Air-Source heat pump water heaters in Australia and New Zealand

National Economic Review
National Institute of Economic and Industry Research
No. 68   October 2013

The National Economic Review is published four times each year under the auspices of the Institute’s Academic Board. The Review contains articles on economic and social issues relevant to Australia. While the Institute endeavours to provide reliable forecasts and believes material published in the Review is accurate it will not be liable for any claim by any party acting on such information.

Editor: Kylie Moreland

©  National Institute of Economic and Industry Research

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ISSN 0813-9474

Air-source heat pump water heaters in Australia and New Zealand
Graham Armstrong, Consultant, NIEIR

Abstract
This paper is based on a study prepared and presented by Graham Armstrong to the Air Source Heat Pump Water Heater Asia (ASHPasia) Forum in Shanghai, China on 17 November 2012. This study draws on two main information and data sources: the National Institute of Economic and Industry Research and Saturn Corporate Resources database for projects undertaken for a range of Australian electricity and gas distributors (low voltage wires and metering responsibilities) and retailers (customer billing, energy end-use advice and liabilities under government end-use programs); and a study for the Australian and New Zealand Governments’ E3 Equipment Energy Efficiency joint initiative entitled ‘Product Profile: Heat Pump Water Heaters, Air-source Heat Pump Water Heaters in Australia and New Zealand’ (June 2012; E3 report, available at www.energyrating.gov.au). An outline of E3 programs is provided in the Appendix.

Introduction
Although similar in many ways (e.g. having mild climates very suitable for air-source heat pumps), Australia and New Zealand have quite different energy supply and demand characteristics. Australian electricity generation is greenhouse gas intensive (GHGI), averaging approximately 1 t CO2e/MWh, and is predominantly based on coal.1 Australia has substantial gas production (approximately 50 per cent exported as LNG) and reserves (i.e. conventional, mainly offshore and onshore; coal seam methane; and shale (no production as yet)). Renewables account for approximately 10 per cent of electricity generation. Water heating is increasingly based on gas (48 per cent), with 45 per cent electricity (declining), and growing contributions from a low base (5 per cent) of solar hot water (SHW) and air-source heat pump hot water (HPHW) systems. Regional variations are significant. There is a national policy to phase out electric resistance water heating because, on average, it is GHGI. A carbon tax was implemented in July 2012 at A$23/t CO2e, which will be replaced by an emissions trading system (ETS) in 2015–2016.

New Zealand electricity generation has low greenhouse gas intensity, averaging approximately 0.15 t CO2e/MWh, and is predominantly based on renewables (hydro-electricity, geothermal and wind). New Zealand has limited gas production and reserves. Water heating is dominated by electricity (80 per cent). Natural gas contributes 16 per cent and SHW 1.4 per cent. An ETS is in place.

The above summary of the two national energy systems indicates that the drive for low end-use GHGI water heating is far greater in Australia. However, the wide availability of reasonably priced gas has meant that, without incentives, low GHGI SHW and HPHW systems are not competitive with gas in reticulated gas areas. Liquefied petroleum gas/propane is also widely available but is relatively expensive.

In Figure 1, data on average annual mean temperatures in Australia (annual) indicate favourable conditions for air-source HPHW systems. The efficiency of heat pumps, measured as the coefficient of performance (COP), depends on the temperature differences between the medium to be heated (i.e. water or air) and the desired service (i.e. hot water or warm or cool air) delivery temperature. The smaller the seasonal difference, the higher the COP.

In New Zealand, the low GHGI of electricity does not raise climate change concerns for electric resistance water heating. In both Australia and New Zealand, residential water heating economics can be attractive for SHW and HPHW systems replacing ERHW units when incentives to install SHW and HPHW units are available.

