Defining and Monitoring the proposed Energy Savings Targets: How would it work?

Expert Seminar on Measurement and Verification in the Draft Directive on Energy End-Use Efficiency and Energy Services21 September 2004, BrusselsStefan ThomasWuppertal Institute for Climate, Environment and Energy

Its a three-step process:Define the national 1 % per year targetAllocate the target to energy efficiency programmes, energy services and other energy efficiency measuresMonitor and evaluate the savings from each of these programmes, services etc., and add up to the total savings

Step 1: Define the target

Step 2: Allocate the Target to Energy Efficiency Policy Instruments & PackagesIncentives and supportsMotivation, Information, Analyses, Labelling, TrainingProduct and Production Standards (mandatory/voluntary)(Public) ProcurementA stimulating framework for energy efficiency programmes and servicesEnergy (service) companiesI n t e g r a t e d m a r k e t t r a n s f o r m a t i o n p r o g r a m m e s

This Directive

Step 3: Monitor and evaluate the savings Programmes and other measures: 25 years of experience with bottom-up evaluation e.g.: UK, DK: pragmatic approach, start with pilot evaluations, evaluation costs less than 1 % of programme costsEnergy services: the seller must prove to the buyer the energy saved => just collect these data, confidential but with checks through associations, trustees etc.

Thank you for your attention!

Further information can be found at:

www.wupperinst.org/energy-efficiency

(for public sector energy efficiency also:www.eceee.org/library_links/prost.lasso)

What are ADDITIONAL SAVINGS compared to the baseline?Those that would not have happened without the energy efficiency programme or service!(1) if new equipment is bought or renovation is done anyway: Savings from NEW, EFFICIENT vs. NEW, INEFFICIENT (NOT from NEW, EFFICIENT vs. OLD, VERY INEFFICIENT!) (2) if no new equipment purchase or renovation was planned: Savings from NEW, EFFICIENT vs. OLD, INEFFICIENT=> Clarify at least in ANNEX IV

Appendix: OverviewWhy this Directive is important nowWhat is good in the proposal for a Directive on Energy End-Use Efficiency and Energy ServicesWhat should be improved in the proposalConclusionsAppendix to Appendix: further thoughts and information

Role of Energy Efficiency in the European Climate Change Programme:sufficient to fill the gap for reaching the Kyoto target (ca. 350 million tonnes CO2 / year) at a net gain or low cost

AreaCO2 reduction based on concrete policies (million tonnes / year)Cost per tonne of CO2 reduction (EUR)Energy End-use efficiency (buildings, appliances, industry)230plus 170< 0 (saves money!)< 20Transport energy efficiencyca. 110plus 50ca. 0?Supply-side measures (renewables, CHP, efficient fossil etc.)263plus 210< 20between 20 and 50

The win-win-win - potential of energy efficiencyAround 30 % cost-effective savings compared to baselineI.e., ca. 2%/year additional savings possible in totalExperiences in EU show: Of this, energy efficiency programmes and services of energy companies and other market actors can achieve 1%/yearNet economic gain: around 6 billion Euros per year after 6 years of implementation

What is good in the proposal for a Directive on Energy End-Use Efficiency and Energy Services

What is good in the proposal (1)Harmonisation in targets (to Member States), subsidiarity in methods (for implementation)1 % target (and 1.5 % for public sector) is ACHIEVABLE through energy efficiency programmes, energy services and similar measures Target sufficient if: ADDITIONAL to technology-specific baseline (incl. autonomous energy efficiency gains and other policy instruments)! Developing a market for energy services, AND for energy companies and others to deliver energy efficiency programmes

What is good in the proposal (2)Definition of targets as amount of ENERGY SAVED (Annex I)Verification of savings by Member States through BOTTOM-UP methods (Annex IV) and independent agencies (Art. 4(5) )Option for Member States to create energy efficiency FUNDS (Art. 11)Allowance for COST RECOVERY of energy efficiency programmes by distribution network companies (Art. 10(b) )REMOVAL of incentives to increase the volume of transmitted or sold energy embedded in price regulation schemes of monopoly segments (Art. 10 (a) )

What is good in the proposal (3)Additional requirements to MS for supportive measures, i.e.Promoting ACTIVE INVOLVEMENT of energy companies (ART. 6) in provision of energy servicesEnsuring AVAILABILITY to all customers and INVOLVEMENT of all potential providers (Art. 7)Qualification, certification, and accreditation of energy service providers (Art. 8)REMOVAL of legal barriers for energy services, and publication of model contracts (Art. 9)AVAILABILITY of high quality energy audit schemes (Art. 12)Individual metering and informative billing (Art. 13)

