Danish-German Energy Efficiency Summit Cost effective policy instruments Obligations on Energy Companies Eoin Lees Senior Advisor RAP Europe 8 th February 2012 The Regulatory Assistance Project 48 Rue de Stassart Building C, BE-1050 Brussels, Belgium Phone: +32 2-894-9300 web: www.raponline.org
White Certificates/EE Obligations Growing global interest - IEA estimate >$10billion/year North America (>50% of USA States), South America (Brazil, Chile, Uruguay), Australia (3 states), China (industrial EEO) and 7 MSs in EU, Started in vertically integrated electricity utilities, expanded to gas utilities, Work in liberalised markets; now on oil & LPG companies providing heating fuels & district heating EU EED proposes as a key policy mechanism impact assessment says that ~ half of EE savings to 2050 could come from this delivery route
Contents Why would energy companies/providers help overcome the barriers to energy efficiency (EE)? Summary of key principles for Energy Efficiency Obligations (EEOs) on energy companies (White Certificate Schemes) Snapshot of EU & recent developments Scale of activity Do EEOs work?
Why Energy Companies? Energy Efficiency (EE) does not happen to the extent that the rational economist would predict due to market barriers Energy companies through EEOs can overcome some of these barriers e.g. technical knowledge of what need to be done, hassle (usually more than 1 trade); lack of capital (subsidies, 100% loans linked to electricity meter also tackle barriers of landlord tenant & selling house after a few years); some parts of energy companies have close relationship with their customers;
White Certificates/EE Obligations Renewable Energy/CO2 Certificates exist because of Government intervention in the market place White Certificates are no different need an energy efficiency obligation All significant EU activities with energy companies & small energy users on energy efficiency are linked to an obligation on some part of the energy company to save energy in their customers premises/homes Open trading of White Certificates can allow for any party (not just obligated energy company) to obtain (verified) certificate of energy saving which can be traded on the open market
How do EU EE Obligations Work? Energy retailer/distributor has obligation to save energy in customers premises/homes; target related to volume of energy supplied/distributed + financial penalties 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 need simple approach to keep M&V costs down use approved measures with well established energy saving values (known as deemed or ex ante savings) Monitoring and verification is a measure count + random audit of submitted claims for energy savings
What Costs are Involved & Who Pays? Cost of energy efficiency measures (energy company subsidies, end customers, landlords, charities, manufacturers etc.) Cost of energy company marketing, sales, reporting, planning etc. (in GB estimate ~18% of their direct costs) Auditing & verifying of energy saving projects and if target met (in GB carried out by Ofgem (energy regulator) and <1% of energy supplier costs) Government sets target every 3 years + research into energy savings (in GB <<Ofgem costs)
How are these Costs Passed Through? If obligation on energy 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 effect, the polluter pays principle applies However, energy saving benefits alone far exceed the costs to consumers
How are they delivered? Mainly by bilateral contracts between obligated energy company and an energy efficiency market actor e.g. insulation company, retailer of appliances, manufacturers, heating installers However, in GB energy companies are establishing heating companies, insulation subsidiaries & microgen (RE); similar developments in Italy In Italian & French White Certificate schemes, accredited parties (not just the obliged energy companies) can earn WCs and these can be subsequently traded Only in Italy has there been significant generation and trading of WCs generated by non obligated parties
EEOs in the EU (2011) Country Belgium - Flanders France Italy GB Denmark Obligated Company Eligible Customers Administrator electricity distributors Energy retailers & importers of transport fuels Residential & non energy intensive industry and service All (including transport) except EU ETS Flemish Government Government electricity & gas distributors All including transport Regulator (AEEG) electricity & gas retailers Residential only Regulator (Ofgem) electricity, gas, oil & heat distributors All except transport Danish Energy Authority
