Best Practices in Designing and 

Implementing Energy Efficiency 

Obligation Schemes

Research Report

Task XXII of the International Energy Agency

Demand Side Management Programme

June 2012

Report prepared by:

The Regulatory Assistance Project
Electronic copies of this paper and other RAP publications 

can be found on our website at www.raponline.org.

To be added to our distribution list, 

please send relevant contact information to 

info@raponline.org.

The Regulatory Assistance Project (RAP) is a global, non-profit team 

of experts focussed on the long-term economic and environmental 

sustainability of the power and natural gas sectors. We provide technical 

and policy assistance on regulatory and market policies that promote 

economic efficiency, environmental protection, system reliability, and the 

fair allocation of system benefits among consumers. We have worked 

extensively in the United States since 1992 and in China since 1999. We 

added programs and offices in the European Union in 2009 and plan 

to offer similar services in India in the near future. Visit our website at 

www.raponline.org to learn more about our work.

IEA DSM Secretariat:

Anne Bengtson

IEA DSM Executive Secretary

Liljeholmstorget 18

SE-11761 Stockholm

Sweden

Mobile: +46 70 781 8501

Email: anne.bengtson@telia.com

Website: http://www.ieadsm.org/
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

The IEA Demand Side Management Programme. . . . iv

Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Abbreviations And Acronyms. . . . . . . . . . . . . . . . . . . . . x

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 Energy Efficiency Obligations. . . . . . . . . . . . . . . . 1

1.2 Purpose of this Report. . . . . . . . . . . . . . . . . . . . . 1

2. Designing And Implementing Energy Efficiency 

Obligation Schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2.1 Policy Objectives. . . . . . . . . . . . . . . . . . . . . . . . . 2

2.2 Legal Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.3 Fuel Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.4 Sector and Facility Coverage. . . . . . . . . . . . . . . . 3

2.5 Energy Saving Target. . . . . . . . . . . . . . . . . . . . . . 3

2.6 Obligated Parties. . . . . . . . . . . . . . . . . . . . . . . . . 4

2.7 Compliance Regime. . . . . . . . . . . . . . . . . . . . . . . 5

2.8 Performance Incentives. . . . . . . . . . . . . . . . . . . . 5

2.9 Eligible Energy Savings. . . . . . . . . . . . . . . . . . . . . 5

2.10 Eligible Energy Efficiency Measures. . . . . . . . . . . 6

2.11 Measurement, Verification, and Reporting. . . . . . 6

2.12 Trading of Energy Savings. . . . . . . . . . . . . . . . . . 6

2.13 Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.14 Scheme Administration. . . . . . . . . . . . . . . . . . . . 7

2.15 Scheme Results. . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.16 Areas for Improvement. . . . . . . . . . . . . . . . . . . . . 7

3. Experiences In Individual Jurisdictions. . . . . . . . . . 8

3.1 Australia – New South Wales. . . . . . . . . . . . . . . . 8

3.2 Australia – South Australia. . . . . . . . . . . . . . . . . 16

3.3 Australia – Victoria. . . . . . . . . . . . . . . . . . . . . . . 22

3.4 Belgium – Flanders. . . . . . . . . . . . . . . . . . . . . . . 27

3.5 Canada – Ontario. . . . . . . . . . . . . . . . . . . . . . . . 32

Table Of Contents

3.6 China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

3.7 Denmark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

3.8 France. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

3.9 Italy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

3.10 Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

3.11 Poland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

3.12 United Kingdom. . . . . . . . . . . . . . . . . . . . . . . . . 64

3.13 United States – California. . . . . . . . . . . . . . . . . . 70

3.14 United States – Connecticut. . . . . . . . . . . . . . . . 74

3.15 United States – Massachusetts. . . . . . . . . . . . . . 79

3.16 United States – Minnesota. . . . . . . . . . . . . . . . . 83

3.17 United States – New York. . . . . . . . . . . . . . . . . . 86

3.18 United States – Texas. . . . . . . . . . . . . . . . . . . . . 92

3.19 United States – Vermont. . . . . . . . . . . . . . . . . . . 96

4. Best Practices In Energy Efficiency Obligations. . 101

4.1 Policy Objectives. . . . . . . . . . . . . . . . . . . . . . . 101

4.2 Legal Authority. . . . . . . . . . . . . . . . . . . . . . . . . 101

4.3 Fuel Coverage. . . . . . . . . . . . . . . . . . . . . . . . . 101

4.4 Sector and Facility Coverage. . . . . . . . . . . . . . 102

4.5 Energy Saving Target. . . . . . . . . . . . . . . . . . . . 102

4.6 Obligated Parties. . . . . . . . . . . . . . . . . . . . . . . 103

4.7 Compliance Regime. . . . . . . . . . . . . . . . . . . . . 103

4.8 Performance Incentives. . . . . . . . . . . . . . . . . . 104

4.9 Eligible Energy Savings. . . . . . . . . . . . . . . . . . . 104

4.10 Eligible Energy Efficiency Measures. . . . . . . . . 104

4.11 Measurement, Verification, and Reporting. . . . 104

4.12 Trading of Energy Savings. . . . . . . . . . . . . . . . 105

4.13 Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

5. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Appendix: Comparison of Key Design Parameters 

Among Energy Efficiency Obligation Schemes. . . . . . 116
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

List Of Tables

Table 1 Targets for the New South Wales Energy Savings Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Table 2 Targets for the South Australian Residential Energy Efficiency Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Table 3 Targets for Obligated Energy Retailers in the South Australian Residential 

Energy Efficiency Scheme, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Table 4 Selected Eligible Energy Efficiency Measures in the South Australian Residential 

Energy Efficiency Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Table 5 Deemed Values for Selected Draught Proofing Activities in the South Australian 

Residential Energy Efficiency Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Table 6 Results Against Targets for the South Australian Residential Energy Efficiency Scheme, 2009. . . . . . . . . . . 22

Table 7 Categories of Prescribed Activities in the Victorian Energy Efficiency Target Scheme. . . . . . . . . . . . . . . . . . 25

Table 8 Victorian Energy Efficiency Certificates in Circulation as of 29 March 2012. . . . . . . . . . . . . . . . . . . . . . . . . 26

Table 9 Results of the Flemish Efficiency Obligation Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 10 Performance Incentives Under the Conservation and Demand Management Code 

for Electricity Distributors in Ontario. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Table 11 Compliance Evaluation Scheme for the DSM Rule in China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Table 12 Recorded Energy Savings per Sector in Denmark, 2006 to 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Table 13 DSM Programmes Planned by Energy Utilities in Korea, 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Table 14 DSM Investment by Energy Utilities in Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Table 15 Energy Savings in Connecticut, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Table 16 Energy Saving Targets in Massachusetts, 2010 to 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Table 17 Annual Reports for Electricity and Gas Energy Efficiency Programmes in Massachusetts. . . . . . . . . . . . . . . 83

Table 18 Cumulative Annual Electricity Savings, Demand Reductions, and Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Table 19 Annual Energy Efficiency Budgets in Vermont, 2009 to 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
iii

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

List Of Figures

Figure 1 The Lifecycle of an Energy Savings Certificate in the New South Wales Energy Savings Scheme. . . . . . . . . 11

Figure 2 Spot Price for Energy Savings Certificates Compared with the Penalty Level in the 

New South Wales Energy Savings Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Figure 3 Sources of Certificates Created under the Demand Side Abatement Rule of the 

New South Wales Greenhouse Gas Reduction Scheme, 2003 and 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Figure 4 Historic Spot Price and Cumulative Registrations of Victorian Energy Efficiency Certificates. . . . . . . . . . . . 26

Figure 5 Shares of the Danish Energy Saving Target by Obligated Party, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Figure 6 Cost of Energy Savings from Various Policy Instruments in Denmark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Figure 7 Energy Savings During the First Compliance Period in the French 

Energy Efficiency Certificate Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Figure 8 Cumulative Certified Energy Savings Achieved in the Italian Energy Efficiency Certificate 

Scheme to the End of 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Figure 9 Reporting Relationships for Energy Utility DSM in Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Figure 10 Relationship between Performance and Incentive Award for Utility Programmes in New York. . . . . . . . . . . 88

Figure 11 Overview of Texas Energy Efficiency Programmes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Figure 12 Annualised Electricity Savings in Vermont, 2000 to 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
iv

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

The International Energy Agency (IEA) was 

established in 1974 as an autonomous agency 

within the framework of the Economic 

Cooperation and Development (OECD) to carry 

out a comprehensive programme of energy cooperation 

among its 25 Member countries and the Commission of the 

European Communities.

An important part of the Agency’s programme 

involves collaboration in the research, development, and 

demonstration of new energy technologies to reduce 

excessive reliance on imported oil, to increase long-term 

energy security, and to reduce greenhouse gas emissions. The 

IEA’s R&D activities are headed by the Committee on Energy 

Research and Technology (CERT) and supported by a small 

Secretariat staff headquartered in Paris. In addition, three 

Working Parties are charged with monitoring the various 

collaborative energy agreements, identifying new areas for 

cooperation and advising the CERT on policy matters.

Collaborative programmes in the various energy 

technology areas are conducted under Implementing 

Agreements, which are signed by contracting parties 

(government agencies or entities designated by them). 

There are currently over 40 Implementing Agreements, 

including the IEA Demand-Side Management (DSM) 

Programme. Since 1993, the following countries and 

organisations have been working to clarify and promote 

opportunities for DSM.

The IEA Demand Side Management Programme

Australia

Austria

Belgium

Canada

Denmark

European Commission

Finland

France

Greece

Italy

India

Japan (Sponsor)

Republic of Korea

Netherlands

New Zealand

Norway

Spain

Sweden

Switzerland

The Regulatory Assistance 

Project (Sponsor)

United Kingdom 

United States 

A total of 24 Tasks (multinational collaborative research 

projects) have been initiated by the IEA DSM Programme, 

16 of which have been completed and one not proceeded 

with. Each Task is managed by an Operating Agent 

(Project Director) from one of the participating countries. 

The Operating Agent is responsible for overall project 

management, including project deliverables, milestones, 

schedule, budget, and communications. Overall control 

of the programme rests with an Executive Committee 

comprised of one representative from each contracting 

party to the Implementing Agreement. In addition, a 

number of special ad hoc activities—conferences and 

workshops—have been organised.

The actual research work for a Task is carried out by 

a combination of the Operating Agent and a group of 

Country Experts, depending on the nature of the work to 

be carried out. Each country that is participating in a Task 

nominates one or more persons as its Country Expert. Each 

Expert is responsible for carrying out any research work 

within his or her country that is required for the Task. All 

the Experts meet regularly to review and assess the progress 

of the work completed by the Operating Agent and by 

the group of Experts. Experts meetings are usually held 

between two and four times a year.

The IEA DSM Programme has undertaken the following 

Tasks to date:

Task I* International Database on Demand-Side 

Management

Task II* Communications Technologies for DemandSide Management

Task III* Cooperative Procurement of Innovative 

Technologies for Demand-Side Management

Task IV* Development of Improved Methods for 

Integrating Demand-Side Management

Task V* Investigation of Techniques for

Implementation of Demand-Side

Management Technology in the Marketplace
v

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Task VI* Mechanisms for Promoting DSM and Energy 

Efficiency in Changing Electricity Businesses

Task VII* International Collaboration on Market 

Transformation

Task VIII* Demand-Side Bidding in a Competitive 

Electricity Market

Task IX* The Role of Municipalities in a Liberalised 

System

Task X* Performance Contracting

Task XI* Time of Use Pricing and Energy Use for 

Demand Management Delivery

Task XII* Cooperation on Energy Standards 

(not proceeded with)

Task XIII* Demand Response Resources

Task XIV* Market Mechanisms for White Certificates 

Trading

Task XV* Network-Driven Demand Side Management

Task XVI Competitive Energy Services

Task XVII Integration of Demand Side Management,

Energy Efficiency, Distributed Generation, 

and Renewable Energy Sources

Task XVIII* Demand Side Management and Climate 

Change

Task XIX* Micro Demand Response and Energy Saving

Task XX Branding of Energy Efficiency

Task XXI Standardisation of Energy Savings Calculations

Task XXII Energy Efficiency Portfolio Standards

Task XXIII The Role of Customers in Delivering 

Effective Smart Grids

Task XXIV Closing the Loop—Behaviour Change in DSM:

From Theory to Policies and Practice

* Completed Task

For additional information contact:

Anne Bengtson

IEA DSM Executive Secretary

Liljeholmstorget 18

SE-11761 Stockholm

Sweden

Mobile: +46 70 781 8501

Email: anne.bengtson@telia.com

Also visit our website at: http://www.ieadsm.org/
vi

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

This report is a result of work that was completed 

within Task XXII of the International Energy 

Agency Demand-Side Management Programme. 

Task XXII is a multinational collaborative 

research project that is investigating best practices in 

designing and implementing energy efficiency obligation 

schemes.

The original idea for Task XXII was developed by 

Balawant Joshi, Managing Partner of ABPS Infra Pvte Ltd, 

based in Mumbai, India.  Balawant is the Operating Agent 

(Project Director) for Task XXII.

The work of Task XXII is supported through task sharing 

by the Operating Agent and the Regulatory Assistance 

Project (RAP). RAP is a global, non-profit team of experts 

that focuses on the long-term economic and environmental 

sustainability of the electricity and natural gas sectors, 

providing technical and policy assistance to government 

officials on a broad range of energy and environmental 

issues.

This report was prepared by RAP based on research 

carried out by the Operating Agent and by the RAP 

Research team. The case studies of energy efficiency 

obligation schemes implemented in various jurisdictions 

were researched and written by John Gerhard, Camille 

Kadoch, Edith Pike-Biegunska, Anna Sommer, Wang 

Xuan, Nancy Wasserman, and Elizabeth Watson. Eoin 

Lees provided additional information for the European 

case studies. Lewis Lamont organised the Bibliography. 

Camille Kadoch managed the preparation of the report for 

publication. David Crossley, Senior Advisor to RAP, wrote 

the review chapters and edited the report.

Foreword
vii

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

An energy efficiency obligation (EEO) is a 

regulatory mechanism that requires obligated 

parties to meet quantitative energy saving targets 

by delivering or procuring eligible energy savings 

produced by implementing approved end-use energy 

efficiency measures. The requirement to meet quantitative 

energy saving targets distinguishes EEOs from other similar 

mechanisms, such as a general requirement to acquire all 

cost effective energy efficiency with no target specified.

Governments in various jurisdictions around the world 

have endeavoured to improve end-use energy efficiency, and 

in some cases also achieve other objectives, by designing and 

implementing schemes that place EEOs on particular parties. 

These EEO schemes share three key features: 

• a quantitative target for energy efficiency 

improvement;

• obligated parties that must meet the target; and

• a system that: defines the energy saving activities that 

can be implemented to meet the target; measures, 

verifies, and reports the energy savings achieved 

through these activities; and confirms that the 

activities actually took place.

Typically obligations in EEO schemes are placed on 

providers of networked energy (e.g., electricity and natural 

gas distributors or standalone retail suppliers). Obligations 

can also be placed on providers of other energy forms (e.g., 

LPG, heating oil, transport fuels, district heating), and even 

on end users of energy. In some jurisdictions, energy savings 

to meet the obligation are delivered by a third party “energy 

efficiency utility”. This report considers only EEO schemes 

that place obligations on energy providers, that is, entities 

that supply energy to end-users.

This report covers 19 EEO schemes implemented in 

a range of jurisdictions around the world. The table in 

the Appendix (page 116) summarises and compares key 

design parameters among these schemes. This table and the 

Executive Summary

detailed case studies of the schemes themselves in section 

3 of the report (commencing on page 8) demonstrate that 

there are many different ways to design and implement 

EEO schemes.

Despite this diversity, it is possible to identify three 

broad types of EEO schemes:

• Schemes with quantitative energy saving targets that 

have been established relatively independently, often 

with their own enabling legislation. Energy saving 

targets are specific to each scheme and are not related 

to resource planning and acquisition by the obligated 

energy providers. Governments will usually set the 

targets, but the schemes can be administered by 

government or by a body (often the energy regulator) 

that is independent of both government and the 

obligated energy providers. Schemes in Australia and 

Europe generally follow this model.

• Schemes with quantitative energy saving targets that 

are integral components of resource planning and 

acquisition by the obligated energy providers. These 

schemes are often established by energy regulators 

to influence the resource mix adopted by energy 

providers. The design and implementation of the 

schemes are frequently subject to legal hearing 

processes as part of energy provider rate cases. The 

schemes are usually administered jointly by the energy 

regulator and the obligated energy providers. Schemes 

in North America generally follow this model. 

• Schemes with quantitative energy saving targets that 

have been established principally by governments 

as integral components of government policies. 

Energy saving targets for these schemes are set by 

the government and a government agency acts as the 

scheme administrator. Schemes in China and Korea 

generally follow this model.
viii

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

This report describes and explains how the EEO schemes 

it covers actually operate by systematically classifying 

information about the schemes into categories that apply 

to all the schemes. Through a comparative analysis of 

this information, the report identifies the following best 

practices in designing and implementing an EEO scheme.

Policy Objectives. Keep the policy objectives of the 

EEO scheme simple and clear, and focussed on achieving 

energy savings. If the scheme has multiple objectives, 

ensure that the achievement of any non-energy-related 

objectives does not hinder pursuit of the primary objective 

to achieve energy savings.

Legal Authority. Use a carefully selected combination 

of legislation, regulation, and Ministerial and administrative 

processes to establish and operate the EEO scheme.

Fuel Coverage. Decide the fuel coverage of the EEO 

scheme according to the overall policy objectives for the 

scheme and estimates of energy efficiency potentials for the 

different fuels. Start by covering one or two fuels and then 

expand the scheme to other fuels as experience is gained.

Sector and Facility Coverage. Decide the end-use 

sector and facility coverage of the EEO scheme according to 

the overall policy objectives for the scheme and estimates 

of energy efficiency potentials for the different sectors 

and facilities. If it is intended to tightly restrict sector and 

facility coverage, consider whether assessing compliance 

will become too onerous.

Energy Saving Target. Set the level of the energy saving 

target for the EEO scheme according to the overall policy 

objectives for the scheme and aim to strike a balance among 

making progress, the cost to consumers of meeting the target, 

and what is practically possible based on an assessment of 

energy efficiency potential. Set the target in terms of final 

energy (i.e., the quantities of energy delivered to, and used 

by, consumers) unless the scheme covers several different 

fuels, in which case use primary energy. Denominate 

the target in energy units unless the scheme has a policy 

objective that relates to greenhouse gas (GHG) emissions 

reductions, in which case consider using carbon dioxide 

equivalent units. Set a relatively long timeframe for the 

target, preferably between 10 and 20 years. Calculate eligible 

energy savings over the estimated lifetime for each energy 

efficiency measure. Consider setting sub-targets and portfolio 

requirements where the scheme has policy objectives that are 

not solely related to achieving energy savings.

Obligated Parties*. Determine the obligated parties 

in the EEO scheme according to the fuel coverage of 

the scheme and the type of energy provider that has the 

infrastructure and capability to manage the delivery and/or 

procurement of eligible energy savings. Consider restricting 

the obligation to larger energy providers. Allocate 

individual energy saving targets to each obligated party 

on the basis of that party’s market share of energy sales. 

Consider whether to implement carve-outs for energyintensive, trade-exposed industries and/or other specified 

groups of end-users.

Compliance Regime. As an integral component of the 

EEO scheme, establish a procedure for obligated parties 

to report claimed eligible energy savings to an appropriate 

authority and a process for checking and verifying these 

savings. Establish a penalty to be imposed on obligated 

parties that fail to meet their individual energy saving 

targets. Set the level of the penalty high enough to mobilise 

energy providers to meet their targets.

Performance Incentives. Consider whether to include 

performance incentives in the EEO scheme to be awarded 

to obligated parties that exceed their energy saving targets.

Eligible Energy Savings. Enable non-obligated 

parties in the EEO scheme to implement energy efficiency 

projects to produce eligible energy savings. Do not place 

unnecessary restrictions on the energy efficiency projects 

or measures that can be implemented to produce eligible 

energy savings, provided that the energy savings can be 

verified.

* This report considers only EEO schemes that place obligations 

on energy providers. However, other entities may also be considered as obligated parties. For a detailed discussion of the 

issues to be considered in determining the best obligated party 

for a EEO scheme see Neme, Gottstein and Hamilton (2012).
ix

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Eligible Energy Efficiency Measures. Consider 

establishing in the EEO scheme a list of preapproved energy 

efficiency measures with deemed energy saving values, 

but do not limit the measures that can be implemented to 

produce eligible energy savings to only those on the list.

Measurement, Verification, and Reporting. As an 

integral component of the EEO scheme, establish a robust 

system for measuring, verifying, and reporting energy 

savings and other activities that contribute to scheme 

targets. Consider whether to also establish procedures to 

verify whether energy savings are additional to what would 

have happened in the absence of the EEO scheme.

Trading of Energy Savings. Consider enabling trading 

of energy savings in the EEO scheme among both obligated 

parties and third parties.

Funding. Establish an appropriate mechanism in the 

EEO scheme to enable recovery of the costs incurred by 

obligated parties in meeting their individual energy saving 

targets.

This report includes detailed case studies of 19 different 

EEO schemes implemented in a range of jurisdictions 

around the world. The report identifies three broad types 

of schemes from Australia/Europe, North America, and 

Asia. Each of the three types of schemes is the product of 

quite different ways of thinking about how to use energy 

providers to deliver energy efficiency.

For the first time, information about the three different 

types of schemes has been systematically classified 

into categories that apply to all the schemes. Through 

a comparative analysis of this information, the report 

identifies the best practices in designing and implementing 

an EEO scheme summarised above. Adopting these best 

practices in designing and implementing new schemes, and 

updating existing ones, should improve the effectiveness of 

the schemes in delivering cost-effective energy efficiency.
x

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

ADEME Agence de l’Environnement et de la Maîtrise de 

l’Énergie (the French environment and energy 

management agency)

AEEG Autorità per l’Energia Elettrice e il Gas (the 

Italian electricity and gas regulator)

AUD Australian dollar (currency unit)

Bcf One billion cubic feet, equal to 2,832 cubic 

meters

CAD Canadian dollar (currency unit)

ccf One hundred cubic-feet, equal to 2.832 cubic 

meters

CDM Conservation and Demand Management Code 

for Electricity Distributors (Ontario, Canada)

CNY Chinese yuan or renminbi (currency unit)

CO2-e Carbon dioxide equivalent

cumac Cumulative and discounted (in French, 

cumulés actualisés). This term is used to refer 

to the annual delivered energy savings from an 

energy efficiency measure, summed over the 

lifetime of the measure, and discounted at a 

standard annual rate.

DC Direct current

DSM Demand-side management

EEO Energy efficiency obligation

ERO Energy Regulatory Office (Poland)

EEPS Energy efficiency portfolio standard (New York 

and Texas)

ESCO Energy service company

ESS Energy Savings Scheme (New South Wales, 

Australia)

EUR Euro (currency unit)

GBP British pound (currency unit)

GGAS Greenhouse Gas Reduction Scheme (New South 

Wales, Australia)

GHG Greenhouse gas

GW Gigawatt

GWh Gigawatt-hour

kW Kilowatt

kWh Kilowatt-hour

KRW Republic of Korea won (currency unit)

LPG Liquefied petroleum gas

m3 Cubic meter

Mcf One thousand (not one million) cubic feet, 

equal to 28.32 cubic meters

MJ Megajoule

MtCO2-e Metric megatonne of carbon dioxide equivalent

Mtoe Million metric tonnes of oil equivalent

MWh Megawatt-hour

PJ Petajoule

PLN Polish zloty (currency unit)

REES Residential Energy Efficiency Scheme (South 

Australia)

RUE Rational use of energy (commonly used 

in Europe, particularly by the European 

Commission, to describe energy efficiency)

tCO2-e Metric tonne of carbon dioxide equivalent

t Metric tonne

TJ Terajoule

toe Metric tonne of oil equivalent

TWh Terawatt-hour

USD United States dollar (currency unit)

VEET Victorian Energy Efficiency Target (Victoria, 

Australia)

Abbreviations and Acronyms
1

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

1.1 Energy Efficiency Obligations

An energy efficiency obligation1

 (EEO) is a 

regulatory mechanism that requires obligated 

parties to meet quantitative energy saving targets 

by delivering or procuring eligible energy savings 

produced by implementing approved end-use energy 

efficiency measures. The requirement to meet quantitative 

energy saving targets distinguishes EEOs from other similar 

mechanisms, such as a general requirement to acquire all 

cost effective energy efficiency with no target specified.

Governments in various jurisdictions around the world 

have endeavoured to improve end-use energy efficiency, 

and in some cases also achieve other objectives, by 

designing and implementing schemes that place EEOs 

on particular parties. These EEO schemes share three key 

features:2

• a quantitative target for energy efficiency 

improvement;

• obligated parties that must meet the target; and

• a system that: defines the energy saving activities that 

can be implemented to meet the target; measures, 

verifies, and reports the energy savings achieved 

through these activities; and confirms that the 

activities actually took place.

EEO schemes use the force of law to require obligated 

parties to achieve energy savings through investments in 

end-use energy efficiency. They are typically enforced by 

regulation and by the threat of financial penalties.

Typically, obligations in EEO schemes are placed on 

providers of networked energy (e.g., electricity and natural 

gas distributors or standalone retail suppliers). Obligations 

can also be placed on providers of other energy forms (e.g., 

LPG, heating oil, transport fuels, district heating), and 

even on end-users of energy. In some jurisdictions, energy 

savings to meet the obligation are delivered by a third party 

“energy efficiency utility”. This report considers only EEO 

1. Introduction

schemes that place obligations on energy providers, that is 

entities that supply energy to end-users.

EEO schemes are established as direct interventions 

into energy markets that aim to overcome the well-known 

barriers preventing the implementation of much cost 

effective energy efficiency. In establishing EEO schemes, 

governments are intervening into energy markets in a 

similar way to other environmental interventions (e.g., 

emissions trading schemes or green certificates for 

renewable energy).4

1.2 Purpose of this Report

The purpose of this report is to identify and describe 

best practices in designing and implementing EEO 

schemes. The report:

• outlines the various stages involved in designing and 

implementing EEO schemes;

• describes experiences with EEO schemes in a range of 

different jurisdictions; and

• identifies and describes best practices.

1 There are several other terms used for this regulatory 

mechanism, including “energy efficiency portfolio standard,” 

“energy efficiency resource standard,” “energy efficiency 

commitment,” and “energy supplier obligation.” In this report, 

the term “energy efficiency obligation” will be used.

2 Department of Climate Change and Energy Efficiency and 

Department of Resources, Energy and Tourism, 2011

3 In this report, the term “energy provider” refers to entities that 

sell energy directly to end-users (energy retailers) and entities 

that transport energy to end-users’ dwellings or premises 

(energy transmission and distribution system operators). In 

some jurisdictions these two functions are combined within 

vertically integrated energy utilities.

4 Lees, 2012
2

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

The key principle involved in all EEO schemes is 

that an obligation is placed on particular energy 

providers (usually energy retailers or distributors, 

or vertically integrated energy utilities) to save 

specified quantities of energy in eligible end-use customers’ 

premises or homes. If an obligated energy provider fails 

to deliver or procure those energy savings, it will incur 

financial penalties. In most jurisdictions, energy providers 

are not restricted to saving energy from their own 

customers (i.e., they can save energy from any eligible enduse customer).5

Following are the steps involved in designing and 

implementing an EEO scheme:6

• determine and clearly state the policy objectives;

• establish the legal authority for the obligation;

• decide which fuels will be covered by the scheme;

• determine the sectors and types of facilities that will 

be covered by the scheme;

• set the energy saving target, including measurement 

units and timeframe;

• assign responsibility for meeting the obligation (i.e., 

who are the obligated parties and what are their 

individual obligations?);

• establish a compliance regime;

• determine whether performance incentives will be 

available for obligated parties that exceed the scheme 

targets;

• decide which parties will be allowed to produce 

eligible energy savings that contribute to meeting 

the scheme targets and how these parties will be 

authorised or accredited to achieve savings;

• define the energy efficiency measures that will be 

approved to produce eligible energy savings;

• decide how energy savings and other activities that 

contribute to scheme targets will be measured, 

verified, and reported;

• decide whether trading of energy savings will be 

2. Designing And Implementing EEO Schemes

included;

• establish mechanisms that will provide sustained 

funding to cover the costs incurred by obligated 

parties in delivering or procuring energy savings;

• administer the obligation scheme;

• report scheme results; and

• identify areas for improvement and take action.

2.1 Policy Objectives

Determining and stating the policy objectives is the most 

important stage in designing an EEO scheme because these 

objectives define what the obligation is intended to achieve 

and will significantly affect all the other parameters of the 

scheme.

There is a range of policy objectives that can be achieved 

through establishing an EEO scheme, for example:

• to acquire cost-effective energy efficiency as an energy 

resource;

• to reduce energy bills for all, or a subset of, end-use 

customers;

• to assist low-income households with their energy 

bills;

• to stimulate the development of an energy services 

industry;

• to improve environmental outcomes;

• to enhance energy security and reliability; and

• to achieve some or all of the above.

It is important to clearly state the chosen policy 

objectives because these will strongly influence how the 

EEO scheme is developed and implemented. In particular, 

5 Lees, 2012

6 The Appendix (page 116) compares key design parameters 

among 19 EEO schemes implemented in a range of 

jurisdictions.
3

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

the policy objectives will inform the organisation that is 

eventually given the responsibility for administering the 

scheme about how it should carry out this responsibility.

2.2 Legal Authority

As a regulatory mechanism implemented by government, 

an EEO scheme must be established under a legal authority. 

There are two types of authority that may be used.7

First, the EEO scheme may be established by single 

purpose enabling legislation or amendments to existing 

legislation. Legislation removes any uncertainty about 

legal authority and it states clearly that energy efficiency is 

a high value energy resource. Once legislation is passed, 

however, it is relatively inflexible and cumbersome to 

change. Changes may be required as experience is gained in 

implementing an EEO scheme.

Second, the EEO scheme may be established by 

regulation. Regulation uses existing legal authority so 

an EEO scheme may be established quickly. Scheme 

parameters may also be modified more easily in response to 

experience and changing conditions than under legislation. 

If an EEO scheme is established under regulation, clear 

directions must be provided to the administrator of the 

scheme about the policy objectives to be achieved, because 

the administrator will not be able to refer to enabling 

legislation.

It is also possible to establish the broad design of an 

EEO scheme under enabling legislation, and then set up 

detailed implementation procedures under regulation. The 

advantage of this method is that detailed procedures are 

more likely to require modification as experience is gained 

in implementing an EEO scheme.

2.3 Fuel Coverage

An EEO scheme may be established to cover only one 

fuel type or may cover a range of different fuels (e.g., 

electricity, natural gas, LPG, heating oil, transport fuels, 

district heating). The decision on fuel coverage will depend 

on the overall policy objectives the scheme is designed 

to achieve. In addition, the choice of fuels to be covered 

should be made on the basis of estimates of energy 

efficiency potentials for the different fuels.

2.4 Sector and Facility Coverage

An EEO scheme may be established to cover only 

one economic sector or may cover several sectors (e.g., 

residential, commercial, industrial). In addition, the scheme 

may be restricted to one type of facility (e.g., residential 

homes, commercial buildings) or the facility coverage may 

be unrestricted. The decision on sector and facility coverage 

will depend on the overall policy objectives the scheme 

is designed to achieve. In addition, the choice of sectors 

and facilities to be covered should be made on the basis 

of estimates of energy efficiency potentials for the different 

sectors and facilities.

In jurisdictions where there are energy-intensive, 

trade-exposed industries (e.g., aluminium smelting), 

governments may decide to exclude (or “carve out”) such 

industries from an EEO scheme on the grounds that their 

competitiveness in international markets may be adversely 

affected.

2.5 Energy Saving Target

Setting the energy saving target is the second most 

important stage in designing an EEO, after deciding the 

policy objectives. The target defines the path to achieving 

long-term energy saving goals. There are several decisions 

to be made when setting the energy saving target.

The first decision involves setting the actual level of the 

target. The level should be set in the light of the overall 

policy objectives for the EEO scheme. The aim is to strike 

a balance between making progress and judging what 

is practically possible based on an assessment of energy 

efficiency potential. Setting the target level is often merely a 

political decision.

The second decision requires determining whether 

the target will be set in terms of primary energy or final 

energy. Although final energy relates most closely to 

the energy quantities familiar to end-users and energy 

providers, targets set in primary energy may be preferable 

for EEO schemes that cover a range of fuels with different 

conversion factors from primary to final energy (e.g., in 

converting coal or natural gas to electricity).

The third decision entails choosing the units that will 

be used for denominating the target, for example, energy 

savings in megawatt-hours (MWh), megajoules (MJ), or 

tonnes of oil equivalent (toe), or GHG emission reductions 7 Swanson, 2012
4

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

in tonnes of carbon dioxide equivalent (tCO2-e). The 

choice of unit does not change the actual level of the 

target, because all the units are interconvertible. The 

denomination unit may be selected to demonstrate progress 

in achieving a particular policy objective (e.g., reducing 

GHG emissions).

The fourth decision involves determining the timeframe 

over which the target will be in place. Typically energy 

saving targets are established over the medium to long term 

(i.e., for between 10 and 20 years). Setting a relatively long 

timeframe provides assurance to the obligated parties that 

costs involved in setting up systems and procedures to meet 

the target will be justified.

The fifth decision concerns setting the time period 

over which eligible energy savings from energy efficiency 

measures will be calculated. The two major options 

are first-year savings or savings over the lifetime of the 

measure. Selecting first-year savings may favour low-cost, 

short-lifetime measures over more costly measures that 

save more energy over a longer time period and that may 

be more cost effective in the long run. Focussing on lowcost measures may also encourage projects that install 

only one measure in a facility rather than carrying out 

comprehensive energy efficiency retrofits that capture all 

available cost-effective energy savings.

If energy savings are calculated over the lifetime of an 

energy efficiency measure, a subsidiary decision is required 

about how annual scheme targets will be set. Annual targets 

may be set on the basis of:

• energy savings from the measure that were accrued 

only in the target year (“annual savings”); or

• all energy savings from the measure accrued from the 

date when the measure was installed to the end of the 

target year (“cumulative savings”).8

The final decision comprises determining whether to 

set sub-targets and portfolio requirements that address 

particular policy objectives, such as stimulating an energy 

services industry, assisting disadvantaged households, or 

reducing peak energy demand in addition to reducing 

energy consumption. Resolving whether to set subtargets and portfolio requirements is essentially a political 

decision. If sub-targets are set, suitable metrics to measure 

progress in achieving the relevant policy objectives must be 

developed.

2.6 Obligated Parties

In EEO schemes, obligated parties are the entities that 

are required to meet the scheme target. Most often these are 

the providers of the fuels covered by the scheme. Obligated 

energy providers may include:

• in traditional, regulated electricity and gas markets: 

vertically integrated energy utilities;

• in unbundled electricity and gas markets: energy 

retailers and/or transmission and distribution system 

operators;9

 and

• in other energy markets: road transport and heating 

fuel suppliers.

It will be necessary to decide which type of energy 

provider will be obligated. This decision should be based 

on whether a particular type of provider has relationships 

with end-users and also has the infrastructure and systems 

necessary to manage the delivery and/or procurement of 

eligible energy savings. Larger energy providers are usually 

able to themselves implement energy efficiency projects 

in customers’ facilities, or to contract third parties to do 

so.10 If some small energy providers in a jurisdiction lack 

the requisite systems, infrastructure, and capability, or 

only have a small number of end-use customers in the 

jurisdiction, it may be necessary to restrict the application 

of an EEO to the larger energy providers.

Once the obligated parties have been identified, it will 

be necessary to allocate individual targets to each party. 

This is typically done by dividing up each overall scheme 

8 Cumulative savings are sometimes indicated by the abbreviation “cumac,” meaning cumulative and discounted (in French, 

cumulés actualisés). This term is used to refer to the annual 

delivered energy savings from an energy efficiency measure, 

summed over the lifetime of the measure, and discounted at a 

standard annual rate.

9 An EEO may also be placed on electricity generators where 

they have direct relationships with large end-use customers 

and the sector coverage of the EEO scheme includes these 

customers.

10 This report considers only EEO schemes that place obligations 

on energy providers. However, other entities may also be 

considered as obligated parties, including energy end-users 

as in the Perform, Achieve Trade scheme in India (Bureau 

of Energy Efficiency, 2011). For a detailed discussion of the 

issues to be considered in determining the best obligated party 

for a EEO scheme see Neme, Gottstein and Hamilton (2012).
5

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

target according to each obligated party’s market share of 

energy sales in the jurisdiction. If there are carve-outs for 

energy-intensive, trade-exposed industries and/or other 

specified groups of end-users, sales to these end-users will 

be excluded from the calculation of market shares.

2.7 Compliance Regime

An EEO scheme requires a compliance regime to 

determine whether obligated energy providers have met 

their individual scheme targets and to apply sanctions if 

they fail to do so. Elements of a compliance regime include:

• a procedure for energy providers to report results 

against their individual targets to an appropriate 

authority;

• a process for checking and verifying reported results; 

and

• a method for applying sanctions to energy providers 

that fail to meet their targets.

Typically energy providers that fail to meet a target 

are required to pay a financial penalty. They may also be 

required to make up any shortfall in energy savings or in 

any sub-targets or portfolio requirements.

A financial penalty:

• offers energy providers a financial incentive to meet 

their obligations; 

• presents an opportunity to use any revenue from 

penalty payments to fund energy efficiency projects 

administered by others; and

• sets a ceiling price where trading of energy savings is 

included in an EEO scheme.

The level of the penalty should be set high enough to 

mobilise energy providers to meet their targets. A high 

penalty may also give energy providers a real choice 

between meeting their targets or funding others to achieve 

energy savings.

2.8 Performance Incentives

Some EEO schemes include the provision of 

performance incentives to obligated parties. Typically 

performance incentives may be provided for energy 

providers that:

• exceed their energy saving targets; or

• implement particular specified energy efficiency 

measures; or

• carry out whole-of-facility retrofits rather than 

installing only one energy efficiency measure; or

• reach more than their target number of hard-to-reach 

energy end-users.

Performance incentives may be financial payments or 

increases (“uplift”) in the energy saving values or other 

results that may be claimed for particular activities in 

relation to meeting a target. The purpose of these incentives 

is to encourage out-performance by energy providers in 

meeting their various targets, with the aim of achieving 

policy goals earlier than planned.

In some EEO schemes, out-performing energy providers 

stand to gain significant revenue from performance incentive 

payments. In such schemes, it is important to have in place 

robust measurement, verification, and reporting procedures 

to ensure that incentive payments are justified.

2.9 Eligible Energy Savings

To meet their EEO scheme obligations, energy providers 

must deliver or procure eligible energy savings that 

contribute to meeting the overall scheme energy saving 

target. Depending on the rules of the particular EEO 

scheme, energy providers may achieve eligible savings by:

• directly implementing energy efficiency projects in 

end-users’ homes or premises; or

• engaging specialist firms to implement energy 

efficiency projects on their behalf; or

• purchasing verified eligible energy savings achieved 

by accredited non-obligated parties who implement 

energy efficiency projects; or 

• contributing to a fund that supports the 

implementation of energy efficiency projects across 

specified fuels, end-use sectors, and groups of 

customers.

EEO schemes vary in the parties they allow to 

implement energy efficiency projects to produce eligible 

energy savings. Some schemes allow only obligated energy 

providers to implement such projects, although it may be 

permissible for an energy provider to engage specialist firms 

(e.g., energy service companies [ESCOs]) to implement 

projects on the provider’s behalf. Other EEO schemes allow 

non-obligated parties to produce eligible energy savings 

by implementing energy efficiency projects. In this case, 

the scheme will have to establish a process for authorising 

or accrediting particular non-obligated parties to produce 
6

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

eligible savings. Some schemes also require preapproval 

of individual energy efficiency projects and/or individual 

energy efficiency measures or products before they can be 

implemented.

2.10 Eligible Energy Efficiency Measures

EEO schemes vary in how they determine the energy 

efficiency measures that will be eligible to produce energy 

savings that contribute to the scheme energy saving target.

Many EEO schemes establish a list of preapproved 

energy efficiency measures. Frequently each of these 

measures is assigned a deemed energy saving value that can 

be claimed each time the measure is implemented. Deemed 

values are usually assigned to simple energy efficiency 

measures and are calculated from engineering estimates 

of the energy saving typically achieved by the measure. 

Deemed values can also significantly reduce the transaction 

costs of implementing eligible energy efficiency measures.

EEO schemes that have lists of preapproved energy 

efficiency measures may also establish procedures for 

approving further measures and assigning them deemed 

values. Schemes may also establish procedures for 

calculating the energy savings from measures not on the 

approved list, or for calculating, on a case-by-case basis, the 

energy savings from complex energy efficiency projects that 

employ a range of energy efficiency measures.

Other EEO schemes accept any energy efficiency 

measure and rely on procedures for calculating energy 

savings on a case-by-case basis.

2.11 Measurement, Verification, and 

Reporting

EEO schemes rely critically on the establishment of 

robust systems for measuring, verifying, and reporting 

energy savings and other activities that contribute to 

scheme targets, such as the number of low-income 

households reached.

Measurement of energy savings may:

• use ex ante deemed savings values for simple projects 

to reduce transaction costs; and

• use ex post engineering estimates adjusted for site 

conditions (e.g., estimated hours of use) for more 

complex projects.

Claimed energy savings may be verified by carrying out 

audits on energy efficiency projects. Many EEO schemes 

achieve cost-effective verification by informing project 

implementors that audits may be carried out at any time 

and then carrying out audits on a sample of projects on a 

random basis.

The results from measurement and verification processes 

can be used to:

• track progress toward long-term goals;

• monitor cost effectiveness;

• inform the calculation and revision of deemed energy 

savings values; and

• identify problems requiring programme changes or 

additional regulatory action.

Many EEO schemes require that eligible energy savings 

must be additional (i.e., energy savings that would not 

otherwise have occurred). There are four dimensions of 

additionality:11

• energy savings additionality, in which energy 

consumption is actually reduced compared with the 

situation before the energy efficiency project was 

implemented;

• policy additionality, in which the energy savings 

are in excess of any other policy, regulatory, or legal 

requirements to reduce energy consumption;

• business as usual additionality, in which the 

energy efficiency project is in excess of what could 

reasonably be expected to occur in the relevant 

sector(s); and

• financial additionality, where the energy efficiency 

project would not have taken place if revenue from 

the sale of energy savings were not available.

EEO schemes vary in the relative importance they assign 

to each of these four types of additionality and in how they 

actually determine whether particular energy savings are 

additional.

2.12 Trading of Energy Savings

Some EEO schemes allow trading of energy savings 

among obligated parties, and between obligated parties and 

accredited third parties where non-obligated third parties 

11 Crossley, 2008
7

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

are enabled to produce eligible savings. The purpose of 

trading is to broaden the pool of opportunities to produce 

eligible energy savings and to enable market forces to 

identify the most cost-effective opportunities.

Trading of energy savings can be carried out bilaterally 

or through a market established by a market maker. The 

market maker may be (but usually is not) the Scheme 

Administrator or more typically is a third party. Some EEO 

schemes require disclosure of prices, whereas in other 

schemes price disclosure is voluntary.

Trading of energy savings is often carried out through 

the creation and sale of energy efficiency certificates.12 An 

energy efficiency certificate is a legal instrument issued by 

an authorising body guaranteeing that a specified amount 

of energy savings has been achieved. Each certificate is 

a unique and traceable commodity carrying a property 

right over a certain amount of additional energy savings 

and guaranteeing that the benefit of these savings has not 

been accounted for elsewhere. However, trading of energy 

savings can be carried out bilaterally without the necessity 

to create energy efficiency certificates.

2.13 Funding

There are costs incurred by obligated parties in meeting 

energy savings targets under an EEO scheme. Schemes vary 

in how these costs are recovered and who pays them.

Where regulated energy providers are the obligated 

parties, regulators may need to establish regulatory 

mechanisms to enable the energy providers to recover the 

costs of meeting energy savings targets and also to provide 

compensation for reduced energy sales.

For obligated energy providers in competitive energy 

markets, there are two possible cost recovery paths:

• Option 1: the costs of meeting energy savings targets 

are treated as a cost of doing business and energy 

providers adjust their prices to recover these costs; or

• Option 2: the costs of meeting energy savings targets are 

either funded by the government through direct budgetary appropriations, or price surcharges are imposed 

on regulated “wires and pipes” energy providers.

2.14 Scheme Administration

Key ongoing functions involved in the administration of 

an EEO scheme include:

• approving eligible energy efficiency measures and 

(where required) assigning them deemed energy 

saving values;

• accrediting parties that produce eligible energy 

savings through implementing energy efficiency 

projects;

• conducting measurement and verification of actual 

energy savings, including auditing the results of 

energy efficiency projects;

• enforcing compliance with the obligation, including 

reviewing the performance of obligated parties against 

their targets and administering any penalties;

• registering the creation and ownership of energy 

efficiency certificates (if required); and

• making and operating a trading market for energy 

savings (if required).

2.15 Scheme Results

A key decision in establishing an EEO scheme is to 

consider how scheme results will be reported. Reporting 

is typically done by publishing an annual report on the 

operation of the scheme that includes details of:

• developments in the scheme during the year;

• compliance performance by the obligated parties;

• results against the overall scheme energy saving target, 

including a breakdown of energy savings produced by 

types of energy efficiency measures;

• results against any scheme sub-targets and portfolio 

requirements;

• results related to any trading of energy savings;

• estimated costs of compliance by obligated parties; and

• costs of scheme administration.

2.16 Areas for Improvement

Effective EEO schemes establish processes for continuous improvement in the operation and administration of 

the scheme. This includes consideration of:

• how areas for improvement will be identified; and

• how improvement action will be undertaken.

12 Energy efficiency certificates are also known as “white 

certificates,” “white tags,” “energy savings certificates,” and 

“energy efficiency credits.”
8

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

13 Legislation for the Italian energy efficiency certificate trading 

scheme was passed in 1999, but the scheme did not start 

operating until January 2005.

3. Experiences In Individual Jurisdictions

This section of the report presents detailed case 

studies of 19 EEO schemes implemented in 

various jurisdictions around the world. A table 

in the Appendix (page 116) summarises and 

compares key design parameters among these schemes. 

This table and the detailed case studies of the schemes 

themselves demonstrate that there are many different ways 

to design and implement EEO schemes.

Despite this diversity, it is possible to identify three 

broad types of EEO schemes:

• Schemes with quantitative energy saving targets that 

have been established relatively independently, often 

with their own enabling legislation. Energy saving 

targets are specific to each scheme and are not related 

to resource planning and acquisition by the obligated 

energy providers. Governments will usually set the 

targets, but the schemes can be administered by 

government or by a body (often the energy regulator) 

that is independent of both government and the 

obligated energy providers. Schemes in Australia and 

Europe generally follow this model.

• Schemes with quantitative energy saving targets that 

are integral components of resource planning and 

acquisition by the obligated energy providers. These 

schemes are often established by energy regulators 

to influence the resource mix adopted by energy 

providers. The design and implementation of the 

schemes are frequently subject to legal hearing 

processes as part of energy provider rate cases. The 

schemes are usually administered jointly by the energy 

regulator and the obligated energy providers. Schemes 

in North America generally follow this model. 

• Schemes with quantitative energy saving targets that 

have been established principally by governments 

as integral components of government policies. 

Energy saving targets for these schemes are set by 

the government and a government agency acts as the 

scheme administrator. Schemes in China and Korea 

generally follow this model.

3.1 Australia – New South Wales

New South Wales is one of three Australian states that 

have implemented EEO schemes. In January 2003, the 

New South Wales Government introduced an emissions 

trading scheme, the Greenhouse Gas Reduction Scheme 

(GGAS), that included an energy efficiency component. 

GGAS effectively established an EEO in New South Wales 

denominated in tCO2-e.

Under GGAS, parties obligated to meet specified carbon 

emissions reduction targets—referred to as “benchmark 

participants”—can generate carbon abatement certificates 

by targeting:

• low emission electricity generation;

• emissions abatement by large end-users; and

• carbon sequestration through forestry.

Until July 2009, benchmark participants could also 

generate carbon abatement certificates through “demandside abatement,” mostly energy efficiency. The certificates 

created in GGAS through energy efficiency projects were 

energy efficiency certificates and could be traded, thereby 

establishing the first operating energy efficiency certificate 

trading scheme in the world.13

Despite growth in demand-side abatement activities 

under GGAS, the New South Wales Government recognised 

that significant barriers to energy efficiency persisted. From 

January 2009, demand-side abatement is no longer credited 

under GGAS and has, instead, transitioned into a new, 

expanded scheme called the Energy Savings Scheme (ESS). 
9

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

14 A national carbon tax will commence in Australia on 1 July 

2012 when the tax will be set at AUD 23 per tonne of CO2-e. 

The level of the tax will increase gradually until 2015, when 

it will transition to a national emissions trading scheme with 

an annual cap on emissions and the market setting a price on 

carbon.

15 New South Wales Office of Environment and Heritage, 2011

16 New South Wales Legislation, 1995

17 New South Wales Legislation, 1995

18 New South Wales Legislation, 1995

19 New South Wales Legislation, 2001

20 New South Wales Legislation, 2009

21 New South Wales Government, 2012a

The ESS commenced operation on 1 July 2009 pursuant 

to the Energy Savings Scheme Rule and amendments to the 

Electricity Supply Act 1995. The ESS imposes obligations on 

similar parties to GGAS, requiring them to meet specified 

annual energy efficiency targets, and establishing a standalone energy efficiency certificate trading scheme. The ESS 

is planned to operate until 2020 unless a national energy 

efficiency scheme with similar objectives is implemented in 

Australia before that time.

The ESS was established to expand the original demandside abatement provisions under GGAS, and to further 

support GHG emissions reductions under a then-anticipated 

national emissions trading scheme.14 Energy Savings 

Certificates created under the ESS are tracked in the same 

registry as carbon abatement certificates under GGAS; 

however, trading of the two types of certificates is separate.

The ESS is one component in a range of energy efficiency 

policy measures implemented by the New South Wales Government. In 2007, the Government announced an Energy 

Efficiency Strategy. The principle goals of the Strategy are:15

• to reduce GHG emissions from energy consumption 

in New South Wales;

• to reduce the impact of rising energy prices on 

businesses and the community by lowering energy 

consumption; and

• to delay the need to construct additional energy 

generation and distribution infrastructure in New 

South Wales, reducing costs within the state economy.

3.1.1 Policy Objectives

The stated goal of the ESS is to “create a financial 

incentive to reduce the consumption of electricity by 

encouraging energy saving activities.” The Electricity 

Supply Act sets forth three other objectives for the ESS:16

• to help households and businesses reduce electricity 

consumption and costs;

• to complement the proposed national carbon 

pollution scheme by providing lower cost GHG 

emissions reductions; and

• to reduce the cost of, and need for, additional 

energy generation, transmission, and distribution 

infrastructure.