In Australia, replacement of a typical ERHW unit using 4 MWh annually with a heat pump with an average COP of 2.2 provides a saving of 2.4 MWh per year. Under the average current tariff for water heating using the two systems, the annual savings would be approximately A$350 when a HPHW heater replaces an ERHW unit. In New Zealand, the savings would be approximately NZ$600 per year (E3 report (Australian and New Zealand Governments, 2012)). Note, however, that the savings depend on the tariffs ($/MWh) applied to the ERHW units and the heat pump. In Australia, domestic electric water heaters are typically storage heaters using off-peak (22:00 to 07:00 hours) electricity, at approximately A$150/MWh.

In Australia, a heat pump system producing hot water on demand would use electricity at an average price of approximately A$230/MWh, thus reducing the efficiency advantages of a HPHW system. Most HPHW systems installed in Australia are off-peak storage units and seldom require non-off-peak boosting. Smart (interval) meters are being installed in Australia but, as yet, time-of-use tariffs are not mandated.

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The residential water heating market: Current and potential
In 2011, there were approximately 8,602,000 residences in Australia (see Table 1). By comparison, there were approximately 1,730,000 residences in New Zealand.

Water heating proportions by state/territory are presented in Table 2. Gas dominates in Victoria and is also the major energy source for water heating in South Australia and Western Australia. In all states, solar penetration increased markedly over the 2009–2011 period, albeit from a small base. SHW systems (and HPHW) are subsidised under the Federal Renewable Electricity Target (RET) and state initiatives, and were, until 1 July 2012, under the Federal Renewable Energy Bonus Scheme. SHW and HPHW are also encouraged in new homes in Victoria (SHW or plumbed water tank must be installed), New South Wales (under the Building Sustainability Index (BASIX)) and South Australia. SHW and heat pump hot water installation rates peaked in 2009 but then dropped as households preferred to invest in photovoltaic (PV) rather than SHW/HPHW installations. HPHW heating is not reported separately by the Australian Bureau of Statistics (2011).

In terms of the residential water heater market in Australia, there are approximately 800,000 units installed annually: 650,000 are replacement systems and 150,000 are for new residences. In 2011, there were approximately 70,000 residential SHW installations and approximately 15,000 residential HPHW installations.

Average annual energy use for water heating and potential heat pump hot water savings

There are variations in annual energy use for water heating in Australia by region and household structure and characteristics. Electric resistance heating produces the highest level of GHG emissions and running costs are high. At approximately $150/MWh ($42/GJ) off-peak and using 4 MW per year, the annual cost is $600. For gas, consumers pay approximately $20/GJ. Using 25 GJ per year, an average household pays $500. Hence, for electricity and gas, a 60-per cent reduction in use when a HPHW unit replaces an electric resistance (ERHW) or a gas water heater saves the household $360 and $300 per year, respectively.

If a 10-year payback were acceptable to consumers, the maximum capital cost for HPHW units would be approximately $3,600 for electricity (ERHW unit) and $3,000 for gas (GHW) replacement (undiscounted, with no energy price increases).

In November 2012, Chromagen was offering (in Victoria) a Midean HPHW unit of 280-L capacity for $2,300 (total subsidies approximately $2,000; i.e. without the subsidies the cost would be approximately $4,300). At this price, capital payback from savings is approximately 6.4 years in non-gas areas for this replacement, which assumes the ERHW system replacement is relatively new. However, at ERHW or GHW unit end-of-life, the economics for an HPHW unit are much better. In this case, when the ERHW or GHW unit fails (end-of-life), the choice is between an HPHW unit and a new unit of the same type that has failed (i.e. like-for-like replacement). In this situation, the real cost of an HPHW unit for the householder (consumer) is the difference in cost between the HPHW and conventional units. These costs vary but are approximately $1,000 for an HPHW unit versus a new ERHW unit, and $800 for an HPHW unit versus a new GHW unit. At a cost for the HPHW unit of $2,300 (as in the case above), the paybacks would be: 2.8 years for an HPHW unit replacing an ERHW unit and, when the new HPHW unit is displaced (early in life or later (or end) in life (average non-HPHW unit is approximately 12 years)), 2.7 years for an HPHW unit replacing a GHW unit. These paybacks should be attractive for most householders. As indicated above, paybacks will vary. Paybacks will depend on:

