White certificate or Tradable energy efficiency certificates WP2 2.4 - 18/1/Enel.si 2013

European Framework of EEC On 25 October 2012, the EU adopted the Directive 2012/27/EU on energy efficiency. This Directive establishes a common framework of measures for the promotion of energy efficiency within the Union in order to ensure the achievement of the Union’s 2020 20 % headline target on energy efficiency. In Directive about white certificate: “ An assessment of the possibility of establishing a ‘white certificate’ scheme at Union level has shown that, in the current situation, such a system would create excessive administrative costs and that there is a risk that energy savings would be concentrated in a number of Member States and not introduced across the Union. The objective of such a Union-level scheme could be better achieved, at least at this stage, by means of national energy efficiency obligation schemes for energy utilities or other alternative policy measures that achieve the same amount of energy savings. It is appropriate for the level of ambition of such schemes to be established in a common framework at Union level while providing significant flexibility to Member States to take fully into account the national organisation of market actors, the specific context of the energy sector and final customers’ habits. The common framework should give energy utilities the option of offering energy services to all final customers, not only to those to whom they sell energy. This increases competition in the energy market because energy utilities can differentiate their product by providing complementary energy services. The common framework should allow Member States to include requirements in their national scheme that pursue a social aim, in particular in order to ensure that vulnerable customers have access to the benefits of higher energy efficiency. Member States should determine, on the basis of objective and non-discriminatory criteria, which energy distributors or retail energy sales companies should be obliged to achieve the end-use energy savings target laid down in this Directive. “ With the increasing importance of establishing long-term synergies between end-use energy efficiency and energy market opening a number of EU Member States have embarked on implementing energy efficiency policy portfolios that consist of energy saving obligations imposed on some category of energy market operators eventually coupled with a trading system for energy efficiency measures resulting in certified energy savings (tradable white certificates, TWCs). The energy saving obligations are also known as supplier obligations, distributor obligations or utility obligations and, in the US context, energy efficiency resource standards. Obligations can be coupled with various trading options: trading of certified energy savings, trading of eligible measures without formal certification, or trading of obligations.

White Certificate experience (EEC) Prior to the adoption of the Directive some European countries had already implemented a law on "white certificates" (WC) or "certificates of energy efficiency“ (EEC).

European Framework of EEC Country involved: UK: The British scheme only covers the household sector Italy: The scope in extended to all and-users sector France: The scope in extended to all and-users sector exept the installations covered by the E.U. ETS Actors involved: With the increasing importance of establishing long-term synergies between end-use energy efficiency and energy market opening a number of EU Member States have embarked on implementing energy efficiency policy portfolios that consist of energy saving obligations imposed on some category of energy market operators eventually coupled with a trading system for energy efficiency measures resulting in certified energy savings (tradable white certificates, TWCs). The energy saving obligations are also known as supplier obligations, distributor obligations or utility obligations and, in the US context, energy efficiency resource standards. Obligations can be coupled with various trading options: trading of certified energy savings, trading of eligible measures without formal certification, or trading of obligations.

Actors Involved 1/2 Obliget energy Company UK:The obbligation is born by energy supplies (only energy and gas) (about 6 company) Italy:The obbligation is placed on elecricity and gas distributor (about 30 company – Enel Distribuzione is one of that) France:The obbligation is born by energy supplies (supplaies of all type of final energy (about 2500 company)

Actors Involved 2/2 Energy Service Company (E.S.Co)1 Energy Service Provider (ESPs)1 Energy distributors or Retail energy sales companies ESA provider1 Customers Delivers energy services and/or other energy efficiency improvement measures in a user's facility Coordination of ESPs Companies who make the energy efficiency measures proposed by the ESCO - eg. Enel.si's franchisee Companies involved to fund Customer Care management and also providing Electricity and Gas Building - Residential - Tertiary Industrials - manufacturing Industry Enel.si is an Esco with a strong position in the small-scale projects on the retail market through ESPs Opportunity to create partnerships with banks and deployment agreements 1 provided for by Legislative Decree 30 May 2008, No 115 "Implementation of Directive 2006/32/CE”

