Energy Efficiency: The Danish Case - A Cost-Effective Obligation Scheme

1. Energy Efficiency: The Danish Case Ulrich Bang,Director of International and EU Affairs

2. The Danish Obligation scheme Point of departure and background Economic figures and results Agenda

3. My main points… Energy Savings obligations schemes is the most cost effective element in the energy efficiency strategies in several EU countries We have succeeded in expanding the business opportunity for Danish energy companies Obligation schemes are designed in different ways to support the national energy policy objectives (fuel poverty, transport, energy savings outside ETS etc.)

4. Point of departure

5. Point of departure Energy Efficiency is here to stay! European countries will increase energy efficiency continuously up to 2050 Energy efficiency has a high value for the costumer Energy efficiency is a complex product Strategic choice: We in the energy industry can be part of the solution or leave the market to others

6. Cost effectiveness Source: Danish Energy Agency, 2009

7. Background: Regulatory setup in Denmark DSO’s as been engaged in energy efficiency since the early 1990. Voluntary agreement between authorities and DSO’s but implemented in Danish legislation The agreements involves 4 sectors: Electricity, district heating, gas and oil and runs from 2010 – 2020 Cost recovery secured approved by the regulator The most important initiative in the Danish Energy Efficiency policy

8. Why do we do it? … Directly or via bundled services and brandingIf we didn’t do it, others would $

9. The Danish obligation scheme

10. Negawatt market The implementation of energy savings projects in households, industries etc. Demand side Created by putting an obligation on someone to demand energy savings or ‘Negawatt’ The Product A ‘Negawatt’ is defined according to M,E,&V guidelines to secure additionality, tackle free rider problems etc. Energy savings obligations is basically a market for energy savings

11. Demand side: The obligation • Obligation on all distribution companies • Obligation according to amount of distributed energy • Target to reduce gross energy consumption: • 2% in 2011 • 4% in 2020 • Translated to end-use consumption: • 10.3 PJ/Yr ~ Approx 1.5% of final energy consumption • 6.1 PJ/yr from energy companies • Full cost recovery scheme with benchmark of economic performance

12. Demand side: The obligation Annual savings target PJ

13. Demand side: The obligation • Evaluation procedure every third year • Internal surveillance according to Directive 2009/72/EF of 13. July 2009 • Internal and external audit every other year • Penalty is the possibility to loose your license to operate as a distribution company • Public benchmarking on Danish Energy Regulatory Authority homepage • Effect: Comparison of distribution companies against each other

14. The Product A Negawatt is: • Final energy • First year savings – not cumulative. • Simple weighting factor are introduced from 2011 • Reflect lifetime, primary energy, non-ETS • DSO can only count savings where they are direct or indirect involved in the implementation • Involvement can be advice, energy audit, subsidies, etc. • Agreements whole way from DSO to consumer before savings are implemented

15. The Product A Negawatt is: • Final energy consumption in all sectors except transport • All end-uses, also ETS • Include local PVs and thermal solar • Loses in grids – especial district heating pipes (2010) • No efficiency improvement in generation • But thermal solar plants are allowed (2010) • Adjusted standardized deemed savings • Control and verification to ensure a priory involvement

16. Measurement of savings A Negawatt is: • Deemed Savings Catalogue • Average saving are calculated for standard activities • Primarily used in households • Specific calculation – engineering methods • Used for all big project • Especially industries, public sector etc. • Behavioral change, information and market transformation have (almost) disappeared from 2010

17. Verification of savings A Negawatt is: • The utilities are responsible for verification, documentation and reporting • External and internal audit and quality control are required • Danish Energy Authority will do special control of the documentation etc. on an annual basis • Documentation must be available • Simple and cost-effective model

18. The Negawatt market • No realisation or commercial activities in distribution companies (EU regulation) • Ensuring a well functioning market with strong competition and as many market players as possible • The core necessaries in order to facilitate a competitive market are: • All energy carriers are included • All end users are included • All legal methods are possible Regulated as other markets

19. The Negawatt market • The distribution companies are not allowed to do very much by themselves • Regulated monopoly companies • Have to involve an actor • Can be another company in the same group • But is very often a private engineering company or a craftsmen, installers etc. • There can be several links from the utility to the consumers The role of the DSO

20. Regulatory setup: Monopoly and market Oil. District Heating. Electricity 540 Distribution companies Danish Energy Association Target (816 GWh savings for eDSO 1.7 TWh for all DSO´s) 69 distribution companies Monopoly Market Other Actors, builders, Energy perf. contractors, 40 Energy service Companies 3.3 M customers 2.8M households 0.5M business

21. Economic figures and results

22. Key economic figures The economics of the scheme is outside the general regulation The utilities are full covered. Expected cost pr kWh saved: 0.5 DKK 6,1 PJ ~ 800 mio. DKK / year Where does the money go? Within the group External contractors Subsidies directly to end user

23. Results Results

24. Results

25. Cost effectiveness Source: Danish Energy Agency, 2009

26. Costs and benefits Energy Company cost 150 mio. Euro (with cost recovery) Households pays approx. 16 Euro per household/year through electricity bill and heat bill (6 Euro/year for electricity alone) The more a costumer use the more he pay Costumer investment 600 mill. Euros Costumers saves 2 bill. € in lifetime of the savings (15 years) Pay back time; Industry 2 years – all other sectors 7 years/average

27. My main points… Energy Savings obligations schemes is the most cost effective element in the energy efficiency strategies in several EU countries We have succeeded in expanding the business opportunity for Danish energy companies Obligation schemes are designed in different ways to support the national energy policy objectives (fuel poverty, transport, energy savings outside ETS etc.)

28. Danish Energy Association • Director of International and EU Affairs • www.danishenergyassociation.com Ulrich Bang