The ESS is required to undergo five-year reviews to 

“determine whether the policy objectives of the scheme 

remain valid” and whether the terms of the Act “remain 

appropriate for securing those objectives.”17

3.1.2 Legal Authority

The ESS is governed by a combination of legislation 

and regulation. The Scheme was established through 

amendments to the Electricity Supply Act 1995 18 and the 

Electricity Supply (General) Regulation 2001.

19 The ESS is 

administered by the Scheme Administrator through both 

the legislation and the Energy Savings Scheme Rule of 2009.

20

Other Rules to govern the detailed operation of the ESS are 

made by the relevant Minister from time to time.

3.1.3 Fuel Coverage

Electricity.

3.1.4 Sector and Facility Coverage

The ESS covers the residential, commercial, and 

industrial sectors and all facilities within these sectors.

3.1.5 Energy Saving Target

The ESS energy saving targets have been established 

legislatively, through amendments to the Electricity Supply 

Act. Table 1 (page 10) shows that in 2009, the first year of 

the ESS, the target was set to 0.4 percent of total electricity 

sales in New South Wales, expressed in MWh. The target 

increases gradually over time, reaching four percent of 

total sales in 2014, and continuing at that level through 

2020. The ESS will operate until 2020 unless a national 

energy efficiency scheme replaces it before then. Targets 

are set forth in Schedule 5 to the Act, and are subject to 

amendment by the State Governor on the recommendation 

of the relevant Minister. Any such regulation must be made 

at least 12 months in advance.21
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

22 New South Wales Government, 2012b

23 New South Wales Government, 2012c

24 A list of scheme participants is available at: http://www.ess.

nsw.gov.au/For_Liable_Entities/List_of_Liable_Entities

25 Certain large end-use customers purchase electricity under 

contracts directly with generators.

26 New South Wales Government, 2012a

27 New South Wales Government, 2012d

28 For every mega-watt hour of electricity produced in New 

South Wales, approximately 1.06 tonnes of CO2-e is released 

into the atmosphere. As the generation mix in New South 

Wales changes from primarily coal-based to include more 

gas and renewables, the Certificate Conversion Factor will 

decrease to reflect the reduced emissions from electricity 

production.

Table 1

Targets for the New South Wales 

Energy Savings Scheme22

Year

Effective Scheme 

Target (% of 

annual NSW 

electricity sales)

Retailer Compliance 

Obligation

(% of annual liable

electricity sales)

2009 (from 1 July) 0.4% 0.5%

2010 1.2% 1.5%

2011 2.0% 2.5%

2012 2.8% 3.5%

2013 3.6% 4.5%

2014–2020 4.0% 5.0%

While the ESS energy saving targets are set as a percentage 

of total electricity sales, calculation of individual targets for 

obligated parties is done on the basis of their market share of 

liable electricity sales. To calculate liable sales, electricity sales 

to exempt industries or activities are subtracted from total 

electricity sales in New South Wales. The Electricity Supply 

Act allows the Minister to grant full or partial exemption 

from the ESS for any electricity load used in conjunction 

with emission-intensive and trade-exposed industries or 

activities. The exemption is provided by a Ministerial Order, 

as gazetted from time to time. The Order lists the exempted 

sites, their location, the emissions-intensive trade-exposed 

activity being carried out, and the proportion of exemption 

granted. A further deduction is allowed for network losses. 

Exemption categories include:23

• manganese production;

• ammonia production;

• ceramic floor and wall tile production;

• magnetite concentrate production;

• petroleum refining; and

• ethene production.

3.1.6 Obligated Parties

There are three groups of obligated parties, referred to as 

“scheme participants” in the legislation, who must comply 

with energy efficiency targets under the ESS:24

• all holders of New South Wales electricity retail 

licenses (i.e., electricity retailers);

• electricity generators that supply electricity directly25

to retail customers in New South Wales; and

• market customers in New South Wales who purchase 

their electricity directly from the wholesale Australian 

National Electricity Market.

Parties in emission-intensive and trade-exposed 

industries or carrying out such activities may be granted 

full or partial exemptions from the ESS.

An individual energy saving target is allocated each year 

to each scheme participant in proportion to their share 

of liable electricity sales.26 Individual targets are met by 

surrendering the number of Energy Savings Certificates 

required to meet the target. Each certificate represents one 

metric tonne of carbon dioxide equivalent (CO2-e) abated 

by energy saving activities. Calculation of the number of 

certificates required to meet individual targets is done by 

calculating total liable electricity sales in MWh, multiplied 

by the State-wide energy saving target for the year, 

multiplied by the individual scheme participant’s share of 

liable electricity sales, and then multiplied by a Certificate 

Conversion Factor27 based on the average emissions 

intensity of electricity in New South Wales. The Electricity 

Supply Act sets the Certificate Conversion Factor at 1.0628

until 2020, but the State Governor may amend the Act to 

change this number on the advice of the Minister.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

29 Sniffin, 2012

30 New South Wales Legislation, 1995

31 New South Wales Government, 2012b

32 Crossley, 2008

33 New South Wales Legislation, 1995

34 New South Wales Government, 2012a

3.1.7 Compliance Regime

Compliance with the ESS targets is achieved when 

a scheme participant surrenders the number of Energy 

Savings Certificates that corresponds to its individual 

annual energy savings target. Scheme participants may 

carry out the energy savings activities themselves, or may 

purchase certificates from other parties.

Figure 1 illustrates the lifecycle of an Energy Savings 

Certificate in the ESS.

Scheme participants are required to prepare annual 

Energy Savings Statements to demonstrate their compliance 

with the Scheme by 18 March of each year. Failure to 

submit a statement in compliance with statute carries a 

penalty. The Scheme Regulator must prepare an annual 

report to the Minister on the extent to which scheme 

participants have complied, or failed to comply, with 

individual savings targets during the previous year.30

The ESS includes a penalty for any energy savings 

shortfall—that is, for any energy sold or consumed in 

excess of a scheme participant’s individual annual target. 

The penalty is the product of an annual penalty rate, 

multiplied by the volume of shortfall. Annual penalty 

rates are set forth in Schedule 5A of the Electricity Supply 

Act, and may be adjusted by movements in the consumer 

price index. The base penalty for 2012 is AUD 24.86 per 

certificate (i.e., per tCO2-e).31 The tax-adjusted value of this 

penalty sets a theoretical ceiling price for an Energy Savings 

Figure 1

The Lifecycle of an Energy Savings Certificate in the New South Wales Energy Savings Scheme29

Pays for each 

certificate

Business 

receives 

amount

Reduce the 

electricity they or 

their customers 

use by changing 

equipment or 

processes

Price of certificate

Create energy 

savings certificates

Energy retailers Business

Business sells 

to energy 

retailer to meet 

targets

Invests in 

energy-saving 

equipment or 

project

Buy certificates. 

By law, electricity 

retailers must 

surrender a 

number of 

certificates each 

year.

Certificate in trading.32 There is also a maximum penalty 

of 2,000 penalty units for improper creation of energy 

certificates.33

As an alternative to paying the penalty, a scheme 

participant may choose to carry forward all or part of its 

shortfall to the following compliance period. There is a 

limit on the total shortfall that may be carried forward. 

The maximum shortfall that may be carried forward in any 

given year is ten percent, with the exception of 2009, when 

up to 50 percent of the shortfall could be carried forward 

into 2010.34 Any shortfall carried forward must be made up 

in the following year.

3.1.8 Performance Incentives

No performance incentives are available.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

35 New South Wales Government, 2012e

36 Recognised Energy Savings Activities are the specific 

activities implemented to reduce the consumption 

of electricity or increase the efficiency of electricity 

consumption. To be eligible under the ESS, the activity must 

have been implemented on or after 1 July 2008.

37 The National Australian Built Environment Rating System 

(NABERS) is a voluntary performance-based rating system 

for existing buildings. NABERS rates a building on the basis 

of its measured operational impacts on the environment. See 

more information at: http://www.nabers.com.au/

38 New South Wales Government, 2012a

3.1.9 Eligible Energy Savings

Energy savings that can be used to meet ESS targets are 

created through implementing energy efficiency projects. 

Projects can be implemented by scheme participants or by 

non obligated parties who have been assessed successfully 

in an accreditation process.35 The purpose of accreditation 

is to filter out projects that are unlikely to result in the 

creation of Energy Savings Certificates.

Non obligated parties seeking accreditation must submit 

an application for a particular energy efficiency project. The 

application must contain information on the energy saving 

activities included in the project for which accreditation is 

sought, including details of the calculation methodologies 

to be applied to each activity. The application for 

accreditation must demonstrate that the proposed activities 

meet the requirements of the ESS as Recognised Energy 

Savings Activities.36 There is an AUD 500 fee for a project 

to become accredited.

To qualify for accreditation, an applicant must also be an 

Energy Saver, which is:

• the person responsible for paying for the energy 

consumed on the site where the Recognised Energy 

Savings Activities are taking place; or

• a third-party nominated by the original Energy Saver 

(typical nominated third parties include energy service 

companies, aggregators of Energy Savings Certificates, 

and businesses selling energy efficient appliances); or

• a person issued with a building rating under the 

National Australian Built Environment Rating System 

(where the proposed energy efficiency project uses 

this calculation methodology).37

Accredited parties are known as Accredited Certificate 

Providers. An Accredited Certificate Provider is authorised 

to create a specified number of Energy Savings Certificates 

in relation to the particular Recognised Energy Savings 

Activities for which it is accredited.

Enabling non-obligated parties to become Accredited 

Certificate Providers has stimulated the development of 

a vibrant energy services industry in New South Wales. 

Specialised firms carry out energy efficiency projects to 

create Energy Savings Certificates under the ESS that can 

then be sold to scheme participants who require certificates 

to meet their energy saving targets.

3.1.10 Eligible Energy Efficiency Measures

To be eligible for inclusion in the ESS, a Recognised 

Energy Savings Activity must involve:38

• modifying end-user equipment or usage of enduser equipment (including installing additional 

components);

• replacing end-user equipment with other end-user 

equipment that consumes less electricity;

• installing new end-user equipment that consumes less 

electricity than other end-user equipment of the same 

type, function, output, or service; or 

• removing end-user equipment that results in reduced 

electricity consumption, where there is no negative 

effect on production or service levels. 

A Recognised Energy Savings Activity must have been 

implemented on or after 1 July 2008. Importantly, it 

must not include an activity that has been undertaken 

to comply with any statutory requirement. This ensures 

there is regulatory additionality in the ESS. In addition, 

a Recognised Energy Savings Activity cannot reduce the 

scope or quantity of production or service from the use of 

electricity. Closing part of a factory, for example, would not 

qualify.

Generally a Recognised Energy Savings Activity must be 

implemented in New South Wales. However, the legislation 

enables Energy Savings Certificates to be created under 

the ESS for “any activity, or class of activities, that reduces 

the consumption of electricity in another jurisdiction, if 

an approved corresponding scheme is in operation in that 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

39 New South Wales Legislation, 1995. Section 127.

40 New South Wales Government, 2012f

41 New South Wales Government, 2012f

42 New South Wales Government, 2012a

43 New South Wales Government, 2012g

jurisdiction.”39 This provision may be used in the future to 

enable harmonisation of the ESS with other EEO schemes 

in Australia.

3.1.11 Measurement, Verification, and Reporting

There are four methods for calculating the energy 

savings created through implementing a Recognised Energy 

Savings Activity:40

1. Project Impact Assessment Method – a case-by-case 

approach for calculating energy savings from one-off 

energy efficiency projects. The calculation is based on 

an engineering assessment of the energy consumption 

of a process, system, or equipment before and after 

implementation of the activity.

2. Metered Baseline Method – applies to activities that 

reduce the electricity consumption of a whole site, or 

discrete part of a site, such that the energy savings can be 

determined by reference to a site baseline.

3. Deemed Energy Savings Method – The Deemed 

Energy Savings Method is a generic approach for 

measuring the lifetime or “deemed” savings of an activity 

upfront or before the actual savings occurs. It is used 

for activities involving installation of common end-user 

equipment. This method applies to: efficient halogen 

lamps, efficient showerheads, high efficiency clothes 

washers, high efficiency dish washers, purchase of a 

new high efficiency refrigerator or freezer, retirement of 

a refrigerator or freezer built before 1996, commercial 

lighting, high efficiency motors, and energy savings 

attributable to the reduced losses from installation of 

power factor correction equipment.

4. National Australian Built Environmental Rating 

System Baseline Method – This method can be used to 

calculate energy savings from energy efficiency upgrades 

to new or existing commercial office buildings, hotels, 

and shopping centers.

The forms for the calculation methodologies are 

provided on the ESS website and require a certain level 

of sophistication to complete. Only the Deemed Energy 

Savings Method allows for creation of certificates in 

advance of actual savings.

The ESS legislation calls on the Scheme Regulator to 

require audits as part of assessing compliance. Audits 

may be required for any energy efficiency project at the 

discretion of the Scheme Regulator, including on a random 

basis. Audits under the ESS are performed by an Audit 

Services Panel, consisting of parties that the Scheme 

Administrator has approved to perform audits.

3.1.12 Trading of Energy Savings

Energy Savings Certificates created under the ESS can be 

sold. Parties interested in buying certificates include:41

• scheme participants, who are required to acquire and 

surrender certificates to meet their energy savings 

targets;

• intermediary agents, who might subsequently sell the 

certificates to scheme participants; and

• organisations or individuals interested in voluntarily 

purchasing offsets to manage their carbon footprint.

The Scheme Administrator operates a registry, which is 

a web-based database that tracks the creation, ownership 

transfer, and surrender of certificates. Accredited Certificate 

Providers are authorised by the Scheme Administrator to 

create a set number of Energy Savings Certificates, and they 

can do this through the registry once the eligible energy 

savings have been achieved. The registration fee is AUD 

0.70 per certificate. The registry is not a trading platform 

and the Scheme Administrator is not involved in operating 

a trading market. Access to the registry is open to the 

general public.42

The majority of certificate sales take place over the 

counter through bilateral contracts with no obligation to 

disclose the prices paid. Other sales occur through spot 

markets established by various private sector market 

makers. Some brokers provide regular updates on spot 

market prices for certificates. There are three types of 

contracts for trading certificates:43
14

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

44 New South Wales Government, 2012a

45 Sniffin, 2012

46 New South Wales Government, 2012

• Spot contract – a contract for a physical exchange of a 

specified quantity of certificates at an agreed price.

• Forward contract – a contract for the exchange of a 

specified quantity of certificates at a predetermined price 

on a fixed date.

• Option contract – the buyer pays the seller a premium 

to acquire a right, but not the obligation, to buy (call 

option) or sell (put option) a quantity of certificates at a 

predetermined price.

The ESS framework does not set a maximum price for 

Energy Savings Certificates, but it does set a penalty rate 

for energy savings shortfalls, which provides a theoretical 

ceiling for the price of certificates. For the 2012 compliance 

year, the penalty rate is AUD 24.86 per certificate, which 

is not tax deductible. Once tax impacts are taken into 

account, the tax-adjusted value of the penalty to a scheme 

participant is equivalent to AUD 35.51 per certificate.44

Figure 2 shows changes in the certificate spot price 

compared with the tax-adjusted penalty value from the 

inception of the ESS in July 2009 to January 2012.

36.00

34.00

32.00

30.00

28.00

26.00

24.00

22.00

20.00

18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0

Figure 2

Spot Price for Energy Savings Certificates Compared with the 

Penalty Level in the New South Wales Energy Savings Scheme 45

ESC Spot Price

7/2009

8/2009

9/2009

10/2009

11/2009

12/2009

1/2010

2/2010

3/2010

4/2010

5/2010

6/2010

7/2010

8/2010

9/2010

10/2010

11/2010

12/2010

1/2011

2/2011

3/2011

4/2011

5/2011

6/2011

7/2011

8/2011

9/2011

10/2011

11/2011

12/2011

1/2012

ESC Spot Price

Penalty

18 March Compliance Date

3.1.13 Funding

Costs of meeting the ESS targets incurred by scheme 

participants are implicitly assumed to be costs of doing 

business and, where possible, are passed on to customers.

3.1.14 Scheme Administration

The Independent Pricing and Regulatory Tribunal 

of New South Wales oversees the ESS as the Scheme 

Administrator, according to rules developed by the New 

South Wales Department of Trade & Investment, Regional 

Infrastructure and Services.46 The Tribunal’s two basic 

functions are:

• to ensure compliance by scheme participants with 

their energy saving targets; and

• to manage the operation of the ESS.

To fulfill its functions in relation to both GGAS and ESS, 

the Tribunal has established two functional groups, the 

AUD
15

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

47 New South Wales Legislation, 

1995. Division 10, Sections 151-

2 creates the Scheme Regulator; 

Sections 153-4 create the 

Scheme Administrator. 

48 GGAS & ESS Registry available 

at: https://www.ggas-registry.nsw.

gov.au/searching/totalsbytype.

aspx?scheme=ESS

49 New South Wales Independent 

Pricing and Regulatory Tribunal, 

2009a

50 New South Wales Independent 

Pricing and Regulatory Tribunal, 

2009a

51 Crossley, 2008

Scheme Regulator (ensuring compliance) and the Scheme 

Administrator (overseeing trading).47 In addition to its 

role with GGAS and ESS, the Tribunal is the regulator for 

several industries in New South Wales.

3.1.15 Scheme Results

From the inception of the ESS in July 2009 to late March 

2012, 1,978,541 Energy Savings Certificates have been 

created. This corresponds to the same number of metric 

tonnes of abated carbon dioxide equivalent. To late March 

2012, 1,705,686 certificates have been surrendered.48

Prior to the establishment of the ESS, energy savings 

were achieved under the Demand Side Abatement Rule as 

part of the Greenhouse Gas Reduction Scheme. Certificates 

created under that Rule rose from 4.5 percent of all GGAS 

certificates in 2003 to 43.6 percent of all certificates in 

2008. During that time, a total of 29,588,671 certificates, 

most of which would correspond to tonnes of CO2-e abated 

through energy efficiency, were created under the Demand 

Side Abatement Rule.49

The greatest growth in energy efficiency between 

2003 and 2008 occurred in the residential sector. GGAS 

certificates created through energy saving measures in the 

residential sector rose from 2.4 percent of measures in 2003 

to 81 percent of measures in 2008. Most of these certificates 

were created using deemed energy saving values.

The sources of certificates created under the Demand 

Side Abatement Rule during the period 2003-2008 are 

shown in Figure 3. 

Figure 3

Sources of Certificates Created under the Demand Side Abatement Rule 

of the New South Wales Greenhouse Gas Reduction Scheme 50

2003 and 2008

Energy 

Efficiency: 

Commercial 

– 6.6%

Energy Efficiency: 

Commercial – 

10.0%

Energy Efficiency: 

Industrial – 10.3%

Energy Efficiency: 

Industrial – 1.3%

Energy Efficiency: 

Residential – 2.4%

Energy Efficiency: 

Residential – 81.0%

On-site 

Generation: 

Industrial – 80.7%

On-site 

Generation: 

Industrial – 7.1%

3.1.16Areas for Improvement

Most of the energy savings in the residential sector 

under the Demand Side Abatement Rule were created 

by projects in which compact fluorescent lamps and 

water-efficient showerheads were sold at a discount or 

given away free of charge to households by firms that 

purchased the appliances in bulk and generated a profit 

by selling the resulting certificates that were assigned to 

them by householders. Four firms created more than one 

million certificates each from residential energy efficiency 

projects in 2006, including one firm that created more 

than three million. A market survey commissioned by 

the GGAS Scheme Administrator subsequently indicated 

that more than half of the compact fluorescent lamps 

and showerheads given away had not been installed. As a 

result, the New South Wales Minister for Energy reduced 

the installation discount factor for giveaways of compact 

fluorescent lamps and showerheads from 0.9 and 0.8, 

respectively, to 0.4, with the option for a project proponent 

to appeal for a higher discount factor where evidence 

supported a higher installation rate for its project.51

In establishing the ESS, particular attention was paid to 

minimising the opportunities for large-scale distribution 

of energy efficient appliances with deemed energy saving 

values. Compact fluorescent lamps were not included as 

a Recognised Energy Savings Activity. Procedures were 

established to identify instances in which a large number of 

showerheads were replaced at a single address, or in which 

installations were claimed by more than one Accredited 

2003 2008
16

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Certificate Provider at a single address. Where duplicates 

are discovered for an individual address, only the first 

installation is recognised and all subsequent installations 

are deemed as invalid.

3.2 Australia – South Australia

The South Australian Residential Energy Efficiency 

Scheme (REES) went into effect on 1 January 2009 and 

will initially apply until 31 December 2014. The Scheme is 

intended to be ongoing and will operate in three-year phases.

The REES is one of three EEO schemes developed at the 

state level in Australia. It differs from its counterparts – the 

New South Wales and Victorian schemes – in that it does 

not include tradable energy efficiency certificates. Rather, 

obligated energy retailers in South Australia accumulate 

credits toward their annual targets, and are allowed limited 

transfer of credits to other obligated retailers.

The REES contributes to achieving the South Australian 

Government’s broader goals to improve energy efficiency 

and reduce GHG emissions.

In 2002, the South Australian Cabinet approved an 

Energy Efficiency Action Plan, which defines minimum 

energy efficiency measures in government operations. 

The measures address construction of new government 

buildings, major refurbishment projects, operation and 

maintenance of government assets, equipment procurement 

policies, and vehicle fleet use. An Energy Efficiency 

Reference Group, chaired by the Energy Division of 

the Department for Manufacturing, Innovation, Trade, 

Resources and Energy, was established to monitor the 

implementation of the Energy Efficiency Action Plan.

52

The South Australian Government’s Strategic Energy 

Plan was established in March 2004. The Plan is used 

by the South Australian Government to help shape its 

direction and investments. It outlines a series of objectives 

for implementing energy efficiency in South Australia. Two 

of the objectives are:53

• to reduce energy consumption in government 

buildings by 25 percent within ten years and lead 

Australia in wind and solar generation within ten 

years; and

• to increase energy efficiency of dwellings by ten 

percent within ten years, by such means as the 

introduction of a five-star energy requirement for new 

houses by May 2006. 

In 2007, South Australia mandated targets to reduce 

greenhouse emissions when the State Parliament passed the 

Climate Change and Greenhouse Emissions Reduction Act 2007. 

The legislation contains three targets:54

• to reduce GHG emissions within South Australia by at 

least 60 percent to an amount that is equal to or less 

than 40 percent of 1990 levels as part of a national 

and international response to climate change by 

December 31, 2050;

• to increase the proportion of renewable electricity 

generated so it comprises at least 20 percent of 

electricity generated in South Australia by December 

31, 2014; and

• to increase the proportion of renewable electricity 

consumed so that it comprises at least 20 percent of 

electricity consumed in South Australia by December 

31, 2014. 

3.2.1 Policy Objectives

The South Australian Government stated three objectives 

for the REES:55

• to improve residential energy efficiency and reduce 

GHG emissions;

• to assist households, particularly low-income 

households, to prepare for likely increases in energy 

prices associated with policy responses to reduce 

GHG emissions; and

• to reduce energy costs for households, but particularly 

low-income households. 

3.2.2 Legal Authority

The REES is given statutory effect through Parts 2AA 

of the Electricity (General) Regulations 1997 and Gas 

Regulations 1997. The Regulations establish the Essential 

Services Commission of South Australia as the Scheme 

Administrator of the REES. The Commission created the 

Residential Energy Efficiency Scheme Code56 in December 

2008. The Code went into effect on 1 January 2009 as an 

52 Government of South Australia, 2002

53 Government of South Australia, 2004

54 Government of South Australia, 2007

55 Essential Services Commission of South Australia, 2011

56 Essential Services Commission of South Australia, 2012a
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

57 Essential Services Commission of South Australia, 2012b

58 Priority group household are defined as households that 

include a person who is a recipient of one of a range of 

specified welfare benefits, or who falls within a class of 

persons who are experiencing hardship determined or 

approved by the Essential Services Commission.

industry code pursuant to the powers of the Commission 

under section 28 of the Essential Services Commission Act 

2002. The Code is binding upon licensed energy retailers 

pursuant to Part 4 of the Act.

3.2.3 Fuel Coverage

Electricity and natural gas.

3.2.4 Sector and Facility Coverage

Residential sector dwellings only.

3.2.5 Energy Saving Target

For each year of the REES, obligated parties are required 

to achieve two types of targets57:

• GHG emissions reductions, achieved by undertaking 

approved energy efficiency measures in households; 

and

• energy audits, achieved by conducting a target 

number of energy audits in priority group 

households58 for each compliance period.

A sub-target of 35% of the GHG emissions reduction 

target must be achieved in priority group households. 

Table 2 shows the REES targets set by the South 

Australian Minister for Mineral Resources and Energy.

Table 2 

Targets for the South Australian Residential Energy Efficiency Scheme59

Greenhouse gas emissions reductions (tCO2-e)

35% of greenhouse gas emissions reductions 

to be achieved in priority group households 

(tCO2-e)

Energy audits in priority group households 

(number)

2009 2010 2011 2012 2013 2014

155,000 235,000 255,000 255,000 335,000 410,000

54,250 82,250 89,250 89,250 117,250 143,500

3,000 5,000 5,000 5,667 5,667 5,667

3.2.6 Obligated Parties

Obligated parties under the REES are licensed energy 

retailers with 5,000 or more electricity or natural gas 

residential customers in South Australia.60

The individual REES targets for each obligated energy 

retailer vary depending upon the number of residential 

customers the retailer supplies and how much electricity 

and/or gas they sell. The formulae for calculation of REES 

targets for both GHG emissions reductions and for energy 

audits allocate a proportion of the overall target to each 

obligated energy retailer for each licence (electricity and/or 

gas) held by that retailer.61

For the GHG emissions reduction targets, the proportion 

of the overall target allocated to an individual retailer is the 

ratio of the annual GHG emissions from the electricity or 

gas consumed by residential customers supplied by that 

retailer to the total annual GHG emissions for all residential 

customers (both electricity and gas) for all the REES 

obligated retailers.

The assessment of GHG emissions is based on reported 

annual electricity sales (less accredited GreenPower sales) 

or gas sales for the financial year prior to the calendar year 

for which targets are being set, multiplied by the relevant 

emissions factor for electricity or gas.

59 Essential Services Commission of South Australia, 2012b

60 Essential Services Commission of South Australia, 2011

61 Essential Services Commission of South Australia, 2011
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

62 Essential Services Commission of 

South Australia, 2011

63 Essential Services Commission of 

South Australia, 2011

64 Essential Services Commission of 

South Australia, 2011

65 Essential Services Commission of 

South Australia, 2012a, Section 6.2

66 Essential Services Commission of 

South Australia, 2011

Table 3 

Targets for Obligated Energy Retailers in the 

South Australian Residential Energy Efficiency Scheme, 201064

AGL SA 108,200 36,090 2,123

Origin Energy 43,073 9,721 1,528

TRUenergy 30,679 9,216 675

Simply Energy 34,748 10,936 405

Lumo Energy 10,780 3,972 141

Powerdirect 5,850 2,047 84

Red Energy 3,328 1,165 49

Total 236,657 73,148 5,000

An obligated retailer’s GHG emissions reduction target 

is directly proportional to the product of annual electricity 

sales (less accredited GreenPower sales) or gas sales for 

the previous financial year and the relevant emissions 

factor. The electricity emissions factor is much greater than 

that for gas and, as a consequence, the average electricity 

customer makes about three times the contribution to a 

retailer’s total GHG emissions reduction target (i.e., arising 

from both its electricity and gas licences) than does the 

average gas customer.62

For the energy audit target, the allocated proportion of 

the overall target is the ratio of the number of residential 

electricity or gas customers supplied by the retailer to the 

total number of residential customers (both electricity and 

gas) for all the REES obligated retailers. The assessment of 

customer numbers is based on reported customer numbers 

for the financial year prior to the calendar year for which 

targets are being set. 

An obligated retailer’s total energy audit target arising 

from both its electricity and gas licences is directly 

proportional to the number of electricity and gas customers 

it supplied in the previous financial year, with electricity 

and gas customers counting equally toward determination 

of the overall target.63

Table 3 shows the 2010 targets allocated by the Essential 

Services Commission to the obligated energy retailers:

Electricity 

Retailers

Greenhouse Gas Reductions 

in Priority Group 

Households (tCO2-e)

Total Greenhouse 

Gas Reductions 

(tCO2-e)

Energy 

Audits 

(number)

3.2.7 Compliance Regime

The Minister has the task of setting the overall GHG 

emissions reduction and energy audit targets for the 

REES each year. Individual targets are then allocated to 

each obligated energy retailer by the Essential Services 

Commission, as the Scheme Administrator. Obligated 

energy retailers achieve compliance under the REES by 

undertaking sufficient activities to meet their individual 

annual targets. Through undertaking these activities, 

retailers accumulate toward their targets.

An obligated retailer must collect and record information 

in relation to all energy efficiency and energy audit activities 

that are performed at residential dwellings. All records 

must be maintained according to requirements in section 

5.3 of the REES Code. The Essential Services Commission 

determines compliance with the annual targets based on 

each obligated retailer’s reporting statements.65 An obligated 

retailer must provide the Commission with a REES 

reporting statement on a quarterly basis. The statement 

must truthfully, accurately, and verifiably represent the 

records maintained in accordance with clause 5.2 of the 

REES Code, comply with the data and form requirements 

as specified in the Code, and contain a responsibility 

statement signed by the Chief Executive Officer or person 

of equivalent responsibility. The statement must report 

the substance of transactions and events taken by the 

energy retailer in compliance with the REES, and the items 

reported must be verifiable.66
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

67 Essential Services Commission of South Australia, 2012a, 

Section 5

68 Essential Services Commission of South Australia, 2011

69 Essential Services Commission of South Australia, 2011

70 Essential Services Commission of South Australia, 2011

71 Essential Services Commission of South Australia, 2011

72 Essential Services Commission of South Australia, 2012a, 

Sections 3.3.2 and 4.3.2

73 Essential Services Commission of South Australia, 2011

In addition to the quarterly reporting statements, each 

obligated retailer is required to submit a Compliance Plan 

to the Essential Services Commission by March of each 

compliance year. The compliance plan must include:67

• a statement from the Chief Executive Officer of the 

obligated retailer acknowledging their obligations and 

responsibilities under the REES for the coming year;

• a description of the obligated retailer’s internal 

allocation of responsibilities in accordance with their 

obligations and responsibilities under the REES; and

• a description of the resources, systems, and processes 

which the obligated retailer intends to use to ensure 

that their obligations and responsibilities under REES 

are met for the coming year. 

Obligated energy retailers are able to bank an unlimited 

number of credits toward their targets, providing some 

flexibility in the REES. This means that if a retailer delivers 

energy saving measures and/or energy audits in excess of 

their targets in any one year, they can carry those credits 

over to help meet targets in later years. However, energy 

retailers are not able to borrow credits from future years to 

meet targets in the current year.

If an obligated energy retailer does not meet their targets 

in any year, they must pay a penalty. Amendments to the 

Electricity Act 1996, the Gas Act 1997, and the Regulations 

under the Acts have created a penalty regime for noncompliance with the REES. If the Essential Services 

Commission determines that an obligated retailer did not 

meet their respective targets, it may issue a shortfall notice 

advising the retailer of the penalty amount applicable, and 

allow the retailer to either pay the penalty or be prosecuted 

for a breach of licence. Each shortfall penalty has two 

components: a “base penalty” that applies regardless of the 

size of the shortfall, and a “per unit penalty,” which is a 

dollar value applied to each tonne of CO2-e not reduced, or 

per energy audit not undertaken.68

Shortfall penalties are set by taking into consideration 

the costs of compliance with the REES. The penalties are:69

• base penalty amount of AUD 10,000 for a REES 

shortfall, applicable to each target;

• shortfall penalty for GHG emissions reduction target 

of AUD 70 per tCO2-e not reduced;

• shortfall penalty for GHG emissions reduction target in 

priority groups of AUD 70 per tCO2e not reduced; and

• shortfall penalty of AUD 500 per energy audit not 

achieved.

In addition to paying the shortfall penalty for energy 

audits, energy retailers are also required to carry out, in the 

subsequent year, their shortfall number of energy audits in 

addition to their annual target for that year.70

Any monies recovered by the Essential Services 

Commission under the penalty regime must be applied 

under a scheme established by the Commission for one or 

more of the following purposes:71

• to assist persons who may have failed to benefit from 

activities relating to energy efficiency on account of 

any retailer’s energy efficiency shortfall; and 

• to support other programmes or activities to promote 

or support energy efficiency or renewable energy 

initiatives within South Australian households. 

3.2.8 Performance Incentives

No performance incentives are available.

3.2.9 Eligible Energy Savings

Obligated retailers can determine how, when, and to 

which customers energy efficiency activities and energy 

audits are offered and also whether customers are charged 

for these activities or whether incentives are provided.

Energy efficiency activities and/or energy audits that 

contribute to REES targets can be undertaken by an 

employee, agent, or contractor of an obligated retailer, or 

any other person, provided that person permits the activity 

to count toward the retailer’s REES targets.72 In 2009 

and 2010, obligated retailers generally chose to engage 

contractors to undertake energy efficiency activities and 

energy audits. Although the conduct of energy efficiency 

activities and energy audits may be outsourced, the REES 

obligations continue to rest with the obligated retailers, not 

with their engaged contractors or other third parties.73
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

determining deemed values. A base case reflecting business 

as usual is established for each measure, with expected 

lifetime energy savings calculated as savings above the 

baseline. The lifetime of a measure is generally not to 

exceed 20 years. The energy savings value may be adjusted 

for certain reasons, including changes in business-as-usual 

projections and planned future regulation. Deemed values 

also take account of climate zones, 

where there is a material difference in 

energy savings achieved in different 

zones. Finally, GHG coefficients for 

translating energy savings into CO2-e 

are set for each energy efficiency 

measure, using emissions factors 

published by the Commonwealth 

Department of Climate Change and 

Energy Efficiency.76

Energy retailers that claim the 

deemed value for an eligible energy 

74 Essential Services Commission of 

South Australia, 2011

75 Essential Services Commission of 

South Australia, 2012a

76 Essential Services Commission of 

South Australia, 2012a, Schedule 

7: Ministerial Protocol, Specific 

principles for calculating deeming 

values.

The provision allowing obligated retailers to engage 

contractors creates opportunities for the development of 

independent energy efficiency installers and energy service 

companies to undertake energy efficiency activities that 

contribute to REES targets.

3.2.10 Eligible Energy Efficiency Measures

Obligated energy retailers must meet their GHG 

emissions reduction targets by implementing energy 

efficiency measures in residential households. Retailers may 

choose the energy efficiency measures they elect to provide 

to their residential customers from a list of measures 

approved by the Minister. Further measures are added to 

the list from time to time.

Table 4 shows some of the eligible energy efficiency 

measures in the REES.

Each eligible energy efficiency measure has a deemed 

value listed in the REES Code, which specifies the amount 

of GHG emissions reduction (in tCO2-e) that energy 

retailers may claim for the measure. For example, Table 5 

lists the deemed values that may be claimed for selected 

draught-proofing activities.

A number of factors are taken into account in 

Table 4 

Selected Eligible Energy Efficiency Measures in the

South Australian Residential Energy Efficiency Scheme74

Table 5 

Deemed Values for Selected Draught-Proofing 

Activities in the South Australian 

Residential Energy Efficiency Scheme75

Lighting

Showerheads

Ceiling insulation

Draught proofing

Fridges and freezers

Heating and cooling 

systems

Water heaters

Replace existing light bulbs with energy efficient models.

Replace an existing showerhead with an efficient model 

that saves water and costs less to heat the water.

Install ceiling insulation in uninsulated dwellings.

Seal gaps in doors, windows, fireplaces, and exhaust fans 

to stop draughts.

Retire inefficient fridges and freezers, particularly second 

fridges and freezers.

Upgrade heating and cooling systems to more efficient 

systems, or install ductwork that makes them work more 

efficiently and with less energy.

Install a more efficient water heater where this is not 

already required under the new water heater standards 

for South Australia.

Door (per door) 0.2

Window (per linear meter of product) 0.02

Chimney (per chimney) 2.9

Exhaust fan (per fan) 0.1

Draught-Proofing Activity Deemed Value (tCO2-e)

The deemed value applies to a single door or window, regardless 

of the number of draught-proofing products that are fixed to that 

door or window in undertaking the activity.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

77 Essential Services Commission of South Australia, 2011

78 REES Code, Section 6. 

79 REES Code, Section 5.9.1.

80 Essential Services Commission of South Australia, 2010

81 Essential Services Commission of South Australia, 2011

82 Essential Services Commission of South Australia, 2011

83 Essential Services Commission of South Australia, 2012a

efficiency measure must meet minimum requirements in 

relation to the installation of that measure. The Essential 

Services Commission is responsible for monitoring, 

reviewing, and modifying the list of eligible energy 

efficiency measures and the corresponding deemed values 

and minimum requirements.77

3.2.11 Measurement, Verification, and Reporting

The Essential Services Commission periodically evaluates 

claimed GHG emissions reductions based on an obligated 

retailer’s quarterly reporting statements, and determines 

compliance with REES targets upon receipt of the final 

quarterly reporting statement in any given year. The 

Commission determines whether the obligated retailer 

has fallen short or exceeded their targets and, if necessary, 

determines whether there is an energy saving credit that 

may accrue toward future targets.78

In addition, the Commission may require an obligated 

retailer:79

• to undertake an audit of its operations in relation to 

its compliance with its obligations under the REES;

• to use an independent expert approved by the 

Commission to conduct the audit; and

• to report to the Commission the results of the audit.

3.2.12 Trading of Energy Savings

There is no energy efficiency certificate scheme under 

the REES. Energy retailers accumulate credits toward their 

annual targets, and limited trading of these credits among 

obliged retailers is allowed. Retailers that have exceeded 

their targets may transfer any excess credits to another 

obliged retailer.80

3.2.13 Funding

Implementation of the REES has resulted in increased 

costs for obligated retailers that will be passed on to 

customers. Previous determinations by the Essential 

Services Commission provided that obligated retailers 

may apply to the Commission for the pass through to 

standing contract prices of costs associated with the 

legislated imposition of an energy efficiency scheme such 

as the REES. In the gas price determination effective from 

1 August 2011, the REES component was set at AUD 2.50 

per customer per annum to be increased each year by the 

Consumer Price Index. The electricity price determination 

provides a starting estimation for the REES component of 

AUD 12.55 per customer per annum.81

The REES pass through allowances are provided to 

AGL SA and Origin Energy for their standing contract 

customers. It would be expected that similar amounts 

would be passed on by all obligated retailers to customers 

with market contracts, so that all residential customers will 

have to pay amounts of the order indicated.

Based on the numbers of small customers in South 

Australia (in 2010, approximately 805,000 for electricity 

and 380,000 for gas), and assuming that all obligated 

retailers are recovering similar REES cost amounts, the 

Essential Services Commission estimates the total annual 

cost of REES for small customers as being on the order of 

AUD 11 million.82

3.2.14 Scheme Administration

The REES Code establishes requirements in relation 

to the conduct and operations of the REES. These 

requirements include:83

• the allocation and notification to obligated retailers of 

their GHG emissions reduction targets, energy audit 

targets, and priority group GHG emissions reduction 

targets;

• record-keeping and reporting requirements (including 

data integrity assurance mechanisms) in relation to 

GHG emissions reduction targets, energy audit targets, 

and priority group GHG emissions reduction targets; 

and

• compliance and audit obligations (including provisions for Annual Compliance Plans) in relation to 

GHG emissions reduction targets, energy audit targets, 

and priority group GHG emissions reduction targets.

Information about services and products available to 

households under the REES is made available to the public 

on the REES website, and the South Australian Government 

has distributed informational flyers on the various energy 
22

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

84 Government of South Australia, 2010

85 Essential Services Commission of South Australia, 2011

86 Essential Services Commission of South Australia, 2011

87 Essential Services Commission of South Australia, 2012a

88 South Australia also has an energy efficiency obligation 

scheme in place, but without a system for trading white 

certificates.

89 In March 2012, the Victorian Government announced that 

it intended to abolish the Victorian GHG emission reduction 

targets.

90 Victorian Legislation, 2012a

savings available. The REES website contains a link to a 

telephone number and email where the public may obtain 

more information.84 Each obligated energy retailer has their 

own informational website with contact information for the 

public on the various measures being employed. 

3.2.15 Scheme Results

Table 6 shows the results against the REES targets in 

2009. All the targets were exceeded by substantial margins.

Table 6 

Results Against Targets for the 

South Australian Residential 

Energy Efficiency Scheme, 200985

Greenhouse gas emissions 

reductions (tCO2-e)

35% of greenhouse gas 

emissions reductions to be 

achieved in priority group 

households (tCO2-e)

Energy audits in priority 

group households (number)

Target Result

155,000 208,333

54,250 83,852

3,000 3,674

The Essential Services Commission has estimated that 

the average cost per tCO2-e emissions abated under the 

REES is approximately AUD 35 per tonne.86

3.2.16Areas for Improvement

Based on operational experiences and stakeholder 

feedback during the first year of operation, the Essential 

Services Commission undertook a review of the format and 

content of the REES Code and recommended amendments. 

The Commission publicly released an amended REES 

Code on its website for stakeholder consultation, and the 

amended REES Code came into effect on 30 August 2010. 

A further revision of the REES Code came into effect on 1 

January 2012.87

3.3 Australia – Victoria

The Victorian Energy Efficiency Target (VEET) 

Scheme commenced operation on 1 January 2009 and 

is scheduled to end on 31 December 2029. During this 

period, VEET will operate in three-year phases, with 

energy efficiency targets expected to increase in stringency 

over time. Obligated parties meet their individual targets 

by surrendering Victorian Energy Efficiency Certificates 

created by installing energy efficient products. The scheme 

is one of two energy efficiency certificate trading schemes 

in Australia (the other one is the New South Wales Energy 

Saving Scheme).88

The Victorian Essential Services Commission is 

responsible for administration of the VEET Scheme. The 

Commission is Victoria’s independent economic regulator 

of essential services, including those supplied by electricity 

and gas. The Commission must also report annually to the 

Minister on the performance of the VEET Scheme.

The VEET Scheme comprises part of Victoria’s climate 

change policy and was designed, in part, to help Victoria 

reach its goal of reducing its GHG emissions by 20 percent 

by 2020 and by 60 percent by 2050 compared to 2000 

levels.89 Victoria has placed particular focus on abating 

GHGs in the energy sector, which is responsible for 70 

percent of the state’s GHG emissions. The VEET Scheme 

reduces energy sector emissions by reducing demand. It 

further addresses persistent barriers to energy efficiency and 

promises to lower household energy bills through reduced 

rates and lower usage.

3.3.1 Policy Objectives

The stated objectives of the VEET Scheme are:90

• to reduce GHG emissions;

• to encourage the efficient use of electricity and gas; 

and

• to encourage investment, employment, and 

technology development in industries that supply 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

91 Victorian Legislation, 2012a

92 The State Governor with the advice of the Executive Council, 

comprised of all Ministers, but requiring only a quorum of 

the Governor and two Ministers for a meeting.

93 Victoria Essential Services Commission, 2012a

94 Victorian Legislation, 2012a

95 Victorian Legislation, 2012a

96 Victorian Legislation, 2012a

97 Victoria Essential Services Commission, 2012b

98 Victoria Essential Services Commission, 2012a

goods and services that reduce the use of electricity 

and gas by consumers.

3.3.2 Legal Authority

The VEET Scheme was enacted pursuant to the Victorian 

Energy Efficiency Target Act 2007.91 Details of the scheme 

are set forth in regulations, issued by the Governor in 

Council,92 and the Guidelines, made by the Essential 

Services Commission, pursuant to the Act.

3.3.3 Fuel Coverage

Electricity and natural gas.

3.3.4 Sector and Facility Coverage

The VEET Schemes originally covered only residential 

sector dwellings. From 1 January 2012, the Scheme 

was extended to also cover commercial and other non 

residential premises.

3.3.5 Energy Saving Target

The VEET Scheme operates in three-year phases, with 

Phase 1 running from January 2009 to December 2011 and 

Phase 2 from January 2012 to December 2014. The target 

during Phase 1 is set at 2.7 megatonnes of CO2-e avoided 

per annum and the target during Phase 2 is 5.4 MtCO2-e 

per annum.93

3.3.6 Obligated Parties

Obligated parties under the scheme are referred to as 

“relevant entities.” Relevant entities are energy retailers who 

sell electricity and/or gas to 5,000 or more customers in 

Victoria and who purchase electricity or gas from specified 

sources (called making a “scheme acquisition”). A scheme 

acquisition for electricity retailers means the purchase of 

electricity for on-sale from the Australian Energy Market 

Operator. For gas retailers, a scheme acquisition means 

the purchase of gas for on-sale from a producer, storage 

provider, or interconnected pipeline operator, or from the 

Australian Energy Market Operator.94

Each obligated energy retailer’s individual target is set 

based on their shares of electricity and gas sales in the previous year. An individual target is calculated by multiplying the 

amount of electricity or gas purchased by the retailer under 

scheme acquisitions in that year by a GHG reduction rate for 

that year.95 Separate GHG reduction rates for electricity and 

gas are determined each year by the Governor in Council 

and their levels are set so as to deliver the VEET target for 

that year. The GHG reduction rate for electricity for the 2011 

compliance year (1 January to 31 December 2011) has been 

set at 0.13767 and the GHG reduction rate for gas for the 

2011 compliance year has been set at 0.00819.

3.3.7 Compliance Regime

Each obligated energy retailer must each year surrender 

the number of Victorian Energy Efficiency Certificates that 

corresponds to its VEET Scheme target for the year. Each 

certificate represents one metric tonne of tCO2-e abated by 

specified energy saving activities.96

Certificates offered for surrender must comply with two 

criteria:97

• the certificates must not have expired, that is, the 

energy efficiency project from which the certificates 

were created must have been completed within six 

years before the date on which the obligated energy 

retailer makes its surrender; and

• the certificates must have been created by 30 January 

of the year following the relevant compliance year, for 

example, certificates created after 30 January 2012 

cannot be used by retailers to meet their 2011 target, 

but can be used to meet their 2012 compliance year 

liability.

Each obligated energy retailer must submit an annual 

energy acquisition statement that sets forth the amount 

of electricity or gas acquired for on-sale for the year, the 

number of certificates being surrendered for the year, and 

any surplus certificates carried forward from the previous 

year or into the following year. The acquisition statement 

must be audited by an independent third party before 

submission to the Essential Services Commission.98
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

99 The Consolidated Fund is a term used in Australia to 

describe the accounting location where a government’s 

unallocated revenue is held.

100 Victoria Essential Services Commission, 2012a

101 Victoria Essential Services Commission, 2012b

102 Victoria Essential Services Commission, 2012c

103 Victoria Essential Services Commission, 2012d

104 Victoria Essential Services Commission, 2012a

105 The VEET legislation also allows prescribed activities to take 

place in another state or Territory in which an approved 

interstate energy efficiency regime is in force. However, this 

provision has not been operationalised.

106 The register includes water heating products, space heating 

products, thermally efficient windows, refrigerators and 

freezers, televisions, clothes dryers, and heat pumps. See 

more information at: https://www.veet.vic.gov.au/Public/

Public.aspx?id=Products

107 Victoria Essential Services Commission, 2012e

An obligated retailer that has a certificate shortfall 

for a year is liable to pay to the Consolidated Fund99 an 

energy efficiency shortfall penalty. The penalty payable is 

determined by multiplying the retailer’s certificate shortfall 

(in tCO2-e) by a prescribed shortfall penalty rate.100 The 

penalty rate for the 2011 compliance year was AUD 41.23 

per tCO2-e shortfall, and the rate is adjusted annually to 

reflect changes in the consumer price index.101 The taxadjusted penalty level sets a theoretical ceiling price for 

Victorian Energy Efficiency Certificates in trading.

3.3.8 Performance Incentives

No performance incentives are available.

3.3.9 Eligible Energy Savings

Energy savings that can be used to meet VEET Scheme 

targets are created through installing energy efficient 

products in end-use customers’ premises. Products can be 

installed by obligated energy retailers and by non obligated 

parties who must have been assessed successfully in an 

accreditation process. Accredited parties are known as 

Accredited Persons. There are no restrictions on who can 

apply for accreditation, but applicants have to supply the 

Essential Services Commission with detailed information 

about their business model. The Commission uses that 

information to decide whether the applicant has the policies, 

processes, and expertise needed to operate within the VEET 

Scheme. There is an AUD 500 fee to become accredited.102

Under the VEET legislation, the right to create Victorian 

Energy Efficiency Certificates technically lies with the 

energy consumer for whom energy efficient products have 

been installed (although they cannot personally create the 

certificates unless they themselves become accredited). It is 

only when the energy consumer assigns those rights to an 

Accredited Person that the Accredited Person then has the 

ability to create certificates as a result of installing energy 

efficiency products.103

Through enabling non-obligated parties to create 

certificates, the VEET Scheme has stimulated the 

development of an energy services industry in Victoria, 

thereby achieving one of the stated objectives of the scheme.

3.3.10 Eligible Energy Efficiency Measures

Activities that install energy efficiency products to 

generate Victorian Energy Efficiency Certificates are 

known as “prescribed activities.” To qualify as a prescribed 

activity, the activity must result in a reduction in GHG 

emissions that would not otherwise have occurred if the 

activity was not undertaken. The activity must also take 

place in Victoria.104,105 Initially prescribed activities could 

only be carried out in residential dwellings, but from early 

2012, most prescribed activities can also be carried out in 

commercial and other non-residential premises.

Victorian Energy Efficiency Certificates can only be 

created from prescribed activities when VEET-approved 

products are installed. Some types of products are 

preapproved for use in the VEET Scheme and are listed on a 

Register of Products106 maintained by the Essential Services 

Commission. Other types of products must be approved by 

the Commission on a case-by-case basis for each Accredited 

Person. The Register of Products is updated on a regular 

basis to capture eligible products. Accredited Persons 

are required to apply to the Commission for approval of 

products not listed in the Register before installing the 

products for the purposes of creating certificates.107

The VEET Regulations establish about 30 prescribed 

activities and the deemed GHG emissions reduction 

attributed to each activity. Table 7 (page 25) shows the 11 

broad categories of prescribed activities. This will expand to 

include four commercial sector-specific activities, probably 

in May 2012.
25

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

108 Victoria Essential Services Commission, 2012d

109 Victoria Essential Services Commission, 2012b

110 Victoria Essential Services Commission, 2012d

111 Holding a VEET account is different from accreditation as an 

Accredited Person under the scheme. A person or organisation with a VEET account may offer certificates for transfer 

or surrender, accept certificates into the account, and make 

payment for any liabilities associated with the VEET Scheme.

112 Victoria Essential Services Commission, 2012b

Table 7 

Categories of Prescribed Activities in the

Victorian Energy Efficiency Target Scheme108

Water heating. Decommissioning low-efficiency water 

heating products and installing high-efficiency water heating 

products. This category also includes the installation of solar 

pre-heaters or solar retrofit kits.

Space heating and cooling. Decommissioning lowefficiency ducted heating products or central electric 

resistance heaters and installing high-efficiency ducted 

heating products; installing high-efficiency ducted 

heating products in new homes; installing high-efficiency 

space heating products, decommissioning refrigerative 

air conditioners and installing evaporative coolers, and 

decommissioning existing gas ductwork and installing new 

gas ductwork.

