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E3 Consultation RIS – Fans

Opportunities for improving energy efficiency outcomes

April 2017

A joint initiative of Australian, State and Territoryand New Zealand Governments

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© Commonwealth of Australia (Department of Environment and Energy) 2017.

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E3 Consultation RIS - Fans 2

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ContentsE3 CONSULTATION RIS – FANS.............................................................................................................................1

Glossary...........................................................................................................................................viiExecutive summary...........................................................................................................................1

Introduction....................................................................................................................................1What is the problem?.....................................................................................................................1Why is government action needed?...............................................................................................3Policy options.................................................................................................................................3Impacts of the policy options.........................................................................................................4Recommended policy option..........................................................................................................5

Consultation......................................................................................................................................7Consultation events and written submissions................................................................................7Consultation Questions..................................................................................................................7Previous Consultation..................................................................................................................10

1. Introduction.................................................................................................................................12Government policy context..........................................................................................................12Rationale for the preparation of this CRIS..................................................................................13Fan technology and applications.................................................................................................13The market for fan-units..............................................................................................................15Fan energy consumption and greenhouse gas emissions............................................................21Current energy efficiency requirements for fans........................................................................23Summary......................................................................................................................................24Consultation Questions................................................................................................................25

2. What is the Problem?..................................................................................................................26Summary of the problem..............................................................................................................26Evidence of market failures.........................................................................................................26Consultation questions.................................................................................................................30

3. Why is Government Action Needed?...........................................................................................31Why is intervention needed?........................................................................................................31What are the objectives of government intervention?.................................................................32

4. Policy Options.............................................................................................................................33Option A - Business as usual........................................................................................................33Option B - Purchaser education program....................................................................................33Option C - Minimum energy performance standards for fans.....................................................34Consultation questions.................................................................................................................37

5. Impacts of Policy Options............................................................................................................38Policy Option A - Business as usual.............................................................................................38Policy Option B - Purchaser education program..........................................................................38Policy Option C - Minimum fan efficiency standards...................................................................39Cost benefit analysis....................................................................................................................40Summary of key energy/emission impacts and cost/benefits......................................................41Competition impacts....................................................................................................................43Impact on different groups..........................................................................................................44Impact on different regions..........................................................................................................45Consultation questions.................................................................................................................46

E3 Consultation RIS - Fans iii

Contents

6. Conclusion...................................................................................................................................47Option C.......................................................................................................................................47Consultation questions.................................................................................................................48

7. Implementation and Review........................................................................................................49Implementation - next steps.........................................................................................................49Review..........................................................................................................................................50

References.......................................................................................................................................51Attachment A – Cost-Benefit Modelling for Fan RIS.......................................................................53

A.1 Introduction...........................................................................................................................53A.2 Methods and Key Inputs........................................................................................................56A.3 Sales and Stock......................................................................................................................73A.4 Policy Option Impacts – Energy and Cost/Benefit.................................................................82A.5 Payback Period Analysis........................................................................................................96A.6 Consultation Questions..........................................................................................................99

Attachment B – Australian NCC and fan-unit efficiency...............................................................100Attachment C – Policy Context......................................................................................................102

C.1 International climate change commitments........................................................................102C.2 Australia...............................................................................................................................102C.3 New Zealand........................................................................................................................103

Attachment D – Evidence of Market Failures...............................................................................105D.1 Summary of market failures................................................................................................105D.2 Negative externalities.........................................................................................................106D.3 Principle-agent problems....................................................................................................107D.4 Information failures.............................................................................................................108D.5 Behavioural issues...............................................................................................................110

Attachment E – Electricity Prices and GHG Emission factors......................................................112Attachment F – International Review of Efficiency Standards.....................................................114

F.1 Introduction.........................................................................................................................114F.2 European Union...................................................................................................................115F.3 United States.......................................................................................................................118

LIST OF TABLESGuide to answering Consultation questions.........................................................................................8Table 1 - Sector and Application Categorisation for fan-units...........................................................15Table 2 - How top-selling models compare to the current (Tier 2) EU minimum fan-unit efficiency levels...................................................................................................................................................17Table 3 - Summary of cost-benefit modelling results, Australia........................................................42Table 4 - Summary of cost-benefit modelling results, New Zealand.................................................42Table 5 - Summary of cost-benefit modelling results from the end-user perspective, New Zealand44Table 6 - Summary of payback period analysis for three end-use applications.................................45Table A1 - Summary of Assumptions and Model Parameters............................................................53Table A2 – Classification of fan-units into sector and product...........................................................59Table A3 – Product Categories for fan-units included in the cost-benefit model...............................59Table A4 - Average Fan-Unit Efficiency 2014 (Static).......................................................................61Table A5 - Average Fan-Unit Efficiency 2014 (Total).........................................................................61Table A6 - Average Input Power 2014 by Input Power Range...........................................................64Table A7 – Effective Minimum Efficiency Levels Tier 1 – Static........................................................65Table A8 – Effective Minimum Efficiency Levels Tier 1 – Total.........................................................65Table A9 – Effective Minimum Efficiency Levels Tier 2 – Static........................................................65Table A10 – Effective Minimum Efficiency Levels Tier 2 – Total.......................................................65Table A11 – Effect of MEPS on Average Efficiency............................................................................66Table A12 - Average fan output power by power range....................................................................67Table A13 - Assumed average annual operating time of fan-units....................................................69Table A14 - Average Wholesale Fan Prices ($/kW of Fan Output Power).........................................69

E3 Consultation RIS - Fans iv

Table A15 - Conversion factors wholesale to end-user price.............................................................69Table A16 - Assumed testing costs.....................................................................................................71Table A17 - Estimated breakdown of fan sales by region, 2015 - 2030.............................................76Table A18 - Estimated breakdown of fan-unit stock by region, 2015 - 2030.....................................81Table A19 - Summary of cost-benefit analysis, Australia...................................................................82Table A20 - Summary of cost-benefit analysis, New Zealand............................................................83Table A21 - Summary of energy savings and emission reductions, Australia...................................83Table A22 - Summary of energy savings and emission reductions, New Zealand.............................83Table A23 - Summary of cost-benefit analysis for Purchaser Education Program............................87Table A24 - Summary of cost-benefit analysis for full EU MEPS (Option C1)...................................88Table A25 - Summary of cost-benefit analysis for MEPS < 185 kW (Option C2)..............................89Table A26 - Summary of cost-benefit modelling for MEPS < 185 kW excluding MEPSed products (Option C3).........................................................................................................................................90Table A27 - Summary of cost-benefit modelling for MEPS < 185 kW excluding heating/cooling (Option C4).........................................................................................................................................91Table A28 - Summary of cost-benefit modelling for different discount rates, Australia...................92Table A29 - Summary of cost-benefit modelling for different discount rates, New Zealand.............93Table A30 - PE Ratio Sensitivity Test for Policy Option C1...............................................................94Table A31 - Summary of cost benefit modelling for Option C1 with higher BAU efficiency.............95Table A32 - Summary of cost benefit modelling for Australia, Option C1 with no carbon price.......95Table A33 - Commercial HVAC (Non-Regulated), Australia..............................................................96Table A34 - Commercial HVAC (Non-Regulated), New Zealand.......................................................97Table A35 - Commercial Refrigeration (Non-Regulated), Australia and New Zealand.....................97Table A36 - Residential Ducted Heating and Cooling, Australia.......................................................98Table A37 - Residential Ducted Heating and Cooling, New Zealand.................................................98Table A38 – Electricity prices (real 2014 cents/kWh) for Australia and New Zealand....................112Table A39 - GHG emission factors for electricity (kg CO2-e/kWh) for Australia and New Zealand113Table A40 - International fan efficiency schemes............................................................................114Table A41 - Comparison of current EU efficiency requirements with values proposed in 2020.....117Table A42 - US Energy conservation standards for residential furnace fans..................................119Table A43 - Comparison of US and EU Fan Efficiency Regulatory Approaches..............................120

LIST OF FIGURESFigure 1 – A fan-unit...........................................................................................................................14Figure 2 – Spread of fan-unit FMEGs for the different types of fan-units, weighted across all size ranges.................................................................................................................................................17Figure 3 – The supply chain for fan-units...........................................................................................18Figure 4 – Supplier ranking of importance of factors in purchase decisions....................................19Figure 5 – Estimated fan-unit energy consumption, business-as-usual – Australia...........................21Figure 6 – Estimated fan-unit energy consumption, business-as-usual – New Zealand....................22Figure 7 – Estimated Greenhouse Gas Emissions from fan-units......................................................23Figure A1 – Range of fan-unit efficiencies for different fan types, weighted across all size ranges.62Figure A2 – Range of fan-unit efficiencies for fan size > 125 W and < 0.75 kW...............................62Figure A3 – Range of fan-unit efficiencies for fan size ≥ 0.75 kW and < 4 kW.................................63Figure A4 – Range of fan-unit efficiencies for fan size ≥ 4 kW and < 10 kW....................................63Figure A5 – Range of fan-unit efficiencies for fan size ≥ 10 kW and < 30 kW..................................63Figure A6 – Range of fan-unit efficiencies for fan size ≥ 30 kW and < 185 kW................................64Figure A7 - Graphic representation of stock model...........................................................................67Figure A8 - Examples of survival functions........................................................................................68Figure A9 - Price per kW of fain air power vs efficiency, Centrifugal forward fans: > 0.75 kW and < 4 kW....................................................................................................................................................70Figure A10 – Total Annual Sales of Fan-Units, Australia and New Zealand......................................74Figure A11 – Annual Sales of Fans by Sector and Category: Australia.............................................74Figure A12 – Annual Sales of Fans by Sector and Category: New Zealand......................................75Figure A13 – Breakdown of fan-unit sales by fan type, 2014.............................................................75

E3 Consultation RIS - Fans v

Figure A14 – Breakdown of fan-unit sales by fan input power range, 2014......................................76Figure A15 – Origin of fan-unit imports into Australia, 2000 to 2014...............................................77Figure A16 – Origin of fan-unit imports into New Zealand by value, 2000 to 2015..........................78Figure A17 – Stock of fan-units by sector and category, Australia – line and area chart..................79Figure A18 – Stock of fan-units by sector and category, New Zealand – line and area chart...........80Figure A19 – Estimated fan-unit energy consumption, business-as-usual - Australia.......................84Figure A20 – Estimated fan-unit energy consumption, business-as-usual – New Zealand................84Figure A21 – Estimated breakdown of fan-unit energy use by fan type............................................85Figure A22 – Estimated breakdown of fan-unit energy use by fan size range..................................85Figure A23 – Estimated Greenhouse Gas Emissions from fan-units..................................................86Figure A24 - Impact of Purchaser Education Program on energy consumption...............................87Figure A24 - Impact of Full EU MEPS (Option C1) on energy consumption.....................................88Figure A26 - Impact of MEPS < 185 kW (Option C2) on energy consumption.................................89Figure A27 - Impact of MEPS < 185 kW excluding MEPSed products (Option C3) on energy consumption.......................................................................................................................................90Figure A28 - Impact of MEPS < 185 kW excluding heating/cooling (Option C4) on energy consumption.......................................................................................................................................91Figure A29 - Impact of higher BAU levels of efficiency on energy savings for MEPS (Option C1)...94

E3 Consultation RIS - Fans vi

AC Air conditioner

ABS Australian Bureau of Statistics

APAC` Asia and Pacific Countries

AS/NZS Australian Standards and New Zealand Standards

AU Australia

BAU Business As Usual

BCR Benefit Cost Ratio

CER Clean Energy Regulator

CO2-e Carbon dioxide equivalent units

COAG Council of Australian Governments

CRIS Consultation Regulation Impact Statement

E3 Equipment Energy Efficiency Program

ERF Emissions Reduction Fund

EU European Union

EuP EU Directive for Energy Using Products

FMA-ANZ Fan Manufacturers Association of Australia and New Zealand

FMEG Fan Motor Efficiency Grade

GEMS Greenhouse and Energy Minimum Standards

GEMS Act Greenhouse and Energy Minimum Standards Act 2012

GHG Greenhouse Gas

GWh Giga Watt hour – 1 million kilo Watt hours

GWP Global Warming Potential

HVAC Heating, Ventilation and Air Conditioning

ISO International Standards Organisation

kt Kilo tonnes – 1 thousand tonnes

kW Kilowatt – 1 thousand Watts

kWh Kilo Watt hour – 1 thousand Watt hours

MEPS Minimum Energy Performance Standards

Mt Mega tonnes – 1 million tonnes

NCC National Construction Code (Australia)

NEPP National Energy Productivity Plan (Australia)

NPV Net Present Value: the value of a sum of money in the hand, in contrast to some future value it will have when it has been invested at compound interest

NZ New Zealand

NZBC New Zealand Building Code

NZEECS New Zealand Energy Efficiency and Conservation Strategy 2011-2016

NZES New Zealand Energy Strategy

OEM Original Equipment Manufacturer

RIS Regulation Impact Statement

E3 Consultation RIS - Fans vii

E3 Consultation RIS - Fans viii

IntroductionThis Consultation Regulation Impact Statement (CRIS) considers policy options to increase the energy efficiency of fan-units (a fan connected to an electric motor) that are sold into the Australian and New Zealand markets. The proposals are being developed through the Equipment Energy Efficiency (E3) Program, which aims to increase the energy efficiency of appliances and equipment used in Australia and New Zealand by increasing the energy efficiency of new products sold.

The E3 Program brings together the Commonwealth, State, and Territory governments of Australia with the government of New Zealand to apply consistent energy efficiency requirements across all jurisdictions. The main policy mechanisms used are mandatory Minimum Energy Performance Standards (MEPS) - which eliminate the least efficient products from the market – and mandatory Energy Rating Labels - which allow buyers to compare the energy efficiency of products before they make a purchase decision – although voluntary mechanisms such as voluntary labelling are sometimes used. The E3 Program is overseen by the Council of Australian Governments’ (COAG) Energy Council, which is advised on energy efficiency matters by the Energy Efficiency Advisory Team (EEAT), comprised of officials from all participating jurisdictions. In Australia, the Program operates under the Greenhouse and Energy Minimum Standards Act 2012, and in New Zealand under the Energy Efficiency (Energy Using Products) Regulations 2002.

Under the global climate agreement established in Paris in December 2015, both Australia and New Zealand have made commitments to reduce their national greenhouse gas emissions by 2030: Australia by 26% to 30% below 2005 levels; New Zealand by 30% below 2005 levels. Both countries have national strategies to increase the uptake of energy efficiency across their economies, in part to reduce greenhouse gas emissions to meet their international commitments, and in part to increase energy productivity, reduce energy costs for businesses and households, and increase business competitiveness. The E3 Program is a key element of these strategies.

This Consultation RIS is concerned with fan-units which have an electric motor with an input power in the range of 125 Watts (o.125 kW) to 500 kilowatts (kW). Most of the fan-units in this range are used in ventilation and blowing applications in the commercial, manufacturing, mining, power generation and agricultural sectors, although at the lower end of the power range some products are used in residential applications such as ducted evaporative cooling, ducted air conditioning and gas ducted heating.

Currently there are no explicit energy efficiency requirements placed on the sale of fan-units in Australia and New Zealand, although they may be incorporated into a range of equipment subjected to MEPS, such as ducted air conditioners and three-phase packaged air conditioners. Where the fan-units are driven by three-phase electric motors that can be separated from the fan, the motors will be subjected to MEPS requirements. In Australia, the Energy Rating Labels required for gas ducted heaters take energy use of the fan-units into account, although this is a very small proportion of the heaters’ overall energy use. Section J of Australia’s National Construction Code (NCC) sets maximum power consumption levels for fans used as part of air conditioning and ventilation systems in commercial buildings, although these are system level requirements and do not place specific requirements on the energy efficiency of the fan-units used.


Executive summary

What is the problem?Annual sales of fan-units in 2015 are estimated to be around 608,000 in Australia and 71,600 in New Zealand, and sales are projected to grow over coming decades. Fan-units generally consume a small amount of electricity each year in isolation, but a large amount of electricity each year in aggregate, and this total electricity consumption is expected to continue to grow in coming years under business-as-usual as the size of the installed stock grows. Most electricity used in Australia, and to a lesser extent New Zealand, results in greenhouse gas emissions from electricity generation, as well as other environmental emissions. Australia has no price signal and New Zealand1 has only a relatively weak price signal to address these negative environmental externalities.

In lieu of a carbon price, governments in Australia and New Zealand have chosen to regulate the efficiency of energy use associated with fan-units either at the system level via building codes (Australia only) or at the equipment level via, for example, MEPS for ducted and packaged air conditioners. However, equipment MEPS only cover some applications of the fan-units, and while surveys of mechanical services designers suggest that the Australian building codes are having some impact on the design of ventilation and air conditioning systems in commercial buildings, this

does not always mean that more efficient products are installed.

Market research undertaken for this Consultation RIS shows that there is a fairly wide spread of efficiencies in the products currently available on the market in Australia and New Zealand, and that they are less efficient than the fan-units available for sale in the European Union, where MEPS for fan-units have been in place since 2013. There is scope to achieve energy savings, greenhouse abatement and energy productivity improvements by increasing the average energy efficiency of the products sold. While the existing measures could influence the selection of fan-units embedded in systems (building codes) or some equipment (MEPS), fan-units generally do not account for a significant amount of the electricity used at the system or equipment level, and also generally account for only a small proportion of the system or equipment cost. So, while current regulations may influence the efficiency of the fan-units selected, evidence to date suggests that this effect has been minor, and mechanical services designers and equipment suppliers have looked to other ways of meeting the efficiency requirements.

Finally, the market research found that most (around 94%) fan-units are selected by a third-party and not the end-user (business or household) who pays the energy bills, creating what is referred to as a ‘split incentive’. This third-party could be the equipment manufacturer, mechanical services designer or installation contractor, so there is a focus on lowest cost products and whole-of-life costs are rarely taken into account in their selection. This means that the end-users pay higher annual energy bills and lifetime costs than are necessary, and that greenhouse gas emissions are higher than they need to be. The research also found that buyers had difficulty accessing suitable information on product efficiency and lifecycle costs, and/or placed an excessively high discount rate on future running cost, with suppliers reporting that 69% of buyers require a payback of 2

1 See the recent Media Release by the NZ Minister for Climate Change Issues (https://www.beehive.govt.nz/release/submissions-close-ets-review-phase-one ) and the report on the review of the NZ ETS (The New Zealand Emissions Trading Scheme Review 2016, Ministry for the Environment, February 2016.)


Comments from a mechanical services designer

Even if manufacturers did offer more efficient units the market is so first cost driven in Australia that it would rarely be taken up. Consultants that may wish to specify more efficient units will be hamstrung by a … design and construct contract with the head contractor which will inevitably result in a cheaper, equivalent, less efficient unit being installed.

Source: SV 2016

Comments from fan-unit suppliers

We supply to the OEM market and are 3 to 4 steps away from the end user that pays the energy bill and sees the energy savings. Projects are based on cost and at the end of the day the end user gets what suits the bill.

We sell to the OEM of HVAC equipment. Their main concern is very often cost, especially for products in the domestic market where the end user is not well aware / does not show much appreciation of energy efficiency.

The contractor is only installing the fan, not paying for the ongoing running costs, so he does not care. In his mind as long as I tick all the boxes cheapest is best.

https://www.beehive.govt.nz/release/submissions-close-ets-review-phase-one

years or less if they are to purchase a higher efficiency product. These were considered to be lower order issues.

Why is government action needed?Improving efficiency can help meet national emission targets

Fan-units are responsible for significant greenhouse emissions in Australia and New Zealand, and government intervention to increase their efficiency could achieve very cost-effective greenhouse abatement that contributes to achieving both countries’ international abatement commitments. The estimated net cost of abatement of the policy options is -$68 to -$78 per tonne in Australia and -$204 to -$276 in New Zealand.

Improving efficiency improves energy productivity

Both Australia and New Zealand have national policies seeking to increase energy productivity. Improvements in the energy efficiency of the new fan-units sold could contribute to energy productivity gains, increased competitiveness and better economic performance generally, as businesses and households would require less energy for ventilation and blowing applications. It is for this reason that government action to increase the energy efficiency of fan-units is included as a priority project in the E3 Prioritisation Plan, agreed by the COAG Energy Council in May 2016.

The example provided below illustrates the impact on consumer energy use and costs of upgrading a relatively low efficiency fan-unit to one that can just meet the current EU MEPS levels.

Government action could help address market failures

The electricity used by fan-units results in negative environmental externalities associated with greenhouse gas and other environmental emissions from electricity generation (much higher in Australia than New Zealand). A key reason that these externalities are higher than necessary is a ‘split incentive’ whereby third parties, rather than end-users, dominate the selection process and tend to select low cost, inefficient fan-units. Government intervention, particularly regulated MEPS, have been proven to be an affective mechanism to help address split incentives associated with equipment sales by “pushing” the average efficiency of products sold to a higher level.

Other countries have successfully improved fan-unit efficiency

The European Union introduced MEPS regulations for fan-units in 2013 and made these more stringent in 2015. This has resulted in the products being sold in the EU having a higher efficiency than those sold in Australia and New Zealand.


Example – Upgrading the efficiency of axial fan-unit used in HVAC application

The fan operates for 9.6 hours per day (3,500 hours per year) and has an expected life of 15 years. The electricity tariff is 17 c/kWh.Required fan output power: 0.6 kWEfficiency of fan-unit 1: 29% (just below EU Tier 1 MEPS level) -> Input power = 2.07 kW Efficiency of fan-unit 2: 35% (just above EU Tier 2 MEPS level) -> Input power = 1.71 kWAdditional cost of fan-unit 2 = $137Annual energy saving = 1,241 kWh per year -> Annual energy bill saving = $211 per yearPayback on the additional cost of fan-unit 2 = 0.65 yearsLifetime energy bill saving = $3,166 (undiscounted, no increase in tariff) or 23 times the additional cost.

Policy optionsThe following policy options are considered to address the problem identified in this CRIS:

• Option A: Business as Usual – no restrictions on the energy efficiency of fan-units sold;• Option B: Purchaser education program – web based provision of information on

purchasing more efficient fan-units;• Option C: Regulated minimum energy performance standards (MEPS) for fan-units:

o Option C1 - following the EU fan-unit regulations fully;o Option C2 - following the EU regulations but only up to 185 kW;o Option C3 – As for Option C2 but excluding2 all fan-units that are incorporated into

products which are already regulated for MEPS in Australia and New Zealand; ando Option C4 – As for Option C2 but excluding all products which have the sole purpose

of delivering air that is heated and or cooled (e.g. fan-units incorporated into electric or gas heating or cooling appliances)

All regulatory options would involve introducing initial Tier 1 MEPS levels in 2018, followed by more stringent Tier 2 MEPS levels in 2020.

Impacts of the policy optionsThe impacts of the proposals relative to the business as usual scenario (Option A) are summarised below in terms of the cumulative energy savings and greenhouse gas emission reductions to 2030, and the economic impacts.

Australia

Proposal Cumulative Energy Savings to 2030 (GWh)

Cumulative GHG Emission Reduction to 2030(kt CO2-e)

Total Benefit , PV($M)

Total Investment, PV($M)

Net Benefit, NPV($M)

Benefit-Cost Ratio

Cost of Abatement($/tonne)

Option B 552 510 $92 $14 $78 6.6 -$68

Option C1 15,361 14,204 $2,525 $370 $2,155 6.8 -$72

Option C2 15,158 14,016 $2,490 $364 $2,126 6.8 -$73

Option C3 11,615 10,741 $1,945 $266 $1,678 7.3 -$75

Option C4 10,930 10,107 $1,769 $184 $1,586 9.6 -$78

Note: This table uses a discount rate of 7% for Australia

New Zealand



Total Benefit, PV($M)



Benefit- Cost Ratio


Option B 79 8 $6 $2 $4 3.5 -$204

Option C1 1,926 193 $148 $35 $113 4.3 -$256

Option C2 1,875 187 $143 $33 $111 4.4 -$260

Option C3 1,736 173 $133 $29 $104 4.6 -$268

Option C4 1,722 172 $132 $27 $104 4.8 -$276

Note: This table uses a discount rate of 6% for New Zealand.

The impact analysis is based on a cost-benefit model (see Attachment A) which models the stock of fan-units in Australia and New Zealand, and makes a range of assumptions concerning the costs and benefits of the proposed policy options. While there are some government administration costs

2 Note that the EU regulations include a range of exemptions for fans used in specialist applications or challenging environments. See Attachment F (European Union) for further details.


associated with all options, the main costs are those for businesses (manufacturers and suppliers) to comply with regulated MEPS (Option C), and the increased cost of the more efficient products sold. Business compliance costs include education and record keeping, equipment testing, and costs associated with registering products. These compliance costs are higher for Option C1 as it has the largest coverage of the fan-unit market, and reduce for Options C2 to C4, which have lower coverage.

The cost-benefit modelling assumes that the increased costs of the more efficient fan-units are passed on to end-users, but that they benefit from the energy bill savings. The key assumptions that determine the size of the benefit and the cost-effectiveness of government intervention are:

• The annual sales of fan-units;• The average efficiency of fan-units sold under business as usual, and the spread of

efficiency levels;• The average output power of fan-units used in different applications;• The typical annual operating time of fan-units used in different applications;• The increased cost of the more efficient fan-units required to meet proposed MEPS levels.

This is based on a price-efficiency (PE) ratio, which relates percentage improvements in efficiency to percentage increases in price; and,

• The energy tariffs paid by end-users.

We welcome stakeholder review and feedback of the key assumptions that underpin the cost-benefit modelling, to ensure that any final proposal to Energy Ministers is based on the best available data.

Competition impacts

A purchaser education program is expected to have no impact on consumer choice and minimal impact on competition. The regulatory options (C1 to C4) will potentially reduce the number of models available on the market in the short term, and provide a competitive edge to those companies that manufacture in the European Union or supply the EU market when first introduced. However, as it is intended to align with the EU regulations, which have been in place since 2013, it is expected that, if given sufficient lead time, most suppliers will be able to easily source compliant products.

In the longer term the regulatory options are expected to increase the availability of the more efficient (above MEPS) products on the market, increasing supplier competition for these products, resulting in wider choice for these models and lower prices.

Impact on different groups

Most of the direct impact of the proposed policy options, especially Option C, will be on the businesses and households that use fan-units in ventilation, HVAC and blowing applications. We expect the impact to be relatively even and in proportion to their use of fan-units and associated equipment. Modelling of the paybacks experienced by end users over the range of expected annual operating times (low to high, see Table 6) suggests that the paybacks are very short for commercial applications with high annual usage, such as refrigeration (generally under 1 year) and HVAC (generally under 2 years), but are expected to be higher for residential applications such as ducted heating and cooling which have lower annual operating times. In this case payback periods were generally around 2 to 4 years at best, but could be above 10 years at the low end of the usage range.

Impact on different regions

The impacts in Australia and New Zealand were modelled separately. The impacts for Australian states and territories have not been included in this Consultation RIS, but will be included in the Decision RIS. The impacts are expected to quite closely match population shares, but benefit-cost ratios will be higher in those regions with higher electricity prices (e.g. Qld, SA, Vic and NSW).


Recommended policy optionBased on the current analysis, the recommended policy option is for Australia and New Zealand to implement MEPS regulations for fan-units that are consistent with those introduced into the European Union in January 2013 (Option C). The regulatory options have by far the largest net benefit, as well as the largest energy savings and greenhouse gas abatement, and have a high benefit-cost ratio, even under a range of sensitivities tested. Option B (purchaser education program) has a much lower net benefit, energy saving and greenhouse abatement, limiting its contribution to national energy productivity and greenhouse abatement targets. Further discussion with stakeholders is required to determine the most appropriate regulatory option to implement and an appropriate implementation date.

It is likely that any MEPS regulation for fan-units would be complemented by a voluntary high efficiency performance standard (HEPS), which allowed buyers to more easily identify the most efficient fan-units on the market. The requirement to test the fan-units to determine their energy efficiency level for MEPS, and the specification of HEPS levels, may also lead to additional energy savings (not included in the modelling), as they could raise awareness of fan-unit energy efficiency and facilitate purchaser education and selection tools.

Key issues to be explored to identify the most appropriate regulatory option are:

• The exact scope of product coverage for any regulations implemented;• The ability to test products to the international test standard ISO5801, both overseas and

locally;• The impact of any regulations on companies that manufacture locally, especially companies

that manufacture larger fan-units as one-off projects or small production runs;• A possible upper limit for the regulations, which might be lower than 185 kW;• How MEPS would apply with respect to fan-units that are incorporated into other items of

equipment;• The impact of any regulations on the ability to provide suitable replacement fan-units

(spare parts) for equipment that has been manufactured prior to the introduction of the regulations; and

• The timing of the introduction of any regulations.

The implementation of any of the regulatory options (C1 to C4), if agreed by the COAG Energy Council, would involve the introduction of MEPS for fan-units driven by electric motors with an input power in the range of 125 Watts and potentially up to 500 kW, with the initial (Tier 1) MEPS introduced no earlier than 2018 and more stringent (Tier 2) MEPS introduced two years later. The regulations would be based on the European Commission Regulation 327/2001, with product testing based on ISO5801 and regulatory levels based on fan-motor efficiency grades set out in ISO12759. The introduction of MEPS requirements would mean that it would no longer be legal to supply fan-units that did not meet the specified MEPS levels, that suppliers and manufacturers would need to have their products tested and registered for MEPS, and that there would be targeted check-testing to identify any products that did not comply with the regulations. Companies selling un-registered or non-compliant products would be liable for enforcement action.

While a regulatory approach is the recommended policy option in this Consultation RIS, this is not the final recommendation. The CRIS has been released as part of the stakeholder consultation process, and will be supported by public workshops in both Australia and New Zealand. Stakeholders are invited to make formal written submissions (see the Consultation chapter below) providing feedback on the analysis, assumptions and proposed policy options set out in this Consultation RIS. These submissions will be compiled and analysed, and any new information and data will be assessed, and this may lead to revision of the modelling and policy options and further consultation with stakeholders before a final recommendation is prepared.

Once feedback has been obtained through the Consultation RIS process, we will establish a Working Group with representatives from industry stakeholders to consider the best way forward. If MEPS are the favoured option this Working Group will consider how existing international standards such as ISO5801 and ISO12759, or their Australian and New Zealand equivalents, could


be incorporated into a GEMS Determination, as well as logistical issues related to implementing the regulations such as the exact scope of any regulations, the registration process, and compliance enforcement.

Before any of the proposed options are agreed and implemented the consultation process will be completed and, following review by the Office of Best Practice Regulation and agreement of the jurisdictions that participate in the E3 Program, a Decision RIS will be prepared for consideration of the COAG Energy Council. If a regulatory option is approved a GEMS Determination will need to be prepared in Australia, and similar legal instrument in New Zealand, and once these have been approved there will be a delay before the regulations come into force.


ConsultationStakeholder feedback is sought on the analysis, assumptions and policy options contained in this Consultation RIS to increase the energy efficiency of fan-units sold in Australia and New Zealand. This is to ensure that any recommendation and/or decision to implement energy efficiency regulations for fan-units, or other policy options, is based on an understanding of the full range of stakeholder views and takes into account any practical issues that need to be addressed.

Consultation events and written submissionsThe location and date for public consultation events on this RIS are as follows:

• Melbourne: Wednesday 17 May, morning• Auckland: Friday 19 May, afternoon• Sydney: Monday 29 May, morning

Consultation events may be held in other locations (Adelaide, Brisbane, Wellington) if demand is sufficient.

To register for a session, please contact [email protected] noting the names of the attendees and the location of the meeting you wish to attend. For New Zealand participants, please email [email protected].

The closing date for written submissions is close of business Friday 16 June, 2017 and should include the subject heading ‘Consultation RIS – Fans’.

Australian submissions should be sent via email to: [email protected]

New Zealand submissions should be sent via email to: [email protected]

Feedback from the submissions received on the Consultation RIS will inform the preparation of any Decision RIS. The Decision RIS is the final document presented to Ministers on the COAG Energy Council, which they will use to make a decision about whether or not to implement regulatory or other policy options.

Consultation QuestionsStakeholders are welcome to provide feedback on any matter in relation to this Consultation RIS – there is no obligation to answer any or all of the questions listed below. This feedback will assist us to develop more robust proposals for consideration by Ministers. To help focus the efforts of different stakeholders, the table below provides guidance on the questions that are likely to be most relevant to different stakeholder groups.

The questions provided below are the same as the questions in the breakout boxes at the end of every chapter. They are designed to enable us to better understand the nature of the market for fan-units and the role that energy efficiency and life-cycle costs play in this, the impact of our market and modelling assumptions, analysis and impacts on industry, energy use, greenhouse gas emissions and trade implications. We would be grateful if you could provide us with any relevant data or evidence that you have to support your written submissions.

Stakeholders should note that if feedback is not provided on a particular issue or proposal then it will be assumed there are no issues or concerns that were not considered in the Consultation RIS.


Consultation

mailto:[email protected]



Guide to answering Consultation questions

Section Fan-unit manufacturers / suppliers

OEM manufacturers / designers

Mechanical services designers

Introduction 1, 2, 4 to 9 2, 3 ,5, 8 3, 5, 9

Problem section 10 to 18 10 to 17 10, 11, 14 to 17

Policy options 19 to 27 19, 21, 22, 26, 27 19, 21, 22

Impact of policy options 28 to 36 31 to 35 31 to 35

Conclusions 37, 38 37, 38 -

Attachment A 39 to 44 42 to 44 40 to 42

Introduction

1. Is the data presented in the Consultation RIS on the annual sales of fan-units consistent with your understanding of the overall market in Australia and/or New Zealand? If not, are you able to provide alternative sales data?

2. Do you think we have adequately described the supply chain for fan-units in Australia and New Zealand and the key points where decisions regarding energy efficiency are made?

3. Do you think we have adequately described the major factors that buyers, or other market actors, consider when buying a fan-unit, and the relative importance of these factors? Do these factors depend on the type of buyer, or other market actor?

4. Is the data presented on the energy efficiency of the different types of fan-units available on the market consistent with your understanding? If not, are you able to provide alternative efficiency data?

5. Do you think that the spread of energy efficiencies that exist for the different fan-unit types, means that it would be feasible to increase the energy efficiency of the fan-units sold on the Australian and New Zealand markets?

6. If your company sells fan-units into both the European and Australian-New Zealand markets, is the energy efficiency of the products sold into the European market generally higher than the efficiency of products sold into the local market? Are you able to comment on the reasons for any observed differences?

7. Do you think that the energy efficiency of fan-units sold into the Australian-New Zealand markets could be improved at relatively low cost by governments regulating energy efficiency requirements at the component (fan-unit) level? If so, why?

8. What impact do you think that the MEPS regulations for refrigerative air conditioners and refrigeration display cabinets have on the energy efficiency of the fan-units incorporated into these products?

9. In Australia, what impact do you think the Section J requirements in the National Construction Code have on the energy efficiency of fan-units used for ventilation and air conditioning applications in commercial buildings?

Problem section

10. What role do you think that energy efficiency and lifecycle cost play in the decision process for buying a fan unit? Do you think that the importance of these factors is different for different market actors, e.g. Original Equipment Manufacturers, Distributors/Retailers, design engineers, and end users;

11. Do you think that buyers of fan-units are optimising the lifecycle costs of the fan-units they buy (purchase cost and lifetime running cost)? If not – why not?

12. Do you think that a higher electricity cost, resulting from a carbon price, would increase the energy efficiency of fan-units sold on the Australian and New Zealand markets?


13. The market research undertaken for this Consultation RIS suggests that ‘agents’ dominate the purchase process for fan-units and that end-users only play a minor role in purchase decisions. Do you agree with this? If “yes” what implications do you think this has for the energy efficiency of the fan-units which are purchased?

14. Do you think it is easy for buyers or other market actors to access information on the energy efficiency and lifecycle costs of fan-units available on the market? If not, why not?

15. Do you think that access to information has a significant impact on the energy efficiency of the fan-units sold?

16. Do you think that the market for fan-units in Australia and New Zealand has a focus on low first cost and low payback? Does this depend on the nature of the buyer?

17. The market research undertaken for this Consultation RIS suggests that more energy efficient fan-units cost more to buy than standard fan-units. Do you agree with this assumption? If not why not?

18. Of the potential market barriers discussed in this Consultation RIS – environmental externalities, principle-agent problems (split-incentive), information failures and behavioural issues – which one(s) do you think have the greatest impact on the energy efficiency of the fan-units sold?

Policy options

19. Do you think that intervention is required in the market for fan-units in Australia and New Zealand to increase the energy efficiency of the products sold? Please explain.

20. If you answered ‘yes’ – which policy options do you think would work best, and why?

21. How effective do you think that a purchaser education program (Option B) would be in driving improvements to the energy efficiency of fan-units sold in Australia and New Zealand?

22. Are there other policy options that have not been considered in this Consultation RIS that you think should be considered? If “yes” please provide details.

23. Do you think it will be possible for companies to test their fan-units to ISO5801 as part of a regulated MEPS regime? Is there likely to be a difference between companies that manufacture overseas and locally?

24. In your experience, what is the upper limit (fan-motor input power in kW) for the fan-units that can be tested to ISO5801 in Australia and New Zealand?

25. Do you think that it would be possible to regulate the energy efficiency of fan-units up to 500 kW as in the EU, or would special requirements need to be put in place for fan-units over a certain size? If you think special requirements would be necessary, please identify the upper size limit and describe how you think that fan-units above this size limit should be treated.

26. If regulated MEPS were introduced into Australia and New Zealand, how do you think fan-units that are incorporated into larger items of equipment should be treated? Do you think it there would be any challenges for these fan units in meeting the Tier 1 and Tier 2 MEPS that are already implemented in the EU, and if so are you able to provide information on why? Would there be a difference between fan-units used in new equipment (manufactured after the MEPS had been introduced) and fan-units used in equipment manufactured before MEPS had been introduced?

27. Do you think that MEPS requirements would create issues for fan-units used as spare parts for equipment manufactured prior to the introduction of a MEPS? If you do, could you explain why? And would it be feasible to stock pile sufficient spare parts prior to the introduction of the MEPS to allow for any future requirements?

Impacts of policy options

28. Do you think that an assumed average rate of efficiency improvement of an additional 0.1% pa above BAU (0.5% pa) for a purchaser education program (Option B) is reasonable?


29. Do you think that the government costs assumed for the purchaser education program (Option B) are reasonable?

30. Do you think that the government and business costs assumed for the regulated minimum efficiency standards (Option C) are reasonable?

31. An average price-efficiency ratio of 1.0 (10% increase in efficiency results in 10% increase in price) has been used to calculate the additional cost of the more efficient fan-units sold as a result of the policy options. Do you think this is a reasonable assumption?

32. Do you agree with our assessment of the likely impact of the different policy options on consumer choice and competition in the market for fan-units? If not, please explain why.

33. What impact do you think the different policy options would have on the local manufacture of fan-units and associated equipment?

34. If MEPS for fan-units were introduced into Australia and New Zealand, do you think this would have any negative impacts on any specific end-user groups (business and residential consumers) and, in particular, on socially disadvantaged groups?

35. Can you provide information on the typical range (low to high) of annual operating times for fan-units used in different applications, to assist us to better understand the range of payback periods which are likely to result when inefficient fan-units have to be upgraded to meet the proposed MEPS levels?

36. If MEPS for fan-units were introduced into Australia, do you think that this would have any negative impact on any specific Australian state or territory?

Conclusions

37. Do you think that the scope of the product coverage for any fan-unit regulations introduced into Australia and New Zealand should be different than the scope of the EU regulations? If yes, please explain why.

38. The current proposal assumes that Tier 1 MEPS would be introduced in 2018 followed by the more stringent Tier 2 MEPS in 2020? Do you think this is reasonable, or do you think an alternative timeframe would be better?

Attachment A

39. Is the data presented on the average input power to fan-units for the different size ranges (Table A6) reasonable? If not, are you able to provide alternative data?

