Chapter 3 Consumer barriers and supports
3.1As outlined in the previous chapter, electrification presents a significant opportunity to improve residential energy efficiency. Yet the committee also received evidence that Australians can face significant barriers to accessing the benefits of electrification. As considered in this chapter, such barriers can include or relate to:
the high upfront cost of energy efficient electric technologies;
the tenure type of Australia’s residential dwellings; and
the awareness of consumers on the options to electrify.
3.2Further, this chapter considers inquiry participants’ evidence on the role of supports to assist Australians to overcome barriers to electrification.
The high upfront costs of electrification
3.3The upfront cost of installing energy efficient electric appliances is a major barrier to electrification for many households. Electric appliances often cost more than gas appliances and can be unaffordable for many consumers even if they believe that electric appliances can reduce their energy costs over time.
3.4Inquiry participants provided a range of evidence on the upfront costs for households to electrify. For instance, the committee heard that the retail cost of a 170-litre electric heat pump for residential water heating ranged from $1888 to $5340, while an equivalent gas appliance retailed for $1245 to $1950.
3.5For households seeking to install multiple electric appliances, the costs can be significantly higher. Indeed, the committee heard that:
replacing gas, water, room heating and cooking appliances with electric alternatives can cost a household upwards of $7800 ‘depending on the chosen brand, model, and installation costs’; and
electrifying space heating, water heating and cooking appliances of an average Victorian household can cost $11 300 before government rebates.
3.6At the upper end of the cost estimates, Dr Saul Griffith, Co-Founder and Chief Scientist at Rewiring Australia, told the committee that electrifying a household can cost as much as $20 000 to $60 000, depending on the extent of the upgrades. As DrGriffith explained:
If your water heater goes today, you have a choice of buying a $1,000 gas heater tomorrow or a $2½ thousand electric heat pump. If you have to buy a car tomorrow, you have a choice between a $40,000 petrol car and a $55,000 electric car. What I'm talking about is what they call the 'green premium', so it's the slightly more expensive piece. You need an extra thousand for the water heater and an extra $10,000 for each of the vehicles. You need about $10,000 for a solar system and another $10,000 for a battery.[8]
3.7On top of the costs of upgrading to electric appliances, consumers can face significant costs to upgrade the capacity of their home’s electrical system. The committee heard that ‘[u]pgrading wiring and switchboards can add approximately $5,000 to household electrification and may not be viable for some older houses’. ProfessorTyChristopher, Director of the Energy Futures Network at the University of Wollongong, explained that:
It is common for consumers seeking to electrify their homes to be faced with the need to upgrade their home switchboards, home internal wiring and even their ‘consumers mains’, which are the wires connecting the home to the electricity network in the street. The costs associated with internal home wiring upgrades can often cause consumers to adopt ‘like for like’ appliance replacement options, thereby impeding the home electrician journey.
3.8Moreover, Australians seeking to install consumer energy resources (CERs)—such as rooftop solar or battery energy storage systems (BESS)—face significant additional costs. Master Electricians Australia, for instance, submitted that the cost to install a household BESS ranged from ‘approximately $1000 to $1300 per KW’. With the average home battery being 8–10 KW, an Australia household can expect to face an approximate BESS cost of $8000 to $13 000.
Support for overcoming the high upfront costs of electrification
3.9The committee heard that access to government programs and grants are crucial to enabling household electrification. In particular, inquiry participants told the committee that while electrification technologies can help to significantly reduce future household energy costs, more supports are needed to help households overcome the upfront costs associated with electrifying, particularly for those on lower-incomes. For example, the Australian Energy Council submitted that:
The challenge is less about cost efficiency over time and more about how to support households with the initial upfront cost hurdle, especially for low-income earners. Government subsidies and rebates are one way to cushion these costs and such policies have successfully incentivised early uptake of electric appliances in overseas jurisdictions.
3.10Many other inquiry participants considered that well designed financial supports are needed to help reduce the upfront costs of electrification for consumers and increase the uptake of electric appliances by Australian households.