Space conditioning. Installing insulation, thermally efficient 

windows, and weather sealing products.

Lighting. Decommissioning high-energy lamps, including 

incandescent lamps, and installing low-energy lamps.

Shower roses. Decommissioning non-low-flow shower roses 

and installing low-flow shower roses.

Refrigerators/freezers. Purchasing high-efficiency 

refrigerators or freezers (refrigerator purchase) and 

destruction of pre-1996 refrigerators or freezers (refrigerator 

destruction).

Televisions. Purchasing high-efficiency televisions.

Clothes dryers. Purchasing high-efficiency electric clothes 

dryers or installing high-efficiency gas clothes dryers.

Pool pumps. Purchasing high-efficiency pool pumps.

Standby power controllers. Installing standby power 

controllers.

In-home displays. Installing an in-home display.

3.3.11 Measurement, Verification, and Reporting

The GHG emissions reduction attributed to each 

prescribed activity is calculated by comparing the difference 

between the energy use of the new high-efficiency product 

installed during the activity and the baseline energy use, 

which refers to the amount of energy that would have 

been used if the new product had not been installed. The 

VEET Regulations provide the methodology and values for 

calculating the CO2-e abatement (and therefore the number 

of certificates eligible for creation) for each prescribed 

activity. The volume (in tCO2-e) of abatement for each 

activity is calculated by multiplying the deemed energy 

saving by an abatement factor, times a regional factor (if any) 

applying to the location where the product is installed.109

The calculation may include a discount factor. Under the 

VEET Act, the responsible Minister may make a declaration 

specifying a discount factor that alters the number of 

Victorian Energy Efficiency Certificates that can be created 

as a result of a prescribed activity or specified class of 

prescribed activities.110

Accredited Persons must keep records that provide 

evidence that each prescribed activity has been undertaken 

in accordance with the VEET Regulations. This includes 

evidence of both installation and decommissioning (where 

replacement has occurred). These records are the subject 

of periodic audits commissioned by the Essential Services 

Commission.

3.3.12 Trading of Energy Savings

The process by which Victorian Energy Efficiency 

Certificates are bought and sold (traded) is known as a 

transfer. When an Accredited Person authorised to create 

certificates wants to transfer its certificates, it must find 

a buyer in the certificate market. The buyer may be an 

obligated energy retailer, another Accredited Person, or 

any other individual or organisation that holds a VEET 

Account.111 The transferor must complete and submit a 

transfer request form to the Essential Services Commission 

via e-mail to effect a transfer of certificates. 112

The Essential Services Commission does not provide 

a trading platform for the certificate market, but instead 

merely facilitates access to information about current owners 
26

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.3.14 Scheme 

Administration

The VEET Scheme is promoted 

to the public as the “Energy 

Saver Incentive.” Information 

on the Energy Saver Incentive 

programme is available through 

Victoria’s Save Energy website, 

launched in 2007.115 The Energy 

Saver Incentive is marketed to 

residents of Victoria as a suite 

of discounts and special offers 

available for selected energy 

saving products and appliances 

from participating businesses. 

Residents can access savings 

from a range of participating 

businesses, including their energy 

retailer, local sustainability 

companies, local appliance retail 

stores, plumbers, builders, and other tradespeople.

3.3.15 Scheme Results

Table 8 shows the number of Victorian Energy Efficiency 

Certificates in circulation through 29 March 2012.

113 James Clinch, Victoria Essential Services Commission, 

personal communication.

114 Victoria Essential Services Commission, 2012b

115 State Government of Victoria, 2012

116 Victoria Essential Services Commission, 2012f

of certificates and records details of change of title resulting 

from certificate transfers. Any terms and conditions of sale, 

including certificate delivery and financial settlement, must 

be negotiated between the parties involved.

Figure 4 shows the historic spot price compared with 

the cumulative numbers of Victorian Energy Efficiency 

Certificates registered.

Victorian Energy Efficiency Certificates are not valid 

and cannot be bought, sold, or surrendered until they 

have been registered. When the Essential Services 

Commission is notified that an Accredited Person has 

created some certificates, it must then decide whether to 

register them. To make its decision, the Commission uses 

a range of assessment methodologies to evaluate whether 

the certificates have been properly created. Once it is 

satisfied that the certificates have been properly created, 

the Commission levies a registration fee of AUD 1 per 

certificate. Once payment is received, the Commission 

registers the certificates and notifies the Accredited Person 

that the certificates are now valid.114

3.3.13 Funding

Costs of meeting the VEET Scheme targets incurred by 

obligated energy retailers are implicitly assumed to be costs 

of doing business and, where possible, are passed on to 

customers.

Figure 4 

Historic Spot Price and Cumulative Registrations of 

Victorian Energy Efficiency Certificates 113

Table 8

Victorian Energy Efficiency Certificates in 

Circulation as of 29 March 2012 116

Certificates currently registered. . . . . . . . . . . . 3,727,604

Certificates pending registration. . . . . . . . . . . . . 577,581

Certificates invalid due to voluntary surrender. . 80,283

Certificates invalid due to surrender. . . . . . . . 5,488,732

VEECs

9,000,000

8,000,000

7,000,000

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0

AUD/

VEECs

50

40

30

20

10

0

5/01/2009

16/03/200925/05/2009

3/08/2009

12/10/200921/12/2009

1/03/2010

10/05/201019/07/2010

27/09/2010

6/12/2010

14/02/2011

25/04/2011

4/07/2011

12/09/201121/11/201130/01/2012

Regulated Target

Cumulative VEECs Registered

Spot Price

Source: Nextgen
27

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.3.16 Areas for Improvement

The VEET Act and Regulations have been amended since 

the commencement of the scheme. Significant changes 

include:

• expansion of the scheme to apply to commercial 

sector premises;

• doubling the VEET scheme target to 5.4 megatonnes 

of CO2-e per annum;

• adding several new prescribed activities, including 

installing standby power controllers and in-home 

displays; and

• significant expansion of the compliance powers of the 

Essential Services Commission by an Act amendment 

on 1 January 2012.

3.4 Belgium – Flanders

Belgium is divided into three regions: the Flemish 

region, the Walloon region, and the Brussels-Capital region. 

In Belgium, responsibility for crafting energy policy relating 

to the rational use of energy117 falls to these regions. The 

Flemish region of Belgium introduced an EEO in 2002. The 

Flemish regional government’s Decision of 29 March 2002 

concerning public service obligations for the promotion 

of rational use of energy (RUE Law) placed an obligation 

on electricity distributors to meet annual primary energy 

savings targets.118 The RUE Law was fully replaced by 

amendments made in 2007119 and again in 2011.120

These last amendments changed the RUE obligations 

completely. As of 2012, the energy saving targets for 

electricity distributors were eliminated and replaced by 

specific “action obligations,” specific actions set forth by the 

Flemish Government that distributors must implement.

The Flemish EEO helps meet the climate obligations that 

Belgium has agreed to under the Kyoto Protocol, as well as 

to meet energy efficiency goals under Europe’s Directive on 

energy end-use efficiency and energy services.121

Under the Kyoto Protocol, Belgium is required to 

reduce its GHG emissions in covered sectors 7.5 percent 

below 1990 levels by 2012. Responsibility for climate 

change and environmental and energy policies in Belgium 

is shared among the federal government and regional 

governments. The regions are responsible for, among 

other things, rational use of energy, renewable energy, and 

environmental legislation. In 2001, the federal government 

entered into a Cooperation Agreement with the regions 

to facilitate climate action and established the National 

Climate Commission. The Commission is composed of 

representatives of participating levels of government and is 

tasked with, among other things, the internal coordination 

and evaluation of the National Climate Plan. 

The framework for implementing Flanders’ climate goals 

includes reduction in GHG emissions, the promotion of 

rational energy use, the use of renewable energy sources, 

and application of the flexibility mechanisms of the Kyoto 

Protocol.122 The 2004 Act on the Rational Use of Energy

formed the legal basis for Flemish climate policy. It set 

forth the framework for meeting Flanders’ Kyoto target 

of reducing emissions annually by 83.436 MtCO2-e 

for the period 2008-2012, and further aimed to shape 

Flemish climate policy beyond 2012. The RUE Act was 

incorporated into the global Energy Act as of 2009.

Under the 2006 European Union Directive on Energy 

End-use Efficiency and Energy Services,123 all European 

Member States have to produce an Energy Efficiency Action 

Plan showing how they plan to save nine percent of final 

energy consumption between January 2008 and December 

2016. Under the Action Plan, Flanders is expected to 

save 16,959 GWh of energy by 2016.124 The EEOs in the 

residential sector are expected to deliver more than half of 

the energy savings achieved by 2016 in the region.125

117 Rational use of energy (RUE) is a term commonly used 

in Europe, particularly by the European Commission, to 

describe energy efficiency.

118 B.S. 04.05.2002

119 B.S. 20.04.2007, p. 21360

120 B.S. 31.10.2011

121 European Parliament and the Council of the European 

Union, 2006

122 Flemish Government Department of Environment, Nature, 

and Energy, 2006

123 Directive 2006/32/EC sets an “indicative” (i.e., nonbinding) target of nine percent of average annual energy 

consumption to be met by each Member State by the ninth 

year of application of the Directive. Average annual energy 

consumption is based on the most recent five-year period 

previous to implementation of the directive for which data 

are available.

124 Flemish Government, 2011 

125 Flemish Government Department of Environment, Nature, 

and Energy, 2006
28

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.4.1 Policy Objectives

The objective of the RUE obligation is “to encourage 

the efficient use of energy in a liberalised market.”126 The 

RUE obligations came into force shortly after restructuring 

of the Belgian electricity sector, which legally unbundled 

transmission, distribution, and generation, and led to the 

creation of the Flemish Regulation Entity for the Electricity 

and Gas Market.127 After restructuring, responsibility for 

oversight of the electricity and gas sectors was divided 

among the federal and regional authorities, with regional 

authorities overseeing the rational use of energy.128

Prior to the establishment of the RUE obligations, Belgian 

electricity grid companies and electricity suppliers faced 

federal public service obligations aimed at helping reduce 

demand growth in Belgium by 8 TWh in the period 1995 

to 2005. The following reasons have been cited as driving 

the decision to go further by developing a RUE obligation 

in 2002: “limited control by the Flemish Government of 

the existing initiatives on energy efficiency; no clear energy 

saving target associated with these initiatives; and limited 

evaluation carried out of these initiatives.”129

3.4.2 Legal Authority

The RUE obligations were introduced pursuant to the 

Flemish regional government’s Decision of 29 March 2002 

concerning public service obligations for the promotion 

or rational use of energy. Since 2002, a number of 

legislative amendments have introduced changes into the 

programme.130

3.4.3 Fuel Coverage

Electricity distributors are the obligated parties, but 

energy savings made for any fuel can contribute to meeting 

the energy saving targets.

3.4.4 Sector and Facility Coverage

The RUE obligation applies to energy saving measures 

in the household and non-energy intensive industry and 

service sectors.

3.4.5 Energy Saving Target

Since the introduction of the RUE obligation in 2002, 

the energy saving target has been changed several times. 

Prior to 2012, electricity distributors had to provide both 

direct and indirect support to energy efficiency measures 

undertaken. That is, they had to both financially support or 

promote the implementation of energy efficiency measures 

and provide information on energy saving opportunities 

to end-users. From 2008 until 2010, there were two 

sets of targets under the distributor obligation, one for 

primary131 energy supplied to residential users, and another 

for primary energy supplied to non-residential users. In 

2010 and 2011, electricity distributors had to comply with 

one single target, but with the obligation to undertake 

actions for both residential and non-residential users. As of 

2012, electricity distributors have no energy saving target. 

Instead, they face specific “action obligations.” 

Before 2008, targets were differentiated for energy 

supplied to low- and high-voltage end-users. From 2003 to 

2007, the primary savings goal for supply to high-voltage 

users was one percent of the electricity consumed two years 

earlier. The target for low voltage end-users started at one 

percent, and by 2007 grew to 2.2 percent of electricity 

consumed two years earlier. The more stringent low-voltage 

target was a response to the active promotion of compact 

fluorescent lamps in households being carried out at the 

time. Electricity distributors for whom household electricity 

consumption was less than ten percent of the electricity 

consumption of all low-voltage end-users were exempted 

from these higher targets.

126 Lees, 2007

127 Vlaamse Reguleringsinstantie voor de Electriciteits- en 

Gasmarkt became operational on 1 December 2001. See 

more information at: http://www.vreg.be/en

128 Restructuring of the electricity and gas sectors resulted in 

a division of responsibilities for oversight of the electricity 

and gas sectors between the federal and regional authorities. 

Federal authorities oversee electricity and natural gas 

tariffs, the high-voltage electricity grid (over 70 kilovolt), 

the storage and transport of natural gas, the production 

of electricity from traditional sources, and nuclear power. 

The regions, including Flanders, oversee distribution 

of electricity via voltage networks of 70 kV or less, the 

distribution of natural gas, the production of electricity from 

renewable energy sources and combined heat and power 

systems, rational use of energy, and social public service 

obligations. See more information at: http://www.vreg.be/en

129 Labanca, 2006

130 Couder, 2007

131 To determine primary energy savings for electricity, end-use 

electricity savings are multiplied by 2.5, compared to enduse savings from other fuels.
29

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

In 2008 and 2009, targets were set for residential and 

non-residential users (instead of low- and high-voltage 

users). Primary energy saving targets rose to two percent 

of electricity consumption two years earlier for residential 

users, and 1.5 percent for non-residential users. In 2010 

and 2011, the combined single target was set at 3.5% of 

electricity consumption two years earlier for most electricity 

distributors and at 2.5% for those distributors with 2,500 

end-users or fewer. As of 2012, the energy saving target has 

been replaced with specific “action obligations.”

3.4.6 Obligated Parties

EEOs apply to the 16 electricity distributors in Flanders. 

Although the obligations placed on electricity distributors 

have changed several times since 2002, the obligated 

parties have remained the same. 

3.4.7 Compliance Regime

From 2003 until 2011, the Flemish Energy Agency 

approved annual energy efficiency programmes and 

calculation methods for energy savings for the next year. 

Compliance with the targets from the previous year 

was evaluated annually. As of 2012, action obligations 

are determined by the Flemish government. Electricity 

distributors no longer need to submit annual action plans; 

however, compliance with the action obligations will still 

be based on evaluation of annual reports prepared by the 

distribution system operators.

From the beginning of the RUE scheme, the Flemish 

Regulation Entity for the Electricity and Gas Market was 

responsible for imposing fines on non-compliant parties. A 

penalty of EUR 0.10/kWh (or 10 eurocents) applied to any 

shortfall in meeting the obligation. The fine was not eligible 

for recovery through electricity tariffs.132

Other fines were also possible, for example 

• if RUE action plans, RUE evaluation reports, list of 

actions, list of reserve actions, or application forms 

were not on time: EUR 1,000 per day;

• if RUE obligatory actions were not executed: between 

EUR 1,000 and 1% of annual turnover of the 

obligated distribution company (the Flemish Energy 

Agency determines the fine); and

• if RUE action plans or RUE evaluation reports did 

not comply with regulations: reminder to make 

adjustments and EUR 1,000 per day.

Electricity distributors complied with their obligations 

by meeting their annual targets. There was some flexibility 

built into the RUE targets. Distributors could carry over 

surplus from a given year to aid in compliance for the 

same user category in the following years. They could also 

apply for a change in the baseline for a given year if the 

total electricity supplied to non-domestic end-users had 

decreased by more than five percent due to disconnections 

by non-domestic users from the grid. No applications have 

been made since the introduction of the system. From 2008 

until 2011, the Minister of Energy could loosen the RUE 

target for grid operators with fewer than 2,500 end-users, 

provided that the electricity distributors proposed actions 

or a financing commitment that compensates for the more 

relaxed target.133 No such requests were ever made.

Electricity distributors were required to submit their 

energy savings plans and calculation methods to the Flemish Energy Agency for preapproval. They had to submit a 

description of all actions to be carried out by them to meet 

the target and include the method of calculation for primary 

energy savings. The Energy Agency approved the method of 

calculation, any financial contribution provided to end-use 

customers, and conditions attached to the financial contribution before energy saving activities could commence.134

In 2010, the Energy Agency was required to prepare a 

detailed report to the Flemish Government on the results, 

costs, and effectiveness of energy savings under the RUE 

scheme.135 The report was submitted together with the 

global evaluation of the RUE obligations to the Flemish 

Government and led to the changed legislation as of 

2012.136 The new RUE obligation legislation no longer 

includes a predefined evaluation period. Evaluation will, 

however, take place along the way, largely motivated by the 

fact that the Flemish Government decided to compensate 

electricity distribution system operators for executing the 

obligatory actions (and paying premiums to the end-users) 

partially out of the Flemish Government’s Budget. Because 

of this direct link with the Flemish Government’s Budget, 

continuous evaluation of RUE obligations will be necessary. 

132 Lees, 2007

133 Couder, 2007 

134 Bertoldi, et al., 2010

135 Couder, 2007 

136 Final decision by Flemish Government on September 23, 

2011
30

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.4.8 Performance Incentives

No performance incentives are available.

3.4.9 Eligible Energy Savings

Only obligated electricity distributors can produce 

eligible energy savings.

3.4.10 Eligible Energy Efficiency Measures

Until 2011, the RUE Law specified, in addition to the 

energy saving target, “action obligations.” Action obligations 

are specific actions, set forth by the Flemish Government, 

that electricity distributors must implement.137 The energy 

savings from some action obligations counted toward 

meeting the RUE energy savings targets, while others did not. 

Before the 2007 amendments, almost any energy saving 

measure was eligible to count toward meeting the energy 

saving target. Since 2007, most soft measures no longer 

counted toward achieving the primary energy saving target. 

For example, energy savings from measures implemented 

pursuant to energy scans (simple energy audits), required of 

some residential homes, counted toward the energy savings 

target. Energy savings resulting from the introduction of 

energy accounting schemes to track energy use of schools 

and health care facilities did not.

As of 2012, no energy saving targets are set; they were 

replaced entirely by specific action obligations.

Since the beginning of the Flemish RUE scheme, 

electricity distributors have been required to pay 

attention to “protected clients” (i.e., mostly low-income 

households). They do this through targeted actions such 

as giving protected customers higher financial incentives 

(“premiums”) than those given to other customers in the 

form of “discount coupons” for the purchase of A+ or A++ 

refrigerators or AAA washing machines, or for organising 

special information sessions.

Following are some of the action obligations introduced 

since the commencement of the Flemish EEO scheme:

• In 2004-2005 electricity distributors were required to 

send to households in their service area a coupon that 

could be exchanged for a compact fluorescent lamp, 

energy-saving shower head, or energy meter. 

• In 2006-2007, electricity distributors were required to 

send a voucher for a free energy-saving light bulb to 

every other member of the household.138

• As of 2007, electricity distributors were required to 

carry out each year a certain number of energy scans 

137 Couder, 2007

138 Lees, 2007

139 Bertoldi, et al., 2010

140 Couder, 2007

141 Lees, 2007

142 Bertoldi, et al., 2010

143 Couder, 2007

for every 100 household connections. “During these 

scans, energy-saving light bulbs, water-economy 

showerheads, pipe insulation and radiator foil are to 

be installed where advisable.”139

• Electricity distributors must disseminate informational 

brochures and personalised energy-saving advice to 

households. 

• From 2006 until 2011, electricity distributors have 

been required to help set up “energy accounting 

schemes” for schools and health care facilities, with 

costs shared between the buildings and network 

operators.

• Electricity distributors are required to support 

municipalities in their planning and implementation 

of local energy policies.140

3.4.11 Measurement, Verification, and Reporting

The Flemish Energy Agency has not made public its 

approved energy saving calculation methods.141 Only firstyear primary energy savings were credited toward energy 

saving targets.142 From 2007, energy audits did not count 

toward the energy saving target, based on the finding that 

energy audits themselves do not lead to a predictable level 

of energy savings. The only exception to this are mandatory 

energy audits required from 2007 on, which are seen as 

yielding some level of concrete savings as they require 

installation of certain energy savings measures where 

deemed appropriate.143

3.4.12 Trading of Energy Savings

The Flemish EEO scheme does not provide for trading 

of energy savings. Electricity distributors have been able to 

carry forward excess savings from one year to the target for 

the next years.
31

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

From 2003 to 2005 the total expenditures used to meet 

energy savings targets were less than the amount budgeted 

for energy efficiency. In 2003 the cost of energy efficiency 

programmes was EUR 11.8 million compared with a EUR 

24.8 million budget. Similar results were repeated in 2004 

(EUR 18.3 million spent out of EUR 30.2 million budgeted) 

and 2005 (EUR 18.7 million spent out of EUR 24.5 million 

budgeted).

Typical measures undertaken in the residential sector 

have included introduction of compact fluorescent lamps, 

condensing boilers, high-performance glazing, heat pumps, 

attic/roof insulation, low-flow showerheads, and solar water 

heating. Typical measures in the non-residential sector 

include energy efficient lighting, variable speed drives, attic/

roof insulation, and energy efficient boilers.

3.4.16 Areas for Improvement

Because of a lack of publicly accessible information, 

it is difficult to analyse many details of the Flemish EEO 

scheme, such as the potential to improve measurement 

and verification, or whether targets could have been set at 

more stringent levels. It is clear that, before 2012, there 

were no uniform actions within the Flemish region and 

that there was overlap with other policy instruments such 

as tax deductions for energy efficiency. As of 2012, actions 

are uniform over the whole region. Overlap with the 

tax deduction scheme for residential end-users has been 

reduced to a minimum, because these tax deductions (with 

the exception of roof insulation for 2012) 

have been eliminated.

3.4.13 Funding

Electricity distributors must submit an annual budget for 

compliance with their energy saving obligation, which must 

be approved by the federal regulator in charge of electricity 

tariffs. Cost recovery through tariffs is based on approved 

annual action plans for compliance.144 In 2009, the total 

budget for all electricity distributors was EUR 60 million.

3.4.14 Scheme Administration

The main tools that electricity distributors have 

employed to stimulate energy savings have been rebates/

premiums and financial assistance to municipalities 

to invest in energy saving measures,145 combined with 

informational campaigns via brochures and the internet, 

and energy audits/scans. 

3.4.15 Scheme Results

In general, Flemish electricity distributors have met or 

exceeded their targets, as demonstrated in Table 9. During 

the years 2003 to 2010 the energy saving targets were 

always met (taking into account the carried-over surplus 

from previous years), and no fines have been necessary. 

The sole exception has been that the specific “obligatory 

action” for energy scans has not always been met by all 

distributors. Fines were imposed on those distributors that 

did not meet the set scan quota. 

144 Bertoldi, et al., 2010

145 Lees, 2007

146 Flemish Energy Agency, 2012

Table 9

Results of the Flemish Efficiency Obligation Scheme 146

Year Target Realised

Total 

Expenditures 

(EUR million)

Cost 

Effectiveness* 

(EUR/kWh)

Savings of Primary Energy (GWh)

2003 381 763 11.77 0.015

2004 551 790 17.37 0.022

2005 583 982 18.67 0.019

2006 606 573 18.51 0.032

2007 605 1,258 32.56 0.026

2008 646 1,773 48.07 0.027

2009 641 2,581 60.11 0.023

2010 1,318 2,308 61.78 0.027

*Calculated as the total budget divided by total energy savings
32

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.5 Canada – Ontario

In 1998, the Legislative Assembly of Ontario passed Bill 

35, called the Energy Competition Act, which restructured 

Ontario’s electricity market by enacting the Electricity 

Act, 1998 and the Ontario Energy Board Act, 1998.147 This 

established the Ontario Energy Board as the province’s 

electricity and natural gas sectors regulator. The Ontario 

Energy Board protects consumer interests, promotes 

economic efficiency in the entire electricity sector, promotes 

energy efficiency, facilitates implementation of the smart 

grid, and promotes renewable energy.148 The Acts also set 

the legal framework for restructuring Ontario Hydro into 

successor companies, commercialising the distribution 

industry, and opening the competitive wholesale market in 

electricity on 1 May 2002.149

The Electricity Act required all municipal electricity 

utilities to be incorporated as local electricity distribution 

companies (electricity distributors), which operate on 

a commercial basis with the option of earning a profit. 

The electricity distributors, which are mostly owned by 

municipal shareholders, are responsible for maintaining 

the local distribution network and retain a monopoly on 

the delivery of electricity. The Act opened the retailing 

of electricity to competition, allowing any number of 

licensed standalone electricity retailers to sell electricity 

to consumers. Electricity distributors are responsible for 

supplying electricity to customers who choose not to sign a 

contract with an electricity retailer.150

Beginning in 2003, the Ontario government began to 

tackle a number of energy challenges, including a shortfall 

in supply, a system reliant on coal-fired generation, and 

a lack of energy efficiency programmes. To address these 

issues, the government shut down its coal-fired plant, 

planning to phase out coal-fired electricity by 2014. 

It introduced 8,400 MW of cleaner power including 

renewables and invested CAD 7 billion in transmission. 

In 2005, the government reintroduced public energy 

efficiency programmes to encourage and provide incentives 

for families, businesses, and industry to consume less 

energy.151

Since 2003, Ontario has updated building codes and 

created programmes that provide home audits and retrofits, 

remove old appliances, retrofit schools, install thermal 

heating, reduce consumption in government buildings, and 

institute Time of Use pricing. 

147 Legislative Assembly of Ontario, 1998

148 Ontario Energy Board, 2012

149 Electricity Distributors Association, 2012 

150 Ontario Municipal Electric Association, 2000 

151 Ontario Ministry of Energy, 2010

152 Ontario Ministry of Energy, 2010

153 Ontario Legislature, 2009

In 2004, the government established the Ontario Power 

Authority as the province’s long-term energy planner. In 

2007, the Ontario Power Authority prepared a 20-year 

energy plan, which included the goal of reducing demand 

by 6,300 MW by 2025. By 2011, more than 1,700 MW 

had been achieved. Aside from its duties as long-term 

energy planner, the Ontario Power Authority manages 

province-wide energy efficiency programmes, which can 

be additionally funded by electricity distributors who then 

receive credit for the additional energy savings. Between 

2006 and 2010, Ontario invested about CAD 1.7 billion in 

energy efficiency programmes, saving ratepayers CAD 3.8 

billion in avoided costs.152

In 2009, the government of Ontario passed the Green 

Energy Act in order to foster the growth of renewable 

energy projects and to promote and expand energy 

efficiency for all Ontarians. One goal of the Act is to spark 

growth in clean and renewable sources of energy, including 

wind, solar, hydro, and bioenergy. The Act is also meant to 

help create 50,000 clean energy jobs across the province. 

The Green Energy Act introduced mandatory home 

efficiency disclosure and appliance standards and labeling 

as well as gave the Lieutenant Governor in Council the 

authority to create mandatory energy efficiency targets for 

public agencies.153

On September 16, 2010 the Board issued a Conservation 

and Demand Management Code for Electricity Distributors 

(CDM). On March 31, 2010, the Minister of Energy issued 

a CDM Directive that requires electricity distributors to 

meet targets for both demand reduction (MW) and energy 

savings (GWh). Electricity distributors may achieve these 

targets by implementing their own energy efficiency 

programmes, which must be approved by the Ontario 

Energy Board, or by contracting with the Ontario Power 

Authority. The Government also announced a separate 

set of energy savings targets to be achieved province-wide 
33

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

from activities of all organisations responsible for energy 

efficiency—electricity distributors, the Ontario Power 

Authority, and others, for milestone years 2015, 2020, 

2025, and 2030.154

3.5.1 Policy Objectives

The government passed the Green Energy Act, 2009 

in order to promote and expand “energy conservation 

by all Ontarians and to encourag[e] all Ontarians to use 

energy efficiently.” The Act is also meant to ensure that 

the government and the broader public sector, including 

government-funded institutions, conserve energy and use 

energy efficiently in conducting their affairs as well.155

The CDM Directive, which establishes the savings 

goals for the province, states as its main goal to achieve 

reductions in electricity consumption and peak provincial 

electricity demand. The CDM Directive also instructs that 

lost revenues that result from CDM Programmes should not 

act as a disincentive to a distributor.156

3.5.2 Legal Authority

Section 27.1 of the Ontario Energy Board Act authorises 

the Minister of Energy to issue directives that have been 

approved by the Lieutenant Governor in Council that 

require the Ontario Energy Board to take steps to promote 

energy efficiency and load management or the use of 

cleaner energy sources, including alternative and renewable 

energy sources. Section 27.2 of the same Act authorises 

the Minister to issue directives that require the Board 

to take steps to establish energy efficiency and demand 

management targets to be met by electricity distributors 

and other licensees. A directive may require the Ontario 

Energy Board to specify energy efficiency targets as a 

condition of a license. A directive may further specify 

that a distributor meet any portion of its energy efficiency 

target by seeking the approval of the Board for energy 

efficiency and demand management programmes to be 

offered in its service area or by contracting with the Ontario 

Power Authority to meet the target through province-wide 

programmes.157

The Green Energy Act, 2009 gave the Lieutenant 

Governor in Council the authority to require a public 

agency to achieve prescribed targets and meet prescribed 

energy and environmental standards, including standards 

for energy efficiency and demand management.158

The CDM Directive, issued by the Minister of Energy in 

March 2010, establishes provincial energy saving targets 

and requires that the Ontario Energy Board specify a 

CDM target for the reduction of provincial peak electricity 

demand and a CDM target for the reduction of electricity 

consumption for each local distribution company. The 

CDM targets must be greater than zero. The CDM Directive 

also requires that, as a condition of its license, each 

distributor must meet its CDM targets through Boardapproved programmes, programmes contracted through the 

Ontario Power Authority, or any combination of the two. 159

3.5.3 Fuel Coverage

Electricity.

3.5.4 Sector and Facility Coverage

The CDM Directive establishes province-wide energy 

saving targets for peak demand and total consumption, 

which include usage and consumption by residential, 

commercial, and industrial consumers. The Directive 

requires that electricity distributors must deliver a mix of 

CDM Programmes to all consumer types in their service 

areas and, as far as is appropriate and reasonable, having 

regard to the composition of the distributor’s consumer 

base.160 The Ontario Power Authority-contracted provincewide CDM programmes consist of four programmes 

that each target a different customer sector: industrial, 

commercial and institutional, residential, and low 

income.161

3.5.5 Energy Saving Target

In the 2010 CDM Directive, the Minister of Energy 

announced a two-fold energy savings target (in MW and 

GWh), called the CDM target, to be met by electricity 

distributors in the period 2010 to 2014. The CDM 

154 Environmental Commissioner of Ontario, 2010 

155 Ontario Legislature, 2009

156 Environmental Commissioner of Ontario, 2010

157 Ontario Legislature, 1998

158 Ontario Legislature, 2009

159 Ontario Executive Council, 2010 

160 Ontario Executive Council, 2010 

161 Ontario Power Authority, 2011
34

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

162 Environmental Commissioner of Ontario, 2010

163 Environmental Commissioner of Ontario, 2010

164 Environmental Commissioner of Ontario, 2010

165 Environmental Commissioner of Ontario, 2010

166 Environmental Commissioner of Ontario, 2010

167 Ontario Energy Board, 2010a

168 Ontario Energy Board, 2010b

Directive calls for electricity distributors to collectively 

achieve a 1,330-MW reduction in system-wide peak 

demand persisting in 2014 and 6,000 GWh of energy 

savings persisting at the end of 2014 to be accumulated 

between January 1, 2011 and December 31, 2014. These 

targets represent approximately five percent of Ontario’s 

peak demand and four percent of annual electricity 

consumption, respectively. 162

The CDM targets, assigned to each electricity distributor 

by the Ontario Energy Board, stipulate amounts of 

demand reduction (MW) and energy savings (GWh) 

that are essentially proportional to each distributor’s 

share of provincial peak demand and annual electricity 

consumption. The Ontario Power Authority furnishes 

analysis to the government and the Ontario Energy 

Board for the establishment of individual targets for each 

electricity distributor.163 The CDM Directive requires that 

the Ontario Energy Board not preclude consideration of 

CDM programmes or funding for CDM programmes on the 

basis that an individual distributor’s CDM targets have been 

or are expected to be exceeded. 164

The electricity distributors’ CDM targets for demand 

and energy savings are based on estimates of achievable 

energy efficiency. First, a projection of electricity demand 

is made. The initial gross demand curve assumes no new 

energy efficiency and only considers current regulations, 

codes, standards, and programmes. Then, an achievable 

energy efficiency potential is estimated by adding the 

sum of the expected electricity savings from programmes, 

technologies, regulations, and behavioural activities of 

consumers. Finally, the expected savings are subtracted 

from the gross demand curve, resulting in an estimated net 

demand curve. The difference between the gross and net 

demand equals the expected savings from energy efficiency, 

essentially equivalent to the target amount. The forecast 

includes energy and demand savings from Ontario Power 

Authority-contracted programmes as well as other activities 

that are outside the control of the electricity distributors. 

These “other” activities were excluded from the estimate 

of achievable savings, except for time of use rates. Only 

savings expected during the period from 2011 to 2014 

were counted in achievable energy efficiency. 165

3.5.6 Obligated Parties

As a condition of their license, the Ontario Energy 

Board assigns each Ontario electricity distributor a CDM 

target.166 The requirement for CDM targets does not apply 

to electricity distributors that are not connected to the 

Independent Electricity System Operator-controlled grid 

or to distributors whose rates are not regulated by the 

Board.167

3.5.7 Compliance Regime

Electricity distributors must file for Ontario Energy 

Board approval a CDM Strategy that provides a high level 

description of how the distributor intends to achieve its 

CDM targets. The CDM Strategy must include:

• a high level description of the distributor’s year-byyear plan, including annual milestones, for achieving 

its CDM targets; 

• a description of each of its CDM programmes, divided 

into Ontario Power Authority-Contracted ProvinceWide programmes and Ontario Energy Boardapproved programmes; and

• a section detailing how the distributor will pursue 

administrative efficiencies and coordinate its CDM 

activities with other electricity distributors, natural 

gas distributors, government agencies, and other 

organisations. 

Each electricity distributor must file an Annual Report, 

which includes participation levels for each programme, 

funds spent, verified electricity savings and peak demand 

savings, and the progress the distributor has made toward 

meeting its CDM target. 168

The CDM Code requires that prior to applying 

for Ontario Energy Board approval of any CDM 

programmes, an electricity distributor must review the 

existing Ontario Power Authority-contracted Provincewide CDM Programmes. Electricity distributors may 

not apply for approval of any CDM Programmes that 

duplicate programmes administered by the Ontario Power 

Authority. Programmes that make minor adjustments to 
35

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Ontario Power Authority-contracted Province-Wide CDM 

Programmes, such as adjusting customer incentive levels 

or instituting different specifications will be considered 

duplicative.169

Ontario Energy Board-approved CDM programmes must 

end by December 31, 2014. When applying for Board 

approval of a CDM programme, an electricity distributor 

must include: a programme evaluation plan, a benefit-cost 

analysis of each programme, a detailed explanation of the 

programme’s objective and method of delivery, the types 

of customers targeted by the programme, the number of 

expected participants, the total projected peak demand 

savings and electricity savings per year, and a complete 

annual budget. 170

3.5.8 Performance Incentives

Table 10 shows the performance incentives that the 

CDM Code allows an electricity distributor to claim in 

relation to CDM programmes initiated by the distributor or 

for which it contributed 50 percent or more of the funding. 

Distributors may also apply for attribution of benefits for a 

percentage of a CDM programme. A distributor may accrue 

a performance incentive once it meets 80 percent of each 

of its CDM targets, but shall not accrue an incentive for 

performance that exceeds 150 percent of each target. The 

performance incentive is calculated across the distributor’s 

entire portfolio and has six ranges.

An electricity distributor is only eligible for a 

performance incentive when it has reached 80 percent of 

both of its CDM targets. Once this occurs, the performance 

incentive will be calculated based on the range the 

169 Ontario Energy Board, 2010b

170 Ontario Energy Board, 2010b

171 Ontario Energy Board, 2010b

172 Ontario Energy Board, 2010b

173 Ontario Executive Council, 2010

174 Ontario Power Authority, 2011

175 Ontario Power Authority, 2011

Table 10

Performance Incentives Under the Conservation and Demand 

Management Code for Electricity Distributors in Ontario171

Range Range Begins Range Ends ¢/kWh CAD/kW

Performance Tiers Performance Incentive

1 80% Up to 100% 0.30 13.50

2 100% Up to 110% 0.45 20.25

3 110% Up to 120% 0.75 33.75

4 120% Up to 130% 1.05 47.25

5 130% Up to 140% 1.35 60.75

6 140% Up to 150% 1.80 81.00

distributor achieves in either of its electricity (kWh) or 

peak demand (kW) targets. For example, if a distributor 

has achieved 145 percent of its peak demand target but 

only 100 percent of its electricity target, the distributor will 

earn a performance incentive from Range 6 for its peak 

demand target and a performance incentive from Range 2 

for its electricity target.172

3.5.9 Eligible Energy Savings

Electricity distributors must fulfill their CDM Targets 

through the delivery of programmes approved by the 

Ontario Energy Board to be offered in the distributor’s 

service area, by contracting with the Ontario Power 

Authority to meet the target through province-wide 

programmes offered by the Authority, or a combination of 

the two options.173 A distributor may also use a competitive 

procurement process to appoint a third party to implement 

CDM programmes.174

A directive dated April 23, 2010 from the Minister of 

Energy and Infrastructure required the Ontario Power 

Authority to design, deliver, and fund province-wide CDM 

programmes to be made available for participation by 

electricity distributors. The Ontario Power Authority has 

designed the Ontario Power Authority-contracted provincewide CDM programmes to assist electricity distributors in 

meeting their CDM targets.175

3.5.10 Eligible Energy Efficiency Measures

The CDM Directive requires that Ontario Energy Boardapproved CDM programmes shall not duplicate provincewide CDM programmes available from Ontario Power 
36

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Authority at the time of Board Approval. The Directive 

also states that electricity distributors must use the Ontario 

Power Authority cost-effectiveness tests for assessing 

Board-approved CDM programmes. The Ontario Energy 

Board must consider the definition of CDM to include load 

reduction from initiatives, such as geothermal heating and 

cooling, solar heating, and fuel switching, but exclusive 

of initiatives associated with the Ontario Power Authority 

Feed-in Tariff Program and Ontario Power Authority Micro 

Feed-in Tariff Program. The Ontario Energy Board must 

also permit electricity distributors to meet a portion of the 

CDM targets through the delivery of CDM programmes 

targeted to low-income customers.176

The Ontario Power Authority-contracted province-wide 

CDM programmes consist of four programmes that each 

target a different customer sector: industrial, commercial 

and institutional, residential, and low income. Each 

programme consists of several initiatives.177

3.5.11 Measurement, Verification, and Reporting

The CDM Code requires that an electricity distributor’s 

results for its Ontario Energy Board-approved CDM 

programmes must be evaluated through an independent 

third-party review. The third party must be selected from 

the Ontario Power Authority’s third-party vendor of record 

list and must use Ontario Power Authority evaluation, 

measurement, and verification protocols when assessing 

Board-approved programmes. The assessment report must 

be filed with the Board at the same time the distributor’s 

annual report is filed.178

The Ontario Energy Board must conduct, or cause to 

be conducted, targeted audits of evaluation, measurement, 

and verification carried out by the electricity distributor or 

third parties. The Ontario Energy Board must review and 

publish annually the verified results of each distributor’s 

CDM programmes as well as the consolidated results of 

all distributor CDM programmes, both Ontario Energy 

Board-approved and Ontario Power Authority-contracted 

province-wide programmes.179

3.5.12 Trading of Energy Savings

No trading of energy savings between electricity 

distributors is currently allowed.

3.5.13 Funding

The Ontario Power Authority recovers its costs from 

consumers with approval of the Ontario Energy Board. The 

CDM Directive also requires the Ontario Power Authority 

to assume responsibility for funding energy efficiency and 

demand-side management programmes implemented 

by electricity distributors.180 These costs, including 

programme costs and electricity distributors’ incentives, are 

recovered as a part of the customer’s bill through the Global 

Adjustment mechanism, which is calculated and paid 

each month based on electricity usage. This means that all 

electricity consumers in Ontario pay for CDM Programmes, 

regardless of participation. 

The Global Adjustment includes the costs (net of 

earnings from sales) of Ontario Power Authority generation 

and conservation contracts, nuclear generation by Ontario 

Power Generation, non-utility generation, and certain 

hydroelectric generation.181 Until 2011, the Global 

Adjustment was allocated to customers based on their 

energy use. Starting in 2011, two consumer classes were 

established: Class A consumers with average monthly 

demand greater than 5MW; and Class B consumers. 

Class A consumers contribute to the Global Adjustment 

proportionate to their contribution to system peak demand. 

Class B consumers contribute based on their energy use 

during the billing period. The Global Adjustment has been 

positive and negative.182 The Global Adjustment can change 

based on Ontario Power Authority contracts and sales. The 

estimated Global Adjustment for Class B customers in 2012 

is CAD 0.0467/kWh.183

Because funding for the Ontario Power Authoritycontracted province-wide CDM programmes is recovered 

from electricity consumers, they are required to be 

delivered on a cost-effective basis. An electricity distributor 

that receives funds from the Ontario Power Authority must 

use the funds solely for purposes related to the Ontario 

Power Authority programmes. If a third party will be 

176 Environmental Commissioner of Ontario, 2010

177 Ontario Power Authority, 2011

178 Ontario Energy Board, 2010b

179 Environmental Commissioner of Ontario, 2010

180 Minister of Energy and Infrastructure, 2009

181 Ontario Power Authority, 2012

182 Navigant Consulting, 2011

183 Independent Electricity System Operator, 2012
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used, the electricity distributor must follow a competitive 

procurement process unless it is not required for the 

specific transaction. The Ontario Power Authority will pay 

the distributor monthly in accordance with the schedule 

of Participant Based Funding Amount and Participant 

Incentives, if any. For each programme, the distributor 

is entitled to retain funds that remain unspent and not 

payable at the end of the term. This should provide an 

incentive for each distributor to improve cost efficiency.184

CDM programmes must be cost effective but there is 

no other spending restriction. Electricity distributors are 

not restricted to a spending limit for CDM programmes 

or in the number of programmes permitted. The Ontario 

Energy Board assesses the reasonableness of the budgets 

requested.185

As of December 2011, no results or spending levels for 

CDM programmes were available. For the period from 

2006 to 2009, the Minister of Energy authorised up to 

CAD 400 million in funding to be spent on electricity 

distributor energy efficiency and demand-side management 

programmes. After the passage of the Green Energy Act, 

2009, the Minister of Energy and Infrastructure increased 

the funding by CAD 50 million and made the funds 

available through December 31, 2010.186

3.5.14 Scheme Administration

Electricity distributors can fulfill their CDM targets 

through the delivery of Ontario Energy Board-approved 

CDM Programmes, the delivery of programmes contracted 

through the Ontario Power Authority, or a combination 

of the two. Distributors may also use a competitive 

procurement process to appoint a third party to implement 

CDM Programmes.187

3.5.15 Scheme Results

As of December 2011, no programme results were 

available for reasons discussed below.

3.5.16Areas for Improvement

The Environmental Commissioner of Ontario is 

concerned that the electricity distributor energy efficiency 

targets will not be met. The concern is based on the 

late start in launching province-wide energy efficiency 

programmes as well as the lack of programmes designed 

by electricity distributors and approved by the Ontario 

Energy Board. The Ontario Power Authority estimates 

that Ontario Power Authority-contracted province-wide 

programmes will provide only 78 percent of the savings 

toward the 1,330-MW demand target and 91 percent of 

the 6,000-GWh energy target. As of December 2011, only 

two electricity distributors had applied for Ontario Energy 

Board-approved programmes and both applications were 

later withdrawn following unfavourable decisions by the 

Board. This may undermine the credibility of the targets 

and energy efficiency efforts.

The Environmental Commissioner has urged the 

government and the Ontario Energy Board to implement 

options to ensure the CDM target is met or to reconsider 

the target. The Environmental Commission of Ontario has 

also requested clarity on whether savings from time-ofuse pricing will be counted toward electricity distributor 

energy efficiency targets. The Ministry of Energy stated 

that it is not considering a change of target amounts at this 

time. It did indicate that further assistance provided by 

Ontario Power Authority to the electricity distributors is 

being assessed as a way to help meet the target as well as 

solutions involving the regulatory framework of the Ontario 

Energy Board.188

The Environmental Commissioner has also criticised 

the lack of transparency in setting the province-wide as 

well as the individual electricity distributor targets. The 

Commission asserts that the government did not make 

enough information available about the method and 

assumptions underlying the targets and as a result, the 

public could not assess whether these target amounts 

would deliver the optimal amount of energy efficiency.189

Finally, the Environmental Commissioner has expressed 

concerns that greater Ontario Power Authority involvement 

in the electricity distributors’ custom programmes could 

amount to an abandonment of the spirit of the Green Energy 

and Green Economy Act, 2009 and that electricity distributors should play a prominent role in programme design.190

184 Ontario Power Authority, 2011

185 Environmental Commissioner of Ontario, 2010.

186 Minister of Energy and Infrastructure, 2009.

187 Ontario Power Authority, 2011.

188 Environmental Commissioner of Ontario, 2010.

189 Environmental Commissioner of Ontario, 2010.

190 Environmental Commissioner of Ontario, 2010.
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3.6 China

DSM was first introduced in China in the early 

1990s when there was growing recognition of energy 

and environmental problems resulting from increasing 

electricity consumption driven by rapid economic 

growth. During the early years, DSM in China was mainly 

supported by government funding and targeted load 

management rather than energy efficiency. DSM was seen as 

a systematic way to balance economic, environmental, and 

social development.

After ten years’ experience with DSM, the central 

government in China realised that energy providers can 

take an important role in achieving energy savings through 

end use energy efficiency measures. In November 2010, 

the government issued a national DSM Rule Guidance on 

Electricity Demand-Side Management Regulations (发改运行

[2010] 2643号)

191. This rule for the first time placed an 

EEO on the State Grid Corporation of China and China 

Southern Grid Company, the two large governmentowned entities that operate electricity transmission and 

distribution networks and sell electricity directly to end use 

customers in the majority of China.

The obligation requires the grid companies to achieve 

energy savings of at least 0.3 percent in sales volumes and 

0.3 percent in maximum load compared with the previous 

year. The DSM Rule, which went into effect on January 1, 

2011, also lays a foundation for the expansion of demand 

response programmes by requiring the installation of load 

monitoring equipment on 70 percent of the peak load, and 

load control equipment on ten percent of the peak load, in 

any locality.192

Evaluation of the results of energy efficiency activities 

undertaken by the grid companies will start in 2012 

following the procedures specified in the draft Compliance 

Evaluation Scheme DSM Regulation Compliance Evaluation 

Scheme (Draft) (发改运行 [2011] 2407号).193 The first 

evaluation report is expected to be published at the end of 

June 2012. 

3.6.1 Policy Objectives

Energy use in China is still dominated by coal, which 

is used both as a primary fuel and to generate secondary 

energy such as electricity. In 2011, industry used over 70 

percent of the total electricity generated. China is facing 

severe power shortages in most of its central and southern 

areas. It is estimated that there will be a 20-GW shortfall 

in electricity generating capacity in 20 or 21 central and 

southern provinces in 2012.194

The DSM Rule stated that DSM should be prioritised to 

meet electricity demand in the tight supply situation. DSM 

is currently considered to be a competitive energy resource 

that will help to deal with power shortages as well as longterm sustainability issues, such as:

• achieving end-use energy efficiency at lowest cost;

• reducing GHG emissions;

• improving environmental quality;

• integrating demand-side resources into energy, social, 

and economic planning; and

• enhancing grid security and reliability.

3.6.2 Legal Authority

The DSM Rule was issued by six central government 

agencies under the auspices of the State Council. The 

lead agency is the National Development and Reform 

Commission, the central government agency responsible 

for planning economic and social development in China.

The DSM Rule designates the National Development and 

Reform Commission as the responsible party for DSM in 

China; the other five agencies are to carry out DSM related 

work within the scope of their existing general duties and 

responsibilities.195 The Commission is the main authority 

responsible for DSM short-term and long-term planning, 

strategic policy design, and electricity pricing regulation. 

The Ministry of Finance takes responsibility for DSM 

financing issues, such as funding, budget approval, and 

expense supervision. The role of the Ministry of Industry 

and Information Technology is to propose clean products 

and technologies, set up industrial plans, and promote the 

implementation of the DSM Rule in industrial enterprises. 

The State-owned Assets Supervision and Administration 

Commission is responsible for overseeing public assets and 

evaluating the grid companies’ performance in general. The 

State Electricity Regulatory Commission ensures that DSM 

191 National Development and Reform Commission, 2010.

192 National Development and Reform Commission, 2010.

193 National Development and Reform Commission, 2011a.

194 Zhou, 2012.

195 National Development and Reform Commission, 2010.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

is included as a resource in power generation, transmission, 

and distribution development, and that the grid companies 

produce good results in reducing electricity consumption 

and improving end-use energy efficiency. The National 

Energy Council is involved in energy policy design and 

coordination of the various central government agencies.

At the provincial level, some provinces have not yet 

completed their detailed implementation rules. In general, 

provincial Development and Reform Commissions or 

Economic and Information Commissions are responsible 

for implementing the DSM Rule in their jurisdictions. 

Other provincial agencies will assist in specific fields, 

including: DSM planning; setting annual DSM targets 

for provincial grid companies and reviewing their DSM 

implementation plans; and investigating and analysing the 

DSM resource potential in their respective provinces.

3.6.3 Fuel Coverage

The obligation imposed by the DSM Rule covers electricity. In addition, energy savings from other fuel types may be 

converted to the equivalent electricity saving using standard 

coefficients published by the National Statistics Bureau and 

can then be counted toward the energy saving target.

3.6.4 Sector and Facility Coverage

The energy targets set by the DSM Rule can be met with 

energy savings from all economic sectors and from any 

facility. In addition, reduction of losses in the transmission 

and distribution networks can also be used to meet a 

proportion of the targets (see section 3.6.9).

3.6.5 Energy Saving Target

The DSM Rule requires the grid companies to produce 

energy savings equivalent to at least 0.3 percent of 

electricity sales in the previous year and to reduce load by 

at least 0.3 percent of maximum load in the previous year.

The DSM Rule also establishes a sub-target that requires 

the installation of load monitoring equipment on 70 

percent of the peak load, and load control equipment on 

ten percent of the peak load, in any locality.

3.6.6 Obligated Parties

The DSM Rule places an EEO on the State Grid 

Corporation and China Southern Grid, the two large 

government-owned entities that operate electricity 

transmission and distribution networks and supply electricity 

directly to end use customers in the majority of China.

3.6.7 Compliance Regime

Grid company compliance with the DSM Rule obligation 

is assessed by a points system using both quantitative and 

qualitative measures specified in the draft Compliance 

Evaluation Scheme.196 The maximum achievable score is 

100 points, with measures related to the energy saving 

target receiving a maximum of 60 points and DSM 

implementation receiving a maximum of 40 points. The 

detailed evaluation criteria and standards are shown in 

Table 11 (page 40).

