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ENERGY EFFICIENCY
SAVES US MONEY

Energy efficiency lowers household and business energy bills, increases business competitiveness and productivity, and even fights inflation.

Savings at home

Australia’s energy bills have seen a lot of fluctuation in recent years,²⁵ and many Australians experience bill stress.

Australia is ranked worst in the developed world for energy efficiency²⁶so powering our appliances and making sure our homes aren’t too cold or hot takes much more energy than it should.

This wasted energy comes with a big price tag.

The American Council for an Energy Efficient Economy (ACEEE) ranks the energy efficiency policy and performance of the 25 top energy-consuming countries in the world. Australia ranks worst for advanced economies within that group.

Countries are scored against their national efforts, buildings, industry and transport policy and performance, with Australia doing well for national efforts and buildings, but poorly for industry & transportation.

There are a range of ways to increase the energy efficiency of a home, which means it can be hard to estimate just how much a household can save through energy upgrades and retrofits. Nevertheless, modelling by the Australian Council of Social Service and the Brotherhood of St Laurence found a one-off capital investment of around $2,000 for apartments and $5,000 for houses can result in average savings ranging from $290 per year for apartments to more than $1,000 each year in houses.²⁷ This means energy efficiency upgrades often pay for themselves within a few years, creating savings for homeowners well into the future.

Star power

The Nationwide House Energy Rating Scheme (NatHERs) star ratings are a guide to the thermal performance – heating and cooling needs – of a home’s construction.²⁸

Star ratings are from one to 10 and based on information about the home’s design, construction materials and the climate of its location. Australia is transitioning from a six to seven-star minimum for new builds under the National Construction Code.

Whilst NatHERS star ratings enhance the energy efficiency of new homes, until recently Australia has not had an equivalent program for existing homes.

Addressing this, in April 2023 the Australian Government announced its intention to pilot a new RapidRate tool that will estimate an energy star rating for existing homes, supporting households with lowering energy bills.²⁹

Home energy assessments are also available to understand existing homes’ energy performance, and are subsidised under some state and territory government programs.

Savings for Australia’s worst performing homes are even bigger.

Modelling has shown that upgrading an average one-star Melbourne home to four stars could save a household at least $2,275 each year.³⁰ These upgrades have been found to save more than three times as much energy as upgrading a home that already has a four-star rating and improving it to seven stars – which is the current minimum standard for new homes. In other words, the biggest energy and cost savings opportunities exist in the least efficient homes.

The types of upgrades required to take a home from one up to four stars are relatively cost effective, and generally include basic draught proofing, installing insulation, and replacing inefficient appliances with modern, flexible electric ones.

Staying cool and keeping warm

Heating and cooling accounts for 20 per cent to 50 per cent of energy used in Australian homes, depending on the climate zone. The good news is there are some simple things we can do to maximise energy savings and reduce cooling and heating loads.

For example, reverse cycle air conditioning provides heat as well as cooling. It’s also 300 - 600 per cent efficient, which means it can take one unit of electrical energy and turn it into between three to six times as much heating or cooling energy. Under mild conditions, some products can achieve efficiencies of over 1,000 per cent.

DCCEEW 2023, Heating and cooling.

SAVINGS, COMPETITIVENESS AND PRODUCTIVITY IN BUSINESS

The high cost of energy and its negative impact on business has been widely reported, with some Australian businesses closing, moving offshore or delaying plans for expansion.

Energy efficiency offers individual businesses an opportunity to save money on bills and reduce operating expenditure (OpEx). Needless to say, energy efficiency and smart energy management in businesses takes a different approach to household upgrades. For businesses, energy management can include custom and off the shelf systems and equipment upgrades. It can also involve expert help to implement energy management systems (EnMS) that support businesses with setting up management processes to continually improve their energy performance and lower costs year-on-year.

