The past couple of years in Australia have seen a great increase in sales of solar hot water heaters. They have also seen a boom in sales of heat pump water heaters, which previously had a minuscule share of the residential water heating market.
Most solar and heat pump water heaters are being installed in place of electric resistance water heaters. Electric boosted solar systems typically use only about half as much electricity as all-electric systems, and heat pumps around two thirds as much. Hence, greater uptake of these systems will reduce national electricity consumption and reduce greenhouse gas emissions.
In 2007, just under half of Australian households were estimated to be using an electric resistance water heater to supply their hot water needs. In doing so, they accounted for about 5.5 per cent of Australia’s total electricity consumption and were the cause of just under 2 percent of Australia’s total greenhouse gas emissions. Replacing electric water heaters with solar and heat pumps therefore has the potential – if it continues, or accelerates – to deliver significant emission reductions.
It is undoubtedly for this reason that purchase and installation of solar and heat pump water heaters are financially supported by a great diversity of Commonwealth and state government programs. However, high efficiency gas water heaters (5-star storage or instantaneous) will deliver emission reductions, relative to electric resistance, that are as large as electric-boosted solar systems (and, in the case of heat pump systems, larger). Yet there is no direct financial assistance available for the installation of gas water heaters. Current program structure therefore constitutes a less than fully coherent approach to emissions abatement policy.
This defect is made much worse by the fact that the principal source of support for solar and heat pump water heaters is damaging to the claimed policy objective of the expanded Mandatory Renewable Energy Target (MRET) program. The passage of the Renewable Energy (Electricity) Amendment Act in August was undoubtedly the Rudd Government’s most important legislative action on greenhouse gas emissions to date. Ostensibly, this legislation will increase the quantity of electricity generated annually from renewable sources over the next ten years by 35,500 terrawatt hours above the current level. This is about 14 per cent of current total generation.
In practice, the increase will be considerably less than this quantity, because solar and heat pump water heaters are included within the target.
By any common sense test, this is strange. These types of water heater do not generate electricity; they reduce demand for electricity at the point of end use, and thus have far more in common with energy efficiency measures. Heat pump water heaters do not even use solar energy. And by what logic are heat pump water heaters included, but not, for example, heat pump space heaters (reverse cycle heat pumps)?
Data in the Office of Renewable Energy Regulator registry shows that solar and heat pump water heaters accounted for 24 per cent of all Renewable Energy Certificates generated to the end of 2008. But in 2008 itself, the share was 37 per cent, and for the first part of 2009 it was over 50 per cent. This means that throughout all of 2009, the quantity of new renewable electricity generated in Australia will not be 8,100 gigawatt hours, as specified in the MRET legislation, but probably less than 6,000 megawatt hours.
This represents a severe undermining of the ostensible purpose of the legislation. Moreover, despite the passage of the new legislation, the undermining of the program is likely to become worse, not better, in the coming years.
At its meeting on 2 July 2009, the Council of Australian Governments (COAG) endorsed the National Strategy on Energy Efficiency, which includes a provision to “phase out conventional electric resistance water heaters”. Several states already prohibit the installation of electric water heaters in new houses. The effect of these measures will be to greatly increase the market for all other types of residential water heaters, including gas, but also solar and heat pumps.
Using quite conservative assumptions, it can be calculated that, if this phase out starts from next year, solar and heat pump water heaters could take about half of the total target over the next five years, and at least a quarter over the entire period up to 2020. This would represent a very significant loss of new markets for genuine renewable electricity generation projects.
COAG’s decision to phase-out electric resistance water heaters deserves strong support. The annual emissions savings, on completion, will be between 5 and 10 million tonnes of CO2e and cost very little per tonne abated. However, for many households currently using off-peak electric water heating, this will entail some increase in the cost of water heating, particularly in up-front capital cost, for which they might reasonably expect some form of financial assistance.
Such assistance should be related both to the physical circumstances of the household, in terms of available water heating alternatives, and also to the accurately calculated emissions abatement potential of the alternative. That will be impossible so long as assistance is delivered through the MRET program.
Taking solar and heat pump water heaters out of the MRET will therefore be an essential element of an equitable and efficient program for achieving the phase-out of large electric water heaters throughout Australia. It will also be essential for restoring the integrity of the MRET and ensuring that this very important program really does drive the Australian electricity industry toward renewable generation.
