Scheme structure

The ESS was developed as a complementary measure to the proposed Commonwealth Carbon Pollution Reduction Scheme (CPRS).  This is because the CPRS’s carbon price alone will not be sufficient to overcome obstacles to the take-up of energy efficiency, such as the:

These obstacles mean that people and businesses are unlikely to implement energy saving upgrades even when they could save money. As part of the NSW Energy Efficiency Strategy, the ESS will provide financial incentives to implement cost-effective energy efficiencies.

The ESS target will start from 0.4 per cent and increase to four per cent of total annual NSW electricity sales over four-and-a-half years to allow time for the market to develop the new business models required to deliver these savings.

The target will be allocated each year to electricity retailers in proportion to their liable electricity sales, which are total sales less sales to exempt emission-intensive trade-exposed activities.

The activities which are exempt under the ESS should align with the national approach to exemptions for the expanded Renewable Energy Target and the CPRS. Because the Commonwealth’s exemptions were not in place when the ESS started, the NSW Minister for Energy published a Ministerial Order in the Government Gazette on 14 August 2009. The Order lists the exempt activities for the ESS by the Specified persons, their location, the emissions-intensive trade-exposed activity being carried out and the load that is exempt. It also authorises the Scheme Regulator to make rules with respect to the exemption granted and the way in which the deduction of the exemption is applied.

The Energy Savings Scheme - Scheme Regulator Exemptions Rule No. 1 of 2009 (Exemptions Rule) was determined on 10 September 2009 by the Scheme Regulator. The Exemptions Rule provides guidance to Scheme Participants for the calculation of deductions from their Liable Acquisitions and specifies the evidence that must be provided to the Scheme Regulator in support of these deductions. For more information about exemptions and the Exemptions Rule see the Scheme Participants web page.

If exemptions are included in a Scheme Participant’s obligation, the mandated energy savings requirement for retailers start at 0.5 per cent of liable sales, then increase to five per cent by 2014 and continue at that level until 2020.

Energy Savings Scheme target

Year	Effective scheme target (% of annual NSW electricity sales)	Retailer compliance obligation (% of annual liable electricity sales)
2009 (half year from 1 July)	0.4%	0.5%
2010	1.2%	1.5%
2011	2.0%	2.5%
2012	2.8%	3.5%
2013	3.6%	4.5%
2014–2020	4.0%	5.0%

The Energy Savings Scheme Rule of 2009 (the Rule) will define the energy efficiency activities eligible to create ESCs and how the number of ESCs is calculated. The Rule will:

Scheme Participants who do not surrender sufficient ESCs will be subject to a penalty for any shortfall. The penalty rate will be $24.50 per megawatt-hour (MWh) to provide an incentive for compliance. This is equivalent to an after-tax price for energy savings of $35 per MWh and effectively caps the ESS cost at this level.

The ESS target was chosen to deliver optimal levels of both electricity bill savings and net economic benefits.  It is expected that these energy savings can be delivered for less than $35 per MWh.

ESS legislation will provide a transparent, rule-based mechanism for adjusting the target while giving stakeholders sufficient notice of any changes. This will allow the NSW Government to increase or decrease the target, depending on the demonstrated availability and cost of energy savings.

The ESS administrator and regulator will be the NSW Independent Pricing and Regulatory Tribunal (IPART), which currently has these roles for GGAS.