Proposal for a Directive of the European Parliament and of the Council on energy end-use efficiency and energy services
Date: 2003-12-10
Institutions: European Commission
Subjects: EU policy, energy consumption, energy efficiency, energy policy, energy saving

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 10.12.2003
COM(2003) 739 final

2003/0300 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on energy end-use efficiency and energy services

(presented by the Commission)

EN

  EN

EXPLANATORY MEMORANDUM

1.

INTRODUCTION

This  proposal  has  the  objective  of  increasing  end-use  energy  efficiency,  using  a  number  of
operational  measures.  One  of  these  measures  is  to  develop  the  market  for  energy  services,
thus making energy efficiency an integral part of the internal market for energy. The proposal
does this by providing a framework  to promote  the market both for  energy  services  and  for
energy efficiency measures in general in major energy  end-use sectors. The proposal covers
the  retail  supply  and  distribution  of  extensive  net-bound  energy  carriers,  such  as  electricity
and natural gas,1together with other important energy types, such as district heating, heating
fuel,  coal  and  lignite,  forestry  and  agricultural  energy  products  and  transport  fuels.  The
proposal also includes a savings target at Member State level as a means of measuring energy
efficiency improvements  and  reaching  sufficient  market  demand  for  energy  services.  It  also
includes a savings target for the public sector, plus an obligation for Member States to ensure
that certain energy distributors and/or  retail supply  companies  offer  energy  services  to  their
customers.

This  proposal,  focusing  on  the  promotion  of  end-use  efficiency,  should  be  regarded  as  a
necessary  instrument  to  complement  the  recently  adopted  legislation  on  the  opening  of  the
internal energy market, which mainly leads to efficiency improvements on the supply side.

By the envisaged efficiency improvements,  the proposal  will  contribute  to the  mitigation  of
greenhouse  gas  emissions  in  view  of  meeting  the  EU’s  Kyoto  emission  reduction  target  of
-8% in 2008-2012, as well as the individual  targets  of  the  acceding  states,and  to  improving
the  European  Union’s  security  of  supply  as  underlined  in  the  Commission’s  Green  Paper
"Towards  a  European  Strategy  for  Energy  Supply".2  Security  of  supply  will  be  improved
because  energy  efficiency  measures  will  reduce  energy  demand  and  thus  lessen  import
dependence.

Improved  energy  efficiency  will  also  allow  more  rapid  intervention  if  necessary  to  shift  or
reduce  peak  loads  on  the  infrastructure  of  grid-bound  energy,  such  as  electricity.  Recent
blackouts in the EU have once again highlighted the necessity of managing energy demand.

1.1.

Why is there a need for a Directive on energy end-use efficiency?

There is a clear need to improve the functioning of the energy market by removing barriers in
order  to  allow  market  forces  to  allocate  economic  and  natural  resources  effectively.
Competition  from  energy-efficient  end-use  technologies  can  thus  bring  greater  economic
efficiency to the ongoing reform of the internal energy market. The identified barriers are in
most cases market failures that prevent the economic optimum from being achieved.

It  is  estimated  today  that  the  average  cost  in  many  Member  States  of  saving  a  unit  of  (off-
peak) electricity in the domestic sector is around 2.6 euro cents/kWh, compared to the average
(off-peak) price for delivered electricity of 3.9 euro cents.3 Similar gaps between the cost of
savings and the price of delivered energy exist for the other energy carriers. Hence, the reform

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3

Including liquefied gas (LNG) and liquefied petroleum gas (LPG).
COM(2000) 769, 29 November 2000.
The  average  on-peak  price  is  10.2  euro  cents/kWh.  (Source:  OFFER  and  National  Audit  Office,  UK
1998 and 2003).

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of the energy market should promote competition not only between different energy sources
but also between investments in energy end-use efficiency, on the one hand, and investments
in energy supply, on the other.

The main obstacles preventing full integration of end-use efficiency measures into the internal
energy  market  relate,  inter  alia,  to  the  lack  of  a  harmonised  and  credible  framework  of
instruments,  mechanisms,  definitions  and  information  regarding  energy  efficiency  services
and  measures.  In  addition,  there  are  other  obstacles,  such  as  institutional  and  legal  barriers,
the  fragmentation  of  the  efficiency  market,  lack  of  visibility  of  savings  potentials,  limited
access  to  capital,  and  the  lack  of  knowledge  on  the  cost-effectiveness,  returns  and  risks  of
investments in energy end-use efficiency.

Another common barrier is the investor-user  dilemma –also  referred to as  'split  incentives'–
where  owners  of,  for  example,  residential  buildings  and  offices  try  to  minimise  investment
costs in efficient energy-using technology since the resulting higher running and energy costs
from using less efficient technology will not be paid by them but by their tenants, renters or
other users.

Yet another barrier is the disparity of discount rates, or the "pay-back gap", that results when,
for example, energy supply companies with low internal rates of return requirements are able
to build power plants and other infrastructure, while the rate of return for end-use consumers
for  investments  in  energy  efficiency  is  invariably  much  higher.  This  is  in  spite  of  the  large
savings potential available. This is partly the result of a perceived higher risk regarding new
and unknown –although often more efficient– technologies.

Because of their higher transactions costs and relatively limited access to the capital market,
problems in financing efficiency measures for the household or domestic sector, as well as for
small and medium-sized enterprises, are common.

Rules  in  many  Member  States  today  often  divide  public  sector  budgets  into  completely
separate  budgets  for  investments  in  energy-using  technology,  on  the  one  hand,  and  budgets
for the maintenance and operation of this technology, on the other. This division often makes
it difficult to develop incentives for managers to invest in energy-efficient technology in the
public sector. Removing this barrier will require changes in public administration practices.

The  traditional  system  for  calculating  and  contracting  the  size  of  the  fees  for  suppliers  of
energy  end-use  technologies,  as  well  as  for  installation  engineers,  builders  and  architects,
often  acts  as  a  barrier.  This  is  because  these  payments  are  usually  proportional  to  the  total
investment  cost,  and  have  little  to  do  with  performance,  including  energy  performance.  To
correct this, it would be necessary to make part of the size of the fee performance-based.

Volatile energy prices act as disincentives for investments in energy efficiency because pay-
back times for the investments are uncertain. Increased awareness of energy prices and their
fluctuations,  together  with  improved  metering,  will  increase  the  possibility  to  respond  to
these, provided energy services and measures are made available.

1.2.

What could the role of energy services be in promoting end-use efficiency?

"Energy end-use services", or "energy services for end users", is an expression used to denote
those services or physical amenities that energy provides to the end user  in  an integral
package,  including  the  technology  needed  to  produce  these  services.  Examples  are  indoor
thermal comfort, lighting comfort, domestic hot water, transportation, product manufacturing,

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etc., all of which can have quality standards attached to them.4 Energy end-use services thus
require  a  combination  of  energy  (either  commercial  energy  or  energy  obtained  from  the
environment  via  passive  means)  and  energy-using  equipment  or  technology.  With  energy
services, payment for the service is integrated to include  a single  charge or payment for the
energy used  and for  the  technology  involved.  This  payment  is  usually  made  directly  by  the
consumer who benefits from the energy service. Such a single charge  facilitates comparison
of the actual costs of the energy service involved. For example, illumination in a building may
consist of a package of services that includes lighting equipment, maintenance and electricity,
a package that provides a predetermined level and quality of lux that is billed on the basis of
€/m2 per year. With similar illumination services being offered by different enterprises, end-
use efficiency improvements included in and paid for in this way will thus compete with each
other to minimise the total cost of the package without reducing the quality or amount of the
service provided. Thermal  comfort  paid in  €/m3 per  year  is another  example  of this  kind  of
integration  which  can  lead  to  greater  energy  efficiency  as  well  as  economic  efficiency.
Examples of such services in operation are to be found in many Member States. (See Annex
A).

A very important element of energy services is that price competition between energy services
providers leads to a reduction of the amount of energy consumed in rendering the service,
as the cost of the energy consumed by these services can be a significant part –sometimes the
largest part– of the total cost of the service. Optimising the total cost of the service is achieved
by minimising its life-cycle cost. This cost  minimisation allows  market  forces to assume an
important role in improving energy efficiency when energy services are provided.

Energy  services  are  usually  complemented  by  certain  types  of  energy  efficiency  measures,
such  as  the  provision  of  information,  guidance  or  evaluation.  These  measures  may  also
include energy audits, informative billing, etc. For the purposes of this Directive, the term
"energy  services"  will  thus  refer  only  to  integrated  energy  end-use  efficiency  services,
which  include  a  strong  element  of  energy-efficient  end-use  technology  and  the  necessary
energy  to  run  it  when  they  are  delivered  or  supplied.  Other  measures  for  improved  energy
efficiency, such as efficient lighting sources, control systems and  boiler  replacement, would
qualify  as energy services  as well if  they  were  combined with the  delivery  of  energy.  Even
without integrating energy, these measures are still very important in developing the market
for energy services.

2.

OBJECTIVE,  SCOPE  AND  KEY  ELEMENTS  OF  THE  PROPOSED
DIRECTIVE

The prime objective of this proposal is to ensure more efficient end use of energy. One of the
main  mechanisms  to  promote  this  is  by  supporting  and  accelerating  the  development  of  a
smooth  functioning,  commercially  viable  and  competitive  market  for  cost-effective  energy
efficiency  measures.  In  addition,  market  subsidy  and  a  certain  level  of  government
programmes are necessary in order to remove some of the market failures that are described in
section 1.1, although this must be carried out without distorting the competitive market that is
being  developed.  These  subsidies  and  supports  should  give  way  to  the  provision  of  energy
services,  energy  efficiency  programmes  and  other  energy  efficiency  measures  on  purely

4

Quality of such services can also be measured. Thermal comfort can be measured, for example, in terms
of Fanger`s Comfort Index, while illumination or visual comfort, for example, can be measured in lux,
taking into account colour rendering.

