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Category: Energy efficiency

 

Must obligated entities finance (and, potentially, to what extent) energy savings among their final customers in order to be able to count these savings towards their obligation?

 

 

General features – at the first glimpse nothing unusual

 

One of the most publicized component of the European Commission’s Proposal of 22 June 2011 for a Directive of the European Parliament and of the Council on energy efficiency and repealing Directives 2004/8/EC and 2006/32/EC {SEC(2011) 779 final} {SEC(2011) 780 final} (COM(2011) 370 final) - hereinafter referred to as “Proposal” – is the legal obligation to establish energy saving schemes in all Member States.

 

Pursuant to the Article 6(1) of the Proposal, this scheme should ensure that either all energy distributors or all retail energy sales companies operating on the Member State's territory achieve annual energy savings equal to 1.5% of their energy sales, by volume, in the previous year in that Member State excluding energy used in transport.

As the Proposal clearly stresses this amount of energy savings should be achieved by the obligated parties among final customers.

 

MEMO/11/440 of the same date as the Proposal clarified that the said obligation could be achieved by the obligated entities through the implementation of energy efficiency measures such as improving the efficiency of the heating system, installing double glazed windows or insulating roofs, among final energy customers. To achieve these savings the energy companies concerned would have to work with the final energy users (e.g. individual house owners, supermarkets, hospitals). MEMO/11/440 also remarks that energy companies dispose of important commercial information about the energy consumption of their clients that could make them an important actor in the energy savings market but they did not have so far  stimuli to do so.

 

Alternatives – endless possibilities but short time limits

 

Before we go to the further remarks, it should be reserved that despite obligatory character, the scheme rules are extremely  flexible because:

1) each Member State is empowered to devise its own scheme that best meets the national circumstances while following certain common EU requirements (e.g. same level of ambition, certification of savings),

2) Member Sates have also the possibility to propose alternative energy savings mechanisms that lead to the same results but are not based on obligation on energy companies. These could, for example, be funding programmes or voluntary agreements.

 

The annual amount of energy savings achieved through these alternative approaches should be equivalent to those required by the Proposal. There are envisioned, furthermore, short time limits for any decisions as regards optional approaches – detailed propositions must be notified to the European Commission by 1 January 2013 at the latest (the Commission is entitled to refuse such measures or make suggestions for modifications in the 3 months following notification).

 


 

Obligated parties – any form of energy at stake

Among obligated entities MEMO/11/440 enumerates, in principle, companies delivering gas, heating oil or electricity.

 

Interpreting the above mentioned requirements it is worth to be remembered, however, that obligated entity (energy distributors excepting) is every person who sells energy to final customers and the notion of ‘energy’ in the meaning of the Proposal captures practically any form of energy - combustible fuels, heat, renewable energy, electricity being only the most common form thereof (the Proposal refers in that regard to the definition stipulated in Article 2(d) of the Regulation (EC) No 1099/2008 of the European Parliament and of the Council of 22 October 2008 on energy statistics (OJ L 304, 14.11.2008, p. 1, as amended) which covers all forms of energy products).

 

The Proposal in Article 2(7) and (9) contains the exact definitions of, respectively, the energy distributor and the retail energy sales company. Thus, energy distributor under the energy efficiency scheme means a natural or legal person, including a distribution system operator, responsible for transporting energy with a view to its delivery to final customers or to distribution stations that sell energy to final customers, and retail energy sales company means a natural or legal person who sells energy to final customers.

 

Assuming that in order to be encompassed by the new energy efficiency obligations it is sufficient to sell to final customer any form of energy, the projected rules presumably could lead in some cases to unexpected effects. Therefore, the exemption provided for in Article 6(8) is worth considering. The exemption is possible on the basis of Member States decision and may relate to the small energy distributors and small retail energy sales companies, namely those that ‘distribute or sell less than the equivalent of 75 GWh of energy per year, employ fewer than 10 persons or have an annual turnover or annual balance sheet total that does not exceed EUR 2 000 000’. If a Member State takes appropriate decision, the entities mentioned will be exempted from the application of requirements of energy efficiency obligation scheme referred to in Article 6 of the Proposal. Energy produced for self use does not count towards these thresholds.

