The VEET scheme allows accredited businesses to offer discounts and deals on certain energy saving products and appliances (and soon project based activities). Accredited businesses monetise the energy savings by creating and selling Victorian Energy Efficiency Certificates (VEECs). Demand for the certificates is created through a legislated target, which requires energy retailers to purchase and surrender a certain number of certificates each year. The cost of purchasing certificates is typically passed on to end users by the retailer.
The exclusion of large energy users from generating energy efficiency certificates or creating a pass-through liability for energy retailers was originally provided to avoid duplication for companies covered by the Environment Protection Authority’s Environment and Resource Efficiency Plans (EREP) program, which ended in 2013. With the EREP program gone, the rationale for excluding large energy users from VEET no longer applies. Proposed changes to the VEET scheme will mean large energy users can create energy efficiency certificates, and will also be subject to increased electricity and gas prices associated with the pass through of retailer VEET liability costs.
Impact on big energy users
Key issues and potential impacts for currently excluded big energy users include:
- Costs: when the exemption ends and therefore costs associated with retailer liability are passed on to the energy user, electricity and gas bills will likely increase by around 3-4%, based on our initial analysis
- Opportunities: on the upside, access to VEET incentives may make energy efficiency improvements more economically viable. To access energy savings incentives, it is important to understand what activities, products and accredited persons are eligible to generate certificates and pass on savings.
For energy retailers, the charges will reduce the administrative burden of identifying large energy users and removing their consumption from their annual Energy Acquisition Statements.
When will the changes begin?
The Victorian Department of Economic Development, Jobs, Transport and Resources has proposed two options for extending VEET to large energy users, the first being "immediate" full implementation from 1 January 2017, and the second being a gradual implementation starting 1 January 2017, providing an initial voluntary period until 2020.
Immediate: 1 January 2017 - all large energy users can gain VEET incentives from 1 January 2017. The exclusion from creating liabilities for energy retails also ends 1 January 2017.
- Gradual: either 1 January 2020 or when the Large Energy User starts generating Victorian Energy Efficiency Certificates (VEECs) from prescribed energy saving activities, whichever is first. This options provides an initial voluntary period, where large energy users are eligible to generate certificates from 1 January 2017.
Key drivers for extending VEET to large energy users
A number of drivers underpin the proposed changes, including:
- The policy context has changed and there is no longer overlap with EREP program, which closed in 2013.
- Access to VEET incentives may make energy efficiency improvements more economically viable for large energy users.
- Including large energy users in the VEET scheme would increase the pool of energy efficiency opportunities available to generate certificates
- Large energy users expressed an interest in being able to participate in the VEET scheme when the Department consulted on this issue in 2015
- Energy retailers find it administratively burdensome to identify large energy users and remove their consumption from their annual Energy Acquisition Statements. Now that EREP program has closed, the list of excluded large energy users has also become outdated.
How will large energy users access VEET incentives?
Most large energy users have a variety of energy savings options available at their sites, which will need a customised approach to determine energy savings. To address this, three new draft methods for “Project Based Activities” (PBAs) have been developed. These draft methods are open for public comment until 13 July 2016.
Because only accredited persons can generate certificates, normally facilities implementing energy saving activities will realise VEET incentives through a discount passed on by the service provider, rather than by generating and selling certificates directly. The extent of benefits passed on to the consumer can vary widely depending on the service provider, so it is worthwhile investigating which service providers offer the best financial incentives for your business. That being said, a large consumer generating many VEECs may become an accredited person themselves. We’ve seen this in the NSW scheme where heavy industry can generate Energy Saving Certificates – which is a similar concept.
We encourage you to think carefully about what the cessation of the VEET exemption might mean for your business, including the operating costs and opportunities going forward. If you have any further questions, would like some assistance with your submissions, or would like to further discuss the implications of VEET for your business– please contact us directly.