  • if end-of-life, price differential between non-HPHW units and HPHW units;
  • gross costs of HPHW units (e.g. $4,000) net of subsidy cost (e.g. $2,000);
  • efficiency of hot water units (HPHW, ERHW and GHW) (for HPHW units COPs will be higher in warmer regions);
  • electricity and gas prices (vary by region);
  • hot water usage per year (lower hot water usage reduces HPHW attractiveness; reverse for higher hot water usage); and
  • life and maintenance costs of units.

Given, as indicated above, the attractive paybacks of HPHW units in Australia, why do HPHW units not have a higher market share (now approximately 2 per cent)? One of the main reasons is that although the cost of an HPHW unit is not much greater than the cost of a conventional unit and paybacks are good, many householders will purchase equipment on a first (capital) cost basis and ignore operating CO2 advantages of HPHW units. Second, there are concerns about the reliability and life of HPHW units. Third, there is very limited promotion of the benefits of HPHW unit technology and, finally, the tendency for like-for-like replacement, particularly at end-of-life situations when replacement with an HPHW unit, might take 1 to 2 weeks (hot water is seen as an essential service and delay in restoration of the hot water service is very inconvenient). These issues need to be addressed by the air-source HPHW industry (manufacturers and retailers) in Australia. For example, at end-of-life, a temporary hot water unit could be immediately supplied and used until a new HPHW unit is installed.

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Residential sector gas and electricity prices
Electricity and gas prices have a significant influence on water heating economics and, thus, the consumer choice of water heating systems. Australian retail electricity prices have risen significantly in real terms over the past 5 years due mainly to increases in distribution (‘poles and wires’) costs. Costs of ‘green’ policies passed on to consumers, and since 1 July 2012 carbon pricing, have also contributed to residential electricity price increases. The estimated breakdown of retail electricity and gas prices (variable energy, not including fixed supply charges) in 2011 in Victoria (typical of other States/Territories) is presented in Table 3.

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Carbon (CO2 equivalent) pricing impacts
Carbon pricing increases the prices of electricity and gas according to the carbon dioxide equivalent (CO2e) price, the CO2e content of fuels used to produce electricity and the CO2e content of end-use combusted gas. In end-use markets energy users will respond to increased energy prices by reducing energy demand, particularly in the longer term when energy using equipment can be changed. Carbon pricing also changes the generation mix required to balance demand and supply towards gas and renewables.

The Australian CO2e price is $23/t from 2012–2013 to 2014–2015 (see Figure 2). Then, as the ETS phase is linked to the European Union (EU) scheme, the estimated price falls to $15/t by 2015–2016, rising linearly to $18/t in 2020 and $22/t in 2025.

For electricity, at $23 to $27/t CO2e, the pass-through (CO2e price impact on wholesale electricity price) is approximately 85 per cent, resulting in an electricity price rise of $21 to $24/MWh plus goods and service tax (GST), or, at current price levels, approximately a 9-per cent increase in retail price. At higher CO2e prices the pass-through percentage decreases, and increases at lower CO2e prices.

CO2e content of end-use gas varies by state. For example, the CO2e content is 0.057t CO2e/GJ in Victoria and 0.71t CO2e/GJ in South Australia. At $23/t CO2e, the price rise in Victoria is $1.3/GJ plus GST, or a 9-per cent rise in retail prices.

The demand response, that is, the price elasticity of demand for electricity, is estimated to be approximately −0.3 in the long run. High real price increases such as the ones that have occurred in Australia over recent years could engender a short-run response close to the long-run elasticity, or even greater.

From an electricity demand viewpoint, the focus of electricity retailers on CO2e pricing impacts will be on CO2e pricing increasing electricity prices and reducing demand compared with no carbon pricing, and on gas prices rising. Accordingly, gas versus electricity competition may not be significantly affected.

