White Certificate, Monitoring and Verification of Energy Saving Goals Wolfgang Eichhammer Fraunhofer Institute for Systems and Innovation Research (ISI) TUEWAS Energy Efficiency Working Group Workshop Chongqing/China 17 – 20 December 2012 ESCO Partner Workshop 19 December 2012

Overview Background Information Potential actors and role of ESCOs What are Energy Efficiency Obligations/White Certificates (EEO/WCert)? What does the new EU Directive on Energy Efficiency specify for EEO/WCert? Which EU Member States have introduced EEO/WCert ? Potential actors and role of ESCOs Monitoring principles EEO/WCert in the landscape of energy efficiency policies Do we need such an instrument? What could be the role of EEO/WCert in the policy landscape for energy efficiency?

What are Energy Efficiency Obligations/White Certificates (EEO/WCert)? Renewables Promotion schemes with fixed quantities Energy Efficiency Obligations/White Certificates (e.g. in UK, France, Italy, …) Quota Systems/ Renewable Portfolios (e.g. USA) „Feed-in Tariffs for energy efficiency (EE-FiT) (not yet existing; analysed for example in Neme/Cowart, 2012) Promotion schemes with fixed prices Feed-in Tariffs (FiT) (e.g. Germany and most EU Member States)

What are Energy Efficiency Obligations/White Certificates (EEO/WCert)? Two key elements: Energy Efficiency Obligations: “Heart” of the promotion scheme Obliged actors have to proof a fixed amount of savings or pay penalties. For the savings he receives certificates The height of the target determines the price of the certificates Trading of the obligation (White Certificates ): Provides flexibility to the obliged party. If compliance costs with the obligation are high the obliged party could buy certificates from a party with lower compliance cost (or pay penalties). There are schemes in Europe where trading is a very minor element so far, e.g. in the UK. The need for trading may increase with stricter obligations.

What does the new EU Directive on Energy Efficiency specify for EEO/WCert? Energy Efficiency Directive EED from Nov. 2012 EU: 20% reduction in primary energy (1474 Mtoe in 2020, down from projected 1843 Mtoe. 2010: 1759 Mtoe) Member States: have to set indicative targets that contribute to achieve this overall target (Art. 3)

What does the new EU Directive on Energy Efficiency specify for EEO/WCert? Main provisons for EEO/WCert (Art. 7) Member States: shall set up an energy efficiency obligation scheme Obliged: energy distributors and/or retail energy sales companies Target: 2014- 2020 1,5 % new savings of annual energy sales to final customers averaged over most recent 3-years period before 2013. 25% of the target may be achieved as follows: Member States have flexibility regarding how the calculated quantity of new savings is phased over the period. Transport may be excluded by Member States as well as ETS industries (Discount on target from removing certain energy uses) Allow energy savings achieved in the energy transformation, distribution and transmission sectors, including efficient district heating and cooling infrastructure (allow for supply side savings) Count energy savings resulting from individual actions newly implemented since 31 December 2008 (Early Action)

Which EU Member States have introduced EEO/WCert ?

Potential actors in EEO/Wcert and role of ESCOs

Monitoring principles The process of actually accrediting energy savings is a trade-off between the relative value of those energy savings and the costs involved in measuring them. Projects with the larger energy users usually save a significant amount of energy and can often afford to have the energy saving measures monitored for actual savings achieved. At the other extreme in households and small businesses, the projects will have low energy saving values and measuring on an individual basis would be prohibitively expensive. Consequently, for small energy users, a simple approach has been developed to keep the monitoring and verification costs down. This is known as deemed energy savings or ex-ante savings and operates by using “approved” measures for which there are well established, independent energy saving values for that measure.

Monitoring principles The monitoring and verification process then becomes a simple “measure count” of collecting the names and addresses of the homes that have been insulated and performing a random “dip check” of the submitted claims for energy savings by contacting the householder. This is accompanied by a random check on the quality of installation (important for insulation and heating measures) to ensure that the quality of the installation merits the deemed savings. Alternative approach dealing with situations between the deemed energy savings and the actual measured savings: scaled engineering estimates.

Do we need such an instrument? The positive aspects of ESO/WCert: At a time when Member States are facing difficult financial problems with public expenditure, the EEO approach avoids Member States having to spend public money to stimulate energy efficiency. The costs incurred by energy companies (typically a few % of the energy bill) are ultimately passed back to the end use customer and this is consistent with the polluter pays principle Financing much more stable than budgets from the state or financing from the ETS revenues Member States with EEOs see them as a major policy initiative to meet their NEEAPs and climate change commitments and are continuing to expand their scope; there is growing interest from other Member States EEOs result in more energy savings than would be obtained from an equivalent rise in the price of energy alone Spurs ESCO markets Spur cost degression of energy efficient technologies

Do we need such an instrument? The negative aspects of EEO/WCert : Was so far mainly concentrating on the residential sector but in Denmark also industrial energy efficiency measures are undertaken. EEO schemes so far deliver frequently low-hanging fruits (e.g. shallow insulation measures) but with a proper design also on long-term energy efficiency improvements May create strong overlaps with existing policies for energy efficiency (issue of baseline)

What could be the role of EEO/WCert in the policy landscape for energy efficiency?

Path 1: Further development of existing instruments Current Target

Path 2a: Limited introduction of new instruments Current Target Im Pfad 2a dient die Einsparquote als ergänzendes Instrument für geeignete Teilbereiche. Flankiert wird das Instrument dabei von einer klassischen, haushaltsbasierten Förderung.

Path 2b: Limited introduction of new instruments Current Target Pfad 2b : Breiter Einsatz eines nicht haushaltsfinanzierten Effizienzfonds vorstellbar, der die haushaltsabhängige Förderung komplett ersetzt.

Path 2c: Limited introduction of new instruments Current Target Auch ohne haushaltsabhängige Förderung kommt der Pfad 2c aus, in dem für den Bereich der standardisierbaren Maßnahmen eine Einsparquote zum Einsatz kommt, für die anderen Bereiche jedoch ein Effizienzfonds. Hierbei könnten fließende Grenzen zwischen den Instrumenten auch dergestalt umgesetzt werden, dass verpflichtete Unternehmen durch Zahlung einer Umlage von der Einsparverpflichtung befreit werden, oder umgekehrt von einer verpflichteten Umlage durch den Nachweis von Einsparungen ausgenommen werden.

Path 3: Overlap of policy instruments and broad impact Current Target