40. Is the data presented on the average output power of the fan-units for the different fan types and size ranges (Table A12) reasonable? If not, are you able to provide alternative data?

41. Is the data presented on the typical half-life of fan-units used in different applications reasonable? If not, are you able to provide alternative data?

42. Is the data presented on the typical annual operating hours of fan-units used in different applications (Table A13) reasonable? If not, are you able to provide alterative data?

43. Is the data presented on the average wholesale price of different fan-unit types and size ranges (Table A14) and retail mark-ups (Table A15) reasonable? If not, are you able to provide alternative data?

44. Is the data presented on the testing costs for different fan-unit size ranges (Table A16) reasonable? If not, are you able to provide alternative data?

Previous ConsultationThrough the joint Australia-New Zealand Equipment Energy Efficiency (E3) Program, previous research and consultation has been undertaken with industry stakeholders relating to possible government interventions to increase the energy efficiency of fan-units sold:


• A Discussion Paper on the Industrial Equipment Strategy [E3 2010] was publicly released in September 2010, and consultation workshops held in both Australia and New Zealand. This Paper identified fan-units as one of the key priorities for further investigation for possible government action;

• Product Profiles on Non-Domestic Fans were prepared for both the Australian and New Zealand markets [E3 2012a &b] and released for public comment in May 2012, supported by consultation workshops in Australia and New Zealand. The Profiles considered options for driving improvements to axial and centrifugal fans which are driven by electric motors with an input power in the range of 125 Watts to 500 kW. The consultation workshops were attended by a total of 38 people, representing 29 fan industry stakeholder organisations, and written submissions were received from 12 organisations.

Feedback from industry over the Product Profile

A summary of the key issues raised in the stakeholder feedback for the Product Profiles is provided below:

• Most submissions were generally supportive of the option of implementing a MEPS for non-domestic fans that was consistent with the fan regulations being implemented in the European Union. The use of ISO5081 (or a local equivalent) as the standard for testing fan-unit efficiency, and ISO12759 as the standard to define regulatory levels was supported. As the majority of the local fan industry is based on European manufactured or European designed fans, it was felt that it would be relatively straightforward for Australia and New Zealand to adopt these regulations. Submissions from the industry associations FMA-ANZ, AiGroup, CESA, and EcoDesign Working Group indicated their support for this approach.

• The FMA-ANZ submission argued that both cross flow fans and mixed flow fans should be also be included within the scope of any fan regulations.

• Most of the submissions called for certain equipment types to be excluded from the scope of any MEPS regulation which was applied to non-domestic fans, although the target of the exemption depended on the group making the submission: (1) fans which are integrated into equipment which is already subjected to MEPS (e.g. air conditioners); (2) fans which are used as replacement parts (e.g. spare parts) for equipment that was sold prior to the introduction of any MEPS for fan-units (3); fans that are part of any appliance which has the sole purpose of delivering heated air; (4) gas heaters - it was argued that the electricity consumption of the fan is already included in the energy labelling algorithms for gas heaters, and that in Australia the use of replacement parts which were not identical to those used in the existing equipment, as originally certified, could invalidate the product certification; and (5) Information technology (IT) equipment - it was argued that fan-units > 125 Watts were mainly used in high end office equipment, but size constraints limited the diameter of axial fans which could be used, and smaller fans were generally less efficient. Noise level control could also mean that less efficient fans were used.

• Concerns were also raised for the larger fans (> 50 kW), which might have only limited production runs. There may be issues relating to the ability to test locally manufactured fan units, and the cost of doing so for small production runs could be prohibitive. It was felt that fan units that are custom made in small numbers for very specific applications should be excluded from the scope of any regulations.


BackgroundThis section contains background information regarding the fan-units which are the subject of this Consultation Regulation Impact Statement (CRIS). It includes a technical description of fan-units, an overview of the market for these in Australia and New Zealand, information on the energy efficiency of the fan-units which are currently available on the market and the role that energy efficiency plays in the supply chain for fan-units, and presents estimates of historical and future energy consumption and greenhouse gas emissions related to fan-units. This section also discusses the government policy context relating to equipment energy efficiency, and measures that are currently in place which impact on the energy efficiency of the fan-units sold.

Government policy contextUnder the global climate change agreement (the Paris Agreement), established at the 21st Conference of Parties to the United Nations Framework Convention on Climate Change held in Paris in December 2015, both Australia and New Zealand have made international commitments to reduce their national greenhouse gas emissions. Australia has committed to reduce emissions by 26% to 28% below 2005 levels by 2030, and New Zealand has committed to reduce emissions by 30% below 2005 levels by 2030. The New Zealand Government ratified the Paris Agreement in October 2016, followed by the Australian Government in November 2016.

The Paris Agreement aims to strengthen the global response to climate change, including by setting a collective goal to keep the global temperature increase to well below 2oC above pre-industrial levels, and to pursue efforts to keep warming below 1.5oC3.

Both Australia and New Zealand have national strategies (or plans) to increase the uptake of energy efficiency across their economies, in part to reduce greenhouse gas emissions to achieve their international abatement commitments, and in part to increase “energy productivity”4, reduce energy costs for households and businesses, and increase business competitiveness.

The Australian Government has set a target to improve Australia’s energy productivity by 40% between 2015 and 2030. To support this target the COAG Energy Council developed the National Energy Productivity Plan (NEPP), published in December 2015. In addition to energy productivity improvements, this Plan is expected to contribute more than a quarter of the savings required to meet Australia’s 2030 greenhouse abatement target. The NEPP acknowledges that the Equipment Energy Efficiency (E3) Program has already increased the energy efficiency of new appliances and equipment sold into the Australian market, and made an important contribution to improving energy productivity, largely through the use of mandatory efficiency regulations. As part of the NEPP, in May 2016 the COAG Energy Council approved a new Prioritisation Plan for the E3 Program, identifying six initial products that would be considered for new or more stringent efficiency regulations. [COAG EC 2015, NEPP Work Plan 2015]

The New Zealand Government’s, The New Zealand Energy Efficiency and Conservation Strategy 2011-2016 (NZEECS) is a five-year strategy for the promotion of energy efficiency and renewable energy that sets the overarching policy direction for government support and intervention, and guides the development of EECA’s work programme. The NZEECS 2011-2016 expired in August 2016 and is being replaced the by NZEECS 2017-2022, which was released for public consultation 3 http://unfccc.int/paris_agreement/items/9485.php 4 Energy productivity is the economic value we get from the investment in energy. It is a measure of the amount of economic output derived from each unit of energy consumed. An increase in the energy efficiency will therefore increase energy productivity.


1. Introduction

http://unfccc.int/paris_agreement/items/9485.php

at the end of the 20165. The replacement NZEECS will have a focus on greenhouse gas emission reductions and energy productivity, particularly in the areas of process heat and transport.

Australian and New Zealand Governments participate in the Equipment Energy Efficiency (E3) Program, to drive improvements in the energy efficiency of new appliances and equipment sold, mainly through regulated (mandatory) minimum energy performance standards (MEPS) and mandatory energy labelling. In Australia this program is implemented through the Australian Government’s Greenhouse and Energy Minimum Standards (GEMS) Act 2012, with the participation of State and Territory governments formalised via the GEMS Inter-Governmental Agreement. Regulations are put in place via GEMS Determinations, which specify the scope of the regulations, the energy performance test standards and the regulatory requirements. In New Zealand the regulations are put in place under the Energy Efficiency (Energy Using Products) Regulations 2002. To uphold the principles of the Trans-Tasman Mutual Recognition Agreement (under which goods legal for sale in either country can be legally offered for sale in both), both countries seek to maintain alignment of their appliance and equipment energy efficiency regulations.

A more detailed discussion of the policy context in Australia and New Zealand is provided in Attachment C.

Rationale for the preparation of this CRISPrevious studies undertaken for the E3 Program identified fan-units as a priority product for possible government action. The Discussion Paper Improving the Energy Efficiency of Industrial Equipment [E3 2010] identified fans as one of the highest priority products to consider for action, based on the energy and greenhouse savings which could be achieved and cost-effectiveness. More recently, a preliminary cost-benefit analysis undertaken as part of the Product Profile on non-domestic fans [E3 2012 a&b] suggested that implementing MEPS regulations along similar lines to those introduced into the European Union in 2013 could generate significant energy saving and greenhouse abatement benefits. This study estimated that implementing such regulations from 2014 could generate cumulative savings out to 2030 of: 4,609 to 7,127 GWh of electricity and 3.0 to 4.7 Mt CO2-e of greenhouse gas emissions in Australia for an NPV of between $343 to $530 Million and a benefit-cost ratio of 5.1; 550 GWh of electricity and 220 kt CO2-e of greenhouse gas emissions in New Zealand for an NPV of $36.9 Million and a benefit-cost ratio of 3.7.

Through the consultation process for both the 2010 Discussion Paper [E3 2010] and the 2012 Product Profile [E3 2012 a&b], the Fan Manufacturers Association of Australia and New Zealand expressed a strong preference for the introduction of MEPS regulations based on the regulations introduced into the European Union from 2013 as their preferred approach to driving improvements to the energy efficiency of fan-units.

Consideration of government action to increase the energy efficiency of fan-units was subsequently included as priority project in the E3 Prioritisation Plan 2015/16, which was approved by the COAG Energy Council in May 2016.

Fan technology and applicationsA fan-unit comprises a fan (or impeller) connected to an electric motor via a transmission. For this CRIS we are concerned with fan-units that are connected to an electric motor with an input power in the range of 125 Watts (or 0.125 kW) to 500 kilowatts (kW). Most of the fan-units available within this power range are used in applications in the commercial, manufacturing, mining, power generation and agricultural sectors, although at the lower end of the power range (125 Watts to 1,500 Watts) some products are used in residential applications such as ducted evaporative coolers, ducted air conditioners and ducted gas heaters.

The electric motor converts electrical energy into mechanical rotational energy available through the shaft of the motor, and this is used to drive the fan. The motor may be connected directly to the 5 http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-strategies/consultation-draft-replacement-new-zealand-energy-efficiency-and-conservation-strategy/draft-replacement-nzeec-strategy.pdf


http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-strategies/consultation-draft-replacement-new-zealand-energy-efficiency-and-conservation-strategy/draft-replacement-nzeec-strategy.pdf


fan by a shaft, or may be connected through a pulley and belt system. The main function of the fan is to generate and maintain a continuous flow of air for ventilation, air circulation, blowing or drying.

Fan-units can be stand-alone items although they are often part of a larger system, which can include a control system, downstream and/or upstream ductwork, filters, heat exchangers or heating/cooling coils, and inlet and outlet grilles.


Figure 1 – A fan-unit

A range of different fan-unit types are sold in Australia and New Zealand, with the main types being fan-units that have axial fans and centrifugal fans. This Consultation RIS is concerned with fan-units which incorporate six different fan types:

1. Axial fans

2. Centrifugal forward curved fans and centrifugal radial bladed fans

3. Centrifugal backward curved fans without housing

4. Centrifugal backward curved fans with housing

5. Mixed flow fans

6. Cross flow fans

Different fan applications require fan-units with different fan types and motor input powers. The data and analysis presented in this CRIS are based on a number of different fan ‘size’, or motor input power, ranges:

Greater than (>) 125 Watts and less than (<) 0.75 kW

Greater than or equal to (≥) 0.75 kW and less than (<) 4 kW

Greater than or equal to (≥) 4 kW and less than (<) 10 kW




For the analysis undertaken in this CRIS the fan-units were further classified into each sector that the fan-units were used in and, where appropriate, different end-use applications, as shown in Table 1. In a number of cases these fan-units are used in equipment that is already regulated through the Greenhouse and Energy Minimum Standards (GEMS) legislation in Australia and similar legislation in New Zealand. This includes fan-units used in residential ducted air conditioning and in commercial refrigeration display cabinets. Ducted gas heaters are subject to mandatory energy labelling requirements in Australia as part of the gas certification process


Airflow output

Electric power input

Electric motorTransmission belt

Airflow

Impeller

(rather than through the E3 Program), and the fan energy consumption is taken into account in the labelling test.

Table 1 - Sector and Application Categorisation for fan-units

Sector and Product of Incorporation Short Name6

Residential Sector – Evaporative Cooler Res - EvapCooler

Residential Sector – Ducted Air Conditioner Res - AC

Residential Sector – Ducted Gas Heater Res - GAS

Commercial Sector – HVAC – GEMS7 Regulated Products Com – HVAC - Reg

Commercial Sector – HVAC – Non-GEMS Regulated Products

Com – HVAC NonReg

Commercial Sector – Refrigeration – Non-GEMS Regulated Products

Com – Refrig - NonReg

Other Sectors8 – Non-GEMS regulated products Other - All

The market for fan-unitsData sources

Data on the market for fan-units in Australia and New Zealand was collected through the Fan Industry Market Data Collection project [EG 2015a], undertaken with the cooperation and support of the Fan Manufacturers Association of Australia and New Zealand [FMA-ANZ], the main industry association representing fan manufacturers, importers and distributors in Australia and New Zealand. Data on the sales (quantity and value) of the different fan-unit types within the scope of this CRIS, as well as data on the energy efficiency of fan-units sold was collected through a confidential industry survey covering the period 2011/12 to 2013/14. The survey participants accounted for 56% of the total quantity of fan-units sold in Australia and 55% in New Zealand during this period. The sales for the companies which did not participate in the survey were estimated in consultation with FMA-ANZ. The sales of fan-units incorporated into other items of equipment (e.g. ducted air conditioners, gas ducted heaters) – also known as “products of incorporation” - were estimated from a range of data sources detailed in Attachment A.39.

Australian Bureau of Statistics (ABS) fan import statistics for the period 2000 to 2014 were used to obtain an estimate of the annual growth rate in the sale of fan-units. The post-2014 sales were based on an estimated average annual growth rate of 1.4% per annum. It was assumed that New Zealand experienced the same sales growth rates as Australia.

To gain an understanding of the origin of fan-unit imports into Australia, Expert Group compiled import data on “fan-units with self-contained electric motors exceeding 125 Watts”10 [EG 2015a]. Similar data was compiled for New Zealand using import data available from Statistics New Zealand. The detailed results of this analysis are provided in Attachment A.3.

The installed stock of fan-units was calculated using a detailed stock model developed by Energy Consult to support the preparation of this Consultation RIS [EC 2015]. In this model, the installed stock in any given year is a function of the installed stock in the previous year, the annual sales of the fan-units, and the retirement of older fan-units at the end of their life. The key features of this 6 The “Short Name” provided in this table is used to identify these fan-units in graphs and other tables in this CRIS.7 These are products which are already regulated for MEPS through the Greenhouse and Energy Minimum Standards legislation in Australia and equivalent legislation in New Zealand.8 This includes fan-units used in ventilation and blowing applications in the manufacturing, mining, agricultural and power generation sectors.9 Non-participating companies were estimated to represent 18% of the market in Australia and 19% in New Zealand. Fan-units incorporated into other equipment were estimated to account for 26% of the market in Australia and 25% in New Zealand. [EG 2015a, EC 2015]10 In Australia this corresponds to the import category 8414599052 – Fans with self-contained electric motors and output exceeding 125 Watts, other than those used as replacement components in passenger motor vehicles. Note that this does not include fans which are incorporated into other equipment which is imported.


stock model and the assumptions which underpin it are described more fully in Attachments A.1 and A.2.

Sales, imports and installed stock of fan-units

Annual sales of fan-units in 2015 are estimated to be around 608,000 in Australia and around 71,600 in New Zealand, and it is projected that the level of annual sales will grow to around 749,000 in Australia and around 88,200 in New Zealand in 2030. The market data collected from the fan industry surveys provide further insights into the types of fan-units sold as well as the breakdown of fan-unit sales into the different size ranges. While there are some differences between the mix of fan-unit types sold in Australia and New Zealand, the vast majority of sales – 95.7% in Australia and 97.2% in New Zealand – are accounted for by three fan types: - axial fans, centrifugal forward curved and centrifugal radial bladed fans, and centrifugal backward curved fans without housing. In both countries the largest share of the market (around 69%) is accounted for by the fan-units in the lowest power range (>125 W to < 0.75 kW), followed by the next lowest power range (≥ 0.75 kW to < 4 kW) at around a 29% market share.

In terms of the value of imports, Europe is the major player in the Australian market, accounting for 51.2% of imports in 2000, but with this share declining slightly to 46.3% by 2014. China, on the other hand, has seen a significant increase in market share, from only 5.1% in 2000 to 20.7% in 2014, largely at the expense of the other Asian countries. In terms of the quantity of products imported into Australia, Europe (36.7%) and Asia (excluding China) (40.1%) dominated the market in 2000. China’s market share has increased significantly so that in 2014 it accounted for 64.4% of imports into Australia by quantity. Europe’s market share had reduced to 19.3% and Asia (excluding China) to 9.8%.

As in Australia, Europe has been the main source of imports into New Zealand by value, although this has shown a slight declining trend between 2000 (40.7%) and 2015 (38.8%). Imports from Australia have also been quite significant, although have declined from 20% in 2000 to 13.5% in 2015. Many of these products are likely to have been re-exports from Australia, so the origin of these products would reflect the origin of the fans imported into Australia. North America (16.2% to 21.4%) and Asia (22.4% to 25.6%) have also been important sources of fan imports into New Zealand. As in Australia, the share of imports from China (2.3% to 14.1%) have increased significantly over the period 2000 to 2015 at the expense of fan imports from Asia (excluding China) which declined from 20.1% in 2ooo to 11.5% in 2015. No data is available for New Zealand on the source of fan imports by quantity.

The total stock of fan-units in 2015 is estimated to be around 9.49 million in Australia and 1.03 million in New Zealand. It is projected that the stock will grow to 11.24 million in Australia in 2030 and 1.21 million in New Zealand.

Energy efficiency of the fan-units being sold

Data on the energy efficiency of the fan-units sold in the Australian and New Zealand market in 2013/14 was collected from major suppliers and manufacturers as part of the Fan Market Data Collection project [EG 2015a]. This data provided information on the spread of energy efficiency of the different fan-unit types as well as allowing the average energy efficiency of the products currently being sold to be calculated.

The energy efficiency of a fan-unit is the ratio of the power output from the fan and the electrical power input into the motor driving the fan. The energy efficiency of a fan-unit varies over its operating range, defined by the pressure against which the fan operates and the air flow rate. Rated fan-unit efficiencies are based on what is known as the “Best Operating Point” (BEP), the point at which its efficiency is at its highest level.

Fan-unit efficiencies can be calculated as either a static efficiency (based on static pressure) or as a total efficiency (based on total pressure)11. The appropriate efficiency metric to use depends on the fan application. The testing and measurement of energy efficiency is based on the international

11 Static pressure relates to the downstream resistance to air flow faced by the fan. Total pressure is the sum of the dynamic pressure of the various components in a fan system, and relates to the work required to move the required volume of air from its inlet to its outlet. [E3 2012]


standard ISO5801: Industrial fans – Performance testing using standardised airways. [E3 2012] Detailed estimates of the average energy efficiency of the fan-units available on the Australian and New Zealand markets in 2013/14 are shown in Table A3 (static efficiency) and A4 (total efficiency) in Attachment A.2, broken down by fan type and size range.

The energy efficiency of fan-units can also be categorised by a number known as the Fan Motor Efficiency Grade (FMEG). The FMEG metric is based on the measured efficiency of the fan unit (ISO5801) using the calculations set out in ISO12759: 2010 Fans – efficiency classification of fans. The higher the FMEG the higher the efficiency of the fan-unit.


Figure 2 – Spread of fan-unit FMEGs for the different types of fan-units, weighted across all size ranges

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Data on the average, lowest and highest FMEG of fan-units available on the Australian and New Zealand markets in 2014/15 was collected as part of the fan industry data collection project for the different fan types and fan-unit size ranges. [EG 2015a] Figure 2 provides a summary of this information, and is based on weighting the data for each fan-unit type taking into account the sales in each size range. The full set of data collected, and graphs similar to Figure 2 for each capacity range, are provided in Attachment A.2 (pages 62 to 64).

It is evident from Figure 2 that for most fan-unit types12 there is a significant variation in the energy efficiency of the products which are currently available on the market, especially for the axial fans (Type 1), centrifugal forward curved and radial bladed fans (Type 2), centrifugal backward curved fans without housing (Type 3) and centrifugal backward curved fans with housing (Type 4). An inspection of the more detailed data in Attachment A.2 shows that this is especially the case for fan-units with an input power less than 4 kW. For fan-units that have axial fans this large variation in efficiency exists for all size ranges up to 185 kW.

Table 2 - How top-selling models compare to the current (Tier 2) EU minimum fan-unit efficiency levels

Efficiency status compared to EUFan Type

Type 1 Type 2 Type 3 Type 4 Type 5 Type 6

Less efficient than current EU minimum efficiency

31% 60% 21% 78% 67% 0%

More efficient than current EU minimum efficiency

69% 40% 79% 22% 33% 100%

The market survey data [EG 2015a] was used to compare the current state of the Australian and New Zealand market for fan-units with the European Union (EU) market, where minimum efficiency standards for fan-units have been in place since 201313. Analysis undertaken by Expert Group using the market data collected from suppliers, estimated that 37.1% of all fan-unit models on the Australian and New Zealand market in 2015, and 38.5% of the top-selling models, were less 12 Due to the limited product range and limited sales little data was available for the cross flow fans, meaning that for this fan category the data presented may not be typical of the whole market. For the larger fan sizes it was also difficult to get enough data to fully characterise the efficiency range of the products available on the market.13 Tier 1 MEPS levels were introduced in January 2013, and more stringent Tier 2 MEPS levels came into effect in January 2015.


efficient than the current EU minimum efficiency level. Estimates of the percentage of the top-selling fan-unit models in each category that either cannot meet or exceed the EU minimum efficiency levels are provided in Table 2. With the exception of Type 6 fan-units (mixed flow fans) it is clear that the efficiency levels are somewhat lower than in Europe, with between 21% and 78% of fan-units less efficient the EU minimum requirements, depending on fan type.

The data on the range of efficiencies of fan-units which are currently available on the market suggest that there is considerable scope to increase the average energy efficiency of the products sold on the Australian and New Zealand markets, thereby reducing the energy consumption of fan-units in their various end-use applications.

The fan-unit supply chain and energy efficiency

The supply chain for fan-units is complex, starting with the importer/manufacturer (boxes shaded in orange) and finishing with the end-users (boxes shaded in blue). The main elements of this supply chain are mapped out in Figure 3. The majority of fan-units sold into the Australian and New Zealand markets are imported either as separate units (fan-unit importer) or integrated into another piece of equipment (equipment importer), although there is also some local manufacture of fan-units. The market research undertaken for the preparation of this CRIS found that 30 companies were supplying fan-units into the Australian and New Zealand markets [EG 2015a, EC 2015].

Figure 3 – The supply chain for fan-units

The fan-unit importers/manufacturers either supply their products to Original Equipment Manufacturers (OEMs) – who incorporate them into domestic appliances (e.g. gas ducted heaters or ducted evaporative coolers) or into commercial equipment (e.g. ventilation systems) – or to equipment distributors. The equipment importers also supply their products to either the appliance distributors or to the equipment distributors. In some cases (e.g. gas ducted heaters and evaporative coolers) the OEMs might locally manufacture their own fan-units, or components of the fan-unit such as the impeller, for the appliances and equipment that they manufacture.


The domestic appliances make their way to the end-user households via appliance distributors and retailers. The supply chain for fan-units used in business applications is more complicated. In general the equipment distributor supplies the fan-units, or equipment incorporating the fan-units, to either a mechanical services contractor (for commercial buildings) or to an engineering contractor (for manufacturing enterprises) who install the equipment in a new building or production process, or replace an existing unit that has failed. These “contractors” might be separate organisations to the end-users, although for some larger organisations they might be an internal service department. The contractors might choose the equipment that is installed, or it may be specified by another party.

In Figure 3 the boxes shaded green indicate the points in the supply chain where decisions concerning the energy efficiency of the fan-units installed in Australia and New Zealand can be made. Local OEMs make decisions concerning the energy efficiency (and other characteristics) of the fan-units that they incorporate into the appliances and equipment that they manufacture. (For the equipment that is imported into Australia and New Zealand this decision will be made by an OEM located overseas.) For the residential appliances there is likely to be no further consideration of the efficiency of the fan-unit in the rest of the supply chain. The commercial equipment distributors will have little influence on the energy efficiency of the fan-units that are incorporated into the equipment that they sell (e.g. refrigeration display cabinets), but will be able to select the efficiency of the range of stand-alone fan-unit products that they sell (e.g. ventilation fans). From this point in the supply chain, the key decision maker regarding the energy efficiency of the fan-units can depend on whether the product is destined for a new building or production process or is a replacement for an existing unit which has failed, and it can also depend on the size of the end-user business:

• In the case of a new commercial building or a new production process the performance characteristics of the fan-units can be specified by either a mechanical services designer or an engineering designer. The contractors will then usually source and install equipment that meets this specification. The designers may be responding to a brief from the building/business manager, developer or owner, or might be responding to the requirements of the construction code. Designers are more likely to be involved in larger projects, and for smaller projects or smaller production processes the contractor might be the decision maker;

• In the case of a replacement fan-unit, the performance characteristics might be specified by a maintenance engineer in a large building or factory. In the case of smaller buildings or factory the decision is more likely to be made by the contractor.

An on-line survey was conducted as part of the Fan Industry Market Data Collection project [EG 2015a] to collect information on the sales process for fan-units to help understand the structure of the market, the importance of energy efficiency in the market, and to identify any market failures which could result in the fan-units being sold into the Australian and New Zealand markets not being efficient as they could be. The survey was provided to 30 fan-unit suppliers and 17 responses were received. These companies accounted for 56% of the total quantity of fan-units sold in Australia and for 55% of those sold in New Zealand: 70.6% of the companies which responded identified themselves as a ‘fan-unit supplier’, 29.4% as an ‘equipment manufacturer’, 11.8% as a ‘ducting, ventilation or other air handling equipment supplier’, 11.8% as a ‘contractor’, 5.9% as an ‘equipment wholesaler or reseller’, and 5.9% as a ‘specifier / designer / engineer’14.

Figure 4 – Supplier ranking of importance of factors in purchase decisions

14 Multiple responses were possible so the total adds up to more than 100%.


1.71

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Based on the survey responses it is estimated that 73% of the sales of these companies are into the Original Equipment Manufacturer (OEM) / New market and 27% are into the replacement market. The main buyers in these markets were found to be: - ‘engineer / specifier / designer’ (70.6%), ‘purchasing officer’ (41.2%), ‘contractor’ (29.4%), ‘internal technical staff’ (29.4%) and ‘building or equipment owner’ (5.9%). [EG 2015a]

The survey responses from the fan-unit suppliers suggest that energy efficiency and life-cycle operating costs rank fairly low in the order of importance for fan-unit buyers (see Figure 4); ‘sizing /suitability to task’ and ‘capital cost’ were ranked highest, and ‘energy efficiency’ and ‘life-cycle running cots’ were ranked well down the list at 5th and 6th. [EG 2015a]

The more detailed responses to this question indicated that ‘availability / lead time’ and ‘noise’ were also important considerations in the purchase decision, and that the ranking of the factors depended on the client purchasing the fan and/or the nature of the project. Energy efficiency and life-cycle costs were felt to rank more highly with mechanical design consultants and buyers who were responsible for paying their electricity bills. For larger projects the purchase cost was considered to be the over-riding consideration. A selection of the more detailed survey responses from fan-unit suppliers are provided below. [EG 2015a]

To supplement the market research undertaken with the fan-unit suppliers, and obtain an alternative view of the market, a small market research project was undertaken targeting



The ranking usually differs with Mechanical Consultants specifying a project. Energy and life cycle costs [are] typically a higher priority for them. Contractors and builders have [a] strong focus on pricing.

Generally, the buyers who are responsible for the ongoing utility payments are the most interested in energy efficiency and life cycle costs (e.g. Coles and Woolworths). The builders and contractors who are on-selling the job are more interested in capital costs and the ability of the product to survive past its warranty period (e.g. building developers, service technicians).

In larger projects it’s all about cost and whether the fan can perform the task on paper only. Brand, life-cycle costs, energy efficiency, durability and appearance are not even considered.

Source: EG 2015a

mechanical services designers and building managers15. Commercial buildings are one of the key areas of energy consumption for fan-units, especially in ventilation and air conditioning equipment.

The rankings obtained from the survey of the mechanical services designers are similar in many respects to those obtained from the wider industry survey, although energy efficiency is ranked much more highly (2nd instead of 5th). Sizing / suitability to task (1st), brand (4th), life-cycle operating costs (6th) and appearance (7th) received the same ranking. As with the wider fan industry survey, the mechanical services designers also identified noise (and vibration) as important considerations. The general consensus of the fan industry16 is that for a particular application more efficient fan-units generally result in less noise, as noise is a source of energy loss and this is one area of energy loss that is reduced when the more efficient fan-units are designed. In some cases more efficient fan-units may result in reduced vibration, although vibration is generally related to other issues, such as the quality and balancing grade of the fan, installation of the fan-unit and the application.

While the ranking of importance was the same for both ventilation and air conditioning equipment17, in general the mechanical services designers indicated that energy efficiency was a much more important consideration for air conditioning equipment than for fan-units, due to the higher capital cost and energy consumption of the air conditioning equipment [SV 2016]:

“Fans themselves don’t form a large part of the HVAC system as a whole. A shopping centre might have 40 or 50 fans of 0.5 kW each, while it has an air conditioning chiller of 100 to 200 kW. The chiller might cost $200 to $400 thousand, and all the fans together are much cheaper than this. A consultant will therefore focus much more time on the chiller selection and less on the fans as these are a lower priority.”

Fan energy consumption and greenhouse gas emissionsThe energy consumption of the stock of fan-units in any given year depends on a number of factors:

• the total number and type of fan-units installed;• the sector and end-use application of the fan-units;• the output power that the fan-units are required to provide for the end-use applications;• the energy efficiency of the fan-units; and,• the annual operating hours of the fan-units.

A detailed model of the stock of fan-units installed in Australia and New Zealand was developed by Energy Consult [EC 2015] using data collected from the fan industry market data collection project [EG 1015a], supplemented by further research on fans incorporated into other equipment and consultation with industry stakeholders via FMA-ANZ. The design of this model and its key assumptions are presented in Attachment A.2.

The stock model was used to estimate the energy consumption of fan-units in Australia and New Zealand over the period 2000 to 2030 under business-as-usual. This is based on the estimated stock and annual sales of fans detailed above, and the assumption that under business-as-usual there will be an autonomous improvement in the energy efficiency of new fan-units sold of 0.5% per annum. Greenhouse gas coefficients were applied to the energy consumption figures to estimate the greenhouse gas emissions resulting from the operation of the fan-units.

Energy consumption

The estimated total annual energy consumption of fan-units under business-as-usual over the period 2000 to 2030, broken down by sector and application is shown in Figure 5 (Australia) and Figure 6 (New Zealand). In Australia the total energy consumption of the fan-units is estimated to increase from 26,960 GWh in 2015 to 29,800 GWh in 2030. In New Zealand the total energy

15 The survey was undertaken by Sustainability Victoria, with assistance from DIIS. Surveys were sent to 5 people in Australia who initially agreed to participate in the survey. In the end responses were received from only 3 of these people, all involved with mechanical services design. One of the respondents worked for a property management company with a portfolio of commercial buildings.16 Based on responses from 5 major fan-unit suppliers who are members of FMA-ANZ, November 2016;17 Mechanical services designers were asked to rank ventilation equipment and air conditioning separately, as early initial discussions with designers indicated that there was a difference between these.


consumption is estimated to increase from 3,700 GWh in 2015 to 4,080 GWh in 2030. In both Australia (96.5%) and New Zealand (98.9%) the majority of the energy consumption is accounted for by the use of fan-units in commercial HVAC (heating, ventilation and cooling), commercial refrigeration and a range of other non-domestic applications. The use of fans-units in residential applications accounts for only a small proportion of the total consumption: 3.5% in Australia and 1.1% in New Zealand.

Based on the estimated size of the stock of fan-units, the average annual electricity consumption of the fan-units is around 2,840 kWh per year in Australia, and 3,590 kWh per year in New Zealand.

Figure 5 – Estimated fan-unit energy consumption, business-as-usual – Australia


Figure 6 – Estimated fan-unit energy consumption, business-as-usual – New Zealand

The stock model was used to provide further insights into the energy consumption of fan-units in both Australia and New Zealand (see Attachment A.4, Business as Usual for full detail). In terms of the different types of fan-units, energy consumption is dominated by fan-units that incorporate both axial fans and centrifugal forward curved and radial bladed fans (88.8% in Australia and 76.2% in New Zealand), although energy use by fan-units that incorporate centrifugal backward bladed fans, with and without housing, is also significant, especially in New Zealand (23.3%). In terms of the size range of the fan-units, energy consumption is dominated by fan-units in the >0.75 kW to < 4 kW input power range, which account for just under half of the total energy consumption, followed by fans in the >125 W kW to < 0.75 kW range (20.2% in Australia and 27.0% in New Zealand). The energy consumption of fans in the range of 4 to 30 kW is also significant: - 23.8% in Australia and 14.6% in New Zealand.

Greenhouse gas emissions

The estimated total annual greenhouse gas emissions of fan-units under business-as-usual over the period 2000 to 2030 for both Australia and New Zealand is shown in Figure 7. In Australia the greenhouse gas emissions are estimated to go from 27,450 kt CO2-e in 2015 to 27,290 kt CO2-e in 2030, and in New Zealand from 481 kt CO2-e in 2015 to 372 kt CO2-e in 2030. In both cases the greenhouse gas emissions are expected to decline slightly over the period 2015 to 2030 against a backdrop of increasing energy consumption. This is because the greenhouse intensity of the electricity supply in both countries is expected to decline over this period.

In 2014 Australia’s total greenhouse gas emissions were 523,310 kt CO2-e18, meaning that the

estimated emissions from the use of fan-units accounted for 5.2% of total emissions. In New Zealand total greenhouse gas emissions were 80,962 kt CO2-e

19, meaning that the estimated emissions from fan-units accounted for 0.7% of total emissions.

18 Australian Greenhouse Emissions Information System (AEGIS), http://ageis.climatechange .gov.au. The most recent data available is for 2014, and in this year greenhouse gas emissions from fan-units were estimated to be 27,129 kt CO2-e.19 New Zealand Greenhouse Gas Inventory 1990 – 2013, Ministry for the Environment, 10 April 2015. The most recent data is available for 2013, and in this year greenhouse gas emissions from fan-units were estimated to be 557 kt CO2-e.


Figure 7 – Estimated Greenhouse Gas Emissions from fan-units

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Current energy efficiency requirements for fansCurrently there are no explicit requirements for the energy efficiency of the fan-units which are supplied to the markets in Australia and New Zealand. There are no minimum energy performance standards (MEPS) applied to fan-units, although they can be incorporated into a range of equipment that is regulated for energy efficiency through the Equipment Energy Efficiency (E3) Program, including ducted air conditioners, three-phase packaged air conditioners and refrigeration display cabinets (RDCs). The MEPS regulations which apply to these products relate to the overall energy consumption of the equipment (e.g. the RDC) and the energy consumption of the fan-unit is usually a minor component of this, so the equipment level MEPS requirements may not impact on the energy efficiency of the fan-units used. Where the fan-unit is driven by a three-phase electric motor (0.75 kW to 185 kW) which can be physically separated from the fan, the motor will need to meet the regulated MEPS levels.

In Australia gas ducted heaters are required to carry a Gas Energy Rating Label as part of the gas appliance certification scheme, and the algorithm which underpins the energy rating includes the electricity consumption associated with the fan-unit. However, as the electricity consumption of the heaters is generally only around 2% to 3.5% of the gas consumption, there is little incentive for manufacturers to increase the energy efficiency of the fan-unit to achieve a higher energy rating.

Energy efficiency requirements included in the construction and building codes in Australia and New Zealand also have the potential to impact on the energy efficiency of fan-units. The New Zealand Building Code (NZBC) contains very broad and generic energy efficiency requirements and does not place any requirements on the energy efficiency of fan-units20. [EG 2015a] Other New Zealand measures that have some potential to influence the use of more efficient fan-units are: the Government Property Group’s specifications for government buildings; New Zealand’s NABERSNZ™ commercial building rating tool (at least at the premium end of the market); and a Fan Systems Audit Standard that has been developed by EECA and the Energy Management Association of New Zealand (EMANZ)21 to provide a quality ‘whole-system’ auditing methodology for fan systems in common use in New Zealand industry. With respect to this auditing standard, the fans in such systems tend to be embedded and difficult to change; therefore this standard would be complemented by measures that directly address the efficiency of the fan-unit.

20 In relation to HVAC systems the NZBC only requires that a system must be located, constructed and installed to: limit energy use, consistent with the intended use of the space; and enable them to be maintained to ensure their use of energy remains limited, consistent with the intended use of the space. The Code also provides a guidance document for HVAC systems (which includes fans) but there is no requirement to follow it.21 http://www.emanz.org.nz/system/files/FanSystems_AuditStd_v1.1_UpdatedJun2015.pdf


The Australian National Construction Code (NCC) sets the minimum requirements for the design, construction and performance of buildings throughout Australia, and contains an energy efficiency section, referred to as Section J, in NCC Volume One that applies to commercial buildings. Australian States and Territories adopted the NCC 2015 as of 1 May 2015.22 It contains specifications in J5.2a Fans that prescribe the energy efficiency requirements for fans used as part of an air-conditioning system or a mechanical ventilation system (including car park exhaust) in buildings.

The energy efficiency provisions in the NCC are quite different to the energy efficiency requirements which would be required if a MEPS was introduced for fan-units [EG 2015a]. The NCC takes a system approach to the mechanical services of buildings and sets maximum design limits for the power of the fan motor for fans used in air-conditioning and ventilation systems. This is different to MEPS regulations that target efficiency levels of equipment (i.e. split air conditioners) or components (i.e. fan-units), and which apply to all new equipment sold. Further details of the requirements in the NCC that impact on fan power are provided in Attachment B.

Most mechanical services designers surveyed [SV 2016] felt that Section J5.2a of the NCC was having some impact on the overall energy efficiency of ventilation and air conditioning systems, including the choice of fan-unit. For example: “Already have Section J, and these are reasonably stringent rules. We used to select small fans that run fast and were driven by big motors, but now choose large fans that run more slowly and are driven by smaller motors. However, … in ventilation of commercial buildings there are size constraints which limit the size of the fan that can be used.” [SV 2016] The mechanical services designers noted that they took Section J into account when preparing their designs, although the fan-units chosen were the ones that meant the overall ventilation or air conditioning system just complied with the requirements. Some designers noted that installation contractors did not always install the fan-units they specified.

In summary, in Australia both the NCC and MEPS play important and complementary but separate regulatory roles, with the NCC regulating fan power to drive appropriate practice in system design and a potential fan-unit MEPS being a more precise instrument to drive improvement of fan-unit efficiency.

SummaryFan-units (a motor plus fan combination) generally consume small amounts of electricity each year in isolation, but a large amount of electricity each year in aggregate across Australia and New Zealand, and this total energy consumption will continue to grow in coming years under business-as-usual. Most electricity used in Australia, and to a lesser extent New Zealand, results in greenhouse gas emissions from electricity generation, as well as other environmental emissions. Australia has no price signal and New Zealand has only a relatively weak price signal to address these negative environmental externalities.

In lieu of a carbon price, governments have chosen to regulate the efficiency of energy use associated with fan-units either at the system level via building codes (Australia only) or at the equipment level via, for example, MEPS for ducted and three-phase packaged air conditioners.

