As the Energy Union concept begins taking form, it is essential to consider how to effectively meet the goals of an integrated, secure, competitive, and sustainable energy market. A new policy brief by the Regulatory Assistance Project (RAP) suggests that success of the Energy Union rests on an organizing principle called “Efficiency First”.

The key to this concept, and to a sound Energy Union, is establishing a high-level commitment to systematically identify the multiple decision points where efficiency – including energy efficiency and demand response – is overlooked or undervalued. It further requires establishing concrete policies and measures to ensure that investments happen wherever efficiency is more cost-effective or valuable than equivalent supply-side resources.

Efficiency First: Key points for the Energy Union Communication, sets forth the arguments for an Efficiency First approach and illustrates how this approach fits into the European legislative and regulatory framework. It highlights four areas where applying Efficiency First principles can result in more cost-effective, competitive choices for Europe:

1. Enable energy efficiency and demand response to participate on a level playing field with supply in both national energy markets and cross-border and regional market interactions through improved monitoring and enforcement of existing provisions of the Internal Energy Market, updated rules on capacity markets, and a stronger governance framework.
2. Remove all restrictions and incentives that block investment in efficiency by regulated energy companies, and introduce a least-cost investment standard that requires consideration of Efficiency First, before identifying investment needs in supply-side resources on the national, regional, and EU levels.
3. Closely monitor progress on the EU’s targeted efficiency policies, including the Energy Performance of Buildings Directive, Energy Efficiency Directive (EED), and Ecodesign Directives and, where necessary, launch enforcement actions. Improve guidance on Article 7 of the EED, and extend and strengthen energy efficiency obligations.
4. Fully account for efficiency in energy resource policy development and planning by revisiting discount rates, aligning demand projections across the EU energy landscape to avoid unnecessary investments in fossil fuel infrastructure and bills, and accounting for the multiple benefits of efficiency.

The policy brief elaborates on a December 2014 RAP policy brief – Unlocking the Promise of the Energy Union: “Efficiency First” is Key – which highlights successful Efficiency First policies in power markets in the United States and suggests opportunities to adapt those policies for European markets.