There are four defined performance levels in the draft 

Compliance Evaluation Scheme: Excellent (>90 points), 

Good (80-90 points), Qualified (70-79 points), and 

Failed197 (<70 points). At present, no sanction is applied 

to grid companies that fail to meet their targets, but 

details of non-compliance are published by the National 

Development and Reform Commission.

3.6.8 Performance Incentives

The draft Compliance Evaluation Scheme198 states that 

the National Development and Reform Commission will 

reward those grid companies that achieve an “Excellent” 

result. There are no further details about how performance 

incentives will be provided.

3.6.9 Eligible Energy Savings

In practice, there are five types of activities that the 

grid companies can undertake to produce eligible energy 

savings that contribute to meeting their DSM Rule energy 

saving targets, subject to constraints specified in the draft 

Compliance Evaluation Scheme:199

• directly implement energy efficiency projects in their 

own and their end-use customers’ premises;

• establish energy service companies affiliated with the 

grid company to implement energy efficiency projects;

• purchase energy saving by means of business 

transactions/trading200 (not to exceed 40 percent of 

total eligible energy savings);

• promote energy efficiency to their end-use customers 

(grid companies may claim only ten percent of 

any energy savings made by customers as a result 

of energy efficiency promotions and these savings 

must not exceed five percent of total eligible energy 

savings201); and
40

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196 National Development and Reform Commission, 2011a.

197 Grid companies that do not meet their targets for electricity 

consumption reduction or electricity load reduction are also 

considered to have failed.

198 National Development and Reform Commission, 2011a.

199 National Development and Reform Commission, 2011a.

Table 11

Compliance Evaluation Scheme for the DSM Rule in China202

Criteria Points Evaluation Standard

*Electricity consumption saving 

*Electricity load reduction

System design

Institutional management

Communication and training

Technical assistance

Financial input

Implementation of DSM rules

Key project results

Other evaluation

30

30

3

2

3

5

5

6

6

10

Achieve 100% of target: 30 points

Achieve 50%-90% of target: 15-27 points

Achieve less than 50% target: 0 points

For each 0.01% of additional savings, add 1 point; the maximum extra points is 5. 

Achieve 100% of target: 30 points

Achieve 50%-90% of target: 15-27 points

Achieve less than 50% target: 0 points

For each 0.01% of additional savings, add 1 point; the maximum extra points is 5.

Develop DSM regulation and policy: 2 points

Develop DSM regulation working plan: 1 point

Establish DSM management position: 1 point

Allocate DSM experts: 1 point

Conduct at least four communication activities each year: 1 point

Hold at least two training activities: 1 point

Develop training plans for related employees: 1 point

Load monitoring capacity reaches 70% of peak load in the region: 3 points

Load control capacity reaches 10% of peak load in the region: 2 points

Establish and operate DSM special fund: 5 points

Establish at least one energy service company and carry out energy contract 

management projects: 3 points

Participate in the regional energy efficiency network and organise activities: 3 points

Deduct 1 point if one key energy saving project fails according to the evaluation results

These points may be allocated by provincial government agencies that manage 

electricity industry operations

*These are threshold criteria; grid companies that do not meet their targets for electricity consumption reduction or electricity load 

reduction are considered to have failed.

Electricity Savings (60 points)

DSM Implementation Performance (40 points)

200 A grid company may purchase energy savings from 

customers (or other ESCOs) if the grid company does not 

itself implement energy efficiency projects.

201 This constraint is currently under review and may be 

changed.

202 National Development and Reform Commission, 2011a.
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• directly carry out grid system upgrades and 

operational management improvements that save 

energy and reduce losses in transmission and 

distribution networks.

As a further constraint, grid companies can only claim 

100 percent of the value of those energy savings that are 

audited by a third party or recorded by online monitoring 

equipment; otherwise only 80 percent of the value can be 

claimed.

Three types of energy savings are identified as not 

eligible to contribute to meeting DSM Rule targets:

• energy savings from commercially operated renewable 

energy projects;

• electricity savings that cannot be measured and 

verified; and

• electricity saved through implementing government 

policy on the orderly use of electricity.

The grid companies also use their claimed eligible energy 

savings to calculate load reductions that contribute to meeting their DSM Rule maximum load reduction targets. Eligible 

load reductions are calculated as the annual eligible electricity savings203 divided by the average dispatched operation 

hours of electricity generation units. In addition, the grid 

companies may achieve eligible load reductions by getting 

customers to better arrange their production schedules, and 

by using load shifting technologies and installing new equipment (such as heat pump or reverse cycle air conditioners) to 

improve load factors at end-use customers’ premises.

3.6.10 Eligible Energy Efficiency Measures

Under the DSM Rule, there are no provisions for 

approving eligible energy efficiency measures or for 

deeming values for specific measure. The DSM Rule does 

require each province to develop its own implementation 

rule that will identify provincial eligible energy efficiency 

measures based on best practices adapted to local 

situations.

In the draft Compliance Evaluation Scheme, the National 

Development and Reform Commission recommends, but 

does not require, implementation of the following energy 

efficiency measures:204

• energy saving in transmission and distribution system;

• energy efficient electric motors, energy efficient 

upgrade of boilers, using waste heat and pressure, 

installation of heat pumps;

• energy saving in buildings, green lighting; and

• electricity thermal (ice) storage and other energy 

management projects.

The National Development and Reform Commission 

also encourages grid companies to reduce transmission 

line losses at different voltage levels, to use efficient power 

transformers, to improve power supply coverage, and to 

enforce power factor correction at customers’ premises.

3.6.11 Measurement, Verification, and Reporting

Currently, continuing measurement and verification is 

done to track the grid companies’ progress in meeting their 

DSM Rule targets. In the State Grid Corporation service 

territory, its affiliate institute, China Electric Power Research 

Institute, is responsible for measurement and verification. 

In the China Southern Grid territory, provincial government 

energy conservation centers carry out measurement and 

verification work.205 In both service territories, various 

independent energy conservation institutes and energy 

service companies are qualified to deliver energy audits. In 

some pilot cities, measurement and verification is improved 

by installing online monitoring systems.

The draft DSM Regulation Compliance Evaluation 

Scheme states that the grid companies should complete 

online reporting forms for all types of DSM projects, and 

send hard copies to a national DSM data platform. Detailed 

evaluation procedures are specified as follows:206

• Provincial grid companies submit proposals for 

annual electricity saving and DSM implementation by 

the end of March to the provincial electricity industry 

regulatory agency for approval. After soliciting 

opinions from other related agencies, the approved 

schedule should be agreed by April. 

• Provincial grid companies report electricity savings 

and capacity reductions in the previous year to the 

provincial electricity industry regulatory agency by 

the end of February. The provincial regulators will 

conduct evaluation and verification, and then submit 

the result to the National Development and Reform 

203 Not including energy savings converted from other fuel 

types.

204 National Development and Reform Commission, 2011a.

205 Natural Resources Defense Council DSM Technical Center, 

2011.

206 National Development and Reform Commission, 2011a.
42

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Commission by the end of March.

• State Grid Corporation and China Southern Grid 

report their DSM achievement to the National 

Development and Reform Commission by the end of 

March. The Commission will jointly work with other 

agencies to conduct evaluation and verification and 

the complete evaluation report will be disclosed to the 

public by the end of June.

3.6.12 Trading of Energy Savings

The draft Compliance Evaluation Scheme identifies 

energy savings purchased by means of business 

transactions/trading as being eligible to be counted toward 

the DSM Rule targets.207 This implies that grid companies 

can purchase eligible savings from customers or other 

ESCOs through over-the-counter bilateral contracts, rather 

than through a spot market.

Spot markets for energy saving credits are currently 

being developed in China, but none are yet fully 

operational. Beijing and Shenzhen have showed interest 

in starting energy saving credit trading in the Twelfth Five 

Year Plan period from 2011 to 2015. The commodities 

traded will be energy saving credits exchanged between 

energy intensive enterprises (or government) to meet 

concrete energy saving targets.208 After implementing 

energy saving projects, energy saving credit holders can 

sell their verified savings in a trading market. This model 

is now being trialled by the Beijing Environment Exchange 

Center.209 Shanghai’s energy saving trading scheme is still 

under preliminary research. National guidance and detailed 

regulations for energy credit trading are expected to be 

issued during the Twelfth Five Year Plan period.

3.6.13 Funding

The DSM Rule states that DSM programme implementation, management, and evaluation costs can be funded in 

three ways:210

• through a city utility surcharge (城市公共事业附加

费), collected through electricity tariffs;211

• through revenues from differential electricity prices 

(差别电价), mainly through implementing differential 

prices for energy-intensive industries;212, 213 and

• through other fiscal means, for example, an energy 

saving and emission reduction special fund (节能

减排专项资金) established through the budgets of 

central and provincial governments.214

In addition, DSM special funds created and managed 

by each provincial government will be used to facilitate 

implementation of the DSM rule. These provincial 

special funds will support DSM city pilots and provide 

subsidies for key energy efficiency projects, as well as 

communication, education, and evaluation programmes. 

Also, reasonable DSM expenses incurred by grid companies 

can be recovered as part of power supply costs.215

207 National Development and Reform Commission, 2011a.

208 National Development and Reform Commission, 2011b.

209 Beijing Environment Exchange Center website: 

http://www.cbeex.com.cn/article/gpxm/jnljy/

210 National Development and Reform Commission, 2010. 

Chapter 3 item 22, page 4.

211 This surcharge took effect in 1964 to support public 

utilities. Provincial governments set the surcharge amounts 

for each item (e.g., the industrial power use surcharge 

is five to ten percent of the electricity price). In Ningxia 

Autonomous region and Jilin province, the rate for DSM 

special use is fixed at CNY 0.001/kWh.

212 State Council of China, 2006

213 Differential electricity pricing is applied to energy-intensive 

enterprises in eight industries (electrolytic aluminium, 

ferroalloy, calcium carbide, caustic soda, cement, steel, 

yellow phosphorus, and zinc smelting). Enterprises 

are divided into three categories according to resource 

consumption and technology level. The three categories and 

their applicable prices are: “permit and promote” paying the 

standard provincial industrial power price; “restrict” paying 

a surcharge of CNY 0.05 to 0.1/kWh; and “eliminate” paying 

a surcharge of CNY 0.2 to 0.3/kWh in addition to the first 

class power price. New pricing mechanisms such as time-ofuse prices, inclining block tariffs, seasonal prices, and price 

discounts for interruptible loads, are only applied in some 

large cities in China.

214 The main objective of this fund is to encourage green 

production and environmental protection projects by giving 

subsidies, interest discounts, or other incentives. Local 

governments select projects based on requests; the financial 

requirements and support amount vary among provinces. 

According to energy saving and emission reduction audits 

in 20 provinces, from 2007 to 2009, up to CNY 124 

billion was allocated to support energy saving projects. The 

audit is available at: http://www.gov.cn/gzdt/2011-05/13/

content_1863388.htm

215 National Development and Reform Commission, 2010
43

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3.6.14 Scheme Administration

In early 2012, the National Development Reform 

Commission and the Ministry of Finance jointly launched 

the DSM Cities Programme as demonstration projects for 

the implementation of the DSM Rule, with three cities 

being selected initially and plans to expand to more cities. 

Provincial grid companies are working on developing 

DSM regulation and planning to make sure the necessary 

resources and human capital are in place to implement the 

DSM Cities Programme.

State Grid Corporation of China216

In response to the DSM Rule, State Grid has created 

energy service companies in all 26 provinces within its 

service territory as subsidiaries of the State Grid-owned 

provincial grid companies. Ten of the ESCOs are certified 

by the National Development Reform Commission and the 

Ministry of Finance. Their main roles are implementing 

energy efficiency projects, delivering specialised energy 

and consultancy services, and helping to organise 

workshops and seminars to better engage end-users in 

energy efficiency programmes. Between late 2010 and early 

2012, State Grid ESCOs signed 116 energy management 

contracts, which are estimated to deliver 667 GWh of 

electricity savings. State Grid ESCOs have also constructed 

an energy efficiency service platform where experts and 

energy users will get together to study energy efficiency 

policies and technologies and conduct energy audits. 

In June 2011, State Grid launched a campaign to 

promote end-use energy efficiency. The campaign broadly 

disseminates information about energy efficiency and 

educates people to change to a high-efficiency and lowcarbon lifestyle.

State Grid has also been very active in building high-voltage DC transmission lines and reducing line losses. In 2011, 

grid losses decreased by 0.07 percent, which contributed 

2.3 TWh of electricity savings. In addition, State Grid also 

strengthened its commitment to green procurement, promoting energy efficient products, high-efficiency electric motors, 

and other energy efficient equipment.

China Southern Grid Company217

In 2007, Southern Grid commenced its “Green Action” 

programme, which it will now use to meet its DSM Rule 

targets. Southern Grid has:

• moved to a clean energy generation portfolio by 

supporting renewables integration and shutting down 

low-efficiency coal-fired power plants;

• increased the efficiency of transmission and 

distribution networks by optimising grid structure, 

selecting energy efficient transformers, and 

introducing innovative transmission system designs. 

Southern Grid’s average transmission loss rate has 

reduced from 7.38 percent in 2005 to 6.28 percent in 

2010;

• implemented energy saving (environmental) dispatch 

by giving priority to renewables and more efficient 

coal-fired power plants;

• planned to save 27.2 TWh of electricity from 2010 

to 2015 by building efficiency power plants fully 

exploiting energy efficiency potential in green lighting, 

high- efficiency electrical devices, and residential 

appliances;

• established a green enterprise culture by promoting 

energy efficiency in its offices, and using energy 

efficient appliances and office equipment; and

• emphasised energy services by changing from pure 

peak load management to end-use energy efficiency, 

and from concentrating on electricity consumption 

management to providing comprehensive energy 

services.

During the Eleventh Five Year Plan period from 2006 

to 2010, Southern Grid provided 28,000 energy audits 

to large end-users, and conducted 170 energy efficiency 

demonstration projects in steelmaking, chemical, and 

non-ferrous metal industries, which produced accumulated 

electricity savings of 4.6 TWh.

3.6.15 Scheme Results

The results for the first year of implementation of the 

DSM Rule have not yet been reviewed and published by 

the National Development Reform Commission, but there 

have been estimates published of the possible results. In 

2011, total electricity use in China was 4,692.8 TWh, an 

11.7 percent increase from 2010.218 If the grid companies 

216 State Grid Corporation of China, 2011

217 China Southern Grid Company, 2010

218 2011 Electricity Consumption in China. News item on 

15 January 2012, retrieved from: http://www.yblmz.com/

html/3848.html
44

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

succeed in meeting their DSM Rule targets, there will be 

around 14 TWh of electricity saving in 2012, which is 

equivalent to the electricity use by over 10 million Chinese 

families.

3.6.16Areas for Improvement

Because the DSM Rule has placed an EEO on the 

grid companies for the first time in China, the whole 

implementation design is still to be tested. At the national 

level, the roles and responsibilities of each central 

government agency need to be clarified, while at the 

provincial level, certain provinces have to catch up others 

in setting up procedures and working out regulatory rules 

and evaluation schemes to guide their daily operations. 

Incentives for good performance and sanctions for poor 

performance in meeting DSM Rules targets still have to 

be determined. More flexible market-based mechanisms 

(trading of energy saving credits) have to be established to 

provide more flexibility to the grid companies in how they 

meet their DSM Rule targets.

The DSM Rule is seen as a milestone that will enable 

the integration of demand-side resources into electricity 

resource planning. There are already some signs that, in the 

future, China will place more stringent EEOs on the grid 

companies. This will have to be supported with a robust 

measurement, verification, and reporting system to ensure 

that all cost-effective energy efficiency opportunities are 

realised.

3.7 Denmark

In Denmark, energy efficiency has been a focus since 

the mid 1970s. A total of approximately EUR 86 million is 

spent every year on measures to promote energy efficiency: 

EUR 40 million for activities of energy companies, EUR 

32 million for energy labeling of buildings, and EUR 14 

million for the Danish Electricity Saving Trust. Denmark 

uses ten groups of policy instruments to promote energy 

efficiency:219

• the European Union emissions trading scheme;

• energy taxes;

• EEOs for energy companies;

• energy labeling of buildings;

• the Danish Electricity Saving Trust;

• building codes;

• energy labeling and standards for appliances;

• directives on energy savings in the public sector;

• energy efficiency agreements with industry; and

• energy saving subsidies to non-governmental 

organisations.

Denmark’s energy providers have been working 

with energy efficiency since 1990.220 The first EEO for 

electricity utilities was introduced in 1995; natural gas 

and district heating were included in the obligation 

starting in 2000. The focus of this programme was on 

free advice and campaigns for energy efficiency, with 

industries and private enterprises as the main target 

groups.221 Since 2006, electricity, natural gas, district 

heating, and heating oil distributors have been obligated 

to undertake energy efficiency activities under a scheme 

called Energiselskabernes spareindsats (energy companies’ 

efficiency efforts).222

3.7.1 Policy Objectives

The Danish Energy Agency lists climate change, energy 

security, and competitiveness as reasons to pursue energy 

efficiency.223 The Energy Policy Agreement of 2008 (revisited 

in 2010), which established the energy savings obligation, 

contained an objective to decrease total energy consumption 

(in Denmark) by two percent in 2012 and by four percent 

in 2020 from 2006 levels. This is a further strengthening 

of the objective that has existed since 1980, and which has 

achieved large energy savings and efficiencies through powerheat extension and other measures.224

3.7.2 Legal Authority

The Danish scheme consists of an EEO with an annual 

binding energy saving target for all energy distributors. The 

binding target was introduced in 2006, and is a further 

development of the Danish DSM scheme that commenced 

in 1995.225 The EEO initiative was re-articulated in a 

219 Togeby, et al., 2009

220 Togeby, et al., 2009

221 Bach, 2009

222 Togeby, et al., 2009

223 Bach, 2009

224 Styrelse, 2010

225 Mikkelsen, 2012
45

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

political agreement of 21 February 2008, which set Danish 

energy policy for the years 2008 to 2011.

The details of the EEO on the energy distributors 

are detailed in amendments to the Electricity, Natural 

Gas and District Heating Act (Law No 520 of 2006). In 

November 2009, the actual conditions for the initiative 

were implemented in an agreement between the Minister of 

Climate and Energy and the electricity, natural gas, heating 

oil, and district heating distributors. Executive Order No 

667 of 23 June 2010 detailed energy savings measures for 

the distribution companies.226 Although set within a legal 

framework, the obligations are currently implemented by 

a voluntary agreement. Commercial heating oil companies 

are also covered on a voluntary basis.227

3.7.3 Fuel Coverage

Fuel sources covered by the Danish EEO scheme 

include electricity, natural gas, heating oil products, and 

district heating. Since January 2011, reductions in losses 

in electricity, gas, and district heating networks have been 

eligible to meet the scheme energy saving target.228

3.7.4 Sector and Facility Coverage

The residential, public, private business, and energyintensive industry end-user sectors are covered by the 

EEO, as are all facilities in these sectors, including facilities 

covered by the European Union Emissions Trading 

Scheme.229 Obligated companies are not restricted to 

their own type of customers, and savings in all types of 

energy are eligible to contribute to the EEO targets, except 

transport fuels. This freedom stimulates specialisation 

and results in a higher cost-effectiveness of enterprising 

measures, especially by the smaller district heating 

companies.

3.7.5 Energy Saving Target

The 2006 to 2009 Danish energy savings target was 

2.95 PJ of first-year savings to be achieved per year, which 

corresponded to 0.7 percent of consumption in the covered 

sectors. From 2010 to 2012, the target increased to 6.1 

PJ, including assumptions about the incentive weighting 

factors. This is expected to produce energy savings 

corresponding to 1.2 percent of final consumption in the 

covered sectors and grid losses. In 2012, the target will be 

increased 50 percent. The target for distribution companies 

corresponds to 50 percent of the total expected savings 

226 Danish Energy Agency, 2011

227 Togeby, et al., 2009

228 Bach, 2011

229 Togeby, M. et al., 2009

230 Mikkelsen, 2012

231 Togeby, et al., 2009

232 Togeby, et al., 2009

233 Boot, 2009 at 22

from all energy efficiency measures implemented in the 

country.230

Until January 2011, the energy saving target was set in 

terms of the energy savings in the first year after an energy 

efficiency measure was implemented (the lifetime of the 

measure was not considered).231 Since 2011, weighting 

factors are to recognise the value of energy efficiency 

measures with longer lifetimes, which are disadvantaged 

if only the first-year savings are considered, and also 

to incentivise energy efficiency projects outside of the 

European Union emissions trading scheme. The weighting 

factors reflect lifetime, primary energy, and whether the 

energy savings are from the non-Emissions Trading Scheme 

sector. 

3.7.6 Obligated Parties

The obligated parties are distributors for electricity, 

natural gas, and district heating. Heating oil distributors 

participate on a voluntary basis.232 For electricity, natural 

gas, and heating oil, the obligation is negotiated with the 

sector trade association, whereas for district heating the 

obligation is put on individual companies.

Denmark has approximately 240 obligated parties: 75 

in electricity and gas and 160 in district heating. Although 

the obligation is on distribution companies, most activities 

are carried out in practice by commercial subsidiaries of the 

obligated parties. Most of the realised savings are achieved 

in the sector in which the obligated party operates, but this 

is not always the case. 

An individual obligated party’s share of the energy saving 

target is calculated in proportion to its market share of the 

relevant fuel sector. Almost 50% of the target has to be 

achieved by electricity distributors, 30% by district heating 

companies, 20% by natural gas distributors, and a very 

small share by heating oil companies.233
46

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

234 Source data for Figure 5 were compiled by Eoin Lees Energy 

based upon data supplied by Peter Bach of the Danish 

Energy Agency. 

235 Mikkelsen, 2012

236 Mikkelsen, 2012

237 Styrelse, 2010 

238 Mikkelsen, 2012

239 Togeby, et al., 2009

240 Staniaszek and Lees, 2012

In 2009, the energy saving target was shared among 

obligated parties as shown in Figure 5.

Figure 5

Shares of the Danish Energy Saving Target 

by Obligated Party, 2009234

Electricity 

Distributors: 

48%

Oil Companies: 

4%

District 

Heating: 31%

Gas Companies: 17%

3.7.7 Compliance Regime

The Danish Energy Agency is responsible for basic 

administration of the EEO scheme. The energy savings 

achieved must be well documented and they must be 

verifiable by an independent source. Each energy efficiency 

programme must have a quality assurance system, which 

is audited internally every year, and by an independent 

auditor every second year. The obligated energy companies 

must develop a transparent accounting of funds they use to 

achieve energy savings, categorised into direct savings and 

deemed savings. 

Obligated energy companies that fail to meet their 

individual energy saving targets must pay a penalty of EUR 

0.1 per kWh of shortfall. In addition, obligated distribution 

companies may lose their license to distribute energy if they 

fail to meet their target.235

3.7.8 Performance Incentives

The weighting factors used to recognise the value of 

energy efficiency measures with longer lifetimes are the 

only performance incentives available.

3.7.9 Eligible Energy Savings

The Danish Government does not allow obligated 

energy distributors to implement energy efficiency projects 

themselves and requires that they pass the implementation 

task to third-party companies. The third parties include 

energy retailers within the same company group, energy 

service companies, and private companies such as 

installers, craftsmen, engineering companies, lighting 

companies, and so on.236

Eligible energy savings are denominated in final enduse consumption (rather than primary energy) and may 

be achieved in all end-uses. Obligated energy distributors 

must take concrete steps to contribute to the achievement 

of energy savings for end-use consumers, and may 

only take credit for those savings that would not have 

taken place without the distributor’s input. Input from 

the distributor may take the form of advice, technical 

assistance, or financial assistance, including grants for the 

implementation of energy savings.237

Obligated energy distributors have freedom in how 

they will achieve energy savings. Commencing in 2006, 

distributors are allowed to carry out energy efficiency 

projects outside of their supply areas and with all types of 

energy, except transport fuels.238 An obligated distributor 

must be actively involved in an energy efficiency project in 

order to take credit for the energy savings.239

3.7.10 Eligible Energy Efficiency Measures

Energy savings in the Danish EEO scheme are based on 

deemed standard energy saving values for smaller, standardised activities (typically in homes and other buildings), 

applied from a catalog of deemed values for around 200 

energy efficiency projects, including new windows, new appliances, insulation, boilers, and the like. If a standard value 

is available for a given energy efficiency measure, then this 

must be used. Specific calculations are used in areas where 

there is no standard value, typically larger and integrated 

projects in business enterprises or public institutions.240
47

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

241 Togeby, et al., 2009

242 Mikkelsen, 2012 

243 Bang, 2012

244 Bang, 2012

245 Mikkelsen, 2012

246 Togeby, et al., 2009

247 Styrelse, 2012

248 Togeby, et al., 2009

249 Mikkelsen, 2012

250 Bang, 2012

Eligible energy efficiency measures can take many forms, 

including energy audits, targeted information, subsidies 

for efficient appliances and equipment, or a combination 

of these.241 Energy savings from small-scale household 

solar photovoltaic installations and wind turbines may be 

claimed as eligible savings as long as the plants are located 

on the end-use customer’s own property.242

3.7.11 Measurement, Verification, and Reporting

Obligated energy distributors are responsible for 

verification, documentation, and reporting. External and 

internal audits and quality control are required. The Danish 

Energy Authority carries out special inspection of the 

documentation on an annual basis.243 Energy savings can 

be calculated or based on deemed standard energy saving 

values. Specific calculations, using engineering methods, 

are used for all big projects, especially in industry and 

the public sector. If a specific calculation is used, then the 

entire project must be calculated specifically, including the 

energy savings achieved from energy efficiency measures 

where standard values exist.244

3.7.12 Trading of Energy Savings

Energy savings may only be traded among obligated 

energy distributors, but all private enterprises can make a 

contract with a distributor for the delivery of a specified 

amount of savings.245 The extensive freedom allowed in the 

implementation of energy efficiency projects bears features 

similar to an energy efficiency certificate trading scheme.246

3.7.13 Funding

The costs for obligated energy distributors to meet their 

individual energy saving targets are funded through tariffs.247

3.7.14 Scheme Administration

Although the energy saving targets are applied to 

obligated energy distributors, most energy efficiency 

projects are carried out by commercial subsidiaries of the 

obligated distributors, often combined with other activities 

like selling electricity to industrial companies.248

3.7.15 Scheme Results

In 2006 to 2009, the average cost of energy savings 

achieved in the Danish EEO scheme was EUR 0.045/kWh, 

including consumer and administrative costs. In 2011, the 

average cost was EUR 0.056/kWh.249

Figure 6 shows the cost of energy savings in the Danish 

EEO scheme compared with the cost of savings from other 

policy instruments in Denmark, indicating that the EEO 

scheme is one of the most cost-effective policy instruments.

Table 12 (page 48) shows the recorded energy savings 

per sector from 2006 to 2008 for the Danish EEO scheme.

Figure 6

Cost of Energy Savings from Various Policy Instruments in Denmark250

Energy 

labelling of 

buildings

Electricity 

savings 

trust

Energy 

efficiency 

obligation 

scheme

Building 

codes

Energy 

savings in 

the public 

sector

Energy 

labelling of 

appliances

Energy 

audits and 

tax rebate 

for industry

15

1.4

1.2

1

0.8

0.6

0.4

0.2

0
48

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

the cost of the measures to the energy 

distributors are similar or indeed slightly 

cheaper for the appliances to produce 

similar first-year energy savings, then 

there will be a perverse incentive for the 

distributors to invest in the shorter-lived 

measures rather than the longer, more cost 

effective energy efficiency measures. 

3.8 France

France has in place mandatory 

quantitative energy saving targets for 

energy suppliers and a scheme of tradable 

energy efficiency certificates (certificats 

d’économies d’énergie) to track energy 

savings and determine compliance with the targets. The 

certificate scheme is operating in three-year periods: the 

first from 1 July 2006 to 30 June 2009 and the second 

commencing after an 18-month gap on 1 January 2011 and 

running to 31 December 2013.

The certificate scheme comprises part of France’s broader 

policy goal, established by Programme Law No 2005-781 

of 13 July 2005 (2005 Law), to reduce the nation’s final 

energy intensity by two percent per year until 2015, rising 

to 2.5 percent per year from 2016 to 2030.253 This target is 

expected to bring France in line with the energy efficiency 

target set forth in the European Union Directive on Energy 

End-use Efficiency and Energy Services.

3.8.1 Policy Objectives

The certificate programme aims to realise the diffuse 

but immediately available potential for energy efficiency in 

251 Togeby, et al, 2009 at 303

252 Togeby, et al., 2009

253 Programme Law No 2005-781, of 13 July 2005 establishing 

energy policy guidelines, Articles 14-17. The 2005 law 

further addresses security of supply, competitiveness, 

environmental protection, and public service obligations 

throughout France. Text of the law is available at: http://

www.legifrance.gouv.fr/affichTexte.do;jsessionid=5F97678

97E08CF4465B718FFB7D8BF0E.tpdjo10v_2?idSectionTA

=LEGISCTA000006122857&cidTexte=JORFTEXT000000

813253&dateTexte=20100607#LEGISCTA000006122857 

(French only).

Table 12

Recorded Energy Savings per Sector 

in Denmark, 2006 to 2008251

Fuel Type

Trade and 

Industries (TJ)

Residential 

Sector (TJ)

Total

(TJ)

Public Sector 

(TJ)

Savings by Sector

Electricity 694 283 2,444 3,421

Natural Gas 1,011 73 530 1,614

District Heating 952 192 541 1,685

Heating oil 347 0 50 397

Total 3,004 548 3,565 7,117

 42% 8% 50% 100%

3.7.16Areas for Improvement

The Danish EEO scheme requires annual alternating 

internal and external audits, as well as evaluations every 

three years. The initial EEO was put in place in 2006. 

The evaluation in 2009 analysed the programme from 

2006 through the first half of 2008. Changes as a result of 

the evaluation took place in 2010. The evaluation found 

that, while the overall distribution of energy savings 

among sectors was similar to the energy consumption, the 

obligated electricity distributors focussed on industrial 

companies, because costs can be minimised in relation to 

large energy users. District heating companies are generally 

smaller than the other obligated distributors, and as a 

consequence have often worked with their own customers 

and their own energy carriers.252

Publishing a more explicit methodology for minimising 

or accounting for free riders (those parties that would have 

carried out the energy efficiency investment anyway, in the 

absence of the EEO scheme) would strengthen confidence 

in the claimed energy savings. 

It remains to be seen whether the weighting factors for 

the different lifetimes of energy efficiency measures give 

sufficient incentives for the obligated energy distributors to 

value the longer-lived measures rather than just focussing 

on annual energy savings. For example, insulation has a 

30- to 40-year lifetime, depending on the actual measure, 

compared to, say, a 10- to 12-year lifetime for an appliance. 

If the energy saving target is set in terms of first-year energy 

savings only, then the three to four times longer lifetime 

energy savings from insulation are not valued. Thus, if 
49

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

France, particularly in the residential and tertiary sectors. 

These sectors are responsible for 40 percent of final 

energy consumption and one quarter of GHG emissions in 

France.254

3.8.2 Legal Authority

The 2005 Law establishes both France’s national 

energy intensity targets and the certificate programme. 

Energy saving obligations, and rules regarding energy 

efficiency certificates and registry management have been 

set forth in subsequent decrees.255 Specific targets for the 

certificate programme are established by the government 

in consultation with ADEME, the French environment and 

energy management agency.256

3.8.3 Fuel Coverage

Originally placed on retailers of electricity, natural gas, 

and heating oil, the obligation was extended from 2011 to 

include importers of road transport fuel. Any fuel can be 

saved by the obligated parties.

3.8.4 Sector and Facility Coverage

Standardised energy efficiency measures with deemed 

energy saving values have been established for six sectors:

• residential buildings;

• commercial sector buildings;

• manufacturing industries (excluding those covered by 

the European Union emissions trading scheme);

• networked industries (district heating and cooling, 

lighting, and electricity);

• transport; and

• agriculture.

In addition to these sectors, energy efficiency certificates 

can be created for non-standardised measures, programmes 

targeting fuel poverty, and informational programmes, 

training, and innovation targeting reductions in energy 

demand.

3.8.5 Energy Saving Target

Under the certificate scheme, the French government in 

consultation with ADEME has established two, three-year 

energy saving targets. The target for the first compliance 

period was set at 54 TWh cumac257 to be achieved in the 

period 1 July 2006 to 30 June 2009. The target for the 

second compliance period was set at 345 TWh cumac 

to be achieved in the period from 1 January 2011 to 31 

December 2013.

The obligation is divided among retailers of electricity, 

natural gas, heating oil, LPG, and district heating and 

cooling (255 TWh cumac) and wholesale suppliers of 

transport fuels (90 TWh cumac). As the main original 

obligated companies continued to undertake energy 

efficiency actions in the 18-month period between the 

formal end of the first phase of the certificate scheme and 

the start of the second phase, the actual increase on an 

annual energy saving basis is less than the apparent six-fold 

increase.

3.8.6 Obligated Parties

The 2005 Law allocated the target for the first phase of 

the certificate scheme among energy retailers, defined as 

legal entities who sell electricity, natural gas, and district 

heating and cooling to end consumers and the annual sales 

of which exceed a threshold, as well as natural persons 

or legal entities who sell heating oil to end consumers.258

The threshold was set at an annual supply of 400 GWh/

year or more for retailers of electricity, natural gas, and 

district heating and cooling; 100 GWh per year or more 

for LPG suppliers; and at any level of sales by heating oil 

suppliers.259

In the second phase, wholesale suppliers of automobile 

fuels have been added as obligated parties. All relevant 

entities whose sales exceed the following thresholds 

(expressed in terms of final delivered energy) are obligated:

254 http://www.ile-de-france.drire.gouv.fr/energie/Economies/

Dossier percent20de percent20presse/Plaquette_12p.pdf, p. 2.

255 Relevant decrees are available through ADEME at: 

http://www2.ademe.fr/servlet/KBaseShow?sort=-

1&cid=96&m=3&catid=15024#theme6

256 Legislation and rulemaking relating to the French 

white certificate scheme are available at: http://

www.developpement-durable.gouv.fr/Le-cadrereglementaire,13469.html (French only).

257 Cumulative and discounted (in French, cumulés actualisés). 

This term is used to refer to the annual delivered energy 

savings from an energy efficiency measure, summed over the 

lifetime of the measure and discounted at a standard rate, in 

this case four percent per annum.

258 NEEAP at 15, citing Articles 14 and 17 of the 2005 Law.

259 Capozza, 2006
50

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

• electricity, natural gas, district heating and cooling – 

400 GWh/year;

• liquefied petroleum gas (non-transport uses) – 

100 GWh/year;

• heating oil – 500 m3

/year;

• liquefied petroleum gas (transport) – 7,000 t/year or 

7,000 m3

/year; and

• motor fuel – 7,000 t/year or 7,000 m3

/year.260

Although around 2,500 companies are obligated under 

the programme (mainly heating oil suppliers), 80 percent of 

the obligation falls to the largest two obligated companies, 

Electricité de France and Gaz de France.

3.8.7 Compliance Regime

Compliance under the certificate scheme is achieved by 

surrendering the amount of energy saving certificates that 

corresponds to each obligated party’s target at the end of 

each three-year period. In the first compliance period there 

were no intermediate deadlines.261

Energy efficiency certificates are defined as “certificates 

issued by independent certifying bodies confirming the 

energy savings claims of market actors as a consequence of 

energy efficiency improvement measures.” Certificates are 

tracked through a national registry. Lifetime energy savings 

are confirmed through random sampling.

The scheme penalty is EUR 0.02/kWh cumac shortfall. 

This is far higher than the cost of delivering energy savings, 

which equated to EUR 0.004/kWh cumac during the first 

compliance period.262

3.8.8 Performance Incentives

No performance incentives are available.

3.8.9 Eligible Energy Savings

Obligated parties have a variety of options for meeting 

their commitments. They may:263

• implement energy saving programmes (within their 

customer base);

• buy energy efficiency certificates;

• pay a penalty; or

• some combination of the above.

Obligated parties and some non-obligated parties can 

produce eligible energy savings, which are then used to 

create certificates. During the second compliance period, 

eligible non-obligated parties have been restricted to 

local authorities, the National Housing Agency, and 

social housing landlords. This is a change from the first 

compliance period, which allowed all economic actors 

whose main business is not energy efficiency and for whom 

the energy savings action produces no direct income to 

produce eligible energy savings.

3.8.10 Eligible Energy Efficiency Measures

There are three categories of eligible energy efficiency 

measures:

• standardised measures for which deemed energy 

savings values have been calculated;

• non-standardised measures; and

• contributions to programmes targeting fuel poverty, 

and informational programmes, training, and 

innovation targeting reductions in energy demand.264

Standardised measures are specified in individual sheets 

(known as “fiches”).265 Measures are categorised into six 

end-use sectors (see section 3.8.4, page 49), each of which 

is subdivided into up to five different categories: building 

envelope, heating/cooling, lights and appliances, other 

equipment, and services.

Each (usually one-page) sheet specifies the following 

parameters for that measure:266

• eligible end-use application;

• brief description of the measure, its applicability, and 

any relevant technical standards;

• requirements concerning installation of measure;

• measure lifetime; and

• deemed energy saving (e.g., per unit, per square 

meter), including any variations between the three 

French climatic zones.

260 Greaume and Borde, 2011. 

261 Capozza, 2006. The target is fuel-neutral because of the 

low-carbon content of electricity generated by nuclear power 

stations in France. 

262 Staniaszek and Lees, 2012

263 Staniaszek and Lees, 2012

264 Ministère de l’Écologie, de l’Énergie, du Dévelopment Durable 

et de la Mer, 2010

265 The full list of standardised measure sheets is available at: 

http://www.developpement-durable.gouv.fr/Secteur-dubatiment-residentiel html

266 Staniaszek and Lees, 2012
51

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

In France, tax credits of up to 50 percent of the capital 

costs have been introduced for householders who have 

certain energy efficiency measures installed professionally 

(e.g., insulation, efficient heating). These are allowed 

to be claimed in conjunction with energy efficiency 

certificates by an obligated energy retailer. This has resulted 

in (by international standards) very low subsidy levels 

required to be offered to householders by electricity and 

gas suppliers. The view of the French Environment and 

Energy Management Agency is that the tax credit drives the 

demand for energy efficient heating measures and is the real 

economic trigger. The agency felt that the energy efficiency 

certificate activity helped the offer to develop and makes 

the promotion of the tax credit more widespread. 

3.8.11 Measurement, Verification, and Reporting

Certificates are issued after energy efficiency measures 

have been carried out but before energy savings have 

actually been achieved.

As of 31 December 2010, 95 percent of energy saving 

certificates issued were for standardised energy efficiency 

measures.267 A number of criteria are considered in 

establishing deemed saving values, including the type of 

equipment or goods employed, the process used to save 

energy, the state of the market of the process, and the level 

of grid congestion that might be relieved in the geographic 

area where the measure is being undertaken.268

Energy savings achieved through implementing nonstandard energy efficiency measures require approval of 

both the methodology and the level of savings achieved.269

3.8.12 Trading of Energy Savings

Trading of energy efficiency certificates occurs over 

the counter, as no formal market has been established by 

the French government.270 Ownership of certificates is 

established contractually, with the contract submitted at 

the time certificates are claimed to ensure issuance to the 

proper party.271 Banking of certificates is allowed for up to 

nine years (three compliance periods).

Trading of energy efficiency certificates in France has 

been limited, largely because the bulk of the EEO falls 

on Electricité de France and Gaz de France.272 Registered 

trading accounted for less than three percent of all 

certificates in the first compliance period.273 Trading 

has further been limited by the fact that most obligated 

suppliers prefer to implement projects themselves or 

through agreements with equipment suppliers and 

installers.

During the first compliance period the average market 

price was approximately EUR 0.0032/kWh cumac, which is 

well below the penalty price of EUR 0.02/kWh. The sellers 

were mainly eligible non-obligated parties, such as local 

authorities and some companies.

3.8.13 Funding

Under the 2005 Law, the regulator is authorised to 

take into account retailers’ costs of complying with EEO 

in setting tariffs. In the first three-year period no cost 

recovery was allowed.274 Retailers have buffered the cost 

of implementation by targeting energy efficiency measures 

that qualify for tax rebates. The cost of achieving energy 

saving targets has been subsidised for gas retailers in part 

through funds raised by France’s natural gas consumption 

tax.275

3.8.14 Scheme Administration

The key players in the French energy efficiency 

certificate scheme are:276

• the Directorate for Energy and Climate within the 

Ministry of Ecology, Sustainable Development, 

Transport and Housing sets the scheme rules and the 

level of the obligation;

• the Energy Environment Technical Association is a 

forum in which actors in the energy savings market 

(e.g., energy suppliers, manufacturers, retailers) 

work together to propose new standardised energy 

267 Second Energy efficiency action plan for France. 

268 Capozza, 2006

269 Bertoldi, et al., 2010

270 Monjon, 2006

271 Bertoldi, et al., 2010

272 Bertoldi, et al., 2010

273 Greaume and Borde, 2011

274 Although the French gas and electricity sectors have been fully 

open to competition since 2007, gas and electricity prices for 

most customer classes remain regulated.

275 Hamilton, et al., 2010

276 Staniaszek and Lees, 2012
52

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

efficiency measures to the Ministry based on the 

consensus of all actors. The Association develops 

feedback on the certificate scheme and contributes to 

the adaptation and evolution of the scheme over time;

• ADEME provides “back office” functions on behalf 

of the Directorate for Energy and Climate, including 

technical analysis, expert advice, and evaluation. 

ADEME also runs information campaigns as well as 

numerous other government-funded energy saving 

activities;

• the National Energy Savings Certificates Centre under 

the control of the Directorate awards and records 

the certificates and controls eligible energy efficiency 

projects;

• the obligated parties; and

• the “eligible parties”—these are organisations that 

are not obligated parties but who can earn energy 

efficiency certificates in their own right.

For the first phase of the certificate scheme to 30 June 

2009, 77 percent of the 65 TWh cumac savings were 

awarded to obligated parties, and the remaining 23 percent 

to non-obligated parties (mainly local authorities and social 

housing providers).277 Only a small minority of certificate 

holders (37 out of 147) were non-obligated parties. Most 

energy efficiency measures were implemented through 

contracts between obligated parties—particularly Electricité 

de France and Gaz de France—and third parties.

3.8.15 Scheme Results

By the end of the first compliance period, French 

suppliers had exceeded their aggregate target by more 

than 11 TWh, delivering 65.2 TWh cumac of energy 

savings.278 On 31 December 2010, at the start of the 

second compliance period, the volume of energy savings 

certificates issued was 163.4 TWh cumac.

Figure 7 shows that the majority of energy savings 

occurred in the residential sector, followed by industry, 

tertiary buildings, networks, and transport.

Popular energy efficiency measures included installation 

of efficient boilers, heat pumps, insulation, and windows; 

these measures have been favoured in part because of the 

added support provided by tax benefits.280

The total cost of the first compliance period for 

consumers has been estimated at EUR 3.9 billion (including 

EUR 1.3 million in complementary tax credits on most 

energy efficient equipment), and the energy bill reduction 

277 Lees, 2010

278 Ministère de l’Écologie, de l’Énergie, du Dévelopment Durable 

et de la Mer, 2009

279 Greaume and Borde, 2011

280 Bertoldi and Rezessy, 2009

281 Greaume and Borde, 2011

Figure 7

Energy Savings During the First 

Compliance Period in the French Energy 

Efficiency Certificate Scheme279

Residential 

Building: 

83.3%

Transport: 0.3%

Industry: 

7.8%

Networks: 

1.8%

Tertiary 

Building: 6.3%

has been estimated at EUR 4.3 billion. The estimated total 

cost to obligated parties was EUR 210 million or about EUR 

0.039/kWh cumac.281

3.8.16Areas for Improvement

One of the main criticisms of the first phase of the 

energy efficiency certificate scheme was that a significant 

portion of the energy savings was not additional. A total 

of 72.3 percent of all certificates were issued for measures 

in the heating sector, which were pursued due to the 

availability of generous tax incentives. Furthermore, energy 

savings for boiler replacements were awarded relative to 

an assumed stock average for the boiler efficiency rather 

than the customary approach of awarding savings relative 

to the average efficiency of a boiler in the market place. As 

the latter approach was used by the French for awarding 

appliance energy savings, there is clearly an inconsistency 

in the approach.

It would appear that the normal retail suppliers to 

households for energy efficiency measures such as lighting 

and appliances were not utilised to the maximum effect. 
53

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

The first phase of the energy efficiency certificate scheme 

explicitly forbade non-obligated parties from increasing 

their sales through promotion of energy efficiency 

measures.

3.9 Italy

Italy has the most active energy efficiency certificate 

market in Europe, characterised by significant market 

participation by energy efficiency providers, including some 

ESCOs, and high levels of certificate trading through the 

spot and over-the-counter markets. An EEO for electricity 

and gas distribution system operators was introduced as 

part of the legislation liberalising Italy’s electricity and gas 

sectors in 1999 and 2000. The energy efficiency certificate 

scheme, coupled with annual energy saving targets, 

commenced operation in January 2005.

As a participant in the European Union emissions 

trading scheme and the Kyoto Protocol, Italy has 

committed to reducing its GHG emissions to 6.5 percent 

below 1990 levels between 2008 and 2012. End-use 

energy efficiency improvements play an important role in 

helping meet this target. Italy’s energy efficiency certificate 

scheme also plays an important role in helping achieve 

the European Union’s “20-20-20 Climate Package,” which 

calls for GHG emissions reductions and improved energy 

efficiency.282

3.9.1 Policy Objectives

The energy efficiency certificate scheme is designed to 

serve as the primary driver for end-use energy efficiency 

in Italy. End-use energy efficiency improvement is seen as 

essential for fulfilling Italy’s commitments under the Kyoto 

Protocol, increasing competitiveness and employment, and 

ensuring security of energy supply.283 The certificate scheme 

serves to reduce the cost of complying with the energy 

saving targets.284

3.9.2 Legal Authority

The energy efficiency certificate scheme was created by 

the Legislative Decrees of 16 March 1999, No. 79, and 

23 May 2000, No. 164. These laws require electricity and 

natural gas distributors to pursue end-use energy efficiency, 

according to quantitative targets and procedures to be 

determined in subsequent ministerial decrees. The Minister 

for Productive Activities (now the Minister of Economic 

Development), jointly with the Minister of Environment, 

issued two decrees on 24 April 2001 that established the 

energy efficiency certificate scheme and charged Autorità 

per l’Energia Elettrice e il Gas (AEEG), the Italian electricity 

and gas regulator, with implementation. The Ministerial 

Decrees of 20 July 2004 put in place energy saving targets 

for electricity and gas, and launched the energy efficiency 

certificate scheme in January 2005. The certificate scheme 

was amended on 21 December 2007 by a Ministerial 

Decree and extended to 2012.

3.9.3 Fuel Coverage

Electricity and natural gas.

3.9.4 Sector and Facility Coverage

All end-use sectors are covered under the scheme, 

including transport, as well as small-scale co-generation 

and photovoltaics.

3.9.5 Energy Saving Target

The 2007 Decree sets the following targets for annual 

cumulative energy savings by obligated parties: 2.2 million 

tonnes of oil equivalent (Mtoe) in 2008, 3.2 Mtoe in 2009, 

4.3 Mtoe in 2010, 5.3 Mtoe in 2011, and 6.0 Mtoe in 2012.

The energy savings that have to be achieved for the first 

time each year are lower, (e.g., for 2012 the Decree requires 

1.1 Mtoe first-time annual savings).

The targets are fuel-neutral and savings of any end-use 

fuel may contribute toward meeting the energy saving 

targets. Prior to the 2007 Decree, no more than 50 percent 

of savings could come from either electricity or natural gas, 

but this constraint has now been lifted.

Energy savings are generally counted for energy 

efficiency measure lifetimes of five years, although savings 

from measures involving energy efficient improvements 

to building fabric are counted for eight years, and savings 

from combined heat and power/co-generation are counted 

for ten years.

282 AEEG, 2009b

283 AEEG, 2006 

284 Italian Ministry of Economic Development, 2007
54

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.9.6 Obligated Parties

Obligated parties are distributors of electricity and 

natural gas who, as of 31 December of the preceding year, 

“have connected to more than 50,000 consumers through 

their distribution grid.”285 At the end of 2009, 14 electricity 

and 62 natural gas distributors were obligated to meet 

energy saving targets.286

Individual targets for obligated parties are determined 

annually by the AEEG based on each distributor’s 

proportion of energy distributed to final customers as 

compared to the total amount of energy distributed in Italy 

the preceding year.287 The electricity sector is responsible 

for over half of the total obligation (3.6 Mtoe in 2012 

out of a total of 6 Mtoe).288 One electricity distributor, 

ENEL, is responsible for meeting the vast majority of the 

electricity sector target (86.8 percent in 2008). There 

are more obligated parties in the gas sector, with three 

companies accounting for just under 45 percent of the gas 

sector target, and all other gas distributors individually 

responsible for under five percent of the target.289

3.9.7 Compliance Regime

Each obligated electricity and gas distributor achieves 

compliance by surrendering the number of energy 

efficiency certificates that corresponds to their individual 

annual energy saving target.

Penalties for shortfalls in meeting the annual target are 

assessed on a case-by-case basis. The minimum overall 

penalty is EUR 25,000; the maximum is EUR 155 million. 

The penalty does not cancel the obligation to meet the 

target. There is a one-year grace period if at least 60 percent 

of the annual target is met.290

3.9.8 Performance Incentives

Energy efficiency activities, when accompanied by 

information campaigns, are eligible for a five percent 

premium over actual energy savings achieved.291 It is 

proposed to remove this incentive from 2013.292

Crediting energy savings from certain energy efficiency 

measures over longer lifetimes than the standard five years 

is an approach used to incentivise the implementation 

of certain types of measures, including energy efficient 

improvements to building fabric and combined heat and 

power/co-generation.

Further changes to performance incentives are proposed. 

The major proposed change is to adjust the energy saving 

values for energy efficiency measures to better reflect the 

value of those measures that have much longer lifetimes 

(e.g., insulation, 30-40 years). It is also proposed to offer 

incentives for measures carried out by genuine ESCOs.293

3.9.9 Eligible Energy Savings

Obligated electricity and natural gas distributors may 

meet their individual annual energy saving targets in one of 

three ways:294

• by directly implementing energy efficiency measures 

to create energy efficiency certificates;

• by contracting energy service companies to implement 

energy efficiency measures; and

• by purchasing energy efficiency certificates through 

over-the-counter or spot market transactions. 

The creation of energy efficiency certificates is not 

restricted to the obligated parties. Any organisation that 

is accredited by the AEEG as an energy service provider 

can create certificates in its own right, which can then be 

sold over the counter or traded on the market.295 A large 

majority of the accredited energy service providers do 

not meet the European Union definition of an ESCO, as 

they are primarily installers of energy efficiency measures. 

