Navigant Research Blog

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.


Winter Coming, Europe Looks to Battery Storage

— November 7, 2012

As Europe prepares for the looming winter season of high peak electricity demand, large grid operators and utilities in Europe are increasingly looking to the value of battery storage on the grid.  Several notable projects have emerged this year that highlight a preference for established battery providers and for one battery type: lithium ion.  Each highlights a different potential pathway to market for advanced batteries in Europe.

Italy and Spain, both markets that lie at the edge of the European Union’s emerging Super Grid, are now home to two significant lithium ion battery installations.  In Italy, which imports significant volumes of power, Enel has awarded a contract to NEC for the installation of batteries at a substation in the southern region of Calabria.  While no substantive details about the project have been released, NEC brings nearly a century of experience developing technology and a global presence to the project.  Working directly with the utility Enel highlights one potential pathway through which batteries might populate the grid.

In Spain, renewables developer Acciona has partnered with Saft to pair utility-scale solar with a 560-kilowatt-hour lithium ion battery installation. The falling costs of solar power are driving solar installations globally, but distributed systems pairing solar with batteries have only begun to emerge, thanks to unique financing mechanisms like solar leasing.  What Acciona and Saft are undertaking may highlight what independent power developers can do with bulk solar and utility-scale battery systems, when backed by significant experience and capital.  Acciona’s 2011 revenues exceeded €6 billion.  In this case, the business models for developing merchant power plants that combine renewables and batteries remain unchartered territory.  The coming years will be illustrative to this end.

Providing market experience and technical knowledge, these projects could open the door for battery storage.  With each installation the grid storage industry discovers a new technical or market issue, either resolved or in need of modification.  The pace at which the industry is developing could allow for the emergence of new technologies, ones that may be more cost-effective or technically savvy.

These two projects highlight different approaches to battery storage development, with Enel embodying a growing technical need for storage on the part of utilities.  Conversely, Acciona may offer a glimpse of a merchant developer approach.  Regardless, with these early projects, Saft and NEC are carving out important first-mover positions in the European market, relying on reputations of technical achievement and deep pockets which will help them bridge the gap to the emergence of a commercial market, a market Pike Research believes is still a number of years out.


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