Lessons Learned and Best Practices for Energy Efficiency

1
Lessons Learned and Best Practices for Energy
Efficiency

• Julia Weller
• jweller_at_pierceatwood.com
• 12 July 2008
• Batumi, Georgia

2
Overview

• Reasons to Introduce Energy Efficiency Measures
• Best Practices in EE Laws Around the World
• Initial Steps
• Quantative Targets
• EE Standards for New Buildings
• Labeling for electric Appliances
• Financial Incentives
• EE audits
• Energy services companies
• Other regulations
• How to Deal with the Rebound Effect
• Barriers to Implementation of EE in Transition
  Economies
• Conclusion Lessons Learned for Successful EE Law

3
1. Reasons for EE Measures

• Energy efficiency is the step-child of energy
  sector reformsmoney is devoted to liberalisation
  and infrastructure investment but little
  attention is paid to EE
• Negawatts can save money and reduce the need to
  import electricity or build new capacity without
  reducing living standardsEE is the fifth fuel
• EE can save jobs at high intensity factories by
  reducing operating costs

4
Reasons for EE Measures

• EE can also create jobs in energy services
  companies
• Cost of energy as of households much higher in
  CEE and Caucasus than in Western Europe (10-15
  vs. 3-5) because of lower income so EE has
  greatest impact on poorest households
• EE can help limit use of fossil-fueled plants and
  reduce global warming
• Help to target best projects for EE investment

5
Reasons for EE Measures

• Provides access to capital from sources such as
  the World Bank/UNDEPs Global Environment
  Facility, EBRDs Energy Efficiency Unit, and the
  IFCs Renewable Energy and Energy Efficiency Fund
• Fulfills obligations of Government under Energy
  Charter Protocol (PEEREA)
• Citizens of Georgia will know Government is
  serious about EE and its international
  commitments if it takes lead in applying EE
  standards to government buildings

6
2. Best Practices in EE Laws Around the World

• World Energy Council did review of EE measures in
  76 countries representative of all world regions,
  including emerging markets
• Represented 83 of worlds energy consumption
• Published in January 2008 after three year study
• Results available on website www.worldenergy.org
  
• Conclusions on successes and failures useful for
  Georgia

7
(1) Initial Steps

• First step of EE policy is to establish adequate
  energy pricing (i.e. long-term marginal cost)
  tariffs that cover costs important to give
  consumers correct price signals
• Second step is establishing a government body
  devoted to EE--two-thirds of countries surveyed
  had EE agency dedicated to implementing EE policy
  and over 90 had Ministry department dedicated to
  EE

8
(2) Quantative Targets

• Almost half of countries surveyed have
  established quantitative targets with yearly
  monitoring requirements
• Types of target used varies
• Most popular is rate of energy savings or
  efficiency improvement
• Achieve specified energy target expressed (in Gwh
  or Mtoe) second most popular
• Achieve specified rate of decrease in energy
  intensity( per year or over set period)chosen
  by Bulgaria, Czech Republic and Russia)
• Rate of reduction in energy consumption

9
Quantative Targets and Methods
10
(3) EE Standards for New Buildings

• All EU countries have mandatory efficiency
  standards for new buildings and service sector
  buildings to comply with Directive
• Half of other OECD countries and some non-OECD
  countries have mandatory EE standards for
  buildings, other half of OECD countries have
  voluntary standards
• Total of 50 of countries surveyed had either
  mandatory or voluntary standards

11
EE Standards for New Buildings

• In Africa and Asia, standards apply only to
  non-residential buildings because commercial
  buildings account for largest share of energy
  consumption
• Most standards performance based sometimes
  combined with specific standards for individual
  components (e.g. thermal windows)
• In EU, cumulative energy savings is 60 when
  compared to dwellings built before oil embargo
  additional cost a few

12
EE Standards for New Buildings
13
Successful EE Measures for EE Standards for New
Buildings

• Push-Pull Packages
• Push consumers away from energy intensive
  practices and pull them toward energy efficient
  ones
• Alternatives Package
• Offer choice between incentives and penalties
• Conditional Packages
• Voluntary measures first
• If they dont succeed in meeting target,
  mandatory measures

14
Push-Pull Package in Finland

• Finland has adopted a package of push-pull
  measures for commercial buildings based on the
  following components
• a subsidy scheme for energy audits since 1994,
  with subsidies up to 50
• subsidies for investments (between 10 and 25)
  and
• voluntary agreements to save heat and
  electricity.