3.11Other submitters advocated for more financial incentives to promote residential electrification, often in the form of grants, subsidies or tax deductions. For example, the Jewish Climate Network recommended financing models to cover the up-front costs of electrification upgrades noting these are low effort for consumers, reducing barriers to entry. Similarly, Johns Lyng Energy Services, advocated for ‘more government incentives and programs that make renewable energy systems more accessible and affordable for everyone’. It suggested models such as rebates for reducing fossil fuel energy supply or grants to support the investment in energy-efficient technologies.
3.12Additionally, the committee heard that options to decrease consumer financing costs may help to make residential electrification technologies more cost competitive while they gain commercial scale.
Existing support programs
3.13The committee heard that there are a range of existing Commonwealth, state and territory government-funded incentives and other initiatives aimed at reducing the barriers to residential electrification in Australia. Inquiry participants expressed a range of views on the design of those supports. Subsidisation of any product by the Government risks driving market distortion and renewable energy is no exception.
3.14For example, the committee heard that the Small-scale Renewable Energy Scheme (SRES) has been key to accelerating the uptake of rooftop solar. The Clean Energy Council (CEC), which has accreditation functions under the SRES, submitted that rooftop solar in Australia ‘has been built off the back of a very successful [SRES] program’. The CEC said that the SRES, in addition to helping reduce the upfront cost of rooftop solar, had also helped build a ‘very strong’ industry compliance program.
3.15However, some inquiry participants argued in favour of extending the scope of the SRES to incorporate battery energy storage systems (BESS). For instance, Evergen submitted that the current gap in support for households to install BESS should be addressed by including BESS in the SRES.
3.16Other inquiry participants raised concerns regarding the design of existing electrification support initiatives.
3.17For instance, the committee heard that the interaction between various financial incentive schemes has resulted in an over-subsidisation of certain appliances which, in turn, has led to inappropriate or poor-quality appliances being installed in Australian households. As Mr Chris Taylor, Managing Director of Rheem Australia (Rheem) outlined in evidence to the committee:
The key issue that we have at the moment is oversubsidising at a federal and a state level and in some cases then some additional subsidies such as a third one in Victoria, for example, which would be Solar Victoria. What you have is a scenario where you have multiple schemes overlayering each other to the point where we get products down to virtually free for imported products versus products that are manufactured in Australia that don't get down to free. Free might sound like a good thing but actually when you're up against free it's very difficult to sell the value of the additional quality, longevity and functionality.
3.18Further, Rheem contended that when an appliance is effectively made free, consumers have less of a stake in the appliance. In turn, consumers can be ‘more susceptible to the sorts of high-pressure sales tactics, misleading advertising or activity by unscrupulous providers that we're seeing in the market that a number of the state regulators are very busy trying to stamp out’.[29]
3.19To remedy these issues, Rheem argued that setting a minimum out-of-pocket cost for consumers would ‘help to protect consumers’ and ensure a positive consumer experience.At the same time, Rheem emphasised its support for schemes that make electrification upgrades accessible for Australians.
Low, zero interest and income contingent loan schemes
3.20Further to the supports discussed above, several inquiry participants considered that residential electrification loan schemes could help to reduce the upfront costs for households to electrify while minimising costs to government.
3.21For instance, the Climate Council of Australia explained that low and zero-interest loans would be beneficial for both consumers and governments:
Government incentives can play an essential role in removing this cost barrier. Low and zero-interest loan schemes can be beneficial because they address households' upfront purchase and installation costs and are more affordable for governments to provide at scale than direct grants.
3.22Inquiry participants also provided a range of evidence on the design features of such loan schemes. Newtown Climate, for instance, submitted that a loan scheme should have interest rates fixed at zero or below the rate of the Consumer Price Index, and that loan amounts should be uncapped or ‘set high enough to allow complete electrification of a family home with the most energy efficient technology’.
3.23However, the committee also heard that loans with low or no interest rates may not be ‘attractive or accessible to all homes, particularly those on low, fixed or precarious incomes’.
3.24Like several other inquiry participants, Rewiring Australia considered that an income contingent loan (ICL) scheme, similar to Australia’s HECS-HELP student loan scheme, could help address the equity issue in the transition to electrification. Rewiring Australia summarised how an ICL scheme for residential electrification would work:
Under this policy option, government-supported household electrification loans would be repaid by income tax withholding with repayments required only after a certain income threshold has been met, with the loans secured against the upgraded property. By requiring the upgraded home as security, the loan can be repaid out of settlement funds on the transfer of title, minimising unpaid debts while ensuring access for all homeowners in Australia.
