New eceee report: Energy efficiency obligations - the EU experience
(02 Mar 12) eceee today published a briefing on the European experience from energy efficiency obligations (EEOs). Despite the variations in national schemes, all have been judged successful by their governments and they have expanded their EEOs accordingly. There is now around €2 billion per year being spent by energy companies in the EU to deliver energy efficiency under EEOs.
The new report entitled "Energy efficiency obligations – the EU experience" is a briefing produced by eceee for the European Commission's Directorate-General Energy. The briefing complements the EEO seminar arranged last September. (A summary was recently published which is available with all presentations).
This briefing was prepared by eceee as a background paper for the European Commission's Bucharest Forum working group on Energy Companies role in the Energy Efficiency Services Market. It includes a history of and a snapshot of EEOs and their impacts within the EU as of September 2011.
EEOs are in effect a direct intervention into the energy market. In this sense, the Member State (MS) governments are intervening into the energy market in similar fashion as other environmental interventions, e.g. the EU Emissions Trading Scheme or Green Certificates for renewable energy.
There is clear evidence that well designed EEOs, both in the EU and globally, can overcome many of the barriers to energy efficiency which prevent the uptake of such measures, particularly by households and small organisations. Barriers can be overcome through the inclusion of personalised advice, technical knowledge, finance on favourable terms or through subsidies, lowering transaction costs, providing quality assurance and confidence through a well-known brand. At the heart of any EEO is an obligation on some part of the energy company to prove that the activities they have promoted or funded have resulted in energy savings in eligible end use customers’ premises or homes coupled with the threat that if they fail to deliver those energy savings, the company will incur financial penalties. The threat of financial penalties has meant that in over fifty years of operational experience in 5 EU countries, no energy company has missed their total energy saving target.
The detailed operations of existing and planned EEOs in the Member States are different and reflect the local status of the energy market (liberalised or otherwise), the energy efficiency history of the energy companies, climate, energy saving opportunities, culture, etc. Despite these variations, all have been judged successful by their governments and they have expanded their EEOs accordingly. There is now around €2 billion per year being spent by energy companies in the EU to deliver energy efficiency under EEOs. This figure still only represents between 1 and 5% of the energy bill to customers depending on the MS. The success of this policy tool prompted two more EU Member States – Poland and Ireland – to develop similar schemes.
One recent development is that in the UK some energy suppliers have been establishing heating companies, insulation subsidiaries and renewable micro generation companies (e.g. British Gas, E. ON). In principle, this can be viewed as these companies finally taking on board that the message that they should be seen in the future as energy service companies rather than commodity energy suppliers. Similar developments are starting in Italy. However, it is early days and more experience is required to decide whether this is indeed the case.
The end use sectors targeted by EEOs for energy saving activities vary within Europe, but all include the residential sector and most activity has been undertaken in the residential sector. This is because the use of deemed (or ex ante) energy savings simplifies the monitoring and verification process and allows mass marketing opportunities. Independent evaluations of the EU EEOs has shown that the cost to all parties (i.e. energy companies, customers and third parties) of saving a unit of electricity or gas are lower than the electricity and gas residential prices by between a factor of two to six.
Analysis of the National Energy Efficiency Action Plans (NEEPs) presented to the EU Commission by Member States in 2007 shows that for those with quantified plans in the residential and tertiary sector, the EEOs are a very important part of how they expect to meet their 9% energy saving target in 2016. Despite these EEO successes, due to the differences between the operational aspects of EEOs in different countries, it is unlikely that there could be a fully harmonised EU wide EEO scheme in the near term.
In conclusion, despite the wide variation in the way that EEOs have been implemented both in historic and liberalised energy markets, they have been successful policy tools:
- Member States with EEOs see them as a major policy initiative to meet their NEEAPs and climate change commitments and are continuing to expand their scope; there is growing interest from other Member States
- EEOs result in more energy savings than would be obtained from an equivalent rise in the price of energy alone
- Because of the reducing costs and the available potential still there are significant cost-effective possibilities in all EU countries and those Member States who started earlier are setting even more ambitious targets
- EEO schemes can deliver on low-hanging fruits but with a proper design also on long-term energy efficiency improvements
- By reducing the number of units required for household energy services, EEOs contribute to energy affordability for low income households in the transition to a low carbon world
- In the largest EEO, there is evidence over the last 5 years that they are contributing to a significant reduction in gas demand and have helped bring down the costs of EE measures over time
- At a time when Member States are facing difficult financial problems with public expenditure, the EEO approach avoids Member States having to spend public money to stimulate energy efficiency. The costs incurred by energy companies (typically a few % of the energy bill) are ultimately passed back to the end use customer and this is consistent with the polluter pays principle.
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