Boosting the EU energy savings obligation

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As part of the Fit for 55 legislative package, the European Commission proposed a recast of the Energy Efficiency Directive in July 2021. The recast includes significant changes to the Directive’s cornerstone article on the energy savings obligation, Article 7 (now Article 8). As a next step, EU legislators – the European Parliament and the Council of the EU – have to agree on a common text. The energy savings obligation in Article 8 requires EU Member States to trigger a certain amount of energy savings among end users. Getting the specifics of this obligation right is vitally important for Europe’s energy transition.

RAP’s Marion Santini, Samuel Thomas and Louise Sunderland analysed the negotiations on Article 8 on 15 June 2022, to assess three critical requirements: the energy savings rate, the exclusion of fossil fuel technologies and the energy poverty sub-target. They identify the important issues and options for decision-makers who are looking to align the Energy Efficiency Directive with climate neutrality, energy security and equity goals.

Measuring and increasing impact: The next challenge for EU energy efficiency policy measures

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The European Union is entering a crucial decade in its energy transition, with the 55% climate goal representing a step change in ambition. Energy efficiency is expected to play a major role in achieving necessary reductions in energy consumption across buildings, transport and industry. Enacting the Energy Efficiency First principle will require reliable data on the costs and benefits of energy efficiency actions, to ensure that policy measures are as effective as possible. Providing this reliable data is the role of evaluation, measurement and verification.

Yet the current reporting obligations on Member States under the Energy Efficiency Directive (EED) — and Member States’ compliance — do not supply reliable and timely information on the key performance indicator for energy efficiency policy measures: energy savings. This paper recommends improvements in evaluation, measurement and verification practices as a way of increasing the impact of the EED and enabling implementation of the Energy Efficiency First principle.

The paper gives clear guidance for the European Commission and Member States to implement seven recommendations for:

  • Independently evaluating energy savings reported under the EED energy savings obligation.
  • Focusing impact evaluation efforts on assessing the costs and benefits of meeting policy goals.
  • Mandating the piloting of pay-for-performance using metered savings in the buildings sector.
  • Providing clear pathways for accessing individual dwellings’ smart meter data.
  • Mandating the publication of verification reports by Member States every two years, alongside the reporting of energy savings.
  • Facilitating knowledge and expertise sharing on evaluation, measurement and verification across Member States.
  • Regularly assessing the accuracy and consistency of energy savings estimates across Member States.

With the EED being renegotiated, now is the time to make the changes that will enable energy efficiency to play its full role in the energy transition.

Fit and fair: The case for a European fund for targeted renovation

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This week European Commission Vice President Frans Timmermans revealed that any extension of carbon pricing to heating and transport would be accompanied by a “climate action social fund.” He states the purpose of this fund is to compensate for possible adverse effects, especially for the most vulnerable citizens.

Our new report Pricing is just the Icing assesses these impacts and carbon pricing’s role in the buildings sector. We propose ambitious regulatory reform and a socially focussed renovation fund — not unlike what Timmermans has proposed this week — supported by a gradual and measured introduction of carbon pricing, either at an EU or member state level.

Social climate spending is needed regardless of carbon pricing

Timmermans explains the necessity for this fund as a consequence of the introduction of carbon pricing, but it is needed and justified even if the Commission does not proceed with the pricing proposals. Europe has already set itself social objectives for the energy transition to be “just and inclusive” and for the Renovation Wave to alleviate energy poverty this decade.

Achieving these obligations will require significant new socially focussed climate measures. The introduction of carbon pricing would increase the need for such assistance and should accelerate the rate at which funding is dispersed.

The impact of the Fit for 55 Package will be felt by Europeans like no previous set of climate measures. The European Commission expects emissions from the residential buildings sector to fall by more than 60% by 2030 from 2015 levels as the Renovation Wave builds over the course of the decade.

To ensure that this transition delivers on the EU’s social goals and turns the tide on rising inequalities, there are opportunities across the entire Fit for 55 package to ensure that the benefits of the transition are available to low-income and vulnerable citizens.

Carbon pricing plays only a small role in buildings’ sector decarbonisation

In our report, we assess the role of carbon pricing in buildings decarbonisation. We examine the options open to the Commission, including extending the Emissions Trading System (ETS) or implementing a parallel ETS for the buildings sector. We conclude that neither of these options would be best for the sector.

We analyse how higher energy prices have a regressive impact in many different ways, including geographical impacts, income-based impacts and impacts based on a range of other factors, including efficiency of buildings, access to clean fuel alternatives and other horizontal inequalities.