3.25In giving evidence to the committee, Dr Griffith noted that that the ‘lowest cost’ implementation of a financing program for residential electrification can be achieved by leveraging the cheap administrative costs of Australia’s tax system and using the low marginal borrowing rate available to the Australian Government.
Barriers for low-income households
3.26While people on low incomes would likely benefit the most from reduced household energy costs, the high upfront costs of electric appliances mean that they face some of the greatest barriers to accessing the benefits of electrification.
3.27Australians on low incomes face several existing and entrenched energy-related disadvantages, including being more likely to live in poor energy performing homes, having less access to rooftop solar, and spending an average of four times more of their income on energy bills. The Australian Conservation Foundation (ACF) noted that:
Household energy costs have been estimated to account for 6.4% of income for Australia’s poorest households, compared with just 1.5% for high-income households (ACOSS 2018). This is attributed to not just their lower incomes, but due to living in less expensive but poorer quality homes and owning or using inefficient appliances.
3.28Recent cost of living pressures, including increasing costs for gas, petrol and electricity disproportionately affect low-income households and further exacerbate the disadvantages they face in accessing residential electrification. For example, the ACF submitted that:
While up-front costs are a barrier, electrification clearly reduces long term energy costs. However, cost of living challenges for households, especially vulnerable households, acts as a barrier to investment, as household prioritise food, rent and just keeping on top of utilities for example. Without assistance for the upfront costs, this is an opportunity lost and an inequity.
3.29Concerningly, the unaffordability of electric appliances for low-income households risks worsening social inequality in Australia. As Dr Griffith outlined:
You have a choice of buying a cheap machine upfront, but then you have to feed it expensive petrol, diesel or gas into the future, or you can buy a slightly more expensive machine upfront and feed it very, very cheap electricity into the future, with zero emissions.
That financing problem is not really a problem for the upper echelons of Australia's economic strata. … the wealthier people I've met in Australia who have already gone through this household electrification report that their energy bills are practically zero. The richest members of our society now have a way to lower their cost of living even further. But the poorest members of our society struggle to get access to the finance that would enable them to upgrade their lives to a zero-emission, all-electric life.
3.30Moreover, inquiry participants warned that low-income households that cannot afford to stop using fossil fuels will be disproportionately impacted by energy price inflation. For instance, Figure 3.1 submitted by Rewiring Australia highlights the increasing trajectory of Australian household spending on gas and petrol, alongside the financed cost of solar and battery technologies.
Figure 3.1Trajectory of household spending on energy
Source: Rewiring Australia, Submission 132, p. 17.
3.31Further still, the committee heard that low-income households who remain on the gas network will pay an increased proportion of gas infrastructure costs. As such, Mr Luke Menzel, Chief Executive Officer, Energy Efficiency Council, suggested that careful consideration needs to be given to managing the transition to residential electrification:
Thinking at the systems level also means thinking carefully about the future of the gas grid and how we successfully phase that down. It also means thinking about those vulnerable Australians that don't necessarily have the capital or the wherewithal to pursue an electrification agenda and could end up being left behind and bearing the costs of a gas grid as more well-to-do Australians electrify. So this is a good idea, but the transition needs careful management if we're to derive the full benefits from the electrification journey.
Supports are needed for low-income households
3.32Inquiry participants often highlighted the need for Australia’s residential electrification supports to be designed in a way that specifically assist low-income households to overcome barriers to electrification.
3.33Indeed, the committee heard that existing financial supports for electrification can fail to reach low-income households. For instance, Rewiring Australia told the committee that while it strongly supported disbursements from the Rewiring the Nation Fund to support small scale upgrades for households, it remained ‘cautious’ as it considered the initiative to be a ‘concessional version of commercial lending’ which would ‘not reach low-income households, disadvantaged communities, or social housing’. Further, Rewiring Australia considered that while the Household Energy Upgrades Fund (HEUF), the National Energy Transformation Partnership and the Clean Energy Finance Corporation will be an ’excellent partner’ in financing electrification supports, the supports are ‘inherently not scalable to reach in particular the priority beneficiaries who should be the lower income households who can't go to market’.
