Expert Seminar on Measurement and Verification in the
Draft Directive on Energy End-Use Efficiency and Energy Services
21 September 2004, Brussels
Stefan Thomas
Wuppertal Institute for Climate, Environment and Energy

1.
Define the national 1 % per year target
2.
Allocate the target to energy efficiency programmes, energy services and other energy efficiency measures
3.
Monitor and evaluate the savings from each of these programmes, services etc., and add up to the total savings
 Stefan Thomas Slide 2

Final energy type and 5-year average consumption/year
Electricity
Natural gas
Heating oil
Factor
300 TWh/year 2,5 kWh/kWh
40 mn tons/y 13,1 kWh/kg
30 mn tons/y 11,8 kWh/kg
Gasoline
Total
50 mn tons/y 12,2 kWh/kg
Primary energy consumption
750 TWh/y
524 TWh/y
353 TWh/y
611 TWh/y
2238 TWh/y
Energy saving target: 1 % of total 22,4 TWh/y
 Stefan Thomas Slide 3

Step 2: Allocate the Target to Energy Efficiency Policy Instruments & Packages
Emission Trading Energy/CO
2
Tax Subsidy reform
 Incentives and supports
 Motivation, Information, Analyses, Labelling, Training
 Product and Production Standards (mandatory/voluntary)
This
Directive
 (Public) Procurement
 A stimulating framework for energy efficiency programmes and services
I 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
Manufacturers
 Stefan Thomas
Planners,
Installers,
Retailers
Slide 4
Building/Equipment owners,
Final users
Energy
(service) companies

 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 costs
 Energy services: the seller must prove to the buyer the energy saved
=> just collect these data, confidential but with checks through associations, trustees etc.
 Stefan Thomas Slide 5

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
 Stefan Thomas Slide 7

 Why this Directive is important now
 What is good in the proposal for a Directive on Energy
End-Use Efficiency and Energy Services
 What should be improved in the proposal
 Conclusions
 Appendix to Appendix: further thoughts and information
 Stefan Thomas Slide 8

Role of Energy Efficiency in the European Climate Change
Programme: sufficient to fill the gap for reaching the Kyoto target (ca. 350 million tonnes CO
2
/ year) at a net gain or low cost
Area Cost per tonne of CO
2 reduction (EUR)
Energy End-use efficiency (buildings, appliances, industry)
Transport energy efficiency
CO
2 reduction based on concrete policies (million tonnes / year)
230 plus 170 ca. 110 plus 50
< 0 (saves money!)
< 20 ca. 0
?
Supply-side measures
(renewables, CHP, efficient fossil etc.)
263 plus 210
< 20 between 20 and 50
 Stefan Thomas Slide 9

 Around 30 % cost-effective savings compared to baseline
 I.e., ca. 2%/year additional savings possible in total
 Experiences in EU show: Of this, energy efficiency programmes and services of energy companies and other market actors can achieve 1%/year
 Net economic gain: around 6 billion Euros per year after 6 years of implementation
 Stefan Thomas Slide 10

 Stefan Thomas Slide 11

 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
 Stefan Thomas Slide 12

 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) )
 Stefan Thomas Slide 13

 Additional requirements to MS for supportive measures, i.e.
– Promoting ACTIVE INVOLVEMENT of energy companies
(ART. 6) in provision of energy services
– Ensuring 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)
 Stefan Thomas Slide 14

 Stefan Thomas Slide 15

 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 Commission
– Example in chapter 3.2 of explanatory memorandum
– But: 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“
 Stefan Thomas Slide 16

 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 target
 In 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 ...“
 Stefan Thomas Slide 17

 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 energy
 Replace 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
 Stefan Thomas Slide 18

 Stefan Thomas
9,00%
8,00%
7,00%
6,00%
5,00%
4,00%
3,00%
2,00%
1,00%
0,00%
1 2 3 4 5 6 7 8 9 10 years
Slide 19 savings from 10th year programmes savings from 9th year programmes savings from 8th year programmes savings from 7th year programmes savings from 6th year programmes savings from 5th year programmes savings from 4th year programmes savings from 3rd year programmes savings from 2nd year programmes savings from 1st year programmes

 Strengthen wording in Directive text: when Member States apply energy efficiency mechanisms, measures and programmes,
=> ensure comparable application to competing fuels, to avoid price distortions
 Why 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
 Stefan Thomas Slide 20

 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?
 Stefan Thomas Slide 21

 A timely and important instrument for security of supply, economic energy savings, and CO
2 reduction!
 Completing the internal markets for electricity and gas, but also other fuels, by adding energy END-USE efficiency
 Some 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 EU‘s success in saving energy
 Stefan Thomas Slide 22