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If the current Federal Coalition removes the carbon tax, electricity and gas prices could still rise as a result of Coalition climate change policies. The impact, however, is indeterminate at this time.

National Institute of Economic and Industry Research projections of residential electricity prices are presented in Table 4, together with a breakdown of price components in Victoria. These prices include fixed supply charges. Off-peak (22:00–07:00 hours) rates, mainly applying to water heating, are $100 to $120/MWh below peak rates (tariffs). Each retailer offers a range of tariffs (available on their websites). The above tariffs are the average of the most common peak tariffs. Tariffs may fall due to carbon price changes and as ‘green’ policies, and responses to them, change.

Gas prices have, where gas is available, made the fuel very competitive for water heating. In Victoria, where over 90 per cent of residences have access to natural gas, 66 per cent of residences used natural gas for water heating in 2011.

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As indicated in Tables 4 and 5, gas prices are low compared with electricity prices. However, higher efficiency electrical equipment, such as heat pumps (with efficiencies of 200 to 300 per cent), can offset the lower cost of gas (gas efficiencies are 65 to 95 per cent).

Note that electricity and gas prices post-2013 are difficult to predict mainly because of carbon pricing uncertainty.

Performance of heat pump hot water units
Heat pump water heater performance depends on several factors, including: the location and climate where it is installed; the heating efficiency or COP of the system under standard conditions; the heat loss of the storage tank; the quantity of hot water drawn off each day; the quantity, the duration and the time of day of each draw; the time interval between draws; the thermostat and control strategy settings; and whether the heat pump can run at any time or whether it is constrained from running at certain times due to electricity tariff structures, for example, lower off-peak rates. These factors contribute significantly to the competitiveness of HPHW systems with alternative water heating systems.

Most relevant standards for performance are AS/NZS 5125: 2010 Heat Pump Water Heaters (product performance assessment) and AS/NZS 4692.1: 2005 Electric Water Heaters (energy consumption, performance and general requirements).

Independent laboratory testing in 2010 and 2011 of heat pump water heaters of the most common models sold in Australia and New Zealand using AS/NZS 5125 generally gave similar results to the tests undertaken by manufacturers. Testing raised some concerns about heat pump water heaters that had very slow heat up times, particularly in colder temperatures. Key concerns raised as a result of testing include low energy efficiency in cold ambient temperatures in some models and slow reheat times, especially in cold ambient temperatures in certain models. In addition, many models had higher noise levels than expected.

While physical test results were largely consistent, the modelled performance estimates using AS/NZS 4234 were often inconsistent with manufacturer-modelled results. This divergence appears to be a result of: a lack of clarity in some definitions in the standards; inconsistencies between instructions and how the model actually operated; and the small, medium and large load categories in AS/NZS4234, which can result in step changes in calculated displaced energy if a product is only marginally below the requirements of a particular load category.

Testing of heat pump hot water units
The Australian and New Zealand standards that relate to the design, construction and performance of HPHW units are listed in Appendix 1 of the E3 report (Australian and New Zealand Governments, 2012).  The greenhouse gas performance of HPHW units in Australia depends on energy used and energy GHGI. These factors vary by region and over time. For example, in Victoria, with a cooler climate compared to other regions of Australia, there is high electricity GHGI and gas is widely availability and low in cost. For a HPHW system, average electricity use is 1.6 MWh/year, with GHGI of 1.3 t CO2e/MWh, resulting in 2.08 t CO2e/year. In contrast, a new high efficiency GHW system uses 20 GJ/year, with GHGI of 0.06 t CO2e/GJ, resulting in 1.20t CO2e/year. There is a clear advantage to gas unless GHGI reduces significantly and/or HPHW COP increases significantly.