3.34Additionally, the UTS Institute for Sustainable Futures expressed the view that:
… without a regulatory nudge, households that seek a small amount of finance for the purposes of sustainability retrofitting their home will be driven into financial products with higher interest rates and shorter terms to make repayments. For low-income households, this risks being exposed to what we're calling a net zero poverty premium.
Barriers to electrification for renters
3.35Alongside the high upfront costs of electrification, tenure type is one of the most significant barriers to residential electrification in Australia. In particular, the committee received evidence that, despite many renters living in properties with low energy efficiency, renters have limited agency to upgrade their homes and landlords are not incentivised to electrify their properties.
3.36Currently, around a third of Australian households rent privately and people on low incomes are also more likely to be renters.
3.37A disproportionate number of Australian renters live in properties with low energy efficiency ratings, which exacerbates the housing inequality and energy affordability stress they can experience. For instance, the Australian Council of Social Service submitted:
People who are financially disadvantaged, especially those who rent, are more likely to live in poor energy performing homes, less likely to have rooftop solar, and spend on average four times more of their income on energy bills, after they have deprived themselves of energy and other essential services.
3.38Moreover, people who live in social housing are even more likely to live in properties with low energy efficiency compared with private renters.
3.39The committee heard that current rental laws make it difficult for renters to make electrification upgrades as renters have minimal or no ability to make changes to their homes. Further, the committee heard that while many renters reported experiencing poor housing conditions, they were unwilling to ‘raise improvements with their landlord out of fear of rent increases or eviction’.
3.40Some inquiry participants also viewed current policy settings as inadequate to encourage landlords to make energy efficiency upgrades to their rental properties. Indeed, several submitters considered that there is ‘split incentive’ between renters and landlords, which adds to the barriers to residential electrification in Australia. As SA Power Networks outlined:
‘Split incentives’ are one of the biggest barriers to Australian energy consumers participating in, and receiving the benefits of, the energy transition and electrification. These occur when those responsible for paying for energy bills (the tenant) are not the same entity as those making capital investment decisions (the landlord). Even though upgrades would in many cases provide a significant net benefit for the tenant, the split incentives act as a barrier to unlocking this potential for a significant number of residents and businesses.
3.41While landlords determine the type of appliances to install and pay the upfront capital costs, renters pay the operating costs for those appliances inclusive of any potential cost. The committee was advised that this dynamic can create a ‘perverse incentive’ for landlords to under-invest in the energy efficiency of their properties. For instance, while about 30 per cent of all residential properties have rooftop solar installed, less than 5 per cent of rental properties have solar. Rewiring Australia explained:
When an owner-occupier installs solar, they benefit from lower bills and might typically recover the whole investment within 5 years. The incentives to make these kinds of cost-saving investments don’t necessarily translate for renters because running costs are not borne by the landlord. Further, savings are almost entirely hidden from renters until they occupy a house, which prevents landlords from recouping the benefits of cheaper energy through higher rents.
3.42The City of Greater Bendigo submitted that while there are mechanisms to pass on the costs of electrification upgrades to tenants, such as energy update agreements, these mechanisms ‘can be complicated to administer and have experienced low take up’.
Supports to increase renters’ access to the benefits of electrification
3.43Many inquiry participants considered that additional and better targeted supports are needed to overcome the barriers to the electrification for renters.
3.44For instance, the ACF submitted that the barriers facing renters are ‘unlikely to change without significant supportive policy, changes to tax law, or mandatory energy efficiency standards that include electrification outcomes’. Without such changes, the ACF cautioned that renters would ‘likely to miss out on the more impactful opportunities for electrification, emission reduction and improved affordability and health’.
3.45Inquiry participants made a range of recommendations aimed at increasing the electrification of Australia’s rental stock. For example, Mrs Davina Rooney, Chief Executive Officer, Green Building Council of Australia, told the committee that introducing a national policy to require all new homes to be electric is one of the main ways in which electrification outcomes can be improved for renters. Mrs Rooney argued that the benefits of such a policy are twofold:
(i)the issue of access to electrified properties is resolved for future renters; and
(ii)the electrification requirement would become normalised such that tradespeople are aware of appliance standards and well positioned to recommend appropriate replacement appliances.