Organisations that consume large amounts of energy 

and also have an energy manager may also create their 

own energy efficiency certificates, but these organisations 

accounted for only around one percent of certificate 

creation activity in the period up to 2009.

Obligated parties and other organisations accredited 

285 AEEG, 2009b

286 AEEG, 2009b

287 Italian Ministry of Economic Development, 2007

288 AEEG, 2009b

289 AEEG, 2009b. The three companies are: Società Italiana per 

il Gas per Azioni (23.8%), Enel Rete Gas S.p.a. (12.7%), and 

HERA S.p.a. (8.1%).

290 Pavan, 2009

291 Pavan, 2009

292 Pavan, 2011

293 Pavan, 2011

294 Italian Ministry of Economic Development, 2007

295 Pavan, 2011
55

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

to create certificates submit to the AEEG proposals for 

energy efficiency projects and requests for energy savings 

verification and certification together with the supporting 

documentation. The AEEG verifies (with technical 

support from the national energy agency) and certifies 

the energy savings delivered, on the basis of the detailed 

documentation received.

In the first phase of the Italian energy efficiency certificate 

scheme to the end of 2009, only 15.5 percent of certificates 

were created by the obligated parties. The parties acquired 

certificates mainly by contracting energy service companies 

to implement energy efficiency measures and through 

purchasing certificates in over-the-counter trading.296

Most energy efficiency projects are implemented by 

accredited energy service providers (over 80 percent 

between 2005 and 2009). This is largely because the 

obligated parties are distribution system operators that 

do not have the direct contact with customers. By the 

end of 2009, over 1,375 energy service providers had 

been accredited, but only 231 of these entities had been 

issued energy efficiency certificates.297 There is a strong 

concentration in the market, with 70% of certificates issued 

to 15 energy service providers.

3.9.10 Eligible Energy Efficiency Measures

The AEEG publishes and regularly updates a list of 

energy efficiency measures with standard procedures for 

calculating deemed energy saving values over the lifetime of 

the measure. Although obligated electricity and natural gas 

distributors have primarily implemented measures on this 

list, they are free to propose other measures to be assessed 

on a case-by-case basis.

As is common in most European EEO schemes, the overwhelming majority of energy efficiency certificates are issued 

for measures with deemed or ex ante energy saving values. 

By the end of 2010, more than 80 percent of certificates were 

issued for energy savings in the residential sector.298

3.9.11 Measurement, Verification, and Reporting

There are three methods for measurement and 

verification of energy savings:

• deemed energy savings. This method is based 

on standard calculation procedures that have been 

established for specific energy efficiency measures, 

such as installing compact fluorescent light bulbs, 

wall and roofing insulation, and certain highefficiency appliances. A list of calculation procedures 

is available through the AEEG;299

• partial on-field measurement This method is 

similar to the deemed energy savings method in that 

standard calculation procedures have been established 

for specific energy efficiency measures; however, 

on-site measurement of certain parameters must be 

carried out for each energy efficiency project; and

• metered baseline method. This method applies to 

energy efficiency projects that cannot be assessed under 

either of the first two methods. These projects must 

include a monitoring plan and require the AEEG’s 

approval and on-site measurement and verification to 

receive credit for the energy savings achieved.300

The AEEG conducts random on-site audits for all types 

of energy efficiency projects to confirm claimed energy 

savings.

3.9.12 Trading of Energy Savings

Distributors may meet their annual efficiency obligations 

through the purchase of energy efficiency certificates 

through over-the-counter or spot market transactions.301

Each energy efficiency certificate represents primary 

energy savings of one tonne of oil equivalent. Certificates 

are divided into three classes, each representing primary 

energy savings: Class I certificates represent reductions 

in electricity consumption; Class II certificates represent 

reductions in natural gas consumption; and Class III 

certificates represent all primary energy savings that fall 

outside the first two categories.302

Banking of certificates is allowed; borrowing is not.303

Market transactions occur on a dedicated market, organised 

and managed by Gestore Mercati Energetici, the company 

that organises and manages the Italian Power Exchange 

296 Pavan, 2011

297 Pavan, 2011

298 Pavan, 2011

299 http://www.autorita.energia.it/it/operatori/operatori_ee.htm 

(Italian).

300 Capozza, 2006

301 Italian Ministry of Economic Development, 2007 

302 AEEG, 2009b

303 Capozza, 2006
56

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

(IPEX). Prices and total trades for all types of market and 

bilateral transactions are publicly available through the 

company.304 All market participants must register with 

Gestore Mercati Energetici, which publishes a public list 

of participants.305 Certificates are issued annually by the 

company on request from the AEEG, after verification of 

results is achieved.306

3.9.13 Funding

Obligated electricity and natural gas distributors 

recover their cost of complying with energy saving targets 

(including purchase of energy efficiency certificates) 

through a “unitary tariff contribution,” established annually 

and applicable to all distributors for Type I, II, and (since 

2008) III energy savings.307 The unitary tariff contribution 

is set annually pursuant to a formula that takes into 

account trends in energy prices. The tariff contribution for 

2010 was set at EUR 92.22/toe.308

The idea behind a fixed contribution for cost recovery, 

rather than a case-by-case determination based on actual 

costs, is to incentivise obligated parties to seek out highly 

cost-effective energy efficiency measures.309

Obligated electricity and natural gas distributors may 

recover costs up to their actual expenditure to achieve 

their annual target. Transport measures are not eligible for 

cost recovery. In addition, “tariff funds are used to finance 

information campaigns from electricity and natural gas 

distributors as well as audit schemes at the local level.”310

3.9.14 Scheme Administration

As the principal administrator of the scheme, the AEEG 

is in charge of developing the rules for issuing and trading 

energy efficiency certificates, establishing the cost-recovery 

mechanism, defining sanctions for non-compliance, 

certifying savings, monitoring and publicly publishing 

results through an annual report and two interim reports, 

and proposing improvements to the programme. The AEEG 

establishes the market rules for energy efficiency certificate 

trading jointly with Gestore Mercati Energetici, which 

organises and manages the Italian Power Exchange. Since 

2009, AEEG has delegated to the Italian National Agency 

for New Technologies, Energy and Sustainable Economic 

Development responsibility for overseeing assessment and 

certification of energy savings as well as updating technical 

sheets and guidelines for quantification of energy savings.311

304 See more information at: http://www.mercatoelettrico.org/En/

Esiti/TEE/BilateraliTEE.aspx 

305 A list of participants is available at: http://www.

mercatoelettrico.org/En/Mercati/TEE/MercatoTEE.

aspx?filename=elencooperatori

306 AEEG, 2009b

307 Legislative decree no. 115 of 30 May 2008 expanded the tariff 

contribution to Type III energy savings.

308 AEEG Resolution, 24 November 2009 available at: http://www.

autorita.energia.it/it/inglese/enlex/09.htm. The formula was 

established to AEEG Resolution of 29 December 2008 available 

at: http://www.autorita.energia.it/it/inglese/enlex/08.htm 

309 Eyre et. al., 2009

310 Eyre et. al., 2009

311 English summary of Resolution 26 available at: http://www.

autorita.energia.it/it/inglese/enlex/09.htm. The Italian National 

Agency for New Technologies, Energy and Sustainable 

Economic Development was established pursuant to Art. 37 

of Law no. 99 of July 23, 2009. See more information at: 

http://www.enea.it/com/ingl/default.htm

312 Pavan, 2011

3.9.15 Scheme Results

Figure 8 shows the cumulative certified energy savings 

achieved in the Italian energy efficiency certificate scheme 

to the end of 2009.

Figure 8

Cumulative Certified Energy Savings Achieved 

in the Italian Energy Efficiency Certificate Scheme 

to the End of 2009 312

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

National Target

Certified Energy Savings

2005 2006 2007 2008 2009

toe
57

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Overall, obligated electricity and natural gas distributors 

have been on target to meet their annual targets. Between 

January 2005 and the end of 2009, the scheme yielded 6.6 

Mtoe in total cumulative energy savings against a target of 

6.5 Mtoe.313

In 2008, over 77 percent of total savings involved 

electricity savings, 19 percent natural gas savings, and three 

percent other fuels.314 Most energy savings have occurred 

in the residential sector, with only between five and ten 

percent occurring in the industrial sector.315 The most 

common measures for which energy efficiency certificates 

have been issued are: introduction of compact fluorescent 

light bulbs (66.3 percent), followed by residential lowflow showerheads (16.7 percent), and residential low-flow 

faucets (5.4 percent).316 Most measures implemented are 

those for which deemed savings have been established.317

3.9.16Areas for Improvement

Italy’s energy efficiency certificate scheme suffered from 

low trading activity in its early stages. The AEEG has taken 

a number of steps to stimulate a more robust market, 

including expanding the number of obligated distribution 

companies and making energy saving targets entirely fuelneutral.318

A number of areas for improvement remain and are 

under active discussion.

With a couple of exceptions, the scheme incentivises 

low-cost, shorter lifetime measures over more costly 

measures that save more energy over a longer time period 

and that may be more cost effective in the long run. 

Focussing on low-cost measures may also encourage 

projects that install only one measure in a facility rather 

than carrying out comprehensive energy efficiency retrofits 

that capture all available cost-effective energy savings.

The “unitary tariff contribution” cost recovery 

mechanism has been seen by some as generating windfall 

gains for obligated distributors, especially for electricity 

in the period until the end of 2007, when the distributors 

retained funds in excess of their expenditure on energy 

efficiency at the expense of ratepayers.

Finally, there is a continued need to further facilitate 

consumer access to information and capital and to tailor 

incentives to areas where they are most needed.319

3.10 Korea

The Republic of Korea has gradually shifted the 

emphasis of its economy to energy-intensive heavy 

industries, such as petrochemicals, cement, iron, steel, 

machinery, and automobiles. Korea also has no significant 

energy sources and imports the majority of energy needed 

to meet its domestic needs. This, combined with the oil 

crises of the 1970s, caused energy efficiency and a stable 

supply of energy to become priorities in Korea’s energy 

policies.320

In 1978, directly following the second world oil shock, 

Korea established the Ministry of Energy and Resources 

to administer the planning and enforcement of national 

energy policies. The Ministry was later incorporated into 

the existing Ministry of Trade, Industry and Energy. In 

December 1979, Korea promulgated the Rational Energy 

Utilization Act to ensure energy security and to promote 

energy efficiency.321 Korea’s energy efficiency programmes 

are planned and implemented based on the Act. The Korea 

Energy Management Corporation was established in 1980 

and functions as the national energy efficiency center 

responsible for the implementation of national energy 

efficiency programmes.

Under the Rational Energy Utilization Act, the Ministry 

of Trade, Industry and Energy must draft a Basic National 

Energy Plan every five years. In addition, all local 

governments, assisted by the Korea Energy Management 

Corporation, must make and implement a regional energy 

plan every five years that is in tune with the Basic National 

Energy Plan.322

313 Pavan, 2011

314 AEEG, 2009b

315 AEEG, 2009b

316 AEEG, 2009a

317 AEEG, 2009b

318 2007 Decree

319 Pavan, 2009

320 Ahn, 1998

321 Ahn, 1998

322 Republic of Korea Ministry of Commerce, Industry and 

Energy, 1998
58

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

The Rational Energy Utilization Act established several 

other initiatives aimed at promoting energy efficiency:323

More recently DSM has been progressively pursued in 

Korea because of the growing difficulty in securing suitable 

sites and investment capital for constructing new power 

supply facilities. Additionally, an increase in the use of 

air conditioners in the 1990s caused a severe drain on 

electricity reserves and resulted in a shortage on several 

occasions. In 1995, the Government revised the Rational 

Energy Utilization Act to require that all energy utilities 

establish and implement a DSM investment plan on an 

annual basis. The plan and its implementation results must 

be reported to the Government.324

3.10.1 Policy Objectives

The Rational Energy Utilization Act states that energy 

utilities must establish and execute an annual DSM 

investment plan “to improve the efficiency in the 

production, conversion, transport, storage and utilization 

of the energy, and the reduction of the demand, etc.”325 The 

1997 Basic Plan for Rational Use of Energy includes in its 

goals: reducing energy imports, reducing production costs 

through reduced energy use, minimising carbon dioxide 

emissions, developing an energy efficiency socioeconomic 

structure, and strengthening DSM in the power sector.326

3.10.2 Legal Authority

The energy utility DSM investment scheme was 

instituted under an amendment to the Rational Energy 

Utilization Act. If it is deemed necessary, the Ministry of 

Trade, Industry and Energy may request any revision or 

supplement of a utility DSM investment plan. The Rational 

Energy Utilization Act was also amended in 1997 to allow 

the Ministry of Trade, Industry and Energy to require an 

energy utility to establish and carry out energy efficiency 

measures in order to reduce a part of the energy demand 

expected in the long-term demand plan. Finally, the 

Ministry of Trade, Industry and Energy may establish and 

carry out a least-cost plan to promote the investment of 

DSM by energy utilities.327

3.10.3 Fuel Coverage

Electricity, natural gas, and district heating. It is possible 

that in the future oil will also be included under the energy 

utility DSM investment scheme.328

3.10.4 Sector and Facility Coverage

Energy utilities invest in DSM programmes, including 

load management and energy efficiency for commercial, 

industrial, educational, and residential customers.

3.10.5 Energy Saving Target

Under the energy utility DSM investment scheme there 

are no quantitative targets for reduction in energy usage, 

energy efficiency improvements, or annual investments, 

except that the total investment budget for DSM 

programmes implemented by energy utilities must exceed 

the total investment budget of the previous year.329

3.10.6 Obligated Parties

The energy utility DSM investment scheme places 

obligations on the Korea Electric Power Corporation, the 

Korea Gas Corporation, and the Korea District Heating 

Corporation.330 The Minister of Knowledge Economy may 

designate other companies that supply a large amount of 

energy as obligated parties, however it has not yet done 

so.331 In the future, the scope may be expanded to include 

private utilities, such as gas and heat retailers, in order to 

maximise energy savings. Additionally, oil companies may 

be included as obligated parties.332

323 Ahn, 1998

324 Ahn, 1998

325 Republic of Korea Ministry of Commerce, Industry and 

Energy, 1998

326 Ahn, 1998

327 Ahn, 1998

328 Korea Energy Management Corporation, 2010

329 Because of the lack of quantitative energy saving targets, 

the Korean energy utility DSM investment scheme is strictly 

not an energy efficiency obligation scheme. However, it is 

included in this report as an example of how energy utilities 

may be obligated to carry out load management and energy 

efficiency programmes without establishing quantitative 

energy saving targets.

330 Republic of Korea Ministry of Commerce, Industry and 

Energy, 1998

331 Ahn, 1998 

332 Korea Energy Management Corporation, 2010
59

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

333 Korea Energy Management Corporation, 2010

334 Kil Hwan, private communication, March 2012

335 Korea Energy Management Corporation, 2010

336 Kil Hwan, private communication, March 2012

337 Kil Hwan, private communication, March 2012

338 Republic of Korea Ministry of Commerce, Industry and 

Energy, 1998

339 Kil Hwan, private communication, March 2012

3.10.10 Eligible Energy Efficiency Measures

The DSM measures implemented under the energy 

utility DSM investment scheme vary among energy utilities 

and can fall into one of three categories:337

• energy efficiency improvements;

• load management; and

• industry basis funding, which includes investments 

in research and development and programme 

promotions.

An energy utility may also contribute a part of its annual 

investment to a specialised agency for DSM.338

3.10.11 Measurement, Verification, and 

Reporting

Before 2012, the energy utilities calculated energy 

savings from DSM investments based 

on the dissemination status of each 

programme. Starting in 2012, however, the 

government requires verification of actual 

energy savings by an independent third 

party.339

3.10.12 Trading of Energy Savings

No trading of energy savings is allowed 

under the programme.

3.10.13 Funding

The Korea Electric Power Corporation 

collects a customer charge equal to 3.7 

percent of the electricity charge, which 

funds the Electric Power Infrastructure 

Fund and investments in DSM. The Korea 

Gas Corporation and the Korea District 

Heating Corporation do not include a 

3.10.7 Compliance Regime

Figure 9 shows the reporting relationships for energy 

utility DSM in Korea. Energy utilities must submit their 

DSM investment plans and report the results to the 

Ministry of Knowledge Economy, which has authorised 

the Korea Energy Management Corporation to serve as 

the project management company with regard to the 

DSM plans. The Korea Energy Management Corporation 

evaluates the plans and the results of energy supplier 

DSM.333 The total investment budget for DSM programmes 

implemented by energy utilities must exceed the total 

investment budget of the previous year. Energy utilities 

must report investments to the Korea Energy Management 

Corporation the following year.334

Figure 9

Reporting Relationships for 

Energy Utility DSM in Korea 335

Electricity Gas

KEPCO

KEPCO Retail Gas 

Suppliers

Heat 

Supplier

Oil 

Companies

KOGAS

(wholesale) KDHC

Heat Oil

Present

Future

3.10.8 Performance Incentives

No performance incentives are available.

3.10.9 Eligible Energy Savings

The Rational Energy Utilization Act states that the 

energy utilities must invest directly in DSM programme 

implementation. Many DSM programmes are actually 

implemented by ESCOs or vendors of energy efficient 

equipment.336

Ministry of 

Knowledge Economy

KEMCO

(Project Management, 

Evaluation, etc.)
60

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

340 Kil Hwan, private communication, March 2012

341 Heyeong-Jung Kim, private communication, March, 2012

342 Kil Hwan, private communication, March 2012

343 Kil Hwan, private communication, March 2012

344 Korea Energy Management Corporation, 2010

345 Korea Energy Management Corporation, 2010

346 Heyeong-Jung Kim, private communication, March, 2012

charge for DSM investments in customers’ energy bills. 

These companies simply invest some part of their total 

revenues.340

3.10.14 Scheme Administration

Between 2002 and 2008, the Korea Electric Power 

Corporation was excluded from the entities required to 

establish DSM investment plans because it was undergoing 

partial privatisation from being a fully government-owned 

company.341 During this period, the Government of Korea 

used the Electricity Industry Support Fund to implement 

DSM programmes.

The Korea Electric Power Corporation now typically 

invests more than 60 percent of its total DSM budget in 

energy efficiency improvement. The Korea Gas and District 

Heating Corporations concentrate their investments in 

short-term load management.342 Table 13 shows the planned 

DSM programmes for each of the energy utilities in 2012.

3.10.15 Scheme Results

Table 14 (page 61) shows that from 1996 to 2008 KRW 

2,158,800 million (approximately USD 1,918 million) has 

Table 13

DSM Programmes Planned by Energy Utilities in Korea, 2012343

Programme

Korea Electric Power 

Corporation

Korea

Gas Corporation

Korea District 

Heating Corporation

Energy Efficiency 

Improvement

Load 

Management

Industry Basis 

Funding

2012 Business 

Budget

Supporting energy efficient 

equipment installation (lighting, 

inverters, refrigerators); 

installation of smart meters 

Providing financial incentives for 

participating in load management 

programme; subsidy for cool 

storage facility installation; 

offering monetary payments for 

direct load interruption 

Promotion, campaigns, events

USD 150 million 

Supporting small-scale combined 

heat and power installation 

Installation subsidy for gas cooling 

equipment (absorption chillers 

and gas heat pumps); rate discount 

for gas cooling; rate discount in 

industrial sector for newly installed 

equipment; rate discount for 

compressed natural gas buses 

Supporting DSM specialised 

institution’s research, promotion, 

R&D

USD 100.6 million 

Improving household 

heating efficiency; providing 

incentives for heat usage 

savings

Discounted district cooling 

charge

Supporting DSM specialised 

institution’s research, 

promotion, R&D

USD 9 million 

been invested through the energy utility DSM investment 

scheme.

3.10.16 Areas for Improvement

To maximise savings, the energy utility DSM investment 

scheme is planned to be expanded to cover oil companies 

and private energy retailers.344

Korea planned to implement an EEO with quantitative 

energy saving targets in 2012.345 This has been delayed 

due to the implementation of various other regulations, 

including a Renewable Portfolio Standard.346
61

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.11 Poland

In April 2011, Poland transposed European Directive 

2006/32/EC on energy end-use efficiency and energy 

services into national law with the adoption of an Act on 

Energy Efficiency. The Act sets a national, economy-wide 

target of achieving a nine-percent reduction in final348

annual energy use by 2016 as compared to Poland’s average 

energy use from 2001 to 2005.

The Act introduces an obligation on suppliers of 

electricity, natural gas, and district heating, as well as 

brokerage firms and end-users transacting on the Polish 

Power Exchange, to meet annual energy efficiency targets 

between 2013 and 2016 in order to help meet the ninepercent economy-wide target.349 The obligation is planned 

to be in place for three years, commencing in 2013 and 

ending in 2016. The Act further introduces a system 

of tradable energy efficiency certificates to facilitate 

compliance with the obligation.

3.11.1 Policy Objectives

The purpose of the Polish energy efficiency certificate 

scheme is to drive energy efficiency in the public sector.

3.11.2 Legal Authority

The Act on Energy Efficiency establishes:

• the EEO;

• a national energy saving target;

• a system for obtaining and retiring energy efficiency 

certificates; and

• the rules for conducting energy efficiency audits and 

for certification of energy efficiency auditors.350

The Act sets forth the framework for the EEO and 

the energy efficiency certificate scheme. The Minister of 

Economy and President of the Energy Regulatory Office 

are charged with issuing implementing regulations and 

overseeing various aspects of the obligation and of the 

certificate scheme.351

3.11.3 Fuel Coverage

Electricity, natural gas, and district heating.

3.11.4 Sector and Facility Coverage

The EEO covers the residential, commercial, and 

industrial sectors in respect of:352

• end-use energy efficiency;

• energy savings in energy companies’ own activities; and

• reduction in transmission and distribution losses for 

electricity, natural gas, and district heating.

347 Korea Energy Management Corporation, 2010

348 Final energy savings are calculated from primary energy 

savings using conversion factors established by the Minister 

of Economy. Act on Energy Efficiency, 15 April, 2-11, Dz. U. 

z 2-11 r. Nr. 94, poz. 551 Art. 15, paragraph 1.4. See more 

information at: http://isap.sejm.gov.pl/DetailsServlet?id=W

DU20110940551 (Polish). 

349 Polish Government, 2011. Companies supplying 5MW or 

less of heat are exempted from the obligation. See more 

information at: http://orka.sejm.gov.pl/proc6.nsf/opisy/3514.

htm 

350 Polish Government, 2011

351 The Ministers of Transport and of Construction, Spatial 

Order and Housing also play a role in implementation of the 

Act on Energy Efficiency. 

352 Polish Government, 2011

Table 14

DSM Investment by Energy Utilities in Korea347 (Unit: KRW 100 million)

1996 to 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total

*Electricity 3,763 1,400 1,181 1,045 931 1,398 1,673 1,708 1,880 14,979

Gas 533 503 518 572 731 774 825 885 847 6,188

Heat 38 25 31 47 51 56 59 65 49 421

Total 4,334 1,928 1,730 1,644 1,713 2,228 2,557 2,658 2,776 21,558
62

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.11.5 Energy Saving Target

The Act on Energy Efficiency sets a target of achieving a 

nine-percent reduction in economy-wide final energy use 

by 2016 as compared to average final energy use from 2001 

to 2005. Poland, in its National Energy Efficiency Action 

Plan, calculated this level of savings to amount to 53,452 

GWh.353

3.11.6 Obligated Parties

The EEO covers electricity, natural gas, and district 

heating companies supplying customers connected to 

the grid within the borders of Poland. District heating 

companies supplying no more than 5MW of heat are 

exempted from the obligation. The obligation also covers 

brokerage firms and end-users connected to the Polish grid 

who conduct transactions on the Power Exchange.

Targets for individual obligated parties will be set 

annually at a level needed to help meet the 2016 national 

energy saving target.

3.11.7 Compliance Regime

The energy efficiency certificate scheme is the 

compliance mechanism for the EEO. Obligated parties 

comply with their individual annual energy saving target 

by surrendering certificates demonstrating primary energy 

savings that correspond to their target, or by paying an 

alternative compliance payment. At the request of the 

President of the Energy Regulatory Office, obligated 

parties must submit any documents or information that 

is necessary to verify compliance with the obligation, so 

long as such information is not classified or otherwise 

legally protected.354 Failure to meet an individual target 

through surrendering certificates or alternative compliance 

payments will result in a penalty, which is set by the Energy 

Regulatory Office and is not to exceed 10% of the noncompliant party’s annual earnings.

Oversight of the energy efficiency certificate scheme 

is shared between the Energy Regulatory Office and the 

Minister of Economy. The Minister of Economy establishes 

the annual energy saving target and establishes conversion 

coefficients used to convert primary energy to final energy. 

The President of the Energy Regulatory Office is responsible 

for issuing and retiring certificates, verifying compliance, 

and issuing penalties. 

Certificates can be issued for any energy efficiency 

project generating average annual savings of 10 toe or 

more, and for any bundle of energy efficiency projects of 

the same type that, in aggregate, generate average annual 

savings of 10 toe or more. Projects are selected through an 

annual auction conducted by the Energy Regulatory Office.

The Energy Regulatory Office will assess penalties 

of up to EUR 2 million for entering false or misleading 

information in the auction declaration; failing to follow 

through with an energy efficiency project that cleared the 

auction; failing to notify the Energy Regulatory Office of the 

completion of a project; and failing to cover any shortfall in 

projected project energy savings with certificates.

3.11.8 Performance Incentives

No performance incentives are available.

3.11.9 Eligible Energy Savings

An annual auction conducted by the Energy Regulatory 

Office is used to select energy efficiency projects that will 

produce energy savings eligible to contribute to the energy 

saving target. There is no authorisation or accreditation 

procedure for parties to qualify for participation in the 

auctions, and participation in the auction is free of charge.355

In order to participate in the auction, a party must 

submit an “auction declaration” form that includes details 

relating to the energy efficiency project being bid into the 

auction, including the amount of primary energy savings 

being bid (in toe), and an energy audit for the project. 

3.11.10 Eligible Energy Efficiency Measures

Eighty percent of energy efficiency certificates are to be 

issued for end-use energy savings measures. The remaining 

20 percent of energy savings measures may come from:

• improvements in energy companies’ own activities; 

and

• reductions in transmission and distribution losses for 

electricity, natural gas, and district heating.

A separate auction is held for each category. If the 

auction for end-use energy savings does not generate 

enough certificates to cover 80 percent of total projected 

certificates required for the year, the share of certificates 

from the remaining categories may be increased.

353 Polish Government, 2007

354 Polish Government, 2011

355 Polish Government, 2011
63

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

The Act on Energy Efficiency provides the following 

examples of eligible energy efficiency measures:356

• insulation of industrial installations;

• reconstruction and refurbishment of buildings;

• modernisation of:

♦ appliances for domestic use;

♦ lighting;

♦ energy companies’ own activities;

♦ devices and installations used in industrial 

processes; and

♦ local heat networks and heat sources;

• recapture of energy used in industrial processes;

• reducing:

♦ reactive power flows (i.e., correcting power factor);

♦ line losses;

♦ transformer losses; and

• heating or cooling with renewable resources, cogeneration, and waste heat recovery in industrial 

processes.

This list is not exclusive. The Minister of Economy is 

responsible for publishing a detailed listing of eligible 

energy efficiency measures. The Energy Regulatory Office is 

then responsible for choosing, through an annual auction, 

the energy efficiency projects for which energy efficiency 

certificates will be issued.

3.11.11 Measurement, Verification, and 

Reporting

Energy efficiency certificates can be issued for completed 

or planned energy efficiency measures implemented in 

projects that clear the auction. In the case of completed 

energy savings measures, the measures must have been 

completed no earlier than 1 January 2011. 

An energy efficiency certificate serves as official 

verification of energy savings achieved through energy 

efficiency projects that cleared the auction. Parties must 

notify the Energy Regulatory Office within 30 days of 

a project’s completion through a declaration of energy 

savings. The Energy Regulatory Office issues a certificate 

within 60 days of receiving the declaration. 

Energy savings for energy efficiency projects with 

average annual energy savings that exceed 100 toe must be 

verified via energy audit. The audit may not be conducted 

by the same auditor who conducted the initial audit for the 

project auction declaration. Projects that fall below the 100-

toe threshold are subject to random sampling by the Energy 

Regulatory Office to verify energy savings. 

To avoid double-counting, energy savings measures 

credited under the energy efficiency certificate 

scheme cannot have received support from the 

Thermomodernization Fund, from the national or 

European Union budgets, or from any other public sources 

(e.g., the Norwegian Financial Mechanism or the European 

Economic Area Financial Mechanism357).

3.11.12 Trading of Energy Savings

Energy efficiency certificates are commodities that are 

fully tradable on the Polish Power Exchange.

3.11.13 Funding

Costs of the energy efficiency scheme are passed through 

to consumers via tariffs for electricity, heat, and natural gas. 

Costs of administration are estimated at PLN 3 million per 

year.358

3.11.14 Scheme Administration

The scheme has not yet commenced operation. 

3.11.15 Scheme Results

The energy efficiency scheme is expected to save a total 

of 25,586 GWh by 2016.359

3.11.16 Areas for Improvement

Although the Polish energy efficiency scheme has 

not yet commenced, it has been criticised for its short 

timeframe. The scheme is only planned to last three years, 

commencing in 2013 and ending in 2016. Any energy 

efficiency certificates that have not been retired by the 

Energy Regulatory Office by March 31, 2016 will lose 

their legal effect on April 1, 2016. This creates limited 

motivation to invest in energy efficiency under the Act 

on Energy Efficiency, because there is no certainty that 

there will be an obligation to help drive energy efficiency 

measures beyond 2016. 

356 Polish Government, 2011

357 Poland Ministry of Regional Development, 2012 

358 Poland Ministry of Economy, 2011 

359 Poland Ministry of Economy, 2011
64

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.12 United Kingdom

The United Kingdom360 has in place two programmes that 

set mandatory carbon reduction targets for retail suppliers of 

electricity and natural gas and for electricity generators:

• the Carbon Emissions Reduction Target; and

• the Community Energy Savings Programme.

Both programmes support the United Kingdom’s national 

and international climate obligations, primarily by promoting 

energy efficiency retrofits in the residential sector.

The Carbon Emissions Reduction Target entered into 

force in 2008 and is authorised through 2012. It represents 

a continuation of the United Kingdom’s Energy Efficiency 

Commitment programmes.361 The Carbon Emissions 

Reduction Target is expected to cost around 10 times more 

per year than the Community Energy Savings Programme.

The Community Energy Savings Programme was 

initiated in 2009 as a pilot programme focussing the 

activities of obligated parties into partnerships with local 

authorities and other local bodies, to provide whole-house 

retrofits in low-income communities. It has a target that is 

split equally between electricity retailers and generators, 

but in practice nearly 80 percent of the target has to be met 

by the main six retailers of electricity and natural gas.

3.12.1 Policy Objectives

The purpose of the Carbon Emissions Reduction Target 

is “to help electricity and gas consumers in the household 

sector to reduce the carbon impact of their home by using 

energy more efficiently, reducing consumption and using 

energy from renewable and micro-generation sources.”362

The Community Energy Savings Programme has two 

goals:

• to significantly reduce the fuel bills of those living in 

low-income areas; and

• to help improve the energy efficiency of existing 

housing stock in order to reduce the United 

Kingdom’s GHG emissions.363

The residential sector contributes 27 percent of total 

GHG emissions in the United Kingdom, with 86 percent 

of the existing housing stock expected to still be in use in 

2050.364 Consequently the Carbon Emissions Reduction 

Target and the Community Energy Savings Programme 

comprise an important part of the United Kingdom’s 

broader climate policy, including meeting the country’s 

“carbon budgets” and supporting the United Kingdom’s 

national climate and energy strategy, set forth in the Low 

Carbon Transition Plan.365 The Low Carbon Transition Plan 

calls for a 29-percent reduction in emissions from homes 

by 2020 as compared to 2008 levels and places particular 

focus on energy efficiency retrofits of existing homes, 

insulation, and fuel poverty.366

The Carbon Emissions Reduction Target and the 

Community Energy Savings Programme interact with a 

number of programmes that target these broader climate 

goals. For example, the Carbon Emissions Reduction Target 

played a central role as part of a broader plan to insulate 

six million United Kingdom households by the end of 

2011, and the Community Energy Savings Programme 

is part of a suite of area-based programmes that target 

energy efficiency on a community-wide level.367 The United 

Kingdom Government has recognised the need to ramp up 

its energy efficiency retrofit programmes in order to meet 

its 29-percent reduction target, and plans to replace the 

Carbon Emissions Reduction Target with a more ambitious 

programme to operate from 2012 to 2020.368

360 The two programmes described in this section cover 

obligated parties in Great Britain (i.e., England, Scotland, 

and Wales). Northern Ireland, which is also part of the 

United Kingdom, has a similar, but separate, program.

361 These programmes ran from 2002 to 2005 and from 2005 

to 2008.

362 Carbon Emissions Reduction Target Explanatory Memo, 

2008 

363 Community Energy Savings Programme Explanatory Memo, 

2009

364 Sustainable Development Commission, 2006 

365 The Carbon Emissions Reduction Target has been extended 

to 2012 to align it with the first carbon budget period and 

provide certainty for continued investment in household 

energy efficiency. See more information at: http://www.decc.

gov.uk/en/content/cms/consultations/cert_ext/cert_ext.aspx

366 This is an interim goal toward the United Kingdom’s longterm target of reducing carbon emissions by 80% by 2050, 

which will require a near-zero carbon housing sector by 

2050.

367 United Kingdom Department of Energy and Climate 

Change, 2009

368 United Kingdom Department of Energy and Climate 

Change, 2010
65

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.12.2 Legal Authority

Programmes that place EEO on energy suppliers in the 

United Kingdom can trace their roots back to 1994 when 

the first Energy Efficiency Standards of Performance were 

placed on 12 electricity retailers in England and Wales by 

the then-electricity regulator who had a duty “to promote 

the efficient use of electricity among customers.”369

The current Carbon Emissions Reduction Target and 

Community Energy Savings Programme were made 

possible by legislative amendments introduced by the 

Climate Change and Sustainable Energy Act 2006. This Act 

empowers the Secretary of State for Energy and Climate 

Change to set an overall carbon emissions reduction target 

to—among other things—improve energy efficiency or 

reduce energy consumption.370 Statutory instruments are 

used to define the targets and eligible energy efficiency 

measures for the individual phases of subsequent activity.

3.12.3 Fuel Coverage

Electricity and natural gas.

3.12.4 Sector and Facility Coverage

Residential dwellings, including those of low-income 

households and disadvantaged groups.

3.12.5 Energy Saving Target

The Carbon Emissions Reduction Target sets an overall 

target of reducing 293 million lifetime tonnes of CO2-e 

for the period 1 April 2008 to 31 December 2012.371 The 

original target for the end of March 2011 was for 185 

million lifetime tonnes of CO2-e, and 78 percent of the 

increased target must be met with professionally installed 

insulation. Up to two percent of the target may be met 

through installing micro generation.

The Community Energy Savings Programme sets an 

overall target of reducing 19.25 million lifetime tonnes of 

CO2-e for the period 1 October 2009 to 31 December 2012.

Although these targets are dominated in CO2-e, they are 

to be met through energy efficiency measures (residential 

retrofits). The targets are fuel-neutral and savings of any 

end-use fuel that is used by residential customers in their 

homes may contribute toward meeting the targets. Energy 

savings are multiplied by an appropriate carbon coefficient 

to calculate equivalent CO2-e savings. There are procedures 

to address the potential for double counting of measures 

under the two programmes (see section 3.12.11, page 67).

The Carbon Emissions Reduction Target also includes 

a sub-target for social equity reasons. Forty percent of the 

target must be met with savings in low-income households 

and/or households that include a person aged more than 

70 years. In the extended target, a new “super priority 

group” covering the most disadvantaged in society has been 

introduced, and 15 percent of savings in the extension 

period must come from this group.372

3.12.6 Obligated Parties

The schemes require retail suppliers of electricity and 

natural gas who have 50,000 or more domestic customers 

to meet a proportion of the overall targets based on their 

shares of residential customers. As of May 2010, there were 

six obligated electricity and gas retail suppliers.

The Community Energy Savings Programme further 

requires electricity generators that are not part of a group 

that also owns an electricity retailer and that generate 10 

TWh/year or more of electricity to meet half of the overall 

target. Each obligated generator’s individual target is based 

on the amount of electricity they generated relative to 

other obligated generators. As of March 2012 there are 11 

obligated generators.373

3.12.7 Compliance Regime

The legislation establishing the Carbon Emissions 

Reduction Target and the Community Energy Savings 

Programme charges the Office of Gas and Electricity 

Markets374 with programme oversight.

Obligated parties must fulfill certain reporting requirements. They must notify the Office of Gas and Electricity 

369 Staniaszek and Lees, 2012

370 Carbon Emissions Reduction Target Explanatory Memo, 

2008

371 http://www.decc.gov.uk/en/content/cms/funding/funding_

ops/cert/cert.aspx

372 The 15-percent super priority group target is included 

within the 40-percent target for low-income households.

373 United Kingdom Office of Gas and Electricity Markets, 2012

374 The Office of Gas and Electricity Markets is the electricity 

and gas regulator for Great Britain (i.e., England, Scotland, 

and Wales). There is a separate regulator for Northern 

Ireland who administers a similar energy efficiency 

obligation program.
66

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Markets of any energy efficiency projects375 that they intend 

to promote at least one month prior to commencement of a 

project, and submit a proposal for approval. Progress reports 

are required every three months for the Carbon Emissions 

Reduction Target and every six months for the Community 

Energy Savings Programme, and a completion report is due 

at the end of the programme period.376

Compliance is determined at the end of the programme 

period, based on final measurement of the carbon 

reductions achieved by each obligated party. Noncompliance is enforced by the Office of Gas and Electricity 

Markets through an order securing compliance and/or 

imposition of a penalty.

Up to 100 percent of a retailer’s or generator’s obligation 

may be met through a transfer of carbon emissions 

reductions (Carbon Emissions Reduction Target) or 

trade of carbon obligations (Community Energy Savings 

Programme) between obligated parties. The transfer or 

trade must occur prior to the end of the compliance period, 

must be approved by the Office of Gas and Electricity 

Markets, and cannot compromise the transferring or 

trading party’s ability to meet its target.377

3.12.8 Performance Incentives

Both the Carbon Emissions Reduction Target and the 

Community Energy Savings Programme offer incentives 

for certain types of activities, which take the form of 

“uplifts” that increase the carbon reductions claimable for 

certain energy efficiency measures. For example, certain 

market transformation actions under the Carbon Emissions 

Reduction Target receive a 50-percent uplift in the 

applicable carbon coefficient value for a given measure.378

The Community Energy Savings Programme has a complex 

scoring system that offers uplifts in the carbon reductions 

credited for certain types of energy efficiency measures 

(e.g., for measures that are implemented as part of a wholehouse approach) and for measures that cover more than 25 

percent of properties within a low-income area.379

3.12.9 Eligible Energy Savings

The obligated parties, electricity and gas retail suppliers 

and electricity generators, produce eligible energy savings 

either by directly implementing energy efficiency projects 

themselves or by engaging specialist third parties, such 

as installers of insulation or energy efficient heating, to 

implement projects on their behalf. 

3.12.10 Eligible Energy Efficiency Measures

The Carbon Emissions Reduction Target and the 

Community Energy Savings Programme are limited to energy 

efficiency measures implemented in residential dwellings in 

Great Britain (i.e., England, Scotland, and Wales).

There is no additional limit on the types of measures that 

are eligible under the Carbon Emissions Reduction Target. 

The vast majority of measures implemented have deemed 

energy saving values that have been adjusted and validated 

over years of monitoring and evaluation.

Eligible energy efficiency measures must be implemented 

for one of four purposes:380

• achieving improvements in energy efficiency;

• increasing the amount of electricity generated or heat 

produced by micro-generation;

• increasing the amount of heat produced by any plant 

that relies wholly or mainly on wood; or

• reducing energy consumption. 

Under the Carbon Emissions Reduction Target, at least 

40 percent of measures must focus on priority groups, 

primarily low-income and elderly customers.381

The Community Energy Savings Programme is limited to 

17 types of measures, which must be achieved in areas of 

low income.382

375 Energy efficiency projects implemented under the Carbon 

Emissions Reduction Target and the Community Energy 

Savings Programme are called “schemes” and may involve 

the implementation of energy efficiency measures in 

hundreds or thousands of residential dwellings.

376 20 April 2011 for Carbon Emissions Reduction Target; 31 

January 2013 for Community Energy Savings Programme.

377 Carbon Emissions Reduction Target Order, Article 18. 

Community Energy Savings Programme Order, Article 21.

378 Carbon Emissions Reduction Target Order, Articles 19 and 

20.

379 Community Energy Savings Programme Explanatory Memo, 

2009

380 Carbon Emissions Reduction Target Order, Article 9(1).

381 Carbon Emissions Reduction Target Order, Article 13.

382 Defined as “those within the lowest income decile under the 

Index of Multiple Deprivation in England and Wales and 

the lowest 15 percent in Scotland.” See more information 

at: http://www.ofgem.gov.uk/Sustainability/Environment/

EnergyEff/cesp/Documents1/cespfeb10.pdf
67

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.12.11 Measurement, Verification, and 

Reporting

Carbon savings are estimated during the compliance 

period and finalised at the end of the programme period. 

Final carbon savings achieved under the Carbon Emissions 

Reduction Target are calculated in one of two ways, 

depending on whether a measure is a “qualifying action” 

or a “demonstration action.” The formula for qualifying 

actions under the Carbon Emissions Reduction Target and 

the Community Energy Savings Programme is as follows:

(Annual energy before – Annual energy after)

x Carbon coefficient x Measure lifetime = tCO2 lifetime

Carbon coefficient values, expressed in kilograms of 

CO2-e per kWh, has been established for six sources of 

energy: electricity, gas, coal, liquid petroleum gas, oil, and 

wood.383

In practice, most qualifying actions are credited based 

on a deemed savings approach, whereby lifetime CO2-e 

reductions have been predetermined for specific energy 

efficiency measures and are averaged over the fuel used for 

that specific purpose as appropriate, for example, energy 

saving calculations for insulation use an average CO2-e 

reduction value, which weights the carbon content of all 

the existing fuels used for heating in proportion to their 

national use.384

Demonstration actions allow innovative energy efficiency 

measures that do not have independently proven energy 

saving values to be installed and monitored without risk 

to the obligated party. Energy savings for demonstration 

actions are determined by dividing the estimated cost of 

promoting and monitoring the action by GBP 18/CO2-e. 

The product represents lifetime tonnes of CO2-e to be 

credited to the project.385 The Office of Gas and Electricity 

Markets must first make a determination that the costs 

are reasonable. A cap of six percent of the target may be 

met through a mix of demonstration actions and market 

transformation actions.

Obligated parties must monitor the implementation of 

energy efficiency measures to ensure that they are properly 

installed and conform to relevant quality standards.386

The Office of Gas and Electricity Markets audits a sample 

of each supplier’s energy efficiency projects to verify 

proper delivery, evidence that reported actions are being 

performed, that there is no double counting, that measures 

are properly categorised, and that procedures are in place 

for any technical or other required monitoring.387

Energy savings must be additional, for example, for retail 

appliances and products, the savings accredited represent 

the difference between the purchased product and the 

energy consumption of the market average.

The close interaction between the Carbon Emissions 

Reduction Target, Community Energy Savings Programme, 

and related programmes and legal obligations, presents 

the risk that measures will be double counted. The Office 

of Gas and Electricity Markets has introduced procedural 

safeguards to mitigate this risk, including a database that 

records by individual household all energy efficiency 

measures installed under the various programmes.

Under article 14(5) of the Community Energy Savings 

Programme Order, an action that is approved under the 

Carbon Emissions Reduction Target is not a qualifying 

action under the Community Energy Savings Programme.

Actions undertaken in conjunction with other 

government programmes must fulfill a number of 

requirements, including demonstration that the joint action 

will result in improvements that would not have happened 

absent supplier involvement; an agreement with other 

programmes ensuring that there is no double counting; and 

a letter from the government’s or devolved administrator’s 

lead contractor confirming additionality and that there is 

no double counting.388

Actions that are related to other regulatory mechanisms, 

such as energy efficiency measures that relate to the United 

Kingdom’s building codes, must lead to improvements 

383 Carbon Emissions Reduction Target and Community Energy 

Savings Programme Orders, Schedule 3.

384 See more information at: http://www.ofgem.gov.uk/

Sustainability/Environment/EnergyEff/InfProjMngrs/Pages/

InfProMngrs.aspx

385 Carbon Emissions Reduction Target Order, Article 21. 

Carbon Emissions Reduction Target Supplier Guidance V.2, 

Section 8 and Appendix 6.

386 United Kingdom Office of Gas and Electricity Markets, 2009 

387 Carbon Emissions Reduction Target Supplier Guidance – 

Version 2, pp. 67-68.

388 Carbon Emissions Reduction Target Supplier Guidance, 

p. 20; Community Energy Savings Programme Supplier 

Guidance, p. 17.
68

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

above what would be achieved to meet the requirements of 

the regulations.

3.12.12 Trading of Energy Savings

Neither programme employs tradable certificates. 

Transfers of carbon emissions reductions (Carbon 

Emissions Reduction Target) and trading of carbon 

obligations (Community Energy Savings Programme) are 

allowed among obligated parties. Such transfers and trading 

must be approved by the Office of Gas and Electricity 

Markets.

3.12.13 Funding

Costs of implementing energy efficiency projects 

under the Carbon Emissions Reduction Target and the 

Community Energy Savings Programme are shared among 

the obligated parties and other entities involved in the 

implementation of projects.389 For electricity and gas 

retailers, the costs are considered “a cost of doing business” 

and so are reflected in the prices charged to end-use 

customers; for electricity generators, the costs are indirectly 

passed on to consumers through increased wholesale 

prices.

3.12.14 Scheme Administration

Obligated parties may (and often do) work with project 

partners to jointly carry out energy efficiency measures 

under the Carbon Emissions Reduction Target and the 

Community Energy Savings Programme. Customer 

outreach plays an important role to ensure the necessary 

uptake of energy efficiency projects to meet programme 

targets. The Community Energy Savings Programme calls 

on obligated parties to collaborate with local community 

groups in implementing energy saving measures in lowincome areas. The Office of Gas and Electricity Markets 

requires customer utilisation and evaluation monitoring for 

home energy advice to ensure that measures are being used 

as expected. Customer satisfaction monitoring is required 

for certain types of measures, such as installation of heating 

or insulation in homes.

3.12.15 Scheme Results

Since the introduction of retail supplier EEOs in 2002, 

the programmes have achieved significant energy efficiency 

improvements in the residential sector. Between 2002 and 

2009 some six million households benefited from partially 

subsidised or free insulation, five million under the Energy 

Efficiency Commitment (the predecessor to the Carbon 

Emissions Reduction Target) and one million in the first 

year of the Carbon Emissions Reduction Target.390

In an evaluation for the United Kingdom Government 

of the second phase of the Energy Efficiency Commitment, 

which ran from 2005 to 2008, the cost of saving a delivered 

unit of electricity and gas through the Energy Efficiency 

Commitment was GBP 0.022/kWh and GBP 0.06/kWh, 

respectively—less than a quarter of the average price 

to consumers of those fuels. Obligated energy retailers 

delivered energy savings 23 percent more cost effectively 

than the Government predicted. More than two out of 

three households (including low-income households) have 

directly benefited from the second phase of the Energy 

Efficiency Commitment, mainly from energy efficient 

appliances and lighting measures. Additionally, over 1.1 

million low-income households were helped by more 

substantive energy efficiency measures such as insulation 

and fuel switching. Excluding free riders, the lifetime 

carbon savings were nearly 59 million tonnes of CO2-e 

from the measures required to meet the target; this was 

achieved at a net benefit of GBP 53/tCO2-e saved.391

In the Carbon Emissions Reduction Target, 229.0 

MtCO2-e lifetime emissions reductions have been achieved 

by the end of 2011, including carryover from the second 

phase of the Energy Efficiency Commitment.392 Obligated 

parties under the Carbon Emissions Reduction Target are 

expected to spend over GBP 5 billion by the end of 2012 

to meet their target; approaching GBP 3 billion of which 

will support priority group measures that target elderly and 

low-income populations.

The Community Energy Savings Programme aims to 

benefit approximately 90,000 homes and is expected to 

389 Carbon Emissions Reduction Target estimates the cost to 

energy suppliers over three years to amount to GBP 2.3 

billion with other contributions totaling GBP 1.5 billion. 

Community Energy Savings Programme envisions the cost 

to power suppliers and generators at GBP 3.11 million 

with remaining costs of GBP 65 million. Carbon Emissions 

Reduction Target Explanatory Memo, p. 6; Community 

Energy Savings Programme Explanatory Memo, p. 7.

390 United Kingdom Office of Gas and Electricity Markets, 2009

391 Eoin Lees Energy, 2008

392 United Kingdom Office of Gas and Electricity Markets, 2012
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

deliver annual average fuel bill savings of up to GBP 300 for 

participating households. Progress has been slow, with only 

one percent of the target met by the end of 2011. However, 

304 energy efficiency projects have been proposed by 

obligated energy retailers and electricity generators up 

to the end of December 2011. The estimated savings 

associated with these schemes represent 67.9 percent of the 

overall Community Energy Savings Programme target. The 

total number of dwellings treated by the end of 2011 was 

30,588.393

Of the Carbon Emissions Reduction Target programme 

activities thus far, loft and wall insulation accounted for 

63 percent of all savings, and lighting accounted for 22.4 

percent of savings, although this percentage figure will 

fall with time, as compact fluorescent light bulbs have not 

been an eligible measure since April 2011. Heating was 

responsible for 8.5 percent of total carbon reductions, 

followed by appliances (4.3 percent), behavioural measures 

(1.1 percent), and micro-generation and combined heat 

and power (0.7 percent). Information on demonstration 

actions is not yet available.394

3.12.16 Areas for Improvement

Although the Carbon Emissions Reduction Target 

programme has achieved significant results, a number 

of areas for improvement remain. According to National 

Energy Action, a non-profit organisation addressing fuel 

poverty, the model of implementation, which involves 

different funders and/or scheme managers, leads to higher 

costs and a lack of coherent delivery. The group sees the 

Carbon Emissions Reduction Target as underutilising 

local authorities, who could apply in-depth knowledge 

of their constituencies to ensure more comprehensive 

implementation of retrofit programmes, including greater 

penetration of low-income neighbourhoods.395 Distribution 

of compact fluorescent light bulbs by mail has led to the 

criticism that suppliers are targeting low-hanging fruit and 

receiving credit for measures that may not be achieving 

the levels of efficiency attributed to them, as there is little 

guarantee that the bulbs are being used. To meet the United 

Kingdom’s targets, deeper whole-house retrofits are needed. 

This includes retrofitting low-income homes, which have 

significant untapped efficiency potential.

The United Kingdom Government has recognised 

the need to improve its residential retrofit programmes. 

