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Victoria’s Essential Services Commission rejects distributors’ forecast gas usage reduction in favour of 4pc increase

Posted by gmarkets on 3 September, 2007

In March 2007 the Government released a VEET issues paper that canvassed a number of issues associated with the scheme, including how and at what level the scheme target should be set and what activities might be supported under the scheme, recalled the Essential Services Commission’s Gas Access Arrangement Review 2008-2012 Draft Decision. VEET may increase gas usage: “However,” the Commission continued, “the Government does not intend to announce its decision on the nature of the VEET scheme until the second half of 2007. Although the exact nature of the scheme is uncertain, informal and preliminary advice from Government is that the scheme is unlikely to result in a material decline in gas usage – in fact a more likely scenario is that it will promote fuel switching from electricity towards gas and increase gas usage. This is consistent with the views expressed in the VEET issues paper that electric water heating produces significantly more greenhouse gas emissions than a gas system. There is therefore scope for major greenhouse gas savings from shifting households from electricity to gas, where feasible.”

VEET scheme will not decrease gas usage: “Although Origin Energy noted that the VEET scheme will have an impact upon (residential) consumer demand for electricity and natural gas,” the Commision said, “it commented that electricity ‘is likely to be the focus of energy efficiency measures required by VEET during the forthcoming access arrangement period’. The Commission therefore does not consider that it is reasonable at this time to forecast a reduction in average gas usage as a result of the VEET scheme. To the extent that further details regarding the scheme are released prior to the Commission’s final decision, the Commission will take these into account where possible.”

Key basis for forecast questioned: “In preparing its forecasts of existing dwelling usage the distributors have incorporated reductions in gas hot water usage (from 2009) and gas space heating (from 2012) as a result of a proposed MEPS scheme that is to be introduced under the auspices of the National Framework for Energy Efficiency. A key basis for this assumption cited by the distributors was the National Framework for Energy Efficiency’s April 2005 work program. This work program anticipated that a consistent legislative program for gas appliances, similar to the model used to regulate electrical products, would be put in place by 2008. However, the distributors did not reference the revised work program which was released in October 2006,” the Commission said.

Program has changed from that used for forecasts: “This program notes that subsequent legal advice calls in to question the existing legislative capacity of some jurisdictions to mandate consistent efficiency requirements for gas equipment and appliances. The work program has now changed significantly and it appears the new work program will maximise opportunities to increase energy efficiency within the existing industry based scheme (of voluntary energy labeling) rather than continuing to pursue minimum standards. Key targets for the eventual application for a MEPS scheme have moved out by around 2 years for most appliances compared to the original work program. Accordingly, the Commission does not consider it is reasonable to assume that any material reductions in usage will occur from the MEPS scheme during the third regulatory period.”

Average gas usage increase around 4pc: “Adopting the Commission’s weather assumption and removing the MEPS and VEET adjustments proposed by the distributors results in the average use figures in table 11.7. These represent an average increase of around 4 per cent compared to the distributors’ proposal,” said the Commission. “The distributors have forecast significant reductions in average use by new domestic customers as a result of:

• warmer weather;

• 5 star building shell requirements, including the requirement to have a rainwater tank or a solar hot water system changes to plumbing regulations (which will affect the baseline consumption)

• the MEPS scheme.”

Reference: Gas Access Arrangement Review 2008-2012, Essential Services Commission, Draft Decision, Executive Summary, 28 August 2007.

Erisk Net, 2/9/2007

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