For all fan-unit types considered in this Consultation RIS there is a fairly wide spread of efficiencies in the products currently available on the market, and scope to achieve energy savings, greenhouse abatement and energy productivity improvements by increasing the average energy efficiency of products sold. While the existing measures could influence the selection of fan-units embedded in systems or some equipment, fan-units generally do not account for a significant amount of the electricity used at the system or equipment level, and also generally account for only a small proportion of the capital cost. So, while current regulations may influence the efficiency of the fan-units selected, evidence to date suggests that this effect has been minor, and mechanical services designers and equipment suppliers have looked to other ways of meeting the efficiency requirements. Finally, most fan-units are selected by the equipment supplier, mechanical services

22 It should be noted that the adoption of NCC 2015 is a State and Territory matter, and there are some variations, for example the Northern Territory excludes requirements under Section J for commercial buildings.


supplier or installation contractor, and not the end-user, so there is a focus on lowest cost products and whole-of life costs are rarely taken into account in their selection.

Consultation Questions


1. Is the data presented in the Consultation RIS on the annual sales of fan-units consistent with your understanding of the overall market in Australia and/or New Zealand? If not, are you able to provide alternative sales data?

2. Do you think we have adequately described the supply chain for fan-units in Australia and New Zealand and the key points where decisions regarding energy efficiency are made?

3. Do you think we have adequately described the major factors that buyers, or other market actors, consider when buying a fan-unit, and the relative importance of these factors? Do these factors depend on the type of buyer, or other market actor?

4. Is the data presented on the energy efficiency of the different types of fan-units available on the market consistent with your understanding? If not, are you able to provide alternative efficiency data?

5. Do you think that the spread of energy efficiencies that exist for the different fan types, means that it would be feasible to increase the energy efficiency of the fan-units sold on the Australian and New Zealand markets?

6. If your company sells fan-units into both the European and Australian-New Zealand markets, is the energy efficiency of the products sold into the European market generally higher than the efficiency of products sold into the local market? Are you able to comment on the reasons for any observed differences?

7. Do you think that the energy efficiency of fan-units sold into the Australian-New Zealand markets could be improved at relatively low cost by governments regulating energy efficiency requirements at the component (fan-unit) level? If so, why?

8. What impact do you think that the MEPS regulations for refrigerative air conditioners and refrigeration display cabinets have on the energy efficiency of the fan-units incorporated into these products?

9. In Australia, what impact do you think the Section J requirements in the National Construction Code have on the energy efficiency of fan-units used for ventilation and air conditioning applications in commercial buildings?

IntroductionIn this section we summarise the key elements of the problem which has been identified, and which government intervention in the market for fan-units could address. We also discuss the market failures which may result in fan-units being sold into the Australian and New Zealand markets which are less efficient than they could otherwise be.

Summary of the problemFan-units account for a significant amount of energy consumption and greenhouse gas emissions in both Australia and New Zealand. In Australia it is estimated that in 2015 they accounted for 26,960 GWh of electricity consumption and 27,450 kt CO2-e of greenhouse gas emissions. In New Zealand it is estimated that in 2015 they accounted for 3,700 GWh of electricity consumption and 481 kt CO2-e of greenhouse gas emissions. In both countries the energy consumption of fan-units is expected to grow in coming years although greenhouse emissions are expected to decline slightly due the greenhouse intensity of the electricity supply decreasing.

In both Australia and New Zealand the electricity used by fan-units results in negative environmental externalities in terms of greenhouse gas emissions and a range of environmental emissions from fossil fuel electricity generation which have detrimental health impacts, although due to a much higher proportion of renewable electricity generation these externalities are much lower in New Zealand. In Australia the cost of the greenhouse gas emissions are not factored in to the price of electricity and in New Zealand the carbon price associated with electricity use is (as suggested in a recent review23) not sufficient to drive significant carbon abatement. In both countries the negative health impacts of fossil fuel generation are not factored into the price of electricity. There is evidence of a strong negative externality associated with the electricity consumption of fan-units in Australia and evidence of a more limited negative externality in New Zealand.

Both Australia and New Zealand have international commitments under the Paris Agreement to reduce national greenhouse gas emissions, and government policies which seek to reduce these emissions. Analysis of the impact of the Equipment Energy Efficiency (E3) Program, as well as the previous analysis undertaken on government intervention to increase the energy efficiency of new fan-units sold, suggest that MEPS for fan-units could achieve abatement at a significantly lower cost, in fact at a net negative cost, compared to the existing policy approaches.

Market research conducted with the assistance of major fan industry suppliers during the preparation of this CRIS shows that there is a significant spread in the energy efficiency of fan-units available on the Australian and New Zealand markets, especially for the fan-units driven by a motor with an input power less than 4 kW, and axial fans in general, and that the efficiency of fan-units available in local markets is lower than in the European Union where regulated minimum standards have been in place since January 2013. The market research also suggests that this lower level of energy efficiency is mainly due to principle-agent problems (or a split incentives) whereby agents (equipment suppliers, mechanical services designers, installation contractors) focussed primarily on upfront costs purchase fan-units on behalf of the end-users who pay the energy bills.

23 See the recent Media Release by the NZ Minister for Climate Change Issues (https://www.beehive.govt.nz/release/submissions-close-ets-review-phase-one ) and the report on the review of the NZ ETS (The New Zealand Emissions Trading Scheme Review 2016, Ministry for the Environment, February 2016.)


2. What is the Problem?


Evidence of market failuresMarket failures exist when, left in its current state (business-as-usual), the market fails to allocate resources efficiently from the perspective of overall community wellbeing (economic, social and environmental). The negative environmental externality noted above is one such market failure. Market research with fan-unit suppliers [EG 2015a], and a smaller research project undertaken with mechanical services designers [SV 2016], suggests that there are a range of other market failures in both Australia and New Zealand which mean that the energy efficiency of fan-units is not as high as it could, or should, be to maximise community wellbeing. The evidence collected to date suggests that the principle-agent problem (or split incentives) is the main market failure which impacts on fan-unit sales and, while there is also evidence of information failures and behavioural issues, the dominance of the principle-agent problem means these have only a second order effect.

Below we provide an overview of the market failures that are relevant to fan-units. A more detailed discussion of the evidence collected to date for the existence of these market failures is provided in Attachment D.

Negative externalities

A negative externality exists if one party imposes “costs on others that are not compensated through market prices” [OBPR 2013]. In Australia, in the absence of a carbon price, the greenhouse gas emissions which result from the electricity consumption of fan-units (27,450 kt CO2-e in 2015) represent a negative environmental externality. This is due to climate change - resulting from the increasing concentration of greenhouse gasses (such as carbon dioxide) in the atmosphere driving a global warming trend – imposing costs on the community. This includes, for example, rising sea levels (flooding and increased storm damage), a trend to more frequent days of extreme heat in summer (potential health impacts, increased risk of bushfires), and a trend to lower rainfall in Southern Australia (droughts, impact on farming) combined with more frequent high intensity rain events (flooding and storm damage, etc)24.

Greenhouse gas emissions resulting from the use of fan-units in New Zealand are much lower than in Australia, and were estimated to be 481 kt CO2-e in 2015. This reflects the much lower greenhouse intensity of electricity generation in New Zealand due to the much higher level of renewable electricity generation. New Zealand does, however, have some fossil fuel electricity generation. New Zealand has an Emissions Trading Scheme (ETS) and a carbon price; however, the current price25 is considered to be insufficient to drive significant emissions reduction26. So, while there is a carbon price in New Zealand, it may not fully reflect the cost of the greenhouse externality resulting from electricity use.

Greenhouse gas emissions are not the only environmental externality of electricity consumption. The generation of electricity from thermal (largely fossil fuel) power stations results in significant fresh water consumption27 as well as a range of atmospheric emissions which have negative health impacts28 that are not factored into the price of electricity. We have not quantified the cost of these other environmental externalities in this CRIS.

24 A number of recent reports by scientific organisations have documented the current and projected impacts of climate change in Australia. For example see: The Science of Climate Change – Questions and Answers, Australian Academy of Science, February 2015; Climate Change in Australia – Projections for Australia’s NRM Regions, CSIRO with Bureau of Meteorology, 2015.25 During 2015 the price was generally in the range of NZ$5 to $10 per tonne.26 See the recent Media Release by the NZ Minister for Climate Change Issues (https://www.beehive.govt.nz/release/submissions-close-ets-review-phase-one ) and the report on the review of the NZ ETS (The New Zealand Emissions Trading Scheme Review 2016, Ministry for the Environment, February 2016.)27 Thermal power stations, mainly coal-fired power stations, are estimated to be responsible for around 1.4% of Australia’s total water consumption. Coal-fired power stations are estimated to have an average water intensity of 1.51 Mega litres per GWh and gas fired power stations have an average water intensity of 0.56 Mega litres per GWh. [NWC 2009]28 The emissions include fine particles (PM10), sulphur dioxide (SO2) and nitrogen oxides (NOx), which can result in respiratory and cardiovascular disease. It is estimated that the health cost of fossil-fuel electricity generation in Australia is around $13.2 per MWh, resulting in an aggregated national health burden of around $2.6 Billion. [AATS 2007]



Principle-agent problems

The principle-agent problem, also referred to as a split-incentive, exists when the interests of the “principle” are not aligned with the interests of the “agent”. [OBPR 2013] In the context of energy efficiency and fan-units this would mean that the choice of the fan-unit was not made by the end user (household, building tenant or factory owner) – who pays the energy bills and therefore overall lifecycle costs - but by another party (the agent), and that this party had an incentive to choose lower cost, lower efficiency fan-units which have higher energy costs and higher life-cycle costs. This agent might be an equipment manufacturer, a builder, a contractor or installer, an engineering department or purchasing officer.


The survey of fan-unit suppliers [EG 2015a] suggests that the market for fan-units in Australia and New Zealand is dominated by agents (94.1%), who tend to focus on the upfront purchase cost (more efficient fan-units tend to be more expensive) and give less weight to the lifecycle costs as they are not responsible for paying the energy bills. Equipment end-users play only a minor role.

Mechanical services designers are one of the agents involved in the selection process. They reported that they gave energy efficiency a higher priority (to the extent that it was necessary to meet the Section J requirements in Australia’s NCC), although they did not consider lifecycle costs as a priority. The functional characteristics of the fan-units were considered to be more important (e.g. suitability for the task, ability of a ventilation fan to fit in the space available, acoustics). [SV 2016] One designer noted that the market in Australia is driven largely by a “first cost” mentality:

“I must say I have a fairly pessimistic outlook for the industry in this regard. Even if manufacturers did offer more efficient units the market is so first cost driven in Australia that it would rarely be taken up. Consultants that may wish to specify more efficient units will be hamstrung by a … design and construct contract with the head contractor which will inevitably result in a cheaper, equivalent, less efficient unit being installed.” [SV 2016]

The supplier survey also found that, with the exception of mixed flow fans29, there was a considerable range in the energy efficiency of all fan-unit types currently available on the market (see 1. Introduction, Energy efficiency of fan-units being sold). This means that if agents are choosing the lower efficiency, lower cost models, the end users will have higher annual energy bills as well as larger life-cycle costs than is necessary. [EG 2015a] The example provided below illustrates the impact of upgrading a relatively low efficiency fan-unit that could not meet the EU Tier 1 MEPS levels to one that can just meet the current EU (Tier 2) MEPS levels. (Further information on the paybacks from this upgrade for a range of fan types and applications is provided in Tables A33 to A37 and Attachment A.5.)

Given the fairly wide spread in the energy efficiency of the products available on the market, especially for fan-units less than 4 kW and axial fans generally, a focus on low cost relatively inefficient products means that the end-users will face higher lifecycle costs than necessary. Where the small number of end-users are involved in the purchase decision, suppliers note that they have a much higher interest in energy efficiency and lifecycle costs, suggesting that the agent focus on upfront cost does not align with the interests of the end-users. [EG 2015a]

29 Only a small number of mixed flow fans were identified as part of the market survey, so data for this fan type is less reliable than for the others.



We supply to the OEM market and are 3 to 4 steps away from the end user that pays the energy bill and sees the energy savings. Projects are based on cost and at the end of the day the end user gets what suits the bill.We sell to the OEM of HVAC equipment. Their main concern is very often cost, especially for products in the domestic market where the end user is not well aware / does not show much appreciation of energy efficiency.Customers never buy on lifecycle costs. They are only interested in selling their unit and not the advantages that a high efficiency fan might make inside their unit.The contractor is only installing the fan, not paying for the ongoing running costs so he does not care. In his mind as long as I tick all the boxes cheapest is best.Our customer is not always the end user of the product or the person paying the energy bill. In many cases the customer is looking for the lowest cost option to win the job. This is slowly changing but has some way to go.

Source: EG 2015a

Information failures

An information failure exists when buyers “lack sufficient information about a product or service, or the information between buyers and sellers is asymmetrical” leading to sub-optimal buyer choices. [OBPR 2013] For fan-units this could mean that buyers have insufficient information to compare the energy efficiency of different models, or do not have sufficient information to calculate the annual energy costs of different fan-units, and so are unable to select the products with the lowest lifetime costs (purchase, installation and maintenance costs plus lifetime energy costs).

Currently there is no requirement for fan-units to have an energy rating or to disclose information about their energy efficiency in a standardised way. Information on the performance of fan-units is generally available on-line from supplier websites, either directly or from product catalogues. An inspection of the websites of a number of major suppliers suggests that little, if any, information is directly available on the energy efficiency of their fan-units. Some websites did promote high efficiency models, usually fan-units with electrically commutated (EC) motors, although this was generally not supported by information which would allow energy efficiency and running cost comparisons with their standard fan-unit models. There is no central repository of this information which would allow buyers to make a comparison of the different models available on the market. To compare the performance and energy efficiency of the fan-units which are available to suit a particular application a buyer would need to visit the websites of a number of suppliers and download the relevant information. Price information is unlikely to be available without obtaining a quotation for each model being considered.

Mechanical services designers reported that they had easy access to energy efficiency information via on-line selection tools available on some supplier websites, although only one supplier was considered to have a good quality tool for its product range. The designers also found it difficult to access lifecycle cost information. [SV 2016]

While the majority of suppliers (88.2%) felt that they had enough information to provide buyers with lifecycle cost comparisons, only 11.7% of suppliers reported that they normally provide these comparisons in sales presentations, meaning that it is difficult for buyers to understand the lifecycle cost implications of their product choices. [EG 2015a] As the cost of energy dominates the lifecycle cost of a fan-unit (typically around 67%) this means that poorly informed buyers who choose the lowest cost, least efficient, fans face significantly larger lifecycle costs.

The evidence obtained from the industry market surveys suggests that there is an information failure which is resulting in fan-units being sold that are less efficient that they could be, and that this failure could affect up to 65% of the market.



The fan-unit operates for 9.6 hours per day (3,500 hours per year) and has an expected life of 15 years. The electricity tariff is 17 c/kWh.Required fan output power: 0.6 kWEfficiency of fan-unit 1: 29% (just below EU Tier 1 MEPS) -> Input power = 2.07 kWEfficiency of fan-unit 2: 35% (just above EU Tier 2 MEPS) -> Input power = 1.71 kWAdditional cost of fan-unit 2 = $137Annual energy saving = 1,241 kWh per year -> Annual energy bill saving = $211 per yearPayback on the additional cost of fan-unit 2 = 0.65 yearsLifetime energy bill saving = $3,166 (undiscounted, no increase in tariff) or 23 times the additional cost.Total life-cycle cost saving = $3,028 (undiscounted, no increase in tariff)

Behavioural issues

Behavioural market failures (sometimes called bounded rationality) exist when buyers make, or are perceived to make, choices which are against their own best interest. [OBPR 2013] Even though buyers may have access to sufficient information, they may make sub-optimal decisions, as their knowledge and processing abilities may be limited, loss aversion30, or because rather than using this information they resort to rules of thumb or cultural/organisational norms. In terms of equipment this could result in buyers who place an excessively high discount rate on future running costs, and focus instead on upfront cost, or have a bias towards standard equipment (the ‘status quo’) rather than considering more efficient equipment [OBPR 2013].

There is evidence that fan-unit buyers place an excessively high discount rate on future running costs, with suppliers reporting that 58.8% of buyers require a payback of 2 years or less if they are to purchase a more efficient fan-unit. [EG2015a] The mechanical services designers surveyed noted that paybacks of 2 to 5 years were generally required by their clients, although government and institutional clients might accept a longer payback (8 to 10 years). The typical average (50%) life of a fan-unit ranges from 12 to 20 years. Given than energy costs are estimated to account for around 67% of the overall life cycle costs of the fan-unit, this requirement for a very rapid payback period means that life cycle costs are not as low as they could be.

There is also evidence that a significant proportion of buyers are either unable to assess information on energy efficiency or lifecycle costs or do not have the time to do so (especially for the smaller, < 4 kW units) [EG 2015a], and that some buyers (e.g. mechanical services designers and other consultants) tend to use tried and tested standard solutions rather than consider alternative higher efficiency solutions which could minimise the lifecycle costs for the end-user [E3 2012]. One of the mechanical services designers stated: “The vast majority of consultants are re-using specifications that were written decades ago. Most don’t even check that their designs and the selection of the contractor comply with the BCA energy efficiency requirements.” [SV 2016]

30 Loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. https://en.wikipedia.org/wiki/Loss_aversion


https://en.wikipedia.org/wiki/Loss_aversion

Consultation questions


1. What role do you think that energy efficiency and lifecycle cost play in the decision process for buying a fan unit? Do you think that the importance of these factors is different for different market actors, e.g. Original Equipment Manufacturers, Distributors/Retailers, design engineers, and end users;

2. Do you think that buyers of fan-units are optimising the lifecycle costs of the fan-units they buy (purchase cost and lifetime running cost)? If not – why not?

3. Do you think that higher cost electricity, resulting from a carbon price, would increase the energy efficiency of fan-units sold on the Australian and New Zealand markets?

4. The market research undertaken for this Consultation RIS suggests that ‘agents’ dominate the purchase process for fan-units and that end-users only play a minor role in purchase decisions. Do you agree with this? If “yes” what implications do you think this has for the energy efficiency of the fan-units which are purchased?

5. Do you think it is easy for buyers or other market actors to access information on the energy efficiency and lifecycle costs of fan-units available on the market? If not, why not?

6. Do you think that access to information has a significant impact on the energy efficiency of the fan-units sold?

7. Do you think that the market for fan-units in Australia and New Zealand has a focus on low first cost and low payback? Does this depend on the nature of the buyer?

8. The market research undertaken for this Consultation RIS suggests that more energy efficient fan-units cost more to buy than standard fan-units. Do you agree with this assumption? If not why not?

9. Of the potential market barriers discussed in this Consultation RIS – environmental externalities, principle-agent problems (split-incentive), information failures and behavioural issues – which one(s) do you think have the greatest impact on the energy efficiency of the fan-units sold?

IntroductionThis section summarises the case for government intervention to increase the energy efficiency of fan-units sold into the Australian and New Zealand markets, and outlines the proposed objectives of this intervention.

Why is intervention needed?Improving fan-unit efficiency can help meet national emissions targets

Under the Paris Agreement both Australia and New Zealand have committed to significant reductions in their national greenhouse gas emissions, to mitigate the impacts of climate change: Australia a reduction of 26% to 28% on 2005 levels by 2030; New Zealand a reduction of 30% on 2005 levels by 2030. In both countries, energy efficiency policies and programs are expected to make an important contribution to achieving these targets.

Fan-units are responsible for a significant amount greenhouse gas emissions in both Australia and New Zealand, and government intervention to increase the energy efficiency of the new units sold could achieve very cost-effective greenhouse gas abatement. The analysis undertaken for this CRIS suggests a net (negative) cost of abatement of around –$68 to -$78 per tonne in Australia and –$204 to -$276 per tonne in New Zealand31, significantly lower than the cost of greenhouse gas abatement under the other main policies operating in both Australia and New Zealand.

Improving fan-unit efficiency improves energy productivity

Improvements in the energy efficiency of the new fan-units sold could also contribute to productivity gains, increased competitiveness and better economic performance generally, as businesses and households would require less energy for ventilation and blowing applications. A failure to improve the energy efficiency of the stock of fan-units could make Australian and New Zealand goods less competitive internationally and increase living costs for households, compared to other countries with a more energy efficient stock.

For New Zealand, which has been slower to improve its energy productivity than some other OECD countries, less-than-optimal energy productivity is a significant issue as many of its key exports are energy-intensive to produce. To remain competitive it must manage and reduce energy use and costs, and use its renewable electricity supply more productively. This will help to build a more competitive and productive economy by enabling individuals and businesses to get more value and benefit from the energy they use, thereby freeing up money for other purposes.32

Both Australia and New Zealand have national policies seeking to increase energy productivity, the National Energy Productivity Plan (NEPP) in Australia and The New Zealand Energy Efficiency and Conservation Strategy 2017-202233 (currently being finalised). The Australian Government has committed to increase energy productivity by 40% between 2015 and 2030, and to achieve this it must increase its annual productivity improvement from 1.5% per annum to 2.3% per annum. The E3 Program is expected to make an important contribution to achieving Australia’s energy

31 These estimates are based on estimated cumulative greenhouse gas abatement and NPV of the policy options to 2030 from the main cost-benefit analysis, with no shadow carbon price included, and discount rates of 7% for Australia and 6% for New Zealand.32 See http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-strategies/consultation-draft-replacement-new-zealand-energy-efficiency-and-conservation-strategy/draft-replacement-nzeec-strategy.pdf 33 New Zealand Energy Efficiency and Conservation Strategy: http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-strategies/consultation-draft-replacement-new-zealand-energy-efficiency-and-conservation-strategy/draft-replacement-nzeec-strategy.pdf


3. Why is Government Action Needed?






productivity target, as well as energy productivity improvements in New Zealand, and fan-units have been identified as one of the priority products to be considered for action under the E3 Prioritisation Plan, approved by the COAG Energy Council in May 2016.

Government action could help address market failures

The presence of market failures mean that markets, left to themselves, do not maximise private (household and business) or overall community wellbeing. The two key market failures relevant to fan-units are the negative environmental externalities associated with the greenhouse and other environmental emissions that result from the electricity used by fan-units (much higher in Australia than New Zealand), and the principle-agent problem whereby agents (e.g. appliance and equipment manufacturers, designers, builders, installation contractors) dominate the choice of the fan-unit and have a focus of lowest upfront cost, rather than minimising the lifecycle costs for the end-users (e.g. households, building tenant, business). The research undertaken for this CRIS also found evidence of information failures and behavioural issues, although these were considered to be less important.

Other countries has successfully improved fan-unit efficiency

The European Union (EU) introduced initial (Tier 1) MEPS regulations for fan-units in 2013 and made these more stringent (Tier 2) in 2015. The market survey of suppliers undertaken for this CRIS found that 37.1% of the fan-units supplied into Australian and New Zealand markets in 2015, and 38.5% of the top-selling models, were less efficient than the current EU MEPS levels.

What are the objectives of government intervention?The objective of the proposed government action is to increase the average energy efficiency of new fan-units supplied into the Australian and New Zealand markets compared to business-as-usual levels to:

• reduce the negative environmental externalities associated with the electricity consumed by fan-units, especially greenhouse gas emissions34;

• reduce energy use and costs for households and businesses; and• increase energy productivity (and therefore business competitiveness).

The expected energy efficiency improvement for fan-units is outlined in the E3 Prioritisation Plan, approved by the COAG Energy Council in May 2016.

The proposed intervention is required to address a range of market failures that impede, to some degree, the supply and/or purchase of energy efficient fan-units into the Australian and New Zealand markets, resulting in higher lifecycle costs and greater negative environmental externalities than are necessary to satisfy the energy service (moving or blowing air) that is provided by the fan-units.

The objectives of this CRIS are consistent with the principles of best practice regulation as defined in the COAG RIS Guidelines, including Principle 4 which requires that “In accordance with the Competition Principles Agreement, legislation should not restrict competition unless it can be demonstrated that the benefits of the restrictions to the community as a whole outweigh the costs; and the objectives of the regulation can only be achieved by restricting competition”.35

Without government action, the transition to more efficient fan-units in Australia and New Zealand will be slow and incomplete, with more energy being consumed and greater greenhouse gas emissions, and higher electricity costs for households and businesses than is necessary.

34 Due to a higher proportion of renewable electricity generation in New Zealand, the negative environmental externalities linked to greenhouse gas emissions are less of an issue for New Zealand than Australia.35 The COAG RIS guidelines are broadly consistent with the New Zealand Government RIS guidelines.


IntroductionThe following policy options are considered to address the problem identified in this CRIS:

Business as Usual – no restrictions on the energy efficiency of fan-units sold;

Purchaser education program – web based provision of information on purchasing more efficient fan-units;

Regulated minimum energy performance standards (MEPS) for fan-units – options considered include following the EU regulations (fully or only up to 185 kW), and a range of possible exclusions from the EU regulations which have been requested by some industry stakeholders.

Option A - Business as usualUnder business as usual (BAU) there would continue to be no explicit limits placed on the energy efficiency of fan-units sold into the Australian and New Zealand markets, although some fan-units would be incorporated into products that were regulated for MEPS, and in Australia the National Construction Code requirements (Section J5.2a Fans) that prescribe system level energy efficiency requirements for fans used as part of an air-conditioning or mechanical ventilation system in a commercial building would apply. Where fan-units incorporate a three-phase induction motor that can be separated from the fan, the motor would be subjected to MEPS requirements. In Australia, there would also potentially be financial incentives available for upgrading the energy efficiency of fan systems through the Emissions Reduction Fund and the various State and Territory government white certificate schemes.

In 2012 the Fan Manufacturers Association of Australia and New Zealand (FMA-ANZ) developed the FMA-ANZ Voluntary Performance Code36. Under this Code members of the Association can use the on-line Voluntary Performance Code Calculator37 to assess the energy efficiency of their fan-units against the MEPS for fan-units introduced into the European Union in 2013. The calculator assesses whether the efficiency meets the Tier 1 MEPS levels introduced in 2013 or whether it meets the more stringent Tier 2 MEPS levels introduced in 2015. In this latter case the units are deemed to meet High Efficiency Performance Standards (HEPS). Companies can use this calculator to help identify the efficiency of their products as part of the promotion and sales process. The Code is non-binding on FMA-ANZ members and the Association does not audit compliance with the Code or promote it actively to buyers.

Our assessment is that under the BAU scenario there will be some improvement in the energy efficiency of new fan-units sold, due mainly to technological change and, to a limited extent, the requirements in the NCC in Australia and incentive programs. It is estimated that this will result in autonomous energy efficiency improvements of 0.5% per year.

The projected energy consumption and greenhouse gas emissions from fan-units under the BAU scenario are set out in Chapter 1. Introduction and in Attachment A.5.

Option B - Purchaser education programA purchaser education program could be developed by government in conjunction with industry stakeholders to educate fan-unit consumers about how to select fan-units to minimise overall lifecycle costs. This could make information and other resources (e.g. selection tools) easily

36 FMA-ANZ Voluntary Performance Code, 24 May 2012. See: http://www.fmaanz.com.au/ 37 http://www.fmaanz.com.au/index.php?option=com_wrapper&view=wrapper&Itemid=54


4. Policy Options

http://www.fmaanz.com.au/index.php?option=com_wrapper&view=wrapper&Itemid=54

http://www.fmaanz.com.au/

available on-line, although would need to be supported by promotional activities to make consumers and suppliers aware of the resource.

To be effective the purchaser education program would need to be a reasonably large and well-funded program. While this could address some of the information failures associated with purchasing fan-units, it would be unlikely to address the principle-agent problems and behavioural issues.

In Australia a purchaser education program already exists to a limited extent in the form of the Energy Efficiency Exchange website (http://eex.gov.au) hosted by the Department of the Environment and Energy. This website provides fairly generic information on saving energy in a range of business applications and, in addition to information on a range of equipment, includes information on pumps and fans38, covering system optimisation and also optimising the selection of new pumps and fans.

An issue for the fan-unit market is that choosing appropriate fan-units which meet up-front cost, technical performance and energy efficiency criteria for a specific application can involve complex decision making and, as the survey of suppliers [EG 2015a] indicated, only occasionally did the buyers appear to have the skills and knowledge needed to assess life cycle energy costs of fans. A purchaser education program on its own is only likely to be able to raise the skill level of a minority of buyers who already have the appropriate technical background, and may be able to address this apparent lack of skills and knowledge needed to assess life cycle energy costs of fans. Further, in the absence of readily available and standardised information on fan-unit efficiency, either available in a central repository or on supplier websites, it would still be difficult for consumers which are educated through this program to identify the fan-units which had the lowest lifecycle cost for a specific application.

Option C - Minimum energy performance standards for fansMandatory minimum energy performance standards (MEPS) could be introduced for fan-units. These would establish a minimum energy efficiency level and limit the sale of fan-units to only those models which were able to meet or exceed this level, thereby removing the least efficient models from the market. This policy measure has been used as part of the E3 Program since 1999 and now applies to around twenty-two residential, commercial and industrial products39. In the case of products used in commercial and industrial applications, a regulated MEPS level is usually accompanied by a high efficiency performance standard (HEPS) level which can be used to identify the high efficiency products.

A regulated MEPS level for fan-units would apply to the sale of all fan-units which fell within the scope of the regulation. It would therefore help to address the principle-agent problem and behavioural issues associated with the sale of fan-units as it would mean that it was no longer possible to purchase the least efficient units with the greatest lifecycle costs. It would also help to reduce the impact of the information failures relating to fan-units. As it would eliminate the least efficient models from the market, the average efficiency of the fan-units sold into the Australian and New Zealand market would increase, reducing fan-unit energy consumption and therefore the negative environmental externalities associated with this. A regulated MEPS level is expected to be much more effective at driving efficiency improvements than a purchaser education program, as it would apply to all sales. However, there would be a range of business compliance costs associated with a regulatory regime40, as well as a compliance and enforcement regime.

The requirement to test the fan-units to determine their energy efficiency level for MEPS, and the specification of HEPS levels, may also lead to additional energy savings (not included in the modelling for this CRIS), as they could raise awareness of fan-unit energy efficiency and facilitate purchaser education and selection tools.

38 https://www.eex.gov.au/technologies/pumps-and-fans-2 39 For a full list of the products currently regulated see: http://www.energyrating.gov.au/suppliers/registration/regulated-products 40 This includes costs associated to educating staff about the scheme, testing products, registering products and internal monitoring of compliance.


http://www.energyrating.gov.au/suppliers/registration/regulated-products

https://www.eex.gov.au/technologies/pumps-and-fans-2

http://eex.gov.au/

As part of the research for this Consultation RIS, Expert Group undertook an international review to identify regulatory regimes for fan-units which apply in other countries or regions [EG 2015b]. This built on previous work undertaken for the 2o10 Discussion Paper on industrial equipment [E3 2010] and the 2012 Product Profile on non-domestic fans [E3 2012]. The results of this international review are summarised in Attachment F.

Currently, the European Union and China are the main jurisdictions that have regulated MEPS for fans or fan-units. These requirements apply to fans or fan-units that are supplied into either the European Union or Chinese markets respectively, and do not apply to products that are manufactured in these regions but exported to other countries (such as Australia and New Zealand). Where regulations are implemented through the E3 Program, best practice principles suggest that where possible the regulatory requirements – both test standards and regulatory levels – should be aligned with major international schemes, as this has the potential to reduced compliance costs. The fan-unit suppliers to the Australian and New Zealand markets are closely aligned with the European market, and in consultations relating to the 2010 Discussion Paper and the 2012 Product Profile, the local fan-unit suppliers have expressed a strong preference for any future regulations to be based on the current European Union fan regulations41.

The EU Regulations apply to fans driven by motors with an electric input power between 125 W and 500 kW, including fans integrated into other products (except where specifically excluded). A fan is defined as being a “rotary bladed machine that is used to maintain a continuous flow of gas, typically air, passing through it and whose work per unit mass does not exceed 25 kJ/kg”, and which:

• Is designed for use with or equipped with an electric motor with an electric input power between 125 W and 500 kW to drive the impeller (or fan) at its optimum energy efficiency point;

• Is an axial fan, centrifugal fan, cross flow fan or mixed flow fan;• May or may not be equipped with a motor when placed on the market or put into service.

Tier 1 MEPS levels (introduced from 1 January, 2013) apply only to ventilation fans, which are defined as being fans that are not used in the following products:

• Washing machines and clothes dryers with an input power greater than 3 kW;• Indoor units of household air-conditioning products and indoor household air conditioners

with a maximum air conditioning output power less than or equal to 12 kW;• Information technology products.

The more stringent Tier 2 MEPS levels (introduced from 1 January, 2015) apply to all fans, except those specifically excluded from the scope of the regulations (see Attachment F for more information on the scope of the EU regulations and the exemptions that apply).

Under the EU Regulations the energy efficiency testing of fans is undertaken according to ISO5801: 2007 – Industrial fans – Performance testing using standardised airways. This standard can be used to measure the performance of all types of fans, including energy efficiency, except those designed solely for air circulation (e.g. ceiling and table fans). As fan-units can have ductwork attached to the inlet or outlet, or both, and the installation arrangement affects the performance of the fan-unit, ISO5801 sets out four different installation categories42 for testing, with the one chosen dictated by the intended application of the fan-unit. The Fan Motor Efficiency Grades (FMEG) which are used as the basis of the target energy efficiency levels set out in the regulations are contained in ISO12759:2010 – Fans – Efficiency classification for fans. There are Australian and New Zealand versions of both of these standards published by Standards Australia.

For the Consultation RIS we consider a number of possible regulatory options based on the EU fan regulations:

• Option C1 – Implement the energy efficiency components of the EU Fan Regulations fully in Australia and New Zealand from 2018; Tier 1 in 2018 and Tier 2 in 2020. The proposed scope of the regulations is the same as for the EU, including the exemptions that apply in the EU regulations (see Attachment F)

41 EU Regulation 327/2011 – European Commission Regulation No 327/2011 of 30 March 2011 implementing Directive 2009/125/EC of the European Parliament and of the Council with regard to Ecodesign requirements for fans driven by motors with an electric input power between 125 W and 500 kW.42 A – no ductwork; B – Ductwork connected to the outlet; C – ductwork connected to the inlet; D – ductwork connected to both the inlet and outlet.


• Option C2 – As for Option C1, but limit the scope to fan-units with an input power of 125 Watts to 185 kW, the current upper limit of motor MEPS;

• Option C3 – As for Option C2, but exclude all fan-units which are incorporated into products which are already regulated for MEPS;

• Option C4 – As for Option C2, but exclude all fan-units which are incorporated into products which have the sole purpose of delivering air that is heated or cooled. This would exclude fan-units incorporated in electric and gas heating and cooling appliances.

Where the fan-units incorporate a three-phase electric motor that can be separated from the fan impeller, this electric motor would also have to comply with the MEPS requirements in force in Australia and New Zealand.

While the fan industry, as represented by FMA-ANZ, has expressed its support for the introduction of MEPS for fan-units that are consistent with those that have been introduced into the European Union, as part of the consultation for the 2012 Product Profile [E3 2012] a number of stakeholders – mainly OEMs – expressed a desire for the exclusions which are considered in Options C3 and C4.

In general, it is expected that the introduction of these MEPS regulations for fan-units would result in more efficient fan-units of the same type being either sold as new units, installed as replacements for existing units that have failed, or selected by OEMs to incorporate into new equipment, as the type of fan-unit used is normally linked to the application43. One fan-unit supplier operating in the European market noted that “This is supported by our own experience … whereby it has proven more viable to delete the older less efficient products from the range and continue with those products that meet the Tier 1 and Tier 2 requirements or, where necessary and commercially viable, to make alterations to the peak efficiency of non-conforming products through engineering modifications so that they can continue to be sold”. While there is more scope for OEMs to change the fan-type, this change is usually the result of a design change in the appliance by the OEM which has more to do with final performance, operational or cost outcomes than the underlying efficiency of the fan-unit44.

If implemented in Australia and New Zealand there are a number of issues that will need to be taken into consideration when framing the regulations:

• Ability to test fan-units – the EU regulations require fan-units to be tested to ISO5801 to assess their energy performance. The general consensus of key suppliers is that companies that manufacture in Europe, the United States and the Asia – Pacific (APAC) countries can test to this standard. Commercial test facilities capable of testing to ISO5801 are available in both Australia and New Zealand, although the upper limit of their testing capability (e.g. fan-unit input power in kW) is unknown45. Further, the E3 Program’s compliance regime involves targeted check-testing of products in NATA accredited (or equivalent) laboratories, and the availability and capability of suitable test laboratories will impact on the extent to which any regulations can be successfully enforced;

• How MEPS will apply to fan-units incorporated into certain equipment – The EU regulations allow some exemptions for fan-units incorporated into specific equipment in their Tier 1 MEPS, although most of these were removed for their Tier 2 MEPS (see Attachment F). In Australia the Determinations under the GEMS Legislation provide scope for such exclusions46, although where fan-units can be removed from a machine and still operated as a fan-unit they may need to be covered. Such exclusions are also potentially possible under the New Zealand Regulations, especially if the Australian GEMS Determination is cited as the subordinate document;

43 Based on responses from 5 major fan-unit suppliers who are FMA-ANZ members, November 2016.44 Based on responses from 5 major fan-unit suppliers who are FMA-ANZ members, November 2016.45 Based on responses from 5 major fan-unit suppliers who are FMA-ANZ members, November 2016. One supplier suggested that fan-units larger than 150 kW were generally not tested.46 For example, the External Power Supply Determination excludes external power supplies (EPS) that are for equipment registered on the Australian Register of Therapeutic Goods, and EPS that are used for transformers and electronic step-down convertors for ELV lighting. The Motors Determination excludes motors incorporated into larger machines as long as they are integral to the machine (i.e. cannot be removed and still operated as a motor).


• How MEPS will apply to custom design fan-units and/or short production runs – while the EU regulations apply to fan-units up to 500 kW, the vast majority of fan-units sold on the Australian and New Zealand markets have an input power less than 10 kW. There are a number of local manufacturers that produce larger custom-designed fan-units for industrial applications that may be “one-offs” or have only a small production run. The cost of testing these larger units is higher and may be prohibitive, and it may not be physically possible to test these units to ISO5801 locally. The legislation in both Australia and New Zealand means that it is not possible to provide an exemption for short production runs47. However, it may be possible to use a “deemed to comply” approach, whereby models that have sales below a certain level can demonstrate compliance via the design used rather than by testing48. Alternatively, the upper limit of the regulations could be set so that the larger fan-units with small production runs did not fall within the scope of the regulations;

• How MEPS will apply to spare parts – the EU regulations provide an exemption for fan-units placed onto the market before 2015 that are used as a replacement for identical fan-units incorporated into equipment manufactured before 2013. Where fan-units are integrated into a larger item of equipment which is produced before the introduction of any fan-unit MEPS, it may be necessary to use a non-compliant fan-unit as a replacement spare part if the original fan-unit fails after the introduction of the MEPS due, for example, to space and design constraints. For example, the Australian gas appliance industry has indicated that if the original fan-unit part was not used in an appliance such as a gas ducted heater this would negate the safety certification of the appliance. The Australian and New Zealand legislation means that once a MEPS is implemented that in all (NZ) or the majority of cases (Australia) the fan-units that are imported or manufactured locally would need to comply. In Australia there is scope for the GEMS Regulator to provide an exemption, although this is on a case by case basis for specified models, and a number of exemptions for non-compliant motors have been provided on this basis. However, fan-units that were manufactured or imported prior to the MEPS implementation date could continue to be supplied as spare parts under the normal “grandfathering arrangements” used in the legislation.


47 There is no provision for this in the GEMS Legislation. In the NZ Regulations there are some exemptions from reporting/labelling for model sizes with production runs of less than 50 units, but it is not possible to fully exempt a product that falls within the scope of a regulation.48 For example, small production run and custom-built computers with sales of less than 200 units per year do not have to comply with the full testing requirements if they use a power supply with a specified minimum efficiency or better. If they exceed the annual sales limit they are required to be tested in a laboratory to demonstrate compliance with the computer MEPS levels.



1. Do you think that intervention is required in the market for fan-units in Australia and New Zealand to increase the energy efficiency of the products sold? Please explain.

2. If you answered ‘yes’ – which policy options do you think would work best, and why?

3. How effective do you think that the purchaser education program would be in driving improvements to the energy efficiency of fan-units sold in Australia and New Zealand?

