4 Energy end-use efficiency and energy
services
| (25197)
16261/03
COM(03) 739
| Draft Directive on energy end-use efficiency and energy services
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| Legal base | Article 175(1)EC; co-decision; QMV
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| Department | Environment, Food and Rural Affairs
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| Basis of consideration | SEM of 7 December 2004
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| Previous Committee Report | HC 42-xxi (2003-04), para 4 (26 May 2004)
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information awaited
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Background
4.1 Greater energy efficiency has been recognised as a useful
means of helping the Community to meet its Kyoto commitments to
reduce greenhouse gas emissions, and (through reducing demand)
of improving its security of supply. The Commission believes that
increased end-use efficiency[13]
can play an important part in bringing about such savings. It
therefore set out in December 2003 this proposal, establishing
the targets, mechanisms, incentives and frameworks it believes
are needed to develop a market for energy services and for the
delivery of energy efficiency programmes to end users. As such,
it also sees these measures as complementing those adopted last
year on the opening of the internal markets for electricity and
gas, aimed at supply-side efficiency improvements.
4.2 As we noted in our Report of 26 May 2004, the
proposal would require Member States (among other things):
- to set a mandatory target whereby
1% of the average energy distributed and/or sold to final consumers
in the previous five years would have to be saved each year for
the next six years on a cumulative basis;
- to set an equivalent target of 1.5% in the public
sector, and to promote energy efficiency through public procurement;
- to ensure that distributors and retailers of
energy offer and actively promote energy services and provide
free energy audits;
- to remove distribution tariffs providing an incentive
to increase the volume of transmitted energy, whilst ensuring
that competitive costs of investments to improve efficiency can
be recovered; and
- to ensure that customers have available individual
meters showing actual consumption and time of use, and are provided
with informative billing of energy consumption.
4.3 In addition to these mandatory provisions, the
proposal would enable Member States to establish funds for energy
efficiency programmes, and it would also leave open the possibility
of the Commission coming forward with a proposal to develop further
the market approach in energy efficiency by means of so-called
"white certificates".[14]
4.4 We also noted that, although the Government supported
the general aim of the proposal, it did not have a final position
on the proposal. However, there were a number of key issues which
caused it concern, including in particular whether, instead of
a mandatory target, Member States should be left to decide on
the best mix of policy instruments; the considerable potential
costs associated with actual-time-of-use metering; and the interaction
of certain requirements, such as those relating to distribution
tariffs, with the liberalisation of the markets for gas and electricity.
4.5 These issues were also addressed in more detail
in a partial Regulatory Impact Assessment, which made it clear
that there are a number of major uncertainties, notably the extent
to which the measures set out in the Government's recent Energy
Efficiency Action Plan can be taken into account in meeting the
mandatory savings targets. The Assessment suggested that these
targets were likely to be realised by the measures in the Action
Plan, but added that, if additional measures were required, this
could involve capital investment costs of £1-2 billion a
year over the six-year period specified, as against savings in
energy costs rising from £250-350 million in the first year
to £1.5-2.1 billion by the end of the period. Other significant
costs would arise from the provision of actual-time-of-use meters
and the collection and processing of the relevant data, as well
as from the provision of free energy audits, and the accreditation
of energy services.
4.6 Given these factors, we said that we found it
difficult to assess the significance of the various measures,
and that we were at that stage simply reporting the situation
to the House, whilst continuing to hold the document under scrutiny,
pending the receipt of the further information from the Government.
Supplementary Explanatory Memorandum of 7 December
2004
4.7 We have now received from the Parliamentary Under-Secretary
of State (Farming, Foods and Sustainable Energy) at the Department
for Environment, Food and Rural Affairs (Lord Whitty) a supplementary
Explanatory Memorandum of 7 December 2004, indicating that, following
a public consultation exercise, and the clarification of a number
of issues during negotiations, the Government has now adopted
a position on the proposal.
