Zero Energy Bill

Nationwide House Energy Rating Scheme

July 2018

Article by Tony Isaacs (B. Arch.)

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The compelling case for regulating zero energy bill new housing and what is standing in the way

The case for zero energy bill minimum standards

I’ve been on the inside of the regulatory evaluation of building energy efficiency since my first job after University working with Alan Pears on the Victorian insulation regulations in the late ‘80s. I like to be measured, balanced, hear all points of view and take considered steps forward. Careful, evidence-based policy is part of my DNA now. So how could a crusty old energy policy hack like me to conclude that a minimum standard of zero bills housing is the best policy setting? I can sum it all up in one calculation:

Let’s assume the extra cost of a zero-energy bill house is $30,000, including any extra cost for high efficiency electric appliances and on-site renewable energy. I have checked with builders of leading edge houses and the anecdotal evidence is that it can be as little as half this amount, but for the sake of this discussion, I’ll assume it is $30,000 . How would this affect new home buyers? It would increase annual mortgage repayments by up to $1,500 per year.

An average energy bill in Victoria is around $3,000 per year. If you have a zero-energy bill house you are $1,500 a year better off. From day 1. No waiting for payback periods. A new home buyer’s cash flow is improved by around $30 a week. Of course, some householders might even choose to go beyond no bills by installing a bigger PV system.

The benefits don’t stop there

Just like the late-night TV adds: but wait, there’s more!

  • You can’t have a zero bills house without battery storage. And, by 2050, 58% of or housing stock will have been built since 2019. Properly designed grid interactive batteries in houses would provide battery back up to the electricity system that would make SA’s Elon Musk energy storage look like a AAA battery. Now that is real energy security. Your home would never face blackouts.
  • With an extra $30,000 you could build houses that never have to suffer heat stress in hot weather. Even after a week of 40-degree plus days, there would be no heat stress because every house could have a small highly efficient air-conditioner. The house would be highly energy efficient and the loads so small and easily offset by the PV/battery output that no pensioner would have to think twice about turning on the air conditioning for fear of unaffordable energy bills. Fewer hospital admissions, deaths, and medical treatment would lower the cost of the health system.
  • The cost of household energy bills would simply cease to be an election issue. So, there is a benefit for the politicians too. Moreover, with each household having another $30 a week to spend it would provide a substantial economic stimulus. It would also make a huge contribution to the development of sustainable industries that make and install the products needed to build zero bills houses. This would also enable economies of scale that lower costs over time and make the cash flow even better for households. With millions of zero bill houses by 2050 this stimulus would improve economic growth. This would improve the budget bottom line, so it would also help to reduce our national debt.
  • Greenhouse Gas emissions from housing would be substantially reduced. A zero-bill housing minimum standard would make it easier to meet our Paris agreement commitments.
  • There would also be a significant reduction in energy supply infrastructure costs: we would not need to supply gas to new housing developments, and it would reduce the capacity of transformers and other electricity supply infrastructure. With no gas connected to new housing developments the reduced demand for gas would reduce upward pressure on gas prices. Gas is used to provide peak electricity generation, so this would reduce electricity prices too. In existing areas, the lower peak demand of zero bill houses would avoid the need to increase electricity infrastructure capacity as housing density increases.

To show this is not just crazy Tony banging on here, the IEA has released a report on the multiple benefits of energy efficiency. Check it out at https://webstore.iea.org/capturing-the-multiple-benefits-of-energy-efficiency. I’ve just touched on the benefits. The leading edge is already doing this. Just see https://www.liveatthecape.com.au/ for an example of a new housing development where some houses actually have a negative energy bill. That’s right, they are paid to connect to the grid!

The efficiency of the house itself is still critical; we still need higher standards

You can have a zero-bill house without the building fabric being highly efficient if you put in enough PV and batteries. So, does that mean we don’t need to worry about the energy efficiency of the building fabric? Not at all. The more efficient the building fabric, the lower the impact on the electricity system. An inefficient house will draw down much more energy, particularly at peak times, and have to put way more energy into the system when the energy is not needed as much to have zero bills.

Highly energy efficient houses can balance their energy demand to better match the outputs of PV and batteries to minimise the impact on the electricity system. In winter, PV energy collection can be a third of what it is in summer which means minimising heating requirements through more efficient building fabric (and heating appliances) will be critical.

Why would we regulate zero bills homes?