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commercial  grounds.  A  market  approach  could  also  be  provided  by  introducing  so-called
“white certificates”, tradable energy efficiency certificates. The Commission considers this to
be a possible next step in a few years time and may then come forward with a proposal based
on  the  experiences  in  some  Member  States  currently  developing  and  implementing  such
certification  schemes.  To  accomplish  this  objective  of  more  efficient  end-use  efficiency,
Member States are called upon to do the following:

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remove barriers and provide credible information, mechanisms, tools and incentives
for  companies,  such  as  energy  distributors  and  retail  suppliers,  energy  service
companies, equipment installers, consultants and all other prospective and qualified
providers, to offer energy services and energy efficiency programmes and measures
their implementation and their financing;

adopt general national targets of annual 1% cumulative savings to promote energy
end-use efficiency and to ensure the continued growth and viability of the market for
energy services. This obligation shall be expressed in terms of an amount of energy
that should be  saved as a result  of these  energy  efficiency  measures.  Regardless  of
the  total  energy  consumption  patterns,  which  also  result  from  economic  and
structural  developments,  there  should  be  verifiable  effects  of  annual  savings  of  a
cumulative one percentage point per year;

ensure that retail suppliers or distributors of electricity, natural gas, fuel (heating) oil
and district heating offer and actively promote energy services and/or energy audits.
The  provision  and  implementation  of  these  services  and  measures  may  well  be
carried out by other qualified and/or certified bodies, but the active partnership of the
energy  providers  in  this  endeavour  is  essential  to  the  proper  functioning  of  the
market. Energy services and energy efficiency measures should be offered to all end-
use  sectors,  including  the  domestic  and  commercial  sectors,  the  public  sector,  and
small  and  medium-sized  enterprises,  but  excluding  most  energy-intensive  process
industries,  where  there  are  already  incentives  for  the  development  of  energy
efficiency measures. Qualification, certification and accreditation schemes for energy
service providers shall also be made available;

appoint  a  body  or  agency  that  will  oversee  the  savings  obligations,  the  energy
services obligation  and  the task of monitoring and verifying the  fulfilment  of  these
obligations;

establish  publicly  overseen  financing  possibilities  for  energy  end-use  efficiency,
especially  for  investments  with  comparatively  long  payback  requirements  or  high
transaction costs.  Implementation, carried out by  any  certified  or qualified provider
of  energy  end-use  services  (including  energy  distributors  and/or  retail  suppliers,
energy  service  companies,  installers,  etc.)  on  a  competitive  basis,  may  thus  be
provided with financing possibilities such as rolling loans, grants, subsidies, etc.;

ensure  that  the  public  sector  in  each  Member  State  sets  a  good  example  regarding
investments,  maintenance  and  other  expenditures  for  energy-using  equipment,
energy services and other energy efficiency measures. To accomplish this, Member
States  must  adopt  a  target,  expressed  in  terms  of  an  annual  improvement  of  total
energy efficiency in the public sector of a cumulative 1½% per  year, attributable to
the  implementation  of  energy  services,  energy  efficiency  programmes  and  other
energy  efficiency  measures  in  the  public  sector.  Fulfilling  this  target  can  require  a
share  of  all  new  investment  and  maintenance  costs  for  energy  and  energy-related

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expenditures  to  be  purchased  in  accordance  with  energy-efficiency  guidelines,5  as
allowed  in  the  general  public  procurement  rules,  which  have  been  laid  down  in
Community legislation;

require  Member  State  regulators  or  their  equivalent  bodies  for  energy  distribution
and  retail  sales  of  grid-bound  energy  to  take  measures  for  the  introduction  of
innovative  tariffs,  cost  recovery  regulations,  revenue  caps  and  similar  instruments
and obligations to promote energy services, energy efficiency programmes and other
energy efficiency measures as a means of optimising revenues;

establish energy efficiency programmes that promote and  facilitate the provision of
energy services and energy efficiency measures, such as energy auditing, energy and
tariff advice provision, the provision of financial instruments for energy savings, etc;

ensure that end-users are provided with competitively priced individual metering and
informative  billing  that  reflect  their  actual  energy  consumption  and,  as  nearly  as
possible  and  when  appropriate,  its  actual  time  of  use.  Metering  and  billing  should
thus include information on prices and consumption and other technical details that
allow  consumers  to  regulate  and  steer  their  own  consumption.  In  general,  Member
States must ensure that metering and billing are designed to allow customers to take
full  advantage  of  any  energy  services,  energy  efficiency  programmes  and  other
energy efficiency measures offered them;

report on the administration and implementation of this Directive.

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This  proposed  Directive  should  be  implemented  with  full  regard  to  the  framework  of  the
Directives for the electricity and gas markets6, including the universal service obligation that
provides consumers with the right to be supplied with electricity of a specific quality within
their territory at reasonable, easily and clearly comparable and transparent prices.

Three of the six implementing Articles of Directive 93/76/EEC were superseded by Articles
in  Directive  2002/91/EC  on  the  Energy  Performance  of  Buildings.  Because  the  present
proposal  will  now  cover  the  remaining  three  elements  of  Directive  93/76/EEC,  specifically
individual metering and billing of consumption of energy (Article 3); third-party financing of
energy efficiency investments in  the public sector  (Article 4); and  energy  audits  in  industry
(Article 7), the adoption of this proposal will allow the repeal of Directive 93/76/EEC.

3.

THE POTENTIAL, THE TARGETS, THE IMPACT AND THE MARKET

3.1. 

The overall energy savings potential

It is estimated today that, due to the many market barriers and market imperfections that still
exist, there is a very large  economic potential that remains in the form of unrealised  energy
savings.  For  industry  this  potential  is  estimated  to  be  approximately  17%  of  current  final
consumption,  realisable  by  2010.  For  the  domestic  and  tertiary  sector,  it  is  22%  and  for
transport 14%, excluding modal shifts7.

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The  use  of  public  procurement  as  a  means  of  advancing  energy  efficiency  is  also  recommended  in  a
Council Resolution of 7 December 1998.
Directive 2003/54/EC and Directive 2003/55/EC.
MURE model estimate based on current energy prices. European Commission, 2003.

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Total  final  energy  consumption  in  the  EU  is  thus  approximately  20%  higher  than  can  be
justified  on  purely  economic  grounds.  Estimates  in  a  SAVE  study8  state  that  energy-
efficiency measures and demand side management services can easily realise three-fourths of
this  cost-effective  savings,  i.e.,  15  %  in  the  medium  term  (10-15  years).  This  study  also
concludes  that  an  accumulative  target  of  1  %  a  year  for  improvements  due  to  energy
efficiency  and  energy  services  is  thus  a  realistic  minimum  level  for  energy  efficiency
improvement for the EU as a whole and for individual Member States. The technical potential
for savings is at about 40 %9 even higher than the economic (cost-effective savings potential).

Experience  from  different  programmes  in  a  range  of  EU  Member  Countries  and  non-EU
countries  shows  that  0.5  to  1%  savings  per  year  are  feasible  in  the  electricity  sector  alone,
compared to the market trend, based on annual investments of around 1 to 2% of the revenues
from the sale of electricity.10 As this is based on an average life for these measures of 8 years,
this implies a benefit-cost ratio of 4:1.

The  large  potential  for  energy  efficiency  is  also  stressed  in  other  studies11,12  and
presentations13, supporting the realistic character of a yearly accumulative target of 1 %. This
target is not only supported by studies with scenarios and models but also by real projects in
different  Member  States.  Evaluations  of  these  projects  also  show  that  typical  energy
performance  projects  often  have  a  potential  savings  of  15-35  %  (see  also  Annex  A  of  the
Explanatory Memorandum). The SAVE study indicated a net economic gain of 10  billion €
and an emission  reduction of  230  Mt  CO2eq  in  a  period  of  10  years  with  yearly  savings  of
1 %.

Without  reducing  comfort  or  standards  of  living,  it  is  therefore  possible  to  reduce  energy
consumption  by  at  least  one-fifth  at  no  extra  net  cost  –and  in  many  cases  negative  costs–-
because  the  saved  energy  is  sufficiently  valuable  to  repay  the  cost  of  investment  in  a
reasonable length of time –well within the technical lifetime of the investment– and to cover
interest charges14. If external costs are taken into account the benefits would be even bigger.
Today savings of one fifth, were it to be calculated in terms of primary consumption, would
correspond to over 8 400 PJ/year, or 200 million tonnes of oil per year.

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SAVE study : Completing the Market for Least-Cost Energy Services. Wuppertal Institute for Climate,
Environment Energy, Germany, 2000.
Green Paper on Security of Supply, European Commission, 2000.
SAVE Study: Completing the Market for Least-Cost Energy Services, Wuppertal Institute for Climate,
Environment Energy, Germany, 2000.
Harmelink,  Graus,  Blok,  “Low  Carbon  Electricity  Systems,  Methodology  &  Results  for  the  EU”,
Ecofys study, 2002.
European Climate Change Programme Report, European Commission, 2001.
Pagliano,  Politecnico  di  Milano,  Proceedings  of  the  1st  European  Conference  on  Energy  Service
Companies, Milan, 2003.
Numerous studies have been undertaken to estimate potential savings and CO2 reduction possibilities in
the buildings sector. Results of these vary somewhat, depending on the assumptions made regarding the
rate  of  economic  growth,  the  rate  of  diffusion  of  technology,  and  the  shapes  of  the  cost,  price  and
learning  curves.  Options  in  the  entire  buildings  sector,  which  represents  40%  of  EU  final  energy
consumption, that have a negative or zero cost represent over 50% of the identified reduction potential
for the sector, using a 4% real rate of return on investment. Zero and negative cost options are defined
as  investments  that  generate  savings  that  are  sufficient  to  pay  back  capital  costs,  cover  maintenance,
operating  and  interest  costs  within  the  normal  (average)  accepted  technical  life  of  the  technology  in
question. Source: ECOFYS Study, “Economic Evaluation of Sectoral Emission Reduction Objectives
for Climate Change”, commissioned by the European Commission, January 2001.