In 2009, the Carbon Emissions Reduction Target was 

amended to restrict compact fluorescent light bulb 

promotions to retail outlets from 1 January 2010. The 

Office of Gas and Electricity Markets phased-out compact 

fluorescent light bulbs from the programme altogether from 

April 2011. The Community Energy Savings Programme 

and the 15-percent super priority group requirement under 

the extension of the Carbon Emissions Reduction Target 

were introduced in response to the concern over underinvestment in low-income retrofits, particularly in the most 

disadvantaged households.396 Finally, the extension of the 

Carbon Emissions Reduction Target to the end of 2012 

required seven percent of CO2-e reductions to come from 

professionally installed insulation measures and introduced 

a super priority group target requirement covering the most 

disadvantaged in society.

From 2013, the United Kingdom Government plans 

to significantly ramp up its residential housing retrofit 

programme, which will involve even more drastic changes. 

There is a recognition that the insulation challenge needs 

to focus increasingly on the over six million properties with 

solid walls that lack insulation. Insulating such properties 

is considerably more expensive than the more common 

cavity wall insulation or roof insulation measures that have 

been the mainstay of such programmes to date. At the same 

time, the Government-funded fuel programme will cease 

and it is expected that the energy company obligation will 

take over this role in the future. The Government is also 

planning to introduce a Pay as You Save type programme 

to be called “Green Deal,” which will provide long-term 

loans tied to the electricity meter.397 The details remain to 

be finalised, but the package of programmes is intended to 

focus on the most energy inefficient homes and the most 

vulnerable in society and to reduce over time the subsidy 

required to engender action in those homes not classed as 

low income.

393 United Kingdom Office of Gas and Electricity Markets, 2012

394 United Kingdom Office of Gas and Electricity Markets, 2012 

395 National Energy Action, 2009

396 Community Energy Savings Programme Update, 2010

397 For more information see: http://www.decc.gov.uk/en/

content/cms/tackling/green_deal/green_deal.aspx
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.13 United States – California

The most populous of US states, California has 

consistently led the United States in aggressive utilitysector energy efficiency policy and practice.398 State policies 

include a “loading order” with energy efficiency as the first 

priority heat and electricity resource, aggressive energy 

saving targets, decoupling of gas and electricity sales from 

revenues, performance-based incentives and comprehensive 

energy efficiency programme funding through approved 

energy procurement rates and, a system-benefit charge. 

This has contributed significantly to the stable level of 

electricity use per capita in California over the past three 

decades.

In 2005, California’s then-Governor Arnold 

Schwarzenegger issued an executive order that established 

GHG emission reduction targets of 2000 levels by 2010; 

1990 levels by 2020; and 80 percent below 1990 levels 

by 2050.399 The Order further directs the Secretary of the 

California Environmental Protection Agency to coordinate 

efforts made to meet the targets with the Chair of the 

California Energy Commission and the President of the 

Public Utilities Commission, among others. The California 

Global Warming Solutions Act of 2006 (Assembly Bill 

32) outlines the state’s timetable for reducing its GHG 

emissions to 1990 levels by 2020.400

3.13.1 Policy Objectives

California is committed to obtaining 100 percent of 

cost-effective energy efficiency and reducing total electrical 

consumption by ten percent within ten years from 2006. 

California’s goals are to “produce cost-effective energy 

savings, reduce customer demand, reduce overall system 

costs, increase reliability, and increase public health and 

environmental benefits” and help meet the state’s GHG 

reduction targets.401

3.13.2 Legal Authority

Legal authority for the EEO has evolved over time—the 

following summarises the main elements. The California 

Public Utilities Code requires utilities to meet their “unmet 

resource needs through all available energy efficiency 

and demand reduction resources that are cost effective, 

reliable, and feasible.”402 Since the mid-1970s, California 

investor-owned utilities have been authorised by the 

California Public Utilities Commission to fund energy 

efficiency programmes through regulated rates, initially 

as vertically integrated companies. With the restructuring 

of the electricity industry in the mid-1990s, Assembly 

Bill (AB) 1890 established a public goods surcharge on 

electricity ratepayers through their “wires” charge to create 

funds for renewables, energy efficiency, and research and 

development. After the electricity crisis that peaked in 

2000/2001, the investor-owned utilities were reinstated 

as the portfolio managers for overall energy procurement 

for their customers, as well as portfolio administrators for 

energy efficiency programmes. Funding of energy efficiency 

through the public goods surcharge established by AB 

1890 is now augmented through electricity and natural 

gas procurement rates authorised by the California Public 

Utilities Commission.

Promoting cost-effective energy efficiency through 

ratepayer-funded programmes is also a foundational policy 

for California’s implementation of its GHG emissions 

cap-and-trade programme. The Draft Scoping Plan for the 

Global Warming Solutions Act, which outlines how it is 

likely to be implemented, establishes a statewide energy 

saving target of at least 32,000 GWh and 800 million 

therms by 2020.403 In October 2009, the California Public 

Utilities Commission issued D. 09-09-047, building upon 

its regulatory framework (including D. 04-09-060), which 

first outlined quantitative goals for energy savings for the 

four largest investor-owned utilities. AB 2021 (signed into 

law September 29, 2006) requires the California Energy 

Commission to develop a triennial estimate of all potential 

cost-effective energy efficiency savings beginning in 2007, 

and to use the estimate to establish statewide annual targets 

(including publicly owned utilities) for energy efficiency 

savings and demand reductions over ten years.404

398 American Council for an Energy-Efficient Economy, 2009

399 California Office of the Governor, 2005

400 California Air Resources Board, 2008

401 California Legislature, 2006

402 Public Utility Code Section 454.5(b)(9)(C) for investorowned utilities and Section 9615 for publicly owned 

utilities.

403 California Air Resources Board, 2008

404 California Public Utilities Commission, 2006a
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.13.3 Fuel Coverage

Electricity and natural gas.

3.13.4 Sector and Facility Coverage

California’s investor-owned utility energy efficiency 

programmes are guided by the Long Term Energy Efficiency 

Strategic Plan published by the California Public Utilities 

Commission, which outlines a strategic vision of goals 

focussed in large part on market transformation405 and four 

“Big Bold Energy Efficiency” strategies.406 The four strategies 

are:

• all new residential construction in California will be 

zero net energy by 2020;

• all new commercial construction in California will be 

zero net energy by 2030;

• heating, ventilation, and air conditioning will be 

transformed to ensure that its energy performance is 

optimal for California’s climate; and

• all eligible low-income customers will be given the 

opportunity to participate in the low-income energy 

efficiency programme by 2020. 

3.13.5 Energy Saving Target

Investor-owned utilities provide about 67 percent of 

the retail electricity consumed in California.407 In October 

2009, the California Public Utilities Commission issued 

Decision (D.) 09-09-047 establishing the energy efficiency 

targets, budget, and programmes for the state’s four major 

gas and electricity investor-owned utilities for 2010 to 

2012.408 The energy efficiency targets for the three-year 

period are: 6,965 GWh (0.9 percent of sales), 1,537 MW, 

and 150 million therms.409

California’s publicly owned utilities are required by 

statute to propose savings targets and report their progress 

to the California Energy Commission.410 The proposed 

annual energy efficiency target for publicly owned 

electricity utilities for 2010 and beyond is approximately 

700,000 MWh.411

3.13.6 Obligated Parties

The obligated parties for the California EEO are the 

investor- and publicly owned electricity and natural gas 

utilities. Individual energy efficiency targets, budgets, and 

programmes for investor-owned utilities are set by the 

California Public Utilities Commission. Individual energy 

efficiency targets, budgets, and programmes for the publicly 

owned utilities are proposed by the utilities themselves and 

reported to the California Energy Commission.

3.13.7 Compliance Regime

California utilities comply with their individual energy 

efficiency targets by implementing approved energy 

efficiency programmes and reporting the results to the 

relevant agency, the California Public Utilities Commission 

for investor-owned utilities and the California Energy 

Commission for publicly owned utilities.

3.13.8 Performance Incentives

After the energy crisis of 2000/2001, the California 

Public Utilities Commission reinstated both revenue 

decoupling and a “shared savings” incentive mechanism for 

investor-owned utilities, both of which had been suspended 

during electricity industry restructuring. The current 

version of shared savings adopted in 2007 (called the “risk 

return incentive mechanism”) is designed to align ratepayer 

and shareholder interests by creating a significant reward/

penalty for investor-owned utilities’ success or failure in 

meeting the California Public Utilities Commission’s targets 

for reducing customer demand for electricity and natural 

gas.412 Penalties may be triggered if savings are below 

65 percent of the California Public Utilities Commission 

405 A market transformation approach seeks to change the 

entire market for particular products or services so that 

efficient products or services are the norm and do not need 

to be promoted with incentives over the long term, instead 

of saving energy building by building.

406 California Public Utilities Commission, 2008a

407 Lewis et al., 2009

408 Pacific Gas and Electric Company, Southern California 

Edison Company (electricity only), Southern California Gas 

Company, and San Diego Gas and Electric Company.

409 California Public Utilities Commission, 2008a

410 Lewis et al., 2009. Publicly owned utilities are locally 

controlled companies. They range from very small 

entities serving less than a thousand customers to the Los 

Angeles Department of Water and Power, the state’s thirdlargest utility. The 13 largest publicly owned utilities are 

responsible for 95% of the proposed energy savings. 

411 Kline et al., 2007

412 California Public Utilities Commission, 2007
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

energy saving targets.

The risk return incentive mechanism is calculated for 

each investor-owned utility based on how well it meets the 

energy saving targets and the economic benefits generated 

from its energy efficiency portfolio. Investor-owned utilities 

are eligible for the risk return incentive mechanism if 

they achieve 80 to 85 percent of the California Public 

Utilities Commission energy saving targets and can earn 

greater incentives if they exceed the targets. Total potential 

incentives were capped at USD 450 million (less than 

one percent of total sales) for the 2006 to 2008 cycle for 

the four utilities combined. Two interim payments are 

provided, first after verifying actual measures installed and 

programme costs, then after evaluation, measurement, 

and verification reports document projected per-measure 

savings. Thirty percent of the total incentive is held back 

pending a final post-installation evaluation, measurement, 

and verification “true-up” in 2010.413

3.13.9 Eligible Energy Savings

The investor-owned gas and electricity utilities 

are responsible for implementing energy efficiency 

programmes. The programmes may be implemented by 

the utilities themselves or by contractors engaged by the 

utilities.

3.13.10 Eligible Energy Efficiency Measures

California Public Utilities Commission Decision 09-09-

047 approved 2010 to 2012 portfolio plans designed to 

support the Long Term Energy Efficiency Strategic Plan. In 

particular, the Commission required the investor-owned 

utilities to administer 12 statewide programmes that will 

be consistent throughout the utilities’ service area as well 

as some local and pilot programmes.414 The statewide 

programmes include an array of energy efficiency measures 

in the following categories: residential; commercial; 

industrial; agricultural; new construction; lighting; heating, 

ventilation, and air conditioning; codes and standards; 

DSM integration and coordination; workforce education 

and training; marketing, education, and outreach; and 

emerging technologies. The residential Statewide Program 

for Energy Efficiency offers a tiered suite of savings options 

designed to leverage municipal funding programmes, 

federal stimulus dollars, and related programmes of the 

California Energy Commission with a goal of 20 percent 

savings in up to 120,000 homes.415

3.13.11 Measurement, Verification, and 

Reporting

California’s most recent energy efficiency evaluation, 

measurement, and verification protocols were developed 

by the California Public Utilities Commission and 

stakeholders in 2006 and will be further updated as 

needed.416 The Commission’s Energy Division manages 

and engages contractors to carry out energy savings 

and demand measurement and verification studies, and 

rigorous financial and management audits for individual 

programmes, groups of programmes, and portfolios. The 

Energy Division oversees the issuance of three types of 

reports: verification of programme activities and their costs, 

updating the parameters used to estimate programme 

savings and benefits, and reports of the earning incentives 

the investor-owned utilities can claim. The utilities retain 

a limited budget to undertake studies related to market 

assessment and portfolio implementation.417 Evaluation of 

the 2006 to 2008 portfolios has been the first application 

of the 2006 evaluation, measurement, and verification 

protocols with consistent data sets compiled across 

investor-owned utilities at the technology or measure 

level.418

3.13.12 Trading of Energy Savings

There is no trading of energy savings allowed in 

California.

413 California Public Utilities Commission, 2008b. The 

Commission is continuing to review the risk return 

incentive mechanism rules. See Docket # R. 09-01-019.

414 California Public Utilities Commission, 2008a

415 American Council for an Energy-Efficient Economy, 2009

416 California Public Utilities Commission, 2006b.

417 California Public Utilities Commission, 2006c. The 

evaluation, measurement, and verification process was 

outlined in D. 05-01-055, available at: http://docs.cpuc.

ca.gov/word_pdf/FINAL_DECISION/43628.pdf, and further 

detailed in an Administrative Law Judge ruling available at: 

http://docs.cpuc.ca.gov/PUBLISHED/RULINGS/52676.htm 

and updated in D. 10-04-029, available at: http://docs.cpuc.

ca.gov/word_pdf/FINAL_DECISION/116710.pdf

418 California Public Utilities Commission, 2010
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.13.13 Funding

The public goods charge represents an electricity system 

benefit charge of about USD 0.003/kWh, capped at three 

percent of a customer’s bill; a natural gas DSM charge is 

also applied to the customer’s bill, and additional funding 

is provided through utility resource procurement budgets, 

recovered through rate cases brought before the California 

Public Utilities Commission. In September 2009, the 

Commission approved a USD 3.1 billion investor-owned 

utility energy efficiency programme budget for 2010 to 

2012—a 42-percent increase over the previous 3-year 

period. The publicly owned utilities budgeted USD 150 

million for the fiscal 2008 to 2009 year.419 Four percent 

of the energy efficiency budget is allocated to evaluation, 

measurement, and verification. 

For 2010 to 2012, USD 260 million in funding is being 

directed to government entities for local efforts targeting 

public sector building retrofits and innovative energy 

efficiency opportunities, and USD 175 million has been 

earmarked to launch the state’s push for zero net energy 

homes and buildings.

3.13.14 Scheme Administration

Implementation and delivery of most of California’s 

efficiency programmes is administered by the state’s 

electricity and gas utilities. Energy efficiency services are 

delivered by both the utilities and third-party providers. 

From 2010 to 2012, the utilities have identified programme 

leads to oversee the implementation of each of the 12 

statewide programmes.

Prior to 2010, energy efficiency marketing had been 

coordinated under the “Flex Your Power” brand. Each 

utility also marketed efficiency services. The California 

Public Utilities Commission’s 08-07-047 decision directed 

the electricity investor-owned utilities to conduct a “brand 

assessment of Flex Your Power and potential revision of 

this brand or creation of a new brand, the development of a 

web portal, and the development of a Statewide integrated 

communication plan.”420

3.13.15 Scheme Results

The 2006 to 2008 investor-owned utility investments 

of USD 2.1 billion have resulted in verified annual savings 

of over 6,000 GWh, 80 million therms, and over 1,100 

MW based on evaluation, measurement, and verification 

study results adopted by the California Public Utilities 

Commission to early 2012. These energy savings levels 

represent approximately 1.3 percent of electricity and 

0.2 percent of the natural gas sales over the same 2006 

to 2008 time period. The majority of electrical savings 

(58 percent) were due to lighting, while gas savings were 

due to improvements in heating, ventilation, and air 

conditioning (43 percent) and industrial processes (38 

percent). The commercial sector was responsible for 46 

percent of electricity savings and 75 percent of gas savings. 

It is estimated that the state received USD 1.17 in benefits 

for each dollar invested in investor-owned utility energy 

efficiency.421 Energy efficiency spending by the publicly 

owned utilities increased by 65 percent to USD 104 million 

from 2007 to 2008, with commensurate energy savings 

increases of 58 percent and 46 percent for peak savings. 

Nonetheless, publicly owned utilities fell significantly short 

of their 2008 adopted targets.422

3.13.16 Areas for Improvement

Changes implemented in the 2010 to 2012 investorowned utility programme include: a Joint Evaluation, 

Measurement, and Verification Plan, developed by 

California Public Utilities Commission’s Energy Division 

and the utilities with the goals of transparency, consensus, 

cost-efficiency, time for collaboration and ethical 

standards and best practices; the required development 

of performance metrics to measure the progress of each 

programme toward market transformation and achievement 

of the goals and in the Strategic Plan, benchmarking for all 

commercial buildings, and reduced reliance on lighting for 

savings.423

419 California Municipal Utilities Association, 2009

420 California Public Utilities Commission, 2008a

421 California Public Utilities Commission, 2010

422 Lewis et al., 2009

423 See more information at: http://www.

californiaenergyefficiency.com/docs/EEFactSheet092409.pdf 

and D. 10-04-029.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.14 United States – Connecticut

Connecticut deregulated its wholesale electricity market 

in 1998, and retail-level consumers of electricity have had 

the right to switch providers since July 2000. Concurrent 

with and following deregulation, the state has adopted a 

range of policies to encourage clean energy and energy 

efficiency, many of them utility-supported. The three 

primary policies are: an “all cost-effective energy efficiency” 

requirement, an obligation for utilities to prepare annual 

energy efficiency plans that use funds collected through 

an on-bill system benefits charge to support efficiency 

programmes, and inclusion of energy efficiency within the 

state’s renewable portfolio standard.

Electricity distribution companies must meet their 

resource needs first through “all available energy efficiency 

and demand reduction resources that are cost-effective, 

reliable and feasible.”424 They are obligated to provide 

demand projections and consult with the Connecticut 

Energy Advisory Board, the state’s energy planning 

body, to develop an annual “comprehensive plan for the 

procurement of energy resources” (also referred to as an 

“integrated resource plan”) for the state that includes energy 

efficiency, load management, and demand response among 

other resources.425 The Public Utilities Regulatory Authority 

must approve the integrated resource plans.

The state’s renewable portfolio standard, which has been 

in place since 1999, requires electricity retail suppliers to 

contract with their wholesale suppliers to obtain specified 

amounts of retail load from three separate “classes” of 

energy resources, one of which includes energy efficiency.426

Connecticut climate change goals are to reduce the 

level of emissions of GHG at least ten percent below the 

level emitted in 1990 by 2020 and 80 percent below 

the level emitted in 2001 by 2050.427 Connecticut’s draft 

greenhouse reduction strategies include numerous actions 

related to Connecticut Energy Efficiency Fund operations, 

weatherisation programmes, improved efficiency standards, 

and increasing financial resources for implementing energy 

efficiency.428 Connecticut is a member of the Regional 

Greenhouse Gas Initiative emissions trading scheme, and 

proceeds from the auction of all of the state’s emissions 

allowances are directed primarily to cost-effective energy 

efficiency, demand response, and Class I renewable energy 

programmes.429 In a September 2008 decision, the Public 

Utilities Regulatory Authority required that proceeds from 

the 2008 and 2009 auctions be applied to offset the USD 

10 million in under-collections of the Connecticut Energy 

Efficiency Fund for the 2008 programme year.430

3.14.1 Policy Objectives

Electricity distribution companies are required to acquire 

“all cost-effective” energy efficiency and demand reduction 

resources to “meet the projected requirements of their 

customers in a manner that minimizes the cost of such 

resources to customers over time and maximizes consumer 

benefits consistent with the state’s environmental goals and 

standards.”431 The Connecticut Energy Advisory Board,432

in its 2010 Procurement Plan, identified four policy 

objectives: manage costs, maintain reliability, improve 

environmental performance, and enhance independence 

424 State of Connecticut General Assembly, 2007

425 Connecticut Energy Advisory Board’s responsibilities also 

include “representing the state in regional energy planning” 

and “participating in the state’s annual load forecast.” See 

more information at: http://www.ctenergy.org/index.html

426 Retail suppliers include companies providing “transitional 

standard offer service, standard service, supplier of last 

resort service or back-up electric generation service.” 

See more information at: http://www.ucsusa.org/assets/

documents/clean_energy/connecticut.pdf. Currently 

electricity providers are obligated to secure at least 20 

percent Class I and three percent Class I or II resources by 

January 1, 2020, and four percent of Class III resources by 

2010 according to an incremental implementation schedule. 

Class I includes solar, wind, fuel cells, landfill methane, 

ocean thermal, wave, or tidal power and newer run-of-the 

river hydro. See more information at: http://www.dsireusa.

org/incentives/incentive.cfm?Incentive_Code=CT04R&state 

427 State of Connecticut General Assembly, 2008

428 Connecticut Department of Energy and Environmental 

Protection, 2010

429 State of Connecticut General Assembly, 2007

430 Connecticut Department of Public Utility Control, 2008

431 State of Connecticut General Assembly, 2007

432 The Connecticut Energy Advisory Board reports to the 

General Assembly on the status of programmes administered 

by the Department of Energy and Environmental 

Protection, consults with the Commissioner of Energy and 

Environmental Protection regarding the integrated resource 

plan, and reviews requests from the General Assembly.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

and security.433 The Energy Efficiency Board, responsible 

for administering Connecticut’s Energy Efficiency Fund, 

states its policy objective as follows: “to advance the 

efficient use of energy, to reduce air pollution and negative 

environmental impacts, and to promote economic 

development and energy security.”434

3.14.2 Legal Authority

Public Act 98-28, the state’s restructuring legislation, 

required electricity distributors to offer energy efficiency 

programmes, mandated the USD 0.003/kWh system 

benefits charge, effective in 2000, and established the 

Energy Efficiency Board and Connecticut Energy Efficiency 

Fund.435 Legislation in 2005 added the Class III Renewable 

Portfolio Standard requirements, mandated that investorowned natural gas companies submit Conservation and 

Load Management Plans and budgets for Public Utilities 

Regulatory Authority approval, and obligated municipal 

electricity utilities to collect a system benefits charge 

and work with the Energy Efficiency Board to develop 

Conservation and Load Management Plans.436 Public Act 

07-242 (2007) added cost-effective energy efficiency as 

the first priority resource, established heating oil energy 

efficiency programmes, funded gas energy efficiency 

programmes, added new energy efficiency requirements, 

and established decoupling to help meet these goals.437

3.14.3 Fuel Coverage

Electricity, natural gas, propane, and heating oil are all 

covered fuels.

3.14.4 Sector and Facility Coverage

Connecticut requires a system benefits charge to 

be applied to all end-use customers to support energy 

efficiency and load management programmes.438 All 

customer classes are served by electricity distributors, 

municipal utilities, and natural gas companies with 

targeted energy efficiency programmes for limited-income, 

municipal, non-profit, residential, school, small business, 

state government, university, and large commercial and 

industrial customers. 

3.14.5 Energy Saving Target

Electricity distributors, municipal utilities, natural gas 

companies, and the Fuel Oil Conservation Board must 

prepare annual comprehensive Conservation and Load 

Management Plans detailing energy saving targets and 

energy efficiency programmes.

In addition, Connecticut maintains a renewable portfolio 

standard requiring electricity distributors to secure four 

percent of their load from “Class III” resources from 2010 

to 2020. Class III resources include electricity savings from 

energy efficiency and load management programmes.”439

There is no minimum requirement for energy efficiency 

within the Class III requirement.

3.14.6 Obligated Parties

Electricity distributors, municipal utilities, and natural 

gas companies are obligated parties.

3.14.7 Compliance Regime

The Public Utilities Regulatory Authority approves plans, 

budgets, and incentives for regulated utilities and appoints 

the Energy Efficiency Board.440 Electricity distributor and 

natural gas company Conservation and Load Management 

Plans and budgets must be reviewed by the Energy 

Efficiency Board and approved by the Public Utilities 

Regulatory Authority. The Energy Efficiency Board, with 

approval of the Public Utilities Regulatory Authority, also 

guides distribution of funds from the Connecticut Energy 

433 Connecticut Energy Advisory Board, 2010

434 Connecticut Energy Efficiency Fund, 2012

435 State of Connecticut General Assembly, 1998

436 State of Connecticut General Assembly, 2005

437 State of Connecticut General Assembly, 2007

438 Conn. Gen. Stat. § 16-245m available at: http://www.cga.

ct.gov/current/pub/chap283.htm#Sec16-245m.htm 

439 State of Connecticut General Assembly, 2005. Class III 

resources were added to the renewable portfolio standard 

in the June Special Session Public Act No. 05-1, at that time 

the eligible resources were limited to combined heat and 

power and energy savings. Waste recovery was added to 

Class III in 2007. Conn. Gen. Stat. §16-1(a)(44).

440 Conn. Gen. Stat. § 16 245m available at: http://www.cga.

ct.gov/current/pub/chap283.htm#Sec16-245m.htm 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Efficiency Fund, which collects revenue from a number of 

sources, including the system benefits charge.441

3.14.8 Performance Incentives

During the annual review of Conservation and Load 

Management Plans, the Energy Efficiency Board reviews 

the past year’s results relative to the targets specified in the 

Plans and determines a performance incentive for obligated 

utilities achieving or exceeding their targets. The incentive, 

referred to as a “performance management fee,” is available 

for a range of outcomes from 70 to 130 percent of the Plan 

targets, including lifetime energy savings and demand. The 

threshold for earning the minimum incentive (one percent 

of obligated party’s energy efficiency and load management 

expenditures) is 70 percent of the target. At 100 percent 

of the target, the incentive is five percent of expenditures, 

and at 130 percent of the target, it is eight percent of 

expenditures. Anticipated incentives are built into the 

annual budgets. 

3.14.9 Eligible Energy Savings

Electricity distributors, municipal utilities, natural gas 

companies, and the Fuel Oil Conservation Board produce 

energy savings by implementing approved Conservation 

and Load Management Plans. Energy efficiency 

programmes included in the Plans are implemented by the 

obligated parties and by contractors.

In addition, parties obligated to meet Connecticut’s 

renewable portfolio standard may purchase energy 

efficiency certificates from third-party providers to meet 

their Class III renewable portfolio standard requirements. 

Although the certificate scheme includes energy efficiency, 

most energy efficiency programmes occur outside of 

the certificate scheme through the Connecticut Energy 

Efficiency Fund and Conservation and Load Management 

Plans.

3.14.10 Eligible Energy Efficiency Measures

Eligible energy efficiency measures include “direct 

funding, manufacturers’ rebates, sale price and loan 

subsidies, leases and promotional and educational 

activities” that support energy efficiency and load 

management programmes; research, development, 

commercialisation, and market development for more 

energy efficient products and processes including 

appliances, lighting and heating, ventilation, and air 

conditioning devices; energy use assessment for new 

buildings and major renovation; joint fuel conservation 

strategies; and indoor air quality programmes related to 

energy efficiency.442 These measures may be included in 

Conservation and Load Management Plans for approval by 

the Public Utilities Regulatory Authority.

3.14.11 Measurement, Verification, and 

Reporting

Connecticut statute requires all programmes to be 

screened for cost effectiveness annually, if practical.443

A 2004 Public Utilities Regulatory Authority order 

required the electricity distributors to develop a technical 

reference manual detailing costs and energy savings 

calculations corresponding to individual energy efficiency 

measures.444 A joint Program Savings Documentation 

manual was first developed in 2006; an updated version 

is submitted with the annual Conservation and Load 

Management Plan filing.445 Program Savings Documentation 

calculations can be used as deemed savings for typical 

measures. When required, more detailed energy savings 

calculations are obtained from third-party engineering 

consultants.

441 The Conservation and Load Management plan for 2010 

was jointly filed by both the electricity distributors and the 

natural gas companies. See more information at: http://www.

dpuc.state.ct.us/dockcurr.nsf/8e6fc37a54110e3e85257619

0052b64d/0722a35818b7ebc685257642006d07a4/$FILE/

FINAL%20CLM%20Electric%20&%20Gas%20Plan%2010-

01-2009%20FILED.doc 

442 Conn. Gen. Stat. § 16 245m (d)(4) available at: http://www.

cga.ct.gov/2007/pub/Chap283.htm#Sec16-245m.htm

443 Conn. Gen. Stat. § 16 245m (d)(3). The electricity 

distribution companies use the Electric Systems test and 

Total Resource test for screening programs.

444 State of Connecticut General Assembly, 2004 

445 The Program Savings Documentation is also used as 

the basis for calculating both Conservation and Load 

Management Plan and non-Plan measures that qualify as 

Class III resources. The only difference is that non-Planfunded projects do not incorporate free-ridership and 

spillover factors. (Program Savings Documentation p. 8.) 

The 2010 version can be viewed at: http://www.dpuc.state.

ct.us/dockhist.nsf/6eaf6cab79ae2d4885256b040067883b/1

a135ec687648c4c852575fa00544735/$FILE/PSD%2010-1-

08.pdf
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Energy savings are reported annually as part of the 

Conservation and Load Management Plan approval process. 

A 2009 Public Utilities Regulatory Authority decision 

clarified the responsibilities of the Energy Efficiency Board 

Evaluation Committee (composed of three non-utility 

Energy Efficiency Board members) and an Energy Efficiency 

Board evaluation consultant as providing leadership and 

“evaluation planning, study development, contractor 

selection, project initiation, project management and 

completion, and finalising the evaluation report.”446

3.14.12 Trading of Energy Savings

Connecticut is the only US state that has an operating 

certificate trading programme. The Public Utilities 

Regulatory Authority approves projects for Class III credit 

(which includes energy efficiency) under the renewable 

portfolio standard on a quarterly basis. Certificates are 

issued quarterly for each project over the life of the project, 

with a maximum of ten years.

The minimum price per certificate is USD 10/MWh447

Parties are also allowed to make an alternative compliance 

payment, which is currently USD 31/MWh but statutorily 

permitted to be as high as USD 55/MWh.448 The trading 

price for Connecticut certificates ranged between USD 

20/MWh and USD 26.75/MWh in the period from their 

inception through October 2008.449

As noted in section 3.14.9 (page 76), most energy 

efficiency programmes occur outside of the certificate 

scheme through the Connecticut Energy Efficiency Fund 

and Conservation and Load Management Plans.

3.14.13 Funding

Sources of funding for regulated electricity utility energy 

efficiency programmes in 2010 include: the system benefits 

charge (68 percent), Regional Greenhouse Gas Initiative 

funds (17 percent), ISO-New England Forward Capacity 

Market revenues (six percent), US stimulus funds (five 

percent), Class III renewable energy credits (three percent), 

and revenues from federally mandated congestion charges 

(two percent).450 Municipal electricity utility programmes 

are funded with a system benefits charge that was USD 

0.001/kWh in 2006, increasing by USD 0.003 annually to 

USD 0.025/kWh for 2011 and thereafter.451 Gas company 

funding in 2010 came from base rates (17 percent) and a 

conservation adjustment mechanism charge on customer 

bills.452

3.14.14 Scheme Administration

The obligated utilities design and administer energy 

efficiency programmes for their customers. Implementation 

is by the utilities and third-party contractors.

The Energy Efficiency Board’s mandate includes outreach 

to residents and businesses about energy efficiency 

programmes, services, and technologies. The Board 

maintains a website453 with energy efficiency information. 

The Public Utilities Regulatory Authority, the Energy 

Efficiency Board, and an educational entity funded by the 

Connecticut Energy Efficiency Fund also jointly manage 

another website454 that provides consumers with energyrelated resources and links to utility-specific programmes 

for residential and business customers. Outreach is also 

achieved through “museum exhibits, public forums, 

school-based programs (kindergarten through college), 

trade shows and training seminars.”455

3.14.15 Scheme Results

The Energy Efficiency Board released a report on 1 

March 2011 outlining Connecticut’s energy efficiency 

accomplishments.456 Table 15 (page 78) shows the energy 

savings that were accrued according to the report.

Residential customers saved USD 53.9 million in 2010 

and had lifetime savings of USD 417.3 million. Commercial 

and industrial customers saved USD 25.4 million in 2010 

446 Connecticut Department of Public Utility Control, 2010a. 

The current Energy Efficiency Board Program Evaluation 

Plan can be seen at: http://www.ctsavesenergy.org/files/

The%202010%20ECMB%20Program%20Evaluation%20

Plan3.doc 

447 Conn. Gen. Stat. § 16 243t

448 Conn. Gen. Stat. § 16 243q (b)

449 World Resources Institute, 2008

450 Connecticut Department of Public Utility Control, 2010b

451 State of Connecticut General Assembly, 2005

452 Connecticut Department of Public Utility Control, 2010b

453 http://www.ctsavesenergy.org

454 http://www.ct-energyinfo.com

455 Connecticut Energy Efficiency Board, 2010

456 Connecticut Energy Efficiency Board, 2011
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

457 Connecticut Energy Efficiency Board, 2011

458 Connecticut Department of Public Utility Control, 2008

459 Senate Bill No. 484 available at: http://www.plol.org/Pages/

ExternalSite.aspx?rs=Connecticut&rt=Statutes. See also 

Northeast Energy Efficiency Partnerships, letter to Senator 

Daly and Representative Staples urging opposition to SB 

484, 2 April 2010 (estimating that SB 484 would divert 

about 37 percent of the energy efficiency fund’s budget 

to the general fund in Fiscal Year 2011 and continuing 

thereafter). Available at: http://neep.org/uploads/policy/

Ltr%20to%20CT%20legis%20from%20NEEP%20-%20

Preserving%20EE%20Funds%204.2.10.pdf

460 Connecticut Department of Public Utility Control, 2009

461 Environment Northeast’s Exception to the Draft Decision 

Docket 08-07-01 available at: http://www.dpuc.state.ct.us/

dockhist.nsf/8e6fc37a54110e3e852576190052b64d/2a0

9a60f7017c517852575de004b833e?OpenDocument. It is 

also interesting to contrast the Department of Public Utility 

Control’s interpretation of an “all cost-effective” energy 

efficiency mandate with the approval of ambitious energy 

efficiency targets by the Massachusetts Department of Public 

Utilities under a similar statutory mandate. 

462 Connecticut Department of Public Utility Control, 2010b

Table 15

Energy Savings in Connecticut, 2010457

Customer Sector

Electricity

(GWh)

Natural Gas

(’000 ccf)

Oil

(‘000 gallons)

Annual Energy Savings

Limited income 17 559 727 145 8,230 10,456

Residential (non-limited income) 244 947 981 1,496 18,793 19,428

Commercial and industrial 162 1,070 0 2,076 14,068 0

Totals 423 2,576 1,708 3,717 41,091 29,884

Electricity

(GWh)

Natural Gas

(’000 ccf)

Oil

(‘000 gallons)

Lifetime Energy Savings

and had USD 326.2 million lifetime savings. 

3.14.16 Areas for Improvement

Funds collected through the system benefit charge 

were redirected by the Legislature to the state’s general 

fund from July 2003 to July 2005, and from August 2006 

to July 2007, at the rate of USD 1 million per month or 

approximately one third of the amount collected. During 

this period, the electricity distributors overspent the 

available funds by borrowing from future year’s budgets. 

The Public Utilities Regulatory Authority’s Docket No. 

07-10-03RE01, approving the Conservation and Load 

Management Plans for these utilities, directs them to 

stop this borrowing and outlined provisions to prevent 

borrowing and overspending. The allocation of Regional 

Greenhouse Gas Initiative auction funds was applied to 

offset under-collections in 2008.458 Most recently in 2010 

the Connecticut Legislature introduced a bill to divert a 

significant portion (about 37 percent) of system benefits 

charge funds into the state’s general fund.459

Significant room for improvement remains under the 

statutory mandate requiring all electricity distributors to 

meet their energy and capacity resource needs through 

“all available energy efficiency and demand reduction 

resources that are cost-effective, reliable and feasible.” This 

is done through annual integrated resource plans. In their 

2008 integrated resource plan, the electricity distributors 

proposed aggressive DSM measures, and the Energy 

Efficiency Board supported the electricity distributors’ 3- to 

5-year energy efficiency and demand response programme 

levels. The Public Utilities Regulatory Authority denied 

authorisation of these proposed measures, holding that the 

record did not “support a finding that Connecticut needs 

additional energy or capacity resources to meet reliability 

requirements now or in the near term.”460 This decision 

has been criticised by some for failing to properly interpret 

the statutory mandate.461 The Public Utilities Regulatory 

Authority is currently undergoing review of the 2010 

Integrated Resource Plan.462

Legislation in 2008 directed the Connecticut Clean 

Energy Fund to contract with the Connecticut Academy 

of Science and Engineering to “determine the best way 

for the state to plan, oversee, develop, implement and 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

manage energy issues and programs in the form of a 

state agency and/or other alternative organizational 

structure(s) that would best achieve the energy policy 

goals of Connecticut, while fostering the state’s economic 

competitiveness.”463 The study found that the plethora of 

entities implementing programmes and addressing energy 

and environmental policy resulted in “a lack of clarity, 

long-term vision and strategic planning, interagency 

communication and coordination, and a designated focal 

point for overall accountability regarding the effective 

achievement of defined goals and benchmarks.”464 Some of 

these recommendations, including a new energy leadership 

structure, were included in 2010 Senate Bill 493, which 

was vetoed by the Connecticut Governor.

3.15 United States – Massachusetts

In 2008, the Massachusetts State Legislature passed 

and Governor Patrick signed the Green Communities Act.

Among many other energy-related provisions, the Act 

requires that the Department of Public Utilities ensure 

that “electric and natural gas resource needs...first be 

met through all available energy efficiency and demand 

reduction resources that are cost effective or less expensive 

than supply.” In this regard, the Act builds on an existing 

system benefits charge and utility-administered energy 

efficiency programmes.465 Since 1997, Massachusetts 

electricity utilities have used system benefits charge funds 

to offer end-use energy efficiency to their customers. 

Although not codified in Massachusetts law, the gas utilities 

have also funded programmes through a system benefitslike charge to ratepayers. Historically, electricity utilities 

offered annual programmes, while gas utilities offered 

five-year programmes. Under the Act, both electricity and 

gas utilities are required to implement three-year energy 

efficiency investment plans.

3.15.1 Policy Objectives

The Green Communities Act requires obligated utilities 

to acquire “all available energy efficiency and demand 

reduction resources that are cost effective or less expensive 

than supply.”

3.15.2 Legal Authority

Because no further guidance on the quantity of energy 

efficiency and demand reduction that is “available” was 

given in the Green Communities Act, an EEO policy was 

negotiated between the relevant parties, including the 

utilities, the Department of Energy Resources, industry, 

environment and low-income representatives, and the 

Energy Efficiency Advisory Council.466 The agreed statewide 

energy saving targets were subsequently approved by the 

Massachusetts Department of Public Utilities.

The Green Communities Act also established a 

mandatory kWh charge to consumers to fund energy 

efficiency programmes, including DSM programmes. The 

Act required that electricity efficiency programmes be 

administered by the electricity distribution companies 

and by municipal aggregators and gas energy efficiency 

programmes by gas distribution companies.

3.15.3 Fuel Coverage

Electricity and natural gas.

3.15.4 Sector and Facility Coverage

The Green Communities Act requires that electricity 

and gas efficiency programme funds be allocated to all 

customer classes, including low-income, in proportion to 

their contributions to those funds. At least ten percent for 

electricity and 20 percent for gas must be spent on lowincome residential sector DSM and education programmes.

3.15.5 Energy Saving Target

Negotiations on energy saving targets were preceded 

by an assessment of available, cost-effective energy 

efficiency in Massachusetts. The assessment, which is also 

a requirement of the Green Communities Act, found that a 

minimum of 2.5 percent of electricity load and two percent 

463 Connecticut Academy of Science and Engineering, 2008

464 Connecticut Academy of Science and Engineering, 2008

465 Massachusetts Legislature, 1997

466 The Energy Efficiency Advisory Council was formed by the 

Green Communities Act and has the general responsibility 

of working with program administrators to develop threeyear energy efficiency plans that meet the Act’s requirements. 

It approves plans and budgets, works collaboratively to 

assess energy efficiency potential, determines the societal 

benefits of energy efficiency programmes, and reviews 

progress toward meeting plan goals, among other tasks. The 

Council consists of 11 non-utility representatives that are 

appointed by the Department of Public Utilities.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

467 Statewide Savings Targets and Performance Incentives for 

Electric Program Administrators available at: http://www.

ma-eeac.org/docs/091006-KeyIssuesOfferDOER-AG-EEACApproved.pdf 

468 Massachusetts Energy Efficiency Advisory Council, 2009a

469 Massachusetts Energy Efficiency Advisory Council, 2009b

470 Commonwealth of Massachusetts Senate, 2008

471 Municipal aggregators are cities or towns without their 

own power plants who acquire electricity on the wholesale 

market on behalf of consumers in their jurisdiction.

472 Massachusetts Department of Public Utilities, 2010a

473 Massachusetts Department of Public Utilities, 2010b

474 Commonwealth of Massachusetts Senate, 2008 

475 Massachusetts Department of Public Utilities, 2010a

of gas demand annually was achievable over three years.

On 28 January 2010, the Department of Public Utilities 

approved the electricity and gas saving targets shown in 

Table 16. The electricity saving targets are designed to 

gradually increase over time so as to allow opportunity to 

ramp up from existing electricity saving levels.

Table 16

Energy Saving Targets in Massachusetts, 

2010 to 2012 467, 468

Year

Electricity

(percent of

retail sales)

Gas

(therms)

Gas

(percent of

retail sales)

2010 1.4 13,598,098 0.6

2011 2.0 19,097,305 0.9

2012 2.4 24,706,795 1.15

All energy saving targets are incremental. An updated 

assessment of achievable electricity and gas efficiency will 

be performed in 2011 in preparation for the three-year 

plans for 2013 through 2015.469

The Green Communities Act requires that ten percent of 

electricity efficiency budgets and 20 percent of gas efficiency 

budgets be spent on measures in low-income households.470

3.15.6 Obligated Parties

Electricity and gas distribution utilities and municipal 

aggregators471 (collectively known as programme 

administrators) are subject to the EEO.

The targets do not necessarily apply equally to all 

obligated parties. The level of energy savings that each 

proposes to achieve may be different depending on factors 

such as service territory size and customer makeup. 

Four of the smaller utilities in Massachusetts, Western 

Massachusetts Electric, Berkshire Gas, New England 

Gas Company-Fall River Service Area, and Unitil, have 

individual targets lower than the statewide target.472, 473

3.15.7 Compliance Regime

The Green Communities Act requires obligated utilities to 

jointly file a three-year statewide plan describing how they 

will meet the EEO. The plans provide information on the 

energy efficiency programmes the utilities intend to implement, costs, funding sources to cover the costs, and savings 

and benefits expected to result from their programmes.

The Department of Public Utilities is the final authority 

(and the traditional utility regulator) ensuring that the Act’s 

requirement to acquire all cost-effective energy efficiency 

is met. The Energy Efficiency Advisory Council both 

collaborates on the development of the three-year energy 

efficiency plans and approves or rejects the plans before 

they can be submitted for Department of Public Utilities 

consideration. The final plan is subject to a two-thirds 

majority vote of the Council. Once it receives an affirmative 

vote, the final plan is submitted to the Department of 

Public Utilities for approval.474

The obligated utilities must submit annual and quarterly 

reports to both the Department of Public Utilities and the 

Energy Efficiency Advisory Council on the status of their 

programmes.475 The Department of Public Utilities must 

determine the effectiveness of each utility’s plan on an annual 

basis. If the utility has not reasonably complied with the joint 

plan, an investigation may be opened. The utility has the 

burden of proof to show good cause in failing to comply with 

the plan. If it cannot, a fine of USD 0.05 per kWh or USD 1 

per therm of shortfall may be levied against the utility.

3.15.8 Performance Incentives

The Green Communities Act required the obligated utilities to propose incentive mechanisms in the jointly drafted 

statewide energy efficiency plan. In its 28 January 2010 

order, the Department of Public Utilities approved in part the 

incentive mechanism proposed in the statewide plan.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

The approved total incentives available for electricity 

efficiency programmes are USD 17,328,480 in 2010, USD 

21,612,362 in 2011, and USD 25,273,089 in 2012.476 To 

be eligible for an incentive payment, an obligated utility 

must achieve 75 percent or more of its individual energy 

saving target. The total incentive payable scales to the 

energy savings achieved and is capped at 125 percent of the 

target for the three-year period.

The incentive available to each obligated electricity 

utility is calculated after the fact and is a function of 

three separate components: a savings mechanism, a value 

mechanism, and a performance mechanism. The savings 

mechanism pays out a portion of the total benefits accrued 

from administration of electricity efficiency programmes. 

The payout rate varies from about USD 0.0065 to 0.007 

per dollar of total benefits. The value mechanism pays 

out a portion of the lifetime net benefits achieved through 

electricity efficiency programmes. The payout rate is 

approximately USD 0.0067 to 0.0081 per dollar of net 

benefit. The proposed performance mechanism was 

remanded by the Department of Public Utilities back to 

the Energy Efficiency Advisory Council and programme 

administrators for refinement.477

In its 28 January 2010 order, the Department of Public 

Utilities approved a total statewide incentive pool of USD 

14,403,614 for gas efficiency programmes. Of that, USD 

4,344,255 is available in 2010, USD 4,518,960 in 2011, 

and USD 5,540,399 in 2012.478 The incentive pool will be 

allocated at the end of each year on the basis of achieved 

savings. An obligated gas utility must meet 75 percent or 

more of its individual energy saving target to be eligible for 

an incentive payment. Incentives are capped at 125 percent 

of the target. As with the electricity performance incentive, 

there are three components to the gas performance 

incentive: a savings mechanism, a value mechanism, and 

a performance mechanism. The savings mechanism pays 

a portion of total statewide benefits ranging from USD 

0.0061 to 0.0074 per dollar of total benefit. The value 

mechanism pays a portion of lifetime net benefits ranging 

from USD 0.0058 to 0.0103 per dollar of lifetime net 

benefit. The Department of Public Utilities approved the 

incentive pool and payout mechanisms for 2010, but 

requested that the performance mechanism be reworked 

and resubmitted for approval.479

3.15.9 Eligible Energy Savings

The Green Communities Act specified that energy 

efficiency programmes must be administered by gas 

and electricity distribution companies and municipal 

aggregators.

3.15.10 Eligible Energy Efficiency Measures

There is no apparent restriction on the energy efficiency 

measures that may be included in the three-year statewide 

energy efficiency plans, except that they must be for 

electricity or gas end-uses, although non-electricity or 

gas resource benefits such as heating oil cost savings are 

included in cost-effectiveness calculations.480 An emphasis 

is placed on coordination of electricity and gas efficiency 

measures in order to maximise energy savings.481 The Green 

Communities Act specifically authorises the gas distribution 

utilities to spend funds on combined heat and power and 

geothermal cooling and heating projects.

3.15.11 Measurement, Verification, and 

Reporting

The obligated utilities have responsibility for 

measurement, verification, and reporting of their own 

energy efficiency programmes. The Energy Efficiency 

Advisory Council’s evaluation consultant will work 

collaboratively with the utilities on their measurement 

and verification activities. Ultimately the Energy Efficiency 

Advisory Council has oversight over the measurement and 

verification studies as well as the power to resolve disputes 

between its consultant and the utilities on measurement 

and verification issues.482

3.15.12 Trading of Energy Savings

There is no trading of energy savings allowed under the 

Massachusetts scheme.

476 Massachusetts Department of Public Utilities, 2010a

477 Massachusetts Department of Public Utilities, 2010a

478 Massachusetts Department of Public Utilities, 2010b

479 Massachusetts Department of Public Utilities, 2010b

480 Massachusetts Department of Public Utilities, 2010a

481 Massachusetts Energy Efficiency Advisory Council, 2009a

482 Massachusetts Energy Efficiency Advisory Council, 2009c
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.15.13 Funding

Massachusetts’ electricity industry restructuring 

legislation of 1997 created separate system benefits charges 

for energy efficiency in the electricity sector and for 

renewable energy. The Green Communities Act amended the 

1997 language to increase the level of funding for energy 

efficiency, although it held the electricity efficiency system 

benefits charge constant at USD 0.0025/kWh.

Funding for electricity efficiency programmes comes 

from up to five sources in case the first four do not cover 

the expenditures necessary to meet the objectives of the 

Act. The five sources with their projected total levels of 

funding from 2010 to 2012 are:

• the systems benefits charge (USD 365 million);

• revenues from the ISO-New England forward capacity 

market (USD 35 million);483

• auction revenue from the Regional Greenhouse 

Gas Initiative emissions trading scheme (USD 146 

million);

• outside funding from federal grants, bank loans, bond 

issuances, and so forth (USD 181 million); and

• a surcharge on electricity bills (USD 618 million).

Including funds carried over from previous years 

(whether positive or negative), total expenditures on 

electricity efficiency programmes are expected to be 

approximately USD 1,272 million by 2012. The 2012 

expenditures are a 340 percent increase over 2008 

expenditures.484

The current funding source for gas efficiency 

programmes is a surcharge on gas bills, although the 

obligated gas utilities have set a goal to secure outside 

funding during 2011 and 2012 (USD 60 million total). The 

three-year budget is approximately USD 322 million.485

3.15.14 Scheme Administration

The obligated electricity and gas distribution utilities and 

municipal aggregators are responsible for energy efficiency 

programme delivery and implementation. The obligated 

utilities anticipate a number of new outreach initiatives 

such as creating a statewide set of efficiency “brands.” 

In 2010, a website portal for all Massachusetts energy 

efficiency programmes, called Mass Save, was launched. 

Other activities include marketing and implementing 

energy efficiency measures by leveraging the networks of 

community-based organisations, behavioural research, mass 

media campaigns, and contractor/trade ally training.486

483 Because energy efficiency resources provide some peak 

reduction, they are eligible to bid capacity into the New 

England wholesale electricity market.

484 Massachusetts Department of Public Utilities, 2010

485 Massachusetts Energy Efficiency Advisory Council, 2009a

486 Massachusetts Energy Efficiency Advisory Council, 2009a

487 American Council for an Energy Efficient Economy, 2009

488 NSTAR, 2005 

489 Massachusetts Energy Efficiency Advisory Council, 2009a

490 Massachusetts Energy Efficiency Advisory Council, 2009c

There is a special emphasis on providing “seamless” 

electricity and gas efficiency services regardless of the 

provider, because in some instances the gas provider is not 

the same as the electricity provider.

3.15.15 Scheme Results

Table 17 (page 83) shows that in 2010, actual annualised 

electricity savings totalled 619,639 MWh, representing 99 

percent of the planned savings for that year. Gas savings in 

2010 totalled 11,245,671 therms, representing only 83% of 

the planned savings.

3.15.16 Areas for Improvement

Prior to the Green Communities Act, Massachusetts was 

saving 0.86 percent of retail sales through its electricity 

efficiency programmes.487 The potential for electricity 

efficiency savings in the state was recently assessed at 

2.5 percent annually. No similar figures for gas efficiency 

savings are available.

The suite of energy efficiency measures and programmes 

offered by the obligated utilities following the Act’s passage 

has greatly expanded. For example, prior to 2008, NSTAR’s 

gas efficiency programmes consisted primarily of rebates 

for efficient heating systems, windows, water heaters and 

thermostats, and custom commercial, industrial, and 

residential weatherisation.488 Among other programmes, 

the gas utilities now offer single- and multi-family deep 

retrofits, new construction, and commercial and industrial 

direct install programmes.489 The new suite of programmes 

for both fuels is more comprehensive and intended to 

provide seamless, “fuel-blind” services to energy users.490
83

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.16 United States – Minnesota

Minnesota’s population of 5.2 million is served by 185 

retail energy utilities, including 11 investor-owned gas or 

electricity companies, 130 municipal gas and electricity 

companies, and 44 electricity distribution cooperatives. All 

of the state’s utilities are obligated to develop and administer 

energy efficiency programmes (known as “conservation 

improvement programs”). In 2007, the Minnesota Legislature 

passed the Next Generation Energy Act, which altered the 

state’s approach to utility energy efficiency programmes 

from requiring specified levels of expenditure to also require 

achievement of energy saving targets.