Reducing OpEx is as much about strategy as it is about budget, which is why implementation of a robust EnMS should be at the heart of any business improvement strategy in organisations where energy spend is a significant draw on OpEx. Investing in energy efficiency and energy management is also a risk management strategy, as the reduced OpEx helps to shield businesses from uncertain and volatile energy prices.

Catching up with businesses worldwide

In 2022, global investment in energy efficiency exceeded AUD$800 billion.³¹ If Australia can capture even a small share of this investment, it could represent billions of dollars a year for our economy.

There are approximately 333 million businesses classed as MSME (micro, small and medium-sized enterprises) throughout the world, contributing from nine to 29 per cent of energy demand.³²

A recent survey in Europe found more than half of small and medium enterprises (SMEs) are planning to implement new measures to improve energy efficiency in the immediate future, and 61 per cent are already putting them in place to save energy.³³

The Australian research organisation Climateworks Centre has found savings generated from investment in energy productivity can create increases in annual profits of two to 10 per cent.³⁴ A recent report by the Climate Group had similar results, finding an average seven per cent improvement in energy productivity for businesses that have implemented EnMS.³⁵

Businesses with large energy bills can make substantial savings. For example, businesses upgrading or replacing inefficient equipment in the Victorian Energy Upgrades (VEU) program have been found to save up to $74,000 a year on energy costs.³⁶ Similar savings are reported by the NSW Energy Savings Scheme and other state government energy efficiency subsidy programs.

But energy efficiency is just one part of the solution. A proactive approach to leveraging data, calibrating investment in all forms of energy upgrades, and optimising energy procurement, should be at the heart of leading businesses’ approach to cutting costs and reducing emissions. For businesses looking to improve on their environmental, social and governance (ESG) performance, taking action to reduce energy and emissions in their own operations is key.

What is ESG?

Environmental, social and governance (ESG) is the movement, or framework, for businesses to operate in an environmentally and socially responsible and transparent manner.³⁷

FIGHTING INFLATION

According to the International Energy Agency, we are currently experiencing the first energy crisis with truly global impacts.³⁸ Prices for oil and natural gas have reached levels never seen before.

The crisis has stoked inflationary pressures and created a looming risk of recession, with the heaviest burden falling on poorer households, where a larger share of income is spent on energy and food.³⁹

What is inflation?

According to the Reserve Bank of Australia, inflation is an increase in the level of prices of the goods and services that households buy.⁴⁰

Inflation is measured as the rate of change of those prices. Over the twelve months to the March 2023 quarter, the Consumer Price Index (which measures household inflation) rose by seven per cent across Australia.⁴¹

Energy price inflation varies across countries depending on the fuel mix, the level of energy efficiency and the structure of the economy, aas well as government polices such as fuel taxation and energy bill support strategies.⁴²

Investing in energy efficiency is anti-inflationary as it lowers spending on energy. But making these investments in an environment of high inflation and substantial cost of living pressures is not easy.

The upfront costs associated with energy efficiency upgrades can be low, but can also be quite substantial. Nevertheless, governments around the world are pursuing support programs for energy efficiency because of the value that it brings to their economies, and the households and businesses within them.

For example, in 2022, the United States Government passed the Inflation Reduction Act, which includes hundreds of billions of dollars in new spending and tax breaks to fight inflation by boosting economic competitiveness, innovation, and industrial productivity.⁴³

While the Inflation Reduction Act has commanded headlines for historic investment in renewable energy and climate efforts, often less publicised is its support for household and SME energy efficiency.

A key part of the Inflation Reduction Act is energy efficiency for homes and businesses.

Lowering energy costs is a recognised measure to fight inflation, and the US Inflation Reduction Act intends to do this by supporting energy-saving property improvements, including energy efficient windows, insulation, heat pump hot water systems, reverse cycle air conditioners and rooftop solar, as well as energy audits for homes and businesses.

This investment is intended to support households and businesses to save money on their energy bills and shield themselves from further volatile energy prices.⁴⁴