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This saving would impact positively on EU industrial competitiveness  by reducing  cost and
improving the effectiveness and added value of products produced for both the home and the
export  markets.  In  addition,  employment  has  been  calculated  to  increase  measurably.  The
trade balance would also improve due to reduced energy imports, a factor working to prevent
the increase in energy import dependency, which is 50% today. Moreover, positive regional
and cohesion effects result from energy efficiency investments because of their decentralised
nature.

Finally,  reaching  the  1%  goal  has  been  estimated  to  contribute  almost  half  of  the  CO2
emissions reduction necessary to meet the EU Kyoto commitment15.

Although EU and Member State legislation and other voluntary and non-legislative measures
have  contributed  to  improving  end-use  energy  efficiency,  there  is  still  a  need  to  remove
barriers that still prevent these potential savings from being fully achieved and to establish a
framework and a viable long-term market for commercial energy services, energy efficiency
programmes and other energy efficiency measures.

3.2 

The  proposed  1%  general  savings  target  and  the  1.5%  target  for  the  public
sector

Total  energy  consumption  in  Member  States  fluctuates  from  year  to  year  for  a  number  of
reasons,  including  changes  in  economic  activity  (GDP);  structural  changes,  such  as  energy-
intensive base industry being replaced by service industries using less energy; fluctuations in
weather conditions (degree-days) and finally, actual improvements in energy efficiency.

It is the last of these factors, genuine energy efficiency improvement, which is the objective
of the 1% general target in this proposal16 and also of the 1.5% target for the public sector.

The general or overall savings target in this proposal is expressed as an amount of energy
that  should  be  saved,  attributable  to  energy  efficiency  measures  for  those  final  customers
defined by the proposed Directive.

The amount of the targeted savings is 1% of the average consumption of these final customers
in  the  five-year  period  immediately  previous  to  the  implementation  of  the  proposed
Directive17. This  annual amount of energy  to be saved  as  a  result of  efficiency  policies  and
measures is proposed to be fixed for a period of 6 years.

In order to implement and meet the target in the proposed Directive, Member States will have
to do the following:

(1) to  establish,  on  the  basis  of  available  official  statistics  from  the  most  recent  5
years  before  the  implementation  of  the  proposed  Directive,  the  average  total
consumption of those final customers defined in the proposed Directive.

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“Energy Efficiency in the European Community –Towards a Strategy for the Rational Use of Energy,
Commission Communication, COM (1998)246 final of 29.4.1998.
To avoid duplication, energy consumption and energy efficiency measures in the industrial production
processes covered by the Emissions Trading and the IPPC Directives are excluded, leaving about 75%
of final energy consumption.
This base period and resulting amount of savings are used for the duration of the target period.

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(2) to calculate 1% of  the  above average total consumption  as  the  amount  of  final
energy (expressed in PJ, Mtoe or TWh) that should be saved every year, over a
period of 6 years, as result of efficiency measures.

(3) to quantify and verify the effect of the measures taken or to be taken, using the
guidelines  given  in  Annex  IV  of  the  proposal.  These  guidelines  will  allow
quantifiable savings to be attached to all the energy services, energy  efficiency
programmes and other measures that have been taken, including measures taken
as  early  as  1991.  Also  included  are  such  measures  as  energy  taxes,  building
codes and information campaigns.

The  duration  of  the  impact  of  efficiency  measures  is  on  average  8  to  10  years,  with  some
measures`  impact  lasting  even  longer18.  By  initiating  new  measures  every  year  sufficient  to
realize  a  savings  of  1%,  the  total  impact  of  the  savings  in  the  first  year  will  be  to  reduce
consumption that year by 1%. Because of the continued impact and cumulative effect of the
savings, for the second year the reduction will be 2%, and for the 3rd year it will be 3% and so
on. For the sixth year, energy consumption for the sector covered will be reduced by 6 %.

It should be pointed out that this target for energy savings does not preclude the possibility for
energy  consumption  to  increase,  due,  for  example,  to  strong  economic  growth  or  structural
changes. The quantification and verification of savings then serves to show that without these
measures energy consumption would have been even higher.

As an example, a country that had a calculated average final consumption of 100 units in the
five previous years would be required to save 1 unit every year over a period of 6 years. It is
very  possible  that  in  the  following  years  the  consumption  in  this  country  could  continue  to
grow even after extensive savings measures are implemented. The combined effect of growth,
structural changes and the implemented efficiency measures could for instance still lead to an
increase of 102, 103, 104, 105, 106, 107 for the six years in this period. In order to meet the
1% per year target, the quantification and verification process should then prove that without
the efficiency measures  that were  taken, consumption would have been  103, 105,  107,  109,
111, 113. The sixth year is still 6% lower than it otherwise  would have been, and the target
would consequently have been met.

It  should  also  be  noted  that  it  will  be  relatively  easier  for  those  countries  that  have  not  yet
undertaken  significant  measures  in  energy  savings  until  now  –for  example  Acceding
Countries– to fulfil this obligation. This is because of the existence of a much larger potential
for relatively  low-cost savings measures19. By  the  same  token,  for  those  countries  that  have
already made major efforts for saving energy, the effect of these measures will be taken into
account as from 1991 (see Annex I).

The  public  sector  target  is  also  expressed  as  an  amount  of  energy  that  should  be  saved,
attributable to energy efficiency measures for the public sector. It is more ambitious than the
general target, being 1.5 % per year. Energy efficiency is a strategy to deal with scarce public
funds  while  at  the  same  time  addressing  serious  energy  and  climate  challenges,  using  the
concept of “leadership by example.”

18

19

SAVE Study: Completing the Market for Least-Cost Energy Services, Wuppertal Institute for Climate,
Environment Energy, Germany 2000.
Energy Charter Country Reviews, 2002 and 2003.

9

 
                                                
The  gains  to  be  made  from  improved  energy  efficiency  in  the  public  sector  are  substantial.
The public sector (national, regional and local) in most Member States corresponds to about
10% of the total national energy use. With additional annual investments in energy efficiency
as small as 80 million euro for the EU-15 over a 20 year period, annual energy savings of 9 to
13 billion euro by the year 2020 are considered a realistic potential20.

In Italy public administrations are obliged to implement energy savings solutions where they
can  prove  technically  and  economically  feasible.  Special  guidelines  for  energy-efficient
public purchasing exist in Austria, Finland, Germany, The Netherlands, Sweden and the UK.
In  the  UK,  guidelines  for  public  purchasing  for  government  departments  also  include
requirements  for  suppliers  related  to  energy  consumption.  There  is  also  a  target  for  1%  per
annum  reduction  in  energy  consumption  on  the  government  estate.  Outside  the  EU,  such
guidelines  also  exist  in  Japan,  Switzerland  and  the  US.  Special  regulations  to  ensure  the
energy  efficiency  of  public  buildings  exist  in  Austria,  Finland,  France,  Germany,  Italy  and
Switzerland.  The  US  government  has  adopted  overall  goals  for  saving  energy  in  federal
government  buildings  facilities  and  reducing  associated  greenhouse  gas  emissions.  These
include specific policies on buying energy-efficient products that qualify for the Energy Star
label and (for categories without an Energy Star label) products that are among the 25% most
efficient  models  on  the  market,  as  determined  by  the  US  Department  of  Energy's  Federal
Energy Management Program (DOE/FEMP21).

The public sector in many EU Member States and Acceding Countries is characterized by co-
operative  purchasing  and  common  buying  agencies.  Such  procurement  bodies  exist  in
Austria,  Finland,  France,  Germany,  Hungary,  Ireland,  Italy,  The  Netherlands,  Poland,
Slovakia, Sweden and the UK.

It  is  the  existence  of  the  large-scale  savings  potential,  together  with  the  many  existing
Member State guidelines and large purchasing bodies that allow for a more ambitious savings
target for the public sector.

3.3 

THE ECONOMIC IMPACT OF SAVINGS TARGETS

Member  States  will  choose  how  best  to  meet  both  the  general  target  and  the  public  sector
target. Which industrial sectors, as well as which public sector bodies that will be chosen will,
of course, also be a matter for Member States to decide. The impact on individual industrial
sectors will thus depend on the decisions made by Member States as they develop plans
to realize the most cost-effective savings potentials. Generally, however, the following can
be said about major sectors.

Energy distributors and retail suppliers

The  increased  use  of  (integrated  )  energy  services  as  well  as  the  increased  investment  in
energy  efficiency  resulting  from  this  proposed  Directive  will  provide  added  value  to  the
energy  supply 
increased
competitiveness for energy on the basis of non-price factors (such as product quality). It will
thereby increase productivity (value added/man-hour) and should increase revenues and allow
for  higher  profit  margins.  Energy  retailers  and  distribution  companies  may  experience

industry,  allowing  for  greater  product  differentiation  and 

20

21

“Harnessing  the  Power  of  the  Public  Purse,  European  PROUST  Study  on  energy  efficiency  in  the
public sector, SAVE Programme, European Commission, March 2003”.
Id.