4. Are there other policy options that have not been considered in this Consultation RIS that you think should be considered? If “yes” please provide details.

5. Do you think it will be possible for companies to test their fan-units to ISO5801 as part of a regulated MEPS regime? Is there likely to be a difference between companies that manufacture overseas and locally?

6. In your experience, what is the upper limit (fan-motor input power in kW) for the fan-units that can be tested to ISO5801 in Australia and New Zealand?

7. Do you think that it would be possible to regulate the energy efficiency of fan-units up to 500 kW as in the EU, or would special requirements need to be put in place for fan-units over a certain size? If you think special requirements would be necessary, please identify the upper size limit and describe how you think that fan-units above this size limit should be treated.

8. If regulated MEPS were introduced into Australia and New Zealand, how do you think fan-units that are incorporated into larger items of equipment should be treated? Do you think it there would be any challenges for these fan units in meeting the Tier 1 and Tier 2 MEPS that are already implemented in the EU, and if so are you able to provide information on why? Would there be a difference between fan-units used in new equipment (manufactured after the MEPS had been introduced) and fan-units used in equipment manufactured before MEPS had been introduced?

9. Do you think that MEPS requirements would create issues for fan-units used as spare parts for equipment manufactured prior to the introduction of a MEPS? If you do, could you explain why? And would it be feasible to stock pile sufficient spare parts prior to the introduction of the MEPS to allow for any future requirements?

IntroductionThis section considers how the community is likely to be affected by each proposed policy option. It also outlines the costs and benefits of each option and the distribution of those costs and benefits. A description is provided for each of the policy options modelled, and key assumptions that underpin the modelling of these options are discussed. A summary of the impacts of the costs, benefits and greenhouse abatement estimated for each option is provided.

The estimation of the likely impacts is based on a cost-benefit model developed by Energy Consult in conjunction with Expert Group. A brief summary of the modelling approach is provided in this section, and the full methodology and analysis used, including the detailed modelling assumptions, is available at Attachment A.

Policy Option A - Business as usualUnder business as usual (BAU) there would continue to be no explicit limits placed on the energy efficiency of fan-units sold into the Australian and New Zealand markets, although in Australia the National Construction Code requirements (Section J5.2a Fans) that prescribe system level energy efficiency requirements for fans used as part of an air-conditioning or mechanical ventilation system in a commercial building would apply, and there would potentially be financial incentives available for upgrading the energy efficiency of fan systems through the Emissions Reduction Fund and the various State and Territory government white certificate schemes. Where the fan-unit incorporated a three-phase electric motor that could be separated from the fan, MEPS requirements would apply to this motor. The Voluntary Performance Code operated by FMA-ANZ would continue to operate. Our assessment is that under the BAU scenario there will be some improvement in the energy efficiency of new fan-units sold, due mainly to technological change and, to a limited extent, the requirements in the NCC in Australia and the various incentive programs. It is estimated that this will result in autonomous energy efficiency improvements of 0.5% per year.

The projected energy consumption and greenhouse gas emissions from fan-units under the BAU scenario are set out in Chapter 1. Introduction and in Attachment A.4. The impacts of the other policy options have been calculated relative to BAU.

Policy Option B - Purchaser education programThis program would involve government working with industry stakeholders to educate fan-unit consumers about how to select fan-units to minimise overall lifecycle costs. It would make information and other resources (e.g. selection tools) easily available on-line, and would be supported by promotional activities to make consumers and suppliers aware of the resource.

The impact of this program is expected to be small. Many suppliers already provide fan-unit buyers with some energy efficiency information on their products, but the survey of suppliers found only a minority of buyers consider energy efficiency and life-cycle costs in their purchases (e.g. 20% of sales to the replacement market) [EG 2015]. In addition, the survey found respondents rated ‘energy efficiency’ and ‘life cycle operating costs’ 5th and 6th out of seven buyer considerations. The minimal consideration given to the energy efficiency and life cycle costs in purchase decisions is likely to be a product of the principle-agent problem, as only a small proportion of fan-unit buyers are the end-user of the product, and of behavioural issues such as bounded-rationality, both of which lead to buyers making sub-optimal purchase decisions.


5. Impacts of Policy Options

These factors mean that while a well-funded and successful purchaser education program could help a minority of buyers make better decisions regarding fan-unit purchases, where the buyer is the end user of the fan-unit, it is unlikely to significantly impact the majority of sales where the buyer is not the end user, nor those where the product is just one component of a larger system (e.g. the purchases by OEMs). The survey of suppliers [EG 2015] found that Building and Equipment Owners’ were nominated as buyers by only 5% of respondents. This suggests a public education program at best is likely to only affect the small proportion of fan-unit purchases, say 10-20%.

The BAU improvement is assumed to be 0.5% efficiency improvement annually. Thus, a purchaser education program that is likely to only affect a small proportion, say 20%, of fan-unit sales would produce a proportionally smaller efficiency improvement. This could be estimated as 20% of the BAU improvement. It was therefore assumed the proposed purchaser education program would achieve an additional 0.1% annual efficiency improvement for five years, assuming the program was accepted and supported by industry.

The costs of public education program will largely be borne by government and will consist of program development costs (e.g. planning, obtaining supplier input, developing education materials, printing and publishing materials) and on-going implementation costs (e.g. program management and administration, program promotion, venue hire, providing training facilitators, up-dating materials etc.).

For modelling, the government costs for this policy option were estimated as:

• $100,000 annual administration cost• $500,000 per annum for education and information

The main impact of this program would be on the buyers who used the information resources to purchase higher efficiency fan-units. These buyers would face higher costs for the more efficient units, but would benefit from the lower energy bills.

Policy Option C - Minimum fan efficiency standardsThis would involve the introduction of mandatory minimum energy performance standards (MEPS) for fan-units sold into the Australian and New Zealand markets, using the GEMS Legislation in Australia and the Energy Efficiency (Energy Using Products) Regulations in New Zealand. The general proposal is to introduce MEPS regulations that are largely consistent with those introduced into the European Union in January 2013, including the scope of these regulations. The energy efficiency testing of fans would be undertaken according to ISO5801: 2007 – Industrial fans – Performance testing using standardised airways, or its AS/NZS equivalent. The Fan Motor Efficiency Grades (FMEG), which are used as the basis of the target energy efficiency levels set out in the regulations, are contained in ISO12759:2010 – Fans – Efficiency classification for fans, or its AS/NZ equivalent.

For the Consultation RIS we consider a number of possible regulatory options:• Option C1 – Implement the energy efficiency components of the EU Fan Regulations fully

in Australia and New Zealand from 2018. MEPS levels would be equivalent to the EU Tier 1 levels in 2018 and would be increased to the EU Tier 2 levels in 2020;

• Option C2 – As per Option C1, but limit the scope of the regulations to fan-units with an input power of 125 Watts to 185 kW, the current upper limit of MEPS for three-phase induction motors;

• Option C3 – As per Option C2, but exclude all fan-units which are incorporated into products which are already regulated for MEPS in Australia and New Zealand;

• Option C4 – As per Option C2, but exclude all fan-units which are incorporated in products which have the sole purpose of delivering air that is heated or cooled. This would exclude fans incorporated in electric and gas heating and cooling appliances.

The costs of such a program would be borne both by government (planning, establishment and on-going administration and compliance checking) and by fan-unit suppliers - there would be the product testing costs and registration costs directly incurred by suppliers of products, as well as


costs associated with sourcing and supplying fan-units that meet the required MEPS levels. As the test standard and regulatory levels are contained in international standards which are being used in the EU and in a number of other countries, this is expected to reduce the compliance costs for industry, as many fan-units would have already been tested to determine compliance with the EU (or similar) regulations. It is assumed that 60% of regulated models would have already been tested overseas.

The government costs are estimated to be:

• Establishment cost of $250,000• Government salary costs of $50,000 per annum• Program administration costs of $50,000 per annum• Check-testing costs of $100,000 per annum

The business costs are estimated to be:

• Education costs of $3,200 per supplier• Record keeping costs of $320 per supplier• Testing costs – this varies by the fan-type (see Attachment A.2), with an average cost of

$2,221 per model. 60% of the projects are assumed to have been already tested overseas to meet EU requirements.

• Registration process cost - $80 per model• Registration fee – average of $536 per model, $670 in Australia and free in New Zealand

(20% of total)

Increased industry costs are expected to be passed on to buyers as increased purchase costs, although the buyers will benefit from reduced electricity bills. It is expected that the more efficient appliances that will be sold due to this policy option will be more expensive. For modelling purposes a price-efficiency (PE) ratio of 1.0 has been used. This means that a 10% increase in efficiency would result in a 10% increase in price.

As a mandatory regulation that applies to all suppliers this approach creates a level playing field.

This measure would eliminate the least efficient models from the market, and this may result in some reduction in consumer choice in the short term. However, given that fan-units that can meet the proposed regulations are being manufactured and sold into the EU and other countries, given sufficient lead time, it is expected that the impact on consumer choice will be minimal. Increased competition amongst suppliers to provide the higher efficiency models for the market and increased sales volumes for these products is likely to reduce the costs of these products over time compared to BAU.

Cost benefit analysisThe cost benefit analysis of the policy options is outlined in this section. Surveys were undertaken in conjunction with the main industry association FMA-ANZ to obtain the market and technical data that was used in the analysis. A description of the full methodology and analysis is provided in Attachment A.

A financial analysis has been conducted on the societal cost-benefits of the policy options being considered, with the analysis conducted at the national (Australia and New Zealand) level.

In terms of an approach for the cost-benefit analysis, it is necessary to do this from either a buyer or societal perspective. The social approach is the appropriate methodology for the analysis, but the buyer approach can be used where it approximates the results that would be obtained from the societal perspective. As electricity prices closely reflect the marginal cost of producing electricity, due to generators providing power in response to a competitive bidding system for the wholesale energy market, the market price can be used as a proxy for the resources saved in production. Consequently, the results should closely resemble those that would be obtained from an analysis from the social perspective.


An analysis from a buyer perspective involves the use of retail product prices and marginal retail energy prices. Since the objective is to assess whether product buyers as a group would be better off, transfer payments such as taxes are included. Retail mark-ups and taxes will be passed onto the buyer and including these in the costs will simplify the analysis process, while still remaining appropriate.

The buyer approach is recommended for the development of RIS’s associated with the E3 program [NAEEEP 2005], and is the approach which has been used for the Australian cost-benefit modelling. The alternative analysis approach, of assessing from a resource perspective, would require a new set of factors and assumptions to be introduced to the analysis, particularly regarding manufacturing costs, and would also mean the impact of varying discount rates would be very much more difficult to assess.

The New Zealand Government requires that electricity savings are based on long range marginal cost (LRMC), rather than marginal retail energy prices, with financial benefits associated with greenhouse gas abatement and avoided or delayed infrastructure investment also included in the benefits49. Resource (or manufacturing) costs should be used for the product costs. As these are not available, the wholesale price has been used in this Consultation RIS. The wholesale prices are higher than manufacturing cost, and therefore the cost-benefit analysis for New Zealand presents a conservative assessment of the impact of the policy options.

In the analysis undertaken for this Consultation RIS the following costs and benefits are included:

Costs

• to the consumer due to the incremental price increases of the more efficient products supplied to the market as a result of the Policy Options, reflecting costs passed on by suppliers. For Australia these are based on retail prices and for New Zealand these are based on wholesale prices;

• to governments for implementing and administering certain Policy Options (purchaser education program and mandatory MEPS); and

• to the product supply businesses for complying with any new requirements of the Policy Options (i.e. testing, administration and training etc. for modified or new product categories).

Benefits

• the avoided electricity purchase costs due to the increased average efficiency of the products supplied to the market, improvements which consumers could not otherwise access due to market failures. For Australia marginal retail electricity prices have been used and for New Zealand the long range marginal cost has been used; and

• to society from the greenhouse gas emission reductions which result from the reduced energy consumption, in order to value the reduction in this negative externality. For New Zealand these have been valued at $25 per tonne CO2-e. For Australia no value has been assigned to the greenhouse emission reductions in the main cost-benefit analysis.

The electricity prices for Australia are retail energy prices and were derived from the AEMO 2014 Electricity price index. The electricity prices for New Zealand are the long range marginal cost provided by the Energy Efficiency and Conservation Authority.

Another benefit of the proposed Policy Options is the reduction in the environmental impacts of electricity generation beyond the reduction in greenhouse gas emissions, including reduced NOx/SOx emissions, reduced particulate emissions and reduced water consumption. The modelling of the benefits in this Consultation RIS does not include the benefits associated with reducing these other environmental impacts of electricity use, and so to some extent will understate the full benefits.

All Net Present Value (NPV) figures are real 2015 dollars. NPV is a calculation that allows decision makers to compare the costs and benefits of various alternatives on a similar time scale by

49 Note that the infrastructure benefits have not been assessed or quantified for this Consultation RIS.


converting all options to current dollar figures. NZ values shown in NZ dollars, calculated with an exchange rate of 1.176 NZD to AUD where necessary.

All the outputs of the cost-benefit analysis were assessed in Australia at a 7% discount rate, with sensitivity tests at 0%, 3% and 11%. For New Zealand a 6% discount rate was used, with sensitivity tests at 0%, 3% and 8%.

The NPV period used for the analysis was from 2015 to 2040, with the modelling period including the benefits and costs of equipment installed to 2030, and trailing benefits included until 2040. As the ‘half-life’ of the various fan types being modelled ranges from 12 to 25 years there will still be a considerable number of fans in the stock in 204o that have been impacted by the Policy Options modelled until 2030, so in reality the energy saving benefits will continue beyond this period. This means that the NPVs will be conservative to some extent, although at the higher discount rates the impact of this will be relatively small.

Summary of key energy/emission impacts and cost/benefitsThe summary impacts of the proposals relative to the business as usual scenario (Option A) are shown Tables 3 and 4 below in terms of the cumulative energy savings and greenhouse gas emission reductions to 2030, as well as the present value (PV) of the total benefit and total costs and the overall net present value (NPV) to 2040.

The Tables also show the estimated cost of the greenhouse gas abatement in $ per tonne for each option – this is based on the net (NPV) benefits to 2030, with the value of the greenhouse emission reduction set to $0 per tonne, divided by the cumulative greenhouse emission reduction to 203050.

50 The data for this calculation is derived from the cost-benefit model developed by Energy Consult.


AustraliaTable 3 - Summary of cost-benefit modelling results, Australia



Total Benefit , PV ($M)



Benefit-Cost Ratio


Option B 552 510 $92 $14 $78 6.6 -$68

Option C1 15,361 14,204 $2,525 $370 $2,155 6.8 -$72

Option C2 15,158 14,016 $2,490 $364 $2,126 6.8 -$73

Option C3 11,615 10,741 $1,945 $266 $1,678 7.3 -$75

Option C4 10,930 10,107 $1,769 $184 $1,586 9.6 -$78

Note: This table uses a discount rate of 7% for Australia

New ZealandTable 4 - Summary of cost-benefit modelling results, New Zealand


Cumulative GHG Emission Reduction to 2030 (kt CO2-e)

Total Benefit, PV ($M)



Benefit-Cost Ratio


Option B 79 8 $6 $2 $4 3.5 -$204

Option C1 1,926 193 $148 $35 $113 4.3 -$256

Option C2 1,875 187 $143 $33 $111 4.4 -$260

Option C3 1,736 173 $133 $29 $104 4.6 -$268

Option C4 1,722 172 $132 $27 $104 4.8 -$276


The analysis indicates that option C1 provides the largest net benefit in Australia and New Zealand at $2,155 million and $113 million respectively. Option C1 also provides the largest amount of energy and greenhouse savings. The benefit-cost ratio of Option C1 is relatively high, being 6.8 in Australia and 4.3 in New Zealand.

In both Australia and New Zealand the net benefit, energy savings and greenhouse gas abatement decreases for options C2 to C4, corresponding to a reducing scope of coverage for the fan-unit MEPS regulations, while the benefit-cost ratio increases. The benefit-cost ratio is highest for Option C4 (MEPS applied to fan-units from 125W to 185kW, but excluding fan-units incorporated into heating and cooling equipment), being 9.6 in Australia and 4.8 in New Zealand. The increase in benefit-cost ratio also corresponds with a reduction in the energy savings and greenhouse gas abatement.

The net benefit, energy savings, and greenhouse gas abatement estimated for the purchaser education program (Option B) is substantially lower than for the MEPS options (C), meaning that it would make a much lower contribution to the governments’ wider energy productivity and greenhouse abatement goals. The benefit-cost ratio of Option B is also lower than for Option C, although still quite high.

The proposed policy options could all reduce the cost to Australia and New Zealand of meeting greenhouse gas abatement targets by providing cost-positive emissions abatement. For Australia the net cost of greenhouse abatement is in the range of -$68 to -$78 per tonne, substantially lower than the average contract price for carbon abatement under the Emissions Reduction Fund. For New Zealand the net cost is in the range of -$204 to - $276 per tonne. This means that the abatement achieved by these measures would also contribute to economic growth.


Detailed cost/benefit modelling results and the various sensitivity scenarios are provided in Attachment A.4.

Summary of the sensitivity analysis

Various sensitivity analyses were undertaken to show the impact of changing costs or changing savings on the modelling outcomes. Full details are provided Attachment A.4.


The sensitivity of the results was tested under the following cases:

• Discount rates (real), for all scenarios: Australia – 0%, 3%, 7%, 11%; New Zealand – 0%, 3%, 6%, 8%;

• Higher costs for Option C1: Price efficiency (PE) ratio set at 2.0 rather than 1.0; • Higher rate of BAU efficiency improvement for Option C1: the rate of efficiency

improvement under BAU was increased by 10%; and• Value of the greenhouse gas abatement for Option C1: for New Zealand the value was

increased to $50 per tonne, and for Australia values of $12.10 per tonne and $35 per tonne were tested51.

The discount rate sensitivity test was applied to all policy options. For the other sensitivity tests Option C1 was used as the comparison policy option as this option produced the lowest benefit-cost ratio (BCR) of all the regulatory options, and hence will be the most sensitive to potential changes.

Sensitivity tests on the discount rates show that all policy options continue to have a positive net benefit and a BCR well in excess of 1.0 even at the highest discount rates. The net benefit of all the regulatory options (C1 to C4) continues to be substantially higher than for the purchaser education program (Option B). For example, the net benefit for Option C1 in Australia is estimated to be between $7,071 million (0% discount rate) and $1,181 million (11% discount rate), with the benefit-cost ratio varying between 10.7 and 5.5. For New Zealand the net benefit for Option C1 is estimated to be between $318 million (0% discount rate) and $82 million (8% discount rate), with the benefit-cost ratio varying between 6.1 and 3.8.

The sensitivity test based on doubling the price-efficiency (PE) ratio, showed that option C1 continued to provide a significant net benefit even if price increases were much higher than expected. In Australia the net benefit was $1,793 million (7% discount rate) and the benefit-cost ratio was 3.4. In New Zealand the net benefit was $80 million (6% discount rate) and the benefit-cost ratio was 2.2.

Increasing the assumed rate of BAU energy efficiency improvement still resulted in significant energy and greenhouse savings and net financial benefit. In Australia for Option C1 this resulted in a net benefit of $1,123 million (7% discount rate) and a cost-benefit ratio of 6.2. In New Zealand the net benefit was $54 million (6% discount rate) and the benefit-cost ratio 3.8.

Setting the value of the carbon abatement to $50 per tonne for New Zealand increased the net benefit for Option C1 to $117 (6% discount rate) and the benefit-cost ratio to 4.4. For Australia, the inclusion of a shadow carbon price of $12.1 per tonne increased the net benefit to $2,283 (7% discount rate) and the benefit-cost ratio to 7.2. Inclusion of a shadow carbon price of $35 per tonne increased the net benefit to $2,525 million (7% discount rate) and the benefit-cost ratio to 7.8.

Competition impactsOption B (purchaser education program) will not reduce the number of models available on the market and so will not have a significant impact on consumer choice or competition. If effective, it would increase consumer demand for the higher efficiency models to some extent, and this may encourage a higher level of competition amongst suppliers at the higher efficiency end of the market. This might increase the number of high efficiency models available and also reduce the cost of these models in real terms.

All of the regulatory options (C1 to C4) will potentially reduce the number of models52 available on the market to some extent, as it will no longer be possible to sell the least efficient models. The biggest impact would be expected for Option C1 as this has the broadest product coverage. In the short term, this might reduce the number of models available on the market, and therefore reduce

51 These values were tested at the request of a number of Australian states participating in the E3 Program. They were the values used in Improving the efficiency of new vehicles – Draft Regulation Impact Statement, Ministerial Forum on Vehicle Emissions, December 2016: $12.10 is the average cost of abatement from the first three auctions of the Emissions Reduction Fund, and $35 was considered to be a conservative “social cost of carbon”, based on appraisals undertaken for the United States Government.52 It is estimated that there are around 1,765 models of fan-unit that would be affected by Option C1.


consumer choice to some extent, although if suppliers are given sufficient lead time this impact is expected to be quite small. Most of the products sold on the Australian and New Zealand markets are sourced from overseas. Those manufacturers and suppliers that are located in the EU, or supply products into the EU market, may have a competitive advantage when any regulations are first introduced. However, as it is intended to align with the EU regulations, which have been in place since 2013, and products which can meet these levels are manufactured in the EU and other countries, it is expected that most suppliers will be able to easily source compliant products given sufficient time.

Eliminating the least efficient fan-units from the market would also be expected to increase the number of models available that exceed the MEPS levels and may also lead to suppliers introducing more high efficiency models.

There may be some reduction in contestability if smaller or medium sized firms manufacturing in Australia and New Zealand withdraw from supplying the market because they are unable to meet the new MEPS levels. The extent to which this might happen is currently unknown, although as the main industry association FMA-ANZ supports the introduction of MEPS consistent with the EU regulations, this impact is expected to be small. We welcome feedback from industry stakeholders on the expected impact that the proposed regulatory options would have on the number of models available on the market, the impact of lead time on the availability of compliant models, and the impact on the viability of local manufacturers.

The introduction of MEPS levels for fan-units is expected to increase supplier competition for the higher efficiency (above MEPS) models, resulting in wider choice for these models and lower prices. A recent analysis suggests that the introduction of MEPS for appliances has led to sustained reduction in prices for more energy efficient products, along with an increase in the quality and features of the regulated products. The suggestion is that the MEPS regulation interacts with market power and innovation failures to deliver price benefits for consumers in conditions of price discrimination strategies by firms in segmented markets53.

Impact on different groupsThe main cost of the proposals is the increased cost of the more efficient fan-units, and the majority of this cost will be borne by the end-user of the equipment, as suppliers/manufacturers are expected to pass on the cost of the more efficient and more expensive equipment (all options), as well as any costs associated with participation in the policy options (Option C). The end-user will benefit from reduced energy bills, and the general community will benefit from the reduction in negative environmental externalities (greenhouse gas emissions, health impacts of fossil fuel generation). There may also be further community benefits associated with reduced electricity demand, including a reduction in peak electricity demand and downward pressure on the wholesale price of electricity, although these have not been quantified.

The costs and benefits for the end-users in New Zealand were also modelled, to supplement the main cost-benefit analysis shown in Table 4. In this case, marginal retail prices were used to value the electricity savings and retail prices were used for the fan-units. This shows (Table 5) that the net benefits increase significantly and that there is a slight increase in the benefit-cost ratio across all policy options.

Table 5 - Summary of cost-benefit modelling results from the end-user perspective, New Zealand

Proposal Total Benefit, PV ($M)



BCR

Option B $10 $2 $7 4.1

Option C1 $237 $51 $186 4.6

53 Houde S, and Spurlock CA, “Minimum Energy Efficiency Standards for Appliances: Old and New Economic Rationales”, Economics of Energy and Environmental Policy, 5(2), 2016.


Option C2 $230 $49 $181 4.7

Option C3 $214 $44 $170 4.9

Option C4 $210 $41 $169 5.1


Most of the direct impact of the proposed measures (costs and savings) will be on the businesses and households that use fan-units as part of ventilation, HVAC, and blowing applications, and we expect the impact to be relatively even and in proportion to their use of fan-units and associated equipment. We do not expect that any socially disadvantaged groups will be negatively impacted. To explore this issue further we have undertaken an analysis of the likely range of payback periods experienced by end-users for three different applications over a range of annual operating times if the proposed MEPS levels in Option C were implemented:

• commercial HVAC where the equipment is not covered by MEPS regulations – 2,500 to 4,500 hours;

• commercial refrigeration where the equipment is not covered by MEPS regulations – 4,600 to 7,000 hours; and

• residential ducted heating and cooling – 200 to 800 hours.

The analysis is based on the two lowest fan-unit input power ranges, which account for the vast majority of all sales, and assumes that a fan-unit that is just below the EU Tier 1 MEPS levels is replaced with a fan-unit that can just meet the EU Tier 2 MEPS levels. The results of this analysis are summarised in Table 6, and further details are provided in Attachment A.5. The analysis suggests that in most cases the paybacks for upgrading non-compliant fan-units to meet the proposed Tier 2 MEPS levels are very favourable for the commercial applications which have fairly long annual operating times. However, for the residential heating and cooling applications – which have much shorter annual operating times – the paybacks are quite long when the operating times are well below average.

Table 6 - Summary of payback period analysis for three end-use applications

125 Watts to < 0.75 kW 0.75 kW to < 4.0 kW

Fan Type Type 1 Type 2 Type 3 Type 5 Type 6 Type 1 Type 2 Type 3 Type 4 Type 5

Commercial HVAC, Non-Regulated

Australia1.1 - 2.0

0.9 - 1.5

2.2 - 4.0

4.1 - 7.3

0.7 - 1.3

0.5 - 0.9

0.7 - 1.3

0.7 - 1.3

1.8 - 3.2

1.0 - 1.8

New Zealand

1.6 - 2.9

1.2 - 2.2

3.2 - 5.7

5.8 - 10.4

1.1 - 1.9

0.7 - 1.3

1.0 - 1.8

1.0 - 1.8

2.5 - 4.5

1.4 - 2.6

Commercial Refrigeration, Non-Regulated

Australia0.7 - 1.1 - - - -

0.3 - 0.5 - - - -

New Zealand

1.0 - 1.6 - - - -

0.5 - 0.8 - - - -

Residential heating & cooling

Australia3.4 - 13.6

4.4 - 17.5

7.9 - 31.6 - -

3.0 - 12.1

3.2 - 12.8

2.0 - 8.1 - -

New Zealand

3.8 - 15.4

5.0 - 19.8

9.0 - 35.9 - -

3.4 - 13.7

3.6 - 14.5

2.3 - 9.2 - -

We would welcome feedback from industry stakeholders, so that we can obtain a better understanding of this issue over the range of applications and fan-unit types that could be impacted by the proposed MEPS regulations.


Impact on different regionsThe impacts in Australia and New Zealand have been treated separately in this Consultation RIS. Detailed information on the estimated sales and stock of fan-units by Australian states and territories is provided in Appendix A.3, and this largely reflects the population share of these different regions. The impacts by individual State and Territory have not been calculated for this Consultation RIS, but will be calculated and included in the Decision RIS. The energy saving impacts are expected to quite closely match the population shares, and the benefit-cost ratios are expected to be similar, but will be higher in those regions that have higher electricity tariffs (e.g. Qld, SA, Vic & NSW) and lower in regions with lower electricity tariffs (e.g. ACT). The greenhouse abatement will reflect both the population share and the greenhouse coefficient of electricity – highest in Victoria and lowest in Tasmania, SA, WA and NT.



1. Do you think that an assumed average rate of efficiency improvement of an additional 0.1% pa above BAU (0.5% pa) for a purchaser education program (Option B) is reasonable?

2. Do you think that the government costs assumed for the purchaser education program (Option B) are reasonable?

3. Do you think that the government and business costs assumed for the regulated minimum efficiency standards (Option C) are reasonable?

4. An average price-efficiency ratio of 1.0 (10% increase in efficiency results in 10% increase in price) has been used to calculate the additional cost of the more efficient fan-units sold as a result of the policy options. Do you think this is a reasonable assumption?

5. Do you agree with our assessment of the likely impact of the different policy options on consumer choice and competition in the market for fan-units? If not, please explain why.

6. What impact do you think the different policy options would have on the local manufacture of fan-units and associated equipment?

7. If MEPS for fan-units were introduced into Australia and New Zealand, do you think this would have any negative impacts on any specific end-user groups (business and residential consumers) and, in particular, on socially disadvantaged groups?

8. Can you provide information on the typical range (low to high) of annual operating times for fan-units used in different applications, to assist us to better understand the range of payback periods which are likely to result when inefficient fan-units have to be upgraded to meet the proposed MEPS levels?

9. If MEPS for fan-units were introduced into Australia, do you think that this would have any negative impact on any specific Australian state or territory?

Recommended optionBased on the current analysis, the recommended policy option is for Australia and New Zealand to implement MEPS regulations for fan-units that are consistent with those introduced into the European Union in January 2013 (Option C). The regulatory option has by far the largest net benefit, as well as the largest energy savings and greenhouse abatement, and has a very high benefit-cost ratio. The voluntary purchaser education program (Option B) has a much lower net benefit, energy saving and greenhouse abatement, limiting its contribution to national energy productivity and greenhouse abatement targets.

Further discussion with stakeholders is required to determine the most appropriate regulatory option to implement, and an appropriate implementation date.

Option CThis option involves the introduction of a MEPS for fan-units driven by electric motors with an input power in the range of 125 Watts and potentially up to 500 kW, with the initial (Tier 1) MEPS introduced in 2018 and more stringent (Tier 2) MEPS introduced in 2020. The regulations would be based on the European Commission Regulation 327/2011, with product testing based on ISO5801: 2007 and regulatory levels based on fan-motor efficiency grades (FMEG) set out in ISO12759: 2010.

The introduction of the MEPS would mean that it would no longer be legal to supply fan-units that were less efficient than the specified MEPS levels in to the Australian and New Zealand markets54, that suppliers and manufacturers would need to register their eligible products for sale in Australia and New Zealand, and that there would be a targeted check-testing program to identify products which did not comply with the regulations, with companies selling non-compliant or unregistered products liable for enforcement action. In New Zealand, companies that supplied fan-units covered by the regulations would also need to provide annual sales data to EECA. It is likely that a voluntary high efficiency performance standard (HEPS) would be introduced as part of this measure, initially based on the Tier 2 MEPS levels, and then increased when the Tier 2 MEPS are implemented to a level agreed with industry stakeholders.

The E3 Program would work with industry stakeholders via industry associations such as FMA-ANZ leading up to the introduction of any regulations to help ensure that suppliers and manufacturers were aware of their obligations and that there was a smooth transition to the new regulatory requirements.

There are a range of possible options under Option C:

• Option C1 – Implement the energy efficiency components of the EU Fan Regulations fully in Australia and New Zealand, with Tier 1 MEPS in 2018 and Tier 2 MEPS in 2020;

• Option C2 – As per Option C1, but limit the scope of the regulations to fan-units with an input power of 125 Watts to 185 kW, the current upper limit of MEPS for three-phase induction motors;

• Option C3 – As per Option C2, but exclude all fan-units which are incorporated into products which are already regulated for MEPS in Australia and New Zealand;

• Option C4 – As per Option C2, but exclude all fan-units which are incorporated in products which have the sole purpose of delivering air that is heated or cooled. This would exclude fans incorporated in electric and gas heating and cooling appliances.

54 This would apply from the time of implementation to relevant fan-units imported into or manufactured in Australia and New Zealand. Products that were imported or manufactured before this date could continue to be legally sold until stocks ran out.


6. Conclusion

Further input from stakeholders is required to determine the most appropriate regulatory option to implement in Australia and New Zealand. As MEPS for three-phase electric motors applies to motors less than 185 kW this might be an appropriate upper limit for any fan-unit regulations. There are only a small number of fan-units sold that are above this size (market share of 0.01 to 0.02%), and they account for a fairly small proportion of fan-unit energy consumption (2.9% in Australia and 5.3% in New Zealand). A range of products already regulated through the E3 Program incorporate fan-units that would fall within the scope of the full EU regulations. The E3 MEPS regulations take into account the overall efficiency and energy consumption of the products, including the energy consumption of their fan-units. This provides manufacturers with the flexibility to select the components of these products to achieve the overall efficiency targets at lowest cost.

Key issues to be explored to identify the most appropriate regulatory option are:

• The exact scope of product coverage for any regulations implemented in Australia and New Zealand;

• The ability to test products to the required test standards in Australia and New Zealand, taking into account the importation of products and local product manufacture. The check-testing program implemented as part of the E3 Program’s compliance regime would require access to NATA accredited test laboratories (or their equivalent);

• The impact of any regulations on companies that manufacture fan-units locally, especially companies that manufacture larger fan-units as one-off projects or small production runs;

• A possible upper limit for the regulations, which might be lower than the 500 kW limit that applies to the EU fan regulations or the 185 kW limit that has been assumed for Options C2 to C4;

• How MEPS will apply to fan-units that are incorporated into other items of equipment, where these fan-units would otherwise fall within the scope of the regulations;

• The impact of any regulations on the ability to provide suitable replacement fan-units (spare parts) for equipment that has been manufactured or imported prior to the introduction of the MEPS; and

• The timing of the introduction of any regulations, including the timing of the Tier 1 and Tier 2 MEPS levels;



1. Do you think that the scope of the product coverage for any fan-unit regulations introduced into Australia and New Zealand should be different than the scope of the EU regulations? If yes, please explain why.

2. The current proposal assumes that Tier 1 MEPS would be introduced in 2018 followed by the more stringent Tier 2 MEPS in 2020? Do you think this is reasonable, or do you think an alternative timeframe would be better?

IntroductionThis chapter sets out the next steps that will be undertaken relating to government consideration of policy options to increase the energy efficiency of new fan-units sold into the Australian and New Zealand markets, as well as review and evaluation processes that would be put in place if regulatory policy options are ultimately implemented.

Implementation - next stepsStakeholder feedback will be obtained through public consultation workshops and formal written submissions, as outlined in the Consultation section at the start of the CRIS. The submissions received will be compiled and analysed, and any new information and data will be assessed. This may result in further analysis and further cost-benefit modelling of the proposed policy options, and may require some further consultation with stakeholders.

Once feedback has been obtained through the Consultation RIS process, we will establish a Working Group with representatives from industry stakeholders to consider the best way forward. If MEPS are the favoured option this Working Group will consider how existing international standards such as ISO5801: 2007 and ISO12759: 2010, or their Australian and New Zealand equivalents, could be incorporated into a GEMS Determination, as well as logistical issues related to implementing regulations such as the exact scope of any regulations and the registration process, suitable efficiency levels for HEPS, and the availability of suitable testing laboratories for both registration and compliance enforcement. The outputs from this Working Group will be used to inform the preparation of the Decision RIS.

Stakeholders with an interest in participating in this Working Group are invited to express their interest during the consultation process.

There are more stages to be completed before any policy options are agreed, and before any efficiency regulations for fan-units are agreed and implemented.

Australia

• Following stakeholder feedback on this Consultation RIS, the comments and feedback received will be considered before proceeding to a Decision RIS;

• If it is resolved to proceed, a Decision RIS (incorporating feedback on the Consultation RIS policy options) will be submitted to the COAG Energy Council, following approval by the relevant government committees and a formal assessment by the Office of Best Practice Regulation;

• If a policy proposal in the Decision RIS is approved by the COAG Energy Council, the following legal instrument (referred to as GEMS Determinations) will be prepared: Greenhouse and Energy Minimum Standards (Fan-Units) Determination;

• Once Ministerial approval is provided for the new Determination, there will be a period before the new regulations come into force.

New Zealand

• Any policy proposals will be approved by Cabinet before being adopted under the Energy Efficiency (Energy Using Products) Regulations 2002.

• Approval of Cabinet is required for any proposed regulatory option. For these sorts of changes, there is a requirement to wait for 6 months after they are written into law, before they can come into effect.


7. Implementation and Review

Given the E3 Program’s experience with implementing energy efficiency requirements, the risks associated with implementation are considered low. Any transitional arrangements will be developed in close consultation with industry.


ReviewCompliance monitoring

The Australian GEMS Regulator already undertakes education and compliance activities for the current energy efficiency requirements. This involves outreach activities, surveys and store visits. If the recommended policy option in this Consultation RIS is adopted, the Australian GEMS Regulator will need to monitor compliance with any new requirements. This includes:

• Testing of selected models within scope in independent laboratories to verify performance claims.

In New Zealand, education and compliance activities are undertaken by the Energy Efficiency and Conservation Authority.

Evaluation

In New Zealand, after a year of trading under any new regulations, suppliers of fan-units within the scope of any regulations would be requested for sales data on how may units they sold and the energy efficiency data for these units, so that energy savings can be tracked against predictions.

The E3 Program uses various sources of information to evaluate the effectiveness of the program and product category requirements. This includes retrospective reviews to compare the effect of policies versus what was projected in the RIS analysis, market reviews of suppliers and buyers, and collecting and analysing sales data to track changes and assess the impacts of the regulations.


AATS 2007

The Hidden Costs of Electricity: Externalities of Power Generation in Australia, Dr Tom Biegler FTSE, The Australian Academy of Technological Sciences and Engineering, March 2007

ABCB 2009

Section J Review of fan power provisions by assessing twelve commercial building applications, Coffee International for the Australian Building Codes Board, 2009.

AEMO 2014

Economic and Energy Market Forecasts, prepared by Independent Economics for the Australian Energy Market Operator, 6 May 2014.

AMCA 2014

A comparison of U.S. and European approaches to regulating fan efficiency, Michael Ivnovich (AMCA International, USA Member ASHRAE) and Neil Jones (European AMCA, Belgium) for International Symposium, April 2014

COAG EC 2015

National Energy Productivity Plan 2015 – 2030 – Building competitiveness, managing costs and reducing emissions, Australian Government, Department of Industry, Innovation and Science, December 2015.

CCA 2014 Reducing Australia’s Greenhouse Gas Emissions, Targets and Progress Review – Final Report, Climate Change Authority, February 2014

Databuild 2015

Greenhouse & Energy Minimum Standards (GEMS) Review 2015 Report, Databuild for the E3 Committee, Department of Industry & Science, 15 June 2015

DEDJTR 2015

Setting future Victorian Energy Efficiency Targets – Consultation Paper, Department of Economic Development, Jobs, Training and Resources, April 2015

DIICCSRTE 2013

Climate change mitigation scenarios, Treasury and the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE) 2013, Report for the Climate Change Authority in support of its Caps and Targets Review, Canberra.

E3 2010 Discussion Paper: Improving the Energy Efficiency of Industrial Equipment, Sustainability Victoria with support from Energy Consult, September 2010

E3 2012a Product Profile: Non-Domestic Fans – for the Australian Market, prepared by Atkins and Sustainability Victoria for the Equipment Energy Efficiency Committee, May 2012

E3 2012b Product Profile: Non-Domestic Fans – for the New Zealand Market, prepared by Atkins and Sustainability Victoria for the Equipment Energy Efficiency Committee, May 2012

EDGS 2015

Draft Electricity Demand and Generation Scenarios, Ministry of Business, Innovation and Employment, May 2015

EE 2015 Shah N, Sathaye N, Phadke A, Letschert V, “Efficiency improvement opportunities for ceiling fans”, Energy Efficiency, Vol 8, Issue 1, pages 37 to 50, Springer Netherlands, February 2015.

