Efficiency First: From Principle to Practice


New study presents real world examples of Efficiency First from across Europe

The EU’s energy infrastructure faces numerous challenges over the next decades. It needs to be decarbonised whilst ensuring the competitiveness of EU industry, providing energy security, addressing energy poverty, and empowering consumers, who play a crucial part in the energy system of the future. Getting those choices right is key for ensuring a sustainable, fair, and affordable and secure energy future. “Efficiency First” delivers on all three.

RAP, E3G, and Client Earth have issued a new report that translates the principle of Efficiency First into practice and asks: Is Efficiency First entirely new to Europe? How would applying the principle look in practice?

Efficiency First is a principle applied to policymaking, planning, and investment in the energy sector. Put simply, it prioritizes investments in customer-side efficiency resources (including end-use energy efficiency and demand response) whenever they would cost less, or deliver more value, than investing in energy infrastructure, fuels, and supply alone.

At first glance, this is purely a common-sense policy—public policy should promote end-use efficiency whenever saving energy or shifting its use in time costs less or delivers greater value than conventional supply-side options. Does this happen automatically? Unfortunately, no. On the demand side, investments in efficient solutions are impeded by numerous market barriers to individual action; and on the supply side, industry traditions, business models, and regulatory practices have always favoured, and continue to favour, fossil-fuel-based energy infrastructure and sales over lower sales and energy-saving technologies.

As it turns out, the practice of using efficiency as an energy system resource is not new in Europe. There are many examples where Efficiency First is already happening across the EU because it is economically advantageous, simpler to implement, and delivers a wide range of energy and non-energy benefits. Our analysis illustrates how Efficiency First has been implemented as a system resource within the context of local energy planning and investment and in broader climate and energy policy in Europe.

However, examples are easier to find in some places than in others. Experiences differ from one EU Member State to another and even between different regions or cities within the same country. Even where examples have been found, they are often not driven by an overarching framework incentivizing an Efficiency First approach, but by specific actors who saw potential in using a different, more innovative approach.

This mixed uptake of Efficiency First is the result of insufficient integration of the principle into the policy framework across EU Member States and at the EU level. In turn, even though we clearly know in the EU how to put Efficiency First in practice, it has not been applied consistently or to a sufficient degree. What can be done to make Efficiency First a reality in the Energy Union, EU Member States, regions, and cities? We offer three avenues for change, although there are many more:

  1. Efficiency First should be at the heart of the 2030 climate and energy policy framework. There is no single policy lever for Efficiency First. Decisions that affect energy systems are made by EU policymakers, national and local governments, regulators, network operators, and energy providers. If each of these has a process in place to prioritise efficiency, the system as a whole will deliver. The 2016 winter package of energy legislation offers a unique opportunity to embed Efficiency First across the legislative framework governing the Energy Union.
  2. There are already good examples, some of which are discussed in the report, where demand-side solutions have been deployed to avoid and defer costly supply-side investment. In many cases, this was made possible through regulatory changes. Appropriate regulation would require network operators to consistently evaluate all cost-effective resources on the demand as well as the supply side. Furthermore, their revenues should be linked to specific performance criteria, not energy sales.
  3. Efficiency First could and should play a much bigger role in all national plans and reporting within the Energy Union. These plans should include projections of energy demand out to 2030 and 2050, in line with energy efficiency targets. Governments should set out a transparent, comparative assessment of potential supply- and demand-side investments. At the regional level, more EU support is needed, both technical and financial, to develop a better pipeline of bankable energy efficiency projects. Regional governments often have jurisdiction over heating infrastructure. Cities need a formal role in urban planning for heating, cooling, and electricity. They also need accounting and investment rules that give them greater leeway to invest in energy efficiency.

Efficiency First can and has been done in Europe. There are many good examples of applying this approach in practice and we can draw on this rich experience going forward. Making Efficiency First a reality across the Energy Union requires effort across the political landscape that governs the energy system. Ultimately, this means a shift in how we think about energy and climate policy. This is clearly not an easy ask, but the benefits of putting efficiency first and the ambitious energy and climate goals in place demand that we take the concept seriously. It can be done and has been done, but we need to create high-level governance mechanisms and sectoral decision-making rules to ensure that the many benefits of end-use demand management are actually delivered to European economies, energy systems, families, and businesses. With major reforms underway toward meeting 2030 energy and climate goals, the opportunity to put Efficiency First has never been greater.