10

 
                                                
reduced sales of energy to individual customers but this can be more than compensated for by
increased revenues from new and  retained  customers,  as well  as  higher  profit margins  from
the sale of high-value services compared to selling energy alone22. The target and obligations
set  out  in  this  proposal,  as  well  as  the  other  measures  proposed,  will  help  to  create  a  level
playing field that will make it easier for retail suppliers to enter this market. This will become
increasingly important as market liberalisation progresses. Promoting this competition on the
energy services market now will also allow a larger number of customer-oriented local retail
companies to survive the ongoing trend toward market concentration.

This proposal also increases the opportunities for electricity distribution companies to choose
demand  management  instead  of  supply  and  distribution  system  investments  as  a  means  to
meet  expected  increased  demand.  Energy  distribution  companies  may  choose  to  invest  in
energy  efficiency  and  similar  demand  management  measures  as  a  means  to  manage  peak
loads  and  to  postpone,  co-ordinate  and  re-schedule  expensive  investments  in  distribution
systems. As investments in energy efficiency have been shown to be more than 30% cheaper
than  the  price  of  off-peak  electricity  –not  to  mention  peak  prices–  and  cheaper  and  more
acceptable than investments in distribution infrastructure, this increased flexibility has a clear
economic value for the distribution companies. (The external environmental costs that are not
included  here  imply  additional  societal  benefits,  benefits  that  pose  a  challenge  for  the
regulators,  since  the  distribution  system  will  remain  a  regulated  function  of  the  electricity
supply industry).23

Manufacturing , construction industries and SME’s

The  energy-intensive  industries  and  other  high-emission  industries  listed  in  Annex  1  to  the
Emissions  Trading  Directive24  and  those  industries  in  Annex  1  to  the  IPPC  Directive25  are
excluded from  the  scope  of  the present proposed Directive. This means that around 75% of
EU industry, and their savings potential, are covered by the present proposal.

These  remaining  non  energy-intensive  manufacturing  industries,  such  as  SME’s,  the
engineering products industry, the buildings industry and the service industry, should together
with households and the transport sector deliver the savings target. However, it is left to the
Member States to decide how to realize the savings target and therefore it isdifficult to assess
the exact impact on every sector.

Nevertheless, as argued above, energy efficiency measures are in general very cost beneficial
and  if  Member  State  policies  are  developed  in  such  a  way  that  the  most  cost  effective
measures are taken first and the profits return to the investors then the impact will be positive
for all sectors that are addressed.

22

23

24

25

While 10% of the workforce in the electricity supply industry is expected to be lost as a result of market
liberalisation,  the  development  of  the  energy  services  market,  using  many  of  the  same  skills,  could
compensate  for  much  of  this.  Source:  “Employment  effects  of  future  developments  in  the  European
Energy Market”, A Technology Consultants, Hague, 1996.
Directives 2003/54/EC and 2003/55/EC concerning common rules for the internal market in electricity
and natural gas, and repealing Directives 96/92/EC and 98/30/EC respectively, have set forth the choice
of using demand management as an alternative to  new supply, allowing Member State authorities the
possibility to tender for new capacity or energy efficiency and demand management measures. National
regulatory  authorities  have  also  been  called  upon  in  these  Directives  to  ensure  that  transmission  and
distribution  tariffs  take  account  of  these  demand  management  measures,  thus  allowing  cost  recovery
and a reasonable profit margin in setting such tariffs.
OJ L 275, 25.10.2003, p. 32-46.
OJ L 257, 10.10.1996, p. 26-40.

11

 
                                                
Moreover, for those sectors that directly will be involved in the realization of saving measures
or delivery of energy-efficient products, the impact on employment and profit will obviously
be very positive.

The  net  impact  on  employment  in  the  manufacturing  and  construction  industries  of  a  1%
annual  improvement  in  energy  efficiency  has  been  shown  to  be  substantially  positive,  even
after taking into account all direct and indirect macroeconomic factors, including the reduced
consumption of energy, impact on energy prices, reduced VAT, etc. The strongest effects, not
surprisingly, are shown to in the area of semi-skilled labour in the buildings trades, which also
affords the strongest regional policy effects26.

In the manufacturing sector, a 1% improvement in energy efficiency will impact initially by
lowering  the  costs  of  peripheral  technology  used  in  production,  such  as  compressed  air,
pumps,  lighting,  ventilation,  etc.  The  increased  demand  and  the  added  value  of  energy-
efficient models will also make these models attractive for the product manufacturer because
such products normally provide increased profit margins initially. Market shares on the home
and  export  markets  will  increase.  Re-gearing  costs  for  changing  to  the  production  of  more
efficient models will be reduced as a result of the economies of scale and the more predictable
market  development  resulting  from  an  EU-wide  energy-efficiency  improvement  of  1%  per
year.  Small  and  medium-sized  enterprises  will  especially  benefit  from  the  reduced
transactions and other costs previously associated with investments in energy efficiency.

Increased efficiency in the automobile manufacturing industry is also expected to be a result
of  the  increased  demand  for  energy-efficient  technology  and  services.  This  drive  towards
efficiency will continue to open new markets, at home and abroad. In the transport fuel sector,
the  added  value  of  energy  efficiency  and  energy  services,  including  the  close  correlation
between increased efficiency and increased safety (e.g. maintenance of correct tire pressure)
will lead to positive societal benefits in the form of  reduced mortality  and  injury  rates from
accidents. Modal shifting as a result of increased energy efficiency will also provide societal
benefits in the form of reduced congestion and local pollution.

Finally, consumers will also benefit significantly from the 1% improvement in cost-effective
energy efficiency. The increased production and  availability  of  energy-efficient  models  will
lower their unit production cost and their price. Increased competition on this product market
will  assure  optimal  production  and  that  marginal  cost  is  equal  to  price.  The  costs  to
consumers, especially life-cycle costs, of lighting heating, cooling, refrigeration, etc. will fall
as the supply of energy-efficient technology increases and prices fall.

3.4.

The market for energy services and energy efficiency measures

A  large  part  of  the  available  energy  savings  potential  that  exists  today  can  be  effectively
realised using a market for energy services and other energy end-use efficiency measures. If
the  necessary  information  is  provided  on  energy  services,  if  contractual,  financial  and  legal
instruments  are  put  in  place,  if  credibility  and  guarantees  of  performance  and  savings  are
established  and  if  end-use  customers  and  financial  markets  respond  rationally,  this  would
create  a  market  for  energy  efficiency  worth  between  5  and  10  billion  euros  per  year.27  In
addition,  the  energy  efficiency  market  creates  considerable  real  added  value  and  is  often
characterised by highly labour-intensive  investments. These lead to  many  positive local and

26

27

“Employment Impacts of Energy Conservation Schemes”, ECN , October, 1999.
Proceedings from Graz SAVE  Conference, EWA 2000 and Proceedings from ECEEE Summer Study
2003.

12

 
                                                
regional  effects,  such  as,  for  example,  substantially  increased  employment  when  large
retrofitting projects in the buildings sector are carried out.28

The  largest  untapped  market  for  energy  services  and  energy  efficiency  measures  is  in  the
buildings sector. The  potential  to  improve  transport  efficiency  is  also  estimated  to  be  large,
even when  calculated  without  the effects of  modal  shift,  which  are  as  large  as  the  potential
end-use efficiency gains.

For the market for energy efficiency to be tapped, there is a need for professional players to
work  as  intermediaries  between  the  providers  of  energy-efficient  technology,  buildings  and
energy, on the one hand, and the buyers and users of these, on the other. In many cases, the
first  task  at  hand  will  be  to  inform  and  convince  consumers  of  the  benefits  of  energy
efficiency  and  to  enable  them  to  use  energy-efficient  technologies  and  energy  efficiency
measures  effectively.  Initially,  the  extra  information,  communication,  acquisition  and
administration costs could outweigh the immediate profits that are generated from selling the
energy  efficiency  and  energy  services.  In  such  cases,  collectively  financed  programmes  are
needed to spread and reduce such costs.

A  number  of  other  important  criteria  determine  the  profitability  of  energy  services,  energy
efficiency  programmes  and  other  energy  efficiency  measures.  These  include  the  size  of
energy consumption within individual projects, energy efficiency within the project known as
opposed  to  new  technology  cost-effectiveness  of  the  investments  concerned.  In  addition,
knowledge  regarding  alternative  technologies  and  the  availability  of  financing  mechanisms,
including funds, third-party financing and performance contracting, are important criteria for
determining the profitability of energy services.

Performance  contracting  ensures  cost-effectiveness  based  on  a  calculated  and  guaranteed
commercial potential. The long-term potential market for performance contracting of energy
services and energy efficiency measures in the EU has been estimated to be in excess of 25
billion euro.29

In  a  number  of  Acceding  Countries,  the  concepts  of  energy  services  and  the  commercial
implementation of energy efficiency measures are as well developed as in the Member States.
For this reason, expanding the energy efficiency market in these new Member States can be
accomplished in the same manner as in the Member States.

4.

JUSTIFICATION FOR ACTION AT COMMUNITY LEVEL

4.1.

Current political context

In  its  Green  Paper  on  the  security  of  energy  supply,  the  Commission  highlighted  the
following points:

-

28

29

The  European  Union's  dependency  on  external  energy  supplies  is  forecast,  if  no
measures are taken, to increase from a current import dependency of 50% to 70% by
2030 due mainly to increased energy consumption.

SAVE Employment Study. European Commission 2001.
IEA DSM Implementing Agreement 2003.

13

 
                                                
-

-

The European Union has relatively limited scope to further influence energy supply
and  distribution  conditions  in  the  short  to  medium  term,  either  by  building  new
capacity or improving transmission and distribution. Therefore, efforts need now to
focus  on  improving  end-use  efficiency  and  managing  the  demand  for  energy,  inter
alia, by increasing the availability of and demand for energy efficiency services.

