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Rough Water Ahead for Europe’s Energy Efficiency Efforts

— June 17, 2014

Despite the heightened focus on energy security following events in Ukraine, recent election results, which showed a rise in anti-European Union (EU) voting, promise a challenging period ahead for energy efficiency advocates.

According to the European Alliance for Energy Efficiency in Buildings (EuroACE), the month of June, for Europe, brings Energy Dependence Day – the day the EU effectively runs out of indigenous energy and must rely on foreign imports.  With 54% of final energy consumption in 2011 imported, June 18 marked the day Europe used up domestic resources and turned to imports to fulfil its energy demands.  As imports increase, Energy Dependence Day tends to arrive earlier in the year (this year, it’s expected to happen in the second half of June).  In 1995, when Europe only imported 43% of its final energy, Energy Dependence Day came 38 days later, on July 26.

Researchers at Oxfam have suggested that even if the EU fulfils its multiple climate and energy targets, Europe’s energy bill could still surge from €400 billion in 2013 to €500 billion ($543 billion-$679 billion) by 2030 on account of price increases.  Energy demand alone is expected to increase 27% by 2030.  Should Europe fail to meet the agreed targets, it’s difficult to predict how much higher the bill could escalate.

Securing Europe

Energy efficiency surely has a major role to play in any strategy addressing the continent’s mounting import bill.  According to ECOFYS, improving energy efficiency by 40%, together with an energy mix boasting 45% renewables, could save €396 per person annually.  In May, EuroACE campaigned for such a figure as part of a binding target on energy efficiency.

Yet, in the latest European Energy Security Strategy, hastily published in response to the situation in Ukraine, energy efficiency is largely neglected.  Instead, attention centers on securing alternative gas sources in the form of domestic shale reserves or liquefied natural gas (LNG) from overseas.

A Fragmented Landscape

While Russia flexes its muscles on Europe’s gas supply, the political will for collective action in Europe has been severely undermined by last month’s European Parliament elections.  Opposition to EU green policy has been fast to seize the recent election results as evidence of resistance.  On June 2, Energy UK cited the results as vindication for a shift away from the existing “emotion driven and expensive agenda.”

So, how likely is it that a previously elusive binding target on energy efficiency can be legislated under one of the most anti-EU European Parliaments yet? It’s certainly difficult to remain optimistic, despite the urgency political events have generated.  As I discussed in my previous blog, the recent compilation of National Energy Efficiency Action Plans has largely been deemed insufficient by critics, suggesting a lack of engagement among member states.

Yet, buildings account for 40% of Europe’s final energy consumption.  A binding target addressing Europe’s building stock and its energy-saving potential would be one of the most cost-effective ways of reducing Europe’s energy dependence – surely something everyone in the EU would like to see.  But action speaks louder than words.  So far, words far exceed action on energy efficiency in Europe.

 

Efficiency Directive Could Boost Energy Services in Europe

— May 27, 2014

Last month the United Kingdom published its National Energy Efficiency Action Plan (NEEAP) in compliance with the European Union (EU) Energy Efficiency Directive (EED), which is to be legally implemented by June 5, 2014.  Addressing energy efficiency in the broadest sense, the EED targets a 20% reduction in primary energy consumption by 2020Responsible for 40% of final energy consumption and 36% of greenhouse gas emissions, the building sector constitutes a key target for this directive.

The EED is as remarkable for its comprehensive coverage as it is for its ambitious goals.  Compared to previous measures such as the Energy Performance of Buildings Directive, the EED is distinctive in targeting the existing building stock, not just new construction, and thus engages with an important and previously neglected source of energy consumption.  In formulating their responses, member states must construct long-term renovation strategies that address the specific characteristics of the building stock in their countries.  For companies operating in the smart building sector, the published Energy Efficiency Plans (EEPs) hint at some potentially promising market developments.

Frame in Place

Unfortunately, all but three EEPs (from Denmark, the Republic of Ireland, and Croatia) were criticized in a report published by the Coalition for Energy Savings for lacking detail, miscalculating savings targets, and relying heavily on exemptions, collectively reducing the potential annual decrease in primary energy consumption to 0.8% from the targeted 1.5%.  For the United Kingdom, traditionally considered a leading market for energy efficiency in Europe, such a finding is disappointing.  Yet, the plans do illuminate the routes that EU member states are choosing to pursue to accomplish their energy efficiency goals.  Significantly, the U.K. NEEAP advocates the establishment and expansion of the energy services sector as a cornerstone aspect in realizing a low carbon building stock.  As a nascent business model in Europe, the policy attention directed at energy performance contracting (EPC) could help energy services across Europe.

To promote the EPC model, especially among small- and medium-sized enterprises, the U.K. government will provide additional information on typical contracts, maintain a list of accredited EPC providers with the development of quality labels, and deliver a guide to best EPC practices.  Referring to Greater London Authority’s innovative RE:FIT pilot, in which public organizations use energy service companies (ESCOs) to implement energy efficiency measures along with boarder energy management plans, the U.K. NEEAP asserts government ambitions to roll the RE:FIT program out nationally.  That could significantly expand the market opportunity for ESCOs.

Thus, even though national responses to the EED have been criticized for their shortcomings, they represent an unprecedented framework for addressing the energy consumption of Europe’s aging buildings.  In the United Kingdom, this is being translated into favorable terms for the ESCO market.  It will be interesting to see to what degree the EPC model can penetrate the U.K. market.

 

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