EG 2015 a Collection of Fan Industry Market Data, Expert Group for the E3 Program, 24 March, 2015 (unpublished)

EG 2015 b Research and Cost-Benefit Modelling for Fan RIS – Tasks 1, 2 and 3, Expert Group for the E3 Program, 7 October 2015 (unpublished)

EC 2010 Evaluation of Energy Efficiency Policy Measures for Household Airconditioners in Australia, prepared by EnergyConsult for the Department of Climate Change and Energy Efficiency,


References

November 2010

EC 2015 Fan RIS Policy Options CBA Results and Methodology, Energy Consult for the E3 Program, 16 September 2015 (unpublished)

ES 2012 ENERGY STAR Unit Shipment and Market Penetration Report Calendar Year 2011 Summary, http://www.energystar.gov/ia/partners/downloads/unit_shipment_data/2011_USD_Summary_Report.pdf

EuC 2011 Full Impact Assessment. Proposal for a Commission Regulation Implementing Directive 2005/32/EC with regard to Ecodesign requirements for fans 125 W to 500 kW, European Commission, 3 March, 2011

EuC 2015a Ecodesign Fan Review, Review study of Commission Regulation No 327/2011: Final Report, Prepared by Van Holsteijn en Kemma B.V, 16 March 2015

EuC 2015b Explanatory Notes, Study for the Review of Fan Regulation 327/2011, European Commission, 15 April 2015

ISO 12759 ISO12759: 2010 Fans – efficiency classification for fans.

MBIE 2011 New Zealand’s Energy Outlook 2011 Reference Scenario and Sensitivity Analysis, Ministry of Business, Innovation and Employment, 2011

MBIE 2013 New Zealand’s Energy Outlook: Electricity Insight, Ministry of Business, Innovation and Employment, June 2013

MBIE 2016a

Electricity Information Portal, data tables for electricity 2016, accessed on 6 May 2016, see www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/electricity

MBIE 2016b

Quarterly electricity and liquid fuel emissions data tables, accessed on 6 May 2016, see www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/greenhouse-gas-emissions

NAEEEP 2005

Guide to Preparing Regulatory Impact Statement so for the National Appliance and Equipment Energy Efficiency Program (NAEEEP), prepared by George Wilkenfeld and Associates Pty Ltd for the Australian Greenhouse Office, Report No 2005/19, May 2005

NWC 2009 Water and the electricity generation industry: Implications of use, Waterlines report series No 18, ACIL Tasman and Evans and Peck for the National Water Commission, Department of Resources, Energy and Tourism, August 2009

OBPR 2013

Preparing Regulation Impact Statements for Appliance Efficiency Proposals, Office of Best Practice Regulation, Department of Finance and Deregulation, August 2013

Ragden et al 2008

EuP Lot 11: Fans for ventilation in non-residential buildings – Final Report, Ragden , P. Oberschmidt. J,. Cory W. T. W., 2008.

SV 2016 Summary of Market Research with Fan Designers (unpublished), Sustainability Victoria, August 2016.


http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/greenhouse-gas-emissions

http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/greenhouse-gas-emissions

http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/electricity

http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/electricity

https://apac01.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.energystar.gov%2Fia%2Fpartners%2Fdownloads%2Funit_shipment_data%2F2011_USD_Summary_Report.pdf&data=01%7C01%[email protected]%7C3a66c13446594fd49b9608d414009d09%7Cb076ce60ca2a41859041851d1b7bc01a%7C1&sdata=AOlm%2Fn%2FeWOsUMJMV8397NkF6w3WMroLnx3gUULDiR58%3D&reserved=0

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A.1 IntroductionThe aim of Attachment A is to provide information on the supporting market and technical data that has been used as an input to the cost-benefit analysis, as well as the technical and modelling outputs for the Consultation Regulation Impact Statement (RIS) relating to fan-units.

Summary of Key Assumptions and Model ParametersTable A1 - Summary of Assumptions and Model Parameters

KEY FEATURES MODEL PARAMETER

Scenarios A. Business as usual – no specific limits on the energy efficiency of fan units sold. National Construction Code Section J applies system level limits in Australia for ventilation systems and air conditioners. Emissions Reduction Fund and state ‘white certificate’ schemes in Australia are a potential source of financial incentives for high efficiency fan-units. FMA-ANZ operates a voluntary code for members to assess the efficiency of their fan-units against the Tier 1 and Tier 2 MEPS levels in the EU. Assumed that there is an autonomous increase in energy efficiency of 0.5% p.a.

B. Purchaser education program – Program developed by government in conjunction with fan industry stakeholders to educate fan-unit consumers about how to select fan-units to minimise overall lifecycle costs, starting in 2018. Would consist of on-line information and selection tools, supported by promotional activities to make end-users aware of the resources.

C. Mandatory minimum energy performance standards (MEPS) introduced for fan-units based on the MEPS which are operating in the European Union, making use of ISO5801 (efficiency test method) and ISO12759 (fan motor efficiency grade classification). The scheme would require physical testing, registration and a compliance, and enforcement regime consistent with the current E3 Programme approach. A number of possible regulatory options are considered: Option C1 – Full implementation of the EU Fan Regulations, starting with Tier 1 MEPS in

2018 and Tier 2 MEPS in 2020; Option C2 – Implement the EU Fan Regulations, but limit scope to fans with an input power

< 185 kW; Option C3 – Implement the EU Fan Regulations, but limit scope to fans with an input power

< 185 kW, and exclude all fans which are incorporated in products which are already regulated form MEPS;

Option C4 - Implement the EU Fan Regulations, but limit scope to fans with an input power < 185 kW, and exclude all fans which are incorporated in products which have the sole purpose of delivering air which is heated or cooled.

Sales Sales data for 2011/12 to 2013/14 was obtained from a survey of fan-unit suppliers, and supplemented by estimates of the sales of fans incorporated in a range of residential appliances and commercial equipment. Post 2014 sales based on an estimated average growth rate of 1.4% (based on an analysis of ABS import data over the period 2000 to 2014).It was assumed that growth rates in NZ are the same as for Australia.

Projection Period 15 years (2016 to 2030, cohort ending in 2040)

15 years was chosen as the modelling period as it provides a suitable period to assess the likely longer term impact of the proposed measures. The typical life of the fan-units considered is in the range of 12 to 25 years, although the life of the smaller fan-units, which account for the majority of the energy consumption, is generally less than 20 years.

Cohort modelling refers to tracking the effect of the products installed up to 2030 out to 2040. The ten year period after 2030 will cover much of the lifetime of the products installed up to 2030.

Energy Efficiency A. Data on the energy efficiency of the fan-units currently on the market was obtained from a survey of fan-unit suppliers [EG 2015a]. This data was analysed by Energy Consult [EC 2015] to estimate the average energy efficiency of the different fan-unit types in different input power ranges, and in the different key applications. Estimates of both Static efficiency and Total efficiency were


Attachment A – Cost-Benefit Modelling for Fan RIS


derived, depending on the fan type and application. It was assumed that there would be an autonomous improvement in energy efficiency of 0.5% p.a. under business as usual, based on the efficiency improvements observed for similar equipment.

B. The purchaser education program was estimated to achieve a 0.1% p.a. improvement in fan-unit efficiency above business as usual. This was because this program was expected to achieve relatively low coverage of the market (20%) and to have a fairly small impact on purchase decisions.

C. Option C1 – Implementation of EU Tier 1 MEPS (2018) and Tier 2 MEPS (2020) for all fan-unit types from an input power of 125W to 500 kW increases the sales-weighted average energy efficiency of the fan-units above BAU due to the least efficient fan-units being removed from the market.Option C2 – As per Option C1, although scope of efficiency increases limited to fan-units in the range of 125W to 185kW.Option C3 – As per Option C1, although fan-units incorporated into products that are already regulated through the E3 Program have been excluded from the analysis.Option C4 – As per Option C1, although fan-units incorporated in products used for heating and cooling have been excluded from the analysis.

Capital Costs The average wholesale cost of the different types of fan-units under business as usual was derived from a survey undertaken of fan-unit suppliers [EG 2015a, EC 2015] for the different fan types and input power ranges. Conversion factors were developed in consultation with industry stakeholders to convert the wholesale prices into end-user prices. For Australia retail prices were used as the basis of the capital costs, and for New Zealand wholesale prices were used.Where the proposed measures resulted in an increase in the energy efficiency of the fan-units sold it was assumed that all incremental capital/development costs are passed on to the consumer. Based on surveys undertaken with fan-unit suppliers and an analysis of the price and energy efficiency data collected it was assumed that the price-efficiency ratio was 1.0. This means that a 10% increase in the average energy efficiency of fan-units sold will correspond to a 10% increase in average price.

Registration Admin Costs and Costs of Compliance

Option B – Government costs will include program development costs and on-going administration costs.Option C – Government costs include salary, program administration and check-testing costs. In addition to this there is assumed to be a one-off establishment cost of $250,000. Industry costs include product testing, registration fees, record keeping and keeping up to date with regulatory requirements. The costs vary depending on the coverage of the regulations (C1 to C4).

Energy Consumption The energy consumption of the stock of fan-units installed in each year is calculated for the different fan-unit types, broken down into the different input power ranges and different end-use applications. Energy consumption is calculated for the stock of fan-units in both Australia and New Zealand. The total energy consumption of the fan-units is based on the total number of units installed, the average annual operating hours in the different end-use applications, the average fan output power, and the average efficiency of the fan-units.The fan-units are retired from the stock according to a survival function, with the average (50%) life of the different types of fan-units ranging from 12 to 25 years. The energy efficiency of the new fan-units entering the stock in any year from 2018 to 2030 depends on the policy option being considered (see above). The energy consumption of the stock is undertaken at the state level in Australia and then summed to the national level.Energy prices are:

Australia – based on Residential and Business electricity price index from AEMO 2014 New Zealand – the long range marginal cost (LRMC) provided by EECA in February 2017,

was used for both residential and business electricity.

Greenhouse Gas Emissions Coefficients

Australia: Projected factors from 2014 – derived from 2013 National Greenhouse Account (NGA) factors but varied by trends in electricity sent out emission intensity by state, the No Carbon Scenario, from The Treasury and SIICCSRTE, 2013.New Zealand: Ministry of Business, Innovation and Employment (MBIE), New Zealand’s Energy Outlook – Electricity Insight, June 2013. Historical values to 2012; From 2013 values provided by EECA were used – based on estimates from MBIE’s Electricity Demand and Generation Scenarios (August 2016) and Energy Modelling Technical Guide (August 2016)

Industry Costs Option B – All costs are assumed to be borne by government.Option C – Registration costs for new products within the scope of the proposals are assumed to be $670 per model in Australia, which is treated as an income to the government for modelling purposes as partial cost recovery for government of administering the regulations in Australia. There are no registration fees in New Zealand, and it is assumed that 20% of models are registered in New Zealand.Other costs of compliance (testing, staff education, record keeping) are accounted for using the Regulatory Burden Management tool (for Australia) and are included as a component of the cost benefit analysis.

Sensitivity Analysis NPV: Australia – 7% discount rate, with sensitivity tests at 0%, 3% and 11% New Zealand – 6% discount rate, with sensitivity tests at 0%, 3% and 8%



Three sensitivities were tested: The price efficiency (PE) ratio, was increased from 1.0 (base case) to 2.0. The energy efficiency improvement under business as usual was increased by 10% from the

base case of 0.5% pa while maintaining the same increase in efficiency for the other Policy Options modelled

In the base case no value was attributed to the greenhouse emission reduction for Australia, and for New Zealand $25 per tonne was used. For the sensitivity analysis this value was increased to $50 per tonne for New Zealand. For Australia values of $12.1 per tonne and $35 per tonne were tested.

Key Assumptions Reductions in energy use are due to the Policy Options (B and C) being implemented from 2018.Rebound (take back) treated as zero in relation to energy use. Rebound occurs where the increased energy efficiency of a product results in an end-user making greater use of the product. Due to the nature of the end-use applications for fan-units this seems unlikely. Any rebound would occur through the conversion of potential energy savings into increased operating hours or increased air movement, but this does not decrease the total benefit the consumer receives, it is simply a conversion of the energy savings benefit into another form. This means there is no reduction in benefits from the end user’s perspective from rebound; hence it can be ignored for the purposes of the cost-benefit analysis.


A.2 Methods and Key InputsMethod for Calculating Energy and Greenhouse Gas Impacts

Energy Consumption

The annual energy used by fan-units is a function of their electrical input power, the number of operating fan-units and the average annual hours of operation. In turn, the annual greenhouse gas (GHG) emissions are a function of the annual energy consumption and the greenhouse gas emission factors determined by the electricity generation mix.

To calculate the energy consumption under the BAU and proposed Policy Options, a detailed and elaborate model of the total stock of fan-units units installed and operating in Australia and New Zealand was developed55. In this model the number of operating fan-units in a particular year is a function of the existing stock in the previous year, replacements due to the retirement of older fan-units from the stock, and new sales. Estimates of stock and sales were made for both Australia and New Zealand (see A.3 Sales and Stock below). The model assumes that fan-units are retired from the stock according to a “survival function” that reflects the lifespan of typical equipment. Hence, a complete stock model of the fan market was developed by state/region and year, with additional details such as fan product type and sector, input power range, average efficiency and year of purchase or installation taken into account. The number of fan-units was multiplied by the average power input under BAU, and the various Policy Options, and corresponding average number of hours of operation for each fan type to obtain the total energy consumption by state/region, category and input power range. It is worth noting that operating hours vary according to the sector and fan type.

To determine the average BAU input power to the fan, data on the rated efficiency of the fan-units was used. The input power to a fan-unit is a function of the fan air power56 and the fan-unit efficiency. The input power in kW can be calculated as:

Input Power (kW )=Fan air power or fan static air power (kW )

Efficiency( η)

The BAU average efficiency of the different fan types was determined from the survey of fan-unit suppliers conducted by the Expert Group in 2015 [EG 2015a]. The BAU average efficiency was projected to 2030 with an autonomous annual efficiency improvement of 0.5% assumed. The average efficiency of the units as a result of the various Policy Options being assessed was determined on the basis of the increase in sales weighted average efficiency due to the scenario being examined for each particular fan type and input power range.

The energy consumption was determined for the BAU and various Policy Options. The difference in the projections of energy consumption between the policy options and the BAU scenario provided the net energy savings used to calculate the impacts.

The underlying methodology on which the energy consumption model is based is classified as a bottom-up engineering model. It involves calculating the energy consumption at the product level and aggregating these consumptions to estimate the total state/region or national level consumption. More specifically this involves estimating the energy use at the equipment (unit) level and then aggregating the energy use across all product types to get the total energy use.

This approach is summarised in the calculation that for each product category:

55 The model was based on the fan types and fan ‘size’ range that is within the scope of this Consultation RIS. The models was developed by Energy Consult, with support from Expert Group.56 This is the power of the mass of air which is being moved by the fan against a certain pressure differential.


Annual Energy Consumed (AEC) = Stock Numbers * Unit Energy Consumption (UEC).

The next aspect of the energy modelling is determining the value of the Unit Energy Consumption (UEC) for each product type. At its most basic level, UEC is determined by:

UEC = Annual hours of usage * [Unit Size (Fan Air Power in kW) / Unit Efficiency (η)]

Greenhouse Gas Emissions

Annual greenhouse gas emissions were determined by multiplying the annual energy used by fan-units and the relevant greenhouse gas emission factor for the state/region in which they operate. The greenhouse gas emission factor refers to the amount of greenhouse gas emissions produced through the supply of a given unit of electricity. In the model, the greenhouse gas emissions were estimated by using the state/region energy calculations combined with the Greenhouse Gas Emissions Factors shown in Attachment E.

Cost-Benefit Methodology

A financial analysis has been conducted on the societal cost-benefits of the proposals being reviewed, with the analysis conducted at the state/territory and national (Australia and New Zealand) level.

In terms of an approach for the cost-benefit analysis, it is necessary to do this from either a buyer or societal perspective. The social approach is the appropriate methodology for the analysis, but the buyer approach can be used where it approximates the results that would be obtained from the societal perspective. As electricity prices closely reflect the marginal cost of producing electricity, due to generators providing power in response to a competitive bidding system for the wholesale energy market, the market price can be used as a proxy for the resources saved in production. Consequently, the results should closely resemble those that would be obtained from an analysis from the social perspective.

An analysis from a buyer perspective involves the use of retail product prices and marginal retail energy prices. Since the objective is to assess whether product buyers as a group would be better off, transfer payments such as taxes are included. Retail mark-ups and taxes will be passed onto the buyer and including these in the costs will simplify the analysis process, while still remaining appropriate.

The buyer approach is recommended for the development of RIS’s associated with the E3 program [NAEEEP 2005], and is the approach which has been used for the Australian cost-benefit modelling. The alternative analysis approach, of assessing from a resource perspective, would require a new set of factors and assumptions to be introduced to the analysis, particularly regarding manufacturing costs, and would also mean the impact of varying discount rates would be very much more difficult to assess.

The New Zealand Government requires that electricity savings are based on long range marginal cost (LRMC), rather than marginal retail energy prices, with financial benefits associated with greenhouse gas abatement and avoided or delayed infrastructure investment also included in the benefits57. Resource (or manufacturing) costs should be used for the product costs. As these are not available, the wholesale price has been used in this Consultation RIS. These prices are higher than manufacturing cost, and therefore the cost-benefit analysis for New Zealand presents a conservative assessment of the impact of the policy options.

In the analysis the following costs and benefits are included:

57 Note that the infrastructure benefits have not been assessed or quantified for this Consultation RIS.


Costs:

• the incremental price increases of the more efficient products supplied to the market as a result of the Policy Options, reflecting costs passed on by suppliers. For Australia these are based on retail prices and for New Zealand these are based on wholesale prices;

• to governments for implementing and administering certain Policy Options (purchaser education program and mandatory MEPS); and

• to the product supply businesses for complying with any new requirements of the Policy Options (i.e. testing, administration and training etc. for modified or new product categories).

Benefits:

• the avoided electricity purchase costs due to the increased average efficiency of the products supplied to the market, improvements which consumers could not otherwise access due to market failures. For Australia marginal retail electricity prices have been used and for New Zealand the long range marginal cost of electricity has been used; and

• to society from the greenhouse gas emission reductions which result from the reduced energy consumption, in order to value the reduction in this negative externality. For New Zealand these have been valued at $25 per tonne CO2-e. For Australia no value has been assigned to the greenhouse emission reductions in the main analysis.

The energy prices were derived from the AEMO 2014 Electricity price index for Australia [AEMO 2014]. The electricity prices for New Zealand are the long range marginal cost provided by the Energy Efficiency and Conservation Authority.

Another benefit of the proposed policy options is the reduction in the environmental impacts of electricity generation beyond the reduction in greenhouse gas emissions, including reduced NOx/SOx emissions, reduced particulate emissions and reduced water consumption. The modelling of the benefits in this Consultation RIS does not include the benefits associated with reducing these other environmental impacts of electricity use, and so to some extent will understate the full benefits.

All Net Present Value (NPV) figures are real 2015 dollars. NPV is a calculation that allows decision makers to compare the costs and benefits of various alternatives on a similar time scale by converting all options to current dollar figures. NZ values shown in NZ dollars, calculated with an exchange rate of 1.176 NZD to AUD where necessary.

All the outputs of the cost-benefit analysis were assessed in Australia at a 7% discount rate, with sensitivity tests at 0%, 3% and 11%. For New Zealand a 6% discount rate was used, with sensitivity tests at 0%, 3% and 8%.

The NPV period used for the analysis was from 2015 to 2040, with the modelling period including the benefits and costs of equipment installed to 2030, and trailing benefits included until 2040. As the ‘half-life’58 of the various fan types being modelled ranges from 12 to 25 years there will still be a considerable number of fans in the stock in 204o that have been impacted by the Policy Options modelled until 2030, so in reality the energy saving benefits will continue beyond this period. This means that the NPVs will be conservative to some extent, although at the higher discount rates the impact of this will be relatively small.

Key Inputs to Cost-Benefit Model

Introduction

The various inputs to the model have been detailed below and are derived from available data, industry surveys or, where necessary, realistic assumptions based on expert industry opinion. The main data research used for this cost-benefit analysis was obtained from the Collection of Fan Industry Market Data [EG 2015 a] project, supported by additional research undertaken by Energy

58 After this time half of the fans installed in a certain year will remain in the stock and half will have been retired.


Consult on the number fans incorporated59 into other equipment during the preparation of the fan stock model [EC 2015].

The main data research [EG 2015 a] was undertaken in conjunction with the Fan Manufacturers’ Association of Australia and New Zealand (FMA-ANZ), the main industry association representing fan manufacturers, importers and suppliers in Australia and New Zealand. Expert Group, the consultant that managed these surveys also liaised with the Air conditioning and Refrigeration Equipment Manufacturers Association of Australia (AREMA) and the Consumer Electronics Suppliers Association (CESA). Confidential surveys were undertaken with fan industry stakeholders over the period October 2014 to February 2015, and these were completed by companies responsible for around 56% of the fan-units sold in 2013/14.

Product categories included in the model

For each of the fan-unit types, multiple product categories were utilised to ensure the impacts of a range of potential policy options could be assessed. The fan-unit types included in the analysis are:

1. Axial fans;2. Centrifugal forward curved fans and centrifugal radial bladed fans3. Centrifugal backward curved fans without housing4. Centrifugal backward curved fans with housing5. Mixed flow fans6. Cross flow fans

59 These are often referred to as “products of incorporation”. These are fans which are incorporated into equipment such as ducted refrigerative air conditioners, ducted gas heaters and ducted evaporative coolers, and commercial refrigeration equipment. Only fans that were driven by an electric motor with an input power greater than 125 Watts were included.


These different fan-unit types were then divided into a number of different input power size ranges as follows, to allow a more accurate estimate of fan-unit energy consumption to be made:

Greater than (>) 125 Watts and less than (<) 0.75 kW

Greater than or equal to (≥) 0.75 kW and less than (<) 4 kW





Finally, the product categories were then classified into each sector that the fan-units were used in and, where appropriate, different end-use applications as shown in Table A2.

Table A2 – Classification of fan-units into sector and product

Sector and Product of Incorporation Short Name Used in Model

Residential Sector – Evaporative Cooler Res - EvapCooler

Residential Sector – Ducted Air Conditioner Res - AC

Residential Sector – Ducted Gas Heater Res - GAS

Commercial Sector – HVAC – GEMS60 Regulated Products Com – HVAC - Reg

Commercial Sector – HVAC – Non-GEMS Regulated Products

Com – HVAC NonReg

Commercial Sector – Refrigeration – Non-GEMS Regulated Products

Com – Refrig - NonReg

Other Sectors – non-GEMS regulated products Other - All

The energy efficiency of fan-units can be measured as either a Static efficiency or a Total efficiency, and the appropriate efficiency metric to use depends on the type of fan-unit and its end-use application. For each of the fan types, input power ranges and sector/application, the appropriate efficiency metric was determined and hence each category was further classified as either Static (@S) or Total (@T) in accordance with ISO12759, the international standard which sets out the efficiency grades used for fan-units.

The fan-unit categories which were used in the model for this Consultation RIS are provided in Table A3 below. This detailed categorisation was used to help ensure that the modelling of the energy consumption was as accurate as possible, and to also allow a fairly wide range of policy option scenarios to be tested. In particular, this detailed categorisation enables a policy option of adopting fan efficiency regulations consistent to those now operating in the European Union to be modelled, as well as policy options which include a number of exclusions in relation to the EU fan efficiency regulations.

Table A3 – Product Categories for fan-units included in the cost-benefit model

Product Categories

1. Axial: >125W and <0.75 kW - Res - EvapCooler @T

1. Axial: ≥ 0.75 kW and <4 kW - Res - EvapCooler @T

1. Axial: >125W and <0.75 kW - Com - HVAC - Reg @S

1. Axial: ≥ 0.75 kW and <4 kW - Com - HVAC - Reg @S

1. Axial: >125W and <0.75 kW - Com - HVAC - NonReg @S

60 These are products which are already regulated for MEPS through the Greenhouse and Energy Minimum Standards legislation in Australia and similar legislation in New Zealand.


Product Categories1. Axial: ≥ 0.75 kW and <4 kW - Com - HVAC - NonReg @S

1. Axial: ≥ 4 kW and <10 kW - Com - HVAC - NonReg @S

1. Axial: >125W and <0.75 kW - Com - HVAC - NonReg @T

1. Axial: ≥ 0.75 kW and <4 kW - Com - HVAC - NonReg @T

1. Axial: ≥ 4 kW and <10 kW - Com - HVAC - NonReg @T

1. Axial: >125W and <0.75 kW - Com - Refrig - NonReg @S

1. Axial: ≥ 0.75 kW and <4 kW - Com - Refrig - NonReg @S

1. Axial: >125W and <0.75 kW - Other - All @S

1. Axial: ≥ 0.75 kW and <4 kW - Other - All @S

1. Axial: ≥ 4 kW and <10 kW - Other - All @S

1. Axial: ≥ 10 kW and <30 kW - Other - All @S

1. Axial: >125W and <0.75 kW - Other - All @T

1. Axial: ≥ 0.75 kW and <4 kW - Other - All @T

1. Axial: ≥ 4 kW and <10 kW - Other - All @T




2. Centrifugal forward: >125W and <0.75 kW - Res - AC @T

2. Centrifugal forward: ≥ 0.75 kW and <4 kW - Res - AC @T

2. Centrifugal forward: >125W and <0.75 kW - Res - GAS @T

2. Centrifugal forward: ≥ 0.75 kW and <4 kW - Res - GAS @T

2. Centrifugal forward: >125W and <0.75 kW - Com - HVAC - Reg @S

2. Centrifugal forward: ≥ 0.75 kW and <4 kW - Com - HVAC - Reg @S

2. Centrifugal forward: >125W and <0.75 kW - Com - HVAC - Reg @T

2. Centrifugal forward: ≥ 0.75 kW and <4 kW - Com - HVAC - Reg @T

2. Centrifugal forward: >125W and <0.75 kW - Com - HVAC - NonReg @S

2. Centrifugal forward: ≥ 0.75 kW and <4 kW - Com - HVAC - NonReg @S

2. Centrifugal forward: >125W and <0.75 kW - Com - HVAC - NonReg @T

2. Centrifugal forward: ≥ 0.75 kW and <4 kW - Com - HVAC - NonReg @T

2. Centrifugal forward: >125W and <0.75 kW - Other - All @S

2. Centrifugal forward: ≥ 0.75 kW and <4 kW - Other - All @S

2. Centrifugal forward: ≥ 4 kW and <10 kW - Other - All @S



2. Centrifugal forward: >125W and <0.75 kW - Other - All @T

2. Centrifugal forward: ≥ 0.75 kW and <4 kW - Other - All @T

3. Centrifugal backward w/o housing: >125W and <0.75 kW - Res - AC @S

3. Centrifugal backward w/o housing: ≥ 0.75 kW and <4 kW - Res - AC @S

3. Centrifugal backward w/o housing: >125W and <0.75 kW - Res - GAS @S

3. Centrifugal backward w/o housing: ≥ 0.75 kW and <4 kW - Res - GAS @S

3. Centrifugal backward w/o housing: >125W and <0.75 kW - Com - HVAC - Reg @S

3. Centrifugal backward w/o housing: ≥ 0.75 kW and <4 kW - Com - HVAC - Reg @S

3. Centrifugal backward w/o housing: >125W and <0.75 kW - Com - HVAC - NonReg @S

3. Centrifugal backward w/o housing: ≥ 0.75 kW and <4 kW - Com - HVAC - NonReg @S

3. Centrifugal backward w/o housing: ≥ 4 kW and <10 kW - Com - HVAC - NonReg @S


Product Categories3. Centrifugal backward w/o housing: ≥ 10 kW and <30 kW - Com - HVAC - NonReg @S

3. Centrifugal backward w/o housing: >125W and <0.75 kW - Other - All @S

3. Centrifugal backward w/o housing: ≥ 0.75 kW and <4 kW - Other - All @S

3. Centrifugal backward w/o housing: ≥ 4 kW and <10 kW - Other - All @S




4. Centrifugal backward with housing: ≥ 0.75 kW and <4 kW - Com - HVAC - NonReg @S

4. Centrifugal backward with housing: ≥ 4 kW and <10 kW - Com - HVAC - NonReg @S




4. Centrifugal backward with housing: >125W and <0.75 kW - Com - HVAC - NonReg @T

4. Centrifugal backward with housing: ≥ 0.75 kW and <4 kW - Com - HVAC - NonReg @T

5. Mixed flow: >125W and <0.75 kW - Com - HVAC - NonReg @T

5. Mixed flow: ≥ 0.75 kW and <4 kW - Com - HVAC - NonReg @T

5. Mixed flow: ≥ 4 kW and <10 kW - Com - HVAC - NonReg @T

6. Cross flow: >125W and <0.75 kW - Com - HVAC - NonReg @T

BAU efficiency in 2014

The average efficiency of products sold in a particular year was determined from the survey of suppliers reported in the research undertaken by Export Group [EG 2015]61. Suppliers were asked to provide information on the energy efficiency of their fan-unit products for the different fan-unit categories and size ranges. The efficiency data was averaged for each fan-unit type and power input range for the “three best sellers” reported by the suppliers, with averages prepared separately for Static and Total efficiency as appropriate. The same BAU efficiency was used for Australia and New Zealand, as many of the suppliers operate in both markets. The results of the analysis of the data from the fan supplier survey is provided in Table A4 and Table A5 below.

Table A4 - Average Fan-Unit Efficiency 2014 (Static)

Fan Size (kW input)Fan Type


> 125 W and < 0.75 kW 26.9% 26.8% 47.8% 35.2% 49.5% -

≥ 0.75 kW and < 4 kW 32.4% 33.3% 60.6% 45.9% - -

≥ 4 kW and < 10 kW 36.4% 62.3% 63.7% 52.9% - -

≥ 10 kW and < 30 kW 28.2% 63.2% 66.6% 54.0% - -

≥ 30 kW and < 185 kW 29.2% 64.2% 68.4% 54.0% - -

≥ 185 kW and < 500 kW 30.3% 65.3% 70.0% 55.7% - -Note: A blank cell indicates that the value is not relevant for this type and input power

Table A5 - Average Fan-Unit Efficiency 2014 (Total)

Fan Size (kW input) Fan Type

61 Detailed results are contained in Appendix C: Technology Matrix of [EG 2015].



> 125 W and < 0.75 kW 39.9% 26.3% - 36.4% 48.9% 13.2%

≥ 0.75 kW and < 4 kW 45.1% 35.8% - 58.3% 50.2% -

≥ 4 kW and < 10 kW 48.3% - - - 55.0% -

≥ 10 kW and < 30 kW 51.7% - - - - -

≥ 30 kW and < 185 kW 58.8% - - - - -

≥ 185 kW and < 500 kW 60.0% - - - - -Note: A blank cell indicates that the value is not relevant for this type and input power

The energy efficiency of fan-units can also be categorised by a number known as the Fan Motor Efficiency Grade (FMEG). Data on the average, lowest and highest FMEG was collected as part of the fan industry data collection project for the different fan-unit types and fan-unit size ranges [EG 2015a], and is shown for the different fan-unit types in Figures A1 to A6. Figure A1 is based on weighting the available data across all fan-unit size ranges, while Figures A2 to A6 present the data for each fan-unit size range.

Figure A1 – Range of fan-unit efficiencies for different fan types, weighted across all size ranges

0

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fan w housing


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Figure A2 – Range of fan-unit efficiencies for fan size > 125 W and < 0.75 kW

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Figure A3 – Range of fan-unit efficiencies for fan size ≥ 0.75 kW and < 4 kW

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1. Axial fans 2. Centrifugal forwardcurved & radial bladed

fan

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4. Centrifugal backwardcurved fan w housing

5. Mixed flow fan

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Figure A4 – Range of fan-unit efficiencies for fan size ≥ 4 kW and < 10 kW

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As there is no data available to assess the changes in efficiency over time, the autonomous efficiency increase used to project BAU efficiency to 2030 was assumed to be 0.5% pa. This efficiency increase is similar to product assessments in other RIS, such as air conditioners (0.5% p.a.) and commercial refrigeration.

Impact of policy options on efficiency levels

The various policy options considered will increase the average energy efficiency of the fan-units sold into the Australian and New Zealand markets above the business as usual level, and over time this will increase the average efficiency of the stock of fan-units. In the cost-benefit modelling the following assumptions were made regarding the impact of the various policy options on the efficiency of the fan-units sold:

• The purchaser education program (Option B) was estimated to achieve a 0.1% p.a. improvement in fan-unit efficiency above business as usual. This was because this program was expected to achieve relatively low coverage of the market (20%) and to have a fairly small impact on purchase decisions.

• For Option C (mandatory MEPS) the minimum energy efficiency levels are based on the levels specified in EU Regulation No. 327/2011, which is based on the Fan Motor Efficiency Grades (FMEG) determined by the international standard ISO12759. The minimum FMEG requirements from the EU regulations were converted to fan efficiency levels (percentages) for use in the cost-benefit modelling using the formula for “η target” in Table 1 and Table 2 of the EU Regulation 327/2011, and using the average power input for each of the power ranges shown in Table A6.

The “η target” efficiency levels are the effective minimum efficiency levels for Tier 1 (Tables A7 and A8) and Tier 2 (Tables A9 and A10) for Policy Option C, for each product category assessed. These levels are shown in the tables below.

Table A6 - Average Input Power 2014 by Input Power Range

Fan Size (kW input)Av. Input Power

(Pe in kW)

> 125 W and < 0.75 kW 0.44

≥ 0.75 kW and < 4 kW 1.5

≥ 4 kW and < 10 kW 5.5

≥ 10 kW and < 30 kW 15


≥ 30 kW and < 185 kW 50

≥ 185 kW and < 500 kW 220


Table A7 – Effective Minimum Efficiency Levels Tier 1 – Static

Fan Size (kW input) Type 1 Type 2 Type 3 Type 4 Type 5 Type 6

>125W and <0.75 kW 27.4% 28.4% 43.7% 43.7% 32.7%

≥ 0.75 kW and <4 kW 30.8% 31.8% 49.3% 49.3% 38.3%

≥ 4 kW and <10 kW 34.3% 35.3% 55.3% 55.3% 44.3%

≥ 10 kW and <30 kW 36.2% 37.2% 58.4% 58.4% 47.4%

≥ 30 kW and <185 kW 37.2% 38.2% 59.7% 59.7% 48.7%

≥ 185 kW and <500 kW 38.3% 39.3% 61.3% 61.3% 50.3%

Note: A blank cell indicates that the value is not relevant for this type and input power.

Table A8 – Effective Minimum Efficiency Levels Tier 1 – Total


>125W and <0.75 kW 41.4% 33.4% 46.7% 43.7% 9.5%

≥ 0.75 kW and <4 kW 44.8% 36.8% 52.3% 49.3% 10.9%

≥ 4 kW and <10 kW 48.3% 40.3% 58.3% 55.3% 12.3%

≥ 10 kW and <30 kW 50.2% 42.2% 61.4% 58.4% 13.0%

≥ 30 kW and <185 kW 51.2% 43.2% 62.7% 59.7% 13.0%

≥ 185 kW and <500 kW 52.3% 44.3% 64.3% 61.3% 13.0%


Table A9 – Effective Minimum Efficiency Levels Tier 2 – Static


>125W and <0.75 kW 31.4% 35.4% 47.7% 46.7% 35.7%

≥ 0.75 kW and <4 kW 34.8% 38.8% 53.3% 52.3% 41.3%

≥ 4 kW and <10 kW 38.3% 42.3% 59.3% 58.3% 47.3%

≥ 10 kW and <30 kW 40.2% 44.2% 62.4% 61.4% 50.4%

≥ 30 kW and <185 kW 41.2% 45.2% 63.7% 62.7% 51.7%

≥ 185 kW and <500 kW 42.3% 46.3% 65.3% 64.3% 53.3%


Table A10 – Effective Minimum Efficiency Levels Tier 2 – Total


>125W and <0.75 kW 49.4% 40.4% 49.7% 47.7% 17.5%

≥ 0.75 kW and <4 kW 52.8% 43.8% 55.3% 53.3% 18.9%

≥ 4 kW and <10 kW 56.3% 47.3% 61.3% 59.3% 20.3%

≥ 10 kW and <30 kW 58.2% 49.2% 64.4% 62.4% 21.0%

≥ 30 kW and <185 kW 59.2% 50.2% 65.7% 63.7% 21.0%

≥ 185 kW and <500 kW 60.3% 51.3% 67.3% 65.3% 21.0%


In practice, as there are a range of fan-unit efficiencies available for each fan-unit type, the average efficiency of the fan-units sold is likely to be higher than the minimum efficiency levels specified. For the cost-benefit modelling, the sales-weighted efficiency for each product category has been determined by a proportional relationship based on the difference of the effective MEPS efficiency levels compared to the BAU efficiency levels. This increase is based on how stringent the MEPS efficiency level is compared to the BAU efficiency. The cost-benefit model calculates the


difference and utilises a normal distribution function to calculate the effect of the MEPS. The relationship between the percentage difference between the EU MEPS levels and the BAU average efficiency level, and the percentage increase in the average efficiency when the MEPS are applied is shown in Table A11.

Table A11 – Effect of MEPS on Average Efficiency

% EU MEPS Level compare to BAU

% Increase in the Average Efficiency

% EU MEPS Level compare to BAU

% Increase in the Average Efficiency

-20% 1% 1% 6%

-19% 1% 2% 6%

-18% 1% 3% 7%

-17% 1% 4% 8%

-16% 1% 5% 9%

-15% 2% 6% 9%

-14% 2% 7% 10%

-13% 2% 8% 11%

-12% 2% 9% 12%

-11% 2% 10% 13%

-10% 3% 11% 13%

-9% 3% 12% 14%

-8% 3% 13% 15%

-7% 3% 14% 16%

-6% 3% 15% 17%

-5% 4% 16% 17%

-4% 4% 17% 18%

-3% 4% 18% 19%

-2% 4% 19% 20%

-1% 5% 20% 21%

0% 5%

Average fan output power

To calculate the power (and energy) consumption of the fan-units in the stock it is necessary to know the power output of the fans62 and the energy efficiency of the fan-units. It is difficult to obtain information directly on the power output of different types of fans. To estimate the average power output, data collected from the supplier survey on fan-unit input power [EG 2015a] was combined with the data collected on the average efficiency of the different types of fan-units in 2014, and used to estimate the fan output power. The average fan output powers that have been used in the cost-benefit analysis are shown in Table A12, broken down by the different input power ranges. Different figures have been used for residential evaporative coolers and for fan types where the efficiency is defined as Static and Total efficiency.

62 This is the power in the flow of air which is driven by the fans.


Table A12 - Average fan output power by power range

Input Power Range Average fan output power (kW)

Res – Evap Cooler All other fan types @S All other fan types @T

> 125 W and < 0.75 kW 0.28 0.15 0.15

≥ 0.75 kW and < 4 kW 0.58 0.60 0.58

≥ 4 kW and < 10 kW - 2.47 2.36

≥ 10 kW and < 30 kW - 7.13 6.76

≥ 30 kW and < 185 kW - 24.35 22.97

≥ 185 kW and < 500 kW - 110.29 103.54

Life of equipment (survival function)

The energy consumption of a particular fan-unit category is calculated using the characteristics of the products obtained from the stock model. The stock model is effectively a database that keeps a running tally of the numbers of each product in the stock in any year, and the average characteristics of each product in any year. The stock in any year is the sum of all past sales, less retirements of equipment at their end of life, and the sales of new equipment in that year.

Figure A7 provides a graphic illustration of how the stock model works. It shows that the fan-unit stock is added to by the cohort of sales in each year, and these products remain part of the stock into the future, but gradually reduce in number as they are retired (i.e. shown as going from 100 to 10 over time in the diagram). In any given year, (e.g., the year 2005 shown within the black rectangle in the diagram), the fan-unit stock will consist of a mixture of the fan-units sold in all previous years. Importantly, this means that the equipment characteristics of the fan-unit stock in any given year will also reflect the equipment characteristics of the stock of all previous years. If the average energy efficiency of the fan-units sold from a particular date increases as a result of the policy options modelled, these efficiency improvements will gradually flow through the entire stock so that overall it becomes more efficient than in the BAU scenario.

