Power utilities push for quick deal on EU energy savings law

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European energy companies want the negotiations on the Energy Efficiency Directive, deemed as the EU’s main tool to achieve the bloc's promised 20% energy cuts by 2020, to wrap up in the coming weeks.

“Industry wants the directive sooner than later in order to start planning investments,” said Nicola Rega of Eurelectric, the electricity industry association in Europe.

Member states have agreed on most of the technical aspects of the directive, he said. What remains yet to be seen is the level of ambition of the directive.

Negotiations are likely to wrap up before the end of the Danish presidency of the Council of Ministers on 1 July, before Cyprus takes over the EU's rotating chair with fewer resources and interest in the directive, EURACTIV understands.

The Energy Efficiency Directive is seen as the EU’s main tool to achieve the EU's target of cutting energy consumption by 20% before the end of the decade and decouple energy use from economic growth.

But faced with a severe economic downturn, member states have rejected binding targets, despite European Commission warnings over the lack of effectiveness of voluntary agreements.

They have asked instead for flexibility in choosing the best way of achieving the “indicative” target, but the sum of measures they have agreed on to date represents only 38% of the effort initially proposed, according to the Commission's calculations.

Broken backbone            

The measure with the highest efficiency potential contained in the draft bill – a 1.5% annual energy savings target imposed on power utilities – “has been squeezed from all sides,” said Brook Riley of Friends of the Earth Europe, an environmental group.

First, member states reduced the savings potential by half when they asked to exempt 40% of the industries that are already covered by the EU Emissions Trading System, Riley said. Then, they asked for a gradual phasing-in of the target. “This would reduce projected savings over the 2014-2020 period by about 14-15%,” Riley said.

Austria, together with other countries with a history in energy efficiency improvements, have further introduced the notion of “early action” in the text of the draft directive. This would allow member states to credit savings made before the EU law is introduced.

Countries have then asked for “future actions” to be included in the energy savings obligation scheme, which would allow them to count not only current, "real" savings, but also future projections.

Member states are also pushing for the possibility to fulfil up to 20% of the 1.5% target through energy savings achieved in the energy transformation sector. “This is bad for two reasons,” Riley said. “The 1.5% target is intended to reduce energy consumption by businesses and consumers, not to make energy production more efficient.”

“The second reason is more serious,” he continued. “If this amendment goes through, member states could meet the 20% contribution simply by fulfilling their 2020 renewable energy target obligation”.

This is despite recognition by member states that existing legislation was not enough to meet the EU's 2020 energy savings target. The Energy Efficiency Directive was specifically designed to close this gap.

Riley called the current agreement “a compilation of the most unambitious points from each member state, which has almost reached junk status”.

Footing the bill

A binding obligation on power utilities to save energy would mean they would have to change their current business model and make more profits out of selling energy efficiency services than from selling energy.

However, in the current bill, this obligation came with the possibility of an opt-out, which would allow energy companies to choose how they want to achieve their savings.

In Denmark,  the system, which was introduced after the 1970s oil crisis, has worked.

“We deliver more than we should. We live up to our responsibilities as a production company. And we have energy savings and are profitable,” Lars Clausen, executive vice president of Danish energy group DONG, said in an interview with EURACTIV.

However, what works in one country will not necessarily trigger the same profits for businesses in other countries, said Eurelectric's Rega.

This takes the discussion back to the big question mark hanging over the EU’s draft energy efficiency law: who pays for energy savings?

Binding energy savings targets would leave everything on the shoulders of power utilities, industry fears. “Governments are generally squeezed between the deals – they have to deliver energy savings, but want low energy prices,” Rega said.

“The concern is that  energy companies will end up paying for everything ,” he added, saying that there is no guarantee power utilities will be able to recuperate the cost through consumers’ bills.

Governments could help sweep these worries away. In Denmark, for example, electricity utilities received money from the national budget to make the initial investments needed to create a new market for energy efficiency.

In Europe, such a measure would be “a positive element”, but it would not be enough, Rega said. "It’s a question of whether, and for how long, people will accept higher bills for someone else to benefit from energy efficiency improvements," he said. For example, some buildings would be harder or more costly to improve, such as multi-property or historical constructions.

Also, utilities criticise the EU for failing to provide a driver for stimulating consumers’ appetite for energy efficiency improvements and create the demand necessary for the good functioning of the market.

“We often knock the doors and the doors to not open when we have to sell energy efficiency services. Ultimately, the customers need to want to take up the measures. There is a big learning process ahead of us,” Rega said.

Europe aims to reduce its primary energy use by 20% by 2020, a target which is not legally binding.

The Energy Efficiency Directive was proposed by the European Commission in mid-2011 as part of its effort to reach this objective.

The 20% target will not be reached, unless the EU more than doubles its energy savings efforts, according to the Commission's estimates.

In its draft directive, the Commission proposed individual measures for each of the sectors that could play a role in reducing energy consumption, including a controversial obligation on energy companies to reduce their deliveries to customers by 1.5% each year.

  • 29 May, 5 June, 13 June: Next "trialogue" talks between the Council, Commission and Parliament (these exclude the regular non-political, technical meetings).
  • 1 July 2012: Cyprus takes over the EU presidency from Denmark.

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