15
Alternatives Package in Denmark

• Denmarks Green Tax Package for industry
• One alternative is set of fiscal measures
  (energy, CO2 and SO 2 taxes)
• Other alternative is tax reduction and voluntary
  agreement to submit to Danish Energy Authority an
  implementation plan comprising an audit, EE
  action plan and precise EE targets if fail to
  meet targets, have to repay tax reduction
• In 2001, 300 enterprises (60 of total industry
  energy consumption) signed agreements
• Customers can choose

16
Conditional Package

• Step-wise EE measures for existing buildings
• Step One Energy labels for building sales
• Step Two Tax linked to average yearly
  consumption
• Step Three Mandatory thermal retrofitting

17
(4) Labeling for Electric Appliances

• EU has mandatory EE labeling for all major
  household electric appliances
• In OECD Asia and America, 70 of non-EU countries
  require labeling for refrigerators
• In Africa, Middle East and non-OECD Asia,
  labeling not wide-spread because second-hand
  appliances account for most appliances sold in
  emerging markets and labeling limited to new
  appliances

18
Labeling for Electric Appliances

• Studies showed that labeling did not increase
  costs as manufacturers benefited from increased
  sales
• Labeling resulted in rapid increase in market
  share of most efficient appliances
• To be successful, standards need constant
  updating
• In emerging markets, labels used modeled on OECD
  labels that have been shown to be successful

19
Examples of Energy Efficiency Labels (Thailand,
Brazil and Iran)
20
(5) Financial Incentives

• Economic Incentives
• Investment subsidies to reduce investment costs
  for consumers
• Used energy funds with financing mechanisms
  depending on banking system rather than budget
• Drawbacks
• Free-riders most likely to take advantage
• Low-income consumers who were targets did not
  take advantage of subsidies because unaware of
  them
• Bureaucracy, delays and transaction costs
• Lessons learned
• More targeted subsidies (low-income beneficiaries
  and specified list of equipment with long payback
  but high efficiency gains)

21
Financial Incentives

• Soft loans
• Subsidized interest rates for EE measures
• Easily implemented by banking institutions
• Less popular than subsidies

22
Energy Efficiency Funds

• Bulgaria, Romania and Macedonia all have funds
  for energy efficiency loans and guarantees
• All launched with GEF grants (10 MM Bulgaria and
  Romania, 5.5 MM Macedonia)
• Co-financed in Bulgaria by governments of
  Bulgaria and Austria and private companies, by
  commercial banks in Romania and development bank
  in Macedonia
• Private fund managers with performance incentives
  
• Bulgaria has approved projects for over EUR7
  million, Romania has leveraged over 30 million
  Macedonia fund launched Sept. 2007 after two
  years preparation
• Funds provide guarantees as well as loans
• Minimal bureaucracy in decision making

23
Fiscal Incentives

• Reduce taxes and eliminate import duties to
  consumers who invest in EE equipment
• Tax reductions and accelerated depreciation
  considered better than subsidies because less
  costly
• Incentives work well if tax collection rate is
  high but work poorly in countries in transition
• Applied most frequently to compact fluorescent
  lamps outside OECD

24
(6) Energy Audits

• Mandatory audits most frequent in building sector
• Most effective if coupled with capacity building
• Need training programs in high school and
  university to have cadre of certified auditors
• Government agency needs to be staffed to respond
  to data collected in audit
• Voluntary audits exist in every sector
• Mandatory audits in industrial sector most
  prevalent in emerging markets
• Data to date shows energy savings of 5-10 in
  companies when followed with implementing measures

25
Energy Audits

• Mandatory audit approaches vary from soft (e.g.
  Australia which focuses on changing business
  culture) to hard (e.g. Taiwan, India and
  Bulgaria, which established industrial processes
  standards)
• Can be walk-through or detailed
• Threshold for required participation
  varies--ranges from 260 toe (3000 Mwh) in
  Bulgaria to 30,000 toe in India
• Typical period for new audit is 3-5 years but
  also shorter (2 years in Romania and one time in
  Czech Republic)
• Sanctions for compliance, usually fines, foreseen
  in most cases but cooperation preferred to
  coercion

