Energy efficiency obligation schemes and regulatory measures...This presentation is based on work...

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Energy efficiency obligation schemes and regulatory measures .

Marco Matteini

Energy Systems and Infrastructure Division

Department of Energy

Promoting Industrial Energy Efficiency in Ukraine and Neighbouring Countries

27-28 May 2019

Kyiv, Ukraine

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This presentation is based on work and presentations done for UNIDO by the following experts:

1. Eoin LEES, The Regulatory Assistance Project

2. Edit BAYER, The Regulatory Assistance Project

3. Daniel BECKER, ECOFYS

4. Alyssa GILBERT, ECOFYS

5. Gregor THENIUS, Austrian Energy Agency

Acknowledgement

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Key elements:

1. Quantitative energy saving targets to be achieved in identified end use sectors

2. Obligated parties (typically energy distributors or providers/retailers) usually under a legal requirement to realize energy savings and backed by penalties for failure or incentives for good performance

3. Eligible measures (fuels and technologies covered)

4. Monitoring and verification of energy savings overseen by an independent administrator of the scheme

What is an energy efficiency obligation scheme?

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✓ Europe – 18 Member States

✓ USA – 25+ states

✓ Australia – 3 states

✓ Brazil

✓ Chile

✓ China

✓ India

✓ South Korea

✓ Uruguay and Others

Energy efficiency obligations around the world

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✓ Energy distributor/provider has obligation to save energy in customers’ facilities/premises/homes;

• Decide where and how to save →most cost-effective options

• Promote and support/subsidize energy efficiency/savings measures

• Savings targets are related to “volume” of energy supplied/distributed

• Financial penalties apply if fail to meet savings target

✓ Projects with large energy users can “afford” to have energy saving measures monitored for actual savings achieved

✓ For small energy users use of “approved” measures with well established energy saving values (deemed or ex ante savings)

✓ Monitoring and verification is a “measure count” + random audit of submitted claims for energy savings

How do EU EE obligations work?

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✓ Cost of energy efficiency measures (energy distributor/provider subsidies, end customers, landlords, manufacturers, etc.)

✓ Cost of energy distributor/provider marketing, sales, reporting, planning, etc.

✓ Auditing and verifying of energy saving projects and if target met (energy regulator or other independent entity)

✓ Government sets target every # years + research into energy savings opportunities

What costs are involved?

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✓ If obligation on energy provider/retailer in liberalised market, then EEOs are “a cost of business” like other environmental requirements and passed onto end customers

✓ If obligation on regulated part of energy company (e.g. distributor or if retail price is still regulated), then costs are in regulated tariff charged to end customers

✓ In practice, the “polluter pays” principle applies

✓ However, energy saving benefits alone far exceed the costs to consumers

How costs are recovered?

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✓ Mainly by bilateral contracts between obligated energy provider and an energy efficiency market actor e.g. insulation company, retailer of appliances, heating installers, manufacturers, other

✓ In some countries obligated parties/energy companies are establishing heating companies, insulation subsidiaries & microgen (RE)

✓ In Italy and France White Certificate schemes, accredited parties besides obliged energy providers can generate/earn energy savings/ certificates, that can be subsequently traded.

• Companies operating in the sector of energy services (ESCOs)

• Companies or organisations having an energy manager or an ISO 50001 certified energy management system in place

✓ Only in Italy there been significant generation & trading of WCs generated by non obligated parties

How are EE obligations delivered?

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Government sets policy, overall target& appoints an administrator

ADMINISTRATOR (e.g. Regulator, Agency)Allocates individual targets to energy entity; defines all administrative requirements of obligated energy entity; ensures quality standards & determines actual energy savings;

reports total and individual progress to Government on an annual and final basis

Energy Entity

Energy Entity

Energy Entity

Energy Entity

Energy Entity

Energy Entity

Energy Entity

DELIVERY

End Use Customers

Mainly by bilateral contracts with EE industry but also by energy entities directly or via partners e.g. social housing

Typical administrative procedure for EEOs

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✓ Overall target, within which obligated parties can determine the most cost-effective options →market-based mechanism

✓ Flexibility to work with third parties to deliver savings

✓ Guarantee a steady stream of funding (to cover a % of the cost of EE measures). Independent of changes to government budgets

✓ Those who pay also benefit

• Benefits of targeted energy savings accrue to all end-users

• Beneficiaries of funds from obligations save twice: directly through energy savings, and indirectly through “system benefits”

EEOs are unique in how they drive savings

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✓ Obligation on regulated energy distributors (electricity, natural gas, heating oil, district heat)

✓ Covered sectors – all but transport (incl. those covered by the EU ETS)

✓ Target corresponds to 1.2% of final consumption in covered sectors and grid losses.

