EU's Energy Security Package Emphasizes Energy Efficiency

November 14, 2008 // Published as a news service by IHS

What is at stake?
In recent decades, increasing demand for energy, fluctuating oil prices, uncertain energy supplies and fears of global warming have opened Europe's eyes to the fact that secure and safe supplies of energy can no longer be taken for granted.

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EU leaders are committed to promoting energy efficiency as it is highly relevant for EU citizens: more and more people have difficulty making ends meet as high energy prices mean high energy bills. Heating and transport costs use a growing share of household revenues.

Businesses feel the pinch, too, in particular in those sectors where cost pressures are high. Reducing energy consumption is the best sustainable long-term answer to these challenges. Average energy savings benefits per year can easily amount to over €1,000 per household.

Boosting investment in energy efficiency and related new technologies contributes to sustainable development and security of supply. It also helps create new jobs, economic growth and greater competitiveness.

The existing legislative framework on energy efficiency can be strengthened. It will provide the business community with a solid basis for rational investment decisions in energy efficiency and it puts the EU on track towards a more secure and more competitive energy future.

EU energy targets
In January 2007, the EC put forward an integrated energy package that addressed the issues of energy supply, climate change and industrial development. Two months later, European heads of state endorsed the plan and agreed to an energy policy for Europe.

By the year 2020, the plan called for:

• 20% energy savings
• 20% reduction in greenhouse gas emissions
• 20% share of renewable energy sources in overall EU energy consumption, with a 10% renewable energy component in transport fuel

These targets are very ambitious. Achieving them requires a major effort across all sectors of the economy and by all member states. A European approach is needed to ensure that the effort for reaching the 20% energy saving target is shared equitably among EU member states.

Energy efficiency is a means of achieving energy saving as more efficiency reduces energy consumption. Yet, energy efficiency is not the same as energy savings: an expanding population heats and cools more houses, drives more kilometers and uses more electrical devices.

Energy efficiency has already brought tangible results: the final energy use would have increased by 115 million tons of oil equivalent (MTOE) or 11% per year over the 1997-2006 period had there been no energy efficiency improvements. This is one-third of all crude oil imports into the EU in 2006.

The benefits of improving energy efficiency
Improving energy efficiency means:

• Less CO2 emissions and a positive effect on EU's fight against climate change.
• Lower energy bills for industry, the service sector and private households.
• Less dependency on gas and oil imported from abroad - at present, the EU imports more than 50% of its energy from third countries.
• Less impact of volatile oil prices on EU member states.
• Creation of jobs - the provision of specific services promoting energy-efficient behavior and the development and sale of energy-efficient products (such as sun collectors, insulation material, compact fluorescent light bulbs) constitute a new growing and profitable market.

EU is falling short on achieving the potential of energy savings
The EU has made some progress in achieving its policy goal on energy efficiency: European Community legislation has been adopted, targeted measures have been devised and carried out, and technological advances are steadily entering the market.

Specific EU energy efficiency legislation is being implemented by member states. It is too early to assess their full effects, but a quantitative evaluation of the expected impact of the most relevant efficiency measures, when fully implemented, reveals that the EU and its member states are not doing well enough.

The measures already adopted by the EU should achieve energy savings of about 13% by 2020, if properly implemented by member states. This falls far short of what is needed. This is why the EC proposes to do the following:

• Assess the implementation progress of the existing energy efficiency action plans and present areas for new energy efficiency actions in the near future.
• Underline the importance of financing energy efficiency projects.
• Present an energy efficiency package consisting of legislative proposals covering buildings, energy labels, ecodesign and cogeneration.

European and national energy efficiency action plans
The European Energy Efficiency Action Plan has existed since 2006. Its objective is to mobilize policy makers and market actors to make buildings, appliances, means of transport and energy systems more energy efficient.

The plan identifies six key areas with the highest potential for energy savings - products, buildings and services, transport, energy transformation, financing, energy behavior and international partnerships. It also proposes 85 actions and measures to be taken at both the EU and national level - for instance, improving energy transformation, developing economic incentives and developing energy performance requirements.

