On November 24, the Australian Federal Parliament passed the Emissions Reduction Fund into law.

The Clean Energy Regulator (CER) is now in the process of drafting the regulations in preparation of the ERF becoming operational during the first quarter of 2015. The ERF is the Coalition Government’s core climate change policy, which is part of its Direct Action Program, which is designed to deliver Australia’s international climate change reduction obligations of five per cent below 2000 levels of GHG Emissions by 2020.

The ERF is a taxpayer-funded subsidy paid to parties that develop projects that either eliminate, or avoid the release of, GHG emissions across the whole Australian economy. It is a voluntary scheme and does not impose any penalty for not participating.

For companies that install solar (which is incentivised under the Renewable Energy Target [RET] but not the ERF) and energy efficiency equipment for domestic and commercial clients, the ERF can provide opportunities to add real value to their clients’ efforts in reducing electricity and gas consumption, thus saving money and hedging against future cost increases. It may also reduce companies’ risks to the uncertainty surrounding the RET and State based Energy Efficiency Schemes.

So, how does it work?

From an installer’s perspective, they can offer a bundled energy efficiency service in addition to solar to:

  • Their household and small business clients for other technologies and behaviours including insulation, lighting, glazing, water heating, space heating and cooling, white goods, and changing behaviors associated with energy use under the draft Carbon Credits (Carbon Farming Initiative) Methodology (Aggregated Small Energy Users) Determination 2014. However, for domestic and small business clients, installers will need to carefully consider the economy of scale required to make it worth their while
  • Their commercial clients that own and/or manage commercial buildings (i.e. shopping centres, data centres, office building and hotels) under the NABERs rating tool subject to the draft Carbon Credits (Carbon Farming Initiative) Methodology (Commercial Buildings) Determination 2014. An example of technologies include commercial lighting, replacing boilers, lifts, escalators, building energy management systems etc.
  • Their industrial clients that own and/or manage industrial sites/facilities subject to the draft Carbon Credits (Carbon Farming Initiative) Methodology (Industrial Fuel and Energy Efficiency) Determination 2014 for such technologies as replacing or modifying boilers, furnaces, generators, air compressors, pumps, motors, HVAC, energy management systems, variable speed drives and fuel switching. The draft Carbon Credits (Carbon Farming Initiative) Methodology (Facilities) Determination 2014 is for predominately NGERS rated companies/facilities to implement a broad range of measures without being prescriptive about what these should be or how they should be undertaken based on their current NGERS data.

The above is but a snap shot of what installers can do to diversify their business and offer more value to their clients.

Some important points about the ERF for further consideration:

  • To access the ERF fund, participants must be registered with the CER, be “fit and proper” persons and have the requisite accounts, etc.
  • They must also hold an Australian Financial Services Licence (AFSL) as the carbon certificate (Australian Carbon Credit Unit (ACCU)) is a financial product (although this may be soften for certain instances)
  • They must understand how environmental markets operate and how the numerous compliance, market, political and pricing aspects integrate for a successful project
  • They must understand how the purchasing process works under the ERF “reverse auction,” as they will need to enter into a contract for delivery with the Government based on price and volume over a seven-year period and be required to manage the compliance and legal risks of underdelivery, etc.
  • It is important for users to consider their business model and the use of “aggregators” to “bundle” numerous projects together to enable “economies of scale” to be achieved.