Energy Saving Policies and Energy Efficiency Obligation Scheme

Costs of alternative measures, cost-recovery options and EEOs comparison

15/11/2016

Vlasis Oikonomou, IEECP, ENSPOL project coordinator

Global EEO snapshot

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48 operational and 6 planned

Source: RAP 2016, Rosenow 2016

Types of policies in the EU for Article 7

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Source: Rosenow and Fawcett (2016)

Alternatives to EEOs

General points• Almost all EU MS countries (apart from 5) have adopted alternative

measures to comply with Article 7 requirements.• Higher cost measures (e.g. whole house renovation, solid wall

insulation) seem to be the main focus of alternative measuresproposed in the residential sector, usually in the form of soft loansand grants.

Countries relying wholly on EEOs• Only one country of the five planning to rely entirely on EEOs has

long and successful experience of this policy (Denmark). It may be arisky strategy for the other three.

• EEOs are a proven and effective route to delivering incentives forproven, low cost, mass-market measures

Overview of alternative measures in the EU

5

COUNTRY/

Types of Alternativemeasures

EEOsEnergy/CO2Taxes

Financial grants& Loans

Fiscal (tax rebate)

EE Fund

Regulation & Standards

Information,Education &Training

Vol. Agreement

Othermeasures

Sum (of alternatives)

Austria (Ν) (2) (5) (1) 8

Italy (Ε) (1) (1) 2

France (Ε) (2) (2) (1) (1) (1) 7

Germany (4) (7) (3) (2) 16

Greece (14) (1) (2) (1) 18

Sweden (1) 1

Spain (Ν) (1) (6) (1) (2) 10

The Netherlands (2) (8) (4) (3) (4) (10) 30

UK (Ε) (2) (6) (7) (2) 17

� Most countries have decided that alternative policies outside the remit of utilities are necessary(e.g. standards, taxation and support for infrastructure and human systems) to meet energysavings’ target.

� In case of multiple alternatives measures, MS have to ensure that, when there are overlapsamong measures, no double counting will occur

� EEO should perhaps address mainly nonsubsidized areas/sectors (large industries,municipalities, transport).

Overview of alternativesOverview of alternative measures in the EU

Cost types of EE policies

Program cost: Cost to

the public recovered

through energy bills

Participant cost:

Contributions from

beneficiaries of the

program

Administrative cost:

Cost to the

authorities for

running the program

Source: Rosenow 2016, ENSPOL 2015

Transaction cost: Cost

to the participants for

complying with

administration and

third parties

Basic issues on alternatives

AVOID COMPARISONS BECAUSE:• No homogeneous way of cost-

effectiveness!• Different metrics for incentive costs (e.g.

per building, per participant, per availablefund)

• Policy combinations make the imageblurry

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General observations

• In most alternatives there is no ex-post evaluation for real costs

• Funding costs are usually highly dependent on the scale of each measure and the replication potential of these measures which are difficult to determine

• In many cases costs for various measures are intertwined,

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Examples from countries

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Countries Administrativ

e costs (€)

Total

investment

costs (€)

Total incentive (i.e. state

funding) costs (€)

Austria

PI1: Refurbishment subsidy schemes N/A N/A 3,27 Bn €

PI2: Domestic environmental support scheme (UFI) N/A N/A 90 mil. €

PI3: Energy taxes N/A N/A 4,58 Bn €

PI4: Federal highway toll N/A N/A 1,1 Bn €

PI5: Green electricity support N/A N/A 66,8 mil €

Germany

PI1: Support programmes for energy-efficient

construction and renovation

N/A N/A 1,500 mil. € per year

PI2: Investment programmes in municipalities and social

facilities

N/A N/A 200 mil. € per year expected

PI3: Investment support programmes in companies N/A N/A 3 bil. € per year

PI4: National Climate Protection Initiative — further

programmes

N/A N/A 120 mil. € per year

Examples from countries

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UK

PI1: Green Deal –

household

N/A N/A 180 mil. € have already been spend

125 mil. € will be spent on the Green Deal

Home Improvement Fund

PI5: Smart metering

(non-domestic)

N/A N/A 0.575 € (central estimate) for the period

2013-2020 out of which 50% are counted

by the Bristish government towards

meeting with Article 7 requirements.