What should be improved in the proposal for a Directive on Energy End-Use Efficiency and Energy Services

What should be improved in the proposal (1)Are 1 % / year ADDITIONAL SAVINGS compared to the baseline, or after vs. before the measure (may be including baseline)?Meant to be ADDITIONAL SAVINGS by CommissionExample in chapter 3.2 of explanatory memorandumBut: wording in Art. 4 and 5, and Annex I and IV should mention what is meant: ADDITIONAL SAVINGS compared to the baseline (which includes autonomous energy efficiency improvements!)See Appendix for possible definition of additional savings

What should be improved in the proposal (2)Include ADDITIONAL savings generated after entry into force of Directive from existing energy efficiency programmes, energy services etc., but:NO DISCOUNT FOR EARLY ACTION SINCE 1991!Annex 1, para 3. can be misinterpreted to say, e.g.: a programme generated 200 GWh / year savings in 1999, the technical measures are still in place in 2007, so count towards the targetIn that case, Denmark would not need to save a single additional kWh of electricity between 2006 and 2012; UK, Italy ca. 2 % for domestic customers if current targets up to 2006 are met=> Amend text to: ADDITIONAL energy savings in a particular year AFTER ENTRY INTOFORCE OF THIS DIRECTIVE that ...

What should be improved in the proposal (3)Make multiplication factor of at least 2.5 for electricity (ANNEX II) mandatory in calculating national savings target, by including this into Annex I (para 2.) WHY? Electricity supply causes by such a factor higher primary energy use, and costs. Counting all end-use energies equal would discourage the substitution of electricity by other forms of energyReplace wording (ART 4(1) ) target for cumulative annual energy savings by a mandatory AND ACCUMULATING target for ADDITIONAL annual energy savings WHY? Avoid misunderstanding: target is accumulating to 6 % / year until 2012; it is not meant to accumulate savings from a measure installed in 2007, which are still there each year until 2012. Instead, new measures each year shall provide additional savings until 6 % / year are reached in 2012

Accumulating targets and annual savings:

What should be improved in the proposal (4)Strengthen wording in Directive text: when Member States apply energy efficiency mechanisms, measures and programmes, => ensure comparable application to competing fuels, to avoid price distortionsWhy deny energy-intensive industries (subject to Emission Trading or IPPC) the benefits of this Directive? Electricity and transport fuel use not covered by Emission Trading!Clarify use of STRINGENT building codes and general energy taxation ABOVE minimum levels in taxation Directive; mention energy taxation as a way to generate income for energy efficiency funds (Art. 11)ANNEX IV: Install working group or committee to develop converging methods for measurement and evaluation of savings

Some open questions:How to achieve target in transportation fuel sector? Little experience with energy services there; Feebates = rebates for efficient cars, and additional fees for inefficient ones?Authority must verify savings (Art 4(5) ) by bottom-up methods and, if feasible, third parties (Annex IV) : But do they get the necessary information from the operators of energy efficiency programmes and energy services? => Member States must ensure this. Add to information requirement in Art. 6(c) ?Is the energy audit requirement and 5 % threshold in Art. 6(1) useful? Alternative: Targets for the share of energy services in turnover?

ConclusionsA timely and important instrument for security of supply, economic energy savings, and CO2 reduction!Completing the internal markets for electricity and gas, but also other fuels, by adding energy END-USE efficiencySome improvements to proposal needed (important examples presented, some more detailed suggestions in Appendix)If properly implemented by Member States, will be able to achieve the target and demonstrate the EUs success in saving energy

Appendix: further thoughts and information

Appendix part A: further thoughts on the proposal

Further potential improvements (1):Art. 2: Why completely exclude historic and similar buildings? Their electricity use and heating system can be improved without affecting their facade.Art. 10 (b): clarify what due regard for the need to ensure equal competition and a level playing field for other providers of energy services means in practiceArt. 13 (1): clarify meaning of competitive pricing of meters and actual time of useArt. 13 (3): How to compare the individual customer with an average normalised or benchmarked user of energy?ANNEX III: cost effective not defined. Either define (suggestion: as cost effective from perspective of society) or remove!

Further potential improvements (2):Art. 11: Why should funds only target higher transaction cost or risk sectors? Could also fund energy efficiency programmes and development of energy services for all sectorsArt. 7: What are eligible customers in this Article/Directive?ANNEX IV: should be improved. E.g., methods in point 2.2 can also improve evaluation results for finalised programmes/services; Energy product sales data alone not sufficient for evaluation; etc.