Moreover,  as  CO2  and  other  greenhouse  gas  emissions  in  the  EU  continue  to
increase, it becomes more difficult to respond adequately to the challenge of meeting
our  Kyoto  commitment.  As  94%  of  EU  CO2  emissions  –the  most  pervasive
greenhouse gas– arise from human activity attributed to the use of energy, this sector
has a unique opportunity and a responsibility to address both security of supply and
climate  change  problems,  and 
industrial  competitiveness  and
employment.

increase 

to 

Recently, the “Communication from the Commission on the Implementation of the first phase
on  the  European  Climate  Change  Programme  (ECCP)”30  proposed  a  “Directive  on  Energy
Demand Management”, suggesting the setting by Member States of efficiency improvement
targets and investment targets,31 together with supportive frameworks for the implementation
and financing of such measures.

4.2.

Completing the Internal Market for Energy

Directives 2003/54/EC and 2003/55/EC concerning common rules for the internal market in
electricity  and  natural  gas,  and  repealing  Directives  96/92/EC  and  98/30/EC  respectively,
have  set  forth  the  choice  of  using  demand  management  as  an  alternative  to  new  supply,
allowing  Member  State  authorities  the  possibility  to  tender  for  new  capacity  or  energy
efficiency  and  demand  management  measures.32  National  regulatory  authorities  have  also
been called upon  in these  Directives to ensure that transmission and distribution tariffs  take
account of these demand management measures, thus allowing cost recovery and a reasonable
profit  margin  in  setting  such  tariffs.33  Member  States  must  also  ensure  that  all  small  and
vulnerable  customers,  including  small  and  medium-sized  enterprises,  enjoy  the  benefits  of
this  market,  as  well  as  meeting  public  service  requirements,  including  environmental
protection, in accordance with the Directives.

While  the  retail  markets  for  the  production  and  supply  of  electricity,  gas,  coal,  heating  and
transport  fuels,  and  to  a  certain  extent  district  heating  and  cooling,  have  been  opened  to
competition, the results of these market forces have been seen almost exclusively in improved
efficiency  on  the  supply  side.  There  has  been  improvement  in  the  generation,  refining,
transformation  and  distribution  of  energy.  However,  the  impact  from  this  increased
competition  has  not  been  positive  on  the  demand  side  of  the  energy  market  in  terms  of
improved  end-use  efficiency.  An  improvement  of  the  energy  market  to  include  the  demand
side, with greater focus on energy end-use efficiency, can be achieved by developing a more

30

31

32

33

COM(2001) 580 final.
Both  the  European  Parliament  and  the  Council  have  supported  initiatives  in  energy  services  in
Parliamentary Resolutions and Council Conclusions (A5-0054/2001 and Council Conclusions 8835/00
and 14000/00 of 2000).The Council, in its Resolution of 7 December 1998 (OJ C 394, 17.12.1998, p. 1)
accepted  an  indicative  target  for  energy  intensity  improvement  of  final  consumption  by  an  additional
1 percentage point per year, up to the year 2010, as useful guidance  with  which to increase efforts in
this field.
Article 7 of Directive 2003/54/EC.
Recital 18 of Directive 2003/54/EC.

14

 
                                                
structured, harmonised and formalised market for energy efficiency by quantifying, certifying
and  ensuring  the  results  of  energy  efficiency  investments  in  terms  of  the  improved  energy
efficiency  they  provide.  This  is  considered  an  efficient,  market-driven  way  to  meet  the
objective of completing the internal energy market while, at the same time, making significant
contributions to environmental and security of supply goals.

4.3.

Additional impact from action at Community level

The first objective of the proposed Directive is the improvement of energy end-use efficiency.
A  secondary  objective  is  the  creation  of  a  self-sustaining,  commercially  viable  market  for
energy services for efficient end use, under full competition. Developing such a market in the
short to  medium  term  by promoting and harmonising energy services  and  energy  efficiency
measures  will  allow  it  to  reach  a  sufficient  size,  or  critical  mass,  for  economies  of  scale  to
emerge as well as numerous positive externalities. These cannot be realised on the limited and
fragmented  markets  for  energy  efficiency  measures  that  exist  in  the  Member  States  today.
This growth cannot be sufficiently achieved by the Member States alone. Because of the scale
and  effects  of  these  actions  and  the  need  for  similar  definitions,  mechanisms,  programmes,
funding, financial structures and services, it is deemed appropriate to achieve this objective at
Community  level.  That  action  be  taken  at  Community  level  is  also  important  because  of
possible  unequal  burdens  that  might  fall  on  individual  Member  States  acting  alone,  and
because  of  the  associated  risk  that  Member  States  could  create  new  barriers  to  trade  in  the
form of market distortions if they develop completely independent  and  separate markets  for
energy  services.  This  is  also  highly  relevant  in  case  that  this  Directive  would  be
complemented  in  the  future  by  the  introduction  of  tradable  and  mutually  recognised  energy
efficiency certificates (“white certificates”). The increase in cross-border trade in energy gives
a clear indication of this need for harmonisation at Community level.

Therefore, these measures are proposed in accordance with the principle of subsidiarity as set
out in Article 5 of the Treaty. Moreover, in accordance with the principle of proportionality,
as  set  out  in  that  Article,  this  Directive  does  not  go  beyond  what  is  necessary  in  order  to
achieve that objective.

5.

THE  RELATIONSHIP  BETWEEN  ENERGY  EFFICIENCY  MEASURES
AND THE EU EMISSIONS TRADING SCHEME

5.1.

Principles of emissions trading

The EU Emissions Trading Directive 2003/87/EC “establishing a scheme for greenhouse gas
emission allowance trading within the Community”34 implies that each Member State has to
set an upper limit on total CO2 emissions for selected industrial activities, including electricity
production.  This  EU-wide  “cap”  introduces  scarcity  into  the  allowed  emissions  but  “trade”
introduces  flexibility  to  meet  the  overall  objective,  and  lowers  the  compliance  cost  by
allowing buying and selling of allowances.

Under the Emissions Trading Directive, installations covered by the Directive 2003/87/EC (in
the  first  phase  2005-2007  the  scheme  will  capture  close  to  50  %  of  total  carbon  dioxide
emissions in the EU-25) will  have to surrender  an  amount of  allowances  equivalent to their
actual  CO2  emissions.  CO2  allowances  are  initially  distributed  through  national  allocation

34

OJ L 275, 25.10.2003, p. 32-46.

15

 
                                                
plans.  They  can  be  freely  bought  or  sold  in  case  the  number  of  allowances  that  an
installation’s operator holds does not match the amount of CO2 that they actually produce.

5.2.

Effects of emissions trading on end-use efficiency measures

For small-scale end use of primary energy like gas, there is no direct link with the Emissions
Trading Directive, as the end users envisaged by this proposal are not covered by the scheme.
However,  for  the  end  use  of  electricity  there  is  a  direct  effect  of  the  Emissions  Trading
Directive as electricity producers and their electricity prices are indeed affected.

Firstly,  the  net  effect  of  emissions  trading  on  the  market  will  likely  be  an  increase  of  the
production  cost  for  electricity  produced  by  fossil  fuels.  A  price  increase  would,  in  itself,
trigger energy efficiency measures.

The  emissions  trading  scheme  is  internalising  the  cost  of  CO2  in  the  electricity  price  and
should therefore in itself constitute a sufficient and cost-effective system for both influencing
the energy supply and the demand side. Some Member States could therefore be inclined to
solely rely on emissions trading to ensure cost-effective emission reductions in the electricity
sector. However, the assumed impact on the demand side is based on a (unrealistic) situation
of perfect competition, where price signals are automatically picked up by the customers and
where the many barriers as identified in paragraph 1.1, do not exist. Because of the existence
of these barriers, the economic optimum impact on the demand side might not be achieved. It
is  therefore  necessary  that  the  emissions  trading  scheme  is  complemented  through  specific
and targeted measures that tackle the barriers that are preventing economically sound energy
efficiency improvements.

5.3.

Effect of end-use energy efficiency measures on emissions trading

A  reduction  of  the  overall  electricity  consumption  in  the  EU  achieved  as  a  result  of  this
Directive will lead  to  reductions  of  CO2 emissions by  power  generators.  This would  reduce
the allowance needs of power generators, and would therefore reduce the price of allowances.
This  would  benefit  all  sectors  covered  by  the  emissions  trading  scheme.  A  harmonised
mandatory target as proposed here will ensure an EU-wide level playing field with regards to
the ‘upstream’ benefits for the power generators. Furthermore, pursuant to Annex III(4) of the
emissions trading Directive, Member States will have to take into account the CO2 reductions
as a result of the Directive, when deciding upon the total number of allowances allocated in
the national allocation plans.

In order to ensure complementarity between the emissions trading scheme and this proposal,
the  industrial  sectors  covered  under  Annex  I  of  the  emissions  trading  directive  (and  those
covered under Annex I of the IPPC Directive) are not subject to this proposal.

6.

COHERENCE  OF  PROPOSED  MEASURES  WITH  EXISTING  EU
LEGISLATIVE  INITIATIVES  AND  TOOLS  RELEVANT  TO  ENERGY
EFFICIENCY

Energy services, energy efficiency programmes and other energy efficiency measures rely on
and complement many of the tools created by other EU  and Member State legislation,  such
as,  for  example,  the  energy  efficiency  labelling  of  household  appliances  and  equipment.35

35

OJ L 297, 13.10.1992, p. 16.

16

 
                                                
Many providers of energy services are thus able to take into account the lower life-cycle costs
of  purchasing  energy-efficient  equipment  on  the  basis  of  the  information  provided  on  the
mandatory label and leaflet. Many consumers, for varying reasons, do not take these factors
into  account  and  they  leave  out  the  energy  efficiency  dimension  entirely.  Energy  service
providers  act  to  incorporate  this  aspect,  using,  to  considerable  advantage,  the  information
provided in these Directives.