The implementation of the action plan is ongoing and should be completed by 2012. One-third of the actions have been completed, but much remains to be done. The EC will evaluate the plan in 2009.

National energy efficiency action plans have been prepared by EU member states. These action plans present the national strategy on how each country seeks to achieve its energy savings objective.

The EC's assessment of these action plans shows that the member states' political commitment to energy efficiency, on the one hand, and their concrete actions, on the other, do not always match. Transposition of European Community law into national legislation is slow, financial encouragement is not yet practiced widely enough and administrative procedures are too complicated. The EC feels member states should step up their efforts.

Financing
Financing schemes exist to support investments to improve energy efficiency, and the first results are very positive, with more urban development and renewal projects taking energy efficiency into account. For example, efficiency measures in some 2.5 million homes were financed by the German KfW bank in 1990-2006. The investments in 2006 alone will achieve a long-term reduction of more than one million tons per annum in CO2 emissions and have provided 220,000 jobs, mainly in the construction industry.

Effective energy efficiency measures targeted for households and for small and medium-sized companies require a financing framework coming from private, national and EU sources. The difficult situation in financial markets reinforces the need for a publicly supported instrument. The EC is working with the European Investment Bank and the European Bank for Reconstruction and Development to set up an EU Energy Fund to mobilize funding from capital markets for investments in energy efficiency. The use of EU Structural Funds is also encouraged.

The energy efficiency package
European Community legislation is the basis for the efforts on energy efficiency undertaken at the EU and member states' level. With full respect of the principle of subsidiarity, the EC proposed new legislation on Nov. 13 that will contribute to achieving the 20% energy saving objective by 2020.

The package consists of the following:

• A proposal for a recast of the Energy Performance of Buildings Directive (directive 2002/91/EC).
• A proposal for a revision of the Energy Labelling Directive (directive 92/75/EEC).
• A proposal for a directive that introduces a labelling scheme for tires to promote the use of fuel-efficient tires.
• An EC decision establishing guidelines clarifying the calculation of the amount of electricity from cogeneration.
• A communication on cogeneration that stresses that Europe can save energy by combined heat and power generation.

Energy efficiency in buildings
Energy use in residential and commercial buildings is responsible for about 40% of the EU's total final energy consumption and CO2 emissions. The cost-effective energy savings potential by 2020 is significant: 30% less energy use within this sector is feasible. This equals a reduction of 11% of the EU's final energy use.

The EC proposed a revision of the directive on the energy performance of buildings. While member states are responsible for establishing the concrete requirements, this directive gives a framework for the application of minimum requirements to the energy performance of buildings, for the issuing of energy certificates and for regular inspections of boilers and air-conditioning systems.

The EC proposed that the 1,000 m² threshold for existing buildings when they undergo major renovation be eliminated: energy performance requirements will apply to more houses. The latter alone will lead to €8 billion additional capital investment a year, but will trigger €25 billion annual energy cost savings by 2020.

Energy performance certificates should become more reliable and widely known by the public. The proposed modifications give member states the opportunity to reap more than half of the remaining cost-effective potential in the sector. This equals 5% to 6% per year of the EU's total primary energy demand in 2020.

The following examples show the concrete benefits from a revised Energy Performance of Buildings Directive for the EU citizens:

Example 1
A family buys a 40-year-old house of 170 m² floor area in Northern Europe and is provided with an energy performance certificate on the basis of the directive. The family decides to carry out a major renovation on the house and to follow up on the recommendations for energy improvements listed in the certificate: cost-optimal layers on exterior walls and under the roof are installed, and the windows and the boiler of the heating system are replaced.

The result: the annual energy bill is reduced by €1,500 per year during the lifetime of the new components. The annual capital cost of the extra investment is €1,000. The net benefit is €500 per year.