The Italian white certificates scheme

The Italian white certificates scheme The Italian white certificates scheme took effect in January 2005. The command and control component of the scheme: the energy efficiency obligation, was introduced with the implementation of the first European directives on the liberalization of the electricity and natural gas market in the form of a public service obligation (PSO) raised on distribution companies. The market-based component, the trading of energy efficiency certificates (EECs), was introduced by the government in mid-2005, together with the definition of the level of the obligation and of the other elements of the policy package.

1. develop “in-house” energy efficiency projects Obliged distributors have 4 options to comply with their Energy Efficiency Targets : 1. develop “in-house” energy efficiency projects 2. develop energy efficiency projects jointly with third parties (like Esco) 3. buy “tradable white certificates” by third parties (Esco o other operator in EEC Market) 4. pay the sanction

Definition A “white certificate (WC) or Energy Efficiency Certificate (EEC)”: attests the achievement of an energy saving target (e.g.: kwh saved, ton(s) of oil equivalent saved, cubic meter(s) of natural gas saved) can be traded as a commodity in a specific market or over the counter (OTC)

Why certificate trading? The principle is well know in the environmental economic literature and has already been applied to a number of policy issues: reduction of polluting emissions (i.e. emission trading schemes), renewable sources development (green certificates schemes), etc. The possibility to trade certificates will guarantee, at least in principle, that savings will occur where it is more economic: parties with relatively high marginal costs of saving energy will be able to buy certificates from parties capable to realize savings at relatively lower marginal costs; as a result, the overall cost of meeting a certain target should be minimized The scheme thus combines the certainty of results (typical of “command and control” regulation) with the economic efficiency of market-based instruments

Projects evaluation The measurement of the primary energy savings achieved by each project is carried out fooloiwng three evaluation approahces developed by The Italian EEC system : a) for projects for which expected savings are reasonably well known a default approach is used, which allows to calculate total net energy savings produced only on the basis of the number of units installed (e.g. number of Compact Led lights); no on-field measurement is required for those projects; b) for projects whose impact is likely to vary according to a limited number of parameters of usage (e.g. number of hours of usage), an engineering approach is used whereby net savings are computed via a pre-defined algorithm and the direct measurement only of those parameters which are likely to vary on a case-by case basis; c) for projects for which neither of the two above mentioned approaches apply, The EEC system requests a detailed energy monitoring plan which has to meet pre-defined criteria and is subject to pre-approval

The cost-recovery mechanism Costs born by distributors may be recovered via electricity and gas tariffs according to criteria and mechanisms defined by Italian Energy Autority : obliged distributors, up to the target 80 €/unit of primary energy saved via energy efficiency improvements in electricity and natural gas uses flat and technology-neutral updated on an annual basis

Pasquale Monti Enel.si pasquale.monti@enel.com

BACKUP

Esco Definition Energy service companies (ESCOs) are large energy services firms that provide turnkey engineering, procurement, and construction solutions to implement EE projects. ESCOs offer performance contracts, primarily long-term guaranteed energy savings agreements, and have the technical and financial resources to carry out complex design / build EE projects as well as the ability to provide ongoing maintenance and monitoring services. In same cases sell electric energy and natural gas In Italian EEC system ESCo can generate White Certificate

ESP Definition Energy Service Providers (ESPs) consist of small-and medium-sized firms that offer a range of technical and engineering services to identify and implement EE projects. ESPs are differentiated from ESCOs in that they are independent firms not associated with a specific technology and typically do not provide long term performance guarantees due to a limited tolerance for risk exposure and small balance sheet ESPs that serve the commercial and industrial markets typically structure their business offerings around an individual EE measure and cover a limited geographic area. In many instances, ESPs act as subcontractors on ESCO-implemented projects and accordingly have a similar geographic footprint to ESCOs themselves.