The  energy  audits  required  for  carrying  out  certification  in  the  Energy  performance  of
buildings Directive36 is another example. These  audits  are  required  in  order  to  comply  with
the certification  requirement. Advice  on  how to improve  the  building  is  also  required  when
the certification of the building is carried out. The increased use of energy services will allow
the implementation of many measures proposed in the mandatory certification audits by virtue
of  the  fact  that  they  are  presented  to  the  property  owner  in  favourable  and  readily
understandable economic and technical terms.

Energy  services,  energy  efficiency  programmes  and  other  energy  efficiency  measures  also
strongly  complement  the  regular  inspection  of  boilers  and  air-conditioning  systems,  as  set
forth  in  the  same  Directive  on  the  Energy  Performance  of  Buildings.  While  inspection  is
mandatory, there are no immediate incentives to improve or replace installations beyond the
knowledge that there might be economic advantages. Energy services will provide more exact
information on the costs and benefits of implementing the  proposed measures  and  can offer
guarantees of results, third-party financing and performance contracting as well.

In  general,  the  market  for  energy  services  and  other  energy  efficiency  measures  will  give
added impact to many existing  EU Directives while, at  the  same time, these Directives  will
reinforce and facilitate the delivery of energy services and other measures.37

7.

LEGAL BASIS

In order to ensure a prudent, sustainable and rational utilisation of energy, to which Art. 174
of  the  Treaty  refers,  it  is  necessary  to  ensure  that  the  demand  side  of  the  energy  market
functions  as  well  as  the  supply  side.  Therefore,  legislative  measures  are  being  proposed,
including targets for Member States public authorities, which in the longer term should lead
to a sustainable market for energy efficiency and in particular for energy services.

In accordance with Art. 175 of the Treaty, the potential advantages and costs associated with
the proposed measures on the demand side have been taken in account.

8.

CONTENTS OF THE PROPOSAL

Article 1 defines the purpose of the proposal and the manner in which it will be reached.

Article 2 defines the scope of the proposal as covering the distribution and retail sales of the
main energy sources to final customers in most major end-use sectors.

Article 3 defines the terms and concepts used in the proposal.

36

37

OJ L 1, 4.1.2003, p. 65.
In promoting the development of energy services, co-ordination with other existing EU legislation, such
as  Directives  1994/2/EC,  1995/12/EC,  1995/13/EC,  1996/60/EC,  1997/17/EC,  1998/11/EC,  and
2000/31/EC, is envisaged.

17

 
                                                
Article  4  obliges  Member  States  to  adopt  and  meet  an  annual  energy  savings  target.  A
calculation methodology is set out in Annex I.

Article  5  requires  Member  States  to  promote  energy  end-use  efficiency  through  the  use  of
public purchasing and to establish and meet an annual savings target of 1.5%.

Article 6 requires Member States to lay down certain obligations concerning the participation
of  energy  distribution  and  retail  supply  companies  in  the  energy  services  market,  including
the offering of a minimum level of energy services or energy audits.

Article  7  requires  Member  States  to  ensure  the  provision  of  energy  services  and  energy
efficiency measures for eligible customers and to ensure that these services and measures may
be provided by any qualified market player.

Article  8  requires  Member  States  to  ensure  the  existence  of  appropriate  qualification,
accreditation and/or certification schemes for energy services providers.

Article 9  requires member States to  provide  for  the  availability  of  financial  instruments  for
energy savings.

Article  10  obliges  member  states  to  ensure  that  tariff  structures  do  not  promote  increased
energy consumption and that they allow for cost recovery if reasonable and competitive.

Article  11  allows  Member  States  to  establish  funds  and  funding  mechanisms  for  energy
efficiency programmes and measures.

Article 12 obliges Member States to ensure the availability of energy audit schemes.

Article 13 requires Member States to ensure accurate and informative metering and billing of
energy consumption.

Article 14 establishes a reporting procedure for Member States and for the Commission.

Article 15 repeals Directive 93/76/EEC.38

Articles  16,  17  and  18  provide  for  the  transposition  and  administrative  provisions  of  the
Directive.

The  Annexes  to  the  proposal  (Annexes  I  –  IV)  contain  the  main  aspects  to  be  taken  into
account when setting and verifying Member State targets, including conversion tables. They
also provide guidelines for eligible energy services, energy efficiency programmes and other
energy efficiency measures and for their measurement and verification.

38

Council  Directive  93/76/EEC  of  13  September  1993  to  limit  carbon  dioxide  emissions  by  improving
energy efficiency (SAVE).

18

 
                                                
Annex A:

ENERGY  SERVICES,  ENERGY  EFFICIENCY  PROGRAMMES  AND  OTHER
ENERGY EFFICIENCY MEASURES IN MEMBER STATES AND ELSEWHERE

In Italy, energy end-use efficiency is being promoted in several ways, including through tariff
structures  set  forth  by  the  regulators  for  electricity.  Firstly,  total  revenues  from  certain
customer  classes  are  no  longer  100%  proportional  to  energy  units  sold,  but  partially
dependent on the number of customers. Secondly, the costs of energy efficiency programmes
incurred by utilities may be recovered through a small increase in the tariff.

Sweden  also  has  a  new  system  where  electricity  distribution  tariffs  are  evaluated  with  the
help of a model which, among other things, takes into account the length of the grid, the value
of the installations, and the need for new investment.

Since  1992,  distribution  companies  in  Denmark  have  been  obliged  to  grant  energy
counselling  free  of  charge  to  customers  within  industry  and  trade  as  well  as  to  household
customers,  e.g.  through  free  energy  efficiency  audits  for  industry  and  trade,  programmes
promoting  compact  fluorescent  lamps,  rebate  programmes  for  selected  technologies,  etc.
These companies are allowed to collect the costs for these activities via the tariff.

For the year 2001, the savings through directly measurable energy efficiency measures by the
electricity  grid  companies  are  calculated  to  be  equal  to  0.5%  of  total  consumption
(33  TWh/a),  while  the  energy  companies'  investments  (0.06  euro  cent/sold  kWh)  are  about
1% of the price per kWh net of taxes. For customers the average payback time is 4 years for
the initiatives and the net value in the lifetime of the savings is calculated at approximately 32
million euros.

The  energy  efficiency  activities  of  Danish  distribution  companies  during  the  period
2002 -2004 will be approximately 26 million euros, which is equal to approximately 0.08 euro
cent per kWh.

Between  1991  and  1997,  some  600  million  euros  was  spent  in  the  Netherlands  on  energy
services  and  programmes  related  to  electricity  and  gas.  This  was  through  rebates  for  high
frequency  lighting  ballasts,  variable  speed  drives,  compact  fluorescent  lamps,  Class  A
refrigerators,  and  condensing  boilers.39  These  programmes  were  based  on  negotiated
agreements and funds created by a charge on energy of around 1.4 euro cents/kWh.40

In  Germany,  80  utilities,  under  an  agreement  with  support  from  the  state  government  of
North  Rhine-Westphalia,  increased  the  number  of  compact  fluorescent  lamps  in  use  in  the
domestic sector by 1.4 million, saving 550 GWh at costs of 1.6 euro cents/kWh saved.41

Germany  has  adopted  a  new  act  on  energy  savings  (Energieeinsparverordnung),  which
clearly addresses the demand side. This new regulation aims to reduce CO2 emissions by 10
million  tonnes  by  2005.  Energy  efficiency  in  new  buildings  will  be  increased  by  30%
compared to the present standard.

39

40

41

DEA. E.piano 1999.
154.5 PJ = 42.9 TWh, -> 600 000 000EUR/42 910 000 000 kWh = 0.01398 EUR.
(Thomas et al. 1997).

19

 
                                                
The UK has a programme called The Energy Efficiency Commitment (EEC), which currently
has a target of 62 TWh savings over a period of three years. The EEC is a legal obligation on
gas  and electricity  suppliers to reach an  energy saving  target.  It is up  to  suppliers  to  decide
how they meet the cost of delivering their EEC target. The current design of the EEC is to try
to get suppliers to integrate energy efficiency into their businesses.

Luxembourg  has  set  up  a  bonus  scheme  for  the  rational  use  of  energy  and  renewable
energies. Bonuses are paid for investments in all types of residential buildings.

In various projects in Hungary local authorities co-operating with ESCOs have succeeded in
achieving much better energy efficiency  in  municipal buildings.  Savings in heating  costs  of
up to 70 % were reported42.

After a law was passed in 1995 in Slovakia, which allowed energy performance contracts to
be  signed,  municipalities  have  been  using  this  concept  to  improve  energy  performance  of
district heating installations. Energy savings are estimated to pay back the investments in six
years43.

In Slovenia several initiatives have been taken in the past years to improve energy efficiency
in  residential  buildings  and  households.  These  include  a  grant  subsidy  scheme  for  loft
insulation,  draught  proofing  and  boiler  adjustments,  as  well  as  activities  of  an  Energy
Advisory Network (ENSVET). The objective of ENSVET is to raise energy awareness and its
activities  are  expected  to  contribute  to  the  goal  of  a  2  %  per  year  energy  efficiency
improvement.44

In Norway, the annual revenue cap for electricity distribution and transmission companies is
set  by  the  regulator.  The  revenue  cap  is  based  on  historical  costs  related  to  their  network
activity and is adjusted, inter alia, to their efficiency.

Energy savings resulting from initiatives taken in 2002 in governmental programmes within
industry,  buildings,  technology  introduction  and  training  and  education  accounted  for  450
GWh  saved  energy.  The  amount  invested  was  approximately  4.6  million  euros,  i.e.
approximately 1 euro cent/kWh.

