Trade secret is a cert
Need a cash flow boost? Renewable energy certificates mean you can get thousands of dollars for a few pieces of paper. Paul Skelton tells how.
Are you struggling to compete with other plumbers in your area?
Are they undercutting you, and you can’t figure out how? Are you having difficulty with cash flow in your business as a result?
The solution to all these problems, in some way, is the renewable energy certificate (REC).
RECs are the byproduct of the Howard Government’s renewable energy target (RET) – a policy designed to ensure that at least 33,000GWh of Australia’s electricity comes from renewable sources by 2020. (The RET was reviewed by the Federal Government and reduced in June 2015 from the previously legislated 41,000GWh to 33,000GWh.)
In addition to RECs, state-based energy efficiency schemes (that are completely separate to the RET) also offer environmental certificates that can add value to your business.
Under the various schemes, people can earn the following simply by making energy-efficient changes to their properties:
– RECs under the RET for installing solar systems or solar hot water heating;
– Victorian Energy Efficiency Certificates (VEECs) through the Victorian Energy Efficiency Target (VEET); or,
– Energy Savings Certificates (ESCs) through the NSW Energy Savings Scheme (ESS).
The certificates can later be traded in for a cash rebate, potentially improving a contractor’s cash flow and competiveness in the market.
“High energy users, carbon producers and energy retailers of the country have a liability under the RET, which came into effect in 2001 as part of the Howard Government’s Climate Change Action Plan,” Greenbank Environmental chief executive Fiona O’Hehir says.
“It started as a 2% target but has since increased to 20% by 2020.
“Now if you install say, a solar water-heating system, then you’re not contributing to greenhouse gas emissions, which means you’re entitled to create RECs. RECs are worth money on the environmental market, which works similar to a stock exchange.
“So if you want to know why you’re losing market share, chances are that your competitor is offsetting the cost of a system with RECs.”
What is VEET?
VEET is a Victorian based scheme and is one of the energy efficiency schemes operating across the country to reduce greenhouse gas emissions.
It is also designed to encourage investment, employment and technology development in industries supplying goods and services that reduce consumer use of electricity and gas.
The scheme operates by placing a liability on large energy retailers in Victoria to surrender a specified number of VEECs every year. Each certificate represents one tonne of greenhouse gas abated.
The VEET Act and regulations allow for accredited entities to create VEECs when they help consumers make selected energy efficiency improvements to their home or business.
“Plumbers can now register with the Essential Services Commission – which administers VEET – so that installation of energy efficiency product can attract VEECs,” a Victorian Department of Primary Industries spokesman says.
“When plumbers involve themselves in the scheme, either directly or through a third party like Greenbank, the revenue created through the sale of certificates means they can offer discounts to their customers, thereby making themselves more competitive.”
VEET is a market-based scheme, meaning the value of individual certificates is determined by supply and demand. Electricity retailers are required to purchase or generate VEECs to reach defined targets each year.
Greenbank’s settlements manager and head of energy efficiency Ben Redmond explains that the VEET was established as a residential scheme.
Home owners could change their incandescent globes to CFLs, or electric water heaters to instantaneous gas or solar, both of which would reduce their energy consumption.
“The number of tonnes of greenhouse gases you abated is how many certificates you earned,” Ben says.
“The VEET program was then expanded into the commercial market, and the advent of LED meant that the most common way of earning VEECs was the replacement of halogen lamps with LED lighting.”
What is the ESS?
Just like its Victorian counterpart, the NSW ESS reduces electricity consumption in NSW by creating financial incentives for organisations to invest in energy savings projects.
“Energy savings are achieved by installing, improving or replacing energy savings equipment,” a spokesman says.
“The ESS is governed by NSW legislation. It places a mandatory obligation on ‘liable entities’ (eg: energy retailers) to obtain and surrender ESCs, which represent energy savings.
“The development of the policy framework is the responsibility of the Office of Environment and Heritage and the Department of Trade and Investment, Regional Infrastructure and Services.
“When businesses invest in reducing their energy use, ESCs are created by voluntary scheme participants that have helped to implement those energy savings activities.
“Electricity retailers, which are mandatory scheme participants, then buy the ESCs to meet their own legislated targets, as required by law.