4.8 He says that the Government welcomes the aim
of the measures as being consistent with the emphasis on improving
energy efficiency in the Energy White Paper and the detailed policies
set out in its Energy Efficiency Action Plan. He adds that the
Directive has the potential to act as a useful tool in helping
to deliver increased energy savings in the UK and in encouraging
other Member States to match the sort of levels already achieved
here, as well as encouraging them to make the explicit link between
the supply of energy and energy efficiency which already exists
in the UK. However, the Minister also identifies a number of areas
where he believes that the current text can be improved in order
to ensure that the eventual directive is cost-effective and neither
overly-prescriptive nor in conflict with the provisions of the
internal energy market.
4.9 First, on the adoption of mandatory savings targets,
he points out that the methodology to be used for measuring compliance
is at present still unclear, and that the Commission is actively
seeking an input from Member States on this. In the meantime,
he says that, although a preliminary assessment suggests that
the UK would be able to meet the target on the basis of work already
undertaken and the range of measures set out in the Energy Efficiency
Action Plan, the adoption of mandatory targets would represent
a significant change of approach. It considers that a uniform
six year indicative target, together with the ability to take
into consideration the continuing impacts of earlier actions to
improve energy efficiency, would provide the necessary flexibility
for Member States. It also believes that such a target would be
realistically achievable for all Member States, whilst the taking
into account of earlier measures would effectively recognise their
different starting points.
4.10 Secondly, the Government strongly agrees with
the need for an explicit link between the supply of energy and
the promotion and delivery of energy efficiency, and it believes
that, since the energy services approach has the potential to
deliver energy savings, Member States should be required to remove
any existing barriers to such services. However, it considers
that the requirement in the proposal for energy suppliers to offer
and actively promote energy services is too narrowly focussed,
and that this should instead be linked to the promotion of energy
efficiency as a whole. In particular, the Minister says that
this wider approach has worked very successfully in the UK, and
would allow suppliers the freedom to determine the most efficient,
innovative and cost-effective means of delivering improved energy
efficiency.
4.11 Thirdly, the Minister says that, whilst the
metering and billing requirements in the proposal are generally
welcome, and have the potential to provide consumers with better
and more comprehensive information, the requirement for "actual
time of use meters" implies some form of smart metering.
He points out that existing UK meters would not comply with this
requirement, and that the potential costs of such a wholesale
replacement programme would be very significant, and that it would
also be impractical in the timescale currently set out in the
proposal (by the end of June 2006). The Minister adds that the
Government considers that smart metering has the potential to
deliver energy savings, particularly in the business sector, but
that it does not at present have sufficient evidence of the potential
costs and benefits to justify agreeing a commitment to a wholesale
replacement programme. It therefore believes that it should be
for Member States to determine on a national basis whether this
requirement, if applied to all new and replacement meters, is
cost effective in some, or all, sectors and circumstances.
4.12 The Minister has also provided a brief update
on the negotiations on the proposal. He says that there has been
some progress, and that the Netherlands Presidency has issued
a revised text which goes some way to addressing the UK's key
concerns. Although the Commission remains committed to mandatory
targets, this is opposed by all Member States, though there is
a split between those (such as the UK) which favour a uniform
indicative target and those which want the freedom to set their
own national targets. There is also broad support from Member
States for placing a broader energy efficiency obligation on energy
suppliers, rather than focussing on just one approach. Finally,
he says that the Presidency text has introduced an element of
cost-effectiveness into the metering and billing requirements,
though this has not so far been discussed in detail.
Conclusion
4.13 We are grateful to the Minister for this
further information, from which it appears that some at least
of the UK's earlier concerns about this proposal have been addressed.
Equally, it is clear that uncertainties still remain, particularly
over the potentially costly metering and billing aspects of the
proposal. For that reason, we think it prudent to hold the document
under scrutiny, and to ask the Government to continue to keep
us informed of any significant developments.
13 Involving the provision by suppliers of an integrated
package under which the consumer makes a single payment for energy,
energy-using equipment or technology and energy efficiency measures. Back
14
Which would confirm claims of energy savings achieved as a consequence
of energy end-use efficiency measures. Back
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