A  government  report  from  1998  reveals  that  the  potential  for  energy  savings  based  on
investments within the building mass is 14 TWh (of 72 TWh), providing an electricity price
of approx. 5 euro cents/kWh or an oil price of approx. 3.5 euro cents/kWh. The calculations
do not include potential for behavioural change as a result of information and education.

42

43

44

International Energy Agency, Energy Efficiency Initiative-Country Profiles and Case Studies, 1997.
id.
id.

20

 
                                                
2003/0300 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on energy end-use efficiency and energy services

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article
175(1) thereof,

Having regard to the proposal from the Commission,45

Having regard to the opinion of the European Economic and Social Committee,46

Having regard to the opinion of the Committee of the Regions,47

Acting in accordance with the procedure laid down in Article 251 of the Treaty,48

Whereas:

(1)

(2)

In  the  European  Community  there  is  a  need  for  improved  end-use  energy  efficiency
and  managed  demand  for  energy  as  there  is  relatively  limited  scope  for  any  further
influence  on  energy  supply  and  distribution  conditions  in  the  short  to  medium  term,
either by building new capacity or improving transmission and distribution.49

Improved end-use energy efficiency will also contribute to the mitigation of CO2 and
other greenhouse gas emissions. These emissions continue to increase, making it more
and more difficult to meet the Kyoto commitments. Human activities attributed to the
energy sector constitute as much as 78% of the Community greenhouse gas emissions.
The 6th environmental action program envisages that further reductions are required to
term  objective  of  stabilising  greenhouse  gas
achieve 
that  would  prevent  dangerous
level 
concentrations 
anthropogenic interference with the climate system.

the  UNFCCC50 
in 

the  atmosphere  at  a 

long 

(3)

The  Communication  on  the  first  phase  of  the  ECCP51  listed  a  Directive  on  energy
demand  management  as  one  of  the  priority  climate  change  measures  to  be  taken  at
community level;

45

46

47

48

49

50

51

OJ C […], […], p. […].
OJ C […], […], p. […].
OJ C […], […], p. […].
OJ C […], […], p. […].
COM(2000) 769, Green Paper "Towards a European Strategy for Energy Supply".
United Nations Framework Convention on Climate Change.
European Climate Change Programme.

21

 
                                                
(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

52

53

54

55

56

57

Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003
concerning common rules for the internal market in electricity and repealing Directive
96/92/EC52 and Directive 2003/55/EC of the European Parliament and of the Council
of 26 June 2003 concerning common rules for the internal market in natural gas, and
repealing  Directive  98/30/EC53  provide  for  the  possibility  of  using  energy  efficiency
and demand-side management as an alternative to new supply  and for  environmental
protection, allowing Member State authorities, inter alia, to tender for new capacity or
to opt for energy efficiency and demand-side measures, including systems for “white
certificates”.

This  Directive  is  without  prejudice  to  Article  3  of  Directive  2003/54/EC  of  the
European Parliament and of the Council of 26 June 2003 concerning common rules for
the internal market in electricity and repealing Directive 96/92/EC54 that requires that
Member  States  shall  ensure  that  all  household  customers  and,  where  Member  States
deem  it  appropriate,  small  enterprises,  enjoy  universal  service  that  is  the  right  to  be
supplied  with  electricity  of  a  specified  quality  within  their  territory  at  reasonable,
easily and clearly comparable and transparent prices.

The  liberalisation  of  the  retail  markets  for  end-use  customers  for  electricity,  natural
gas, coal and lignite, heating and in some cases even district heating and cooling have
almost  exclusively  led  to  improved  efficiency  and  lower  costs  on  the  energy
generation,  transformation  and  distribution  side55.  This  liberalisation  has  not  led  to
significant  competition  on  the  basis  of  products  and  services  which  could  have
resulted in improved efficiency on the demand side.

In  its  Resolution  of  7  December  1998  on  energy  efficiency  in  the  European
Community56, the Council endorsed a target for the Community as a whole to improve
energy intensity of final consumption by an additional one percentage point per annum
up to the year 2010.

Member  States  should  therefore  adopt  national  targets  to  promote  energy  end-use
efficiency and to  ensure  the  continued  growth and  viability  of  the  market  for  energy
services.

Improved  end-use  efficiency  can  be  achieved  by  increasing  the  availability  of  and
demand for energy services.

The Council Conclusions of 5 December 200057 list the promotion of energy services
through  the  development  of  a  Community  strategy  as  a  priority  area  for  action  to
improve energy efficiency.

Energy distribution and retail energy sales  companies can improve energy  efficiency
in the European Community if energy services are marketed that include efficient end
use, such as efficient thermal comfort, domestic hot water, refrigeration, illumination
and  motive  power.  Profit  maximisation  for  these  companies  thus  becomes  more

OJ L 176, 15.7.2003, p. 37.
OJ L 176, 15.7.2003, p.57.
OJ L 176, 15.7.2003, p.37.
Implementing the internal energy market: First benchmarking report; European Commission, 2002.
OJ C 394, 17.12.1998, p.1.
Council Conclusions: Bulletin 5-2000, point 1.4.41.

22

 
                                                
closely related to selling energy services to as many customers as possible instead of
selling as much energy as possible to each customer.

(12) A  good  example  regarding  investments,  maintenance  and  other  expenditures  for
energy-using equipment, energy services and other energy efficiency measures should
be set by the public sector in each Member State.

(13)

The  energy  services,  energy  efficiency  programmes  and  other  energy  efficiency
measures  put  into  effect  to  reach  the  energy  savings  target  may  be  supported  and/or
implemented  through  voluntary  agreements  between  stakeholders  and  independent
public sector bodies appointed by the Member States.

(14) With the adoption of this Directive, all substantive provisions of Directive 93/76/EEC
of  13  September  1993  to  limit  carbon  dioxide  emissions  by  improving  energy
efficiency58  are  covered  by  other  community  legislation  and  therefore  Directive
93/76/EEC should be repealed.

(15)

Since the objectives of promoting energy end-use efficiency and developing a market
for  energy  services  cannot  be  sufficiently  achieved  by  the  Member  States  and  can
therefore be better achieved at Community level, the Community may adopt measures,
in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In
accordance  with  the  principle  of  proportionality,  as  set  out  in  that  Article,  this
Directive does not go beyond what is necessary in order to achieve those objectives.

HAVE ADOPTED THIS DIRECTIVE:

CHAPTER I

SUBJECT MATTER AND SCOPE

Article 1
Purpose

The purpose of this Directive is to enhance the cost-effective and efficient end-use of energy
in the Member States by:

-

-

providing  the  necessary  targets,  mechanisms,  incentives  and  institutional,  financial
and  legal  frameworks  to  remove  existing  market  barriers  and  imperfections  for  the
efficient end use of energy;

developing  a  market  for  energy  services  and  for  the  delivery  of  energy  efficiency
programmes and other energy efficiency measures to end users.

58

OJ L 237, 22.9.1993, p. 28.

23

 
                                                
Article 2
Scope

1.

2.

3.

This  Directive  shall  apply  to  the  distribution  and  retail  sales  to  final  customers  of
energy.

Member States can exclude small distributors or retail energy sales companies from
the application of this Directive.

Member  States  can  exclude  the  buildings  listed  in  Article  4(3)  of  the  Directive
2002/91/EC  of  the  European  Parliament  and  of  the  Council  on  the  energy
performance of buildings59 from the application of this Directive.

Article 3
Definitions

For the purposes of this Directive, the following definitions shall apply:

(a)

(b)

(c)

(d)

(e)

"Energy": energy in the form of electricity, natural gas (including liquefied natural
gas and liquefied petroleum gas), district heating and cooling, heating fuel, coal and
lignite, transport fuels (excluding aviation and foreign bunker fuels), and forestry and
agricultural energy products and waste.

"Energy  efficiency  measures":  all  actions,  such  as  energy  services,  energy
efficiency programmes and mechanisms or similar activities, initiated by any market
player, including governments and authorities, that lead to verifiable and measurable
improvements  in  end-use  energy  efficiency,  and  thus  to  energy  end-use  savings,
during the period of measurement.

"Energy  Service":  the  physical  amenity  for  energy  end  users  derived  from  a
combination  of  energy  and  energy  using  technology  and,  in  certain  cases,  the
operations  and  maintenance  necessary  to  deliver  the  service  (examples  are  indoor
thermal  comfort,  lighting  comfort,  domestic  hot  water,  refrigeration,  product
manufacturing,  etc.)  meeting  quality  performance  requirements  and  improving
energy efficiency, contracted for a fixed period of time and paid for directly by the
customer or agent who benefits from them.

"Energy efficiency programmes": measures (e.g. energy audits, financial rebates for
energy-efficient  equipment  and  information  and  other  measures  of  the  kind
mentioned in Annex III) targeting energy end users or market agents and designed to
help them undertake energy-efficiency measures, normally paid for collectively and
offered  by  national  agencies,  energy  retail  suppliers,  distributors  and  other  market
players.

"Energy efficiency mechanisms": specific measures, such as certification, regulated
tariffs,  taxes,  subsidy  schemes,  funds,  etc.,  undertaken  by  governments  or
government  bodies  to  create  a  supportive  framework  or  incentives  for  energy

59

OJ L 1, 4.1.2003, p. 65.

24

 
                                                
(f)

(g)

(h)

(i)

(j)

(k)

(l)

(m)

(n)

companies,  energy  service  companies,  installers  or  other  market  players  to  provide
energy services and energy efficiency programmes, not addressing end users directly.