3.46For current rental properties, several inquiry participants called for additional financial supports to improve renters’ access to the benefits of electrification. For instance, SA Power Networks proposed that a targeted scheme to help rental households could ‘provide eligible households with access to energy efficiency upgrades, a solar system or battery at their home in exchange for a fixed fee’. This fee ‘could be financed through the financial benefit realised through such upgrades and be added to a property charge paid for by the tenant (such as the distribution component of the electricity bill)’.
3.47SA Power Networks noted that pilot programs for fixed fee installations have been successfully trialled in the United States and demonstrated a way to ‘effectively and equitably assigns the costs and benefits of these installations’.
3.48While preferencing an ICL scheme, Rewiring Australia submitted that an ‘interim alternate’ option could include ‘on-bill financing’ through which loans are made for the purchase of electric appliances and the loans repaid via electricity bills. Rewiring Australia noted that on-bill financing:
… could be applied to any housing ownership category. However, it is a particularly attractive option for renters to fund solar installations and possibly home batteries. These investments will immediately bring down the cost of energy bills that are paid for by tenants. Ideally repayment terms would utilise concessional finance and be set up for the life of the asset (which may cover multiple tenants) which would minimise the capital repayments and allow for some immediate energy bills savings to be realised by tenants.
3.49Rewiring Australia proposed that on-bill financing could work particularly well for solar panels and gave an example of financing a 6 KW rooftop solar system with an upfront cost of $7000. Financed over 10 years at 9 per cent interest, Rewiring Australia submitted that repayments for the solar system would be $100 per month while the expected energy bill savings would be $160per month.
3.50However, Rewiring Australia noted that on-bill financing would probably not be suitable for renters seeking to upgrade to electric household appliances, as this is the responsibility of landlords. Further, Rewiring Australia indicated that on-bill financing should be ‘deployed carefully’, taking into account energy bills being an ‘existing point of financial distress for many households’ and that ‘tenants must have transparency around repayment obligations’.
Further options to help improve renters’ access to residential electrification
3.51Submissions from inquiry participants raised several other options to help improve renters’ access to the benefits of residential electrification in existing properties. Examples of those options include:
developing a strategy that supports renters’ access to the benefits of electrification and encourage rental providers to electrify;
including minimum standards for energy efficiency in rental standards;
creating tax incentives, including instant asset write offs, to encourage landlords to make certain electrification upgrades to rental properties;
developing measures to increase the transparency of energy costs for renters;
ensuring electrification ‘makes better use of daytime generation of solar through demand response, especially for households that cannot install solar, such as renters’; and
longer-term lease arrangements under which landlords and tenants could come to agreement on paying for electrification upgrades.
3.52Some of these options are explored further in Chapter 4, in the context of building design and standards.
Supports for people living in social housing
3.53Several inquiry participants provided evidence on the merits of supports to ensure social housing tenants have equitable access to the benefits of electrification.
3.54For instance, the Energy Efficiency Council (EEC) argued that ‘[i]nvesting in the efficient electrification of community, social and public housing – including Indigenous housing – is a clear responsibility for governments’. In doing so, the EEC noted ‘[s]ocial housing tenants are unable to undertake electrification activities themselves and must not be left behind by the residential electrification wave’.
3.55Further, the committee heard that there are considerable economic benefits for social housing tenants. Rewiring Australia, for instance, submitted that the ‘electrification of public and community housing would deliver meaningful financial benefits to people living on low-income, as they spend disproportionately and significantly more of their income on electricity bills’. Further, Rewiring Australia called for increased government investment in the electrification of social housing:
Direct Government investment is needed to drive electrification of social housing. Through investing in public and community housing stock, electrification upgrades would drive demand and expansion of the supply chain, creating jobs and demand for skilled tradespeople, in addition to delivering economic and health benefits.
Rewiring Australia welcomed the government’s investment of $300 million in the 2023-24 Federal budget in partnership with states and territories to electrify social housing. Funding of this scope needs to be continued into future budgets and a target should be set to electrify all social housing by 2030.
