From today, NSW Energy Savings Scheme extends to gas efficiency projects

15 Apr 2016Archived News Leigh Rostron Climate Change Matters


From today, Friday 15 April 2016, businesses with facilities in NSW with gas efficiency projects can participate in the Energy Savings Scheme (ESS).  With price increases expected over the coming years, this presents a great opportunity for large users of natural gas to secure additional revenue by creating Energy Savings Certificates (ESCs).

In some instances it may be possible to deem up to 10 years of savings up front, providing a significant discount to capital costs.

The NSW ESS:  background

The NSW ESS allows organisations to create ESCs from savings achieved with energy efficiency projects. These certificates represent an additional revenue stream to the ESC creator as NSW energy retailers and large energy users must buy these certificates in order to meet what was originally a savings target of 5% of liable electricity sales. 

Effective today, 15 April 2016, the amendments to the ESS Rule are to:

  • incorporate gas savings by providing methods for households and businesses to create Energy Savings Certificates for end-use gas efficiency

  • introduce a Regional Network Factor to reward energy savings in regional areas

  • make a variety of other enhancements, for example to reflect changes in equipment standards, to make the Home Energy Efficiency Retrofit method easier to implement and to make energy efficient public lighting upgrades more accessible to Councils.

By including gas in the ESS, the NSW Government is seeking savings in the order of 5.1PJ by 2020 which represents $292m in additional economic benefit and $1.2b in bill savings for consumers by 2040.  To support the inclusion of gas, savings targets have also increased by up to 7% in 2016 and up to 8.5% by 2019.

What types of gas efficiency projects are going to be eligible under the ESS?

The inclusion of gas into the ESS is targeted at all stationary gas end use applications. Some examples of applications that will be eligible in the commercial sector include:

  • gas fired hot water heating

  • gas fired space heating

  • fuel switching for space heating and hot water (from electric to gas)

Examples of the applications that are eligible in the industrial sector include:

  • boilers and economisers

  • process heat recovery

  • combustion efficiency improvements

  • cooking processes

Household based applications are also eligible (hot water heating and gas heating).

It is not intended where gas is used:

  • for power generation

  • as a chemical input

  • as a transport fuel

An example of the benefit that can be gained

Previously, under the ESS, electricity savings created 1.06 ESCs per MWh. For gas, it is a conversion factor of 0.39 ESCs per MWh or around 0.11 ESCs per GJ saved.

Insulation of steam pipelines and feedwater tank project
Project costs:  $70,000 including metering to verify savings
Energy savings: 2,500 GJ/year
Variable gas cost: $6.50/GJ
Payback before ESCs: $70,000/(2,500 x 6.5) = 4.31 years
ESC value at 26 June 2015: $22/ESC
Gas ESCs value: deemed approach: 2,500 x 0.11 x $22/ESC = $6,050/year
Interest rate: 8%
Estimated payback with ESCs: ($70,000 - $40,535)/ (2,500 x 6.5) = 1.81 years

This level of improvement will make many projects cost effective. 

This is a great time to review all thermal projects with natural gas savings. 

Typical paybacks for gas efficiency projects:
Boiler economiser retrofit - 3 to 6 years
Insulation of pipes and tanks– 3 to 5 years
Blowdown heat recovery – 2 to 4 years
Oxygen trim control – 2 to 4 years
Heat recovery – 2 to 5 years

All these project business cases can be improved to less than three years and possibly much lower with the inclusion of gas ESCs.

What price can we expect for NSW ESCs?

ESC prices have generally held between $15-$20/certificate. However this dropped to less than $10 during mid 2014 due to an oversupply of certificates in the market. To address this oversupply and support the future ESC price, two measures have been implemented:

  • Rule changes were introduced in July 2014 which limit the ability to create ESCs from some of the original methods (especially for lighting projects)

  • Change in target from 5% up to 8.5% by 2019.

These factors should combine to reduce the risk of oversupply and prevent the future ESC price from dropping back to its lows in 2014. Since the above changes were made, together with future target announcements, we have seen the price climb back up with maintained support above the $25/ESC level.

Note that ESC creators are able to bank the certificates and choose a time that suits them to convert them to revenue.
Energetics actively monitors the ESC market and is able to provide advice on when might be a good time to sell and assist in the sale process.

What are the steps my business can take?

If your organisation uses gas you should evaluate the benefit under the ESS.

Energetics can work with you to conduct site audits to identify possible projects all the way through to business case development and project implementation. In parallel to this, we can assess the projects for ESC eligibility. Time spent now assessing and understanding possible options with some small potential investment in data systems now will enhance and maximise ESC creation once the project has been implemented.

You may need to consider:

  • Upgrading metering

  • Sub-metering

  • Enhancement of data systems / processes

The NSW Office of Environment and Heritage (OEH) has commenced a second round of funding for gas efficiency to help NSW businesses. This includes funding for sub-metering and gas efficiency project implementation.  

More information has now been released by the government on applying for this assistanceYou can read more via this link. 

Energetics is also able to provide assistance in the design of metering / sub-metering solutions.

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