Appendix Part B: further information

Energy Efficiency - a win-win-win - optionIncreasing energy-efficiency contributes to reaching several energy and social policy goals:Competitiveness of the economySecurity of supplyProtection of the environmentEmploymentWelfare (lower energy bills)

Barriers for energy efficiencyEnergy efficiency = many small to medium technical improvementslack of oversight (where to start?), lack of information (both consumers and technology providers!), sometimes small financial gains from an improvement=> lack of prioritysometimes lack of funds split incentives between investors and users or between technology/building providers and buyers => more information, practical guidance, regulation, and financing support needed (the sticks, the carrots, and the tambourines)

Example - the policy package for appliances

Market reforms should not be limited to just one part of the market by stopping at end-use energy

Liberalisation and Energy Efficiency ILack of knowledge among end-users and providers of end-use technologySplit incentivesHigh implicit rate of returnsLack of funding...A professional intermediary role is needed between providers and customers of energy-efficient end-use solutionsLiberalisation has hardly touched any of the existing barriers on the demand side for a more efficient use of energy:

Liberalisation and Energy Efficiency I IIncentives for energy companies have changed: economics is the main rationale for most activitiesSome market situations in which economic incentives exist:Avoidance of new installation or upgrade of generation, transmission or distribution capacityEnergy efficiency services to larger customers as profitable businessIncreased customer loyalty, Improved corporate imageFuel-switching towards the energy type offeredMarket inherent incentives too weak for taking full advantage of the existing energy efficiency potentials

Why energy companies should play a prominent role I From energy markets to markets for genuine energy servicesCo-operation with energy companies is easier than implementation against themEnergy efficiency activities provide additional turnover and profitEnergy companies have direct contacts with customers (making use of personal confidence)Use of existing infrastructure (e.g. customer information centres)

Why energy companies should play a prominent role I I Increasing the variety of actors and ideasSynergies to many instruments such as incentives, standards, labels, co-operative procurement and other market transformation programmesAccelerating the potential economic and ecological benefits:Larger contributions to climate protectionFaster realisation of advantages for the national economyMore employmentAvoidance of external costs / Polluter pays principle

Current (2003) national frameworks for energy services

Tabelle1

CountryEnergy efficiency - electricity and gas

Energy efficiency fundsEnergy efficiency obligationOthers

Austriaat the moment no supportive framework for energy efficiency

Belgium(0,0248 Cent/kWh)for distribution network companies; only Flanders - only electricityAgreement

Denmarkonly electricityfor distribution network companiesAgreement + Price regulation

FinlandAgreement

FranceAgreement

GermanyAgreement

Greece?

Irelandonly electriciyAgreement

Italyfor distribution network companiesPrice regulation

Luxembourg?

Netherlandspart of the ecotaxAgreement

PortugalPrice regulation

Spainat the moment no supportive framework for energy efficiency

Swedenat the moment no supportive framework for energy efficiency

UKfor supply companiesPrice regulation

Tabelle2

Tabelle3

Types of technical measures supported by energy efficiency programmes in different EU Member StatesInsulation / building fabricDomestic / Non-domestic lightingRefrigerationWashing machines, dishwashers, dryersBoilers, heating systemsVariable speed drivesElectric motorsOthers, multiple technologies

Example: High efficiency Factor 4 circulation pumpUses 5 to 20 W instead of 40 to 80 W for current technology circulatorsProduct on Swiss and German market since November 2000Potential for saving electricity in the EU: at least 20 TWh/year => up to 1 % of all electricity in the EUMarket penetration programmes needed

Present trends in energy efficiency programme development in the different EU-Member States better planningIncreased professionalism in running the activitiesIncreased attention to the business economics perspectiveincentives for delivery through energy efficiency services better monitoring, standardised measurement and verificationSound methodologies for the evaluation of programmesimproved co-ordination of all the energy-efficiency activities which address a specific target group but are run by different actorsConnection to / preparing the integration into the implementation of Kyoto mechanisms, particularly emissions trading schemes

Energy Performance Contracting in TurinEnergy Performance Contracting for operation and maintenance covering a pool of 700 public buildings and for energy efficiency investments (ca. 22 million #); Duration of the contract: 1995 - 2014

From audits to implementation in Finland

United Kingdom: Energy Efficiency Commitment (EEC)

Energy Efficiency Commitment 2002-2005Focus on lower income consumers, including those in receipt of income and disability benefitsTypical measures:Cavity wall insulation, tank insulation, draught proofingA and B-rated boilers, boiler replacementHeating controlsLoft insulationA-rated appliancesCFLsLifetime of measures: between 8 and 40 years

