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Efficiency Directive Could Boost Energy Services in Europe

Anna Mitchell — 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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