 Stefan Thomas Slide 23

 Stefan Thomas Slide 24

 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 practice
 Art. 13 (1): clarify meaning of competitive pricing of meters and actual time of use
 Art. 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!
 Stefan Thomas Slide 25

 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 sectors
 Art. 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.
 Stefan Thomas Slide 26

 Stefan Thomas Slide 27

 Increasing energy-efficiency contributes to reaching several energy and social policy goals :
– Competitiveness of the economy
– Security of supply
– Protection of the environment
– Employment
– Welfare (lower energy bills)
 Stefan Thomas Slide 28

 Energy efficiency = many small to medium technical improvements
– lack of oversight (where to start?),
– lack of information (both consumers and technology providers!),
– sometimes small financial gains from an improvement
 => lack of priority
 sometimes 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“)
 Stefan Thomas Slide 29

60%
50%
40%
30%
20%
10%
Technology procurement
Technology procurement
0%
New A?
Technology procurement
A
 Stefan Thomas
Rebates
Market procurement information
+ training
B
Slide 30
C D
Energy labe l cate gory
Minimum energy efficiency standard
E
Before intervention
After labelli ng
Market transformation
F G

Market reforms should not be limited to just one part of the market by stopping at end-use energy
 Stefan Thomas Slide 31

Liberalisation has hardly touched any of the existing barriers on the demand side for a more efficient use of energy:
 Lack of knowledge among end-users and providers of end-use technology
 Split incentives
 High implicit rate of returns
 Lack of funding
...

A professional intermediary role is needed between providers and customers of energy-efficient end-use solutions
 Stefan Thomas Slide 32

 Incentives for energy companies have changed : economics is the main rationale for most activities
 Some market situations in which economic incentives exist:
– Avoidance of new installation or upgrade of generation, transmission or distribution capacity
– Energy efficiency services to larger customers as profitable business
– Increased customer loyalty, Improved corporate image
– Fuel-switching towards the energy type offered

Market inherent incentives too weak for taking full advantage of the existing energy efficiency potentials
 Stefan Thomas Slide 33

 From energy markets to markets for genuine energy services
 Co-operation with energy companies is easier than implementation against them
 Energy efficiency activities provide additional turnover and profit
 Energy companies have direct contacts with customers
(making use of personal confidence)
 Use of existing infrastructure (e.g. customer information centres)
 Stefan Thomas Slide 34

 Increasing the variety of actors and ideas
 Synergies to many instruments such as incentives, standards, labels, co-operative procurement and other market transformation programmes
 Accelerating the potential economic and ecological benefits :
– Larger contributions to climate protection
– Faster realisation of advantages for the national economy
– More employment
– Avoidance of external costs / ‚Polluter pays‘ principle‘
 Stefan Thomas Slide 35

Current (2003) national frameworks for energy services
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
UK
 Stefan Thomas
Energy efficiency - electricity and gas
Energy efficiency funds Energy efficiency obligation at the moment no supportive framework for energy efficiency
Others
(0,0248 Cent/kWh) Agreement only electricity for distribution network companies; only Flanders - only electricity for distribution network companies
Agreement +
Price regulation
Agreement
Agreement
Agreement
?
only electriciy for distribution network companies
?
Agreement
Price regulation part of the ecotax Agreement
Price regulation at the moment no supportive framework for energy efficiency at the moment no supportive framework for energy efficiency for supply companies Price regulation
Slide 36

Types of technical measures supported by energy efficiency programmes in different EU Member States
 Insulation / building fabric
 Domestic / Non-domestic lighting
 Refrigeration
 Washing machines, dishwashers, dryers
 Boilers, heating systems
 Variable speed drives
 Electric motors
 Others, multiple technologies
 Stefan Thomas Slide 37

Example: High efficiency ‚Factor 4‘ circulation pump
 Uses 5 to 20 W instead of 40 to 80 W for current technology circulators
 Product on Swiss and German market since November 2000
 Potential for saving electricity in the
EU: at least 20 TWh/year
=> up to 1 % of all electricity in the EU
 Market penetration programmes needed
 Stefan Thomas Slide 38

Present trends in energy efficiency programme development in the different EU-Member States
 better planning
 Increased professionalism in running the activities
 Increased attention to the business economics perspective
 incentives for delivery through energy efficiency services
 better monitoring , standardised measurement and verification
 Sound methodologies for the evaluation of programmes
 improved co-ordination of all the energy-efficiency activities which address a specific target group but are run by different actors
 Connection to / preparing the integration into the implementation of Kyoto mechanisms , particularly emissions trading schemes
 Stefan Thomas Slide 39