26
(7) Energy Services Companies

• Energy services companies offer guaranteed energy
  savings from EE improvements
• Payment comes from cost savings, without risk to
  customers, or financed by third party loan
  secured by cost savings another model is shared
  savings
• Performance-based contracts help overcome
  financial barriers
• Services provided include development and design
  of EE projects installation and maintenance of
  EE equipment involved and measurement,
  monitoring and verification of the project's
  energy savings
• ESCos started in US, spread to EU and now in
  industrial sector of developing and transition
  economies

27
(8) Other EE Regulations

• Energy consumption reporting for large energy
  consumers
• Imposed in 30 of countries
• Mandatory energy managers for companies above a
  certain size
• Required in about 20 of countries
• Mandatory energy savings plans for certain
  sectors
• 20 OECD countries, 10 non-OECD countries
• Maintenance of heating boilers
• Mostly EU

28
3. How to Deal with Rebound Effect

• Rebound effect means that as EE measures kick
  in, people use their savings to turn up
  thermostat
• Counteract rebound effect by packaging
• together complementary measures
• Example combination of insulation standards and
  an energy tax for space heating or
  cooling--insulation standards result in new
  buildings which consume less
• energy per m² for the same indoor temperature
  the energy tax prevents people from is

29
4. Barriers to EE Implementation in Transition
Economies

• Studies of EE implementation in emerging and
  developed market economies show that barriers are
  greatest in transitional economies because of
  enormous investment needs, corruption and
  disorganization in government
• Financial and economic barriershigh in
  transition economies
• Commercial lenders unwilling to provide loans
  without obvious revenue stream for repayment
• Micro-loans not available to home owners for EE

30
Barriers to EE Implementation in Transition
Economies

• Social and institutional barrierslow acceptance
  by public and resistance to behavioural change
• Requires education campaign about long-term cost
  savings and environmental benefits of EE
• Requires training of public officials
• Need Information Centers located in buildings
  where citizens have to go (e.g. Tax Authority)
• Barriers to performance contracting for ESCos in
  public sectorbudgets and credit lines made for
  capital costs, not reduction of operating
  expenses
• Requires change in public procurement systems and
  operating improvement incentives for officials
• Energy Fund for financing ESCos critical because
  of banks unfamiliarity with energy savings

31
Barriers to EE Implementation by Municipalities

• Local authorities play important role in
  implementing EE
• MUNEE study on implementation of EE measures in
  Bulgarian municipalities is one example
• www.munee.org/files/Shortened_Final_Barriers.doc
• Limited authority on allocation of municipal
  budgets
• Local self-governments had no independent
  financing source, relied on state subsidies
• Subsidies reduced if municipality reduced
  expenses through EEdisincentive to investments
• Until law changed in 2001, municipalities could
  only spend budgets as directed by central
  government or faced severe penalties
• Limits on borrowing and pay back period

32
4. Conclusion Best Practices for Successful EE
Law

• Survey performed by the Alliance to Save Energy
  of 22 countries in two regionsS.E. Europe and
  the CISshowed that no EE improvements would have
  been possible without a framework law
• Type of law doesnt matter
• Can be stand-alone law or combined with RE or
  part of Energy Law that includes electricity,
  oil, natural gas, heat and RE

33
Conclusion Best Practices for Successful EE Law

• Need to formalize EE as a separate sphere of
  regulation
• Conceptualize state policy principles for EE
• Prioritize the sectors with the highest energy
  savings potential (electric generation,
  industrial production, housing)
• Define development of short and long-term EE
  programs as a national priority
• Assign responsibility for promotion of EE to
  officials at national, regional and local levels

34
Conclusion Best Practices for Successful EE Law

• Champions within the Government
• Successful EE programs and results have been the
  result of individual champions at the highest
  level of Government
• Ministries have small staffs and short memories
• Without an understanding of the benefits to the
  economy of EE, the law will not be implemented or
  enforced
• Reason for independent agency or department
  within a Ministry is to try to insulate programs
  from changes in Government

35
Thank You!

• Julia Weller
• jweller_at_pierceatwood.com
• Batumi, Georgia