In Queensland, the climate is warmer and there is lower electricity GHGI, and limited availability and higher costs of gas. For a HPHW unit, the average electricity use is 1.2 MWh/year, with GHGI of electricity of 0.90t CO2e/MWh, resulting in 1.08t CO2e/year. A new high efficiency GHW unit uses 18 GJ/year, with GHGI of 0.06t CO2e/GJ, resulting in 1.08t CO2e/year. For an ERHW unit, the average electricity use is 3.5 MWh/year, with a GHGI of electricity of 0.9 t CO2e/MWh, resulting in 3.15t CO2e/year. There is a clear advantage to HPHW compared to ERHW, the dominant hot water source in Queensland. In gas (limited) areas, there is similar greenhouse performance for HPHW and GHW units.

Suppliers of heat pump water heaters in Australia and New Zealand
There are 18 brands and approximately 80 separate models of HPHW systems registered with the Australian Clean Energy Regulator (CER) (see Table 6). (There may be other models that are not CER registered.) The GWA Group and Rheem Australia share approximately 60 per cent of total sales. As is evident from Table 6, China has a significant role in the manufacture and assembly of HPHW units. As noted above, Chromagen is offering Midean HPHW units at prices that are attracting sales, particularly in non-gas areas.

Regulations and policy initiatives applying to heat pumps
Mandatory energy efficiency regulations
Mandatory energy efficiency regulations do not apply to HPHW units in either Australia or New Zealand. In both countries, storage heat tanks, if a component of heat pumps, are exempt from standing tank heat loss provisions if resistance heating provides less than 50 per cent of annual energy supplied.

Building codes
Australian states and territories (except Tasmania and the Northern Territory) have rules that restrict the use of GHGI water heaters in detached houses, semi-detached houses and townhouses. This has virtually eliminated ERHW systems in new homes. In New South Wales, the BASIX energy rating system contributed to an increase in the HPHW share of the New South Wales water heater market. The New Zealand Building Code specifies maximum heat losses for all types of water heaters up to 700-L capacity.

In existing buildings, South Australia and Queensland have regulations restricting the replacement of ERHW systems. In 2010, the national Ministerial Council on Energy agreed to phase out GHGI water heaters for existing homes except Tasmania (mainly a hydro system). When the policy is implemented, water heater replacement in detached houses, semi-detached house and townhouses will be by heat pumps, SHW, gas or wood-fired water heaters.

The Australian Federal Renewable Electricity Target
Under the Australian Federal RET policy, the use of renewable energy for electricity generation and hot water production is provided with incentives delivered through electricity retailers (sellers of electricity to end-users). A target for renewable energy as a percentage of total electricity consumption (with some exemptions) has been set for 2020: now approximately 25 per cent. The retailers are liable for acquisition of renewable energy in proportion to their share of total electricity sales. The RET is divided into two parts:

  1. small renewable energy systems (SRES), which cover small-scale renewables, including PVs, and other small (up to 100 kW) generators and displacement technologies (SHW and heat pump units); and
  2. the large renewable energy target (LRET), which covers large-scale renewables.

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There is no maximum target (cap) for SRES. In contrast, 41,000 GWh by 2020 has been set as an LRET, with the target increasing gradually from 12,500 GWh in 2011. In recent years (2009 to 2012), SRES has been dominated by PV. In 2011, approximately 15,000 heat pumps and 70,000 SHW units were installed under SRES out of a total residential water heater market of approximately 800,000 for new and existing residences. The heat pump installations have declined from approximately 65,000 units in 2009 when state rebates (see Table 7) were very generous for heat pumps, resulting in a virtually zero price for heat pumps.

The SRES is delivered through Small Scale Technology Certificates (STCs) created following SRES regulations. In the regulations the number of STCs is specified for each type of equipment installed. When eligible equipment, such as a heat pump, is installed, STCs can be created and sold to retailers. At a price of $30 to $40 per STC, the price of HPHW systems can be reduced by approximately $900 to $1,200 per unit. Each electricity retailer must purchase and deliver to the SRES regulator (Clean Energy Regulator) STCs in proportion to their share of the end-use electricity market.

