Energy Savings Scheme reform proposed: stronger focus on gas reduction and electrification

The Energy SavingsElectricity or gas savings or both. Industry Association (ESIA) has released new modelling suggesting reform of the NSW Energy Savings Scheme (ESS) could deliver stronger emissions reductions and better economic outcomes, particularly through a greater focus on gas reduction and electrification. 

The report, released 18 February 2026, outlines options to strengthen the scheme as NSW faces rising energy costs, gas supply pressures and decarbonisation targets. 

What’s been announced 

According to ESIA, the current ESSThe NSW Energy Savings Scheme (ESS) provides financial incentives to install, improve or replace energy savings equipment and appliances in NSW households and businesses. The ESS was established in 2009. Financial incentives are in the form of tradeable certificates, called energy savings certificates (ESCs). Generally, householders and businesses who fund energy savings activities transfer the right to create ESCs to Accredited Certificate Providers (ACPs) in return for a discount on the cost of the energy savings activity.  The MWh savings from the project determines the number of ESCs that can be created. The ESS works by allowing ACPs to create and register ESCs for energy savings that are supported with appropriate evidence. ESCs are then purchased each year by mainly electricity retailers operating in NSW to meet their share of a legislated annual energy savings target. has delivered cost-effective energy savings and emissions reductions, but may not be configured to address emerging challenges in gas demand and electrification at sufficient scale. 

Modelling undertaken by Green Energy Markets, commissioned by ESIA, suggests: 

• Prioritising electrification and gas reduction would deliver improved economic and environmental outcomes compared to maintaining current settings. 

• A dedicated gas reduction sub-target — or a separate gas-focused mechanism — could provide clearer long-term investment signals. 

• Reform should commence in 2026–27, with any new framework in place by 1 January 2028 to avoid delays in deployment. 

The report is intended to inform ESIA’s submission to the NSW Government’s consultation on ESS reform. 

Who it affects 

The ESS underpins significant private sector investment in energy efficiency and emissions reduction activities across New South Wales. 

Businesses with substantial electricity and gas consumption — including those in manufacturing, property, health, logistics and large commercial facilities — may see changes to: 

• Eligible activities 

• Certificate generation opportunities 

• Relative incentives between electricity efficiency and gas reduction 

• Investment signals for electrification projects 

Participants in the certificate market, energy service providers, and organisations relying on ESS-linked projects as part of compliance or decarbonisation strategies will be particularly impacted. 

Key details and timing 

• Reform discussions are underway as part of the NSW Government’s ESS review process. 

• ESIA recommends reform begin during 2026–27. 

• A revised framework should commence by 1 January 2028. 

The report highlights the importance of early deployment to avoid slowing electrification and emissions abatement activity. 

Why it matters 

If reforms prioritise gas reduction and electrification, businesses with significant gas exposure may see stronger financial incentives to transition equipment and processes to efficient electric alternatives. 

This could influence capital planning decisions over the next two to three years, particularly where facilities are already considering: 

• Boiler and process heat upgrades 

• Heat pump installations 

• Electrification of plant and equipment 

• Demand management investments 

Changes to sub-targets or certificate structures may also affect certificate supply, pricing dynamics and project economics under the ESS. 

For organisations with long-term decarbonisation commitments, the proposed direction signals that electrification will remain central to NSW policy settings. 

What to do next 

Businesses with material energy exposure should: 

• Monitor the NSW Government’s ESS consultation process 

• Review planned capital upgrades against potential scheme changes 

• Assess gas-related risks in light of emerging policy direction 

• Consider participating in consultation if materially affected 

Early planning may allow organisations to align investment timing with any revised incentive framework. 

The NSW Government’s consultation process will determine whether the proposed reforms proceed. Further detail is expected as the review progresses through 2026–27