The stock model used for the cost-benefit analysis therefore incorporates data on the equipment characteristics of the fan-units sold in every year for every fan-unit category included in the model, e.g. the average fan-unit power size and the efficiency of the units in any given year. These are the equipment characteristics that are used to calculate average energy consumption for the product. The stock model then keeps track of the data needed to calculate these average characteristics for each year, based on the characteristics and number of the new equipment sold in the year, as well as that of all previous years. This stock modelling is done at the national level and at the State/Territory level.

Figure A7 - Graphic representation of stock model


In each year the new cohort of fan-units entering the stock are subjected to appropriate “survival functions” for each category and size of fan-unit. Examples of the different survival functions are shown in Figure A8, where a graphical view is presented of the percentage of fans (Rt) in useful service over the life in years from purchase (t). The survival functions are based on composite logistic distributions63 where the half-life (50% of initial stock remaining), as well as the 99% and 25% points on the function can be independently adjusted. As can be seen from Figure A8 a considerable proportion of each cohort remains in place well after the half-life date.

Figure A8 - Examples of survival functions

12 year half-life 20 year half-life

The following assumptions for the half-life of the fan-units were used in the cost-benefit analysis:

• Residential fans – 20 years• Non-residential fans >125W and <0.75 kW – 12 years• Non-residential fans ≥ 0.75 kW and <4 kW – 15 years• Non-residential fans ≥ 4 kW and <10 kW – 20 years• Non-residential fans ≥ 10 kW – 25 years

These half-life assumptions and the general shape of the survival function curves were developed in consultation with Australian and New Zealand fan-unit suppliers through workshops and interviews conducted during the Expert Group research [EG 2015a].

Operating hours

The average annual operating hours used for all fan-unit types were derived from the Expert Group research with industry stakeholders [EG 2015a] and are shown in Table A13.

All usage was also reduced by the following factors if applicable:

Duty Cycle factor – • 0.8 applied to Residential Sector Air Conditioner and Gas Ducted Heater products• 0.8 applied to Commercial Sector GEMS regulated products • 1.0 applied to all other products

Occupancy/Vacancy/Operations Adjustment, to account for stock that is in not used while households are unoccupied, commercial sector vacancy, and other sectors non-operational time (shutdowns, spare equipment, etc.). • 0.9 applied to all sectors and products

63 Separate distribution functions have been used for the first half of the distribution (up to the half-life) and for the second half of the distribution (after the half-life).


Table A13 - Assumed average annual operating time of fan-units

Sector and Fan Type Av. Annual Operating Time (hrs)

Residential Sector – Evaporative Cooler 500

Residential Sector – Ducted Air Conditioner 500

Residential Sector – Ducted Gas Heater 600

Commercial Sector – HVAC – GEMS regulated products 2,500

Commercial Sector – HVAC – Non-GEMS regulated products 3,500

Commercial Sector – Refrigeration – Non-GEMS regulated products

6,570

Other Sectors – Non-GEMS regulated products 3,500

Average fan prices

The average fan wholesale prices were derived from the survey of fan-unit suppliers [EG 2015a, EC 2015], with the average price ($/kW of fan power) for each of the categories and size ranges shown in Table A14. This shows the average wholesale price per kW of fan power. In the cost-benefit model these figures are multiplied by the actual fan output power, as relevant, to calculate the average wholesale price of the fan-units.

Table A14 - Average Wholesale Fan Prices ($/kW of Fan Output Power)

Fan Size (kW input) Fan Type


> 125 W and < 0.75 kW $1,631 $1,109 $2,428 $3,454 $4,503 $2,791

≥ 0.75 kW and < 4 kW $825 $1,027 $687 $2,415 $958 -

≥ 4 kW and < 10 kW $463 $1,050 $799 - $429 -

≥ 10 kW and < 30 kW $305 $574 $436 - - -

≥ 30 kW and < 185 kW $305 $1,701 $307 - - -

≥ 185 kW and < 500 kW $305 $1,701 $307 - - -Note: A blank cell indicates that the value is not relevant for this type and input power

End-user prices used in the cost-benefit modelling were derived by multiplying the wholesale price by the multiplier shown in Table A15. These multipliers were developed in consultation with fan industry stakeholders [EG 2015]. Note that for the Australian modelling end-user prices were used as the basis of the capital costs, whereas for New Zealand wholesale prices were used.

Table A15 - Conversion factors wholesale to end-user price

Fan Size (kW input) Multiplier for End User Prices

> 125 W and < 0.75 kW 1.6

≥ 0.75 kW and < 4 kW 1.5

≥ 4 kW and < 10 kW 1.4

≥ 10 kW and < 30 kW 1.3

≥ 30 kW and < 185 kW 1.2

≥ 185 kW and < 500 kW 1.1

To obtain the price in New Zealand dollars an exchange rate of 1.176 was used.


Price Efficiency Ratio

A key input for the modelling of the costs of the proposed policy options is the impact of the options on the price of the product to the buyer. The assumption used in the modelling is that more efficient equipment is more expensive than a similar performing product with lower efficiency64. This approach has been used for past RISs to determine the relative costs of the efficiency improvements due to the policy options modelled.

A range of options exist for determining the potential price changes as a result of the policy options, such as engineering/cost deconstruction, surveys of the suppliers to obtain price increments vs efficiency performance, analysis of the price vs efficiency relationship from model prices and technical data. The latter two approaches were used in this modelling exercise. The aim of this price vs efficiency research is to obtain a value for the price efficiency (PE) ratio that can used to assess the cost impacts of the policy option, such as every 1% increase in the average efficiency of the products being sold/installed the average price increases by 1.0% (a PE ratio of 1.0).

The survey data from the research conducted by Expert Group [EG 2015a] shows that there is not a clear relationship between prices ($/kW of fan power) and efficiency. In some categories the relationship is positive and others it is negative. For example, Figure A9 shows the results of the efficiency vs price for Type 2 Centrifugal forward in the input power range ≥ 0.75 kW and <4 kW.

Figure A9 - Price per kW of fain air power vs efficiency, Centrifugal forward fans: > 0.75 kW and < 4 kW

However, the interviews with suppliers [EG 2015a] reported that more efficient fans would cost more when comparing fans of a similar diameter. The fan-unit selection process involves several factors, and it is difficult to compare fan-units when the higher efficiency fan-units will provide more fan air power for the same diameter fan. This means that equipment manufacturers will be constrained in the selection of fan-units to meet the required load and characteristics of the fan-unit operation. In some cases the high efficiency fan-units selected will be able to be optimised to run at lower speeds and provide significant energy savings, and in other cases, the fan-unit size may be decreased, which would lower the cost of the fan-unit.

After examining the list prices for similar fan-units and a range of efficiencies, the relationship was mixed, with results ranging from a PE ratio of -1.5 to 2.87 with an average of 0.09. Therefore, a conservative PE ratio of 1.0 was used in the modelling to assess the impacts of the various policy options.

64 Although this assumption is used – it is not necessary supported by evidence from evaluations of efficiency programs, see for example the evaluation of the MEPS applied to residential air conditioners [EC 2010].


Where the proposed policy options resulted in an increase in the average efficiency of fan-units sold compared to BAU, the PE ratio was applied to the prices shown in Table A14 to calculate the average wholesale price increase for these fan-units.

Government and industry costs

Option B. Purchaser Education Program

The government costs were estimated as:

• Administration costs - $100,000 pa• Education and information costs - $500,000 pa


Option C. MEPS options

The government costs were assumed to be as follows:

• Establishment (Once Off) in first year = $250,000• Government Salary = $50,000 pa• Administration of Program =$50,000 pa• Random Check/Testing = $100,000 pa

The industry costs are the registration fees, testing of fans that have not already been tested, and the effort/time costs of submitting registrations, maintaining records and keeping up to date with regulatory requirements. These industry costs are calculated on the following basis:

• Education - Train staff, keep up-to-date with regulations (per Supplier) = $3,200• Record Keeping - Maintain documents for 5 yrs (per Supplier) = $320• Permission - Test product in laboratory (per model varies see below) • Permission - Complete MEPS registration (per model) = $80• Permission - Registration Fee (per Model) = $536 (Australia registration fee is $670 and

assumed 20% of models registered in New Zealand where the registration fee is zero)

Data on the number of companies and the number of fan-unit models on the market was obtained from the survey of fan-unit suppliers [EG 2015a]. For costing purposes it has been assumed that there are 1,765 models of fan-unit that would be impacted by the MEPS policy options with models having an average life in the market of 5 years. This means that 1,765 models would be impacted by the introduction (Tier 1) and upgrade (Tier 2) of the MEPS regulations, and an average of 353 models would need to be registered in the other years.

The testing costs were estimated from current laboratory tests as:

Table A16 - Assumed testing costs

Fan Size (kW input) Testing Cost Market Share

> 125 W and < 0.75 kW $2,000 68.5%

≥ 0.75 kW and < 4 kW $2,500 29.7%

≥ 4 kW and < 10 kW $3,000 1.2%

≥ 10 kW and < 30 kW $10,000 0.5%

≥ 30 kW and < 185 kW $20,000 0.1%

≥ 185 kW and < 500 kW $25,000 0.01%

Average Testing Cost $2,221 100.0%

The testing costs were only applicable to those fans that were not already tested by the suppliers for the Australia and New Zealand market. It was estimated that 60% of the models which would be subject to any MEPS regulations would have already been tested to the required international standards, and so would not need to be re-tested.

Discount rates

All the outputs in the cost-benefit analysis were assessed in Australia at a 7% discount rate, with sensitivity tests at 0%, 3% and 11%. For New Zealand a 6% discount rate is used, with sensitivity tests at 0%, 3% and 8%.

Electricity prices

The electricity prices and forecasts used in the cost benefit analysis are taken from the documented research conducted by Energy Consult for the Residential Baseline Study65:

65 Residential Baseline Study: Australia & Residential Baseline Study: New Zealand, prepared by EnergyConsult for the Department of Industry Innovation and Science, on behalf of the E3 Committee, August 2015.


• in Australia they are based on (Residential + Business) Electricity price index, from [AEMO 2014];

• in New Zealand the electricity prices are the long range marginal cost provided by the Energy Efficiency and Conservation Authority. The same price is used for both residential and business consumers.

Table A38 in Attachment E – Electricity Prices and Greenhouse Gas (GHG) Emission Factors provides the current and forecast electricity prices for the residential sector used in the modelling; Australian business prices are not permitted to be published.

Greenhouse gas emission factors

The greenhouse gas emission factors and forecasts used in the modelling are taken from the documented research conducted by Energy Consult for the Residential Baseline Study:

• Australia: Projected Factors from 2014 - derived from 2013 NGA factors but varied by trends in Electricity Sent out emission intensity by state, the No Carbon Scenario, from The Treasury and DIICCSRTE, 2013;

• New Zealand: Ministry of Business, Innovation and Employment (MBIE), New Zealand’s Energy Outlook – Electricity Insight, June 2013. Historical values to 2012; From 2013 values provided by EECA were used – based on estimates from MBIE’s Electricity Demand and Generation Scenarios (August 2016) and Energy Modelling Technical Guide (August 2016)

Table A39 in Attachment E – Electricity Prices and GHG Emission Factors provides the current and forecast GHG emission factors used in the modelling.

Value of greenhouse gas emission reduction

No value was attributed to the greenhouse gas emission reductions in Australia for the main cost-benefit analysis. For New Zealand, the greenhouse gas emissions were valued at $25 per tonne CO2-e. This value is referred to as a “shadow carbon price”.

For the sensitivity analysis, the value of the greenhouse gas emissions was increased to $50 per tonne CO2-e for New Zealand. For Australia, at the request of a number of Australian states participating in the E3 Program, values of $12.10 per tonne CO2-e and $35 per tonne CO2-e were tested to assess the impact that valuing the greenhouse abatement had on the net benefit and cost-benefit ratios. These were the values used in Improving the efficiency of new vehicles – Draft Regulation Impact Statement, published by the Australian Government on behalf of the Ministerial Forum on Vehicle Emissions in December 2016: $12.10 is the average cost of abatement from the first three auctions of the Emissions Reduction Fund, and $35 was considered to be a conservative “social cost of carbon”, based on appraisals undertaken for the United States Government.

The COAG Best Practice Guide to Regulation (October 2007) notes that “Public policy makers are expected to make judgements based on what is best for the community as a whole. By measuring ‘social’, as opposed to only private, market based costs and benefits, CBA is a valuable tool when developing good policy responses to economic and social problems”. Further, the Guide notes that “If there are non-market implications from regulatory activities or market prices are distorted, CBA proceeds as if the correct market prices existed. These are referred to as shadow prices”.


A.3 Sales and StockData Sources

The data on the annual sales and current stock of different types of fans was obtained through the Fan Industry Market Data Collection project undertaken by Expert Group [EG 2015a] with the cooperation and support of the Fan Industry Manufacturer’s Association of Australia and New Zealand (FMA-ANZ), the main industry association representing fan suppliers (manufacturers, importers, and distributors).

The methodology used was to collect data from companies on the quantity and value of sales for the different fan-unit types over the period 2011/12 to 2013/14 through the use of a confidential survey, then aggregating the data from the participating companies. Both companies that were FMA-ANZ members and non-members were approached to participate in the survey. The data collection covered fan-units that were imported from overseas, fan-units manufactured locally and sold locally as separate units or incorporated into other equipment. Only the first sale in the local (Australia/New Zealand) value chain was counted.

The aggregate data was used to assess the market shares and sales profile of the companies that did not provide sales data (non-participants). The final area of the market is companies that manufacture their own fan-units in products of incorporation, for example a company may source a motor and injection mould their own impeller for use in a ducted evaporative cooler, gas ducted heater or other item of equipment. The sale of these “products of incorporation” were derived from other sources66 and market intelligence from companies supplying components to equipment manufacturers.

The Australian survey participants were responsible for around 56% of the quantity of fan-units sold into the Australian market, the non-participants for 18% of the market, and it was estimated that the ‘products of incorporation’ – produced and assembled locally – were responsible for around 26% of the market. The New Zealand survey participants were responsible for around 55% of the fan-units sold into the New Zealand market, non-participants for 19% and the “products of incorporation” for around 25% [EG 2015a].

Sales Trends

The sales are based on the Fan Industry Market Data Collection project report [EG 2015a] for the period 2011/12 to 2013/14. The pre-2000 growth rate is assumed to be 2% and post 2014 sales growth rate is 1.4% (based on the average compound annual growth rate (CAGR) derived from the ABS fan import data from 2000 – 2014). It was assumed that New Zealand experienced the same sales growth rates as Australia during the 2000-2014 period. The total sales of fan units in both Australia and New Zealand are shown in Figure A10 below. More detailed information on the stales of different fans, by sector and category, are shown in Figures A11 and A12.

66 Consultation Regulation Impact Statement – Air Conditioners and Chillers, E3 Committee, February 2016. Attachment B of the RIS provides information on the modelling and was prepared by EnergyConsult. Product profile, Gas Ducted Heaters, prepared by EnergyConsult in association with Expert Group for the Equipment Energy Efficiency Program, 2011. Commercial refrigeration stock estimates prepared by Expert Group from Cold Hard Facts 2 Stock Model and recently updated in unpublished assignments for the Department of the Environment, 2015. This was supplemented with data on the residential sector from the 2015 Residential Baseline Study.


Figure A10 – Total Annual Sales of Fan-Units, Australia and New Zealand

0

100,000

200,000

300,000

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800,00019

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Australia New Zealand

Figure A11 – Annual Sales of Fans by Sector and Category: Australia


Figure A12 – Annual Sales of Fans by Sector and Category: New Zealand

The fan-unit sales data has also been analysed to get a better understanding of the breakdown of sales between the different fan types and also the different size ranges. Figure A13 provides a breakdown of fan-unit sales in 2014 by the six different fan types for both Australia and New Zealand. This breakdown stays fairly constant across the period analysed in the cost-benefit analysis. While there are some differences in the mix of fans sold in Australia and New Zealand it can be seen that the vast majority of sales – 95.7% in Australia and 97.2% in New Zealand – are accounted for by three fan types, axial fans, centrifugal forward curved and centrifugal radial bladed fans, and centrifugal backward curved fans without housing.

Figure A13 – Breakdown of fan-unit sales by fan type, 2014

45.6%

40.0%

10.1%

1.2% 3.0% 0.1%

1. Axial 2. Centrifugal forward curved & radial balded

3. Centrifugal backward curved w housing 4. Centrifugal backward curved w/o housing

5. Mixed flow 6. Cross flow

Australia

52.9%

23.8%

20.5%

2.2% 0.4% 0.2%

1. Axial 2. Centrifugal forward curved & radial balded

3. Centrifugal backward curved w housing 4. Centrifugal backward curved w/o housing

5. Mixed flow 6. Cross flow

New Zealand

Figure A14 provides a breakdown of fan-unit sales in 2014 by the different fan input power ranges for both Australia and New Zealand. The breakdown for Australia is quite similar to the breakdown


for New Zealand. In both cases, at around a 69% market share it is the fan-units in the lowest power range (>125 W to < 0.75 kW) which dominate the sales, followed by the next largest size range (>0.75 kW to < 4 kW) at around a 29% market share.

Figure A14 – Breakdown of fan-unit sales by fan input power range, 2014

68.5%

29.7%

1.2% 0.5% 0.1% 0.01%

>125W and <0.75 kW ≥ 0.75 kW and <4 kW ≥ 4 kW and <10 kW

≥ 10 kW and <30 kW ≥ 30 kW and <185 kW ≥ 185 kW and <500 kW

Australia

69.4%

28.8%

1.3% 0.3% 0.1% 0.02%

>125W and <0.75 kW ≥ 0.75 kW and <4 kW ≥ 4 kW and <10 kW

≥ 10 kW and <30 kW ≥ 30 kW and <185 kW ≥ 185 kW and <500 kW

New Zealand

Sales by Region

Based on the earlier forecast of sales and estimates of the share of sales by state/region, the estimated sales for the period 2015 to 2030 are shown in Table A17.

Table A17 - Estimated breakdown of fan sales by region, 2015 - 2030

Year ACT NSW NT QLD SA TAS VIC WA AU Total NZ

2015 10,113 192,901 6,320 123,471 43,409 13,182 150,742 68,002 608,140 71,632

2016 10,275 194,792 6,407 125,564 43,715 13,219 152,909 69,773 616,654 72,635

2017 10,438 196,714 6,495 127,683 44,028 13,257 155,106 71,567 625,288 73,652

2018 10,604 198,670 6,584 129,829 44,348 13,298 157,330 73,379 634,042 74,683

2019 10,772 200,662 6,674 132,003 44,675 13,341 159,583 75,208 642,918 75,728

2020 10,942 202,689 6,766 134,205 45,010 13,385 161,865 77,056 651,919 76,789

2021 11,115 204,753 6,860 136,438 45,352 13,432 164,176 78,921 661,046 77,864

2022 11,289 206,851 6,954 138,701 45,700 13,479 166,515 80,810 670,301 78,954

2023 11,466 208,985 7,050 140,995 46,055 13,528 168,883 82,722 679,685 80,059

2024 11,644 211,155 7,148 143,322 46,416 13,578 171,280 84,657 689,200 81,180

2025 11,825 213,361 7,248 145,682 46,784 13,628 173,705 86,616 698,849 82,316

2026 12,008 215,604 7,349 148,077 47,157 13,679 176,160 88,599 708,633 83,469

2027 12,194 217,883 7,452 150,504 47,537 13,731 178,646 90,607 718,554 84,637

2028 12,382 220,201 7,558 152,964 47,923 13,783 181,165 92,638 728,614 85,822

2029 12,573 222,556 7,665 155,458 48,314 13,836 183,718 94,695 738,814 87,024

2030 12,766 224,948 7,775 157,987 48,711 13,888 186,304 96,777 749,158 88,242


Origin of imports

To gain an understanding of the origin of fan-unit imports into Australia Expert Group complied import data on fan-units with self-contained electric motors exceeding 125 Watts67 [EG 2015a]. This data is summarised in Figure A15, which shows both the value and quantity of imports from a number of major regions. In terms of the value of imports Europe is the major player in the market, accounting for 51.2% of imports in 2000 but with this share declining slightly to 46.3% by 2014. China, on the other hand, has seen a significant increase in market share, from only 5.1% in 2000 to 20.7% in 2014, largely at the expense of the other Asian countries. In terms of the quantity of products imported Europe (36.7%) and Asia (excluding China) (40.1%) dominated the market in 2000, although China’s market share has increased significantly so that in 2014 it accounted for 64.4% of imports. Europe’s market share had reduced to 19.3% and Asia (excluding China) to 9.8%.

Figure A15 – Origin of fan-unit imports into Australia, 2000 to 2014

By value of imports By quantity

Data on the origin of fan imports into New Zealand was obtained from Statistics New Zealand’s Infoshare website68. The data on the value of imports (value for duty) over the period 2000 to 2015 is summarised in Figure A16. As in Australia, Europe has been the main source of imports into New Zealand by value, although this has shown a slight declining trend between 2000 (40.7%) and 2015 (38.8%). Imports from Australia have also been quite significant, although have declined from 20% in 2000 to 13.5% in 2015. Many of these products are likely to have been re-exports from Australia, so the origin of these products would reflect the origin of the fans imported into Australia. North America (16.2% to 21.4%) and Asia (22.4% to 25.6%) have also been important sources of fan imports into New Zealand. As in Australia, the share of imports from China (2.3% to 14.1%) have increased significantly over the period 2000 to 2015 at the expense of fan imports from Asia (excluding China) which declined from 20.1% in 2ooo to 11.5% in 2015.

67 This corresponds to the import category 8414599052 – Fans with self-contained electric motors and output exceeding 125 Watts, other than those used as replacement components in passenger motor vehicles. Note that this does not include fans which are incorporated into other equipment which is imported.68 http://www.stats.govt.nz/infoshare/. The data was compiled for the import category “Fans not elsewhere classified (n.e.c) in item 8414.5. Only data on the value of imports was available. Data on the quantity of imports was not available.


http://www.stats.govt.nz/infoshare/

Figure A16 – Origin of fan-unit imports into New Zealand by value, 2000 to 2015

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Europe Australia North America China Asia (ex China) Other

Stock Trends

The installed stock of fan-units is calculated from the cost-benefit analysis model using data on annual sales and the survival functions of the different fan types. This made use of data collected from the supplier survey [EG 2015a] supplemented by further research undertaken during the development of the model. In particular, data from the 2015 Residential Baseline Study was used to revise the estimate of the number of fan-units incorporated into residential type of equipment.


Figure A17 – Stock of fan-units by sector and category, Australia – line and area chart


Figure A18 – Stock of fan-units by sector and category, New Zealand – line and area chart

Stock by Region

Based on the stock forecasts and estimates of the share of the installed stock of fan-units by state/region for the period 2015 to 2030 are shown in Table A18.


Table A18 - Estimated breakdown of fan-unit stock by region, 2015 - 2030

Year ACT NSW NT QLD SA TAS VIC WA NZ

2015 157,669 3,007,525 98,543 1,925,041 676,798 205,518 2,350,229 1,060,228 1,026,273

2016 159,718 3,028,021 99,597 1,951,882 679,549 205,488 2,376,960 1,084,608 1,036,104

2017 161,693 3,047,167 100,608 1,977,853 682,002 205,359 2,402,637 1,108,599 1,045,442

2018 163,642 3,065,867 101,604 2,003,505 684,368 205,210 2,427,903 1,132,378 1,054,679

2019 165,595 3,084,674 102,603 2,029,206 686,766 205,077 2,453,188 1,156,134 1,064,119

2020 167,573 3,104,014 103,619 2,055,243 689,286 204,981 2,478,832 1,180,052 1,074,014

2021 169,618 3,124,637 104,680 2,082,118 692,093 204,976 2,505,407 1,204,383 1,084,735

2022 171,726 3,146,540 105,785 2,109,864 695,174 205,043 2,532,956 1,229,248 1,096,244

2023 173,942 3,170,441 106,960 2,138,991 698,685 205,229 2,562,063 1,254,942 1,108,773

2024 176,259 3,196,216 108,202 2,169,437 702,592 205,521 2,592,624 1,281,437 1,122,144

2025 178,628 3,222,967 109,483 2,200,628 706,698 205,860 2,623,931 1,308,392 1,135,943

2026 181,096 3,251,490 110,830 2,233,123 711,174 206,296 2,656,644 1,336,152 1,150,504

2027 183,623 3,281,037 112,221 2,266,398 715,849 206,773 2,690,176 1,364,418 1,165,441

2028 186,200 3,311,379 113,651 2,300,281 720,664 207,273 2,724,361 1,393,094 1,180,612

2029 188,877 3,343,403 115,152 2,335,417 725,812 207,852 2,759,948 1,422,577 1,196,307

2030 191,622 3,376,496 116,704 2,371,403 731,157 208,467 2,796,445 1,452,632 1,212,367


A.4 Policy Option Impacts – Energy and Cost/BenefitOptions Considered

A. Business as usual – no specific limits on the energy efficiency of fan units sold. National Construction Code Section J applies system level limits in Australia for ventilation systems and air conditioners. Emissions Reduction Fund and state ‘white certificate’ schemes in Australia are a potential source of financial incentives for high efficiency fan-units. FMA-ANZ operates a voluntary code for members to assess the efficiency of their fan-units against the Tier 1 and Tier 2 MEPS levels in the EU. Assumed that there is an autonomous increase in energy efficiency of 0.5% p.a.

B. Purchaser education program – Program developed by government in conjunction with fan industry stakeholders to educate fan-unit consumers about how to select fan-units to minimise overall lifecycle costs. Would consist of on-line information and selection tools, supported by promotional activities to make end-users aware of the resources.

C. Mandatory minimum energy performance standards (MEPS) introduced for fan units based on the MEPS which are operating in the European Union, based on based on ISO5801 (efficiency test method) and ISO12759 (fan motor efficiency grade classification). The scheme would require physical testing, registration and a compliance and enforcement regime consistent with the current E3 Programme approach. A number of possible regulatory options considered:

• Option C1 – Full implementation of the EU Fan Regulations, starting with Tier 1 MEPS in 2018 and Tier 2 MEPS in 2020;

• Option C2 – As for Option C1, but limit scope to fans with an input power < 185 kW;• Option C3 – As for Option C2 but exclude all fans which are incorporated in products which

are already regulated form MEPS;• Option C4 – As for Option C2 exclude all fans which are incorporated in products which

have the sole purpose of delivering air which is heated or cooled.

Summary of Key Energy / Emission Impacts and Cost-Benefits by Proposal

The summary impacts of the proposals relative to the business as usual scenario (A) are shown below in terms of the energy savings and greenhouse gas emission reductions to 2030, as well as the present value (PV) of the total benefit and total costs and the overall net present value (NPV) to 2040.

The Tables also show the estimated cost of the greenhouse gas abatement in $ per tonne for each option – this is based on the net (NPV) benefits to 2030, with the value of the greenhouse emission reduction set to $0 per tonne, divided by the cumulative greenhouse emission reduction to 203069.

AustraliaTable A19 - Summary of cost-benefit analysis, Australia



Total Benefit , PV ($M)



Benefit-Cost Ratio


Option B 552 510 $92 $14 $78 6.6 -$68

Option C1 15,361 14,204 $2,525 $370 $2,155 6.8 -$72

Option C2 15,158 14,016 $2,490 $364 $2,126 6.8 -$73

Option C3 11,615 10,741 $1,945 $266 $1,678 7.3 -$75

Option C4 10,930 10,107 $1,769 $184 $1,586 9.6 -$78

Note: This table uses discount rates of 7% for Australia

69 The data for this calculation is derived from the cost-benefit model developed by Energy Consult.


New ZealandTable A20 - Summary of cost-benefit analysis, New Zealand


Cumulative GHG Emission Reduction to 2030 (kt CO2-e)

Total Benefit, PV ($M)



Benefit-Cost Ratio


Option B 79 8 $6 $2 $4 3.5 -$204

Option C1 1,926 193 $148 $35 $113 4.3 -$256

Option C2 1,875 187 $143 $33 $111 4.4 -$260

Option C3 1,736 173 $133 $29 $104 4.6 -$268

Option C4 1,722 172 $132 $27 $104 4.8 -$276

Note: This table uses discount rates of 6% for New Zealand

Summary of Energy Savings and Emission Reductions by Proposal

AustraliaTable A21 - Summary of energy savings and emission reductions, Australia

Proposal Energy Savings in 2020 (GWh pa)

Energy Savings in 2030 (GWh pa)

Cumulative Energy Savings to 2030(GWh)

Cumulative GHG Reduction to 2030(kt CO2-e)

Option B 10 91 552 510

Option C1 371 2,354 15,361 14,204

Option C2 365 2,324 15,158 14,016

Option C3 283 1,780 11,615 10,741

Option C4 266 1,674 10,930 10,107

New ZealandTable A22 - Summary of energy savings and emission reductions, New Zealand

Proposal Energy Savings in 2020 (GWh pa)

Energy Savings in 2030 (GWh pa)

Cumulative Energy Savings to 2030(GWh)

Cumulative GHG Reduction to 2030(kt CO2-e)

Option B 1 13 79 8

Option C1 46 295 1,926 193

Option C2 44 287 1,875 187

Option C3 41 265 1,736 173

Option C4 41 263 1,722 172

Policy Option A - Business and Usual

The fan-unit stock model has been used to estimate the energy consumption of fan-units in both Australia and New Zealand over the period 2000 to 2030 under business-as-usual. This is based on the estimated stock and annual sales of fans detailed above, and the assumption that under business-as-usual there will be an autonomous improvement in the energy efficiency of new fan-units sold of 0.5% per annum.

Energy consumption

The estimated total annual energy consumption of fan-units under business-as-usual over the period 2000 to 2030, broken down by sector and application is shown in Figure A19 (Australia) and Figure A20 (New Zealand). In Australia the total energy consumption of the fan-units is estimated to increase from 26,960 GWh in 2015 to 29,800 GWh in 2030. In New Zealand the total energy consumption is estimated to increase from 3,700 GWh in 2015 to 4,080 GWh in 2030. It is evident


from Figures A19 and A20 that in both Australia (96.5%) and New Zealand (98.9%) the majority of the energy consumption is accounted for by the use of fan-units in commercial HVAC (heating, ventilation and cooling), commercial refrigeration and a range of other non-domestic applications. The use of fans-units in residential applications accounts for only a small proportion of the total consumption: 3.5% in Australia and 1.1% in New Zealand.

Figure A19 – Estimated fan-unit energy consumption, business-as-usual - Australia

Figure A20 – Estimated fan-unit energy consumption, business-as-usual – New Zealand


The fan-unit stock model was used to provide further insights into the energy consumption of fan-units in both Australia and New Zealand. Figure A21 shows the estimated breakdown of total energy consumption by fan type in 2015 for both Australia and New Zealand. Energy consumption is dominated by both axial fans and centrifugal forward curved and radial bladed fans (88.8% in Australia and 76.2% in New Zealand), although energy use by the centrifugal backward bladed fans, with and without housing, is also significant, especially in New Zealand (23.3%).

Figure A21 – Estimated breakdown of fan-unit energy use by fan type

1. Axial, 65.7%

2. Centrifugal

forward, 23.1%

3. Centrifugal backward

w/o housing,

6.7%

4. Centrifugal backward with housing, 3.2%

5. Mixed flow, 1.2%

6. Cross flow, 0.1%

Australia

1. Axial, 56.6%

2. Centrifugal

forward, 19.6%

3. Centrifugal backward

w/o housing,

16.7%

4. Centrifugal backward with housing, 6.6%

5. Mixed flow, 0.3% 6. Cross

flow, 0.2%

New Zealand

Figure A22 shows the estimated breakdown of total energy consumption by fan size range in 2o15 for both Australia and New Zealand. Energy consumption is dominated by fan-units in the >0.75 kW to < 4 kW size input power range, which account for just under half of the total energy consumption, followed by fans in the >125 W kW to < 0.75 kW range. The energy consumption of fans in the range of 4 to 30 kW is also significant:- 23.8% in Australia and 14.6% in New Zealand.

Figure A22 – Estimated breakdown of fan-unit energy use by fan size range

>125W and <0.75 kW,

20.2%

≥ 0.75 kW and <4 kW, 48.6%

≥ 4 kW and <10 kW,

9.5%

≥ 10 kW and <30 kW, 14.3%

≥ 30 kW and <185 kW,

4.4%

≥ 185 kW and <500 kW, 2.9%

Australia

>125W and <0.75 kW,

27.0%

≥ 0.75 kW and <4 kW, 45.6%

≥ 4 kW and <10 kW,

7.5%

≥ 10 kW and <30 kW,

7.1%

≥ 30 kW and <185 kW,

7.5%

≥ 185 kW and <500 kW, 5.3%

New Zealand


Greenhouse gas emissions

The estimated total annual greenhouse gas emissions of fan-units under business-as-usual over the period 2000 to 2030 for both Australia and New Zealand is shown in Figure A23. In Australia the greenhouse gas emissions are estimated to go from 27,450 kt CO2-e in 2015 to 27, 290 kt CO2-e in 2030, and in New Zealand from 481 kt CO2-e in 2015 to 372 kt CO2-e in 2030. In both cases the greenhouse gas emissions are expected to decline slightly over the period 2015 to 2030 against a backdrop of increasing energy consumption. This is because the greenhouse intensity of the electricity supply in both countries is expected to decline over this period.

Figure A23 – Estimated Greenhouse Gas Emissions from fan-units

0

5,000

10,000

15,000

20,000

25,000

30,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Gree

nhou

se E

miss

ions

(kT

CO2-

e)

Australia NZ


Policy Option B - Purchaser Education Program

The figure on the left hand side below shows the projected total electricity consumption of fan-units in Australia and New Zealand, and compare the BAU scenario with policy option B. The figure on the right hand side shows the expected annual energy savings of policy option B in 2020 and 2030. The results of the cost-benefit modelling for this option are provided in the tables below.

Figure A24 - Impact of Purchaser Education Program on energy consumption

Table A23 - Summary of cost-benefit analysis for Purchaser Education Program

CBA Summary AU CBA Summary NZ

Period 2015 - 2030 2015 - 2030

Costs ($M) $14 $2

Benefits ($M) $92 $6

NPV ($M) $78 $4

BCR 6.0 3.5

Energy Savings (GWh)

Energy Savings AU Energy Savings NZ

Year 2020 2030 2020 2030

Annual 10 91 1 13

Cumulative 16 552 2 79

GHG Emission Reduction (kt CO2-e)

GHG Reduction AU GHG Reduction NZ

Year 2020 2030 2020 2030

Annual 9 83 0 1

Cumulative 15 510 0 8


Option C - Minimum Efficiency Standards

Option C1 – Full Implementation of EU MEPS, Tiers 1 & 2

The figure on the left hand side below shows the projected total electricity consumption of fan-units in Australia and New Zealand, and compare the BAU scenario with policy option C1. The figure on the right hand side shows the expected annual energy savings of policy option C1 in 2020 and 2030. The results of the cost-benefit modelling for this option are provided in the tables below.

Figure A24 - Impact of Full EU MEPS (Option C1) on energy consumption

Table A24 - Summary of cost-benefit analysis for full EU MEPS (Option C1)


Period 2015 - 2030 2015 - 2030

Costs ($M) $370 $35

Benefits ($M) $2,525 $148

NPV ($M) $2,155 $113

BCR 6.8 4.3



Year 2020 2030 2020 2030

Annual 371 2,354 46 295

Cumulative 630 15,361 77 1,926



Year 2020 2030 2020 2030

Annual 347 2,158 6 27

Cumulative 596 14,204 11 193


Option C2 – EU MEPS, Tiers 1 & 2 for fan-units < 185 kW


Figure A26 - Impact of MEPS < 185 kW (Option C2) on energy consumption

Table A25 - Summary of cost-benefit analysis for MEPS < 185 kW (Option C2)


Period 2015 - 2030 2015 - 2030

Costs($M) $364 $33

Benefits($M) $2,490 $143

NPV($M) $2,126 $111

BCR 6.8 4.4



Year 2020 2030 2020 2030

Annual 365 2,324 44 287

Cumulative 619 15,158 74 1,875



Year 2020 2030 2020 2030

Annual 341 2,130 6 26

Cumulative 586 14,016 10 187


Option C3 – EU MEPS, Tiers 1 & 2 for fan-units < 185 kW, excluding MEPS regulated products


Figure A27 - Impact of MEPS < 185 kW excluding MEPSed products (Option C3) on energy consumption

Table A26 - Summary of cost-benefit modelling for MEPS < 185 kW excluding MEPSed products (Option C3)


Period 2015 - 2030 2015 - 2030

Costs($M) $266 $29

Benefits($M) $1,945 $133

NPV($M) $1,678 $104

BCR 7.3 4.6



Year 2020 2030 2020 2030

Annual 283 1,780 41 265

Cumulative 484 11,615 69 1,736



Year 2020 2030 2020 2030

Annual 265 1,631 6 24

Cumulative 458 10,741 10 173


Option C4 - EU MEPS, Tiers 1 & 2 for fan-units < 185 kW, excluding heating & cooling products


Figure A28 - Impact of MEPS < 185 kW excluding heating/cooling (Option C4) on energy consumption

Table A27 - Summary of cost-benefit modelling for MEPS < 185 kW excluding heating/cooling (Option C4)


Period 2015 - 2030 2015 - 2030

Costs($M) $184 $27

Benefits($M) $1,769 $132

NPV($M) $1,586 $104

BCR 9.6 4.8



Year 2020 2030 2020 2030

Annual 266 1,674 41 263

Cumulative 455 10,930 68 1,722



Year 2020 2030 2020 2030

Annual 249 1,534 5 24

Cumulative 430 10,107 10 172


Sensitivity Modelling

Sensitivity to the discount rate was modelled for a range of discount rates for both Australia and New Zealand for all Policy Options considered.

In addition to this a number of sensitivity tests were performed to test the range of Benefit Cost Ratio (BCR) that would result if certain assumptions were modified. Option C1 was used as the comparison policy option as this option produced the lowest BCR of all the regulatory options, and hence will be the most sensitive to potential changes. The three sensitivities were tested for this Policy Option are:

• the price efficiency (PE) ratio, which will test the sensitivity of the model outputs to higher prices for efficiency;

• the BAU efficiency calculated from the surveys, which will test the energy savings potential of the MEPS options if BAU efficiency was substantially higher than estimated; and

• the value of greenhouse gas emission reductions is increased to $50 per tonne CO2-e for New Zealand. For Australia values of $12.1 and $35 per tonne CO2-e were tested.

Sensitivity Tests – Discount RatesTable A28 - Summary of cost-benefit modelling for different discount rates, Australia

Summary Australia NPV Nil (0%) NPV Low (3%) NPV Med (7%) NPV High (11%)

Option B

Total Costs $26 $20 $14 $10

Total Benefits $291 $174 $92 $52

Net Benefits $266 $154 $78 $42

BCR 11.4 8.9 6.6 5.0

Option C1

Total Costs $730 $539 $370 $262

Total Benefits $7,800 $4,693 $2,525 $1,443

Net Benefits $7,071 $4,155 $2,155 $1,181

BCR 10.7 8.7 6.8 5.5

Option C2

Total Costs $718 $530 $364 $258

Total Benefits $7,690 $4,682 $2,490 $1,424

Net Benefits $6,972 $4,098 $2,126 $1,166

BCR 10.7 8.7 6.8 5.5

Option C3

Total Costs $524 $387 $266 $189

Total Benefits $6,030 $3,622 $1,945 $1,110

Net Benefits $5,506 $3,234 $1,678 $921

BCR 11.5 9.3 7.3 5.9

Option C4

Total Costs $361 $267 $184 $130

Total Benefits $5,478 $3,292 $1,769 $1,011

Net Benefits $5,117 $3,026 $1,586 $880

BCR 15.2 12.3 9.6 7.8


Table A29 - Summary of cost-benefit modelling for different discount rates, New Zealand

Summary New Zealand

NPV Nil (0%) NPV Low (3%) NPV Med (6%) NPV High (8%)

Option B

Total Costs $3 $2 $2 $2

Total Benefits $16 $10 $6 $5

Net Benefits $14 $8 $4 $3

BCR 5.6 4.4 3.5 3.0

Option C1

Total Costs $62 $46 $35 $29

Total Benefits $380 $232 $148 $111

Net Benefits $318 $187 $113 $82

BCR 6.1 5.1 4.3 3.8

Option C2

Total Costs $59 $44 $33 $27

Total Benefits $368 $226 $143 $108

Net Benefits $310 $182 $111 $81

BCR 6.3 5.2 4.4 3.9

Option C3

Total Costs $52 $38 $29 $24

Total Benefits $341 $209 $133 $100

Net Benefits $284 $171 $104 $76

BCR 6.6 5.4 4.6 4.1

Option C4

Total Costs $49 $36 $27 $23

Total Benefits $338 $207 $132 $99

Net Benefits $289 $171 $104 $76

BCR 6.9 5.7 4.8 4.3


Sensitivity Tests – Higher Incremental Costs

The price-efficiency (PE) Ratio was increased to 2.0 and the BCR reduces to 3.4 and 2.2 in Australia and New Zealand respectively.