Example 2
A typical 60-year-old building with 12 apartments in one of the new member states is renovated. Some apartments will be newly rented out, and therefore an energy performance certificate is issued according to the directive. The recommendations in the certificate mention the insulation of the roof, the exterior walls and the ground floor, double-glazed windows with well insulated frames, and an improvement of the heating system (hydraulic balance, insulation of pipes). These recommendations are followed up on.

€4,000 in energy costs are saved in this way. This exceeds by far the annual capital costs of about €900 for the measures taken and results in €3,100 annual net benefits for the entire lifetime of the renovation measures. The payback time is only five years.

Example 3
The heating system of a 30-year-old multifamily building with 20 apartments is inspected by an expert on the basis of the directive. The inspection report recommends the installation of thermostatic valves and the replacement of the heating control unit.

The overall investment costs are €2,600. The result is 10% of energy saved and this equals €2,800, or 3,800 liters of oil not wasted. The investment is earned back in less than one year and creates annual savings of €2,800 during the next 10 to 20 years.

The payback times of the above investments can be considerably shorter when financial incentives at the European Community or national level are provided.

In the near future, the EC will launch a European strategy for low-energy buildings. In 2009, the EC will also launch a major "Build-up" campaign to increase the awareness of all parties in the building chain of the savings potential in the construction sector.

Architects, constructors, occupants, the finance sector and maintenance companies alike should be provided with the means to make the full savings potential in the sector a reality, and to ensure more cooperation in this sector with its dispersed ownership structures.

Energy efficiency of products
The EC also proposed revising the Energy Labelling Directive. This directive provides the framework for the labelling of household appliances, such as refrigerators, televisions and washing machines.

The EC proposed extending this directive to additional energy-using and energy-related products. This will allow the labelling of energy-using products used in households and beyond, such as motors, windows, and other products that have an impact on energy consumption. A revised directive would also set a common basis for incentives and public procurement to promote the uptake of efficient products. This will create a level playing field for manufacturers.

Example 1
A typical medium-sized 'M' class gas domestic boiler (power input 22kW) is replaced by a high-efficiency boiler. This leads to the annual savings on fuel costs of about €250-€300. The payback period is five to six years.

Example 2
Replacing an incandescent light bulb - costing €0.60 - by a compact fluorescent light bulb (CFL) - costing €4 - saves €13 of electricity per year. The lifetime of a CFL bulb is six years, so a single CFL bulb leads to a total cost savings of €78 over this period. An average household in the EU has approximately 15 lighting points. If these lighting points are all CFLs, the household can save €195 per year.

A proposal for a new directive introducing a labelling scheme for tires is also part of this energy policy package. The objective is to promote the market take-up of fuel-efficient tires, also known as low rolling resistance tires. The introduction of a specific label for tires will ensure the supply of standardized information on their fuel efficiency, wet grip and rolling noise. This will allow consumers to make an informed choice when choosing tires and to reduce fuel costs by up to €300 for four tires. The average total annual fuel savings over the 2012-2020 period are estimated to be equal to removing 0.5 to 1.3 million passenger cars from EU roads.

Cogeneration
Cogeneration is an efficient technique to generate electricity and heat simultaneously. It is mainly applied to district heating and in industry. Directive 2004/8/EC promotes this kind of cogeneration.

To ensure its full implementation, the EC has adopted detailed guidelines as part of its Nov. 13 proposed package. These guidelines clarify the procedures and definitions for a harmonized methodology to determine the quantity of electricity generated from cogeneration. They indicate when guarantees of origin of electricity can be issued and support schemes allowed. The guidelines also provide legal certainty to the energy market, thereby removing investment barriers.

The communication on cogeneration contains an evaluation of the available reports from member states on the application of the directive. For the near future, the communication suggests actions to ensure that cogeneration is taken into consideration as an element of the national energy efficiency action plans. The access to the distribution grids for electricity produced from cogeneration should become easier.

For more information, see the EC's web sites on Second Strategic Energy Review - Securing our Energy Future and on Energy Policy for a Competitive Europe.

Source: European Commission.