 



Form of action – certification the only requirement?

 

Pursuant to the legislative instrument, the energy savings have to be achieved by the obligated parties among final customers. In that regard a certain, at the first glimpse, naive question could be raised, namely, how, in what way hypothetic electricity supplier could offer the individual hose owner to insulate the roof of his house or to install double glazed windows in order to achieve the required annual energy savings (equal to 1.5% of energy sales). It could certainly be assumed that the form of, for instance, donation, isn’t the intended effect of the new measure.

 

Helpful in resolving this ambiguity is Article 6(5)(b) of the Proposal, which states that, ‘Within the energy efficiency obligation scheme, Member States may permit obligated parties to count towards their obligation certified energy savings achieved by energy service providers or other third parties; in this case they shall establish an accreditation process that is clear, transparent and open to all market actors, and that aims at minimising the costs of certification’.

 

The interpretation of this provision will be crucial to the practical implementation of the energy efficiency obligation scheme. Many detailed questions emerge as to the practical aspects of the intended measure. One of them is whether obligated entities must finance (and, potentially, to what extent) energy savings among their final customers in order to be able to count these savings towards their obligation. The literal wording of the said provision only stipulates that energy savings could be achieved ‘by energy service providers or other third parties’, it mentions, however, that these savings have to be ‘certified’. Nevertheless, the particulars for the certification process are leaved to the discretion of the Member States and the issue has unspecified character up to now.

 

The explanation that the energy performance contracting (meaning a contractual arrangement between the beneficiary and the provider of an energy efficiency improvement measure, according to which the payment for the investment made by the provider is in relation to a contractually agreed level of energy efficiency improvement or other agreed energy performance criterion, such as financial savings) will be exploited, does not finish definitively the issue. Is it really the intention of the draft directive to allow energy companies to count towards their obligation every energy saving among their customers, no matter who (certification process excepting) made it and who participated in the initial investment?

 

A general remark seems suitable as a temporary conclusion of that thread (the issue is, however, worth of in-depth analysis) that the Proposal is really flexible in this matter and the Member States have in this field a real chance for legislative creativity.

 



Five-year settlement period

 

Article 6(5)(c) of the Proposal stipulates that, ‘Within the energy efficiency obligation scheme, Member States may:

[...]

allow obligated parties to count savings obtained in a given year as if they had instead been obtained in any of the two previous or two following years’.

 

The interpretation of this provision may, to a certain extent, be contentious but to me it is equivalent to the establishment of five-years settlement periods as regards calculations of the respective energy savings.


Short-term savings – discriminated form of energy efficiency measures


It should be noted that under energy efficiency scheme, not all energy efficiency measures have an equal significance. Annex V to the Proposal establishes the list of measures that target short-term savings. The following were included on the list:

a) distribution or installation of energy efficient compact fluorescent light bulbs;

b) distribution or installation of energy efficient shower heads;

c) energy audits;

d) information campaigns.

 

The list has the effect that the measures appearing thereon should not account for more than 10% of the amount of energy savings required from each obligated party and shall only be eligible to count towards the obligation if combined with measures to which longer-term savings are attributed (Article 6(3) of the Proposal).

 

International aspect

 

The Proposal stipulates that ‘if appropriate’, the Commission shall establish, by means of a delegated act, a system of mutual recognition of energy savings achieved under national energy efficiency obligation schemes. Such a system shall allow obligated parties to count energy savings achieved and certified in a given Member State towards their obligations in another Member State. Taking into account the transnational character of the contemporary business it seems that the adoption by the Commission of such a delegated act would be ‘appropriate’, and to some extent, urgent.