Many policymakers think regulation is a costly and blunt policy tool. However, well-designed policy can work well. A zero bills home regulation would create a ‘level playing field’ so the smartest designers and builders could deliver more value. The supply chain could gear up to deliver the products needed for zero bill housing, confident that they would have a market, and capture economies of scale.

The barriers

If this is so sensible, what is standing in the way?

  • The Banks!
    Most new home buyers are borrowing to their upper limit. The extra $30,000 wouldn’t be approved under current credit limit banking policies. However, this extra money would be the most secure additional credit that banks could ever provide because it will increase householder cash flow by $1,500 a year. Bear in mind that the banks have never been presented with this proposition and are in desperate need to be seen to work in the interests of the community. It is not an insurmountable problem.
  • The electricity industry!
    Sell less energy, make less money. The electricity industry would also need to invest in technology to make the grid interactive batteries work too. However, this is the inevitable consequence of the Paris agreement 2050 targets. The energy industry will need to restructure in order to deal with this whether we regulate for zero bill houses or not. In California, the electricity system is set up so that profitability is tied to meeting energy efficiency targets, not sales volume. Ideally, we’d need a similar system here. Again, not an insurmountable problem.
  • The building industry!
    The new home market is one of the most price-sensitive markets in our economy. Understandably, the building industry strongly resists anything that puts up the price of a house. And I’m asking for them to put up the price of housing up by up to $30,000! However, solve the problem with the Banks, and no loans would be knocked back because of the increased price. I feel it would be far easier to sell houses with no energy bills to builders (and their clients), than it would be to sell another building fabric star that neither they nor their clients can see with marginal incremental benefits. I think that this problem has a solution.
  • The government!
    I’m not talking about left or right issues here. I think that energy efficiency is one of the most conservative of policies. A lot of conservative European governments agree with me. Instead, I’m talking about the way that governments assess energy efficient policy. A few years ago Alan Pears and I wrote a paper about how an overly cautious approach to energy efficiency policy evaluation can cripple progress (see http://www.asbec.asn.au/news-items/evaluating-costs-benefits-energy-efficiency-programs/).

It’s about technical issues regarding how much you value savings that accrue in future compared to today and how you value benefits other than the energy savings to households like impacts on peak loads, health and economic growth. It’s too detailed to go into here. Suffice to say, if you take a myopic approach to policy evaluation, you could easily reject a new housing standard that makes all new home buyers better off to the tune of $30 a week. The solution to this issue simply needs a few economists to take a big picture view.

Looking at the names in my ‘hit list’ above, I admit you could think I was an anti-establishment conspiracy theorist. Nothing could be further from the truth. I think that a zero-energy bill new housing standard is, all things considered, the most sensible way forward because the step change captures all the benefits at once: an extra $30 a week into the hands of every new home buyer, and benefits for health, the economy and the energy grid. Another star for building fabric and an increase in appliance MEPS don’t have the transformative effect that a step change like zero-bill housing delivers. It will take some time to get all the policy settings right, but as I’ve said, none of the problems are insurmountable.

There is good news too. The government is looking at a new Trajectory for the building regulations that expands their scope to look at fixed appliances and the contribution of renewables They are looking at what zero energy or zero greenhouse gas emissions housing would mean. ASBEC and Climate Works Bottom Line report (see http://www.asbec.asn.au/research-items/bottom-line-household-impacts-building-code/ ) is also looking at how we could get to zero carbon and has shown some encouraging conclusions too. They found that even using some pretty cautious policy evaluation, zero carbon has more benefits than costs. The missing piece that makes all the difference is, in my opinion, in the first paragraph of this article. Zero energy bill houses make households $1,500 a year better off.

Postscript: Existing houses

What about existing houses? There is no doubt that it is more expensive to eliminate energy bills in existing houses. It costs more to upgrade the building fabric and appliances in existing houses than to do it right during construction. So, you’d need more PV and bigger batteries too. Further, existing houses won’t all have access to low-cost mortgage finance that makes the cash flow look so good.

This doesn’t mean there is nothing to do for existing houses. Access to low-cost finance for energy upgrades; like they do in the US (https://www.energy.gov/savings/energy-efficient-mortgages) and Europe (http://energyefficientmortgages.eu/) , is part of the solution. While it may be too hard with current technology to eliminate energy bills for new housing my guesstimate is that you could probably cut bills by two thirds. I would have thought that any government who promised to eliminate energy bills for new housing and cut bills in existing houses by two thirds would be pretty popular. Especially if it means voters have more money in their hands than any tax cut could deliver.