✓ Industrial sector is biggest single source of energy savings

✓ EEO → accounts for 50% of total expected savings from all EE measures implemented in Denmark

✓ Weighting factors to incent longer-lived savings measures

✓ Works together with voluntary agreements (VAs)• EEO – deemed savings, all end-uses

• VAs – process energy changes, large industry

Denmark EEO Scheme (1995 – present)

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✓ We see an increasing bundling of selling energy and delivering energy efficiency services in partnership with installers and others

✓ Retailers are developing niche markets focusing on:

• Climate Partnership with a strong CSR element,

• ESCO projects and energy performance contracting etc.

✓ The cost recovery element is crucial in order to remove risk for kick starting the energy service market

✓ Energy efficiency is more about innovation in business models and approaching the customer than new technologies

✓ “We want to service our customers and to capture more of the value in and related to energy usage”

Denmark EEO Scheme (1995 – present)

EEO can boost development of EE service market

Source: Ulrich Bang, DanskEnergi

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Denmark EEO Scheme (1995 – present)

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Existing EEO systems differ widely, dependent on national requirements

✓ Can lead to good levels of savings and development of dynamic EE markets

✓ 3rd parties and independent ESCOs play a key role → search function for cheap energy savings, new project opportunities, etc.

✓ Guarantee a steady stream of funding to support EE measures implementation independent of changes to government budgets

✓ Compliance depends highly on coherent system design

✓ Major challenges: proper Monitoring, Reporting and Verification (MRV); catalogue of measures; well functioning ESCO market; EEO system cost

✓ Industry in most EEO systems not yet addressed / projects not yet implemented to a significant level

✓ Recommended smart coupling of EEO with other policies (i.e. energy audits, VA , etc.)

Summary

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Energy Efficiency Obligation Schemes in the European Union

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EU Energy Efficiency Directive – Article 7

………………….

✓ Energy efficiency obligation schemes for energy distributors and/or energy providers

or

✓ Alternative policy measures incl. energy efficiency national fund (Article 20)

• Target equivalent to new savings of 1,5% each year of the annual energy sales to final customers

• Measures must be realised among final customers

Article 7 triggers final energy savings

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Implementation of Article 7 in EU Member States

✓ ΕΕΟ scheme only4 countries: Bulgaria, Denmark, Luxembourg, Poland

✓ Combination of EEO schemes & alternative measures14 countries: Austria, Belgium, Croatia, Estonia, France, Greece, Ireland, Italy, Latvia, Lithuania, Malta, Slovenia, Spain, UK

✓ Alternative measures9 countries: Czech Rep., Cyprus, Finland, Germany, Netherlands,Portugal, Romania, Slovakia, Sweden

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✓ Now an important instrument in the European policy mix (40% of EU targeted energy savings)

✓ Flexible instrument - Adaptability to national circumstances and policy priorities

✓ Differences in schemes - e.g. number and type of obligated parties, eligible sectors/projects, monitoring, fund raising mechanism, metrics for target setting…

✓ Important - Learning period: start with low target, and growing targets over the years

✓ EEO help to raise the profile of energy efficiency

✓ Helps to realise cost-effective measures → what happens when low-hanging fruits are harvested?

✓ Can EEOS mobilise investment in deep renovations?

Learnings from EE obligation schemes in EU

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THANK YOU!

Mr. Marco MATTEINI

Industrial Development Officer

E-mail: M.Matteini@unido.org

Energy Systems and Infrastructure Division

Department of Energy

UNIDO

For more information:

Mainly by bilateral contracts with EE industry but also by energy

entities directly or via partners e.g. social housing