are HORIZONTAL MEASURES (taxes, …) useful within this Directive?

1. HORIZONTAL MEASURES (taxes, regulations, standards and norms, information campaigns) are useful, but … • E.g. minimum efficiency standards take away from the market the worst equipment and systems (class D refrigerators), but vertical measures (Programmes&Services) are needed to remove barriers to the open the market for the best cost-effective technologies • E.g. penetration of energy efficiency appliances (A) in the Netherlands is almost twice the average than in EU, thanks to a Programme of incentives. • Similar vertical measures (incentives for condensing boilers, efficient motors,...) proved successful in UK, DK.. Prof. Lorenzo Pagliano Director of eERG - University of Milano

2. are HORIZONTAL MEASURES (taxes, …) useful within this Directive? • Objective of the Directive: “There is a clear need to improve the functioning of the energy market by removing barriers ....” • e’.g the investor-users dilemma, limited access to capital, … which will not be modified by increasing prices e.g. by a tax • in Italy in spite of high prices of energy, electric air conditioning grew very fast in the last 10 y, and nothing happened for improving buildings through solar protections, selective glazing, passive cooling. • The 2005-2010 Italian program just confirmed will work actively (through vertical measures-P&S-) to promote those technologies Prof. Lorenzo Pagliano Director of eERG - University of Milano

3. The 1% savings objective can be reached via Energy Efficiency Programmes and Services based on VERTICAL measures ONLY • through vertical measures (active actions targeted to customers –e.g. economic incentives- or market actors –e.g. training of installers). • SAVE study BEST on : 1% of savings /y can be achieved and 10 Billion euros/y saved net of investment costs and (bottom-up) evaluation cost • Analysis is presented in the Report (www.eerg.it) and discussed in 7 national workshops and an international conference in Bruxelles Prof. Lorenzo Pagliano Director of eERG - University of Milano

4. Adjusting thelevel of the saving target • If the Directive includes also horizontal measures it will then include EVERY possible action to save energy, • then the 1% target will no more be adequate, and we should aim at 2-3%/y savings • but this brings in evaluation problems, Prof. Lorenzo Pagliano Director of eERG - University of Milano

5. What bottom up methods can estimate and with which uncertainty • bottom-up evaluation of a vertical measure (e.g. increased wall insulation or windows performance), is precise an with good ratio quality/costs • evaluate the uncertainty about the of savings in an individual building • evaluate the uncertainty introduced by sampling (e.g. checking directly 5 buildings out of 100) • combine those uncertainties to obtain the level of uncertainty about the effect of the entire programme and the confidence level. • E.g 10% uncertainty at 90% confidence: there is a 90% probability to get the real value of savings with an error of less than 10%. • Costs are in the order of 2-3% of total cost of savings • In fact every evaluation should be accompanied by the specification of uncertainty and confidence level. Prof. Lorenzo Pagliano Director of eERG - University of Milano

6. What top-down (aggregate) methods can estimate and with which uncertainty • it is not feasible to start from the behaviour of the entire economy to get down to estimate the effects of single programmes. • Italy 2003: electricity consumption +2.9%, GDP + 0.4%, that is electricity intensity + 2.5% . How do we go from this data to an evaluation of effects of EE programmes going on in 2003 in Italy? • data on energy intensity, have to be corrected to eliminate the effects of changes in economic activity, changes in the structure of the economy, effects of climate,… • even if relative (%) errors were low, absolute errors are large compared to the quantity we would like to measure/estimate (the savings),. Prof. Lorenzo Pagliano Director of eERG - University of Milano

7. Use each methodology where more appropriate • Vertical measures should be evaluated via a bottom-up methodology (precise, good ratio quality/costs) • Vertical measures are the more direct way to overcome barriers and achieve the 1% target • If we consider in this directive also horizontal measures, accordingly the target should be increased to 2-3% • Global trends in energy consumption can be followed via aggregated (top-down) models • Bottom-up evaluation of savings of vertical measures will be an extremely important source of data to fill the aggregated models with good quality and up to date information on energy efficient technologies, penetration rates,.. Prof. Lorenzo Pagliano Director of eERG - University of Milano

8. What are the costs of evaluating the savings of EnEff Programmes & Services via a bottom-upmethodology? • E.g. UK National Audit Office 1998 (ex-post analysis): • Economic Benefits 4 times larger than total costs (including costs for bottom-up evaluation), • Compare with costs of restructuring/liberalization: Prof. Lorenzo Pagliano Director of eERG - University of Milano

9. Costs of EnEff P&S and evaluation are in fact investments with a high IRR • in UK creating retail competition for small customers had a cost of nearly 1 Billion Euros [Offer, 1997], • the cost of the newly redesigned UK wholesale market (NETA) is estimated to exceed 800 M Euros [ “Energy Policy” 2003] • running the Balancing Market element of wholesale market alone costs 110 M Euros/y [”Power UK” 2002a], Prof. Lorenzo Pagliano Director of eERG - University of Milano

10. Bibliography1 • EU Commission 2000: Green Paper Towards a European strategy for the security of supply (COM (2000) 769 final), 29th November 2000. • EU Commission 2001a: European Climate Change Programme; Report – June 2001 • EU Commission 2001b: Communication from the Commission to the European Parliament and the Council “European energy infrastructure” COM(2001) 775 final, 20 December 2001 • EU Commission 2002a: Implementing the Internal Energy Market, first benchmarking report, • EU Commission 2002b: second benchmarking report on the implementation of the internal electricity and gas markets, 01/10/2002 • Goldmann et al. 1998: The Energy Services Company (ESCO) Industry: Industry and Market Trends , D. S. Dayton HEC Inc., Natick, MA, C. Goldman and S. Pickle, LBNL,In the Proceedings of the 1998 ACEEE's Summer Study on Energy Efficiency in Buildings:August 1998. Prof. Lorenzo Pagliano Director of eERG - University of Milano

11. Bibliography2 • Goldmann et al. 2002: Assessing U.S. ESCO Industry: Results from the NAESCO Database Project, J. Osborn, C. Goldman and N. Hopper – LBNL, T. Singer – NAESCO, In the proceedings of the ACEEE’s Summer Study on Energy Efficiency in Buildings, August 2002 • OFFER 1997: Supply price restraint proposals. Offer Press Release R44/97, 16 October 1997. • Power UK, 2002a: One year on—has NETA been a success? Power UK, March 2002, p. 16. • Power UK, 2002b: Prices fall for some but stay the same for others. Power UK, March 2002, pp. 27–28. • Wuppertal Institute, Politecnico di Milano et al. 2000: Completing the Market for Least-Cost Energy Services, Strengthening Energy Efficiency in the Changing European Electricity and Gas Markets, A Study under the SAVE Programme, Project Final Report. Prof. Lorenzo Pagliano Director of eERG - University of Milano

12. Riduzione del 50% dei costi delle technologie efficienti (1996-2001, dati EST) Prof. Lorenzo Pagliano Director of eERG - University of Milano

13. Prof. Lorenzo Pagliano Director of eERG - University of Milano