Since 2008, households  have preferred to put their ‘solar dollars’ into PV systems, mainly because of greater PV incentives under RET and state/territory feed-in-tariffs, and reductions in state/territorial incentives for heat pumps and SHW.

Rebates and subsidies
Federal rebates
Up to 1 July 2012, the Federal Government provided rebates to replace ERHW systems with SHW or HPHW units. The progress of the rebate over 2009–2012 is shown in Table 7: 250,000 water heater installations were covered by the program.

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New South Wales

From 2007 to 2011, 48,000 rebates were paid for HPHW units under a state program that terminated in June 2011. Rebate levels varied from $300 to $1,200 per unit.

Victoria

Under Victoria’s Energy Efficiency Target, a ‘white certificate’ program, HPHW units are eligible for subsidies to replace ERHW units. In addition, until March 2013, direct subsidies for HPHW and SHW units were available from Sustainability Victoria.

South Australia

Since 2002, low income households have been eligible for incentives to install SHW, HPHW and GHW units in new and existing residences. Incentives will end in June 2013. Approximately 1,200 HPHW units will be installed under the program.

Queensland

Since 2010, rebates up to $1,000 have been offered for SHW or HPHW units (heat pump take-up unknown).

Australian Capital Territory

The Australian Capital Territory (ACT) offers $500 for replacement of heat pump units to replace ERHW units. Heat pump take-up is not known.

New Zealand

Over 2009–2012, rebates of $575 to $1,000 were offered for installation of heat pump water heating units. Take-up data is not available.

Heat pump installations
Apart from the SRES element of the federal RET, incentives to install HPHW units have been significantly reduced since 2009 in Australia. As a result, HPHW installations appear to have dropped from approximately 80,000 in 2009 to fewer than 20,000 in 2011, partly due to reduced incentives and partly due to consumer preference for PV installations.

In New Zealand, installations are very low, perhaps 500 per year because of relatively low electricity prices and low climate change concerns associated with low GHGI electricity.

In the future, heat pump installations will depend on several factors, including HPHW performance (coefficient of performance); electricity and gas prices; subsidy/rebates for heat pump installations; promotion of HPHW units by suppliers to enhance consumer acceptance of the units; and regulation of water heating technologies.

There was a close correlation between the total level of federal and New South Wales rebates and installations up to 2011 (see Figure 3). New South Wales and Queensland installations accounted for the majority of HPHW installations to 2011 due to incentive levels, favourable climatic conditions and the limited availability of natural gas (see Figure 4).

New South Wales and Queensland have 76 per cent of the Australian stock of heat pump water heaters, even though they have 52 per cent of the total number of Australian dwellings. The higher rate of HPHW unit installations in these states is due to a number of factors. First, a lower share of households in these states have access to reticulated natural gas than in Victoria, South Australia and Western Australia, and, as a result, there is less competition from gas in the low greenhouse emissions water heater market. Second, there were favourable financial incentives (especially in New South Wales) over 2008–2010. Third, New South Wales benefitted from the effects of the BASIX requirements for new dwellings. Finally, large populations live in climate zones where HPHW units perform well. Final data for 2011 and 2012 are not yet available, but installations have declined in these years as the availability of rebates has declined, even though SRES has continued.

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In Australia, HPHW sales are forecast to increase, with current policies, from approximately 20,000 per year in 2011 to approximately 40,000 by 2030 (E3 report (Australian and New Zealand Governments, 2012). However, if the phase-out of ERHW system policy is fully implemented, sales of HPHW units could reach approximately 100,000 per year by 2020 for new heat pumps and heat pump replacement use. Sales increase factors besides the planned electric resistance phase-out are consumer acceptance of HPHW units (which could be enhanced by supplier promotion), increases in heat pump efficiency, a decrease in the price of units, an increase in electricity price and the introduction of favourable tariffs for HPHW units.