To shield low-income and otherwise heavily burdened households from the impact of the carbon price on bills, some direct payments to support incomes or reduce energy bills will be required in the short term.

Efforts should be concentrated, however, on low-carbon investment. This permanently reduces heating bills, brings the full benefits of energy efficiency and decarbonisation, and reduces the need for ongoing income or energy bill support. These objectives require up-front investment, which should be a major priority for the new European fund.

Structuring a social renovation fund

This fund should contribute significant additional, dedicated funding for renovations targeted for specific household groups. Many European funds can be used for renovation but not many must be used for renovation.

Buildings therefore have to compete with other decarbonisation or recovery projects, which are often more centralised and rely on fewer dispersed stakeholders. Renovation finds it hard to compete.

Many European funds can be used for renovation but not many must be used for renovation.

The fund should frontload spending as one of the key policy measures to alleviate energy poverty this decade. Funding should ensure as many households as possible are helped to decarbonise in advance of any carbon pricing or mandatory renovations required by minimum energy performance standards.

The fund’s design should meet the following priorities:

  • Adequate to the scale of the need. All possible sources of funding should also be pursued to adequately resource the fund, including revenues from the existing EU ETS. If pricing is extended to the buildings and transport sectors, the equivalent of 100% of the new revenues at a minimum should be ringfenced, not as Timmerman’s proposes, “part of the revenues generated.”
  • Target all households in need, not just those in poorer geographical areas. Funding should be available to those already struggling with their energy bills and who will be additionally burdened by the carbon price. This includes households already in energy poverty, those on low-income who will be disproportionately burdened but have no investment ability to decarbonise, and those living in the worst-performing homes, using high-carbon fuels who will also experience high burdens. These households live in almost every community in Europe. Existing approaches to targeting European funds commonly use geographical eligibility — the Modernisation Fund is available to the 10 lowest income Member States and the Just Transition Fund is available to coal and carbon-intensive regions. Following this approach would not make funds available to all households who need them.
  • Reach delivery bodies at the right geographical/administrative level. Funding should be available where it can be used most effectively. For energy poverty alleviation, support is often best delivered at the local level, through local authorities, integrated renovation services and one-stop shops. Funding could be combined with technical assistance to cities, regions or communities.
  • Aim for swift dispersal. Funding should be dispersed to those that can use it quickly. Given the urgency of the climate and social goals this decade, there is no time to waste. The fund should be structured to ensure that money is released as quickly as possible and frontloaded to increase impact this decade. Assessment procedures and granting should be as streamlined as possible. To enable local delivery organisations and supply chains to scale up, and aggregators to build business models, funding should be available in short lead times.
  • Secure social impact. Funding should be governed by proportionate but adequate oversight and verification of impact. Given the scale of the funds that should be available and the granular level at which they will be spent, defining eligibility criteria, application and dispersal processes, reporting and verification all needs careful attention. They should ensure robustness and value for money and that the bureaucracy does not create barriers to the target recipients.

The commitment from the Commission to create a social fund is very welcome. Its design will be crucial. If it is dedicated to building renovation and is sufficiently large, targeted and quickly dispersed, the fund can significantly contribute to both its climate and social objectives.

A version of this article originally appeared in Euractiv.

Photo courtesy of Metro Centric / Flickr.

Energy efficiency: Secret ingredient that can make Turkey’s energy transition a success

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At a recent pan-European energy efficiency conference in Paris, representatives of a large energy service company shared the well-kept secret of how they source energy-efficient heating technology to install in Europe: They get it from Turkey.

Even though Turkey may not come to mind as a global leader in energy efficiency, energy efficiency has been on the country’s agenda for a long time.

Turkey’s National Energy Efficiency Action Plan aims for a 14% reduction in total primary energy demand by 2023, compared to 2017 levels. The plan covers the energy sector’s entire value chain, from improving supply-side efficiency to reducing transmission and distribution grid losses and demand-side reductions.

But we know that setting targets is only the first step – meeting them is another. To make Turkey’s energy efficiency action plan a reality, we will need a whole range of new business models and market instruments that, in turn, can provide insight into their energy-saving impacts across the entire value chain of the energy sector, allowing for even more innovation.

This process will provide keen insight to Turkey for compiling an effective plan for what happens after 2023.

Such market innovation is an important step for tapping the country’s large potential for energy efficiency investments and can build on the long history of knowledge that Turkey has developed on energy efficiency technology. Turkey is currently exporting energy efficiency technologies with a value of around 20 billion euros per annum.

