbs for free. This does not include the cost to industry, but as they are pursuing cost effective opportunities, depending on your timeline the costs of implementation will largely be met with savings. The program performance is detailed in their Continuing Opportunities report and there are digital-reams of information on their Resource Material page.

Program participants are guided through a number of gateways to teach them about managing their energy more effectively and finding opportunities to reduce it. At the start of each cycle, every corporation needs to complete their Assessment Plan (due on 31 December), an agreement with the government about how they are going to address the 17 steps of the Assessment Framework. This sets process goals for Leadership, People, Data, Analysis, Decision Making and Communication. It is a process, not a destination; a formalised system of continuous improvement. Corporations are compelled to participate with fines in the order of $100k available for the serious recalcitrants.

EEO differs significantly from other energy efficiency programs in non-mandatory implementation of identified projects. Rather than forcing corporations to implement projects (and why wouldn’t you? they are cost effective using the company’s own numbers) all EEO compels them to do is publicly report the scale of opportunities that have been identified. For corporations listed on the stock exchange, this is actually a significant incentive. Imagine if you owned shares in a company that could be saving millions in energy and chose not to? You’d start asking questions. Research conducted through the program shows that this was the right choice; the Victorian scheme, which captured many EEO corporations, mandates implementation, using similar inputs to EEO. Comparing the two programs shows that for some reason corporations identify 25% fewer opportunities when they are forced to implement them. So EEO finds more opportunities, but uses guilt and public pressure to provide incentives for implementation, beyond the compelling business case.

Is this a model that could be applied to other areas of energy policy? Sadly, probably not. EEO was crafted to address an information barrier to an economic incentive. Are there other areas where people are making badly informed decisions that cost them money? Residential energy efficiency is the first obvious area, but the economic incentives are not great and the cost of participation for residential consumers would far outweigh the benefits. So this problem is addressed with free information for anyone who wants it. Uptake of renewables? No, here the barrier is cost and no amount of education by government is likely to change that.

So EEO stands alone; a bespoke solution to an Australian problem. Implemented and designed under Howard, supported under Rudd and expanded under Gillard it will continue until at least 2017 when the second cycle finishes and the funding runs out. Will it continue? Time will tell, as international schemes are catching up now and the gigantic corporations like BHP Billiton will want to align their international operations as much as possible. But for local industries with few peers to benchmark their operations against the benefits are obvious. I just wish there were more ways to apply the same model.

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About evcricket

Extreme gardener, engineer and bird nerd. View all posts by evcricket

One response to “Policy Watch: Energy Efficiency Opportunities

  • Sean

    Interesting point re the applicability of the model. It’s essentially an open data principle focused on one area of operation, with a potential enforcement option. I suspect govts need to publish more data as a way of leading. Of course getting corporations to report energy efficiency opportunities is probably easier than more problematic elements of corporate governance.

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