PI6: Carbon Reduction

Commitment Energy

Efficiency Scheme

4.125 mil. € spent on staff

time and IT and other set-

up costs (2.25 mil. € fees

charged to participants,

rest from central

government), 1.5 mil. € for

policy design and

development costs for the

period 2010-2011.

The value of allowances

surrendered was:

2011/12 – 832.5 mil. €;

2012/13 – 837.5 mil. €;

2013/14 – 713.75 mil. €

PI7: Energy Savings

Opportunity Scheme

N/A The most significant

elements of the costs of

the policy are the capital

and hassle costs 875 mil.

€ over the period).

N/A

Examples from countries

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Italy

PI1: Tax deduction Not available, but below 1%

of the total incentive cost.

N/A 2014: 2,100 M€ (0.113 Mtep

of savings)

2012: 1,585 M€ - 1.26 €/kWh

2011: 1,820 M€ - 1.27 €/kWh

2010: 2,533 M€ - 1.25 €/kWh

2009: 1,410 M€ - 0.95 €/kWh

2008: 1,925 M€ - 0.98 €/kWh

2007: 799 M€ - 1.01 €/kWh (kWh final

consumption)

PI2: Thermal account Not available, but high due

to the limited success of the

scheme so far (estimable

higher than 5%).

N/A Heat account (2014) = 1.7 M€ of scheme

cost (0.000005 Mtep)

Heat account (2015) = 19.1 M€ of scheme

cost (0.0008 Mtep)

3.89 M€ in 2013

around 20 M€ at the end of October 2014.

France

PI1: Sustainable

development tax credit

Low administration costs as

part of the tax authority

functioning (declaration

through the tax declaration,

direct deduction from tax

payment and control

through normal tax control)

6,8 bn.€ 1.36 bn. €

PI2: Interest-free eco- Low as dealt with by banks 4,5 bn. € 75 bn. €

Examples from countries

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Netherlands

Green Funds A total of 137 mln. EUR in 2011, and 167 mln. EUR in

2010

N/A 4.5 Billion E (from green banks

and green funds in 2013)

Blok voor Blok The national government has committed 15 mln.

EUR and 2,5 mln. EUR thus far to facilitate the blok-

for-blok process (support platform, some process

funding, etc.).

N/A 350.000-500.000 € per project, in

total 5,75 mil. €

Revolving

funds

N/A N/A 185 mil. € from government

funds, 225 mil. € cofinance from

banks for owner/occupiers

EUR 400

million

subsidy for

housing

corporations

N/A 4.500 € max.

available amount

per household

400 mil. € / 4.500 € max.

available amount per household

Energy

Investment

Allowance

An estimated 3,5 mln EUR per annum to run this

scheme. For the period 2006-10 this comes to an

administrative costs of 0,27 EUR per GJ primary

energy saved.

Total CAPEX in

2006-2010

period was 5.509

mln EUR.

111 mil € (2014) and 160 mil. €

(2013)

Long term

agreement on

energy

efficiency in

ETS companies

(MEE)

NL Agency (now RVO) reported costs of 19,5 mln.

EUR for the 2008-12 period, while MEE companies

(aggregate estimate) spend 1,5 mln EUR in 2010-12

period.

N/A

Long term

agreements

Executive costs of the scheme (operated by RVO)

amounted up to 15,3 mln. EUR per annum

N/A

Policy mix

• Taxes complement other policies (even if not mentioned under Article 7 notifications)

• EEOs are effectively subsidies (to users)• Subsidies and loans of different types are

unlikely to be complementary• Information programmes complement

other instruments• Standards and norms underpin other

policies

Specificity of policy instruments

Combinations of policies

Conclusions from mixes

• Purchase subsidies are used a lot and combined with other policies• Regulations are combined with other instrument types• The same applies to voluntary agreements• Standards and norms are set at EU level and therefore do not

appear• Taxation is not used in most countries• Article 7 design does not encourage policies that mainly support

early stage innovation• The overall policy mix is more than just Article 7 policies – it also

includes EU level policies• Effectiveness is not the only criterion• Taxation, in particular, is limited by political acceptability• Subsidies, including EEOs, are used more

Complementarities/overlaps

Policy type Summary of Interaction with other policies

Energy Efficiency Obligations Overlapping with tax rebates, grants, loans and on-bill

finance. Neutral or complementary with other policies.

