Is the EU currently on track to deliver on its objective of reducing energy consumption by 20% by 2020?
Well, the 20% target was first agreed by heads of government in 2007 and subsequently confirmed in the early part of this year as part of the 2020 strategy. It is a challenging target, not least because it means we have to ‘decouple’ economic growth from increasing consumption of energy.
We have agreed a base for our calculations with member states. We have a very clearly identified target in terms of energy savings - the equivalent of 370 million tonnes of oil between now and 2020. This can be measured in terms of the primary energy consumption of each member state in 2020.
Having said that, our calculations (using models of course), indicate that we are unlikely to achieve a 20% reduction on the current set of policies.
What are the major obstacles?
There are a number of obstacles that have to be divided into the four sectors that are involved. The first is what we call the generation sector. Of course, the efficiency of transforming raw materials into energy such as electricity depends on what the raw material is. So we have different levels of efficiency for say oil-fired powered stations, coal or gas-fired ones, nuclear or renewable energies. The energy mix of the generating sector is a determining factor of efficiency.
Are you planning to have a comparative study for each one of these energy sources?
No; for two reasons. Energy mix is a matter for national competencies so we wouldn’t get involved at all. Secondly, we already have a market-based mechanism - the Emissions Trading Scheme - which is a carbon tax system operating as a market instrument in implementing the choice of energy sources. Over time, the energy mix will need to produce energy savings if we are to reach the 20% target.
Then there are three very well-known categories on the demand side. From a buildings perspective there are public, large co-owned ones and private residences. For larger buildings, typically public ones, we see that there is a substantial opportunity for making progress. We believe that the public sector should lead by example in terms of the buildings they own and occupy.
Secondly, in the course of our energy efficiency plan, we want to further develop the market in Europe for ESCOS - energy service companies which can introduce efficiencies on a rentable basis into large buildings, which then pay for the investment themselves through energy saved. This is particularly relevant for larger buildings.
On the residential side, there are a number of challenges - sometimes properties are owned by A but occupied by B and therefore we have a split incentive challenge. The situations are different in each member state and each has their own legislative system, so we wouldn’t try to have a single solution for everybody but rather invite member states to look at this issue so as to remove the split incentive.
This is a big challenge because it goes down to household level. How can you ensure that measures which are adopted at EU level trickle down to ordinary people?
First of all we must understand that the policy is a European one, so there are multiple actors involved and it is not a case of everything coming down from Brussels to citizens. Member states themselves have a number of measures that they can and indeed do use.
We do have some measures at European level, the best known of which are cohesion funds. The recent change in regulation provides for up to 4% of the cohesion fund to be invested in energy efficiency of residential buildings. It is not being used as quickly as we would like to see, for many reasons. This is of course a legal change that has come midway through the programming period, which means that managing authorities have to re-program their operational programmes, which can take time as they need to decide what their priorities are.
How much money is available for energy efficiency under the fund?
Eight billion Euros is available for this. Money would have to be committed by the end of 2013 and spent by the end of 2015.
Have national authorities really understood this?
Yes, I would say that some have clearly done so and changed their operational programmes, and some have done so and haven’t even needed to change them. There are a number of member states where actions are taking place and you can see the benefits starting to manifest themselves.
However, it is true that there is also an information challenge because energy efficiency sounds like a fairly straightforward activity but you do need a certain degree of expertise in order to do it properly. It is not the kind of expertise routinely found in a managing authority, so they have to go outside to acquire this and there is a time lag there.
Is some kind of communication being prepared about this?
We are having meetings from January between member state energy agencies and the managing authorities so that they can benefit from the expertise more directly.
How far have we got towards the headline 20% energy savings target?
It is of course a modelling exercise, so figures are not very precise, but we would estimate that we would be somewhere between 9 and 11% on current policies.
Next year’s energy efficiency action plan follows having done this analysis and seeing that there is actually a gap. We will target the whole value chain of energy and building in particular. The ESCO market has been very successful where it is known but it is not known in all member states, so we need to try and encourage its development as a market.
We also have experiences in member states of retail suppliers of energy and electricity in particular, which themselves deliver savings to their customers. This happens in the UK, France, Flanders and now Italy for example. It is delivering some very real results for consumers on behalf of the energy suppliers. Energy contracting for larger buildings concerns the cost of renovation being covered by the energy savings over 7-10 years.
For the individual consumer, this is where the Consumer Savings Scheme would operate. Electricity suppliers would effectively support consumer savings through progressive measures such as changing a light bulb to covering insulation systems, boilers and maybe even windows - a whole series of energy efficiency measures that are done collaboratively with energy suppliers.
Would there be incentives to do that?
There would in fact be a legal obligation on the energy supplier, as has been the case in France, Italy and the UK so far. This would be rolled out for all EU member states.
Has the pace of renovation of existing buildings in cities deteriorated due to the crisis?
