November 27, 2012
Energy efficiency seems to have many supporters, but in practice efficiency obligations are often seen as an additional cost that could be put off until later. It is often forgotten that energy saving measures offer important business opportunities. It is in this light that one should look at the recently adopted Energy Efficiency Directive (EED).
While there are many important elements of the EED, I will concentrate on selected provisions which are particularly relevant for business: buildings renovation strategies; public sector obligations on public procurement and renovation of public buildings; energy audits; and energy efficiency obligation schemes.
It is crucial to remember that, due to how the EED is drafted, Member State ambition level will have a significant impact on how it is used. This is because the Directive includes some obligations, but also non-legally binding encouragements and lots of options to apply alternative measures.
Another important point is that the EED establishes minimum requirements and Member States may go beyond these. Minimal transposition and implementation would not be sufficient to boost Member States’ economies; what is important is to grab all the possibilities the EED offers and fully exploit its potential.
New business opportunities and local jobs might come from the requirement that Member States each establish a long-term strategy to mobilise investment in renovation of residential and commercial buildings. The first version of these strategies will be published by 30 April 2014, then be updated every three years. The EED only lists the bare minimum of five elements the strategy should encompass, and Member States have flexibility regarding its legal form, management and content details. If designed properly at national level this measure could give the certainty companies need for long-term planning and investment. A legally binding and enforceable document which clearly describes obligations and responsibilities would definitely offer enterprises interesting business opportunities.
Public sector savings
Important business opportunities also lie in two public sector obligations, namely the public procurement provisions and those concerning building renovation. However, their real impact also depends on Member States’ goodwill. Both obligations apply only to central governments, yet they encourage Member States to apply similar measures at lower levels. Unfortunately, the two obligations are also subject to a number of additional conditions which restrict their scope and make them less attractive for business.
In the case of public procurement, purchasing products, services and buildings with high energy-efficiency performance is only required of Member States insofar as it is consistent with cost-effectiveness, economical feasibility, wider sustainability, technical suitability and sufficient competition. In the case of public building renovation, the 3% annual renovation rate is calculated on the basis of the total floor area of buildings not meeting national minimum energy performance requirements. It applies only to properties which are both owned and occupied by central government, have a floor area over 500m2 and, as of 9 July 2015, over 250m2. Moreover, the EED also offers Member States alternatives to the annual 3% renovation obligation. These can include deep renovations or occupant behavioural change, and must bring savings equal to the annual 3% obligation.
Four-yearly energy audits, obligatory for big businesses and encouraged for SMEs, are a very good example of an obligation which may seem troublesome at first (obviously audits cost money), but in the end can benefit company budgets by lowering running costs.
One of the most important obligations in the EED is for Member States to establish energy efficiency schemes, creating the possibility for energy distributors and/or retail energy sales companies to change their business model. Unfortunately, there are still quite a lot of unknown elements surrounding this obligation. It aims to ensure energy distributors and/or retail energy sales companies make annual savings of 1.5%. However, it also allows Member States to lower this amount by up to 25%. In addition, Member States have flexibility regarding how the calculated quantity of new savings is phased over the period. On the top of that, Member States may also opt for other policy measures offering an alternative to setting up an energy efficiency obligation scheme. Therefore, it is quite uncertain what this provision will bring. The various options open to Member States mean it is difficult to predict what energy savings this measure ultimately offers.
The EED brings very interesting business opportunities which, everybody must agree, are very welcome in times of crisis. The burden is now on Member States to take advantage of them. Hopefully, they will see the economic potential of EED and grab it with both hands.
By Marta Toporek, ClientEarth climate and energy lawyer