In New Zealand, approximately 350 HPHW units were sold in 2009 and 400 in 2010, with an expected 500 in 2012 (E3 report). The much lower New Zealand numbers are due to fewer residences (1.7 million versus 8 million in Australia), fewer climate change concerns, less favourable electricity prices, and overall less favourable air-source heat pump operating conditions.

Policy options to improve heat pump water heater performance
A range of studies, performance testing and comparison with global experience indicate that the market penetration of heat pump water heaters in Australia and New Zealand could be significantly improved.

Potential policy initiatives include improved information on heat pump benefits and costs, enhanced unit testing, improved publicity, better appliance performance labelling, Minimum Energy Performance Standards (MEPS), and research and development for units to ensure unit specific suitability for Australian and New Zealand conditions.

The E3 study (Australian and New Zealand Governments, 2012, pp. 36–37) proposes the following strategies for consideration by stakeholders:

  1. Establish a system of mandatory product testing and registration, based on AS/NZS 5125, as well as noise testing to ISO 3741. As heat pump water heater suppliers already conduct physical tests to AS/NZS 5125 and governments already maintain registers of other appliances, the additional costs should be relatively minor in comparison with the potential public benefits.
  2. Introduce MEPS and functional performance requirements, including addressing cold temperature performance and noise issues, with proposed notification of the requirements no later than mid-2013 and requirements to take effect by mid-2014. There are likely to be significant benefits from ensuring that all models are fit-for-purpose and achieve MEPS.
  3. Enable public access to the registered data, with models identified. This will provide potential purchasers, competing suppliers and regulators with an overview of the range of products and performance levels on the market.
  4. Develop energy labelling standards, either as a mandatory requirement or initially for voluntary use by suppliers.
  5. Develop a roadmap of potential future increases in minimum performance criteria and associated measures such as labelling.

From the author’s perspective, what is also needed is promotion of the costs and benefits of HPHW units. In Australia this is almost totally lacking.

Heat pumps in the residential sector for space heating and cooling
Based on heat pump technology, reverse cycle air conditioners (RACs) are increasingly used for space cooling and heating in the Australian residential sector. Space cooling penetration is now applied in the majority of Australian residences (see Table 8) mainly through the use of RACs. In the states/territories (New South Wales, Victoria, Tasmania and South Australia) where there is a significant heating load, RACs are increasingly being used for space heating, particularly in non-gas areas.

Except in Western Australia and the Northern Territory, new air conditioner sales are virtually all reverse air cycle (RAC) units, which can be used for heating and cooling. In hot, dry regions, evaporative air conditioners are very effective and space heating requirements are low.

In gas areas, the high efficiency of RACs (COPs of 3.5 to 4.5) virtually offsets the lower price of natural gas. With gas at A$16/GJ and electricity at $250/MWh, gas space heating costs per year are A$750/year and RAC space heating costs are A$794/year.

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Conclusions of heat pump hot water review in Australia and New Zealand
The following can be concluded after reviewing the use of HPHW in Australia and New Zealand. First, there is significantly more potential for HPHW in Australia compared with New Zealand. Second, in Australia, climate conditions and the policy environment are favourable to HPHW. Third, HPHW incentives, although reducing in Australia, continue to provide attractive payback returns to HPHW units. Fourth, payback returns and greenhouse performance vary regionally: potential for HPHW units is greater in New South Wales, Queensland, South Australia and Western Australia. Finally, greater HPHW market penetration requires monitoring and reporting of HPHW performance combined with enhanced promotion of the reliability and benefits of the technology and addressing the end-of-life, like-for-like issue.

The Australian and New Zealand MEPS initiative is an early (1999) and major element of national energy efficiency improvement (EEI) and climate change policies. MEPS was originally developed under the National Appliance and Equipment Energy Efficiency Program (NAEEP).