Grants Overlapping with EEOs, tax rebates, loans and on-bill finance.

Neutral or complementary with other policies.

Loans Overlapping with EEOs, grants, tax rebates and on-bill

finance. Neutral or complementary with other policies.

on-bill finance Overlapping with EEOs, grants, loans and on-bill finance.

Neutral or complementary with other policies.

tax rebates Overlapping with EEOs, grants, loans and on-bill finance.

Neutral or complementary with other policies.

Regulations Neutral or complementary with all policies except voluntary

agreements

voluntary agreements Neutral or complementary with all policies except EEO and

regulations.

energy or CO2 taxes Always complementary

standards and norms Always complementary

energy labelling schemes Always complementary

Information, advice, billing

feedback, smart metering

Always complementary

Factors for costs

• Savings potential and autonomous rate• Energy market structure and role of

ESCOs• Technology list for deemed savings to be

realistic and not exclusive• Time frame for implementation (roughly 2

years for setting up legal arrangements)• Target group determines costs (e.g. fuel

poverty?)

Program costs EEOs vs auctions

Sources: Rosenow (2016), ACEEE (2014, 2015); RAP (2016)

Note: not corrected for different discount rates used

Efficiency

On costs• majority of savings will originate from low cost energy

measures in the residential sector, no retrofitting• Opening the scope (as for instance Industry for

Denmark, or fuel suppliers in France) can help achieving a more ambitious objective

• introducing tools and incentives to support third party financing, among which there is the guaranteed fund introduced in the transposition of the EED directive

• Address fuel poverty via the EEF

Cost Recovery

For obligated energy providers in competitive energy markets, there are two possible cost recovery paths:• Option 1: the costs of meeting energy savings targets

are treated as a cost of doing business and energy providers adjust their prices to recover these costs; or

• Option 2: the costs of meeting energy savings targets are either funded by the government through direct budgetary appropriations, or price surcharges are imposed on regulated “wires and pipes” energy providers.

Cost recovery

Country Cost recovery

Belgium Regulator approves cost recovery through tariffs

Canada/Ontario Collected from all ratepayers based on energy use or contribution to peak

demand

China City utility surcharge, revenue from differential electricity prices, and other

funding sources

Denmark Cost recovery through tariffs

France Cost recovery through tariffs is possible but has yet to be allowed

Italy Fixed contribution to cost recovery through a tariff contribution; transport

measures not eligible for cost recovery

US Minesotta Energy efficiency cost-recovery charge determined in rate cases

US New York System benefits charges, and funding from carbon market

US Texas Obligated utilities recover program costs through base rates or cost recovery

tariffs

Cost recovery option parameters

• obligated party (suppliers and/or distributors), • obligation on all or selected energy carriers,

openness of the market (expressed in number of companies) and expectations for newcomers,

• links of the EEO scheme to either funding mechanism (such as a certificate market) or other tools (such as subsidies, tenders and others),

• and availability of low cost energy saving options.

Administrative costs

• Low compared to program costs

Country Administrative Costs(% of overall programme costs)

UK 0.2%

Denmark 0.3%

France 0.4%

Italy 1.4%

Source: RAP (2016)

Cost of EEO schemes

Figures out of early evaluation (capital and administrative costs)..• France: 0.4 Eurocent / kWh • Denmark: 0.45 Eurocent / kWh • Italy: 1.7 Eurocent / kWh • UK: 0.7 Eurocent / kWh (Lees 2012, Rosenow and Galvin 2013)BELOW energy price so highly cost effective!

Article 7 EED platform

http://www.article7eed.eu

Energy Saving Policies and Energy Efficiency Obligation Scheme

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For further information, please contact us

vlasis@ieecp.orgInstitute for European Energy and Climate Policy, The HagueTel: +31645380712