“The price of certificates varies due to supply and demand and can fluctuate considerably depending on market conditions. Historically, ESCs have traded between $14 and $32.
“There is no maximum price for an ESC. However, the penalty price acts as a practical maximum price: if a liable entity does not surrender the required number of certificates in a given year (excluding any shortfall it is allowed to carry forward to the next compliance year), it must pay a penalty.”
The South Australian solution
Most recently, in December 2015, the South Australian Government passed its own legislation that would make similar savings possible.
The Local Government (Building Upgrade Agreements) Amendment Bill 2015 is designed to overcome barriers to environmental upgrades of existing commercial buildings – upgrades that can reduce costs for tenants while improving the carbon footprint and environmental performance of existing buildings.
“This Bill has the potential to create hundreds – if not thousands – of important jobs and free up more than half a billion dollars in potential CBD capital investment,” Climate Change Minister Ian Hunter says.
“It clears the way for building owners to begin revitalising our ageing building stock, which will have the added benefit of advancing our plans for Adelaide to become the world’s first carbon neutral city.
“For commercial property owners, building upgrades can reduce operating costs, increase yields, help attract and retain tenants and improve asset values.
“Benefits to tenants include net reductions in operating costs, improved indoor amenity, staff productivity, and contributions towards corporate social responsibility goals – not to mention greenhouse gas savings of up to 32%.”
The Property Council of Australia’s SA executive director Daniel Gannon says the legislation will lead to a number of benefits, in particular to tradespeople.
“The Building Upgrade Finance mechanism makes economic sense, not only for building owners and occupiers as a means of managing their utility costs, but for the businesses that can provide the clean technologies and solutions (particularly hot water and lighting upgrades) that lift building performance,” he says.
“Financing such upgrades through Building Upgrade Finance may offer a number of benefits compared to other forms of traditional finance – the potential is limitless and could be applied to offices, shopping centres, hotels, healthcare facilities, university buildings, factories, and warehouses.”
How you can benefit
“These state schemes are really set up to make energy efficiency more affordable,” Ben says.
“The idea is that contractors can design and install an energy efficient system for $X, knowing that they’ll earn a number of certificates from the replacement of the existing system, which can then offset the cost.
“This means they can give a ‘discount’ to the property owner.
“Once the system is installed, the contractor can come to Greenbank, which will create the certificates, and we will buy them from the contractor. Of course, the home owner could do this themselves, but that is rare, with the installer/contractor acting on the property owner’s behalf.”
Greenbank is Australia’s largest environmental certificate creator and trader. It essentially acts as an ‘aggregator’, purchasing RECs, VEECs and ESCs from contractors and property owners then selling them in large bundles to retailers to offset their liability.
“Greenbank essentially provides installers with practically instant cash flow. Once we receive the signed forms and mandatory supporting documentation, we pay within 24 hours when our customers use our online REC portal and phone app.
“Once we have purchased the certificates, we adopt all compliance and pricing risk. That’s why a service like ours is very appealing to installers. They don’t have any compliance risk of the regulator saying something was filled out wrong and contractors have to go back to the site.”
Ben says about 95% of solar installers already claim RECs, but a large number of hot water and lighting installations haven’t been subject to a claim.
“A lot of credits are just going to waste.
“Installers need to understand that they can use these certificates as a sales tool. You can reduce the cost to customers without losing any income. Of course, because the certificates trade on the market, the price fluctuates, so that’s a risk you’ll need to manage.
“However, you have 12 months after a solar system has been commissioned to create and sell the certificates, so you can study price fluctuations the same way you would the stock market and sell when the price is high.”
Ben notes that installers can generate their own certificates, but it’s a lot of work – to the point where the value of the certificates is negated.
“It’s so much easier to come to a company like ours.”
The process is simple, he says. Contractors can simply set up an account with Greenbank online. Claiming RECs after opening an account can also be done online or via an app.
Given the increasing pressures facing tradies, remaining competitive and maintaining a steady cash flow is imperative for survival. As you are already installing energy saving systems, why not use all the tools at your disposal?
As Fiona says: “Where else can you get thousands of dollars for six pieces of paper?”