Contents of Presentation

1. Electric Storage Water Heaters:Consultation Regulation Impact Statement Stakeholder Consultation - Australia and New Zealand, 20 – 22 January 2014Michael Whitelaw, Department of Industry Paul Ryan, EnergyConsultOn behalf of the E3 Committee

2. Contents of Presentation • Introduction • RIS – Scope and Rationale • The Market – Sales, Stock and Energy • Standards and Requirements • Problems and Objectives of the RIS • Policy Options and Impacts • Conclusions Contents

3. Introduction

4. E3 Overview • E3 = Equipment Energy Efficiency • A committee jointly run by Aust federal, state & territory, & NZ governments • Aims to improve energy efficiency in coordinated manner • Energy efficiency impacts productivity, demand levels and patterns, energy bills, greenhouse gas emissions etc. • Use national legislation and standards to ensure consistent requirements • Tools include information, energy standards and labels Introduction

5. The consultation process and next steps Introduction Consultation • Physical sessions – ask preliminary questions • Submissions – comments must be formally submitted • Jurisdictional E3 representatives – consider and recommend • Ministers – consider any recommendations • Other – Standards Australia or other consultation as required

6. The consultation process and next steps Submissions received E3 makes recommendation(s) Other / Direction change Project cancelled Minor changes Ministers consider Submissions Changes to Standards Implementation and compliance Post implementation review Introduction

7. RIS – Scope and Rationale

8. Why electric storage water heaters? • Water heating is a significant contributor to the residential sector’s energy use • Appears to be subject to market failures • Potential scope for: • Simplification/harmonisation • Energy efficiency improvements RIS – Scope and Rationale

9. Energy Consumption of Water Heaters in Australia and New Zealand • Australia • 25% of energy use in homes for water heating • 45% of this is electric water heating • New Zealand • 33% of energy use in homes for water heating • 80% of this is electric water heating • Options considered in this RIS are estimated to save almost AU/NZ $0.5 Billion over 10 years RIS – Scope and Rationale

10. Scope • Products coverage includes most water heaters with storage tanks and electric boost/heating elements, i.e. • Conventional electric storage water heaters (ESWH) • Solar (electric) Water Heaters (SWH) • Heat Pump Water Heaters (HPWH)* • Excludes gas water heaters or renewable pre-heat systems RIS – Scope and Rationale

11. Reason for Review RIS – Scope and Rationale Ensuring regulations remain relevant and effective • Regulatory consistency • Regulatory effectiveness • Net-benefits Current options could save almost half a billion dollars over 10 years

12. The Market – Sales, Stock and Energy

13. Projected Sales of all ESWH – AU/NZ Figure 2: Forecast sales of electric storage water heaters in Australia and New Zealand The Market – Sales, Stock and Energy

14. Projected Stock of all ESWH – AU/NZ Figure 3: Forecast stock of electric storage water heaters in Australia and New Zealand The Market – Sales, Stock and Energy

15. NZ Projected Sales Figure 20: Forecast sales of electric storage water heaters in New Zealand by technology The Market – Sales, Stock and Energy

16. NZ Projected Stock Figure 21: Forecast stock of storage water heaters in New Zealand by technology The Market – Sales, Stock and Energy

17. Energy Consumption of Water heaters Figure 4: Total annual energy consumption of all electric storage water heaters The Market – Sales, Stock and Energy

18. Greenhouse Emissions of all ESWH – AU/NZ Figure 5: Annual greenhouse gas emissions of electric storage water heaters by technology The Market – Sales, Stock and Energy

19. Standards and Requirements

20. Testing Standards • Current AS/NZS 4692.1 • Electric water heaters- Part 1: Energy, consumption, performance and general requirements • Legacy • AS 1056 or AS 1361 in Australia • NZS 4602 or NZS 4606.1 in NZ Standards and Requirements

21. Current MEPS and Other Related Standards • Minimum Energy Performance Standards (MEPS) for AU and NZ is AS/NZS 4692.2:2005 • Electric water heaters Part 2: Minimum Energy Performance Standard (MEPS) requirements and energy labelling • Solar and Heat Pump • AS 4234 Solar water heaters—Domestic and heat pump—Calculation of energy consumption • AS/NZS 5125 Heat Pump Water Heaters Standards and Requirements

