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Who does this affect?

Victorian energy retailers with more than 5000 customers. Developers and suppliers of energy efficient technologies.

What do you need to do?

Prepare for the scheme launch on 1 January 2009. From that date, energy retailers will need to acquire sufficient energy efficiency credits - most likely by investing in large-scale household energy efficiency abatement activities. Developers and suppliers of energy efficient technologies should consider new business opportunities presented by the scheme.

Author
Matthew Davis  
Solicitor
Louis Chiam  
Partner
T +61 3 9643 4086

Sydney
Dominic Bortoluzzi  

Melbourne
Louis Chiam  

Perth
Tim Warman  

Brisbane
Matthew Austin  

Victorian Energy Efficiency Target set to launch in 2009 - 8 February 2008

Victorian energy consumers will be incentivised to reduce consumption under a new Victorian scheme. The Victorian Energy Efficiency Target scheme (VEET), which will start on 1 January 2009, will impose financial incentives, backed by penalties, on Victorian electricity and gas retailers to promote household-level energy abatement and efficiency.

The Victorian Energy Efficiency Target Act 2007 (Vic) (VEET Act) was passed on 11 December 2007.

Scheme operation

The market-based scheme operates through the creation, acquisition and surrender of Victorian energy efficiency certificates (VEECs). Energy retailers must surrender VEECs to the Government to offset a portion of the emissions associated with electricity or gas which they have purchased, or face a financial penalty for any shortfall.

VEECs are created from household energy efficiency activities. Electricity and gas retailers can acquire VEECs either by purchasing VEECs or by providing households with energy efficiency technologies.

Scheme coverage

Liabilities are imposed on electricity or gas retailers who have over 5000 customers in Victoria. A covered entity must surrender sufficient VEECs to cover its liabilities each year. Liabilities are determined for covered entities by applying a factor to the proportionate amount of electricity or gas which they acquire during the year.

A financial penalty - based on the retailer’s VEECs shortfall for that year - will be imposed if there is a shortfall. Surpluses will be carried into subsequent years. The Government has announced that the penalty rate will be ‘set at a level to support compliance and at the same time impose reasonable limits on the costs faced by businesses.’

Scheme target

For the first three years (2009 - 2011) the scheme has a target for the abatement of 2.7 million tonnes of carbon dioxide equivalent (CO2e) for each year. The Government has stated that the three year target is the equivalent of making 675,000 households carbon neutral for a year.

Eligible VEEC activities

A VEEC can be created by an electricity or gas consumer accredited under the VEET Act who undertakes an abatement activity, or by an accredited person who has been assigned the right to create a certificate by the consumer. In practice it is expected that the latter of these two will be the more common mode of VEEC generation, with energy retailers, or other accredited participants, providing households with energy saving products at reduced or no cost, in return for the consumer assigning the right to create a certificate.

Each certificate created will represent one tonne of carbon dioxide equivalent. Activities which give rise to the creation of VEECs are activities which commence on or after the scheme commencement and which result in a reduction in greenhouse gas emissions that would not otherwise have occurred.

Regulations, yet to be published, will provide further detail of eligible abatement activities, however examples suggested by the Government, to date, include the installation of high-efficiency gas water heating systems, or retrofitting or replacing existing windows with double-glazed windows.

Examples of eligible VEEC activities:

Example 1:

  • Energy retailer X replaces incandescent lamps with more energy efficient compact fluorescent lamps, free of charge, at the home of Householder Y.
  • Y’s energy use (and therefore energy bill) is reduced at no cost to Y.
  • X creates certificates equal to the amount of emissions saved by Y and surrenders those VEECs toward its obligation under the scheme.

Example 2:

  • Whitegoods Store Z encourages Householder Y to purchase a high efficiency fridge by offering a $100 discount.
  • Z earns VEECs equal to the amount of the emissions saved through the installation of the high efficiency fridge.
  • These VEECs are sold to Energy retailer X to surrender toward its obligation under the scheme. Z sets its discount ($100) based on the price it can get for these VEECs from X.
  • Y benefits through discounted appliances and lower energy bills delivered through lower energy use.

Source: Department of Primary Industries, ‘Victorian Energy Efficiency Target (VEET) scheme Fact Sheet’

Scheme administration

The VEET scheme will be administered by the Essential Services Commission (ESC). The VEET Act gives the ESC certain enforcement, compliance and information-gathering powers. It also provides affected persons with rights of review for ESC decisions.

Registration and transfer of VEECs

Once created, VEECs must be registered with the ESC. VEECs are valid for 6 years from the day on which the abatement activity was undertaken. Importantly, VEECs may be transferred to any person, facilitating a market-based scheme.

Inter-relationship with future ETS

The Victorian Government envisages that VEET will complement a future ETS. The likely consequences of the expected ETS will be that carbon-intensive energies will be relatively more expensive. However, the Victorian Government’s view is that these cost consequences alone will be insufficient to motivate households to adopt energy efficient measures.

Moreover, as energy efficiency activities occur in covered sectors, they won’t be eligible to earn offset credits under the ETS. Accordingly the ETS won’t provide direct incentives for their adoption. The VEET scheme intends to fill this vacuum, incentivising the uptake of energy efficiency activities by households.

Inter-relationship with NSW’s Greenhouse Gas Abatement Scheme (GGAS)

The VEET scheme broadly follows the NSW GGAS model, operating since 1 Jan 2003. The key differences are:

  • VEET covers gas and electricity retailers, whereas GGAS covers electricity retailers only, and
  • GGAS accredits a broader range of eligible certificate creation activities, including carbon sequestration.

Next steps

The Government will continue consulting with stakeholders on further details of the scheme, particularly the content of the regulations which are expected to be passed in June 2008. The two main areas of missing detail are clarity around eligible activities and the size of the penalties for non-compliance.

Impact

The Victorian Government has forecast a number of impacts of the new scheme, including:

  • Decreased wholesale electricity prices on average by around 2.2% below business as usual, annually, over the period 2009 to 2011, driven by reduction in electricity demand. For gas, the scheme is not expected to materially impact on wholesale prices.
  • Total Victorian household sector savings, by 2011, estimated to reach $117 million for electricity and $13 million for gas.
  • Stimulation of additional employment opportunities and activity in energy services industries (energy auditing, installation of products, sales of appliances).
This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.