EU, N ational and L ocal P olicy M easures A ffecting the DHC S ector

1. REGENERGY 2ndWorkshopComponent 2 Berlin, 10 May 2006 Michael Krug Environmental Policy Research CentreFreie Universität Berlin EU, National and Local Policy Measures Affecting the DHC Sector

2. Presentation Outline 1. Recently adopted or proposed EU legislation affecting DHC • Biomass Action Plan (2005) • Directive on Energy End-Use Efficiency and Energy Services (2006) • Directive Promoting Heat from Renewable Energy Sources (2006?) 2. National legislation for DHC – the case of Germany • Legislation affecting DHC • Promotional policy measures for DHC 3. Municipal policies promoting DHC in Germany

3. Overview: Selected EU Directives relevant for DHC • Common Rules for the Internal Market for Electricity (2003/54/EC) • Common Rules for the Internal Market for Gas (2003/55/EC) • Electricity from Renewable Energy Sources (2001/77EC) • Promotion of Cogeneration Based on Useful Heat Demand (2004/8/EC) • Taxation of Energy Products and Electricity (2003/96/EC) • Reduced Rates of Value Added Tax (2006/18/EC) • Greenhouse Gas Emissions Allowance Trading Scheme (2003/87/EC) • Pollution from Large Combustion Plants (2001/80/EC) • Sulphur Content of Certain Liquid Fuels (93/12/EEC) • Integrated Pollution Prevention and Control (96/61/EC) • Management and Quality of Ambient Air (96/62/EC) • Energy Performance of Buildings (2002/91/EC) • Energy End-Use Efficiency and Energy Services

4. Recently adopted or proposed EU legislation affecting DHC • Biomass Action Plan (7 Dec 2005) • Directive on Reduced Rates of Value Added Tax (2006/18/EC) • Directive on Energy End-Use Efficiency and Energy Services • Action Plan on Energy Efficiency (spring 2006?) • Directive on Renewable Heating/Cooling (proposal 2006?)

5. Biomass Action Plan (7 Dec 2005) • Commission will encourage DH scheme owners to modernise them and convert them to biomass fuel. • Commission will encourage MS to systematically incentivise in their support systems the production of heat and electricity in biomass fired CHP plants. • Commission to encourage those MS that apply a reduced VAT rate for gas and electricity to apply such a rate to DH too. • Commission may bring forward alegislative proposal on tax issues affecting DH. It will examine whether other measures should be proposed at the same time.

6. Directive onEnergy End-use Efficiency and Energy Services Legislative process • Ambitious proposal by the EU Commission in Dec 2003 • Discussions in EU Parliament and EU Council in 2004/2005 • Compromise agreement between Parliament and Council reached during second parliamentary reading (6 Dec 2005) • Directive formally adopted by the Council (14 March 2006) • Publication in the Official Journal pending/ Entry into force (=+20 days)

7. Directive on Energy End-use Efficiency and Energy Services What is the purpose? To enhance the cost-effective improvement of energy end-use efficiency in the MS indicative targets mechanisms, incentives, institutional, financial and legal frameworks to remove existing market barriers and imperfections conditions for the development and promotion of a market for energy services

8. Directive on Energy End-use Efficiency and Energy Services General provisions • Overall national indicativeenergy savings targetof 9% for the 9th year of application (2009-2017) • Annual energy savings of 1% to be reached by energy efficiency improvement measures and energy services • MS have to draw up National Energy Efficiency Action Plans(to be approved and reviewed by the Commission) • Public sector fulfills an exemplary role • Harmonised M&V system for energy savings (Comitology)

9. Provide aggregated statistical data on their final customers (e.g. load profiles, customer segmentation, etc.) Refrain from activities impeding the demand for or delivery of energy services and other EE measures, or hindering the development of markets for energy services Directive on Energy End-use Efficiency and Energy Services Obligations for energy distributors and retail sales companies (I)

10. MS to select one or more of the following requirements for energy distributors/retail sales companies: Directive on Energy End-use Efficiency and Energy Services Obligations for energy distributorsandretail sales companies (II) 1. offer and promote energy services 2. offer energy audits for final customers 3. contribute to EE funds 4. Voluntary agreements/other market-oriented schemes („White certificates“)

11. Volume-driving incentives in tariffs for net-bound energies to be removed Optional use of funds to subsidise EE improvements Individual metering where technically possible and financially reasonable Informative billing Qualification/accreditation/certification systems for energy service providers Directive on Energy End-use Efficiency and Energy Services Further provisions affecting energy distributors and retail salers

12. Directive on Energy End-use Efficiency and Energy Services • Typical energy services • Indoor thermal comfort • Domestic hot water • Cooking • Lighting/illumination • Refrigeration/cooling • Mobility etc.