22. MEPS Exclusions • SWHs and HPWHs are provided an exclusion from the AU/NZ MEPS standard (AS/NZS 4692.2) if • electric-resistive heating provides less than 50% of the energy supplied in a typical year (e.g., heat pump and solar water heaters) when simulated to AS 4234 under Climate Zone 3 with an energy delivery of 22.5 MJ/day for an electric boosting heating unit and energization profile specified by the manufacturer Standards and Requirements

23. Difference in MEPS Basis and Levels • Multiple tables in AS/NZ 4692.2 depends on • In AU, standard used to measure and rated hot water delivery • In NZ, standard used to measure and nominal tank capacity • Comparison of MEPS levels between AU/NZ • AU MEPS levels vs delivery have been converted to equivalent capacity; based on ratios of capacity to delivery for registered units grouped by MEPS ‘step’. Standards and Requirements

24. Comparison of MEPS – AU to NZ Figure 6: Australian & New Zealand Minimum Energy Performance Standards levels and registered water heaters heat losses: unvented mains pressure water heaters Standards and Requirements

25. Compliance and Comparative Testing Standards and Requirements E3 committee tested 14 Australian and five NZ registered ESWHs • Most Australian tanks meet the MEPS • Three NZ tanks had comparable heat loss levels to the Australian ESWHs Further testing is being carried out to validate results

26. International ESWH MEPS Standards and Requirements Both USA and EU are strengthening the MEPS requirements for water heaters • USA – effectively banning ESWH over 200 L from 2015 • European Commission – efficiency requirements from 2015, stringent heat loss from 2017 Australia and New Zealand committed to following worlds best regulatory practice

27. Problems and Objectives

28. Market Failures • Split incentives • Builder/owner, plumber/owner, landlord/tenant • Information failures • Operating costs and payback • Consumer behaviour • Magnitude of these failures is discussed in RIS Problems and Objectives

29. Regulatory Shortcomings (1) • Usage of multiple test standards, different basis for MEPS (AU/NZ), information provide (delivery and capacity) • Difficult to compare and ensure compliance • MEPS ‘steps’ (17 AU vs 37 NZ) • Potentially reducing consumer choice and innovation • Harmonisation of MEPS levels may not be possible at this stage • non HCFC insulation vs HCFC Problems and Objectives

30. Regulatory Shortcomings (2) Problems and Objectives Heat loss MEPS for SWHs and HPWHs • Exclusions based on modelled system results • SWHs and HPWHs may operate less effectively than modelled • Non-validation of claims • E3 Tested 10 models • All recorded lower measured vs claimed efficiency • Two models recorded Es < 50% • Compliance loop-holes • Solar ready and AS/NZS 4234 claims

31. SWH and HPWH Heat Loss Test Results Figure 11: Test results of heat losses for HPWH and solar electric boosted water heaters Problems and Objectives

32. SWH and HPWH Heat Loss Declared Values Figure 10: Declared heat losses for solar electric and heat pump water heaters by storage volume; current models Australia Problems and Objectives

33. Objectives of Government Action • To streamline regulations and at the same time increase their effectiveness • To save consumers money by improving the energy efficiency Policy options considered: • Improve regulatory consistency • Improve regulatory effectiveness • Deliver strong net-benefits through addressing market failures Problems and Objectives

34. Policy Options and Impacts

35. Proposals Summary Policy Options and Impacts

36. Business-As-Usual (BAU): Policy Options and Impacts Existing MEPS requirements, standards and definitions to continue to apply (with the period 2013-2033 modelled). The majority of conventional ESWHs would still be required to meet established heat loss requirements.

