It is imperative to identify obstacles and ways to remove them
A topical subject has become energy traders’ obligation the save energy. What exactly are these obligations and what is the place they hold in the European energy policy?
This is one of the tools to achieve the energy efficiency targets. It has been applied since the 70-ties in the USA and for the last 20 years in Europe, initially in the UK and Denmark.
The energy savings obligation was introduced in the European legislation in 2012. The Energy Efficiency Directive defines a set of measures, including this scheme, to attain a 20% energy efficiency improvement by 2020.
Out of the 28 Member States, 16 have notified the European Commission of their intention to implement the obligation scheme in order to meet the indicative national energy efficiency targets by 2020. Four of these 16 countries, Bulgaria among them, have indicated formally their intention to use solely this scheme in order to achieve the targets. The remaining countries have no intention to use it at all. Instead, they will put in place a wide array of measures, such as energy and carbon taxes, financial schemes, fiscal incentives, dynamic pricing, modern metering, voluntary agreements, etc.
EC reports make it clear that the obligation scheme is expected to meet 1/3 of the 2020 European energy efficiency targets.
Initially, Bulgaria indicated that this scheme would be the single tool employed to meet the targets. Later the energy efficiency plans were supplemented by measures, such as the well-known grants for buildings retrofitting financed in full by the national budget. That is why Bulgaria continues to have much more ambitious expectations than the average for Europe with respect to the obligation scheme. In fact, the country believes that it can achieve the better part of not only the 2020 targets, but also the 2030 targets by implementing this scheme.
You said that Bulgaria relies on the energy savings obligation scheme to meet not only the 2020 but also the 2030 energy efficiency targets. What is the rationale behind this certainty? Has the scheme implementation given good results so far?
The obligation scheme is part of the national legislation. It has been applied since 2014. Obligations under the scheme have 89 fuel and energy traders. Individual savings targets are set on annual basis and are calculated as a percentage of sales. For instance, the 2017 overall target was to prove savings amounting to 703 294 MWh, for 2018 – 1 497 029 MWh. Let me explain so that you can get an idea of these figures meaning – the 2018 target is comparable to the annual consumption of 500 000 households.
What are the results of scheme implementation? In a nutshell – the scheme does not work. Data of the Agency for Sustainable Energy Development indicate that implementation is only 8.5% of the total savings target for 2017. Only 10 out of the 89 traders assigned with savings obligations, mainly gas-distribution enterprises, have found a way to align license obligations with energy savings obligations, and have met the individual targets of the enterprise. Electricity traders, end-suppliers to CEZ, EVN and ENERGO-PRO, central heating systems, large companies such as Bulgargaz, Devin, Shell, NEC, report zero (or close to zero) savings. Data for 2018 are still unavailable but we can hardly expect them to be more optimistic.
That is why we need an analysis identifying obstacles to scheme implementation and ways to remove them. In case obstacles are unsurpassable, we need to consider alternative measures that could replace the savings scheme, particularly in the context of the forthcoming ten-year period and the Integrated National Energy and Climate Plan currently under preparation.
What do you think are the reasons for implementation failure of the energy savings obligation scheme at national level?
The reasons become apparent when the Directive is read carefully and when the good practice of other European countries is compared to the national practice.
First of all, the liable persons have the obligation to implement energy efficiency measures for third persons, usually clients, but not to finance such measures. The underlying principle of the scheme is that the costs borne by the energy efficiency measures have to be calculated, and the funds – secured in advance. Funding mechanisms and sources could be quite diverse – by way of prices, budget funds, European funds and programmes, etc. – depending on national specifics. Usually measures and funding are negotiated prior to implementation so that there is a clear framework and financial certainty. For example, the UK has identified measures coupled with the respective financial support not only for the current but also for the next three years. The updated budget approved for the liable persons is about €700M and is secured by means of prices.
Second, the Directive stipulates that targets need to be met in a cost-effective manner. To avoid a chaotic selection of energy efficiency measures that liable persons can easily carry out but are not the best for society, European countries deploy such measures in time and space, so to speak. That is to say that liable persons need to be perfectly clear on what, where, for whom and when anything is to be done. Usually, measures are grouped in an optimal manner – long-term, mid-tem, expensive and cheap – to fit the financial resource provided, and to make sure any saved MWh is at the lowest cost.
Otherwise there is a risk to meet the energy efficiency targets in a way the renewable energy objectives have been achieved, at a record high price. In 2012 the Bulgarian price for 1 MWh installed photovoltaic capacity was the highest in the world.
Are there any other ways set out in the Energy Efficiency Law that enable liable persons to comply with their obligations, for instance, by purchasing energy savings certificates held by third persons. Why not use such an option?
Some national energy savings obligation schemes, including the Bulgarian one, allow a transfer between liable persons and/or between liable persons and third parties. However, the national legislation stipulates such a possibility only theoretically. No application rules have been elaborated. Settling both statutory and practical aspects of the environment for such transactions will make this option feasible.
But this prospect is still in a more distant future. The first stage involves setting up the environment needed for direct interventions at end-user side to improve user energy efficiency. Only then we can think of a more sophisticated version and to establish a designated financial market.
None of this, however, solves our domestic problem, namely, the financial considerations of liable persons in the process of national objectives and policies implementation.
Information has become available that Bulgaria is under the threat of substantial financial sanctions by EC because power distribution enterprises fail to observe their energy savings obligations. Would you elaborate on this?
At the end of January, EC issued letters of formal notice to 15 Member States regarding correct transposition of Energy Efficiency Directive into national legislations. A two-month response period was granted to these Member States. After this deadline, should the actions undertaken by the respective Member State be unsatisfactory, EC may proceed with the second phase of the infringement procedure and send a reasoned opinion to the respective Member States.
The specifics of the letter send to Bulgaria have not been made public but the announcement itself clearly indicates that there are issues, and probably omissions, in the Directive transposed into the national legislation. Such letters contain standard wordings and are often used by EC. Responses can also be considered standard ones. Competent institutions assess whether and what amendments have to be introduced into the relevant legislative pieces, and notify the Commission about the steps undertaken, and the procedure is terminated. Since the issue is about transposing European documents into national legislation, obviously the responsibility is borne by the national institutions entrusted with law-making functions.
Therefore, claims that EC letter refers to energy companies failing to achieve energy savings are groundless. It is reassuring that no sanctions will ensue from the letter.