3.16.1 Policy Objectives

Minnesota’s policy objective as reflected in statute 

changes enacted in the Next Generation Energy Act is to 

reduce the per capita use of fossil fuel as an energy input 

by 15 percent by 2015 through energy efficiency and the 

use of renewables.492 The Act’s breadth clearly indicates 

that utility energy efficiency programmes are a critical 

component of reaching this broader objective. Objectives 

for the energy efficiency programmes include promoting 

awareness and adoption of energy efficient technologies, 

reducing energy costs, deferring infrastructure investments, 

and reducing GHG emissions.493

The energy efficiency programme requirements in the 

Next Generation Energy Act are an integral component of 

491 Massachusetts Energy Efficiency Advisory Council, 2011

492 State of Minnesota Legislature, 2007

493 http://www.state.mn.us/portal/mn/jsp/content.

do?subchannel=-536895041&programid=536917273&id=-

536893853&agency=Energy&sp2=y 

Table 17

Annual Reports for Electricity and Gas Energy Efficiency Programmes in Massachusetts 491

2010 Plan

2010 Plan

Total

Total

Value

Value

Value

Value

Value

Value

% of Plan

% of Plan

% of Plan

% of Plan

Actual (Evaluated)

Actual (Evaluated)

Initial Preliminary Year-End Reported, 

Feb 2011

Initial Preliminary Year-End Reported, 

Feb 2011

Savings – Annualized (MWh) 623,320 619,639 99% 609,788 98%

Savings – Lifetime (MWh) 7,389,102 7,336,580 99% 7,191,381 97%

Benefits (USD) 1,167,116,859 1,107,898,437 95% 1,100,804,486 94%

Program Costs (USD) 278,629,729 235,885,166 85% 239,192,149 86%

Performance Incentive (USD) 17,328,480 17,735,277 102%

Savings – Annualized (therms) 13,586,660 11,245,671 83% 13,926,865 103%

Savings – Lifetime (therms) 227,794,298 177,824,004 78% 220,610,827 97%

Benefits (USD) 264,427,698 204,285,854 77% 279,784,789 106%

Program Costs (USD) 77,759,749 62,473,787 80% 61,402,677 79%

Performance Incentive (USD) 4,344,256 4,075,563 94%

2010 Annual Reports—Electricity: Summary of Key Indicators, Statewide Total

2010 Annual Reports—Gas: Summary of Key Indicators, Statewide Total
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Minnesota’s Climate Change Action Plan, which has a goal 

of reducing statewide GHG emissions to a level at least 

15 percent below 2005 levels by 2015, at least 30 percent 

below 2005 levels by 2025, and to a level at least 80 

percent below 2005 levels by 2050.494

3.16.2 Legal Authority

The Next Generation Energy Act requires each energy 

utility to have an energy saving target equal to 1.5 percent 

of gross annual retail energy sales unless modified.495

The statute further directs the Commissioner of the 

Minnesota Office of Energy Security to “evaluate an energy 

conservation improvement program on how well it meets 

the goals set.” Statutory rules prescribe the requirements 

related to utility energy efficiency programmes.496 The Next 

Generation Energy Act also allows for energy efficiency 

programme costs to be recovered through rate cases.497

3.16.3 Fuel Coverage

Electricity and natural gas.

3.16.4 Sector and Facility Coverage

The Minnesota EEO scheme covers all end-use 

sectors and all facilities, except that the owners of large 

customer facilities may petition the commissioner to 

exempt both electricity and gas utilities serving the facility 

from the energy efficiency investment and expenditure 

requirements.498

Each utility must provide energy efficiency programmes 

for low-income households.

3.16.5 Energy Saving Target

The Next Generation Energy Act established a statutory 

statewide energy saving target for all natural gas and 

electricity utilities of 1.5 percent of retail sales. Each utility 

has an individual energy saving target of 1.5 percent of 

retail sales based on the most recent three-year average 

weather-normalised sales, effective in 2010.499 Once a 

utility has achieved energy savings equal to one percent of 

sales, they may count savings from indirect programmes, 

such as energy codes, appliance standards, market 

transformation efforts, or infrastructure improvements.

3.16.6 Obligated Parties

Electricity and natural gas utilities.

3.16.7 Compliance Regime

Each obligated utility develops its own energy efficiency 

plan, which must be filed at least triennially with the 

Minnesota Office of Energy Security. The Office reviews 

and approves each plan and the proposed energy savings 

calculations.500 Actual energy savings and expenditures on 

energy efficiency programmes are reported annually by 

investor-owned utilities and triennially by cooperative and 

municipal utilities. The Minnesota Office of Energy Security 

then verifies the savings and expenses. Because cooperative 

and municipal utilities are not rate-regulated, the Office’s 

role is more advisory than regulatory, limiting its power to 

enforce compliance by these entities.501

Obligated utilities are required to file resource plans that 

include least-cost plans for meeting 50 and 75 percent of all 

new and refurbished capacity needs through a combination 

of energy efficiency and renewable energy resources.502 The 

implementation of these plans may also satisfy the EEO.

3.16.8 Performance Incentives

Minnesota statute allows the Public Utilities Commission 

to consider incentive plans for utility energy efficiency 

programmes, including incentive rates of return, shared 

benefit, and decoupling.503 In 2000, the Public Utilities 

Commission approved a financial incentive plan that allows 

the utility to earn a percentage of net system benefits (as 

494 Minnesota Climate Change Advisory Group, 2008

495 Minn. Stat. §216B.241, Subd. 1c, (b)

496 Minnesota Rules part 7690.1200

497 Minn. Stat. §216B.16, subd. 6b

498 Minnesota Statutes, 2011

499 Minnesota Statutes, 2011. A utility may petition the Office 

of Energy Security for an adjustment of their energy saving 

target to no less than one percent of sales based on specified 

factors. 2009 legislation allowed for a target of 0.75 percent 

for natural gas utilities for the period from 2010 to 2012 

based on the findings of a gas efficiency potential study. 

(Minnesota Session Laws 2009, Ch. 110, Sec. 32)

500 Minnesota Office of Energy Security, 2010a

501 Minnesota Office of Energy Security, 2009

502 Minnesota Statutes, 2011

503 Minnesota Statutes, 2011
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

measured by the utility cost-effectiveness test) when it 

surpasses 90 percent of its energy savings goal.504 The 

amount of the incentive increases for each percentage 

point above 90 but is capped at 30 percent of the utility’s 

actual expenditures for energy efficiency. Because more 

net benefits are created when actual costs are lowered, 

the utilities are rewarded for more cost-effective energy 

efficiency programmes.505

3.16.9 Eligible Energy Savings

Energy efficiency programmes are administered by 

the obligated utilities and delivered by the utilities or 

by third-party contractors engaged by the utilities. The 

utilities also partner with trade allies and dealers to offer 

rebate programmes. Municipal utilities have increasingly 

relied on the Minnesota Municipal Utilities Association or 

the regional municipal power wholesalers to develop and 

implement aggregated energy efficiency programmes.

3.16.10 Eligible Energy Efficiency Measures

The Next Generation Energy Act expanded eligible 

energy efficiency measures beyond traditional demandside measures to also include rate design, energy codes 

and appliance standard changes, market transformation 

programmes, behaviour change programmes, utility 

infrastructure efficiency improvements, and qualifying 

solar energy projects. Natural gas utilities may also include 

purchases of biomethane and may use up to five percent 

of the total amount to be spent on energy conservation 

improvements.

The Minnesota Office of Energy Security expects 

measures to be cost effective and able to reach all 

residential, commercial, industrial, and agricultural 

customers.506 Typical measures include funding for 

residential energy audits, appliance and lighting rebates, 

and support for building envelope measures. Commercial 

and industrial measures include rebates for high-efficiency 

equipment, lighting and controls, recommissioning studies, 

and process improvements.

3.16.11 Measurement, Verification, and 

Reporting

The Minnesota Office of Energy Security has established 

measurement and verification protocols for all utilities and 

has also developed a deemed energy savings database for 

specified energy efficiency measures.507 The database is 

updated as needed.

Customised energy efficiency projects with first-year 

savings of more than one million kWh of electricity or 

20,000 Mcf of natural gas must undergo more formal 

measurement and verification processes, including 

certification by a third-party engineer, or equipment or 

facility metering.508

There are no requirements for independent programme 

evaluations, although utilities implement evaluations on 

their own with independent evaluators. The Minnesota 

Office of Energy Security protocols allow utilities to limit 

their measurement and verification expenditures per 

project to ten percent of the monetary value of the total 

annual savings.

3.16.12 Trading of Energy Savings

There is no trading of energy savings allowed in the 

Minnesota scheme.

3.16.13 Funding

Utilities have minimum spending requirements per 

statute of 1.5 percent of gross operating revenues from 

in-state services for electricity utilities, 0.5 percent for 

natural gas utilities, and two percent for any utility that 

operates a nuclear-powered generator in Minnesota.509

Programme costs, including incentives and operating costs, 

are recovered through a cost recovery charge, which is 

determined as part of rate-setting. If actual costs differ from 

the amount recovered, the utility can adjust its rates subject 

to Public Utility Commission review.510

505 ACEEE State Energy Policy Database available at: http://

www.aceee.org/energy/state/minnesota/mn_utility.htm

506 Minnesota relies heavily on the societal test but also 

measures utility, participant, and ratepayer costs to 

determine cost-effectiveness. See more information at: 

http://www.auditor.leg.state.mn.us/ped/pedrep/0504ch2.pdf

507 Minnesota Office of Energy Security, 2008b

508 Minnesota Office of Energy Security, 2008b

509 Minnesota Statutes, 2011. Xcel Energy is the only operator 

of an in-state nuclear facility. Municipal gas utilities with 

annual throughput of less than 1 billion cubic feet are 

exempt from the spending requirement. Utilities can be 

required to exceed the spending amount when additional 

cost-effective programmes are identified.

510 United States Environmental Protection Agency, 2007
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3.16.14 Scheme Administration

Programmes are typically marketed and promoted 

by each utility, although some residential programmes 

proposed for 2010 have been jointly created and marketed 

by Xcel Energy and CenterPoint Energy, two of the state’s 

larger investor-owned utilities.

3.16.15 Scheme Results

Energy savings by investor-owned utilities were 548,467 

MWh of electricity and 1.6 million Mcf of gas in 2008 and 

463,543 MWh and 1.9 million Mcf in 2007.511 Savings 

were one percent of electricity utility retail sales and 0.5 

percent of gas utility sales. Expenditure on energy efficiency 

programmes over the two years was approximately USD 

230 million and CO2-e reductions were 1.1 million tonnes. 

Spending by investor-owned utilities is projected to 

increase by 65 percent from 2008 to 2010.

Municipal and cooperative utilities report their savings 

triennially; actual 2008 energy savings and expenditure 

data are not yet available.

3.16.16 Areas for Improvement

Prior to the Next Generation Energy Act, investor-owned 

utility annual energy savings performance varied from a 

low of 0.2 percent of sales to a high of 1.9 percent. Energy 

efficiency plans filed for 2010 indicate significant projected 

increases for the laggards, but also indicate that the two 

utilities with energy savings that had exceeded 1.5 percent 

of sales in the past are now projecting only 1.5 percent.512

The Minnesota Office of Energy Security and the 

Legislature are also considering whether or not to eliminate 

the minimum spending requirement.513

3.17 United States – New York

New York encourages energy efficiency through a variety 

of programmes and policies, including tax credits, loans 

and grants, a system benefits charge, and end-use energy 

efficiency programmes. In 2008, an EEO, known in New 

York as an energy efficiency portfolio standard (EEPS), 

was placed on investor-owned electricity and natural gas 

utilities. New York has a unique system for administration 

of energy efficiency programmes that simultaneously 

relies on investor-owned utilities514 and a government 

organisation called the New York State Energy Research and 

Development Authority.515

New York has a policy goal to reduce GHG emissions to 

five percent below 1990 levels by 2010, ten percent below 

1990 levels by 2020, and 80 percent below 1990 levels by 

2050.516 A GHG emissions forecast included in its 2009 

Energy Plan suggests that New York State will not meet its 

2010 goal and instead will end up about two percent above 

1990 levels.517

New York is also part of the Regional Greenhouse Gas 

Initiative, a carbon dioxide emissions trading programme 

specifically targeting electricity power plants. In the New 

York State Energy Research and Development Authority 

rules on the carbon dioxide allowance auction,518 New 

York committed to applying the proceeds from the auction 

of allowances to “promote and implement programs 

511 Minnesota Office of Energy Security, 2010. Electricity 

savings totals include actual savings by IOUs and projected 

savings from municipal and cooperative utilities.

512 Minnesota Office of Energy Security, 2010a

513 Minnesota Office of Energy Security, 2010b

514 Publicly owned and municipal utilities are not subject 

to this system of administration for energy efficiency 

programmes, as they fall outside the state regulator New 

York Public Service Commission’s jurisdiction.

515 New York State Energy Research and Development 

Authority, a state agency, was originally founded in 1975 

to reduce the State’s petroleum consumption. On May 20, 

1996, the New York Public Service Commission authorised 

a system benefits charge to support energy efficiency 

improvements (Case 94-E-0952), and on January 30, 

1998, the New York Public Service Commission charged 

New York State Energy Research and Development 

Authority with administration of system benefits chargefunded programmes. Historically most of these funds 

go to implementation of electricity and gas efficiency 

programmes. However, some funds are set aside for 

research and development, monitoring and evaluation, and 

administration. More information on New York State Energy 

Research and Development Authority is available at: http://

www.nyserda.org/

516 New York’s goal was established in the 2002 State Energy 

Plan and by Governor’s Executive Order No. 24. See more 

information at: http://www.pewclimate.org/what_s_being_

done/in_the_states/emissionstargets_map.cfm 

517 New York State Energy and Research Development 

Authority, 2009a

518 21 NYCRR Part 507
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519 The full rule is available at: http://www.nyserda.org/RGGI/

NYSERDA.RevisedExpressTermsPart507.pdf 

520 New York Public Service Commission, 2009

521 New York Public Service Commission, 2008

522 According to New York Public Service Law art. 1, §5, the 

New York Public Service Commission has a broad statutory 

mandate “to encourage all persons and corporations subject 

to its jurisdiction to formulate and carry out long-range 

programs, individually or cooperatively, for the performance 

of their public service responsibilities with economy, 

efficiency, and care for the public safety, preservation of 

environmental values and the conservation of natural 

resources.”

523 New York State Energy Plan, 2012

524 New York Public Service Commission, 1996

525 For example, the New York State Energy Research 

and Development Authority’s system benefits charge 

programmes, existing codes and standards efforts, publicly 

owned utility efforts, and other state agency programmes.

for energy efficiency, renewable or non-carbon emitting 

technologies, and innovative carbon emissions abatement 

technologies with significant carbon reduction potential,” 

as well as associated administrative and programme design 

costs.519

3.17.1 Policy Objectives

In April 2007, New York released a comprehensive 

energy plan that called for, among other policy objectives, 

a reduction in electricity use in 2015 by 15 percent (“15 by 

15”), relative to projected use in 2015. In May 2009, the 

New York Public Service Commission established a policy 

to encourage end-uses of gas to be as efficient as they can 

reasonably be made. The Commission’s rationale was that 

beneficial increases in gas usage could be expected as a 

result of electricity efficiency programmes.520

3.17.2 Legal Authority

In June 2008, the New York Public Service Commission 

issued an order in Case 07-M-0548 establishing an energy 

efficiency portfolio standard.521 The EEPS scheme was 

established through this order, and under the traditional 

mandate of the New York Public Service Commission, 

which has helped fund and offer DSM/energy efficiency 

programmes in New York State since the early 1990s. 

Funding for energy efficiency programmes implemented 

under the EEPS scheme, which is collected through New 

York’s existing system benefits charge, likewise also falls 

under New York Public Service Commission authority. The 

New York Public Service Commission first established the 

system benefits charge in 1996 in Case 94-E-0952.522 The 

system benefits charge and the EEPS scheme are renewed at 

the discretion of the New York Public Service Commission.

The EEPS scheme order adopts specific, interim, 3-year 

targets for MWh reduction, with a forecast trajectory that 

will achieve the 15-percent reduction in electricity use 

by 2015; approves specific “fast track” energy efficiency 

programmes for immediate implementation; and requires 

the utilities and New York State Energy Research and 

Development Authority to file energy efficiency programme 

proposals. The order also directs New York’s investorowned utilities to commence collection, through the 

system benefits charge, of additional funds to support 

the EEPS scheme through 2011. In September 2009, an 

energy planning law was passed that statutorily establishes 

the State Energy Planning Board and calls on that Board 

to complete a State Energy Plan on or before March 

15, 2013.523 In May 2009, the New York Public Service 

Commission extended the EEPS scheme to include gas 

efficiency programmes.

3.17.3 Fuel Coverage

Electricity and natural gas.

3.17.4 Sector and Facility Coverage

All sectors and facilities are covered by the EEPS scheme. 

All customer classes pay a non-bypassable system benefits 

charge and have access to energy efficiency programmes.524

3.17.5 Energy Saving Target

The electricity saving targets were established in 2008 at 

0.5 percent of 2007 forecast sales and ramp up by a little 

over two percent of sales each year through 2015. The 

electricity saving targets were determined by assessing the 

then-current electricity efficiency programmes,525 and then 

determining an incremental programme portfolio mix to be 

implemented by the investor-owned utilities and the New 

York State Energy Research and Development Authority to 

achieve the overall 15-percent reduction in electricity use 

by 2015.

The natural gas targets are 4.34 Bcf annually through the 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

526 The federal economic stimulus legislation, the American 

Recovery and Reinvestment Act, provides USD 5 billion for 

low-income weatherisation assistance, of which New York 

State received over USD 394 million.

527 New York Public Service Commission, 2009

528 New York Public Service Commission, 2008

529 New York Public Service Commission, 2008

530 Haeri, et al., 2010

end of 2011 and 3.45 Bcf annually after 2011. The savings 

target moves downward in 2011 as federal economic 

stimulus funding ends.526 By 2020, a 14.7-percent 

reduction in gas usage is expected—that figure is 

independent of changes in usage caused by fuel switching 

or other factors. The target includes gas savings from utility 

programmes, non-utility programmes (such as the New 

York State Energy Research and Development Authority’s 

gas efficiency programmes), and savings from codes and 

standards.527

3.17.6 Obligated Parties

The New York State Energy Research and Development 

Authority and investor-owned electricity and natural 

gas investor-owned utilities are obligated parties under 

the EEPS scheme and also under the New York $martSM

programme.528

3.17.7 Compliance Regime

The regulator for the EEPS scheme is the New York 

Public Service Commission, which has authority over 

investor-owned utilities. The Commission also regulates 

the New York State Energy Research and Development 

Authority for the purpose of energy efficiency programmes 

funded by the system benefits charge (which include 

EEPS scheme programmes). The New York Public Service 

Commission does not require any party to administer an 

EEPS scheme programme, however, it offers a combination 

of incentives and lost revenue recovery to encourage utility 

participation.

Both the New York State Energy Research and 

Development Authority and the utilities prepare monthly, 

quarterly, and annual progress reports on energy efficiency 

performance, including energy savings to date and 

programme participation rates.

Penalties for non-compliance with EEPS scheme targets 

are imposed under a risk-reward incentive mechanism 

(see section 3.17.8 below). Obligated utilities that fail to 

meet the targets also stand to lose the ability to administer 

programmes. They also give up the opportunity to recover 

lost revenue from energy efficiency programmes in their 

service territory. 

3.17.8 Performance Incentives

In August 2008, the New York Public Service 

Commission authorised performance incentives for 

EEPS scheme utility-administered energy efficiency 

programmes.529 The risk-reward incentive mechanism 

rewards utilities for achieving 80 percent or more of their 

energy saving targets (primarily measured in MWh savings) 

and penalises utilities for achieving 70 percent or less of 

their targets. The total incentive amount is USD 40 million 

or roughly 12 percent of programme costs. The incentive 

is paid through an increase to the utilities’ allowed return 

on equity. The total incentive is roughly equal to a 20 basis 

point increase on return on equity. Figure 10 shows that the 

penalties and rewards are symmetric and scale linearly. The 

maximum penalty/reward is USD 38.85 per incremental 

MWh. 

Figure 10

Relationship between Performance 

and Incentive Award for Utility Programmes 

in New York 530

Total 

Award

0 

Award

.50 x 

Target

.70 x 

Target

.80 x 

Target

Target

(100%)

Negative 

Total 

Award

Under the New York Public Service Commission’s order 

in Case 03-E-0640, the regulated electricity utilities in 

New York have proposed revenue decoupling mechanisms, 

which are under consideration in ongoing rate cases. The 

Commission required the utilities to do so in an effort 

to remove the disincentive to save energy (and therefore 

reduce revenues).
89

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Natural gas utilities may, at their discretion, participate 

in the incentive mechanism. The maximum incentive 

available is 19 basis points on return on equity or ten 

percent of programme costs. Both negative and positive 

adjustments are paid at a rate of USD 3.00 per incremental 

Mcf.531 The same thresholds of 80 percent and 70 percent 

of target apply to be eligible for an incentive or to incur a 

penalty.

3.17.9 Eligible Energy Savings

New York allows proposals for energy efficiency 

programmes to be submitted by any party that can 

substantiate the resulting energy savings. Eligible energy 

savings are produced predominantly by New York State 

Energy Research and Development Authority and its 

contractors and utilities and their contractors. Independent 

third parties can also submit proposals for energy efficiency 

programmes under the EEPS scheme, although none have 

successfully done so.

3.17.10 Eligible Energy Efficiency Measures

Proposed gas and electricity efficiency measures for 

residential, multifamily, low-income, and commercial/

industrial customers that contribute to the EEPS targets 

are subject to approval by the New York Public Service 

Commission. Interruptible gas customers are excluded from 

the gas efficiency programmes. Through January 2010, the 

Commission has approved a total of 45 electricity efficiency 

programmes and 45 gas efficiency programmes.

3.17.11 Measurement, Verification, and 

Reporting

The New York State Energy Research and Development 

Authority and the obligated utilities are responsible 

for developing and implementing a measurement and 

verification plan for each energy efficiency programme 

they implement. They typically hire outside consultants 

to perform much of this work. All measurement and 

verification plans are subject to review and approval by the 

New York Public Service Commission staff. Programmespecific measurement and verification plans have been 

developed and are available on the New York Public Service 

Commission’s evaluation web page.532

All measurement and verification must be conducted 

pursuant to the evaluation guidelines issued by the 

Evaluation Advisory Group (an advisory group authorised 

by the New York Public Service Commission) and the New 

York Public Service Commission staff and use Commission 

technical manuals. The technical manuals provide a 

“uniform, measure-specific approach, to estimating energy 

and demand savings.” On October 18, 2010, the New York 

Public Service Commission adopted an order updating and 

consolidating a series of five technical manuals approved by 

the Commission between December 2008 and December 

2009.533

Approximately five percent of EEPS scheme funds are 

devoted to programme evaluation. The New York Public 

Service Commission increased programme evaluation 

funding relative to pre-EEPS levels in the expectation that 

utility financial incentives would be based on programme 

performance.

3.17.12 Trading of Energy Savings

EEPS scheme targets may not be met by purchasing 

energy efficiency. However, New York participates in the 

Regional Greenhouse Gas Initiative, which permits the 

trading of GHG emissions allowances.

3.17.13 Funding

The majority of funding for EEPS scheme energy 

efficiency programmes comes from the system benefits 

charge. On December 21, 2005, the New York Public 

Service Commission extended the system benefits charge 

through the end of June 2011 and expanded the collection 

to USD 175 million annually.

In 2008, the New York Public Service Commission 

directed utilities to collect an additional USD 159 million 

per year for electricity efficiency programmes and USD 

13.2 million for gas efficiency programmes through the 

system benefits charge.534 This was the first time funds were 

collected from gas ratepayers. These funds are specifically 

earmarked for gas efficiency programmes just as funds 

collected from electricity ratepayers are for electricity 

efficiency programmes, although electricity efficiency 

funding can also be used for fuel switching measures. The 

531 New York Public Service Commission, 2009

532 New York Public Service Commission, 2012

533 New York Public Service Commission, 2010

534 New York Public Service Commission, 2008
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system benefits charge is renewed at the discretion of the 

New York Public Service Commission.

As of January 2012, approximately USD 300 million 

is available for energy efficiency programmes in New 

York from the auction of allowances in the Regional 

Greenhouse Gas Initiative.535 The total funds available were 

reduced by a variety of expenditures, including a USD 

90 million transfer to the State’s General Fund as a deficit 

reduction measure and a settlement payment for a Regional 

Greenhouse Gas Initiative-related lawsuit.536 Because 

The New York State Energy Research and Development 

Authority has authority over dispersal of the allowance 

auction funds, the New York Public Service Commission 

has declined to reduce funding in proportion to the 

available auction funding.537

3.17.14 Scheme Administration

The New York State Energy Research and Development 

Authority, the utilities, and the New York Public 

Service Commission offer energy efficiency information 

and outreach to customers and the public. As part 

of the EEPS scheme, the Commission has approved 

outreach and education plans and requisite funding 

as part of all approved energy efficiency programmes. 

Programme administrators are required to provide 

plans, including market and participation assessments, 

as well as descriptions of the various planned outreach 

activities. Progress has been made in both expanding 

and coordinating outreach and marketing. This is an 

improvement since early 2009, when third-party evaluators 

had concluded that “The New York State Energy Research 

and Development Authority...has not embraced a strong 

organization-wide marketing philosophy and culture,” and 

at that time none of the utilities had sufficiently developed 

marketing plans for their energy efficiency programmes.

3.17.15 Scheme Results

New York has dedicated considerable time and 

resources to the pursuit of energy efficiency. It was one 

of the first states to establish a system benefits charge to 

support energy efficiency and other public benefits energy 

programmes.538 This early start has enabled New York to 

accrue some impressive successes.

The 13-year budget for New York’s Energy $martSM

programme was USD 1.89 billion. USD 1.68 billion of 

that amount was allocated to four major programme 

areas—Commercial/Industrial, Residential, Low-Income, 

and Research and Development—and to an education 

programme.539 Spending relative to the 13-year budget 

is: Commercial/Industrial 74.0%; Residential 93.7%; 

Low-Income 84.5%; and Research and Development 

63.3%.540 Additionally New York has, for its EEPS scheme 

programmes, set aside USD 374 million, of which USD 

76.7 million has been expended on programme activities.541

Table 18 (page 91) shows cumulative annual electricity 

savings, demand reductions, and other fuel savings from 

the New York Energy $martSM and EEPS programmes:542

3.17.16 Areas for Improvement

In an assessment report, the New York Public Service 

Commission staff observes that the complexity of energy 

efficiency programmes is affecting the rate of achieved 

energy savings. For example, commercial, industrial, 

and multifamily programmes have the longest startup requirements. They typically require energy audits, 

preapproval, and complex custom measure installations.

Commission staff also reports that relationships among 

utilities and the New York State Energy Research and 

Development Authority are influencing implementation of 

EEPS scheme programmes. Commission staff has learned 

that business customers are taking time to make careful 

comparisons between the Authority- and utility-delivered 

programmes. Where there are areas of overlapping or 

535 New York State Energy and Research Development 

Authority, 2012

536 New York State Energy and Research Development 

Authority, 2009b

537 Order Denying Petition for a Declaratory Ruling available 

at: http://documents.dps.state.ny.us/public/Common/

ViewDoc.aspx?DocRefId={7CA2CA89-F3F2-4826-89E0-

616640BDB36B} 

538 American Council for an Energy-Efficient Economy, 2011

539 New York State Energy Research and Development 

Authority, 2011

540 New York State Energy Research and Development 

Authority, 2011

541 New York State Energy Research and Development 

Authority, 2011

542 New York State Energy Research and Development 

Authority, 2011
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Table 18

Cumulative Annual Electricity Savings, Demand Reductions, and Other Fuel Savings 

from the New York Energy $martSM and EEPS Programmes 543

Program GWh MW

Adjusted Cumulative Annual Savings

MMBtu

N/A – not applicable, the energy source is not reduced for the particular program.

Commercial/Industrial

Existing Facilities: Permanent 1,561.3 459.5 -66,686

Existing Facilities: Callable N/A 509.0 N/A

New York Energy $mart Business Partners 121.6 31.8 N/A

New York Energy $mart Loan Fund and Financing 87.9 52. 598,666

New Construction Program 431.8 105.2 254,652

Flex Tech Technical Assistance: Permanent 1,213.7 221.5 3,695,897

Flex Tech Technical Assistance: Curtailable N/A 137.9 N/A

Industry and Process Efficiency 97.2 15.2 254,174

C/I Sector Overlap Removed 268.4 54.9 169,198

Subtotal Commercial/Industrial 3,245.1 1,477.2 4,567,507

Residential and Low Income

Single Family Home Performance 65.3 20.9 2,227,490

Multifamily Building Performance 122.1 12.8 969,643

Market and Community Support Program 657.6 136.1 296,607

CFL Expansion 588.2 55.5 N/A

EmPower New York Program 62.9 9.4 191,302

Subtotal Residential and Low Income 1,496.2 234.6 3,685,041

Research and Development

DG-CHP Demonstration Program 534.1 96.3 -3,593,578

Demand Response and Innovative Rate Research N/A 99.0 N/A

Renewable Energy Production 107.9 11.7 N/A

Subtotal R&D 642.0 207.0 -3,593,578

Cross Sector Overlap Removed 345.9 48.9 -1,295,093

SBC Portfolio 5,037 1,870 5,954,062

543 New York State Energy Research and Development Authority, 2011
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adjacent market segments or service territories, utilities 

are trying to reach more customers and/or increase energy 

efficiency by partnering with neighbouring utilities and/

or the Authority. The presence of multiple programmes 

in a territory is resulting in clients shopping for the most 

favourable programme, which can result in delays in 

program sign-up.

Commission staff expects that program ramp-up rates 

will affect annual achieved energy savings for many 

programmes, but may not have an impact on longer-term 

energy saving targets. Program administrators also report 

that the current economic climate is having an impact 

on program implementation. Programmes that cater to 

small businesses, for example, are facing hurdles due to 

economic pressures on small firms. A number of program 

administrators have indicated that the ability to provide 

financing is crucial to gaining small business participation.

3.18 United States – Texas

Texas was the first US state to implement an EEO, 

known in Texas as an energy efficiency portfolio standard 

(EEPS). Operating since 2000, the EEPS scheme requires 

investor-owned utilities to offset a percentage of their load 

growth through end-use energy efficiency programmes 

available to all customers in the residential and commercial 

sectors. Utilities accomplish this by administering energy 

efficiency programmes, which are delivered by retail 

electricity utilities and energy efficiency service providers. 

Utilities must achieve their energy saving targets through 

either standard offer programmes or targeted market 

transformation programmes.

In 2001, the Texas Legislature adopted an Emissions 

Reduction Plan as amendments to its Health and Safety 

Code designed to help the state comply with federal 

Clean Air Act standards. The amendments included 

ambitious changes in energy use. Although the timelines 

were extended in 2007, the amendments require local 

government areas in the state to: implement all costeffective energy-efficiency measures, establish a target 

to reduce electricity consumption by five percent each 

year for six years beginning on 1 September 2007, and 

report efforts and progress annually to the State Energy 

Conservation Office.544

Omnibus energy efficiency legislation enacted in 2007 

included provisions applicable to school districts and to 

certain institutions of higher education and executive branch 

state agencies. These public entities must establish a goal of 

reducing their annual electricity consumption by five percent 

for each of six state fiscal years beginning 1 September 2007. 

The legislation also requires that state-owned or leased 

buildings purchase Energy Star appliances and equipment, 

and specified other standards for certain equipment. In 

addition, statute requires government bodies responsible 

for new and reconstructed state buildings (and repair or 

construction of certain systems and equipment) to comply 

with minimum energy efficiency design requirements and to 

also conduct an economic analysis of energy efficiency and 

renewable energy options; if these options are cost effective 

over the life of the building, they must be undertaken.545

These requirements do not affect the EEPS scheme targets, 

as the energy efficiency standards refer to public entities, 

whereas the EEPS targets focus on energy efficiency measures 

in residential dwellings and businesses.

3.18.1 Policy Objectives

EEPS scheme programmes are designed to reduce system 

peak demand, energy consumption, and energy costs.

3.18.2 Legal Authority

The EEO is codified in statute in the Texas Public 

Utility Regulatory Act.546 The Public Utility Commission of 

Texas oversees the program pursuant to the procedures 

outlined and the program templates and associated savings 

established in the Public Utilities Commission Substantive 

Rules.547, 548 Amendments were passed on 30 June 2010, 

increasing the energy saving target to 30 percent of load 

growth by 2013.

The Public Utility Commission of Texas regulates nine 

electricity transmission and distribution territories.

544 Texas State Energy Conservation Office, 2007. 2002 

legislation was SB 5; 2007 was SB 12.

545 Texas Legislature, 2007a

546 Texas Legislature, 2007b, §39.905

547 Public Utilities Commission Subst. R., §25.181

548 Texas Public Utilities Commission, 2010 and Public 

Utilities Commission Subst. R., §25.184 available at: http://

texinfo.library.unt.edu/texasregister/html/2003/jul-03/

PROPOSED/16.ECONOMIC%20REGULATION.html
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

3.18.3 Fuel Coverage

Electricity.

3.18.4 Sector and Facility Coverage

All facilities and all customers in the residential and 

commercial sectors.549

3.18.5 Energy Saving Target

In 1999, the Texas Legislature mandated that investorowned utilities offset at least ten percent of their load 

growth through energy efficiency programmes and directed 

the Public Utility Commission of Texas to adopt rules to 

implement this mandate.550 Legislation passed in 2007 

increased the savings requirement to 15 percent of load 

growth by 31 December 2008, 20 percent by 31 December 

2009, 25 percent by 2012, and 30 percent by 2013.551

There is also a statutory requirement beginning in 2009 

that a utility’s demand reduction goal in MW for any year 

shall not be less than the previous year.552 The Public Utility 

Commission of Texas is currently considering new targets 

for energy efficiency through the rulemaking process.553

Commission rules also require each investor-owned 

electricity utility to meet at least five percent of its annual 

energy saving target through programmes for “hard-toreach” customers, defined as households with incomes at or 

below 200 percent of the US federal poverty guidelines.554

3.18.6 Obligated Parties

Under the EEPS scheme in Texas, the obligated parties 

are all investor-owned electricity utilities plus municipally 

owned electricity utilities with retail sales of more than 

500,000 MWh in 2005.

3.18.7 Compliance Regime

Utilities must file an Energy Efficiency Plan and Report 

by 1 April each year with the Public Utility Commission of 

Texas. This document reports on energy and capacity saved 

over the past five years and includes other information 

related to program implementation, achievements, and 

spending. It also includes detailed targets, budgets, and 

program forecasts for the next two years. The Commission 

must approve the plans.555

3.18.8 Performance Incentives

Legislation passed in 2007 directed the Public Utility 

Commission of Texas to establish rules and procedures for 

providing rewards to utilities that exceed the EEPS scheme 

targets.556 The revised rules allow performance bonuses for 

a utility that exceeds its demand reduction target within 

the prescribed cost limits in the previous year. The bonus 

entitles the utility to receive a share of the net benefits 

created by meeting the target. This is calculated as the sum 

of total avoided costs less the sum of all program costs.

A utility that exceeds 100 percent of its demand 

reduction target will receive one percent of the net benefits 

for every two percentage points that the target has been 

exceeded, with a maximum of 20 percent of the utility’s 

program costs. A utility that meets at least 120 percent of 

its demand reduction target with at least ten percent of 

its savings achieved through Hard-to-Reach programmes 

receives an additional ten percent of the amount described 

above.557

3.18.9 Eligible Energy Savings

Energy savings and demand reductions that contribute 

toward meeting EEPS scheme energy saving targets are 

produced in energy efficiency programmes implemented 

by third party energy efficiency service providers selected 

by end-use customers. Utilities do not themselves directly 

implement programmes.

3.18.10 Eligible Energy Efficiency Measures

Public Utility Commission of Texas rules define the 

standard offer programmes and market transformation 

549 Texas Public Utility Commission, 2011

550 Texas Legislature, 1999

551 Texas Legislature, 2007a and Texas Public Utilities 

Commission, 2010a

552 Texas Public Utilities Commission, 2010b

553 See Section 3.19.16: “Areas for Improvement.”

554 Public Utilities Commission Subst. R. §25.181(e)(1)(E)

555 Public Utilities Commission Subst. R. §25.181(m) and 

§25.183 (M&V Rules) available at: http://www.puc.state.

tx.us/rules/subrules/electric/25.183/25.183.pdf 

556 Texas Legislature, 2007a

557 Motamedi, 2009
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

programmes eligible to meet EEPS scheme targets.558

Commercial and residential standard offer programmes 

must produce measurable and verifiable energy savings 

and demand reductions. There is also a load management 

standard offer program. The programmes are neutral with 

respect to specific technologies, equipment, or fuels, and 

project comprehensiveness is encouraged. Fuel switching 

from electricity to another energy source is permitted 

provided that the energy efficiency project results in overall 

lower energy costs, lower energy consumption, and the 

installation of high-efficiency equipment. Switching from 

gas to electricity is only permitted with the installation 

of high-efficiency combined heating and air conditioning 

systems.

Market transformation programmes can include 

advertising, training, incentives, and other mechanisms 

to overcome the various barriers to the implementation 

of more efficient technologies.559 There are more than 15 

market transformation programmes, including programmes 

targeting schools and public facilities, commercial retrocommissioning, new residential construction, and air 

conditioning installers and distributors.560

The Hard-to-Reach standard offer program is primarily 

building envelope measures designed to achieve costeffective reduction in peak summer demand. Utilities 

are encouraged to collaborate with the federally funded 

weatherisation programmes and cover 100 percent of the 

costs.561

3.18.11 Measurement, Verification, and 

Reporting

Utilities are responsible for establishing industryaccepted measurement and verification protocols for all 

standard offer programmes.562 Protocols may include onsite inspection and measurement and verification, deemed 

savings, and/or statistically significant samples. Energy 

efficiency service providers are responsible for ensuring 

that demand reductions and energy savings have been 

measured following the protocol. If inspection is part of the 

protocol, energy efficiency service providers do not receive 

final compensation until the measurement and verification 

processes are complete.563

3.18.12 Trading of Energy Savings

Texas does not have a trading system for energy saving 

credits.

3.18.13 Funding

Utilities fund energy efficiency programmes. With 

standard offer programmes, the utility pays a set incentive 

amount, determined by the Public Utility Commission of 

Texas, to the energy efficiency service provider for each kW 

of peak demand reduction and each kWh of energy savings 

resulting from an installed measure.564 The procedure 

is similar to that of a feed-in-tariff for renewable energy. 

The Commission sets the level of incentive payments for 

installing eligible energy efficiency measures based on 

engineering estimates of the savings (“avoided costs”) for 

many measures.565 Utilities also pay the costs of approved 

market transformation programmes.

Utilities are able to recover program costs using an 

Energy Efficiency Cost Recovery Factor that is determined 

through base rates or by filing a cost recovery rate schedule 

in tariffs.566 The Public Utility Commission of Texas can also 

approve an energy charge or a monthly customer charge 

for the Energy Efficiency Cost Recovery Factor. The Factor is calculated to allow the utility to earn revenues equal 

to the energy efficiency costs, net of energy efficiency costs 

included in base rates, the energy efficiency performance 

bonus earned for the prior year, and any adjustment for past 

558 See more information about program rules at:

http://www.puc.state.tx.us/rules/rulemake/27903/27903.cfm

559 Motamedi, 2009

560 Electric Utility Marketing Managers of Texas, 2009

561 See more information about US Weatherisation programmes 

at: http://www1.eere.energy.gov/wip/wap.html (DOE 

site) and http://www.waptac.org/ (technical assistance for 

providers).

562 Texas A&M’s Energy Systems Lab prepared a sample M&V 

plan in 1999 as guidance for utilities, which is available at: 

http://repository.tamu.edu/handle/1969.1/1981. An example 

(Entergy) of utility M&V protocols can be found at: http://

www.entergy-texas.com/energy_efficiency/ci_mv.aspx 

(commercial projects) and at: http://www.entergy-texas.com/

energy_efficiency/res_mv.aspx (residential projects).

563 Public Utilities Commission Subst. R. §25.181(o)

564 www.texasefficiency.com/PUC_Staff_SOP_Training.ppt

565 Cowart, 2009

566 Public Utility Commission of Texas §25.181(f) available 

at: http://www.puc.state.tx.us/agency/rulesnlaws/subrules/

electric/25.181/25.181.pdf 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

over- or under-recovery of energy efficiency revenues. Costs 

are recovered from the customer classes that receive energy 

efficiency services under each program. Each utility is 

required to file an application at least every three calendar 

years to reconcile costs recovered through its Energy Efficiency Cost Recovery Factor.567 Public Utility Commission of 

Texas rules limit utility administrative costs to ten percent of 

the total program costs and set total budget ceilings based on 

previous year spending for utility program expenditures.568

3.18.14 Scheme Administration

Texas utilities administer the energy efficiency 

programmes but have no role in actually delivering the 

services. As shown in Figure 11, third-party energy 

efficiency service providers are hired to deliver standard 

offer programmes and implement market transformation 

programmes.569 End-use customers select the energy 

efficiency service provider, decide what equipment will be 

installed, and decide what work the contractor will do.

567 Public Utilities Commission Subst. R. §25.181 (f). The 

Energy Efficiency Cost Recovery Factor is a new tool as 

of 2009 designed to standardise the process. Prior to the 

Energy Efficiency Cost Recovery Factor, utilities were 

typically granted cost recovery through general rate cases or 

utility applications. 

568 Public Utilities Commission Subst. R. §25.181 (f) 8 – see 

both current and proposed rules.

569 No formal verification of energy efficiency service providers 

is required by utilities or the Public Utility Commission of 

Texas. Public Utilities Commission Subst. R. §25.181(l)(1) 

requires programmes to provide a complaint process for use 

by the energy efficiency service provider or the customer 

and dictates that utilities may require energy efficiency 

service providers to provide evidence of experience, 

insurance, permits, appropriate licensing, and references. 

An example (AEP) of utility info for energy efficiency service 

providers can be found at: http://www.aepefficiency.com/

cisop/downloads/index.htm

570 Electric Utility Marketing Managers of Texas, 2011

571 For more information see: http://www.texasefficiency.com

572 Electric Utility Marketing Managers of Texas, 2011

Figure 11

Overview of Texas Energy Efficiency 

Programmes 570

Texas Legislature

Project Sponsors

Customers

Texas Investor Owned 

Electric Utilities

Market 

Transformation 

Program

Standard 

Offer 

Program

Passed law that established 

energy efficiency goals for...

Funds programs 

and incentives 

for...

Install 

energy 

efficiency 

measures 

for...

Agree 

on price, 

warranty, 

etc.

Decide which 

sponsor to use

Decide which 

measures to install

Types of 

programs

Energy 

Service 

Companies

Contractors

Property 

Developers

Design/Build 

Firms

Customers

Types

programmes. The Electric Utility Marketing Managers 

of Texas is a voluntary organisation of investor-owned 

electricity utilities that facilitates coordination among 

the energy efficiency program managers.571 Coordinated 

programmes include “Make Your Mark,” a residential 

lighting program, and SCORE/CitySmart, a program for 

schools and government entities to receive technical and 

energy management assistance to help them make decisions 

about cost-effective energy efficiency investments.

3.18.15 Scheme Results

In 2010, Texas investor-owned electricity utilities 

achieved 533 GWh of energy savings and 301 MW of 

peak demand reduction, which was 118% above their 

138-MW target. Combined, Texas investor-owned utilities 

spent approximately USD 105 million on energy efficiency 

programmes (including administrative expenses) in 

2010. Between 1999 and 2010, Texas utilities’ efficiency 

programmes have produced 1,666 MW of peak demand 

reduction and 4,110 GWh of energy savings.572
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

573 Motamedi, 2009

574 Texas Legislature, 2007a and Texas Public Utilities 

Commission, 2008

575 Texas Public Utilities Commission, 2008 

576 Vermont Legislature, 2007a

577 Vermont Legislature, 2011

578 Vermont Legislature, 2007b

579 Vermont Legislature, 2008

580 Because the energy efficiency utility can satisfy an electricity 

distribution utility’s obligation to provide energy efficiency 

services, it is questionable whether the Vermont approach to 

energy efficiency constitutes an energy efficiency obligation 

scheme. Despite the language of the statute, the obligation 

does formally remain with the utilities, and quantitative 

targets denominated in kW and kWh saved per period are 

established by the utility regulator. The Vermont case is 

included in this report as an example of using a separate 

dedicated organisation to deliver energy savings and 

demand reductions under an obligation placed on energy 

providers.

581 Vermont Legislature, 2008 and Vermont Legislature, 2011

3.18.16 Areas for Improvement

Consumer advocates have expressed concern that the 

Texas EEPS scheme targets are too low and that basing the 

performance bonus on budgets rather than actual savings 

and costs is skewed. There is also criticism that there is 

a lack of transparency and rigor about measurement and 

verification and that there is limited ability to provide 

feedback on the state’s energy efficiency programmes as a 

whole.573 The 2007 legislation, House Bill 3693, required 

the Public Utility Commission of Texas to fund a potential 

study for the nine investor-owned utilities to see whether 

the target could be increased to 30 percent of load growth 

in 2010 and 50 percent of load growth in 2015. The study, 

which was released in December 2008, found these targets 

were reasonable and attainable for the majority of utility 

service areas.574 The study recommended delaying the 

adoption of the initial proposed energy savings and demand 

reduction targets from 2010 to 2012 to allow utilities 

sufficient time to ramp up programmes. The study also 

suggested that most utilities would have a better chance of 

meeting the goals if the saving metrics were changed from 

a percentage of incremental growth to a percentage of total 

peak demand.575

3.19 United States – Vermont

The State of Vermont is a participant in the Regional 

Greenhouse Gas Initiative, a mandatory, market-based GHG 

emissions trading system implemented by 10 states, which 

is designed to reduce GHG emissions from the power 

sector by ten percent by 2018. Statute requires 100 percent 

of Regional Greenhouse Gas Initiative allowances to be 

auctioned and proceeds from the sale of carbon credits to 

be deposited in an energy efficiency utility fund, managed 

by a fiscal agent.576

State policy is committed to least-cost integrated 

planning for electricity and natural gas supply and 

transmission planning. Statutes mandate that energy 

efficiency be weighted equally with wires and non-wires 

solutions.577 In 2007, the Vermont Legislature adopted the 

following goals related to building energy efficiency:578

• reduce fuel use and bills by 25 percent in 60,000 

homes by 2017, and in 80,000 homes by 2020;

• reduce fuel needs and fuel bills by an average of 25 

percent in housing units served by energy utilities; 

and

• reduce fossil fuel use in all buildings by 0.5 percent 

per year (six percent cumulative annually by 2017; 

ten percent cumulative annually by 2025).

3.19.1 Policy Objectives

Vermont’s policy objectives include: reducing the 

need for future electricity purchases; reducing GHG 

emissions; limiting the need to upgrade the transmission 

and distribution infrastructure; and minimising costs and 

providing energy efficiency as part of a comprehensive 

resource supply strategy.579

3.19.2 Legal Authority

Vermont statute requires electricity utilities to provide 

comprehensive energy efficiency services as part of leastcost planning through a least-cost integrated plan. Statute 

allows the Vermont Public Service Board, which regulates 

the state’s publicly owned electricity utilities, to create 

an energy efficiency utility and specifies that the energy 

efficiency utility can satisfy an electricity distribution 

utility’s obligation to provide energy efficiency services.580

The Public Service Board may also appoint an entity 

to administer the energy efficiency utility.581 An energy 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

efficiency charge was created in 1999 through legislation, 

which capped the funding level, and by Public Service 

Board Order. Legislation in 2005 lifted the cap on funding.

3.19.3 Fuel Coverage

Electricity.

3.19.4 Sector and Facility Coverage

The Vermont Public Service Board lists a number of 

programmes that the energy efficiency utility must deliver 

in the residential, commercial, and industrial sectors. These 

include programmes for new construction, low-income 

households, and dairy farms.582

3.19.5 Energy Saving Target

Energy saving targets are established to achieve the 

maximum amount of cost-effective energy efficiency while 

limiting rate impacts. Targets are informed by an energy 

efficiency potential study conducted by the State Energy 

Office.583

The 2009 to 2011 contract with the administrator 

of the energy efficiency utility was for energy savings of 

360,000 MWh per year, approximately two percent of 2008 

electricity sales.584 The summer and winter peak demand 

reduction targets were 51.2 MW and 54.0 MW, respectively 

(about five percent of peak load).585 There were also 

demand reduction targets for transmission-constrained, 

geographically targeted areas.

The 2012 to 2014 targets are 320,000 MWh of energy 

savings per year and 60.8 MW demand reduction for the 

summer peak.586

3.19.6 Obligated Parties

Regulated electricity distribution utilities, with the 

obligation satisfied for most utilities by energy efficiency 

programmes delivered by the energy efficiency utility. The 

City of Burlington Electric Department delivers energy 

efficiency programmes in its own territory.587

3.19.7 Compliance Regime

Since 2000, the Public Service Board has executed 

contracts with the administrator of the energy efficiency 

utility (a non-governmental organisation, Vermont 

Energy Investment Corporation, trading as Efficiency 

Vermont) for specified amounts of energy savings and 

demand reductions. Final program oversight rests with 

the Vermont Public Service Board. The Board employs 

a contract administrator588 and a fiscal agent to oversee 

the energy efficiency utility. The contract administrator 

tracks compliance with the terms of the contract, approves 

funding requests, and mediates any disputes related to the 

energy efficiency utility.589 The fiscal agent receives funds 

from the energy efficiency charge collected by the electricity 

distribution utilities, deposits them into an energy 

efficiency utility fund, and disburses funds to Efficiency 

Vermont in accordance with the terms of the contract 

administrator’s contract.

Prior to 2010, the administrator of the energy efficiency 

utility was selected through a competitive bidding process 

for a three-year contract with a three-year renewal, pending 

adequate performance. A 2009 Public Service Board 

order retains the functions of the energy efficiency utility 

but alters the relationship from a three-year contract to 

a 12 year rolling Order of Appointment as authorised in 

statute.590 The new model includes increased responsibility 

for the energy efficiency utility and increased transparency 

through the use of open proceedings and public reviews to 

set the energy efficiency utility’s performance targets.

3.19.8 Performance Incentives

The contract with Efficiency Vermont includes significant 

financial incentives to ensure contractor performance. 

582 Vermont Public Service Board, 1999

583 Vermont Department of Public Service, 2007 

584 ACEEE January 2010 State EERS Summary and online State 

Energy Policy Database. See Contract Attachment available 

at: http://psb.vermont.gov/sites/psb/files/projects/EEU/2009-

2011contract/Attachment_N_Performance Mechanism_

Final.doc

585 According to the Vermont Department of Public Service, 

electricity usage averages 700 to 750 MW and peaks at 

around 1,100 MW in the summer. 