Energy Performance Contracting in Turin
Energy 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
 Stefan Thomas Slide 40

From audits to implementation in Finland
 Stefan Thomas Slide 41

United Kingdom:
Energy Efficiency
Commitment (EEC)
 Stefan Thomas Slide 42

 Focus on lower income consumers , including those in receipt of income and disability benefits
 Typical measures :
– Cavity wall insulation, tank insulation, draught proofing
– A and B-rated boilers, boiler replacement
– Heating controls
– Loft insulation
– A-rated appliances
– CFLs
 Lifetime of measures: between 8 and 40 years
 Stefan Thomas Slide 43

 Domestic 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 savings
 Energy cost reduction of private households after implementation of measures:
598 million Euro/year
 Increase in energy prices caused by these programmes: ca. 1,2% over 3 years

Net benefit from saved energy costs: ca. 1,6% of bills by 2005, lasting for the lifetime of the relevant measures

Benefit to cost ratio around 4 to 1
 Stefan Thomas Slide 44

 Energy efficiency obligations for distribution network companies ; partly also for supply companies
 Until now only electricity companies , in future gas and district heat companies , too
 Recovery of programme costs ; Decoupling of profits from sales
 Reporting requirements ; evaluation guidelines and criteria ex ante/ex post
-> aggregated plan of the 74 distribution network companies
 Average 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
 Stefan Thomas Slide 45

Denmark: 0.5 % electricity savings per year, involving all customer groups
 Stefan Thomas Slide 46

Denmark:
Electricity Savings Trust
 Stefan Thomas Slide 47

Benefits and Costs of the Danish Electricity Saving Trust
 Focus 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/a
 Overall electricity savings target 0,75 TWh/a (1998-2008) ;
Budget 12 million Euro/year

Transferring this target to the EU-15 over 10 years:

Total electricity savings 56 TWh/year; Budget 900 million Euro/y

Of which would be 46 TWh/year electricity savings by fuel switching activities
 Stefan Thomas Slide 48

 Rebates 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 2001
 Refrigerators and freezers: rebates now only for A+ and A++ (save
45 % compared to A label)
 Stefan Thomas Slide 49

 Electronic control of motors and efficient lighting for small an medium companies, in 1997/98

Rebates: 30 % of investment costs
 Energy companies: full recovery of rebates given, plus lump sum for management, promotion, diffusion costs

Iberdrola and ENDESA : 20 MW of savings

Costs for saving one kWh: 0.8 Cent/kWh for Iberdrola, 2.0 Cent/kWh for
ENDESA
 For whole EU-15: in 10 years 20 TWh/year, over 500 MW; costs 115 million Euro/year; savings 1000 million Euro/year
 Stefan Thomas Slide 50

Hannover power plants
 600,000 inhabitants
 Load reduction 12 MW
 Electricity savings : ca. 10.534 MWh/a for only 1.1 Cent/kWh utilization of power plants
 signal to increase power central control post
 response
 signal for load reduction upstream suppliers
!
consumption peak n Source: Stadtwerke Hannover AG remote control system
 measurement and billing data
(modem)
 load-reduction premium load-reduction management customer
 Stefan Thomas Slide 51

Boutre - Carros: DSM to defer new transmission line
 Stefan Thomas Slide 52

 Stefan Thomas Slide 53

 Implementation of energy efficiency is possible
 Proper implementation will lead to economic net benefits for consumers and society
 Favourable policy framework needed for energy companies and others
 Experiences from other EU Member States in implementing and monitoring of framework, programmes and services can be used
 But stimulate innovation and adaptation to the National situation
 Stefan Thomas Slide 54

Energy efficiency activities have been most effective where a combination has been created of
 An 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, and
 A standardised and mandatory scheme for cost-benefit evaluation of the energy efficiency activities.
 Stefan Thomas Slide 55

Scenario Main mechanism for creating a quantitative target
Dedicated Funds Size of Dedicated Funds to finance energy efficiency
Targets and funding for energy companies activities
Obligations
Agreements
or Negotiated
to implement energy efficiency activities
Main mechanism for raising funding
Dedicated Funds to finance energy efficiency activities, from special levy or from taxes, administration by independent body or by energy companies
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:
Price regulation , limited to monopoly segments*, to avoid artificial incentives for increased sales
Other legal and technical support for energy efficiency services and programmes
Requirement to report on energy efficiency activity results, using common evaluation methods
* Distribution and transmission networks and supply to non-eligible customers
 Stefan Thomas Slide 56