13. Directive on Energy End-use Efficiency and Energy Services Summary • No binding targets, but binding measures • Subsidiarity, flexibility for MS • Untapped cost-effective savings potential of 2.5 % annually • Green Paper (2005): ≥20% of total final energy consumption (realisable by 2020) • Methodological challenge: M&V; ex-post evaluation of EE policies and measures • Germany: Many utilities and Stadtwerke are active in offering multiple energy services, like energy performance contracting etc.

14. „The Commission will bring forward a Renewable Energy Road Map. This would cover (…) a new Community Directive on heating and cooling, complementing the Community energy saving framework.“ Green Paper “A European Strategy for Sustainable, Competitive and Secure Energy” (8 March 2006) Towards a European Directive for Renewable Heating and Cooling (RES-H) “Legislation on renewable energy in heating is the missing piece of the jigsaw.“(Biomass Action Plan 2005)

15. Towards a European Directive for Renewable Heating and Cooling (RES-H) Initiative Report for Heating and Cooling from RES adopted by the European Parliament(14 Feb 2006) • Commission to submit a legislative proposal on increasing the share of renewable energy for heating and cooling • Objective: to double the share of RES-H to 20% by 2020 • National binding targets, definitions, National Action Plans • No harmonisation, but different national support schemes and incentive mechanisms • Accompanying measures (e.g. support schemes for highly efficient CHP) • Announcement by Energy Commissioner Piebalgs in the EP plenary session proposing new legislation by end of 2006

16. Towards a European Directive for Renewable Heating and Cooling (RES-H)

17. Ordinance on DH Supply (AVBFernwärmeV) Regulates the contractual relationships between DH suppliers and customers Enables DH supply companies to charge prospective DH customers - to partly cover the costs for the construction of the distribution networks (up to 70%) (Baukostenzuschuss) - to cover the costs for house service connection (Hausanschlusskosten) National legislation for DHC - the case of Germany

18. Further legislation affecting DHC Energy Industry Act Grid Access Ordinances for Electricity/Gas Cogeneration Act Renewable Energy Sources Act Biomass Ordinance Ecological Tax Reform GHG Emissions Trading Act/National Allocation Plan/ Allocation Act 2007 Energy Savings Ordinance Urban Restructuring Programme East Draft Energy Tax Act Renewable Heat Law(discussed) National legislation for DHC - the case of Germany

19. DH Investment programmes ZIP I/II DH Rehabilitation Programme for New Länder 1992-1995 Market Incentive Programme KfW Promotional Bank R&D programmes, e.g. Solarthermie 2000plus (solar assisted DH schemes) Regional support programmes promoting biomass CHP and DHC by several Länder (e.g. Bavaria, Baden-Wurttemberg, Schleswig-Holstein) Promotional policy measures for DHC in Germany

20. Municipal policies promoting DHC in Germany (I) • Local self-government has a long tradition in Germany • Local authorities traditionally provide public services directly through public (multi-)utilities • Each federal state has ist own Local Authority Act leading to differences regarding the scope of manoevre for local governments • Local development planning for new construction areas/energy concepts/Municipal energy management for public buildings, etc. • Several German federal states authorize municipalities to impose mandatory connection and use of DH by a municipal by-law Generally to be based on a „public need“, but also local or global environmental protection rationales, e.g. climate protection

21. Municipal policiespromoting DHC in Germany (II) • Mandatory connection implies a supply duty. • Mandatory connection implies a monopoly situation and DH tariffs are subject to price control according to antitrust law. • Mandatory connection is controversial, but jurisdiction positive. • Many municipalities reserved/prefer alternative strategies by offering competitive prices and attractive conditions • AGFW survey: 12% of overall DH sales • German Federal Building Code enables municipalities to use urban planning contracts under private law to enforce use of renewables or mandatory connection to DH

22. Thanks for your attention... ...and do not fall asleep!