Electrification subsidy extended to 2045 to help shift consumers in most gas dependent state

Victoria will extend its market-based energy efficiency subsidy scheme by a further 15 years, in a move the state Labor government says will provide certainty for industry and continue to drive the electrification of homes and businesses.

State energy minister Lily D’Ambrosio says government will introduce legislation to extend the Victorian Energy Upgrades (VEU) program to 2045, from its current end-date in 2030.

The VEU incentivises households and businesses to invest in energy efficient appliances and building upgrades by offering discounts – for example, a household that replaces a gas ducted heating system with an electric heat pump can get a cost deduction of up to $3,600.

When a household or business accesses a discount through the scheme, the accredited providers create Victorian Energy Efficiency Certificates (VEECs), which are then sold to energy retailers to meet annual energy savings targets set in Victorian legislation.

As well as extending the VEU, the Allan government is also undertaking a review of the program that will be conducted over the next two years.

Already, changes have been made to the scope of the scheme to bring it into line with the Victorian Labor government’s Gas Substitution Roadmap, which seeks to phase gas out of homes and businesses, in favour of all-electric appliances.

Victoria uses more gas than any other Australian state or territory. It uses gas to heats homes and businesses, for gas-powered electricity generators and for manufacturing. But it is seeking to change this.

From July this year, VEU discounts were made available for houses switching their gas cooktops for electric induction stoves, and for a wider range of hot water and space heating heat pumps.

Under further proposed reforms, Victorian regulator the Essential Services Commission (ESC) will have strengthened enforcement powers, expanding its oversight from accredited providers to include oversight of installers as well.

And to lower the price of VEECs, the requirement for certificates to be created by 31 January for the previous calendar year will be removed, D’Ambrosio says, giving energy retailers more time to acquire certificates and reduce demand.

In the meantime, the government will set interim energy savings targets for retailers for 2026 and 2027 instead of the usual five-year period, providing certainty until the next long-term targets are determined by recommendations from the review.

“These reforms to extend and strengthen the program will make sure the VEU can help more Victorian homes and businesses electrify and improve energy efficiency,” the minister said in a statement issued on Wednesday afternoon.

“Our Victorian Energy Upgrades program has helped millions of Victorian homes and businesses slash their energy bills and these changes will give industry certainty while we undertake our review of the program.”

In a statement welcoming the VEU extension and review, the Energy Savings Industry Associaion – which will consult with government on reforms to the scheme – called for bipartisan support for what it described as a “catalyst for 21st century jobs and skills.”

“Upgrade decisions can be complex with ongoing barriers including upfront costs. There is no easy solution, which is why market-based mechanisms like the VEU work and require long-term commitment and targets,” the ESIA said on LinkedIn.

“Delivering lowest cost abatement with suitable quality solutions so Victorians get bang for their buck remains the paramount objective of the program.

“As the impacts of climate change escalate, we need bi-partisan support to strengthen the VEU to 2045.

“The VEU is a key lever that empowers households and small businesses to take action now in their homes and workplaces to lower their energy bills and improve the efficiency of their appliances.

“This action delivers emissions reductions, better comfort and health and immediate cost-of-living relief.”

And this is the important part. Beyond the discount on the up-front cost of the investment, households that replace a gas ducted heating system with an electric split system air conditioner can expect to save around $600 a year on their energy bills.

An electric heat pump hot water system can save households $250 per year compared with a gas unit.

D’Ambrosio says that since the program went all-electric in 2023, it has delivered rebates for 19,000 reverse cycle air conditioners, and 39,000 hot water systems, saving 28 million tonnes of emissions.