37. Proposal 1: Streamlining Existing Regulations: Policy Options and Impacts Remove regulatory overlap by moving to a single (existing) test standard Align the Australian and New Zealand MEPS basis Mitigate against MEPS loopholes Enable compliance-checking of existing HPWH and SWH MEPS and mitigate against loopholes

38. Removal of Australian ESWH sizing constraints Figure 12: Example smoothed MEPS for Australia and heat losses of registered Australian models Policy Options and Impacts

39. Removal of NZ ESWH sizing constraints Figure 13: Example smoothed MEPS for New Zealand and heat losses of registered New Zealand models Policy Options and Impacts

40. SWHs and HPWHs Subject to Compliance Figure 14: Proposed reduced heat loss MEPS for solar electric and heat pump water heaters for Australia and current models Policy Options and Impacts

41. Proposal 2: Streamlining Regulations & Strengthening Australian MEPS: Policy Options and Impacts Implement Proposal 1: Streamlining existing regulations; and Strengthen the Australian MEPS • Not equivalent to NZ MEPS (as Product Profile suggested) • Next chart shows why MEPS works

42. Example that MEPS Drives Improvements Figure 8: New Zealand sales weighted average heat loss trends for conventional ESWHs Policy Options and Impacts

43. Example of Proposal 2: Strengthening Australian MEPS Figure 15: Proposed new heat loss MEPS for conventional storage electric water heaters for Australia and current models Policy Options and Impacts

44. Proposal 3: Proposal 2 & Scheduling Additional MEPS Review Policy Options and Impacts Implement Proposal 2; and Scheduling Additional MEPS review • Conduct a market review of average efficiency levels in 2016, with view to harmonising MEPS levels • The review will enable E3 to vary each nation’s MEPS arrangements by up to 10% with the goal of full harmonisation of MEPS levels by 2017 • A 10% strengthening modelled – actual impact will differ • Only apply to conventional ESWH

45. Proposal 4: Streamlining regulations and all ESWHs to be treated consistently: Policy Options and Impacts Implement Proposal 1; and Fully close compliance loopholes and improve heat loss characteristics of SWH and HPWH by subjecting all ESWH to the same MEPS requirements • Would mitigate the market failure associated with inconsistent information on heat loss • But likely to shift sales to conventional ESWH at expense of SWH and HPWH

46. Proposal 5: Appliance Labelling Policy Options and Impacts Investigate an energy rating label framework to apply to all water heaters (not just ESWHs) which provides both energy use and sizing information. Consistency with existing international labelling explored as a priority E3 has commenced a project to explore water heater appliance energy labels in general

47. Impact Analysis – Benefits and Costs Approach • Government benefits and costs • Costs of preparing RIS, managing and preparing regulatory changes, gazetting any changes, etc. • Costs of check testing, administration already incurred and not included • Business benefits and costs • Costs of compliance (where additional) • Costs of redesign and manufacture increase product costs • Consumer benefits and costs • Costs of more efficient product (passed on by supplier) • Benefits of reduction in water heating costs Policy Options and Impacts

48. Proposal 2: CBA Impact – Australia Table 5: Proposal 2 Cost Benefit Analysis – Australia – 20 year period (various discount rates) Main assumptions • Increase in product costs is 10% for all updated models (~50% of market) • $20 for a small EWSH, $30 Med, $40 large • Average energy savings per ESWH is estimated to be $10 p.a Policy Options and Impacts

49. Proposal 3: CBA Impact – Australia & NZ Table 8: Proposal 3 Cost Benefit Analysis – Australia + NZ – 20 year period (various discount rates) Main assumptions • Increase in product costs is 10% for all updated models (~100% of market) • $40 for a small EWSH, $60 Med, $80 large • Average energy savings per ESWH is estimated to be $34 p.a Policy Options and Impacts

50. Initial Conclusions • Revised MEPS options combined with appliance labelling project is currently considered the most effective approach to meet all the stated objectives • Proposal 3 – (Proposal 2 & Scheduling Additional MEPS Review)is considered the most effective option but is based on a future market review • Proposal 2 – (Streamlining Regulations & Strengthening Australian MEPS ) could be considered as it appears to provide greater certainty • Proposal 5, an appliance labelling project, is recommended to decision makers as it will assist in addressing information failures