Latest EU Countries to Adopt EEOs Ireland introduced EEO this year on all energy retailers (stationary end uses) & importers of road transport fuels; Polish parliament passed legislation to introduce WC on energy retailers; covers electricity, natural gas and heat providers. Expected impact on energy prices in the region of 1.5 2%. Also alternatives where energy distributors are levied to raise funds for EE; administered by energy regulator (Portugal); administered by regional Governments in Spain 11
Country EEOs in the EU (2008) Nature of saving target Estimated annual spend by companies M and { /head} Belgium Flanders 1st year primary energy 26 {4} France lifetime delivered energy 180 {3} Italy cumulative 5 year primary energy 190 {3} UK lifetime delivered CO2 900 {15} Denmark 1st year delivered energy 25 {5}
Most Activity is in Residential Sector Country Period % energy savings from residential sector Belgium - Flanders 2008 58% (mandated) Denmark 2008 42% France 2006-9 87% Italy 2005-8 83% UK 2005-8 100% (mandated)
EU Residential Energy Savings by End-use Residential Energy Savings by End-use Ita 2005-7 Fra 2006-9 Dk 2008 GB 2005-8 0% 20% 40% 60% 80% 100% Insulation Lighting Heating Appliances Other
Typical Annual Installations in EEOs Country and period EE Measure No of measures/yr France (2006-9) Roof insulation 950,000 Efficient boilers 110,000 Italy (2005-7) GB (2005-8) CFLs 7,000,000 Low flow showerheads 3,150,000 Wall insulation 500,000 Efficient cold appliances 1,250,000
Country Increases in EU EEOs in 2011 Belgium - Flanders >30% Increase over 2008 energy saving activity Denmark >100% France Italy Approx. 300% for previously obligated energy providers No change in new savings but reduction in primary energy conversion factor 15% increase GB 20% increase + extension to end 2012
Italian Comparison to Other Sustainable Energy Options ( AEEG) T.E.E. 1,7 C.V. 9 20 C.E. term odinam ico 22 28 T.F.O. 18 34 C.E. fotov oltaico 25 44 0 10 20 30 40 50 c /kw h Average cost Italian WCs (2005-2009) is 1.7 c /KWh. Cheaper than other incentive mechanisms delivering similar environmental benefits (e.g. green certificates and other types of feed-in tariffs for renewable electricity generation)
Observations on EEOs in the EU Different targets, different end use sectors covered, different obliged actors - reflect local status of energy market, EE history of the energy providers, climate, energy saving opportunities, culture etc. Goals set fairly low, and been achieved at costs below policy makers expectations; energy companies now spending > 2 billion/year; in ~50 operational years experience of EU ECOs, no energy company failed to meet it s overall energy saving target Function in both liberalised energy markets and also where they target monopolistic segments
Is there any evidence that EEOs work 1 In GB natural gas provides 80% of all heating & hot water Prior to 2005 residential gas demand increasing in range 1 to 2% per year But in 2005, 3 important developments which would reduce demand: EEO obligation doubled (72% delivered energy savings in EEO come from insulation measures in gas households); new regulations on boiler replacement meant condensing boilers quickly moved from 36% of the replacement market to >97%; gas price rises for residential customers reduced demand
Is there any evidence that EEOs work 2 Also greater awareness of climate change, behavioural change campaigns etc help reduce gas demand Factors increasing demand were more Degree Days in 2008 & 2009 than in earlier period, so warmer winters not an issue
Is there any evidence that EEOs work 3 British Gas individual annual gas consumption data for 4 million customers for the period 2006-10 Looked at factors affecting demand: > Households, income & tenure of property > External and internal temperatures > Energy efficiency measures installed > Changes in behaviour, lifestyles, increased climate change awareness, energy efficiency advice etc.
Is there any evidence that EEOs work 4 For this 5 year period, conclusions were: Average household consumption fell by 22% over the period!! Annual fall was 4.9% compound Behaviour & lifestyle changes etc. reduced by ~ 2.7%/year Reduction in gas customer demand was 3.3%/year as a direct result of energy efficiency measures (mainly insulation and heating)
Conclusions on EU EEOs Despite wide variation in implementation of EEOs & energy market liberalisation status, they have been successful policy tools MSs with EEOs have evaluated their programmes and expanded them in recent times In the largest EEO, over the last 4 years they are contributing to a significant reduction in residential gas demand (22% average reduction per household) EEOs avoid MS Government having to use public expenditure to stimulate EE relevant to the current financial problems facing MSs