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Despite EU Revisions, Energy Efficiency Will Thrive

Eric Bloom — June 29, 2012

The status of one of the European Union’s keystone energy efficiency laws, the Energy Efficiency Directive, has been in flux over the last few months, as my colleague Eric Woods discussed in a recent blog.  The Energy Efficiency Directive, launched a year ago, gave legal teeth to the EU’s 20-20-20 targets, by obliging energy retailers to reduce their sales by 1.5% per year, among other measures.

That provision has been under revision over the last few months through amendments proposed by the European Council.  Most of the proposed amendments have focused on exempting certain customers or sectors on the basis that existing energy efficiency rules, such as the EU Emissions Trading Scheme, are already in place.  The effect has been an erosion of the original 20% energy reduction goal.

On one hand, this could be viewed as a considerable setback that will reduce the potential for energy efficiency activity in Europe.  To some extent, it will – as Eric wrote, the law is likely to result in an energy reduction by 2020 of only 17%.  And future amendments are by no means out of the question – in fact, the Energy Efficiency Directive itself was a replacement for erstwhile policies such as the Energy Services Directive, which encompassed similar but less aggressive energy efficiency goals.

On the other hand, the amount of energy efficiency investment over the next decade is expected to grow steadily.  As described in our recently published report, “Energy Efficiency Retrofits for Commercial and Public Buildings,” the market for energy efficiency retrofits, including energy services, HVAC and lighting system upgrades, and a range of other services, will grow from $35 billion today to over $55 billion by 2020.

 

Energy Efficiency Retrofit Revenue, Western Europe, 2011-2020

(Source: Pike Research)

 

Regulation plays an important role in driving investment in energy efficiency in Europe, and the Energy Efficiency Directive is one of many policy instruments at both the EU and national levels that are promoting energy efficiency improvements in buildings.  However, the market is also further bolstered by necessary building renovations, which virtually always yield more efficient building performance, as well as voluntary efforts by public and private organizations to reduce their energy consumption through efficiency.

Moreover, as standards such as the ISO 50001 energy management standard become more commonplace, the industry as a whole will shift its focus from building efficient new buildings to making existing buildings more efficient, leading to growing opportunity for the energy efficiency business.  So despite the dilution of the Energy Efficiency Directive, there is good reason to expect an expanding market for energy efficiency services in Europe.

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