3.56Solar Citizens submitted in support of rolling out rooftop solar to social housing properties, supported by household batteries, to ‘bring lower energy costs to low-income households and stability support to the energy grid’. Based on its 2023 report Solar potential of NSW social housing, Solar Citizens submitted that ‘on average social housing residents stood to save $860 in energy costs per year’. Further, Solar Citizens submitted:
For social housing residents in separate houses, annual savings would average $1,092 per year. The government’s outlay for the cost of the panels would be returned in tenant energy bill savings after the first 3.7 years of the solar panels’ expected life-cycle of around 20 years.
3.57Several other submitters also called for increased government funding and initiatives to support the electrification of Australia’s social housing stock.
Coordination of residential electrification supports
3.58Throughout the inquiry, the committee received important evidence on the interoperability and coordination of supports for residential electrification. In particular, the committee heard that:
there is a need for a broad ecosystem of electrification supports; and
there is a need for improved, national coordination of electrification efforts.
The need for a broad ecosystem of electrification supports
3.59Several inquiry participants pointed out the importance of having a multi-faceted, broad ecosystem of incentives to support electrification.
3.60For instance, Ms Alison Scotland, Executive Director of the Australian Sustainable Built Environment Council, spoke to the need for a broad ecosystem of incentives to encourage electrification at a public hearing of the inquiry:
We need the regulations to support it. We need the minimum standards even for rental properties. Note that we've got owner occupied as well as rental, so we need a good mix of different policy levers to encourage that electrification.
3.61Similarly, Dr Griffith argued in favour of a ‘systems approach’ to designing residential electrification supports, in which incentives for each system participant are considered alongside the partnerships needed to support the incentives. Dr Griffith elaborated:
… but you'd need a systems approach. You'd need to think somewhat carefully about the incentives for each of the players. We need a partnership between the household and the distribution grid and the retailer. We need a partnership with the banks. We need a partnership with the government to figure out how to incentivise all four components of that system so that—I would argue—most of the savings go to the household but all of the other players remain incentivised. That's critical.
3.62Similarly, Mr Tennant Reed, Director of Climate Change and Energy at Australian Industry Group (Ai Group), contended that a wholistic to approach is needed to residential electrification in Australia.
There's a lot that can be done, but multiple elements of standards, of the financial incentives that customers see and that networks and retailers see, and education—all these things need to come together to realise all that potential.
Improved, national coordination of electrification efforts
3.63Other inquiry participants noted inefficiencies with regard to the complex, disparate, and sometimes duplicative landscape of electrification incentive schemes across Australian jurisdictions.
3.64For instance, IEEFA and the Property Council of Australia described the current approach to promoting electrification uptake in Australia as ‘patchwork’, noting the differing approaches and policies across the federal, state, territory and local governments. Further, the Property Council of Australia advocated for leadership at the national level to address the current ‘fragmented and uncoordinated’ approach to electrification of residential, and other asset classes in Australia.
3.65Several other inquiry participants also considered that there is a greater need for national coordination. For example, evidence from Ms Scotland highlighted the importance of coordination and leadership:
We're always big on having that national coordination, because at the moment the market is trying to respond, and it really is a piecemeal approach. We're seeing different but complementary approaches across the states and territories towards incentives to electrify. But, from an ASBEC point of view, we believe that coordination, the indications and the positive reinforcement from a national level need to happen.
3.66The Public Interest Advocacy Centre (PIAC) called for increased leadership from the Australian Government to ‘co-ordinate national action’ on residential electrification.PIAC considered that such leadership could:
… provide certainty and robust policy signals initiating planning and regulatory reforms, implementation of improved standards, signals and incentives for investment, and implementation and co-ordination of supports to target disadvantaged households.
3.67Further, PIAC considered that the Australian Government should seek to exercise such leadership through the National Energy Transformation Partnership (NETP). While acknowledging much of the work of implementing residential electrification efforts will be undertaken by state and local government jurisdictions, PIAC proposed that the Australian Government could exercise valuable leadership through the NETP by making ‘efficient electrification as a more significant priority workstream for the Partnership’.