Table A30 - PE Ratio Sensitivity Test for Policy Option C1


Period 2015 - 2030 2015 - 2030

Costs($M) $732 $67

Benefits($M) $2,525 $148

NPV($M) $1,793 $80

BCR 3.4 2.2

The energy savings were not affected by this sensitivity test.

Sensitivity Tests – Higher BAU Levels of Efficiency

The BAU efficiency was increased by 10% while maintaining the same MEPS levels. This is an extreme sensitivity test as it would be unlikely that BAU efficiency was this inaccurate.

Figure A29 - Impact of higher BAU levels of efficiency on energy savings for MEPS (Option C1)


Table A31 - Summary of cost benefit modelling for Option C1 with higher BAU efficiency


Period 2015 - 2030 2015 - 2030

Costs($M) $217 $19

Benefits($M) $1,340 $73

NPV($M) $1,123 $54

BCR 6.2 3.8



Year 2020 2030 2020 2030

Annual 193 1,241 22 146

Cumulative 324 8,079 37 952



Year 2020 2030 2020 2030

Annual 180 1,137 3 13

Cumulative 307 7,470 5 95

Under this sensitivity test, the BCR reduces to 6.2 and 3.8 from 7.1 and 4.3 in Australia and New Zealand respectively. The annual energy savings in 2030 are reduced by 47% in Australia and 51% in New Zealand.

Sensitivity Tests – Greenhouse Gas Emission Value

The value of GHG emission reductions was included in the main CBA analysis for New Zealand at $25 per tonne CO2-e. For Australia no value was assigned to the emission reductions. In the sensitivity modelling the value of the greenhouse emission reductions were increased to $50 per tonne for New Zealand. For Australia values of $12.1 and $35 per tonne were tested. For option C1, in Australia the benefits increase by $128 Million ($12.1 per tonne) and $370 Million ($35 per tonne), with the BCR increasing from 6.8 to 7.2 and 7.8, respectively. In New Zealand the benefits are increased by $4 million and the BCR increases from 4.3 to 4.4.

Table A32 - Summary of cost benefit modelling for Australia, Option C1 with no carbon price

Australia ($12.1 per tonne)

Australia ($35 per tonne)

New Zealand ($50 per tonne)

Period 2015 - 2030 2015 - 2030 2015 - 2030

Costs($M) $370 $370 $35

Benefits($M) $2,653 $2,895 $152

NPV($M) $2,283 $2,525 $117

BCR 7.2 7.8 4.4

The energy savings were not affected by this sensitivity test.


A.5 Payback Period AnalysisAnalysis was undertaken to explore the likely range of payback periods experienced by end-users. As there are a wide range of fan-unit applications, the analysis undertaken for this CRIS considered three applications which have considerably different annual operating hours:

• commercial HVAC where the equipment is not covered by MEPS regulations – average operating time is 3,500 hours per year;

• commercial refrigeration where the equipment is not covered by MEPS regulations – average operating time is 6,570 hours per year; and

• residential ducted heating and cooling – average operating time is 500 hours per year (evaporative cooling and ducted air conditioners) and 600 hours per year (ducted gas heating).

The analysis focussed on the two lower fan-unit input power ranges, as these account for the vast majority of the fan-unit sales. The type of fan-units considered and the energy efficiency metric (based on static or total pressure) depending on the particular end-use application.

The analysis considered the payback period when a fan-unit that was just below the current EU Tier 1 MEPS levels was replaced with a fan-unit that could just meet the current EU Tier 2 MEPS levels (see Tables A7 to A10). Data on the average output power of the fans used in different applications (Table A12) was combined with data on the average retail price of fan-units (see Tables A14 an A15) to calculate the retail cost of the low and higher efficiency fan-units, based on the assumption that the price-efficiency (PE) ratio was 1.0. Data on the fan output power, fan-unit efficiency and assumed low and high annual operating times was used to estimate the annual energy and energy cost savings, based on typical retail electricity tariffs in Australia and New Zealand in 2017. The results of this analysis are shown in the tables below.

Table A33 - Commercial HVAC (Non-Regulated), Australia

Australia 125 Watts to < 0.75 kW 0.75 kW to < 4.0 kW

Fan Type & Pressure

Type 1, Static

Type 2, Static

Type 3, Static

Type 5, Total

Type 6, Total

Type 1, Static

Type 2, Static

Type 3, Static

Type 4, Static

Type 5, Total

Fan output power (kW) 0.15 0.15 0.15 0.15 0.15 0.6 0.6 0.6 0.6 0.58

Efficiency - Fan-Unit 1 27% 27% 43% 43% 9% 29% 30% 48% 49% 49%


Cost - Fan-Unit 1 $400 $272 $534 $970 $474 $662 $827 $608 $1,519 $832

Cost - Fan-Unit 2 $475 $363 $596 $1,083 $949 $800 $1,076 $684 $1,643 $916

Additional cost of Fan-Unit 2 $74 $91 $62 $113 $474 $137 $248 $76 $124 $85

Power saving (kW) 0.09 0.14 0.04 0.04 0.83 0.35 0.46 0.14 0.09 0.11

Energy saving - low (kWh/yr) 217 347 91 91 2,083 887 1,154 347 231 274

Energy saving - high (kWh/yr) 391 625 164 164 3,750 1,596 2,077 625 416 493

Energy cost saving - low ($/yr) $36.9 $59.0 $15.4 $15.4 $354.2

$150.7 $196.2 $59.0 $39.3 $46.6

Energy cost saving - high ($/yr) $66.4 $106.3 $27.8 $27.8 $637.5

$271.3 $353.1 $106.3 $70.7 $83.8

Payback - low saving (yrs) 2.0 1.5 4.0 7.3 1.3 0.9 1.3 1.3 3.2 1.8

Payback - high saving (yrs) 1.1 0.9 2.2 4.1 0.7 0.5 0.7 0.7 1.8 1.0

Note: Operating time was assumed to be from 2,500 to 4,500 hours per year. Electricity tariff 17 c/kWh.


Table A34 - Commercial HVAC (Non-Regulated), New Zealand

New Zealand 125 Watts to < 0.75 kW 0.75 kW to < 4.0 kW

Fan Type & Pressure

Type 1, Static

Type 2, Static

Type 3, Static

Type 5, Total

Type 6, Total

Type 1, Static

Type 2, Static

Type 3, Static

Type 4, Static

Type 5, Total

Fan output power (kW) 0.15 0.15 0.15 0.15 0.15 0.6 0.6 0.6 0.6 0.58



Cost - Fan-Unit 1 $471 $320 $628 $1,141 $558 $779 $973 $715 $1,786 $978

Cost - Fan-Unit 2 $558 $427 $701 $1,274 $1,116 $940 $1,265 $805 $1,932 $1,078

Additional cost of Fan-Unit 2 $87 $107 $73 $133 $558 $161 $292 $89 $146 $100

Power saving (kW) 0.09 0.14 0.04 0.04 0.83 0.35 0.46 0.14 0.09 0.11

Energy saving - low (kWh/yr) 217 347 91 91 2,083 887 1,154 347 231 274

Energy saving - high (kWh/yr) 391 625 164 164 3,750 1,596 2,077 625 416 493

Energy cost saving - low ($/yr) $30.4 $48.6 $12.7 $12.7 $291.7 $124.1 $161.5 $48.6 $32.3 $38.4

Energy cost saving - high ($/yr) $54.7 $87.5 $22.9 $22.9 $525.0 $223.4 $290.8 $87.5 $58.2 $69.0

Payback - low saving (yrs) 2.9 2.2 5.7 10.4 1.9 1.3 1.8 1.8 4.5 2.6

Payback - high saving (yrs) 1.6 1.2 3.2 5.8 1.1 0.7 1.0 1.0 2.5 1.4Note: Operating time was assumed to be from 2,500 to 4,500 hours per year. Electricity tariff 14 c/kWh.

Table A35 - Commercial Refrigeration (Non-Regulated), Australia and New Zealand

Australia New Zealand

125 Watts to < 0.75 kW

0.75 kW to < 4.0 kW

125 Watts to < 0.75 kW

0.75 kW to < 4.0 kW

Fan Type & Pressure Type 1, Static Type 1, Static Type 1, Static Type 1, Static

Fan output power (kW) 0.15 0.6 0.15 0.6

Efficiency - Fan-Unit 1 27% 31% 27% 31%

Efficiency - Fan-Unit 2 32% 35% 32% 35%

Cost - Fan-Unit 1 $400 $708 $471 $833

Cost - Fan-Unit 2 $475 $800 $558 $940

Additional cost of Fan-Unit 2 $74 $91 $87 $107

Power saving (kW) 0.09 0.22 0.09 0.22

Energy saving - low (kWh/yr) 399 1,018 399 1,018

Energy saving - high (kWh/yr) 608 1,548 608 1,548

Energy cost saving - low ($/yr) $67.9 $173.0 $55.9 $142.5

Energy cost saving - high ($/yr) $103.3 $263.2 $85.1 $216.8

Payback - low saving (yrs) 1.1 0.5 1.6 0.8

Payback - high saving (yrs) 0.7 0.3 1.0 0.5Note: Operating time was assumed to be from 4,600 to 7,000 hours per year. Electricity tariff 17 c/kWh (Australia) and 14 c/kWh (New Zealand).


Table A36 - Residential Ducted Heating and Cooling, Australia


Fan Type & PressureType 1, Total

Type 2, Total

Type 3, Static

Type 1, Total

Type 2, Total

Type 3, Static

ApplicationEvap Cooling GDH / RAC GDH / RAC

Evap Cooling GDH / RAC GDH / RAC

Fan output power (kW) 0.28 0.15 0.15 0.58 0.58 0.6

Efficiency - Fan-Unit 1 41% 33% 43% 44% 36% 49%


Cost - Fan-Unit 1 $410 $346 $534 $715 $910 $488

Cost - Fan-Unit 2 $501 $430 $596 $861 $1,112 $538

Additional cost of Fan-Unit 2 $90 $84 $62 $146 $202 $50

Power saving (kW) 0.12 0.09 0.04 0.22 0.29 0.11

Energy saving - low (kWh/yr) 25 18 7 45 59 23

Energy saving - high (kWh/yr) 98 71 29 179 234 91

Energy cost saving - low ($/yr) $6.6 $4.8 $2.0 $12.1 $15.8 $6.1

Energy cost saving - high ($/yr) $26.6 $19.2 $7.8 $48.3 $63.3 $24.5

Payback - low saving (yrs) 13.6 17.5 31.6 12.1 12.8 8.1

Payback - high saving (yrs) 3.4 4.4 7.9 3.0 3.2 2.0Note: Operating time was assumed to be from 200 to 800 hours per year. Electricity tariff 27 c/kWh.

Table A37 - Residential Ducted Heating and Cooling, New Zealand


Fan Type & PressureType 1, Total

Type 2, Total

Type 3, Static

Type 1, Total

Type 2, Total

Type 3, Static

Application Evap GDH / RAC GDH / RAC Evap GDH / RAC GDH / RAC

Fan output power (kW) 0.28 0.15 0.15 0.58 0.58 0.6



Cost - Fan-Unit 1 $483 $407 $628 $841 $1,070 $574

Cost - Fan-Unit 2 $589 $505 $701 $1,012 $1,308 $633

Additional cost of Fan-Unit 2 $106 $99 $73 $172 $238 $59

Power saving (kW) 0.12 0.09 0.04 0.22 0.29 0.11

Energy saving - low (kWh/yr) 25 18 7 45 59 23

Energy saving - high (kWh/yr) 98 71 29 179 234 91

Energy cost saving - low ($/yr) $6.9 $5.0 $2.0 $12.5 $16.4 $6.3

Energy cost saving - high ($/yr) $27.5 $19.9 $8.1 $50.1 $65.6 $25.4

Payback - low saving (yrs) 15.4 19.8 35.9 13.7 14.5 9.2

Payback - high saving (yrs) 3.8 5.0 9.0 3.4 3.6 2.3Note: Operating time was assumed to be from 200 to 800 hours per year. Electricity tariff 28 c/kWh.


A.6 Consultation Questions


1. Is the data presented on the average input power to fan-units for the different size ranges (Table A6) reasonable? If not, are you able to provide alternative data?

2. Is the data presented on the average output power of the fan-units for the different fan types and size ranges (Table A12) reasonable? If not, are you able to provide alternative data?

3. Is the data presented on the typical half-life of fan-units used in different applications reasonable? If not, are you able to provide alternative data?

4. Is the data presented on the typical annual operating hours of fan-units used in different applications (Table A13) reasonable? If not, are you able to provide alterative data?

5. Is the data presented on the average wholesale price of different fan-unit types and size ranges (Table A14) and retail mark-ups (Table A15) reasonable? If not, are you able to provide alternative data?

6. Is the data presented on the testing costs for different fan-unit size ranges (Table A16) reasonable? If not, are you able to provide alternative data?

The Australian National Construction Code (NCC) sets the minimum requirements for the design, construction and performance of buildings throughout Australia, and contains an energy efficiency section, referred to as Section J, in NCC Volume One that applies to commercial buildings. Australian States and Territories adopted the NCC 2015 as of 1 May 2015.70 It contains specifications in J5.2a Fans that prescribe the energy efficiency requirements for fans used as part of an air-conditioning system or a mechanical ventilation system (including car park exhaust) in buildings.

The energy efficiency provisions in the NCC are quite different to the energy efficiency requirements which would be required if a MEPS was introduced for fan-units [EG 2015a]. The NCC takes a system approach to the mechanical services of buildings and sets maximum limits for the power of the fan motor for fans used in air-conditioning and ventilation systems. This is different to MEPS regulations that target efficiency levels of equipment (i.e. split air conditioners) or components (i.e. fan-units). Fan-units used in energy reclaiming systems (i.e. heat recovery) that precondition outside air are excluded under from NCC fan power limits, and the NCC does not apply to fan-units used in non-ducted air-conditioning systems with a supply air capacity of less than 1,000 L/s, which includes product such as wall hung, cassette and console indoor split systems.

Air-conditioning

The NCC sets power limits on combined supply and return air fans used in air-conditioning system servicing different building sizes (i.e. not greater than a floor space of 500 m2), and for a variety of heat load scenarios (i.e. from up to 100 W/m2 to more than 400 W/m2). The intention of these requirements is to use these fan power limits to contain the amount of energy used by air distribution systems. This requirement does not place a minimum limit on the efficiency of the fan-unit, but imposes requirements on the power consumption of the system in which the fan is located. The requirement impacts on the selection of the system components, including fan-unit type, sizing and efficiency, as well as duct sizes and types, duct routing, filters, heating and cooling coils, registers and diffusers, etc. This means that a designer can specify an inefficient fan-unit with an efficient air distribution system or alternatively an efficient fan-unit in an inefficient system to meet the NCC requirements. [EG 2015a]

There are also requirements on condenser fans not to use more than 42 Watts of fan motor power for each kW of heat rejected by the condensing unit. This requirement does not apply to equipment that comply with the energy efficiency ratios set out in the NCC, as follows [EG 2015a]:

• Condenser fans on stand-alone air cooled condensers and evaporative cooled chillers with a capacity not more than 350 kWr; and,

• Packaged air-conditioning equipment (i.e. roof top packaged) greater than 65 kWr.

The air-conditioning products noted above are not currently covered by MEPS, and the NCC imposes minimum efficiency levels on them and therefore excludes them from the condenser fan requirement.

The NCC 2015 air-conditioning requirements for supply and return air, and condenser fan do not appear to be very onerous and are not likely to entice equipment manufacturers to use fan-units more efficient than BAU, more so they serve a different purpose which is to limit power at an appropriate system level.71 [EG 2015a]70 It should be noted that the adoption of NCC 2015 is a State and Territory matter, and there are some variations, for example the Northern Territory excludes requirements under Section J for commercial buildings.71 Several examples were reviewed to test this hypothesis as well as the assessment undertaken by Coffee International of twelve commercial building for ABCB in 2009 [ABCB 2009].


Attachment B – Australian NCC and fan-unit efficiency

Ventilation

The NCC sets limits on the ratio of fan-unit power consumption to air flow rate for mechanical ventilation systems, including car park exhausts, with an air flow rate more than 1,000 L/s. These requirements encourage designers to increase the fan diameter and improve the overall system design to lower the static pressure of the ventilation system, to select a fan-unit that delivers the air flow required and meets the NCC requirement in Watts/Litre per second. An exclusion to these requirements applies if the fan-unit is driven by a variable speed motor. Feedback during the last review (i.e. prior to implementation of NCC 2015) resulted in some adjustments on car park exhaust limits, increasing the stringency for smaller fans and easing requirements for larger fans [EG 2015b].

NCC review

During the last NCC review FMA-ANZ72 put forward a proposal to the Australian Building Code Board (ABCB) to specify minimum fan-unit efficiencies in the NCC by referencing EN/ISO 12759: 2010 Fans - Efficiency classification for fans which specifies requirements for classification of fan efficiency for all fan types driven by motors with an electrical input power range from 0.125 kW to 500 kW. This proposal was not supported by the ABCB as there were indications a MEPS for fan-units was in the process of being developed, and that the proposal did not address the distribution or system inefficiencies which is a big part of the energy issue and a focus of Section J. [EG 2015b]

Most mechanical services designers surveyed by Sustainability Victoria felt that Section J was having some impact on the overall energy efficiency of ventilation and air conditioning systems, including the choice of fan-unit, for example: “Already have Section J, and these are reasonably stringent rules. We used to select small fans that run fast and were driven by big motors, but now choose large fans that run more slowly and are driven by smaller motors. However, … in ventilation of commercial buildings there are size constraints which limit the size of the fan that can be used.” [SV 2016] The mechanical services designers noted that they took Section J into account when preparing their designs, although the fan-units chosen were the ones that meant the overall ventilation or air conditioning system just complied with the requirements. Some designers noted that installation contractors did not always install the fan-units they specified.

In summary, in Australia both the NCC and MEPS play important and complementary but separate regulatory roles with the NCC regulating fan power to drive appropriate practice in system design and a potential fan MEPS being a more precise instrument to drive improvement of fan unit efficiency.

72 Fan Manufacturers Association of Australia and New Zealand.


C.1 International climate change commitmentsUnder the global climate change agreement (the Paris Agreement), established at the 21st Conference of Parties to the United Nations Framework Convention on Climate Change held in Paris in December 2015, both Australia and New Zealand have made international commitments to reduce their national greenhouse gas emissions. Australia has committed to reduce emissions by 26% to 28% below 2005 levels by 2030, and New Zealand has committed to reduce emissions by 30% below 2005 levels by 2030. The New Zealand Government ratified the Paris Agreement in October 2016, followed by the Australian Government in November 2016.

The Paris Agreement aims to strengthen the global response to climate change, including by setting a collective goal to keep the global temperature increase to well below 2oC above pre-industrial levels, and to pursue efforts to keep warming below 1.5oC73.

Both Australia and New Zealand have national strategies (or plans) to increase the uptake of energy efficiency across their economies, in part to reduce greenhouse gas emissions to achieve their international abatement commitments, and in part to increase “energy productivity”74, reduce energy costs for households and businesses, and increase business competitiveness.

C.2 AustraliaIn April 2015, the Australian Government released the Energy White Paper which recognises that energy productivity improvements help reduce business and household costs, promote competition in energy markets and energy using products, encourage economic growth and contribute to emissions reduction targets.

As part of the Energy White Paper the Australian Government set a National Energy Productivity Target to improve Australia’s energy productivity75 by 40% between 2015 and 2030. “Energy productivity” is the economic value we get from the investment in energy. In technical terms, it is a measure of the amount of economic output derived from each unit of energy consumed; an increase in energy efficiency will therefore increase energy productivity. To support this target the COAG76 Energy Council developed the National Energy Productivity Plan (NEPP), published in December 2015. By improving Australia’s energy productivity the Australian Government aims to [COAG EC 2015]:

• Boost Australia’s competitiveness – creating investment and jobs;• Help families and business manage their energy costs to reduce bills; and• Reduce Australia’s greenhouse gas emissions – energy productivity is seen as a smart way

to tackle climate change because it encourages economic growth while reducing emissions; it is expected to deliver at least one quarter of Australia’s 2030 emission reduction target.

The NEPP notes that in the past, due to cheap and abundant supplies of energy, Australia has not focussed on energy productivity to the same extent to other countries, resulting in energy productivity growth (1.8% per annum over the last decade) which lags behind many other

73 http://unfccc.int/paris_agreement/items/9485.php 74 Energy productivity is the economic value we get from the investment in energy. It is a measure of the amount of economic output derived from each unit of energy consumed. An increase in the energy efficiency will therefore increase energy productivity.75 Energy productivity is the ratio of the national Gross Domestic Product and total national primary energy consumption ($GDP/PJ).76 Council of Australian Governments


Attachment C – Policy Context

http://unfccc.int/paris_agreement/items/9485.php

countries. Without further action it is likely that this gap will get wider, to the detriment of Australia’s international competitiveness. The NEPP states that “A plan to improve energy productivity in Australian businesses is particularly important if we are to remain competitive against overseas economies.” [COAG EC 2015]

The measures set out in the NEPP will contribute to the energy productivity target by reducing energy use (through greater uptake of energy efficiency) and increasing economic growth (through better-managed energy costs and more efficient energy investments). In addition to energy productivity improvements, this Plan is expected to contribute more than a quarter of the savings required to meet Australia’s 2030 greenhouse abatement target. The overall aim is to ensure that Australian energy consumers have access to “energy systems” that deliver least cost energy which is in the long term interests of consumers. Where the market does not provide efficient minimum services and adequate consumer protections, Energy Ministers see that there is a role for government to implement minimum standards for appliances and equipment, “where the benefits clearly outweigh the costs and are streamlined to minimise regulatory costs, including aligning to international standards where relevant”. [COAG EC 2015]

The NEPP acknowledges that through the Equipment Energy Efficiency (E3) Program governments have increased the energy efficiency of new appliances and equipment sold into the Australian market, and made an important contribution to improving energy productivity, largely through the use of mandatory efficiency regulations. The recent independent review of the Program found that it is contributing over AU$1 billion per annum to the Australian economy, while avoiding carbon emissions by an estimated 11.6 Million tonnes CO2-e per annum. Projections of the impact of the current suite of E3 Program measures for the period 2014 – 2020 show a Net Present Value in the range of $3.3 - $7.3 billion and a Benefit - Cost Ratio in the range of 1.7 to 5.2 based on only the energy savings. Emissions savings over the same period are estimated to be 60 – 70 million tonnes CO2-e, meaning that the program will deliver emissions abatement at a net negative cost, substantially reducing the economic cost to Australia of meeting its national greenhouse targets77. [COAG EC 2015, NEPP Work Plan 2015]

As part of the NEPP, in May 2016 the COAG Energy Council approved a new Prioritisation Plan for the E3 Program, seeking to substantially increase the benefits while “ensuring compliance costs to business are minimised to the extent possible, consistent with maintaining a robust regulatory regime.” A project to increase the energy efficiency of fans driven by electric motors with an input power in the range of 125 Watts to 500 kW is one of the priority projects identified in this Plan. [COAG EC 2015, NEPP Work Plan 2015]

The Greenhouse and Energy Minimum Standards (GEMS) Act 2012 implements the commitments of the Australian Government and the Council of Australian Governments (COAG) to establish national legislation to regulate energy efficiency and energy labelling standards for appliances and other products. The objectives of the GEMS Act are:

1. To give effect to the obligations that Australia has under the United Nations Framework Convention on Climate Change.

2. To promote the development and sale of products that use less energy and result in the production of fewer greenhouse gases, or that help reduce the energy used or the greenhouse gases produced by other products.

The Equipment Energy Efficiency (E3) Program is the delivery mechanism which supports the achievement of GEMS objectives. The participation of Australian State and Territory governments in the E3 Program is formalised through the GEMS Inter-Governmental Agreement.

As part of the Australian Government’s Industry Innovation and Competitiveness Agenda, it has committed to removing inefficient regulation, simplifying compliance and improving regulator responsiveness to help small and large businesses thrive. This includes removing regulation that duplicates trusted overseas processes, except in cases where unique Australian regulations can be 77 The average contract price for the first two Emission Reduction Fund auctions held in 2015 was AU$13.1 per tonne. At this price, purchasing the greenhouse abatement which will be achieved by the E3 Programme between 2014 and 2020 would cost the Australian Government AU$786 to AU$917 Million, although this would not necessarily deliver energy and energy bill savings.


justified. Aligning with internationally accepted test standards for fan-units (and potentially MEPS) would fit this agenda.

C.3 New ZealandA suite of policies signal the long-term direction for New Zealand’s energy sector and provide the policy context for improving the energy use of products available for sale in New Zealand.

The New Zealand Energy Strategy 2011-2021 outlines key priorities and strategic direction across New Zealand’s energy sector, including the efficient use of energy78. Its companion document, The New Zealand Energy Efficiency and Conservation Strategy 2011-2016 (the NZEECS) is a five-year strategy for the promotion of energy efficiency and renewable energy that sets the overarching policy direction for government support and intervention, and guides the development of EECA’s work programme. The NZEECS 2011-2016 expired in August 2016 and is being replaced the by NZEECS 2017-2022, which was released for public consultation at the end of the 201679. Submissions on the draft replacement strategy closed on 7 February 2017. The replacement NZEECS will have a focus on emission reductions and energy productivity, particularly in the areas of process heat and transport.

In October 2016, the New Zealand Government ratified the Paris agreement and confirmed its post-2020 climate change target to reduce greenhouse gas emissions to 30 per cent below 2005 levels by 203080. The Government has also set a target of a 50 per cent reduction in their greenhouse gas emissions from 1990 levels by 2050. The Government’s primary response to climate change mitigation is the Emissions Trading Scheme (NZ ETS), which is currently under review81.

The New Zealand Government’s Business Growth Agenda promotes energy efficiency and the use of renewable energy to build a more competitive and productive economy82.

New Zealand introduces and maintains minimum energy performance standards (MEPS) and energy labelling measures through its participation in the bilateral Equipment Energy Efficiency (E3) Programme with Australia. This approach benefits New Zealand in the following ways:

maintaining regulatory alignment with Australia, which upholds the principles of the Trans-Tasman Mutual Recognition Arrangement (under which goods legal for sale in either country can legally be offered for sale in both)

reducing the cost to tax payers of developing and maintaining regulations through sharing costs with Australia

reducing compliance costs to businesses, as they bear a single cost for meeting the requirements of both countries

providing greater consumer access to energy efficient products available on the global market.

78 http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-strategies 79 http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-strategies/consultation-draft-replacement-new-zealand-energy-efficiency-and-conservation-strategy/draft-replacement-nzeec-strategy.pdf80 https://www.beehive.govt.nz/release/nz-ratifies-paris-agreement-climate-change 81 http://www.mfe.govt.nz/publications/climate-change/new-zealand-emissions-trading-scheme-review-2015-16-discussion-document 82 http://www.mbie.govt.nz/info-services/business/business-growth-agenda


http://www.mbie.govt.nz/info-services/business/business-growth-agenda

http://www.mfe.govt.nz/publications/climate-change/new-zealand-emissions-trading-scheme-review-2015-16-discussion-document

http://www.mfe.govt.nz/publications/climate-change/new-zealand-emissions-trading-scheme-review-2015-16-discussion-document

https://www.beehive.govt.nz/release/nz-ratifies-paris-agreement-climate-change



http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-strategies

D.1 Summary of market failuresMarket failures exist when, left in its current state (business-as-usual), the market fails to allocate resources efficiently from the perspective of overall community wellbeing (economic, social and environmental). In addition to the negative environmental externality associated with the electricity consumed by fan-units, market research undertaken with fan-unit suppliers, and a smaller research project undertaken with mechanical services designers, suggested that there were a range of other market failures in both Australia and New Zealand which mean that the energy efficiency of fan-units is not as high as it could, or should, be to maximise community well-being. The evidence collected to date suggests that the principle-agent problem (or split incentive) is the main market failure which impacts on fan-unit sales and, while there is also evidence of information failures and behavioural issues, the dominance of the principle-agent problem means these have only a second order effect.

In summary, the main additional market failures identified are:

• Principle-agent problem – the market for fan-units is dominated by agents (94%), who tend to focus on the upfront purchase cost (more efficient fan-units tend to be more expensive) and give less weight to the lifecycle costs as they are not responsible for paying the energy bills. Equipment end-users play only a minor role. Mechanical services designers reported that they gave energy efficiency a higher priority (to the extent that it was necessary to meet the Section J requirements in Australia’s NCC), although did not consider lifecycle costs as a priority. Given the fairly wide spread in the energy efficiency of the products available on the market, especially for fan-units less than 4 kW and axial fans generally, a focus on low cost relatively inefficient products means that the end-users will face higher lifecycle costs than necessary. Where the small number of end-users are involved in the purchase decision, suppliers note that they have a much higher interest in energy efficiency and lifecycle costs, suggesting that the agent focus on upfront cost does not align with the interests of the end-users;

• Information failures – there is evidence of information asymmetry between buyers and sellers, as well as evidence that it is difficult for fan-unit buyers to obtain information which would allow them to compare the energy efficiency and lifecycle running cost of different models available on the market. Mechanical services designers reported that they had easy access to energy efficiency information via on-line selection tools, although only one supplier was considered to have a good quality tool for its product range. The designers also found it difficult to access lifecycle cost information. Only 11.7% of suppliers reported that they normally provide lifecycle cost comparisons in sales presentations, meaning that it is difficult for buyers to understand the lifecycle cost implications of their product choices. As the cost of energy dominates the lifecycle cost of a fan-unit (67%) this means that poorly informed buyers who choose the lowest cost, least efficient fans, face significantly larger lifecycle costs. The evidence obtained from the industry market surveys suggests that there is an information failure which is resulting in fan-units being sold that are less efficient that they could be, and that this failure could affect up to 65% of the market;

• Behavioural issues – there is evidence that fan-unit buyers place an excessively high discount rate on future running costs, with suppliers reporting that 58.8% of buyers require a payback of 2 years or less if they are to purchase a more efficient fan-unit. The mechanical services designers noted that paybacks of 2 to 5 years were generally required by their clients, although government and institutional clients might accept a longer


Attachment D – Evidence of Market Failures

payback (8 to 10 years). There is also evidence that a significant proportion of buyers are either unable to assess information on energy efficiency or lifecycle costs or do not have the time to do so, and that some buyers (e.g. mechanical services designers and other consultants) tend to use tried and tested standard solutions rather than consider alternative higher efficiency solutions which could minimise the lifecycle costs for the end-user.

Below we discuss the evidence collected to date for the existence of these market failures in more detail.

D.2 Negative externalitiesA negative externality exists if one party imposes “costs on others that are not compensated through market prices” [OBPR 2013]. In Australia, in the absence of a carbon price, the greenhouse gas emissions which result from the electricity consumption of fan-units (27,450 kt CO2-e in 2015) represent a negative environmental externality. This is due to climate change - resulting from the increasing concentration of greenhouse gasses (such as carbon dioxide) in the atmosphere driving a global warming trend – imposing costs on the community. This includes, for example, rising sea levels (flooding and increased storm damage), a trend to more frequent days of extreme heat in summer (potential health impacts, increased risk of bushfires), and a trend to lower rainfall in Southern Australia (droughts, impact on farming) combined with more frequent high intensity rain events (flooding and storm damage, etc)83.

Greenhouse gas emissions resulting from the use of fan-units in New Zealand are much lower than in Australia, and were estimated to be 481 kt CO2-e in 2015. This reflects the much lower greenhouse intensity of electricity generation in New Zealand due to the much higher level of renewable electricity generation. New Zealand does, however, have some fossil fuel electricity generation, which is used to supplement the electricity supply during times of peak electricity demand and when prolonged droughts reduce the generation of hydro-electricity. While New Zealand does have an Emissions Trading Scheme (ETS) and a carbon price; however, the current price84 is considered to be not sufficient to drive significant emissions reduction85. So, while there is a carbon price in New Zealand, it may not fully reflect the cost of the environmental externality resulting from electricity use.

Greenhouse gas emissions are not the only environmental externality of electricity consumption. The generation of electricity from thermal (largely fossil fuel) power stations results in significant fresh water consumption86 as well as a range of atmospheric emissions which have negative health impacts87 that are not factored into the price of electricity. We have not quantified the cost of these other environmental externalities in this CRIS.

On 13 December, 2014 Australia’s initial carbon tax was replaced with the Emissions Reduction Fund (ERF), which is intended to operate alongside the Renewable Energy Target (RET) and energy efficiency standards to achieve Australia’s national greenhouse abatement targets. Under the ERF the Clean Energy Regulator (CER) holds auctions to purchase future emissions reductions under contract, with the average price paid for the first three auctions being around $10.2 per

83 A number of recent reports by scientific organisations have documented the current and projected impacts of climate change in Australia. For example see: The Science of Climate Change – Questions and Answers, Australian Academy of Science, February 2015; Climate Change in Australia – Projections for Australia’s NRM Regions, CSIRO with Bureau of Meteorology, 2015.84 During 2015 the price was generally in the range of NZ$5 to $10 per tonne.85 See the recent Media Release by the NZ Minister for Climate Change Issues (https://www.beehive.govt.nz/release/submissions-close-ets-review-phase-one ) and the report on the review of the NZ ETS (The New Zealand Emissions Trading Scheme Review 2016, Ministry for the Environment, February 2016.)86 Thermal power stations, mainly coal-fired power stations, are estimated to be responsible for around 1.4% of Australia’s total water consumption. Coal-fired power stations are estimated to have an average water intensity of 1.51 Mega litres per GWh and gas fired power stations have an average water intensity of 0.56 Mega litres per GWh. [NWC 2009]87 The emissions include fine particles (PM10), sulphur dioxide (SO2) and nitrogen oxides (NOx), which can result in respiratory and cardiovascular disease. It is estimated that the health cost of fossil-fuel electricity generation in Australia is around $13.2 per MWh, resulting in an aggregated national health burden of around $2.6 Billion. [AATS 2007]



Tonne. An ERF method for refrigeration and ventilation fan upgrades has been developed, although to date this does not seem to have resulted in any successful projects.

The NSW, Victorian, ACT and South Australian governments operate incentive schemes to support the installation of energy efficient equipment and to contribute to the reduction of greenhouse emissions, although to date these schemes have not created a strong market incentive to install energy efficient fan-units88.

The implementation of measures to increase the energy efficiency of new fan-units sold into the Australian market has the potential to address the negative environmental externalities resulting from using fan-units, in particular the greenhouse gas emissions, and to do so at a substantially lower cost than the other policies. The modelling undertaken for this Consultation RIS suggests a net (negative) cost of abatement of around –$68 to -$78 per tonne in Australia and –$204 to -$276 per tonne in New Zealand, significantly lower than the cost of greenhouse gas abatement under the other main policies operating in both Australia and New Zealand.

D.3 Principle-agent problemsThe principle-agent problem, also referred to as a split-incentive, exists when the interests of the “principle” are not aligned with the interests of the “agent”. [OBPR 2013] In the context of energy efficiency and fan-units this would mean that the choice of the fan-unit was not made by the end user (household, building tenant or factory owner) – who pays the energy bills and therefore overall lifecycle costs - but by another party (the ‘agent’), and that this party had an incentive to choose lower cost, lower efficiency fan-units which have higher energy costs and higher life-cycle costs. This party might be an equipment manufacturer, a builder, a contractor or installer, an engineering department or purchasing officer.

Data collected from the fan-unit supplier survey shows that ‘agents’ dominate the purchase process for fan-units (94.1%) and that end-users are the minority buyers. Only 5.9% of the buyers were identified as being building or equipment owners which would be the end-users of the fan-units. [EG 2015a]

Only 5.9% of suppliers reported that when they presented lifecycle energy costs of products to their buyers they took these costs into account in their purchase decision; 29.4% of suppliers reported that buyers did not do this, and 52.9% reported that that they occasionally did this. A selection of the more detailed comments from the fan-unit suppliers are provided in the breakout box below. [EG 2015a] The survey results suggest that the agents which dominate the purchase process generally do not take lifecycle costs into account and tend to focus mainly on the upfront cost.

88 See Attachment A.4 – Energy Efficiency and the Supply Chain for Fan-Units for further details.


Mechanical services designers are one of the agents involved in the selection process. In general, they did not consider lifecycle cost to be a priority. The functional characteristics of the fan-units were considered to be more important (e.g. suitability for the task, ability of a ventilation fan to fit in the space available, acoustics). In Australia, the energy performance of the ventilation or air conditioning system in commercial buildings is dictated by the Section J energy targets, although some designers noted that they sought to use energy efficient, higher quality products to extend the overall life of an installation. In equipment such as air handling units and fan-coil units, where the fan-units are incorporated into proprietary products, it can be very difficult to assess the lifecycle cost of different options. [SV 2016] One designer noted that the market in Australia is driven largely by “first cost” [SV 2016]:

“I must say I have a fairly pessimistic outlook for the industry in this regard. Even if manufacturers did offer more efficient units the market is so first cost driven in Australia that it would rarely be taken up. Consultants that may wish to specify more efficient units will either be hamstrung by a … design and construct contract with the head contractor which will inevitably result in a cheaper, equivalent, less efficient unit being installed.”

The general consensus of the fan-unit suppliers is that the more energy efficient products are more expensive than the less efficient ones: - 70.6% of suppliers reported that the higher efficiency products were more expensive all of the time, 23.5% most of the time and 5.9% occasionally. No suppliers reported that the more efficient products were not more expensive. [EG 2015 a] This view was supported by the mechanical services designers [SV 2016]. The more detailed analysis of the efficiency and price data for the models on the market in 2014/15 for the different fan-types undertaken by both Expert Group [EG 2015a] and Energy Consult [EC 2015] provides a less clear picture. This suggests that for some fan-types and some size ranges there was an increased price with increased efficiency but in some cases the price decreased. This analysis is complicated to some extent by the fact that the fan size ranges are based on motor input power, but the choice of fan-unit will depend on the output power the fan is required to provide for a specific application. Energy Consult concluded that an assumption of a 1% price increase for a 1% increase in energy efficiency was a reasonable, if slightly conservative, assumption to use when modelling the fan-unit market [EC 2015].

The supplier survey also found that, with the exception of mixed flow fans89, there was a considerable range in the energy efficiency of all fan-unit types currently available on the market

89 Only a small number of mixed flow fans were identified as part of the market survey, so data for this fan type is less reliable than for the others.



We supply to the OEM market and are 3 to 4 steps away from the end user that pays the energy bill and sees the energy savings. Projects are based on cost and at the end of the day the end user gets what suits the bill.

We sell to the OEM of HVAC equipment. Their main concern is very often cost, especially for products in the domestic market where the end user is not well aware / does not show much appreciation of energy efficiency.

Customers never buy on lifecycle costs. They are only interested in selling their unit and not the advantages that a high efficiency fan might make inside their unit.

The contractor is only installing the fan, not paying for the ongoing running costs so he does not care. In his mind as long as I tick all the boxes cheapest is best.