Where are the savings to be found?

So how large is the energy-saving opportunity in Turkey? A recent study by the SHURA Energy Transition Center shows there is an additional 10% cost-effective electricity saving potential across the economy, compared to a baseline that follows the Turkish government’s demand projections for 2030.

The absolute savings amount to nearly 49 terawatt-hours of annual electricity demand. This equals the current electricity consumption of 90% of the country’s households – that is, the usage of 18 million families.

The estimated savings are shared across two main end-use sectors: The manufacturing industry accounts for 45% and buildings represent 32%. The remaining 23% comes from other sources, such as reducing losses in the distribution system.

Avoiding such losses is particularly important for Turkey because of the scale of inefficiency in the grid: The country-wide average for distribution system losses is 10% of all electricity distributed, which is substantially more than most European countries.

Much of the total savings potential in Turkey’s power system is centred around a few key technologies that are well proven: electrified heating and cooling, and efficient lighting (including street lighting), household and office appliances, and industrial motor systems.

There are also emerging and innovative options, such as smart homes where electricity demand and supply is efficiently managed with new automation and control systems.

SHURA’s technology assessment identifies a portfolio of around 100 options that can be deployed in the coming decade and, what’s most important is that nearly all of these options can be delivered at a cost lower than the cost of the energy they displace.

In other words, for all 100 options, saving electricity is cheaper than supplying electricity.

Overall, SHURA’s report concludes that for each U.S. dollar spent on energy efficiency, there are net benefits of €1.00-€1.24, with all of the positive economic impact this brings.

Further efficiency through decentralised renewables

In a supporting study jointly undertaken with SHURA, RAP shows what is needed to utilise Turkey’s potential of around 10 gigawatts of rooftop solar PV systems, and then to use the benefits of that potential resource to reduce distribution grid losses.

Turkey currently uses a monthly remuneration system widely known as net metering, where consumers sell the excess electricity their rooftop solar systems produce to the grid to create revenues based on the grid tariff.

This is indeed a crucial step to create an initial market for distributed energy resources. Beyond net metering, there will be the need to implement new models to increase consumer participation in the market, thereby making rooftop solar PV systems more cost effective.

Moreover, increasing market predictability will help utility and distribution system operators to develop new business models, such as flexibility services, to better utilise the benefits from these systems.

The study suggests several strategies for creating a dynamic distributed energy market that is integrated along the power system’s entire value chain.

These strategies include smart electricity tariffs, new business models for distribution system operators and prosumers on the grid, market integration of distributed energy resources, and increased cooperation between the transmission and distribution system operators.

All of these approaches are already practiced elsewhere across the globe. Distributed energy resource markets have already been active for several years in California, Australia and several countries in the European Union.

Turkey’s policymakers need to start planning today for innovative regulation to create new opportunities for the deployment and integration of distributed energy resources.

As the example of the energy service company sourcing its technology from Turkey shows, there are significant export opportunities creating jobs in the clean technology sector.

With the increasing demand for energy efficiency technologies around the world, Turkey has a unique opportunity to become a leader in energy efficiency and the integration of small-scale renewables.

A version of this article originally appeared on Euractiv.

Değer Saygın is the director of the SHURA Energy Transition Center. Dr. Jan Rosenow is the European programme director and a principal at RAP.

Photo Hans Braxmeier via Pixabay.

Article 7 of the Energy Efficiency Directive 3.0: How to maximise the energy efficiency opportunity for climate neutrality

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In its 2030 Climate Target plan, the European Commission suggests raising the ambition of the EU’s energy efficiency policies to reach climate neutrality by 2050. It mentions the possibility of increasing the energy savings obligations under Article 7 of the Energy Efficiency Directive (EED).

This paper provides a rationale for increasing the contribution of EED Article 7 in line with more ambitious energy efficiency and climate goals, as well as recommendations on how to do this.

The paper argues that unless national energy efficiency targets are made binding on Member States during the upcoming EED revision, Article 7 will remain the cornerstone of energy efficiency policies. It shows that Article 7 and EU-level measures are complementary, suggesting that reaching a reinforced 2030 energy efficiency goal would require boosting both types of measures.

The paper recommends to:

  • Increase the energy savings obligation in line with the 2030 and 2050 goals
  • Increase the reliability of energy savings estimates reported by Member States
  • Ensure complementarity between Article 7 and carbon pricing measures
  • Ensure complementarity between Article 7 and the Renovation Wave
  • Align eligibility of individual actions under Article 7 with the 2050 climate goal