586 Efficiency Vermont, 2011

587 Vermont Public Service Board, 2012

588 The position of contract administrator will no longer exist 

once the energy efficiency utility fund has transitioned away 

from a contract model.

589 Vermont Public Service Board, 2012

590 Vermont Legislature, 2008
98

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Specific targets measuring a variety of performance 

indicators are established in each contract. Performance 

indicators currently include energy savings and demand 

reductions achieved, including demand reductions in 

geographically targeted areas and energy savings from 

non-lighting or fuel-switching measures. By meeting these 

targets, Efficiency Vermont can earn up to 2.7 percent of 

the energy efficiency utility’s total three-year budget.591 State 

statute allows for partial decoupling through an alternative 

regulatory provision.592

3.19.9 Eligible Energy Savings

Eligible energy savings are produced by the energy 

efficiency utility through delivering energy efficiency 

services to all Vermonters. The Public Service Board states 

that the energy efficiency utility is expected to be “flexible, 

intelligent, and responsive to customers and market forces 

in implementing and re designing the programs it is 

charged to deliver.”593

3.19.10 Eligible Energy Efficiency Measures

Energy efficiency programmes are delivered by the 

energy efficiency utility and approved by the Public Service 

Board. Measures implemented in these programmes 

include: energy efficient technologies, appliances, lighting, 

fuel substitution, and whole building retrofits.

3.19.11 Measurement, Verification, and 

Reporting

Initial measurement and verification is undertaken 

by Efficiency Vermont using deemed and actual energy 

savings. Efficiency Vermont has developed a technical 

reference manual with documented methodology for 

calculating energy savings (including allowances for 

free riders and free drivers).594 The manual is updated 

annually by an advisory group that includes the contract 

administrator, the City of Burlington Electric Department, 

and the state energy office.

Annual energy savings and demand reductions claimed 

by Efficiency Vermont are verified by third-party evaluation 

contractors engaged and overseen by the state energy office 

and are certified by the Public Service Board, which also 

approves the annual measurement and verification plan. 

Statute requires a triennial independent program audit 

of the reported energy savings and demand reductions 

and of the cost-effectiveness of all Energy Efficiency 

591 See 2009-2011 Energy efficiency utility contract available at: 

http://www.state.vt.us/psb/EEU/2009-2011Contract/2009-

2011EEUContract.htm

592 Enabling statute is 30 V.S.A. §218d. Vermont Public Service 

Board, 2006 and Vermont Public Service Board, 2008 

593 Vermont Public Service Board, 1999

594 Efficiency Vermont, 2010, and Parker, 2009

595 As required by 30 V.S.A.§209(e)(10) Docket 5980 Order, 

Public Service Board contract.

596 Parker, 2009

597 PG 2.6.2. 

598 See http://psb.vermont.gov/utilityindustries/eeu/generalinfo/

currentEECrates for exact amounts.

Utility services.595 The energy efficiency utility’s demand 

reductions were accepted for capacity payments from ISONew England in the transition phase of the New England 

forward capacity market.596 A formal measurement and 

verification plan for demand reductions has been prepared 

for continued participation in the market.597

3.19.12 Trading of Energy Savings

The energy efficiency utility must obtain energy savings 

through its own programmes and no trading of energy 

saving credits is allowed.

3.19.13 Funding

The energy efficiency utility is primarily funded by a 

volumetric wires charge known as the energy efficiency 

charge that is shown separately on end-use customers’ bills. 

The Public Service Board determines the energy efficiency 

charge and the energy efficiency budgets.

In 2009, the energy efficiency charge ranged from USD 

0.0029/kWh to 0.0067/kWh, depending on customer class 

and demand charges.598

Table 19 (page 99) shows the annual energy efficiency 

budgets in Vermont between 2009 and 2011.

Additional funding for energy efficiency in Vermont, 

directed by statute to heating and process fuel efficiency 

programmes, is provided by net income from payments for 

capacity by ISO-New England and the state’s participation 

in the Regional Greenhouse Gas Initiative. This additional 

funding was about USD 4.1 million in 2010 and 2011.
99

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

For the 2009 to 2011 period, 41 percent of total 

funding was allocated to energy efficiency programmes in 

the residential sector, and 59 percent to programmes for 

businesses.600 The 2009 to 2011 contract with Efficiency 

Vermont includes certain minimum performance 

requirements, which include specific targets for certain 

end-use sectors. This includes minimum required spending 

of USD 19.7 million on energy efficiency programmes for 

residential customers and USD 6.3 million on programmes 

for low-income customers.601

For the 2012 to 2014 period, Efficiency Vermont 

estimates spending of USD 104.6 million for electricity 

efficiency resource acquisitions as well as USD 12 million 

for non-resource acquisition including education, training, 

research, and evaluation.602

3.19.14 Scheme Administration

The Public Service Board establishes three-year budgets, 

policy goals, and performance indicators for Efficiency 

Vermont. Using this information as a starting point, 

Efficiency Vermont prepares an annual plan for approval 

by the Board. The plan details the strategies, initiatives, 

projected budgets for the different programmes, and an 

estimate of the societal benefits and costs.

Efficiency Vermont has broad latitude in determining 

the strategies and measures needed to achieve the targeted 

energy savings and demand reductions. The current plan’s 

major strategies include: account management for large 

customers; targeted outreach and initiatives for designers, 

contractors, and building managers; use of negotiated 

cooperative promotions and rebates for efficient products; 

community energy initiatives; and contracting with thirdparty partners for direct installation in geographically 

targeted areas.603

Table 19

Annual Energy Efficiency Budgets in 

Vermont, 2009 to 2011599

Year

Total Budget

(USD million)

Directed to

Efficiency Vermont

(USD Million)

2009 30.75 26.50

2010 35.40 30.80

2011 40.00 34.70

Efficiency Vermont also partners with community-based 

weatherisation agencies to deliver services to low-income 

households. Customers are informed through targeted 

outreach to specific market sectors (e.g., hospitals, ski 

areas, and the like), a comprehensive website and customer 

service department, advertising, and community outreach. 

Most of Efficiency Vermont’s budget applies to electricity 

services and initiatives, with a fraction going to unregulated 

fuels and services as of 2009.604 Efficiency Vermont is 

committed to bundling unregulated fuel and electricity 

efficiency so the customer experiences “a single, one-stop, 

comprehensive service for energy efficiency.”605

3.19.15 Scheme Results

Figure 12 (page 100) shows that the energy efficiency 

utility has delivered increased incremental annual 

energy savings in each year from 2000 until 2008, when 

annualised savings exceeded 140 GWh. In 2007, increasing 

energy efficiency efforts in Vermont resulted in energy 

savings that effectively turned load growth negative.606

In 2008, verified energy savings were 46 MWh/USD 

10,000 invested at a levelised cost of USD 0.031 per 

kWh.607 Energy savings in 2009 and 2010 were 85,000 

MWh and 111,000 MWh, with summer peak savings of 

12.9 MW and 16.3 MW, respectively.608

599 Budget Order 2009-2011 is available at: http://www.state.

vt.us/psb/orders/2008/files/2009_2011budgetorder.pdf 

Funds not allocated to Efficiency Vermont are reserved for 

measurement and verification activities and the costs of the 

contract administrator and fiscal agent.

600 Parker, 2009

601 Parker, 2009

602 Efficiency Vermont, 2011

603 Efficiency Vermont, 2008. Although the Plan identifies 

expected savings from and spending for each strategy, 

Efficiency Vermont is not obligated to deliver savings as 

proscribed.

604 Parker, 2009

605 Efficiency Vermont, 2008

606 Parker, Hamilton, and Wickenden, 2008

607 Efficiency Vermont, 2009 

608 Efficiency Vermont, 2012
100

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

609 Efficiency Vermont, 2012

610 Enabled by 30 V.S.A. § 209(h) available at: http://psb.

vermont.gov/sites/psb/files/ORDestablishSMEEP.pdf 

3.19.16 Areas for Improvement

Some larger customers have expressed dissatisfaction 

with the energy efficiency utility. As of 2010, Vermont 

offered two programmes for self-management of energy 

efficiency by larger customers.

The Self-Managed Energy Efficiency Program is a threeyear pilot that allows customers who paid an annual energy 

efficiency charge in excess of USD 1.5 million in 2008 to 

be exempt from the charge, provided that the customer 

commits to spending an annual average of no less than 

Figure 12

Annualised Electricity Savings in Vermont, 2000-2010 609

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

MWh

USD 1 million over a 3-year period on energy efficiency 

investments.610

The Energy Savings Account allows customers who pay 

an average annual energy efficiency charge of at least USD 

5,000 to use 70 percent of their charge contribution to 

undertake their own energy efficiency investments. The 

remaining 30 percent of the customer’s energy efficiency 

charge is used to support the energy efficiency utility’s 

system-wide programmes.611

611 Enabled by 30 V.S.A. § 209(d)(4) available at: http://psb.

vermont.gov/sites/psb/files/ESA_Order.pdf 
101

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

The case studies of 19 EEO schemes in section 3 of 

this report (commencing on page 8) describe and 

explain how the EEO schemes actually operate 

by systematically classifying information about 

the schemes into categories that apply to all the schemes. 

Through a comparative analysis of this information, it 

is possible to identify best practices in designing and 

implementing an EEO scheme.

4.1 Policy Objectives

There are a variety of policy objectives in the EEO 

schemes, ranging from achievement of specified energy 

savings, through stimulating an energy services industry, to 

assisting disadvantaged households.

Policy objectives about achieving energy savings are 

clear in what they are trying to achieve and also focus 

on an area relevant to obligated energy providers, even 

though the providers may be wary of reducing energy sales 

through promoting energy efficiency. Objectives aimed 

at stimulating an energy services industry may also be 

effective and may encourage energy providers to include 

energy services in their business models, but should not 

distract from the main purpose of an EEO scheme to 

achieve energy savings. Objectives concerned with assisting 

disadvantaged households may be achieved through 

implementing energy saving activities in ways that more 

greatly benefit such households, (e.g., through targeted 

higher-than-normal rebates, more direct and fully funded 

investment, and so on).

Best Practice: Keep the policy objectives of the EEO 

scheme simple and clear, and focussed on achieving energy 

savings. If the scheme has multiple objectives, ensure that 

the achievement of any non-energy-related objectives does 

not hinder pursuit of the primary objective to achieve 

energy savings.

4. Best Practices In Energy Efficiency Obligations

4.2 Legal Authority

The types of legal authority under which the EEO 

schemes are established and operate include:

• new single purpose enabling legislation;

• amendments to existing legislation;

• regulations made under existing or new legislation;

• rules made by Ministerial or administrative processes; 

and

• Ministerial or administrative determinations on 

individual matters.

Legislation removes any uncertainty about legal 

authority, and it states clearly that energy efficiency is a 

high value energy resource. Once legislation is passed, 

however, it is relatively inflexible and cumbersome to 

change. Changes may be required as experience is gained in 

implementing an EEO scheme.

Regulation uses existing legal authority so an EEO 

scheme may be established quickly. Scheme parameters 

may also be modified more easily in response to experience 

and changing conditions than under legislation.

Ministerial and administrative processes also have the 

advantage that scheme parameters can be easily changed, 

but they lack the force and standing of legislation.

Best Practice: Use a carefully selected combination of 

legislation, regulation, and Ministerial and administrative 

processes to establish and operate the EEO scheme.

4.3 Fuel Coverage

The majority of the EEO schemes cover networked 

energy, electricity, and natural gas. A few schemes cover 

other fuels such as LPG, heating oil, transport fuels, 

and district heating. The more fuels that are covered the 

greater the energy savings that will be achieved. Increasing 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

the number of fuels greatly increases the complexity of 

a scheme, particularly when a large number of small 

providers of some fuels, such as heating oil and transport 

fuels, are included. It is better to start by covering one or 

two fuels, particularly electricity and natural gas, and then 

expand to other fuels as experience is gained.

The decision on fuel coverage will depend on the overall 

policy objectives the scheme is designed to achieve. In 

addition, the choice of fuels to be covered should be made 

on the basis of estimates of energy efficiency potentials for 

the different fuels.

Best Practice: Decide the fuel coverage according to the 

overall policy objectives for the EEO scheme and estimates 

of energy efficiency potentials for the different fuels. Start 

by covering one or two fuels and then expand the scheme 

to other fuels as experience is gained.

4.4 Sector and Facility Coverage

Across all the EEO schemes, all economic sectors and 

all types of facilities are covered. Individual schemes vary 

greatly in the range of sectors and facilities they cover. 

Some schemes are restricted to achieving eligible energy 

savings in residential dwellings, whereas other schemes 

place no restrictions at all on the sector or type of facility in 

which eligible energy savings may be achieved.

In contrast to the question of fuel coverage, it is not 

necessarily the case that increasing the number of sectors 

and facilities covered increases the complexity of the 

scheme. One consequence of tightly restricting sector and 

facility coverage is that assessing compliance becomes more 

onerous.

The decision on sector and facility coverage will depend 

on the overall policy objectives the scheme is designed to 

achieve. In addition, the choice of sector and facilities to be 

covered should be made on the basis of estimates of energy 

efficiency potentials for the different fuels.

Best Practice: Decide the end-use sector and facility 

coverage of the EEO scheme according to the overall policy 

objectives for the scheme and estimates of energy efficiency 

potentials for the different sectors and facilities. If it is 

intended to tightly restrict sector and facility coverage, 

consider whether assessing compliance will become too 

onerous.

4.5 Energy Saving Target

There are several parameters involved in setting an 

energy saving target:

• the actual level of the target;

• whether the target will be set in terms of primary 

energy or final energy;

• the units that will be used for denominating the 

target;

• the timeframe over which the target will be in place;

• the time period over which eligible energy savings 

from energy efficiency measures will be calculated;

• if energy savings are calculated over the lifetime of an 

energy efficiency measure, how annual scheme targets 

will be set; and

• whether to set sub-targets and portfolio requirements 

that address particular policy objectives.

The EEO schemes covered in this report vary greatly in 

relation to how these various parameters are set:

• annual target levels generally vary from less than one 

percent of energy sales up to five percent or more of 

sales. The level should be set in the light of the overall 

policy objectives for the EEO scheme. The aim is to 

strike a balance between making progress and judging 

what is practically possible based on an assessment of 

energy efficiency potential;

• most schemes set targets in terms of final energy, but 

some use primary energy. Final energy is more closely 

related to the energy quantities delivered by energy 

providers and used by consumers, but primary energy 

accounts for the different conversion factors achieved 

in converting primary fuels to final energy sources 

(e.g., in converting coal or natural gas to electricity);

• most schemes use energy units to denominate the 

target, but some schemes with policy objectives that 

relate to GHG emissions reductions use CO2-e units;

• in most schemes, the target will be in place for 

between 10 and 20 years. Setting a relatively long 

timeframe provides assurance to the obligated 

parties that costs involved in setting up systems and 

procedures to meet the target will be justified;

• some schemes calculate eligible energy savings over 

the first year after an energy efficiency measure has 

been implemented; other schemes calculate savings 

over an estimated lifetime for the measure. Selecting 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

first-year savings may favour low-cost, short-lifetime 

measures over more costly measures that save more 

energy over longer time periods and that may be more 

cost effective in the long run. Focussing on low-cost 

measures may also encourage projects that install 

only one measure in a facility rather than carrying out 

comprehensive energy efficiency retrofits that capture 

all available cost-effective energy savings;

• some schemes in which energy savings are calculated 

over the lifetime of an energy efficiency measure use 

energy savings from the measure that were accrued 

only in the target year (“annual savings”); other 

schemes use all energy savings from the measure 

accrued from the date when the measure was installed 

to the end of the target year (“cumulative savings”). 

The decision on which method to use has no effect on 

the actual energy savings claimed for the scheme—it 

actually only affects how the target and savings are 

expressed; and

• a few schemes set sub-targets and portfolio 

requirements in which the scheme has policy 

objectives that are not solely related to achieving 

energy savings.

Best Practice: Set the level of the energy saving target for 

the EEO scheme according to the overall policy objectives 

for the scheme and aim to strike a balance among making 

progress, the cost to consumers of meeting the target, and 

what is practically possible based on an assessment of 

energy efficiency potential. Set the target in terms of final 

energy (i.e., the quantities of energy delivered to, and used 

by, consumers), unless the scheme covers several different 

fuels, in which case use primary energy. Denominate 

the target in energy units unless the scheme has a policy 

objective that relates to GHG emissions reductions, in 

which case consider using CO2-e units. Set a relatively long 

timeframe for the target, preferably between 10 and 20 

years. Calculate eligible energy savings over the estimated 

lifetime for each energy efficiency measure. Consider setting 

sub-targets and portfolio requirements where the scheme 

has policy objectives that are not solely related to achieving 

energy savings.

4.6 Obligated Parties612

The obligated parties in the EEO schemes are 

determined mainly by each scheme’s fuel coverage. The 

majority of the schemes place obligations on providers 

of networked energy, electricity, and natural gas. A few 

schemes place obligations on providers of other fuels, such 

as LPG, heating oil, transport fuels, and district heating.

The other parameter to be considered when deciding 

the obligated parties for a scheme is the type of energy 

provider to be obligated. Schemes in traditional regulated 

energy markets obligated vertically integrated energy 

utilities. In competitive electricity markets with unbundled 

energy providers, some schemes obligated energy retailers 

and others obligated energy distributors. Some schemes 

restricted the obligation to larger energy providers where 

small energy providers lacked the requisite systems, 

infrastructure, and capability to manage the delivery and/or 

procurement of eligible energy savings.

Almost all schemes allocated individual energy saving 

targets to each obligated party by dividing up each overall 

scheme target according to each obligated party’s market 

share of energy sales in the jurisdiction. Some schemes 

implemented carve-outs for energy-intensive, trade exposed 

industries and/or other specified groups of end-users. In 

these cases, sales to these end-users were excluded from the 

calculation of market shares.

Best Practice: Determine the obligated parties in the 

EEO scheme according to the fuel coverage of the scheme 

and the type of energy provider that has the infrastructure 

and capability to manage the delivery and/or procurement 

of eligible energy savings. Consider restricting the 

obligation to larger energy providers. Allocate individual 

energy saving targets to each obligated party on the basis 

of that party’s market share of energy sales. Consider 

whether to implement carve-outs for energy-intensive, 

trade-exposed industries and/or other specified groups of 

end-users.

612 This report considers only EEO schemes that place 

obligations on energy providers. However, other entities 

may also be considered as obligated parties. For a detailed 

discussion of the issues to be considered in determining the 

best obligated party for a EEO scheme see Neme, Gottstein 

and Hamilton (2012).
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

4.7 Compliance Regime

Most EEO schemes have a procedure for obligated 

parties to report claimed eligible energy savings to an 

appropriate authority (typically the Scheme Administrator) 

and a process for checking and verifying these savings. 

Some schemes impose penalties on obligated parties that 

failed to meet their individual energy saving targets, but 

some schemes do not impose a penalty.

Best Practice: As an integral component of the EEO 

scheme, establish a procedure for obligated parties to report 

claimed eligible energy savings to an appropriate authority 

and a process for checking and verifying these savings. 

Establish a penalty to be imposed on obligated parties 

that fail to meet their individual energy saving targets. Set 

the level of the penalty high enough to mobilise energy 

providers to meet their targets.

4.8 Performance Incentives

Some schemes include performance incentives awarded 

to obligated parties that exceed their energy saving targets 

and some schemes do not. Most of the schemes that include 

performance incentives are integral components of resource 

planning and acquisition by the obligated energy providers, 

and the performance incentives are the main drivers for 

energy providers to implement energy efficiency projects.

Best Practice: Consider whether to include performance 

incentives in the EEO scheme to be awarded to obligated 

parties that exceed their energy saving targets.

4.9 Eligible Energy Savings

Some schemes allow only obligated parties, and in some 

cases their contractors or agents, to implement energy 

efficiency projects to produce eligible energy savings that 

contribute to the scheme energy saving target. Other 

schemes enable non-obligated parties to implement 

projects. Enabling contractors and non-obligated parties to 

implement projects can stimulate the development of an 

energy services industry.

Some schemes require parties to be authorised or 

accredited before they are allowed to implement energy 

efficiency projects to produce eligible energy savings. Some 

schemes also require preapproval of individual projects, 

or even individual energy efficiency measures or products, 

before they can be implemented or installed to produce 

eligible energy savings. Other schemes have no restrictions 

on projects or measures. Requiring preapproval of energy 

efficiency projects and/or measures can significantly limit 

the energy saving activities that can be carried out in a 

scheme and, in particular, can prevent the implementation 

of comprehensive energy efficiency retrofits that capture all 

available cost-effective energy savings.

Best Practice: Enable non-obligated parties in the 

EEO scheme to implement energy efficiency projects to 

produce eligible energy savings. Do not place unnecessary 

restrictions on the energy efficiency projects or measures 

that can be implemented to produce eligible energy savings, 

provided that the energy savings can be verified.

4.10 Eligible Energy Efficiency Measures

The EEO schemes vary in how they determine the energy 

efficiency measures that will be eligible to produce energy 

savings. Some schemes establish a list of preapproved energy 

efficiency measures with deemed energy saving values. 

Deemed values can significantly reduce the transaction 

costs of implementing eligible energy efficiency measures. 

All EEO schemes that have lists of preapproved measures 

have established procedures for approving further energy 

saving measures and assigning them deemed values. Some 

schemes have also established procedures for calculating the 

energy savings from measures not on the approved list, or 

for calculating, on a case-by-case basis, the energy savings 

from complex energy efficiency projects that employ a range 

of energy efficiency measures.

Other schemes accept any energy efficiency measure and 

rely on procedures for calculating energy savings on a caseby-case basis.

Best Practice: Consider establishing in the EEO scheme 

a list of preapproved energy efficiency measures with 

deemed energy saving values, but do not limit the measures 

that can be implemented to produce eligible energy savings 

to only those on the list.

4.11 Measurement, Verification, and 

Reporting

All the EEO schemes have established systems for 

measuring, verifying, and reporting energy savings and 

other activities that contribute to scheme targets. Some 
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

schemes use ex ante deemed energy saving values to reduce 

transaction costs. Other schemes use ex post engineering 

estimates adjusted for site conditions to estimate energy 

savings on a case-by-case basis.

Most schemes carry out audits on energy efficiency 

projects; in some schemes these audits are carried out on a 

random basis to achieve cost-effective verification.

None of the schemes have established robust procedures 

to verify whether energy savings are additional (i.e., energy 

savings that would not otherwise have occurred).

Best Practice: As an integral component of the EEO 

scheme, establish a robust system for measuring, verifying, 

and reporting energy savings and other activities that 

contribute to scheme targets. Consider whether to also 

establish procedures to verify whether energy savings are 

additional to what would have happened in the absence of 

the EEO scheme.

4.12 Trading of Energy Savings

Some of the EEO schemes allow trading of energy 

savings, some among obligated parties only, and others 

among obligated parties and third parties. The purpose of 

trading is to broaden the pool of opportunities to produce 

eligible energy savings and to enable market forces to 

identify the most cost-effective opportunities.

In most schemes that allow trading, the Scheme 

Administrator does not provide a trading platform. Some 

EEO schemes require disclosure of prices, whereas in other 

schemes price disclosure is voluntary. In some schemes, 

trading is carried out through the creation and sale of 

energy efficiency certificates. In other schemes trading of 

energy savings can be carried out bilaterally without the 

necessity to create energy efficiency certificates.

Best Practice: Consider enabling trading of energy 

savings among both obligated parties and third parties.

4.13 Funding

The EEO schemes vary in how the costs incurred by 

obligated parties in meeting their individual energy saving 

targets are recovered, and who pays them.

In schemes where regulated energy providers are the 

obligated parties, regulators have usually established 

regulatory mechanisms to enable energy providers 

to recover their costs, and sometimes also to provide 

compensation for reduced energy sales.

In schemes in competitive energy markets, cost recovery 

is achieved either by the government making direct 

budgetary appropriation, or through price surcharges on 

regulated “wires and pipes” energy providers. Alternatively, 

in some schemes the costs incurred in meeting energy 

saving targets are treated as a cost of doing business, and 

obligated energy providers adjust their prices to recover 

these costs.

Best Practice: Establish an appropriate mechanism in 

the EEO scheme to enable recovery of the costs incurred by 

obligated parties in meeting their individual energy saving 

targets.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

This report includes detailed case studies of 19 

different EEO schemes implemented in a range 

of jurisdictions around the world. The report 

identifies three broad types of schemes from 

Australia/Europe, North America, and Asia. Each of the 

three types of schemes is the product of quite different 

ways of thinking about how to use energy providers to 

deliver energy efficiency.

5. Conclusion

For the first time, information about the three different 

types of schemes has been systematically classified 

into categories that apply to all the schemes. Through 

a comparative analysis of this information, the report 

identifies best practices in designing and implementing an 

EEO scheme. Adopting these best practices in designing 

and implementing new schemes, and updating existing 

ones, should improve the effectiveness of the schemes in 

delivering cost-effective energy efficiency.
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Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

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Ahn, M. (1998). The energy conservation programme of the Republic 

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agency/rulesnlaws/statutes/Pura11.pdf

Texas State Energy Conservation Office. (2007). Texas Energy 

Partnership SB5/SB12 Compliance. Retrieved from: http://

www.seco.cpa.state.tx.us/sb5compliance.php

Togeby, M., et al. (2009). Danish energy efficiency policy revisited 

and future improvements. ECEEE 2009 Summer Study. 

Retrieved from: http://ea-energianalyse.dk/papers/2009_june_

eceee2009_togeby.pdf

United Kingdom Department of Energy and Climate 

Change. (2009). United Kingdom fuel poverty strategy 

7th annual progress report. Retrieved from: http://www.

decc.gov.uk/Media/viewfile.ashx?FilePath=Statistics 

percent5Cfuelpoverty percent5C1_20091021091505_e_@@_

UKFuelPovertyStrategy7AnnReport09.pdf&filetype=4

United Kingdom Department of Energy and Climate Change. 

(2010). Warm homes, greener homes: A strategy for household 

energy management. Retrieved from: http://www.decc.gov.uk/

en/content/cms/what_we_do/consumers/saving_energy/hem/

hem.aspx

United Kingdom Legislation. (2008). Explanatory memorandum 

to the electricity and gas (carbon emissions reduction) order 2008.

Retrieved from: http://www.opsi.gov.uk/si/si2008/draft/em/

ukdsiem_9780110805306_en.pdf
115

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

United Kingdom Legislation. (2009). Explanatory memorandum 

to the electricity and gas (community energy saving 

programme) order 2009 No. 1908. Retrieved from: http://

www.opsi.gov.uk/si/si2009/em/uksiem_20091905_en.pdf

United Kingdom Office of Gas and Electricity Markets. (2009). 

The carbon emissions reduction target supplier guidance 

– version 2. Retrieved from: http://www.ofgem.gov.uk/

Sustainability/Environment/EnergyEff/cesp/Documents1/CESP 

percent20Open percent20Letter percent20- percent20Apr 

percent202010.pdf

United Kingdom Office of Gas and Electricity Markets. 

(2010). Community energy savings programme open letter – 

Obligated parties. Retrieved from: http://www.ofgem.gov.uk/

Sustainability/Environment/EnergyEff/cesp/Documents1/CESP 

percent20Open percent20Letter percent20- percent20Apr 

percent202010.pdf

United Kingdom Office of Gas and Electricity Markets. (2012). 

Carbon emissions reductions target. Retrieved from: http://

www.ofgem.gov.uk/Sustainability/Environment/EnergyEff/

CU/Documents1/OfGem%20CERT%20Q15%20March%20

2012_WEB.pdf

United States Environmental Protection Agency. (2007). Aligning 

utility incentives with investment in energy efficiency. Retrieved 

from: http://www.epa.gov/cleanenergy/documents/incentives.

pdf

Vermont Department of Public Service. (2007). Vermont 

electrical energy efficiency potential study: Final report. Retrieved 

from: http://publicservice.vermont.gov/energy-efficiency/

vteefinalreportjan07v3andappendices.pdf

Vermont Legislature. (2007a). 30 V.S.A. §255(c) and (d ). 

Regional coordination to reduce greenhouse gases.

Vermont Legislature. (2007b). 10 VSA §581 Building efficiency 

goals.

Vermont Legislature. (2008). 30 V.S.A §209 Jurisdiction; general 

scope.

Vermont Legislature. (2011). 30 V.S.A. §218c Jurisdiction over 

charges and rates.

Vermont Public Service Board. (1999). Investigation into the 

department of public service’s proposed energy efficiency plan. 

Retrieved from: http://psb.vermont.gov/sites/psb/files/

orders/1999/5980eeu.PDF

Vermont Public Service Board. (2006). Docket no. 7175, 

Docket no. 7176. Retrieved from: http://www.state.vt.us/psb/

orders/2006/files/7175-7176finalorder.pdf

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Retrieved from: http://www.state.vt.us/psb/orders/2008/

files/7336%20Final.pdf

Vermont Public Service Board. (2012). Energy efficiency utility 

creation and structure. Retrieved from: http://psb.vermont.gov/

utilityindustries/eeu/generalinfo/creationandstructure

Victoria Essential Services Commission. (2012a). How the VEET 

Scheme works: Overview. Retrieved from: https://www.veet.vic.

gov.au/Public/Public.aspx?id=Overview

Victoria Essential Services Commission. (2012b). How the scheme 

works: Certificates (VEECs). Retrieved from: https://www.veet.

vic.gov.au/Public/Public.aspx?id=Certificates%28VEECs%29

Victoria Essential Services Commission. (2012c). Scheme 

participants. Getting accredited: What you need to know. 

Retrieved from: https://www.veet.vic.gov.au/Public/Public.

aspx?id=GettingAccredited

Victoria Essential Services Commission. (2012d). How the scheme 

works: VEET activities. Retrieved from: https://www.veet.vic.gov.

au/Public/Public.aspx?id=VEETActivities

Victoria Essential Services Commission. (2012e). How the scheme 

works: Product approval. Retrieved from: https://www.veet.vic.

gov.au/Public/Public.aspx?id=ProductApproval

Victoria Essential Services Commission. (2012f). Registers: 

VEECS. Retrieved from: https://www.veet.vic.gov.au/Public/

PublicRegister/Search.aspx

Victorian Legislation. (2012a). Victorian Energy Efficiency Target 

Act 2007. Retrieved from: https://www.veet.vic.gov.au/Public/

Pub.aspx?id=6

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regulations. Retrieved from: https://www.veet.vic.gov.au/

Public/Pub.aspx?id=7

World Resources Institute. (2008). The bottom line on energy savings 

certificates. Retrieved from: http://pdf.wri.org/bottom_line_

energy_savings_certificates.pdf

Zhou, M. (2012). Statement by the Deputy Director of the 

Electricity Supply Department, State Electricity Regulatory 

Commission. Saving Electricity in a Hurry Workshop. Beijing, 

China. February 23, 2012.
116

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Design 

Parameter

Australia – 

New South Wales

Australia – 

South Australia

Australia – 

Victoria

Policy Objectives

Legal Authority

Fuel Coverage

Sector and Facility 

Coverage

Energy Saving Target

Sub-targets and 

Portfolio Requirements

Obligated Parties

Compliance Regime

Penalty

Performance 

Incentives

Eligible Energy Savings

Eligible Energy 

Efficiency Measures

Measurement, 

Verification, and 

Reporting

Trading of Energy 

Savings

Funding

Reduce electricity consumption 

and costs; complement a national 

emissions trading scheme; reduce 

cost of additional generation and 

network capacity

Combination of legislation and 

regulation

Electricity

Residential, commercial, and 

industrial sectors; all facilities

0.4% of total electricity sales in 

2009, increasing to 4.0% in 2014

None

Electricity retailers; electricity generators that supply customers directly; 

and customers who purchase electricity directly from the wholesale market

Surrender of energy efficiency 

certificates

AUD 24.86 per tCO2-e shortfall in 

2012, adjusted annually for inflation

None

Energy savings from preapproved 

energy efficiency projects; accredited 

non-obligated parties may 

implement energy efficiency projects

Preapproved measures with 

deemed energy saving values, plus 

methodologies to assess other 

measures on a case-by-case basis

Random audits of energy efficiency 

projects

Trading of energy efficiency 

certificates

Obligated parties’ costs are treated as 

a cost of doing business

Improve residential energy efficiency 

and reduce GHG emissions

Assist households to prepare for 

energy price increases

Reduce energy costs for households

Combination of legislation, regulation, and ministerial determinations

Electricity and natural gas

Residential dwellings

Set levels of annual tCO2-e 

reductions increasing each year

Set number of energy audits in lowincome households

Licensed energy retailers with 5,000 

or more electricity or natural gas 

residential customers in South 

Australia

Undertake activities to meet 

emissions reduction and energy 

audit targets

AUD 70 per tCO2-e shortfall; AUD 

500 per energy audit shortfall

None

Energy savings from energy 

efficiency activities undertaken by, 

or on behalf of, obligated energy 

retailers

Preapproved measures with deemed 

energy saving values, additional 

measures added from time to time

Audits of retailers’ operations re 

compliance with REES obligations

Limited transfer of credits among 

obligated parties

Per-customer amount included in 

regulated price determination

Reduce GHG emissions; encourage 

the efficient use of electricity 

and gas; encourage investment, 

employment, and technology 

development in energy services

Combination of legislation and 

regulation

Electricity and natural gas

Residential dwellings and 

commercial and other nonresidential premises

2.4 MtCO2-e per annum from 2009 

to 2011; 5.4 MtCO2-e per annum 

from 2012 to 2014

None

Electricity and gas retailers with 

5,000 or more customers in Victoria 

and who purchase electricity or gas 

from specified sources

Surrender of energy efficiency 

certificates

AUD 40 per tCO2-e shortfall in 

2010, adjusted annually for inflation

None

Energy savings from installing 

preapproved energy efficiency 

products; accredited non obligated 

parties may install products

Preapproved products with deemed 

energy saving values, additional 

products added from time to time

Audits of records of product 

installations

Trading of energy efficiency 

certificates

Obligated parties’ costs are treated as 

a cost of doing business

Appendix: Comparison of Key Design Parameters 

Among Energy Efficiency Obligation Schemes
117

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Design 

Parameter

Belgium – 

Flanders

Canada – 

Ontario China

Policy Objectives

Legal Authority

Fuel Coverage

Sector and Facility 

Coverage

Energy Saving Target

Sub-targets and 

Portfolio Requirements

Obligated Parties

Compliance Regime

Penalty

Performance 

Incentives

Eligible Energy Savings

Eligible Energy 

Efficiency Measures

Measurement, 

Verification, and 

Reporting

Trading of Energy 

Savings

Funding

To encourage efficient use of energy 

in a liberalised market

Legislation

Electricity 

Household and non-energy-intensive 

industry and service sectors

From 2012, the energy saving target 

has been replaced with specific 

“action obligations”

None

Electricity distributors

Compliance with the action 

obligations is based on evaluation 

of annual reports prepared by 

electricity distributors

EUR 0.1 per kWh of shortfall

None

Savings from energy efficiency 

actions implemented by obligated 

electricity distributors

Measures specified or approved by 

central government agency

Preapproval of energy efficiency 

programmes and calculation 

methods for energy savings; only 

first-year savings credited

No

Regulator approves cost recovery 

through tariffs

To promote and expand energy 

efficiency in Ontario

Combination of legislation and 

regulation

Electricity

Residential, commercial, industrial, 

institutional, and low-income 

customers

1,330-MW reduction in peak 

demand by 2014 and 6,000 GWh of 

energy savings by 2014

Distributors assigned targets 

proportional to share of provincial 

peak demand and annual electricity 

consumption

Electricity distributors

Electricity distributors must file for 

approval a strategy that describes 

how the distributor intends to 

achieve its targets

None

Allowed on a sliding scale between 

80 and 140% of goal achievement

Savings achieved through distributor’s own programmes, or through 

contracted government programme

Government-run programmes or programmes approved by the regulator 

in the distributor’s service territory

Distributor programmes must 

be evaluated by a third party; 

the regulator must publish result 

annually

No

Collected from all ratepayers based 

on energy use or contribution to 

peak demand

To prioritise DSM in tight supply 

situations

Regulation issued by central 

government agency

Electricity

All economic sectors and any 

facility including transmission and 

distribution networks

Savings of 0.3% of electricity sales 

and load reduction of 0.3% of 

maximum load in the previous year

Load-monitoring equipment on 

70% of peak load and load-control 

equipment of 10% of peak load

Government-owned grid companies

Score a minimum of 70 points 

in a system that uses quantitative 

and qualitative measures to score 

performance from 0 to 100 points

None

Available pending a result of 

“Excellent” (90 points or higher); no 

further details available

Savings achieved by grid companies 

and energy service company 

subsidiaries of grid companies

Measures not specified; energy 

savings from other fuel types may be 

converted into electricity saving

100% of savings can only be claimed 

if audited by third party or recorded 

by equipment

Obligated parties may purchase 

savings from customers and ESCOs 

under bilateral contracts

City utility surcharge, revenue from 

differential electricity prices, and 

other funding sources
118

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Design 

Parameter Denmark France Italy

Policy Objectives

Legal Authority

Fuel Coverage

Sector and Facility 

Coverage

Energy Saving Target

Sub-targets and 

Portfolio Requirements

Obligated Parties

Compliance Regime

Penalty

Performance 

Incentives

Eligible Energy Savings

Eligible Energy 

Efficiency Measures

Measurement, 

Verification, and 

Reporting

Trading of Energy 

Savings

Funding

To decrease total energy consumption by 2% in 2012 and 4% in 2020

Voluntary agreements by obligated 

parties within a legislative framework

Electricity, natural gas, district 

heating; and heating oil

Residential, public, private business, 

and energy-intensive industry endusers

2.95 PJ for 2006-2009 (0.7% of 

consumption); 6.1 PJ for 2010-2012 

(1.2% of consumption)

None

Distributors of electricity, natural 

gas, district heating, and heating oil

Energy savings must be well 

documented and they must be 

verifiable by an independent party

EUR 0.1 per kWh of shortfall; possibility for distributor to lose license

Weighting factors for longer lifetime 

energy efficiency measures

Distributors must engage third 

parties to achieve energy savings 

within own or any other energy type 

except for transport

Many types, including energy audits, 

targeted information, subsidies for 

efficient appliances and equipment; 

also small scale renewables

Distributors verify and report 

savings; can be calculated or deemed 

savings

Energy savings may only be traded 

among obligated energy distributors

Cost recovery through tariffs

To realise the available potential of 

energy efficiency in France

Combination of legislation and 

regulation

All fuels, including district heating 

and cooling and transport fuels

Residential and commercial buildings, 

manufacturing industries, networked 

industries, transport, and agriculture

54 TWh cumac for July 2006 to June 

2009; 345 TWh cumac for January 

2011 to December 2013

90 TWh cumac for transport fuels

Energy retailers that sell the covered 

fuels to end consumers 

Surrender of energy efficiency 

certificates; banking is allowed for 

up to nine years

EUR 0.02/kWh lifetime final energy 

shortfall

None

Savings can be produced by 

obligated parties, local authorities, 

and social housing landlords

Standardised and non-standardised 

measures plus contributions to 

programmes targeting fuel poverty, 

education, or innovation

Deemed savings for standardised 

measures; regulatory approval 

required for others

Over-the-counter trading of energy 

efficiency certificates 

Cost recovery through tariffs is 

possible but has yet to be allowed

To serve as the primary driver for 

end-use energy efficiency

Combination of legislation and 

Ministerial Decrees

Electricity and natural gas

All sectors including transport, and 

all end-uses including small-scale cogeneration and photovoltaics

2.2 Mtoe cumulative in 2008; 

increasing to 6.0 Mtoe cumulative 

in 2012

None

Distributors of electricity and natural 

gas 

Surrender of energy efficiency 

certificates; one-year grace period 

before penalty is assessed if at least 

60% of target is met 

EUR 25,000 to 155 million assessed 

on case-by-case basis 

Possible 5% premium over achieved 

savings 

Savings can be produced by 

obligated distributors and accredited 

energy service providers

Preapproved list of measures with 

deemed energy saving values plus 

other measures assessed on a caseby-case basis

Deemed savings, partial on-field 

measurement, or measures subject to 

preapproval

Trade of energy efficiency certificates 

through over-the-counter market or 

spot market

Fixed contribution to cost recovery 

through a tariff contribution; 

transport measures not eligible for 

cost recovery
119

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Design 

Parameter Korea Poland United Kingdom

Policy Objectives

Legal Authority

Fuel Coverage

Sector and Facility 

Coverage

Energy Saving Target

Sub-targets and 

Portfolio Requirements

Obligated Parties

Compliance Regime

Penalty

Performance 

Incentives

Eligible Energy Savings

Eligible Energy 

Efficiency Measures

Measurement, 

Verification, and 

Reporting

Trading of Energy 

Savings

Funding

Improve efficiency in production, 

conversion, transport, storage, and 

utilisation of energy

Combination of law and regulation

Electricity, natural gas, and district 

heat

Commercial, industrial, educational, 

and residential customers

None

None

Energy utilities

Energy utilities must submit a DSM 

plan and report the results to a 

government agency

None

None

Savings from energy efficiency 

projects implemented by energy 

utilities, ESCOs, and energy efficient 

equipment vendors

No preapproval required; energy 

efficiency improvements or load 

management measures

Verification of actual energy savings 

by an independent third party

None

Through a customer charge for 

electricity and from energy utility 

revenues for gas and district heating

Drive energy efficiency in the public 

sector

Combination of law and regulation

Electricity, natural gas, and district 

heat

End-use sectors; energy savings in 

obligated parties’ own activities; 

reductions in grid losses

53,452 GWh by 2016

80% of energy efficiency certificates 

are to be issued for end-use 

measures

Electricity, natural gas, and district 

heating companies and brokers 

Surrender of energy efficiency 

certificates

Up to EUR 2 million for noncompliance

None

Savings achieved through energy 

efficiency projects selected through 

annual auctions

Measures specified or approved by a 

government ministry

Projects exceeding 100 toe of savings 

must be verified through an audit

Energy efficiency certificates are 

fully tradable on the Polish Power 

Exchange

Costs are passed through to 

consumers via tariffs for electricity, 

heat, and natural gas

Reduce fuel bills and the carbon 

impact of homes by improving 

energy efficiency

Legislation and statutory instruments

Electricity and natural gas

Residential dwellings including 

those of low-income households and 

disadvantaged groups

Lifetime savings of 293 MtCO2-e for 

2008 to 2012 and 19.25 MtCO2-e 

for 2009 to 2012

40% of the target must be met with 

savings in households with lowincome and/or elderly people

Electricity and natural gas retailers 

and certain electricity generators

Determined by the regulator 

based on the final measurement of 

carbon reductions achieved by each 

obligated party

Penalty may be imposed for noncompliance

Uplifts that increase the carbon 

reductions claimable for certain 

measures

Savings from energy efficiency 

projects implemented by obligated 

parties or by contractors engaged by 

the obligated parties

Energy efficiency measures 

implemented in residential dwellings

Deemed savings or calculated 

savings approved by the regulator

Transfers of emissions reductions 

and trading of obligations allowed 

among obligated parties

Costs are considered a cost of doing 

business and are passed on to the 

customer through increased prices
120

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Design 

Parameter

United States – 

California

United States – 

Connecticut

United States – 

Massachusetts

Policy Objectives

Legal Authority

Fuel Coverage

Sector and Facility 

Coverage

Energy Saving Target

Sub-targets and 

Portfolio Requirements

Obligated Parties

Compliance Regime

Penalty

Performance 

Incentives

Eligible Energy Savings

Eligible Energy 

Efficiency Measures

Measurement, 

Verification, and 

Reporting

Trading of Energy 

Savings

Funding

Obtain 100% of cost-effective energy 

efficiency and reduce total consumption by ten percent within ten years

Combination of legislation and 

regulation

Electricity and natural gas

New construction; heating, 

ventilation, and air conditioning; 

and low-income customers 

6,965 GWh (0.9% of sales), 1537 

MW, and 150 million therms in 

2010-2012 for investor-owned 

utilities; 700,000 MWh for publicly 

owned utilities

None

Investor-owned and publicly owned 

electricity and natural gas utilities

Obligated utilities implement 

approved energy efficiency 

programmes and report the results

Yes, if achievement is below 65% of 

target

Starting at achieving 80% of the 

target and capped at USD 450 

million for investor-owned utilities

Savings from programmes 

implemented by the utilities 

themselves or by contractors

Measures included in 12 statewide 

energy efficiency programmes 

Rigorous protocol carried out by 

third-party contractors

None

Public goods charge and natural 

gas DSM charge; additional funding 

through rate cases

Acquire all cost-effective energy 

efficiency

Combination of legislation and 

regulation

Electricity, natural gas, propane, and 

heating oil

All customer classes in all sectors, 

including low-income customers

Energy saving targets for each 

obligated party are specified in 

annual Conservation and Load 

Management Plans approved by the 

energy regulator

None

Electricity distributors, municipal 

utilities, and natural gas utilities

Obligated parties must prepare 

and implement annual plans 

detailing energy saving targets and 

programmes

None

For achievement of between 70 and 

130% of targets; based on program 

expenditures

Savings produced by obligated 

parties through implementing 

approved annual plans

Measures included in annual plans 

approved by the regulator

Deemed energy saving values and 

engineering calculations

Obligated parties may purchase 

energy efficiency certificates from 

third parties

System benefits charges, funding 

from carbon and capacity markets, 

plus other funding sources

Acquire all available energy efficiency 

and demand reduction resources

Combination of legislation and 

regulation

Electricity and natural gas

All customer classes in all sectors, 

including low-income customers

1.4% of retail electricity sales in 

2010, 2% in 2011, and 2.4% in 

2012; 0.6% of retail gas sales in 

2010, 0.9% in 2011, and 1.15% in 

2012 

Minimum spend on low-income 

residential customers of 10% of 

budget for electricity and 20% for gas 

Electricity and gas distributors and 

municipal aggregators

Obligated utilities must jointly 

file a three-year statewide energy 

efficiency plan; regulator determines 

compliance

USD 0.05/kWh or USD 1 per therm 

shortfall

For achievement of between 75 and 

125% of targets; based on program 

net benefits

Savings produced by obligated 

parties through implementing 

approved three-year plans

Measures included in three-year 

plans approved by the regulator

Utilities are responsible for 

evaluation, measurement, and 

verification 

None

System benefits charges, funding 

from carbon and capacity markets, 

plus other funding sources
121

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Design 

Parameter

United States – 

Minnesota

United States – 

New York

United States – 

Texas

Policy Objectives

Legal Authority

Fuel Coverage

Sector and Facility 

Coverage

Energy Saving Target

Sub-targets and 

Portfolio Requirements

Obligated Parties

Compliance Regime

Penalty

Performance 

Incentives

Eligible Energy Savings

Eligible Energy 

Efficiency Measures

Measurement, 

Verification, and 

Reporting

Trading of Energy 

Savings

Funding

Reduce per capita use of fossil fuel by 

15% by 2015

Combination of legislation and 

regulation

Electricity and natural gas

All end-use sectors and all facilities; 

large customer facilities may petition 

for exemption

1.5% of retails sales for both 

electricity and natural gas

None

Electricity and natural gas utilities

Utilities implement energy efficiency 

programmes included in a plan filed 

with the regulator

None

Increasing proportion of net system 

benefits when achieved energy 

savings exceed 90% of target

Savings from programmes delivered 

by the utilities or by contractors

Preapproved list of measures with 

deemed energy saving values plus 

other measures assessed case by case

Deemed savings or by using a 

measurement and verification 

protocol, plus third-party certification 

for larger projects

None

Energy efficiency cost-recovery charge 

determined in rate cases

A reduction in electricity use of 15% 

by 2015 and end-uses of gas to be as 

efficient as possible

Regulation

Electricity and natural gas

All end-use sectors and all facilities

0.5% electricity savings in 2008 

increasing by 2% each year through 

by 2015; 4.34 Bcf annual natural gas 

savings through 2011, and 3.45 Bcf 

after 2011

None

Investor-owned electricity and 

natural gas utilities and government 

energy efficiency agency

Obligated parties prepare reports on 

energy efficiency performance for the 

regulator

For utilities achieving 70% or less of 

energy saving target

Increased return on equity for 

utilities achieving 80% or more of 

energy saving target 

Savings from energy efficiency 

programmes implemented by any 

party that can substantiate savings

Measures for residential, multifamily, 

low-income, commercial, and industrial customers must be preapproved 

Obligated parties prepare 

measurement and verification plan 

for each program for approval by the 

regulator

None

System benefits charges, and funding 

from carbon market

Reduce system peak demand, energy 

consumption, and energy costs

Combination of legislation and 

regulation

Electricity

All facilities and all customers in the 

residential and commercial sectors

15% of load growth by 2008, 20% 

by 2009, 25% by 2012, and 30% by 

2013

5% of energy savings must be to 

“hard-to-reach” customers

All investor-owned electricity utilities 

plus large municipally owned 

electricity utilities

Obligated utilities must file an 

annual energy efficiency plan and 

report with the regulator

None

One percent of program benefits for 

every two percentage points that 

utilities exceed their targets

Savings produced in energy efficiency 

programmes implemented by third 

party energy efficiency providers

Measures in standard offer and 

market transformation programmes 

defined by the regulator

Obligated utilities are responsible 

for establishing measurement and 

verification protocols for standard 

offer programmes

None

Obligated utilities recover program 

costs through base rates or cost 

recovery tariffs
122

Best Practices in Designing and Implementing Energy Efficiency Obligation Schemes

Design 

Parameter

United States – 

Vermont

Policy Objectives

Legal Authority

Fuel Coverage

Sector and Facility 

Coverage

Energy Saving Target

Sub-targets and 

Portfolio Requirements

Obligated Parties

Compliance Regime

Penalty

Performance 

Incentives

Eligible Energy Savings

Eligible Energy 

Efficiency Measures

Measurement, 

Verification, and 

Reporting

Trading of Energy 

Savings

Funding

Reduce the need for power purchases, 

reduce GHG emissions, minimise costs, 

and provide energy efficiency as part of a 

comprehensive resource supply strategy

Combination of legislation and regulation

Electricity

Residential, commercial and industrial 

sectors; facilities covered must include 

new construction, low-income 

households, and dairy farms

320,000 MWh energy savings for 2012-

2014; 60.8 MW summer peak reduction

Demand reductions targeted to 

transmission-constrained areas

Regulated electricity distribution utilities, 

with the obligation satisfied for most 

utilities by energy efficiency programmes 

delivered by an energy efficiency utility

Regulator executes contracts with the 

energy efficiency utility for specified 

amounts of energy savings and demand 

reductions

None

Administrator of the energy efficiency 

utility can earn up to 2.7% of the total 

three-year budget

Savings produced by the energy efficiency 

utility through delivering energy 

efficiency services

Measures in energy efficiency 

programmes approved by the regulator

Deemed energy savings verified by third 

parties

None

Volumetric wires charge to customers and 

funding from carbon market
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