Expected Results of the EEC in the UKDomestic energy savings after implementation of measures: 11.492 GWh/a of which are: 2.573 GWh/a electricity savings, 7.358 GWh/a gas savings, 1.536 GWh/a oil and coal savingsEnergy cost reduction of private households after implementation of measures: 598 million Euro/yearIncrease in energy prices caused by these programmes: ca. 1,2% over 3 yearsNet benefit from saved energy costs: ca. 1,6% of bills by 2005, lasting for the lifetime of the relevant measuresBenefit to cost ratio around 4 to 1

Obligations in DenmarkEnergy efficiency obligations for distribution network companies; partly also for supply companiesUntil now only electricity companies, in future gas and district heat companies, tooRecovery of programme costs; Decoupling of profits from salesReporting requirements; evaluation guidelines and criteria ex ante/ex post -> aggregated plan of the 74 distribution network companiesAverage planned investment by the energy companies: 0,06 Cent/kWh for all customers (in total 20 million Euro in the year 2000)Energy savings: 0,5% of total consumption each year; Extending these activities to the whole EU-15 over 10 years: 120 TWh/a electricity savings

Denmark: 0.5 % electricity savings per year, involving all customer groups

Denmark: Electricity Savings Trust

Benefits and Costs of the Danish Electricity Saving TrustFocus on energy-efficient fuel switching from electricity to gas/district heating: 17.000 apartments and homes between 1998 and 2001, i.e. 34% of the target group; electricity savings: 248 GWh/aOverall electricity savings target 0,75 TWh/a (1998-2008); Budget 12 million Euro/yearTransferring this target to the EU-15 over 10 years:Total electricity savings 56 TWh/year; Budget 900 million Euro/yOf which would be 46 TWh/year electricity savings by fuel switching activities

Some results of the Dutch Rebate SchemeRebates for efficient appliances, thermal insulation and other measures (15 % of energy tax income)More than doubling of the market share of A-rated white goods within two years, up to 88% (washing machines; EU-average: 45%) in the year 2001Refrigerators and freezers: rebates now only for A+ and A++ (save 45 % compared to A label)

PYME-Energia - a good example from SpainElectronic control of motors and efficient lighting for small an medium companies, in 1997/98Rebates: 30 % of investment costsEnergy companies: full recovery of rebates given, plus lump sum for management, promotion, diffusion costsIberdrola and ENDESA : 20 MW of savingsCosts for saving one kWh: 0.8 Cent/kWh for Iberdrola, 2.0 Cent/kWh for ENDESAFor whole EU-15: in 10 years 20 TWh/year, over 500 MW; costs 115 million Euro/year; savings 1000 million Euro/year

Synchronous Load Management in HannoverSource: Stadtwerke Hannover AG600,000 inhabitantsLoad reduction 12 MWElectricity savings: ca. 10.534 MWh/a for only 1.1 Cent/kWh

Boutre - Carros: DSM to defer new transmission line

Boutre - Carros: potential peak load savings

ConclusionsImplementation of energy efficiency is possibleProper implementation will lead to economic net benefits for consumers and societyFavourable policy framework needed for energy companies and othersExperiences from other EU Member States in implementing and monitoring of framework, programmes and services can be usedBut stimulate innovation and adaptation to the National situation

Recommendations for National Policy DesignEnergy efficiency activities have been most effective where a combination has been created ofAn agreed or mandated, quantified target for energy savings,A channel or an allowance for raising funding and for avoiding net economic losses in a way not discriminating between companies, andA standardised and mandatory scheme for cost-benefit evaluation of the energy efficiency activities.

Useful combinations for policy mechanisms

Scenario

Main mechanism for creating a quantitative target

Main mechanism for raising funding

Dedicated Funds

Size of Dedicated Funds to finance energy efficiency activities

Dedicated Funds to finance energy efficiency activities, from special levy or from taxes, administration by independent body or by energy companies

Targets and funding for energy companies

Obligations or Negotiated Agreements to implement energy efficiency activities

Price Regulation, limited to monopoly segments*, or regulated special levy system to enable energy efficiency programme cost recovery;Direct revenues from energy efficiency services

Common components of each combination:

1. Price regulation, limited to monopoly segments*, to avoid artificial incentives for increased sales

2. Other legal and technical support for energy efficiency services and programmes

3. Requirement to report on energy efficiency activity results, using common evaluation methods

* Distribution and transmission networks and supply to non-eligible customers