It has certainly slowed down and it will be difficult to kick-start it again. The kind of measures that can be introduced at European level for individual owner-occupied homes may be less effective than those that member states themselves can operate. For example, they have tax incentives of one sort or another for taking up the energy efficiency challenge. Direct grants can also be used.
Can the EU put in place minimum requirements or standards?
In June this year we had a re-cast of the buildings directive which now applies to all renovations covering more than 25% of the building and not only for those covering more than 1,000m² as was previously the case. This brings in quite high building standards and of course new bills, leading to what’s called the 'zero-energy' building. To some extent, that is in place for new and totally-renovated buildings.
The real challenge regards the existing building stock, as homes only change every 30-40 years and the opportunity to renovate them is only 1-2% on average in the EU. The speed at which buildings can be renovated in Europe is quite slow and it is very expensive to do it, so this is a process we will be working on.
For example, we have a new financial mechanism that will be coming on-stream. As a result of the recovery package there will be about €146 million put into an investment bank and KFW, the German bank, in order to make funding available for the renovation of buildings.
What is the time frame for that?
We hope to launch that in the early part of next year. The European activity will operate for three years but the banks will operate beyond that.
Are there other financial initiatives that you are currently working on?
The ELENA initiative for local authorities has been running for about a year. This is a process again where we work with banks and we basically co-fund technical assistance with local authorities - the accountants, architects, engineers, planners - to identify what the needs of the locality are and build the project in order to start the energy efficiency. So that doesn’t require the local authorities to take too much money out of their own pockets.
We have seen a number of countries such as France and Spain scaling down their support for renewable energies this year. Is this a concern to you?
We have just had the National Renewable Action Plans in from 26 of the 27 member states and are optimistic that the last one will arrive before Christmas - maybe Santa Claus will bring it!
We have done an analysis of the Action Plans and our very positive analysis is that we will achieve the 20% target. The second thing is that we see biomass has made a huge contribution to the target, followed by wind, solar and hydro.
What has happened over the past few years is that the cost of the new technologies – particularly wind and solar, where the change has been most remarkable – has come down. As the cost of the technology comes down and efficiency goes up, the capacity for the technology to supply energy into the grid at grid parity (the point at which alternative means of generating electricity become equal to – or cheaper than – grid power) becomes closer.
The fact that member states will revisit and renew their support structures is logical, as it is a response to the innovations that have taken place with the efficiencies in the sector. The main concern, however, is that any revision that takes place should not be retroactive as it would be a disincentive to investment. Secondly, that the process of revision is an open and transparent one, and that any revision will stay in place for a stable period of time.
Member states are entitled to look for efficiencies, but at the same time it is in their interest that the investment climate remains positive for the sector.
Are there any new initiatives in the pipeline for supporting renewable energy?
One area that we would like to see developed much more strongly is the area of cooperation. In the legislation we have provided an opportunity for member states to achieve their target by collaborating with another member state and having their surplus efficiency gain count for them. One or two cases are already starting to happen but this could be extended further.
If you were to take Europe as a single entity and decide where to put technologies according to the best geographic location then we could have a 'most efficient investment approach' for the delivery of renewables. We see this as an opportunity both for member states and, ultimately, for consumers.
When the renewables directive was last updated, there was controversy over the possibility that member states could use 'imported' renewables to meet their national targets. The idea finally did not make it through. Were you displeased by the outcome?
The alternative could have been a much more market-based approach on an inter-governmental basis. The Commission had initially proposed this but it was the wish of member states to have this system and we would now like to see it work.
And you haven’t seen anything yet to persuade you that this was the right solution?
Let’s wait, it’s early days yet.
Has there been any progress which makes you think that an EU-wide scheme for renewables would be a good idea at this stage, such as a common feed-in tariff?
At the moment we have national support schemes in place, some of which have been revised but which are all working effectively. As it stands right now, it would appear to be quite complicated and not necessarily opportune to look at a feed-in tariff right now.
But it is true to say that there is a general trend amongst member states to move from feed-in tariffs to feed-in premia. As we go down this road, we come much closer to a more market-based approach and some sort of pan-European approach might well evolve out of that.
How do these premia work?
A feed-in tariff means that you get a fixed amount, rather high but perhaps declining over a period of years. With a premium you get the market rate, plus a margin.
And that margin could be set at a European level?
Well, it depends on the technology and timing. The tariff could even change during a single day for example. The idea is that the base price is the market price, so it is similar but a different approach.
So are you going to push this idea forward next year, maybe in new legislation?
We are not planning any legislative initiatives in the area of renewables. The directive has only just been transposed since last Sunday (12 December), so we will give a chance for it to be put in place.
We are issuing a Communication on the financing on renewables; probably in January. But I wouldn’t go as far as saying that we will be making suggestions there, we are simply observing trends at this stage.