Our customer is not always the end user of the product or the person paying the energy bill. In many cases the customer is looking for the lowest cost option to win the job. This is slowly changing but has some way to go.

Source: EG 2015a

(see 1. Introduction, Energy efficiency of fan-units being sold). This means that if agents are choosing the lower efficiency lower cost models, the end users will have higher annual energy bills as well as larger life-cycle costs. [EG 2015a] The example provided below illustrates the impact of upgrading a relatively low efficiency fan-unit that could not meet the EU Tier 1 MEPS levels to one that can just meet the current EU (Tier 2) MEPS level.

D.4 Information failuresAn information failure exists when buyers “lack sufficient information about a product or service, or the information between buyers and sellers is asymmetrical” leading to sub-optimal buyer choices. [OBPR 2013] In the context of fan-unit efficiency this could mean that buyers have insufficient information about a product’s energy efficiency and are unable to compare the energy efficiency of different models, or do not have sufficient information to calculate the annual energy costs of different fan-units, and so are unable to select the products with the lowest lifetime costs (purchase, installation and maintenance costs plus lifetime energy costs) [OBPR 2013].

Currently there is no requirement for fan-units to have an energy rating or to disclose information in a standardised way about their energy efficiency or energy performance. The energy efficiency of a fan-unit varies over its operating range, defined by the pressure against which the fan operates and the air flow rate, and the rated fan-unit efficiency is defined as the efficiency at the “Best Operating Point” (BEP). The testing and measurement of energy efficiency is generally based on the international standard ISO5801: Industrial fans – Performance testing using standardised airways. The energy efficiency of fan-units can also be categorised by a number known as the Fan Motor Efficiency Grade (FMEG) as defined in the international standard ISO12759: 2010 Fans – efficiency classification for fans. [E3 2012]

Information on the performance of fan-units is generally available on-line from fan-unit suppliers, either directly or from product catalogues that can be downloaded from supplier websites. The data that is provided is not based on an Australian and New Zealand Standard, although some suppliers test according to international standards. There is no central repository of this information which would allow buyers to make a comparison of the different models available on the market. To compare the performance and energy efficiency of the fan-units which are available to suit a particular application a buyer would need to visit the web-sites of a number of suppliers and download the relevant information. Price information is unlikely to be available without obtaining a quotation for each model being considered.

An inspection of a number of web-sites of major fan-unit suppliers suggests that little, if any, information is directly available on the energy efficiency of the fan-units on the market. Information is readily available on the diameter of the fan impeller, fan speed, power consumption,



The fan-unit operates for 9.6 hours per day (3,500 hours per year) and has an expected life of 15 years. The electricity tariff is 17 c/kWh.Required fan output power: 0.6 kWEfficiency of fan-unit 1: 29% (just below EU Tier 1 MEPS) -> Input power = 2.07 kWEfficiency of fan-unit 2: 35% (just above EU Tier 2 MEPS) -> Input power = 1.71 kWAdditional cost of fan-unit 2 = $137Annual energy saving = 1,241 kWh per year -> Annual energy bill saving = $211 per yearPayback on the additional cost of fan-unit 2 = 0.65 yearsLifetime energy bill saving = $3,166 (undiscounted, no increase in tariff) or 23 times the additional cost.Total life-cycle cost saving = $3,028 (undiscounted, no increase in tariff)

electrical current, noise level, maximum pressure and maximum airflow rate, but no direct information on energy efficiency - based on either ISO5801 or ISO12759 or their Australian and New Zealand equivalents90 - could be found. Some product catalogues contained fan curves, although while these allow the suitability of a fan for a particular application to be identified, they do not necessarily allow the energy efficiency of the fan-unit to be calculated. Some supplier websites did promote high efficiency models, usually fan-units with electrically commutated (EC) motors, although this was generally not supported by information which would allow energy efficiency and running cost comparisons with their standard fan-unit models.

A number of fan-unit suppliers provide selection tools that can be downloaded from their website, and all mechanical services designers reported that these were a key source of information for them. The best of these allow key performance parameters (e.g. air flow rate, static pressure) to be input into the program and provide details of the fan-units in the suppliers product range that can meet the performance requirements, and allow the sorting of the suitable products by fan size, noise level and efficiency91. While access to these on-line selection tools is easy, the general consensus of the designers surveyed was that one supplier had the best selection tool92. The designers therefore used this tool to specify the generic design parameters: “A lot of designers use this and select the fan based on performance, specify this and don’t put the brand in.” However, one designer noted that if the fan is embedded in a larger item, e.g. fan coil unit or air handling unit, then very little data is available on the energy efficiency of the fan-unit. [SV 2016]

The mechanical services designers reported that getting access to lifecycle cost information was much harder, and it was not really seen as a priority. One reason for this was that it was hard to get access to information on the cost of different fan-units: “As a consultant it is often hard to get capital cost pricing from manufacturers as we aren’t directly purchasing the fan units.” Even the best selection tool available doesn’t provide cost information directly. It provides a base cost of 1 and then shows the relative cost of the fans in relation to this. [SV 2016]

The supplier survey collected information on the role that information provision relating to energy efficiency, energy use and energy costs played in the sales process: - 88.2% of the fan-unit suppliers felt that they had enough information about energy consumption to provide buyers with a comparison of lifecycle costs. The difficulty, or inability, of many buyers to access this information on-line and compare the product ranges available from different suppliers suggests that an information asymmetry exists between buyers and sellers. [EG 2015a]

The majority of the suppliers (64.7% all of the time and 5.9% most of the time) reported that they explain the relative energy efficiency of different products as part of the product comparison when making sales presentation to buyers, with 17.7% reporting that they did not normally do this. However, nearly half of the suppliers (47.1%) reported that they do not present buyers with comparisons of the full lifecycle costs of the fan-units that they are marketing, and 23.5% reported that they only occasionally did this. Only 11.7% of suppliers reported that they normally did provide such life-cycle cost comparisons. [EG 2015a]

Based on the supplier survey responses we estimate that around 20.0% of sales to the replacement market segment involve some consideration by the buyer of the energy costs or the energy efficiency of the products that are being presented to them, and 39.8% of the sales to original equipment manufacturers (OEM) and new market segment. Combined with the data on the percentage of sales to each customer category, this suggests that around 34.5% of sales involve a consideration of energy costs and energy efficiency. [EG 2015a]

Consistent with the low ranking for both energy efficiency and life-cycle costs (See Figure 4 above) only 11.8% of survey respondents reported that buyers ask about energy efficiency or energy costs without the supplier mentioning lifecycle costs; 58.8% of respondents reported that buyers occasionally asked and 29.4% reported that they never asked. [EG 2015a] The mechanical services designers reported that lifecycle cost of the fan-unit was not seen as a major consideration of

90 A local version of ISO12759 (AS/NZS ISO12759:2013) was adopted by Standards Australia in 2013, following a proposal from FMA-ANZ.91 In one case this includes the efficiency of the fan impeller, motor and fan-unit.92 Selection tools were available from a few other fan-unit suppliers, but these were not considered to be as good.


building owners, and in most cases they were not seen as being proactive in requesting this. This was because they represent only a small proportion of the capital cost and energy consumption compared to major capital items such as chillers and pumps. For this reason designers rarely discussed fan-unit efficiency and lifecycle costs with clients. [SV 2016]

D.5 Behavioural issuesBehavioural market failures (sometimes called bounded rationality) exist when buyers make, or are perceived to make, choices which are against their own best interest. [OBPR 2013] Even though buyers may have access to sufficient information, they may make sub-optimal decisions, as their knowledge and processing abilities may be limited, loss aversion93, or because rather than using this information they resort to rules of thumb or cultural/organisational norms. OBPR notes that in terms of equipment this could result in buyers who [OBPR 2013]:

• Place an ‘excessively’ high discount rate on future running costs, preferring to focus on the more immediate purchase price;

• Fail to investigate alternative technologies because of a ‘status quo’ bias towards the current model – even though they could have satisfied all of their other needs, and saved money, by purchasing more efficient technology.

The consensus of the fan-unit suppliers is that when energy efficiency is discussed with buyers they generally require a very rapid payback on the investment, suggesting that they are placing an excessively high discount rate on future running costs:- 23.5% of suppliers reported that buyers generally required a payback of 1 year or less, and 35.3% reported that a 2 year payback would be acceptable (58.8% require a payback of 2 years or less)94. Only 5.9% of suppliers reported that a payback of 3 years would be acceptable and this was the upper limit. [EG 2015a] The typical average (50%) life of a fan-unit ranges from 12 to 20 years, with lifetimes of up to 25 years reported for fans driven by electric motors with an input power greater than 10 kW. Given than energy costs are estimated to account for typically 67% of the overall life cycle costs of the fan-unit, this requirement by a large proportion of the market for a very rapid payback period means that life cycle costs are not as low as they could otherwise be.

Most mechanical services designers felt that a payback in the range of 2 to 5 years was required by building owners, although this could depend on the size of the project, and institutional or government clients may accept a longer payback (e.g. 8 years). One designer felt that paybacks of 10 to 15 years would be acceptable for the system as a whole (e.g. ventilation system), although longer paybacks might be acceptable if the client was looking to improve a building’s Green Star rating, e.g., a building owner refurbishing their building. [SV 2016]The supplier research suggests that buyers do not generally have the skills and knowledge necessary to assess information about the lifecycle energy costs of fan-units. Only 11.8% of suppliers reported that buyers did have adequate skills and knowledge all of the time, while 23.5% reported that they did not have adequate skills and knowledge, and 41.2% that they only had this occasionally. [EG 2015a]

The vast majority of fan-unit sales (98%) are for products driven by an electric motor with an input power less than 4 kW. The survey responses suggested that for these fan-units the buyers generally did not have time to access information about life-cycle costs:- 29.4% of respondents reported that buyers did not have time and 41.9% reported that buyers only occasionally had time to do this. Only 23.5% of respondents felt that buyers did have time to do this. [EG 2015a]

As part of the consultation on the 2012 Fan Product Profile [E3 2012] fan industry stakeholders advised that consultants and specifiers designing new ventilation or blowing systems often use old blueprints as the basis of new installation, leading to standard efficiency fan-units being used

93 Loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. https://en.wikipedia.org/wiki/Loss_aversion 94 When asked if there were times when customers declined to buy energy efficient products even though they had a low payback period, 92.9% of suppliers indicated that this was the case for paybacks of 2 years or less - , 1 yr (7.14%), 1 year (42.86%), 2 years (42.86%). [EG 2015a]


https://en.wikipedia.org/wiki/Loss_aversion

rather than high efficiency models. The standard solution was known to work and taking this approach minimised the time taken by the consultants (researching alternative solutions and selling to the client) and minimised the risk of failure. [E3 2012] This view was also expressed by one of the mechanical services designers [SV 2016]: “The vast majority of consultants are re-using specification that were written decades ago. Most don’t even check that their designs and the selection of the contractor comply with the BCA energy efficiency requirements.”


Table A38 – Electricity prices (real 2014 cents/kWh) for Australia and New Zealand

Region/year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Australia - Residential

NSW 30.00

30.31

27.00

27.25

27.50

27.96

28.45

28.99

29.44

31.12

31.44

31.68

31.97

32.25

32.51

32.68

32.94

33.21

ACT 20.10

20.31

18.09

18.25

18.43

18.74

19.06

19.42

19.73

20.85

21.06

21.23

21.42

21.61

21.78

21.90

22.07

22.25

NT NA 27.13

25.60

26.92

26.91

26.78

25.78

25.29

25.98

25.87

25.75

25.37

25.27

25.23

25.22

25.23

25.23

24.82

QLD 25.00

28.36

26.69

30.06

29.96

27.74

28.23

28.81

27.67

29.16

29.52

29.83

30.23

30.63

30.95

31.23

31.51

31.86

SA 32.50

31.21

28.93

29.14

29.34

29.76

30.26

30.80

31.26

32.35

32.56

32.66

32.89

33.20

33.45

33.61

33.82

34.17

TAS 29.00

28.18

25.86

26.15

26.39

26.87

27.39

27.94

28.40

29.71

29.96

30.10

30.40

30.77

31.09

31.29

31.52

31.83

VIC 30.00

30.82

28.41

28.57

28.82

29.29

29.80

30.33

30.79

32.12

32.34

32.46

32.73

33.10

33.38

33.57

33.77

34.07

WA NA 27.27

24.60

25.86

25.86

25.73

24.77

24.30

24.96

24.86

24.74

24.38

24.28

24.24

24.23

24.24

24.24

23.85

Note that business prices are used for Australia, but cannot be published

New Zealand (NZ cents)

Long range marginal costs (LMRC) – used in the main modelling

Residential 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79

Business 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79 8.79

Retail prices – used to assess end user impacts

Residential28.0

28.71

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

28.12

Business* 13.6 14.4 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9


Attachment E – Electricity Prices and GHG Emission factors

8 0 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6

* Business prices are an average of the commercial and industrial prices


Table A39 - GHG emission factors for electricity (kg CO2-e/kWh) for Australia and New Zealand

Region/year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

NSW0.990 0.999 1.004 1.003 0.989 0.965 0.936

0.909 0.910 0.911 0.915 0.919 0.918 0.917 0.918 0.911 0.913 0.908

ACT0.990 0.999 1.004 1.003 0.989 0.965 0.936

0.909 0.910 0.911 0.915 0.919 0.918 0.917 0.918 0.911 0.913 0.908

NT0.780 0.781 0.782 0.746 0.746 0.747 0.751

0.698 0.660 0.661 0.662 0.662 0.663 0.664 0.666 0.666 0.667 0.669

QLD0.930 0.946 0.966 0.979 0.982 0.970 0.966

0.959 0.949 0.935 0.933 0.929 0.927 0.925 0.921 0.920 0.914 0.918

SA0.720 0.741 0.733 0.716 0.651 0.578 0.519

0.494 0.462 0.467 0.460 0.490 0.486 0.488 0.448 0.431 0.432 0.428

TAS0.230 0.230 0.230 0.230 0.230 0.230 0.230

0.230 0.230 0.230 0.230 0.230 0.230 0.230 0.230 0.230 0.230 0.230

VIC1.340 1.327 1.324 1.324 1.304 1.275 1.244

1.226 1.222 1.221 1.219 1.217 1.214 1.212 1.209 1.206 1.203 1.200

WA0.830 0.845 0.844 0.817 0.791 0.779 0.767

0.760 0.752 0.754 0.758 0.765 0.767 0.770 0.771 0.767 0.765 0.763

NZ 0.1350

0.1299

0.1405

0.1428

0.1501

0.1509

0.1343

0.1347

0.1289

0.1045

0.0997

0.1003

0.0963

0.0929

0.0918

0.0924

0.0912

0.0937


F.1 IntroductionThe European Union (EU) and United States began reviewing commercial and industrial fan efficiency around the same time in 2007; however, they took very different approaches. The EU began with product regulations stemming from Ecodesign directives. The US began with adopting fan efficiency requirements into model codes and standards for energy efficiency and green construction published by ASHRAE95 and the International Code Council96.

China was the first country to introduce minimum energy performance standards (MEPS) regulations for fans in 2009. The EU subsequently introduced comprehensive energy efficiency requirements for fans under EU Commission Regulation 327/2011, with mandatory Tier 1 requirements introduced on 1 January 2013, and more stringent Tier 2 requirements introduced on 1 January 2015.

Our review of international fan efficiency schemes reveals that many regulations applied to domestic ceiling fans, cooktop (ventilation) hoods, domestic exhaust fans, fume hoods, portable fans, and domestic window fans that are out of scope of this Consultation RIS and therefore have been excluded from this summary and review. The table below provides a summary of the current fan efficiency schemes within the scope of the Consultation RIS that have been implemented internationally (i.e. Clasp categories: Industrial blower; industrial fans; integrated fans, and furnace/duct fan).

The sections that follow discuss each of the major regions (EU, US and China) in greater detail, provide a comparison on the EU and US approaches and discusses the prospects and timelines of harmonization of these approaches.

Table A40 - International fan efficiency schemes.

Country/ region

Regulations/standards Scope Status

Mandatory (1)

European Union

EU Commission Regulation 327/2011EN/ISO 12759: 2010 Fans - Efficiency classification for fans.EN/ISO 5801: 2008 Industrial fans -- Performance testing using standardized airways.EN/ISO 13349: 2010 Fans -- Vocabulary and definitions of categories.

MEPS for fan types driven by motors with an electrical input power ranging from 0.125 kW to 500 kW.Fan unit = fan + motor + drive (if specified).Refer to Appendix A of the Regulation for exclusions.

Compliance with Tier 1 targets was mandatory on 1 January 2013, and more stringent Tier 2 targets were implemented on 1 January 2015.Review conducted in 2014/15 of Regulation 327/2011 and new levels have been proposed for 2020 and are currently under review.

USA (2) US DoE, Energy Conservation Standards Rulemaking Framework for Commercial and Industrial Fans and Blowers.Test standard under development.

0.125 kW to 500 kW proposed in Framework Document.Fan only, with possible extended product provisions, fans sold with motors and fans sold with motors and drives.

Not expected to be mandatory until 2020.

China GB 19761: 2009 Minimum Allowable Values of Energy Efficiency and Energy Efficiency Grades for Fan.

MEPS for centrifugal fans, axial fans, and centrifugal fans with external rotor motor for air-

MEPS implemented in 2009.

95 American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) is an industry association that focuses on building systems, energy efficiency, indoor air quality, refrigeration and sustainability within the industry through research, testing, standards writing, publishing and continuing education.96 The International Code Council is a member-focused association that is dedicated to developing model codes and standards used in the design, build and compliance process to construct safe, sustainable, affordable and resilient structures. Most U.S. communities and some global markets choose the International Codes.


Attachment F – International Review of Efficiency Standards

The underlying test standard for Chinese MEPS is a Chinese standard and reference is made to ISO 5801: 2007 Industrial fans - Performance testing using standardized airways.

conditioning equipment.China Quality Certification (CQC) Mark Certification: Label Endorsement (voluntary).Label Comparative (voluntary).

Jordan Transportation of EU Regulation 327/2011.

Refer EU Regulations. Under development.

Turkey

Iran ISIRI 10634 Fans with capacity of 170-3500 m3/h, Technical Specifications and Test Methods for Energy Consumption and Energy Labelling Instructions.ANSI/ASHRAE 51-1999 (AMCA Standard 210-99 ANSI approved) Laboratory methods of testing fans for aerodynamic performance rating.

MEPS and comparative label for industrial fans with capacity of 170 to 3,500 m3/h, excludes ceiling fans and portable fans.

MEPS and comparative label implemented in 2010.

Voluntary (3)

Malaysia Draft Malaysian Standard 13S020R0, which is a Code of Practice that basically, follows ISO 12759.

Refer EU Regulations, except voluntary Code of Practice.

Under development.

South Korea

Endorsement Label based on High Efficiency Appliance Certification Program (KEMCO)

Centrifugal and Turbo Blowers. Endorsement Label implemented 2012.

1. The United States, Hong Kong, Singapore, Thailand and the Philippines have included fan efficiency requirements in their building codes. Building code requirements differ to MEPS in that they are applied to systems installed in facilities as opposed to MEPS that place a minimum energy efficiency requirements directly on manufactured devices or equipment that are sold. Also some applications in facilities (i.e. commercial refrigeration, manufacturing and industrial processes) may be unaffected as they are typically excluded from building codes. These requirements are based around ANSI/ASHRAE 90.1 Energy Standard for Buildings Except Low-Rise Residential Buildings.

2. The US Department of Energy has made a final ruling on MEPS for furnace fans with compliance required after 3 July 2019. These requirements are discussed in detail in Section 2.4.

3. Canada introduced a voluntary ENERGY STAR label in 2009 for residential fans. Taiwan introduced endorsement labelling programs in 2012 for fans with a similar scope as Canada, however categorised as them multi-sector. These fan sizes are considered out of scope to measures under consideration in Australia and New Zealand.

F.2 European UnionBackground of Regulation 327/2011

The Ecodesign Directive 2009/125/EC1 establishes a framework for setting Ecodesign requirements for energy using products in the European Union (EU). In 2011 the European Commission (EC) established Regulation No 327/2011 as part of this directive. This put in place energy efficiency requirements for fans placed on the market in the EU.

EC Regulation 327/2011 covers fans driven by motors with an electric input power between 0.125 kW (125 Watts) and 500 kW, including fans integrated into other products (except where specifically excluded). The Tier 1 efficiency requirements were made mandatory on 1 January 2013, and more stringent Tier 2 requirements implemented on 1 January 2015 and are expected to deliver a net energy saving of some 14 TWh/year in 2020.97

Fan Motor Efficiency Grades (FMEG) are used as the basis of the target energy efficiency levels in EC Regulation 327/2011 and levels (i.e. Efficiency Grades N, and the equations to calculate target efficiencies (ηtarget) by fan type98 are set out in the regulations). The target energy efficiency levels by fan type for Tier 1 and Tier 2 are set out in Appendix A of the Regulation.

ISO 12759: 2010 Fans - Efficiency classification for fans, specifies requirements for the classification of fan efficiency for all fan types driven by motors with an electrical input power 97 Industrial fans in Europe are currently consuming 300 TWh per year, making this group the third largest electricity consumer in the current Ecodesign scope after industrial motors and light sources. The European fan industry is well underway to save approximately 28 TWh/year in 2020. Taking ‘overlap’ with other Ecodesign measures (e.g. motors, ventilation units and air conditioners) into account, the net saving is still some 14 TWh/year in 2020 (EC 2015a).98 The Efficiency Grade N defines a minimum efficiency target (ηtarget) which a fan must achieve, based on its electrical input power at its point of optimum efficiency. The ηtarget is the output value from the appropriate equation set out in the regulations and ISO 12759: 2010, using the applicable integer of the relevant efficiency grade and the electrical power input of the fan at its point of optimum efficiency. For example for axial fans the equation is ηtarget = 2.74 x ln(P) – 6.33 + N (measurement categories A and C, static) where the Tier 1 efficiency Grade N is 36 and Tier 2 is 40.


range from 0.125 kW to 500 kW and defines the method of calculating the maximum efficiency achieved on the fan air characteristic99 with all operating parameters, except the air system resistance, being fixed. The efficiency level is defined as the maximum efficiency achieved at a point on its operating characteristic.

ISO 13349: 2013 Fans - Vocabulary and definitions of categories, is a general technical standard that defines terms and categories in the field of fans used for all purposes, and test method standards for performance testing are as follows:

• ISO 5801: 2008 Industrial fans - performance testing using standardized airways; and to a lesser extent,

• ISO 5802: 2008 Industrial fans – methods of performance testing in-situ.

For dual use fans designed for both ventilation under normal conditions and emergency use, at short-time duty, with regard to fire safety requirements, the values of the applicable efficiency grades were reduced by 10% for Tier 1 and 5% for Tier 2.

Where the fan motor system incorporates a speed control or variable speed drive (VSD or similar) a factor can be used to increase the overall energy efficiency of the fan calculated from testing.

Market surveillance checks are undertaken to verify whether or not products meet their claimed energy efficiency levels. A fan is considered to comply with the provisions set out in the Regulations if the efficiency grade of the motor fan system is at least 0.9 times the target energy efficiency level set out in the Regulations.

Scope of Regulation 327/2011

EC Regulation 327/2011 defines a fan as being a rotary bladed machine that is used to maintain a continuous flow of gas, typically air, passing through it and whose work per unit mass does not exceed 25 kJ/kg100, and which:

• Is designed for use with or equipped with an electric motor with an electric input power between 0.125 kW and 500 kW to drive the impeller. The impeller is the part of the fan that imparts energy into the gas flow and is also known as the fan wheel;

• Is an axial fan, centrifugal fan, cross flow fan or mixed flow fan; and,• May or may not be equipped with a motor when placed on the market or put into service.

The Tier 1 fan regulations (from 1 January 2013) applied only to ventilation fans, which are defined as being fans that are not used in the following products:

• Washing machines and clothes dryers with an input power greater than 3 kW;• Indoor units of household air-conditioning products and indoor household air conditioners

with a maximum air conditioning output power less than or equal to 12 kW; and,• Information technology products.

The more stringent Tier 2 fan regulations (from 1 January, 2015) apply to all fans, except those specifically excluded from the scope of the regulations outlined below:

Fans integrated into:

• Products with a sole electric motor of 3 kW or less where the fan is fixed on the same shaft used for driving the main functionality (e.g. small fan to cool electric motor in a chain saw);

• Laundry and washer dryers with an input power less than or equal to 3 kW;

99 The efficiency grade for a fan is based on its performance characteristics at a speed not higher than the maximum safe operating speed to obtain its best efficiency point.100 A fan is broadly defined as a rotary-bladed machine which delivers a continuous flow of air or gas at some pressure without materially changing its density. ISO 13349: 2010 Fans – Vocabulary and definitions of categories, states “if the work per unit mass exceeds a value of 25 kJ/kg, the machine is termed a turbo-compressor. This means that, for a mean stagnation density through the fan of 1.2 kg/m3, the fan pressure will not exceed 1.2 x 25 kJ/kg, i.e. 30 kPa, and the pressure ratio will not exceed 1.30 since atmospheric pressure is approximately 100 kPa”.


• Kitchen (ventilation) hoods with a fan with an input power attributable to the fan(s) of less than 0.280 kW;

Fans designed specifically to operate:

• In potentially explosive atmospheres;• For emergency use only, at short-time duty, with regard to fire safety requirements;• Where operating temperatures of the gas being moved exceed 100oC;• Where operating ambient temperatures for the motor, if located outside the gas stream,

driving the fan exceeds 65oC;• Where the annual average temperature of the gas being moved and/or the operating

ambient temperature for the motor, if located outside the gas stream, are lower than -40oC;• With a supply voltage >1,000V AC or >1,500V DC;• In toxic, highly corrosive or flammable environments or in environments with abrasive

substances.• Fans which are designed to operate:• With an optimum energy efficiency at 8,000 rotations per minute or more;• In applications in which the ‘specific ratio’ (the stagnation pressure measured at the fan

outlet divided by the stagnation pressure at the fan inlet at the optimal energy efficiency point) is over 1.11;

• As conveying fans used for the transport of non-gaseous substances in industrial process applications.

Fans placed on the market before 1 January 2015 as a replacement for identical fans integrated into products which were placed on the market before 1 January 2013.

Review of EU Fan Regulation 327/2011

EC Regulation 327/2011 included a requirement (Article 7) to undertake a review no later than four years after its entry into force. The primary purpose of the review was to assess:

• The feasibility of reducing the number of fan types in order to reinforce competition on grounds of energy efficiency for fans which can fulfil a comparable function;

• If the scope of exemptions can be reduced, including allowances for dual use fans; and,• A new tier (Tier 3) proposed for 1 January 2020 (respecting the design cycle).

The review commenced in April 2014 and the final report was published in March 2015 [EuC 2015a]. The Commission is seeking further feedback on the report and discussions from consultations. The report proposed that new Tier 3 efficiency levels from 2020. It was estimated that these would phase out approximately 15 to 20% of the 2015 product range below 10 kW which is supplied into the EU market. The table below compares the proposed new minimum efficiency grades with the Tier 2 MEPS levels which currently apply in the EU.

Table A41 - Comparison of current EU efficiency requirements with values proposed in 2020.

New Tier 3 EU fan efficiency targets proposed for 1 Jan 2020 Comparison with current EU Tier 2 fan efficiency targets

Fan type Measurement category

Pressure Efficiency Grade N, 1 Jan 2020

Efficiency Grade N , 1 Jan 2015

Increase Grade N

Axial (1) A, C Static 50 (5) 40 10 (+25%)

B. D Total 64 58 6 (+10%)

Centrifugal forward curved <5kW and radial (2)

A, C Static 52 44 8 (+18%)

B, D Total 57 49 8 (+16%)

Centrifugal forward curved ≥5kW and backward curved (5)

A, C Static 64 61/62 (4) 2 (+4%)

B, D Total 67 64 3 (+5%)

Mixed flow A, C Static 57 50 7 (+14%)


+0.07∙(α −45)/25

B, D Total 67 62 5 (+8%)

Cross flow B, D Total 21 21 0

Source: [EuC 2015b amended]

1. Measurement categories A and C are installations with ducted inlet and free outlet (i.e. static pressure), and measurement categories B and D are installations with ducted inlet and ducted outlet (i.e. total pressure).

2. With new curve, now the same as for all types: ηmin = 0.0456*LN(Pe)-0.105+N when Pe≤10 kW and ηmin = 0.011*LN(Pe)-0.026+N when Pe >10 kW.

3. Where α is the flow angle of the impeller, between 20° (close to axial) and 70° (close to centrifugal).4. Efficiency grade N is 61 for BC with housing, and 62 for BC without housing.5. Joint industry feedback from Eurovent, EVIA and AMCA, suggests the 2020 target proposed for Axial fans will be amended

from 50 to 48 for static pressure and from 64 to 62 for total pressure (EVIA 2015a).6. The centrifugal forward curved, backward curved and radial descriptions have been amended to be consistent with critiques

from industry feedback (EVIA 2015a).

Lessons learned

As part of the market survey Expert Group [EG 2015a] interviewed several key European industry stakeholders to obtain information on the impact of the EU fan regulations. Based on these discussions, the key impacts of the EU fan regulations to date are:

• Increased presence and penetration of more efficient fans and reduced introduction of less efficient fans on to the market;

• Enhanced understanding of fan output and power input, and knowledge building amongst suppliers and end-user stakeholders

• Greater technological innovation among the leading companies which has resulted in higher efficiency products being placed on the market;

• Increased sales among leading or large fan manufacturers;• Standardisation of fans types, and a reduction in the number of choices for niche needs;

and,• EU efficiency measures and manufacturers are a role model for rest of the world.

F.3 United StatesThe US initially followed a different regulatory path to the European Union and around 2007 began with adopting fan efficiency requirements into model codes and standards for energy efficiency and green construction published by ASHRAE and the International Code Council. This resulted in the development and implementation of ANSI/ASHRAE 90.1: 2013 Energy Standard for Buildings Except Low-Rise Residential Buildings in the national codes with some form adopted by fifty states and mandated by the US Department of Energy (US DoE).

There are currently no Federal energy conservation standards for fans, however in 2012 the US DoE formed the Appliance Standards and Rulemaking Federal Advisory Committee (ASRAC) to further improve the DoE process of establishing a framework for rulemaking and negotiating energy conservation requirements for Commercial and Industrial Fans and Blowers.

In December 2014 US DoE published provisional analysis of the potential economic impacts and energy savings that could result from promulgating an energy conservation standard for commercial and industrial fans and blowers. This analysis incorporates information and comments received after the completion of an analysis presented in a notice of data availability. The estimated start date of enforcement is around 2020. At present the US DoE is at the beginning of its rulemaking process, and is currently seeking stakeholder feedback on proposed definitions, the equipment classes for which standards would be considered (including any system interaction effects), certain aspects of a proposed test procedure (if applicable), and proposed energy conservation standards for fans and blowers.


Fan measures for gas ducted heaters

The US Department of Energy (US DoE) prescribes energy conservation standards for various consumer products and commercial and industrial equipment, including residential furnaces (known as Gas Ducted Heaters in Australia and New Zealand), and is introducing mandatory efficiency standards for furnace fans.

The US DoE has determined that the prescribed energy conservation standards for furnace fans would result in significant conservation of energy, and are technologically feasible and economically justified101, and reached a final rule effective 2 September 2014.102 Compliance with the prescribed standards established for residential furnace fans in this final rule is required on and after 3 July 2019.

The ruling defines a furnace fan as an electrically-powered device used in residential buildings for the purposes of circulating air through duct work. A furnace fan consists of a fan motor and its controls, an impeller, and a housing, typically as an assembly incorporated in a residential central heating, ventilation, and air conditioning product. The test procedure is not applicable to any non-ducted products, or commercial equipment.

The US DoE found that furnace fans using high-efficiency motor technology options operate more efficiently than furnace fans using baseline permanent-split capacitor (PSC) motors by:

• Functioning more efficiently at a given operating condition;• Maintaining efficiency throughout the expected operating range; and,• Achieving a lower turndown ratio (i.e., ratio of airflow in lowest setting to airflow in highest

setting).

Table A42 summaries the furnace types relevant to the Australian market and the fan energy rating (FER) requirements that must be met after July 2019. These requirements are considered a forty six per cent improvement over existing PSC fan motors reviewed.103

Table A42 - US Energy conservation standards for residential furnace fans.

Product Class FER (Watts/cfm) (1)

Non-Weatherized, Non-Condensing Gas Furnace Fan FER = 0.044 x QMax + 182

Non-Weatherized, Condensing Gas Furnace Fan FER = 0.044 x QMax + 195

Weatherized Non-Condensing Gas Furnace Fan FER = 0.044 x QMax + 199

1. QMax is the airflow, in cubic foot per meter; at the maximum airflow-control setting measured using the final US DoE test procedure. The procedure can be found at 10 CFR part 430, subpart B, appendix AA: Uniform Test Method for Measuring the Energy Consumption of Furnace Fans.104

The North American furnace market is the by far the largest market globally with only relatively small quantities sold into the European Union. The Australian furnace or gas ducted heater market (GDH) is of a similar scale to a US state and comprises three local manufacturers (i.e. Seeley International-Braemar, Rinnai Corporation-Brivis105, and Climate Technologies-Bonnaire) as well as importers of US designs (i.e. Heatcraft-Lennox). The New Zealand GDH market is only around two per cent of the Australian market and is largely serviced by Australian suppliers.

101 US DoE Median payback period in year Non-Weatherized, Non-Condensing Gas Furnace Fan = 5.4 years; Non-weatherized, Condensing Gas Furnace Fan = 5.8 years; and Weatherized Non-Condensing Gas Furnace Fan = 4.4 years.102 http://www.regulations.gov/#!documentDetail;D=EERE-2010-BT-STD-0011-0117103 http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/42104 http://www.ecfr.gov/cgi-bin/text-dx?SID=9d4952b35c77f4b62111533e8128107d&mc=true&node=ap10.3.430_127.aa&rgn=div9105 Brivis Climate Systems business was sold by GWA Group in February 2015 to Rinnai Australia a subsidiary of Rinnai Corporation.


In Australia these heaters are already regulated for basic efficiency requirements (as well as safety) under the standard AS 4556: 2011 Indirect gas-fired ducted air heaters and are required to display a gas energy rating label. The fans used in existing heaters sold range from high efficiency fan units that would comply with the EU Tier 2 MEPS in heaters with high star ratings to fan units with PSC motors. There are currently no electrical efficiency requirements for fans in GDHs in Australia and New Zealand, although the electricity consumption of the fan is included in the comparative energy consumption figure and star rating used on the energy rating label.

Comparison of US and European approaches

Efficiency regulations in certain regions tend to reflect the product types manufactured and sold, and the market trends of that region and their main trading partners.

The European market is characterised by direct drive fans (i.e. the impeller is mounted directly on the motor shaft) and the technical boundary of the fan efficiency regulations are based on fan-units which includes the fan impeller plus the motor plus drive (if specified) which is described as a ‘wire-to-air’ air approach.

The US technical boundary of fan efficiency is the fan only and the market is characterised with multiple fan, motor, drive permutations arising from the matching fan impellers with multiple motor types and drive types (including belt drives).

Table A43 compares the US and European approaches to fan efficiency regulation. The US requirements with model codes and standards for buildings are not included in this summary.

There have been international discussions between the European Commission (EC) and Air Movement and Control Association (AMCA) International, an association founded in the United States representing 330 member companies in 34 countries. The discussions between the EC and AMCA in 2014 explored a two-step harmonisation process between the European and US fan requirements with the first stage involving harmonisation of test standards (or methods in which efficiency is calculated), and the second stage involving the harmonisation of the required minimum efficiency levels. A working group within the AMCA Fan Committee is working on a wire-to-air calculation method that will be proposed for inclusion into ISO 12759 designed to complement and expand on the existing methodology.

Table A43 - Comparison of US and EU Fan Efficiency Regulatory Approaches.

Parameter United States European Union

Promulgating bodies US Department of Energy (US DoE) European Commission

Effectiveness dates 2020 (estimated) January 1, 2013 for Tier 1January 1, 2015, for Tier 2January 1, 2020, for Tier 3 (proposed)

Fan Efficiency Rating Standard

Draft US DoE test standard under development; finalisation in 2015/2016; taking effect in 2019/2020.

Current regulation and standard in force, and under review for 2020 targets.

Scope – Application Fans for commercial and industrial applications not restricted to building ventilation systems.

Specified fans types driven by an electric motor, including those integrated into other energy-related products. Excludes fans for use in toxic, corrosive, flammable and abrasive environments, and at supply voltage >1,000V AC or >1,500V DC.

Scope – Size 0.125 kW to 500 kW proposed in Framework Document.

Electrical Input Power from 0.125 kW to 500 kW.

Product Boundaries Fan only, with possible extended product provisions, fans sold motors and fans sold with motors and drives.

Extended product: Fan + motor + drive (if specified).

Metric Fan Efficiency Grade (FEG) for fan-only, as defined in ANSI/AMCA Standard 205.Metric for extended products is under development by AMCA.

Fan Motor Efficiency Grade (FMEG), as defined in EN/ISO 12759.

Pressure basis To be determined. Fan total pressure for ducted fans.


Fan static pressure for non-ducted fans.

Market surveillance Manufacturer declaration of compliance using federal test standard, with federally administered periodic check tests.

Manufacturer documentation and declaration of compliance with FMEG target. Member state’s targeted documentation check and possible independent test. EU wide sharing of results.

Projected annual energy savings

20 per cent of annual fan power for covered fans.106

14 TWh per year by 2020.107

Source: [AMCA 2014], updated and revised

There is a lot of work to be done before harmonisation may or may not be achieved due to technical and commercial barriers.

The Australian and New Zealand market characteristics and trading partners are closely aligned with EU technologies and types, as opposed to US technologies, and therefore the ISO and EU regulatory approach is more suited to local requirements.

China

China introduced mandatory minimum energy performance standards (MEPS), as well as endorsement and comparative labels, for non-domestic fans covering axial and centrifugal fans in 2009.

This national standard is implemented as GB 19761: 2009 Minimum Allowable Values of Energy Efficiency and Energy Efficiency Grades for Fan, which specifies energy efficiency grades, minimum allowable values of energy efficiency, evaluating values of energy conservation and the test method for fans. The standard makes reference to ISO 5801, which is the same test standard used in the EU Regulations.

This standard is applicable to centrifugal and axial-flow fans for common use, centrifugal induced fan for industrial steam boiler, centrifugal blowing fan and induced fan for power boiler, axial-flow fan for power station and air conditioning centrifugal fan. However, it does not apply to fans with specific construction characteristics such as cross-flow fans, jet type and roof fans.

The efficiency values depend on the pressure coefficient, specific speed, hub-tip ratio and fan wheel diameter and also include a rating scheme (three grades depending on fan characteristics). The minimum efficiency values (grade 3) for centrifugal fans range from minimum 55% (high pressure coefficient, small wheel diameter) to maximum 81% (low pressure coefficient, large wheel diameter) and for axial fans from 60% to 73% depending on hub-tip ration and fan wheel diameter. These values relate to shaft input power and total pressure. For centrifugal fans in air-conditioning applications the minimum efficiency values range from 38% to maximum 55% and are related to motor input power [EuC 2011].

The national standard applies to sales of fans in China and permits the production and export of less efficient fans to other markets. In summary, the Chinese MEPS has a reduced technical scope relative to EU Regulation 327/2011, and the limited technical detail make it difficult to evaluate the stringency of the efficiency levels or the effectiveness of the program at this time.

106 The US DoE estimates that technologies exist which can reduce the electricity consumption of fans and blowers by as much as 20% (US DoE 2011).107 The industrial fan industry is well underway to save approximately 28 TWh/yr in 2020 with respect to a situation without Commission Regulation (EU) 327/2011. Taking into account the ‘overlap’ with other actual and planned Ecodesign measures, on e.g. motors, ventilation units and air conditioners, the net saving is still some 14 TWh/year in 2020 (EC 2015a).


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