Minimum Energy Performance Standards now form part of and are developed under the Equipment Energy Efficiency (E3) Program, a joint Australian and New Zealand initiative. Energy labelling (part of E3) was introduced into both Victoria and New South Wales in the late 1980s, and the first MEPS were introduced in Australia in 1999. They now cover a range of residential, commercial and industrial appliances and equipment. Once introduced, MEPS levels are regularly updated and new energy using appliances and equipment continues to be added. In addition to this, the energy rating algorithms used for appliances are updated from time to time and made more stringent, so the labelling scheme continues to encourage the marketing of high-efficiency appliances.

The MEPS set a regulated minimum energy performance standard for appliances and equipment covered by the program. That is, MEPS prevent (subject to compliance) low energy performance units from entering the Australian market and, therefore, contribute to savings in consumer operating costs and reducing generation requirements. It is illegal to sell products which do not meet the required MEPS levels. Mandatory energy rating labels give an indication of energy performance (higher stars = higher efficiency). Some appliances (refrigerators/freezers, air conditioners and televisions) are subjected to both MEPS and mandatory energy labelling. In general, where both MEPS and energy labelling apply to an appliance, the sales weighted star rating of products sold exceeds the MEPS levels by a significant margin.

In 2007, a total of 5 appliance categories were subjected to mandatory labelling, and 9 appliance categories were subjected to MEPS. By the end of 2010, 7 appliance categories were subjected to mandatory labelling (plus 2 voluntary levels) and 16 appliance categories were subjected to MEPS. In 2009, MEPS were introduced for chiller towers, close controlled (computer room) air conditioners, external power supplies, set top boxes, self-ballasted compact fluorescent lamps and incandescent lamps. Both MEPS and energy labelling have been introduced for televisions.

The implementation of MEPS and energy labelling is coordinated through a joint Commonwealth, state and territory government E3 committee.

Given the long MEPS history and the regular updates and additions, the determination of the additional impact of the MEPS on energy use and greenhouse gas emissions is complex. It is very difficult to estimate how energy performance for each group of appliances would have changed in the absence of MEPS, and this becomes more difficult as the time elapsed since the introduction of a MEPS increases. Due to MEPS in countries to which export appliances to Australia, there may be improvements in performance not related Australian regulatory change.

George Wilkenfeld and Associates (GWA), the MEPS impact consultant to the E3 program, provided the GHGA MEPS national and state impacts to 2025 in a 2009 report. In the report’s analysis, GWA attempted to estimate the beyond business-as-usual (BAU, no MEPS) impact of MEPS. That is, the estimated impacts did consider EEIs, which would have arisen if the MEPS had not been implemented. The estimates also considered the impact beyond BAU of new MEPS initiatives scheduled to be implemented over the 2009, 2010 and 2011 period (the next MEPS triennium).

The resulting GWA estimates do not include adjustments related to estimates of rebound, non-compliance with MEPS and deterioration of appliance and equipment over time. These factors could reduce these estimates. However, the GWA estimates also assume that carbon pricing would be introduced but in 2011.

Estimates by GWA of E3 program savings in the National Electricity Market (annual) over 2000–2022, from a 1999 efficiency base for new appliances and equipment, are presented in Table 9. The estimates are additional in that they assume that without MEPS and labelling new appliances and equipment efficiencies would have been ‘frozen’ (i.e. fixed) at 1999 levels. On this basis and given the extensive range of appliances and equipment the MEPS apply to, the estimated savings are substantial.

Electricity savings in Australia from E3 programs from 2000 to 2009 were estimated by GWA for E3 to be approximately 6,750 GWh and from 2009 to 2022 increasing by approximately 26,500 GWh.

References

Australian Bureau of Statistics (2011), ‘Environmental Issues: Energy Use and Conservation’, Cat. No. 4602, March, Australian Bureau of Statistics, Canberra.

Australian and New Zealand Governments (2012), ‘A study for the Australian and New Zealand Governments’ E3 Equipment Energy Efficiency Joint Initiative: The study entitled Product Profile: Heat Pump Water Heaters, Air-source Heat Pump Water Heaters in Australia and New Zealand, June 2012 (E3 report – available at www.energyrating.gov.au).

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