"Final  customer":  end-use  customer  in  the  household,  agricultural,  commercial,
public, industrial sector (excluding those installations listed in Annex I of Directive
2003/87/EC60  and  those  industrial  activities  listed  in  Annex  I  of  Directive
1996/61/EC)61 and in the transport sector  (excluding  means  of  transport in  aviation
and maritime shipping).

"Third-party financing contract": a financial arrangement involving a third party –
in  addition  to  the  energy  supplier–  that  provides  energy  services  and  finances  the
investment.  The  financial  value  of  the  savings  generated  by  the  energy  efficiency
improvement  determines  the  rate  of  recovery  of  costs,  including  a  profit  to  the
energy service provider.

"Energy performance contracting": a financial arrangement that guarantees that the
amount of energy efficiency improvement agreed as a result of the implementation of
an energy service will actually be achieved.

"Financial instruments for energy savings": third-party financing contracts, energy
performance  contracting,  guarantee  of  savings  contracts,  energy  outsourcing  and
other  related  contracts  used  in  the  market  for  energy  services  to  ensure  a  level  of
savings and a level and quality of performance.

"Energy distributor": the natural or legal person responsible for transporting energy,
either  through  grids  and  pipelines  ("grid-bound"),  such  as  electricity  (medium  and
low  voltage),  natural  gas  and  district  heating,  or  through  other  transportation  and
distribution  networks  designed  to  deliver  such  energy  as  heating  fuel,  coal,  lignite
and transportation fuels to final customers.

"Retail  energy  sales  company":  a  retail  energy  sales  company,  natural  or  legal
person,  with  sales  to  final  household,  commercial  and  industrial  customers
purchasing energy for their own use.

"Small  distributors  and  retail  energy  sales  companies":  distributors  or  retail
suppliers  with  annual  turnover  less  than  the  equivalent  of  50  GWh  metered
electricity  of  district  heat  and  cooling  consumption  or  equivalent  delivered  cubic
metres or tonnes of the remaining energy carriers.

"Energy  service  company"  (ESCO):  a  company  that  delivers  energy  services,
energy  efficiency  programmes  and  other  energy  efficiency  measures  in  a  user’s
facility,  and  accepts  some  degree  of  technical  and  sometimes  financial  risk  in  so
doing. The payment for the services delivered is based (either wholly or in part) on
meeting quality performance standards and/or energy efficiency improvements.

"Energy  audits":  a  systematic  procedure  that  obtains  adequate  knowledge  of  the
existing  energy  consumption  profile  of  the  building  site,  industrial  operation,  etc.;
identifies and quantifies cost-effective energy savings opportunities; and reports the
findings.

60

61

OJ L 275, 25.10.2003, p. 32-46.
OJ L 257, 10.10.1996, p. 26-40.

25

 
                                                
(o)

"White certificates": certificates issued by independent certifying bodies confirming
the claims of market actors for savings of energy, as a consequence of energy  end-
use efficiency measures.

CHAPTER II

ENERGY SAVINGS TARGETS

Article 4
General target

1.

2.

3.

4.

5.

6.

7.

Member  States  shall  adopt  and  meet  a  mandatory  target  for  cumulative  annual
energy  savings  attributable  to  energy  services,  energy  efficiency  programmes  and
other energy efficiency measures such as those listed in Annex III.

The target shall consist of an annual amount of energy to be saved that is equal to
1% of the amount of energy distributed and/or sold to final customers, as calculated
for the base year according to Annex I. The costs of the measures adopted to achieve
this target should not exceed their benefits.

The first savings in the distribution and/or retail sales to final customers, according to
this  target,  will  be  applied  to  the  first  calendar  year  after  the  year  this  Directive  is
transposed  into  national  legislation.  This  savings  will  increase  by  the  cumulative
application of the  targets of  the following  years, until  and including the  year  2012,
for a maximum of 6 years.

The base year energy consumption and other conditions, such as taking into account
the  effects  of  measures  implemented  in  previous  years,  shall  be  calculated  in
accordance  with  the  methodology  set  out  in  Annex  I  and  savings,  measured  and
verified in accordance with the guidelines in Annex IV. For purposes of comparison
and  for  conversion  to  a  comparable  unit,  the  conversion  factors  provided  for  in
Annex II shall apply.

Member  States  shall  provide  for  the  appointment  of  one  or  more  new  or  existing
independent public sector authorities or agencies to be  assigned  overall control and
responsibility  for  overseeing  the  framework  for  reaching  the  targets  mentioned  in
paragraph  (2),  and  therefore  verifying  the  savings  delivered  by  energy  services,
programmes and other energy efficiency measures, and reporting the results.

Upon  expiration  of  the  period  during  which  the  target  is  applied,  the  Commission
will  review  the  target  mentioned  in  paragraph  (2)  and  examine  whether  it  shall
present a proposal for a prolongation or amendment of this target.

After having reviewed and reported on this target the first time, the Commission will
examine whether it is appropriate to come forward with a proposal for a Directive to
develop  further  the  market  approach  in  energy  efficiency  by  means  of  “white
certificates”.

26

 
1.

2.

3.

4.

Article 5
Procurement of energy end-use efficiency by the public sector

Member States shall adopt and meet a mandatory target of an annual energy savings
in  the  public  sector  through  the  procurement  of  energy  services,  energy  efficiency
programmes and other energy end-use efficiency measures. This target may be a sub-
target  of  the  overall  target  set  out  in  Article  4(1),  meaning  that  fulfilment  of  the
public sector target will contribute to fulfilling the overall target.

The public sector target shall consist of an annual savings of at least 1.5% of energy
distributed  and/or  sold  to  this  sector,  allocated  and  calculated  in  accordance  with
Article  4.3  and  the  methodology  in  Annex  I.  For  purposes  of  comparison  and  for
conversion  to  primary  energy,  the  conversion  factors  set  out  in  Annex  II  shall  be
applied.

Member  States  shall  appoint  a  new  or  existing  organisation  or  organisations  to
assume  the  administrative,  management  and  implementing  responsibility  for
fulfilling  the  target  on  public  purchasing  and  for  providing  advice  and  purchasing
guidelines  for  energy efficiency. These  may  be  the  same  independent  public  sector
authorities or agencies as described in Article 4(5).

To  achieve  the  target  adopted  pursuant  to  paragraph  1,  Member  States  can  in
particular  use  public  purchasing  guidelines  to  enable  public  administrations  to
integrate  energy  efficiency  considerations  into  their  investment  and  operating
budgets  and  activities  through  the  use  of  energy  services,  energy  efficiency
programmes and other energy efficiency measures. While respecting the procedures
enshrined in national and Community public procurement legislation, the guidelines
may cover the following:

(a)

(b)

(c)

requirements  for  the  use  of  financial  instruments  for  energy  savings,  such  as
third-party  financing  and  energy  performance  contracting,  that  stipulate  the
delivery  of  measurable  and  pre-determined  energy  savings  (including
whenever  public  administrations  have  outsourced  responsibilities)  when
purchasing energy services and energy efficiency measures;

requirements  to  purchase  equipment  and  vehicles  from  energy-efficient
products of each category of equipment and vehicles, using, where applicable,
minimised  life  cycle  cost  analysis  or  comparable  methods  to  ensure  cost
effectiveness;

requirements  to  purchase  products  that  have  low  standby  power  consuming
mode  using,  where  applicable,  minimised  life  cycle  cost  analysis  or
comparable methods to ensure cost effectiveness.

5.

Upon  expiration  of  the  period  during  which  the  target  is  applied,  the  Commission
will  review  the  target  mentioned  in  paragraph  (2)  and  examine  whether  it  shall
present a proposal for prolongation or amendment of this target.

27

 
PROMOTION OF ENERGY END-USE EFFICIENCY AND ENERGY SERVICES

CHAPTER III

Article 6
Energy distribution and retail energy sales companies

Member States shall remove barriers to the demand for energy services and ensure that energy
distributors  and/or  retail  energy  sales  companies  selling  electricity,  gas,  district  heat  and/or
heating oil:

(a)

(b)

(c)

offer and actively promote energy services as an integral part of the distribution
and/or  sales  of  energy  to  customers,  either  directly  or  through  other  energy
service providers. Energy audits shall be provided for free to their customers as
long as 5% of them are not covered by energy services.

refrain  from  any  activities  that  might  impede  the  delivery  of  energy  services,
energy efficiency programmes and other energy efficiency measures or hinder
the  development  of  the  market  for  energy  services  and  energy  efficiency
measures in general. The authorities or agencies designated in Article 4(5) shall
take  the  necessary  measures  to  bring  such  activities  to  an  end  where  they
occur;

provide the information on their end-use customers necessary for the appointed
authorities  or  agencies  designated  in  Article  4(4)  to  properly  design  and
implement energy efficiency programmes, and to promote energy services and
energy  efficiency  measures.  This  information  should  include  historical  and
current 
load  profiles,  customer
segmentation, and geographical location of customers, where applicable, while
preserving 
integrity  and  confidentiality  of  commercially  sensitive
information.

information  on  end-user  consumption, 

the 

Article 7
Implementation of savings

1.

1.

Member  States  shall  ensure  that  energy  services,  energy  efficiency  programmes  or
other  energy  efficiency  measures  are  offered  to  all  eligible  customers,  including
small  and  medium-sized  enterprises,  consumers  and  voluntary  aggregations  of
smaller customers; and  that  these  energy  services,  programmes  and  other  measures
can  be  delivered  and  implemented,  as  appropriate,  by  qualified  bodies,  including
equipment  installers,  energy  service  companies,  energy  advisors  and  energy
consultants.

Article 8
Qualification, certification and accreditation of energy service providers

Member States shall ensure the availability of appropriate qualification, accreditation
and/or  certification  schemes  for  market  players  delivering  energy  services,  with  a
view  to  maintaining  a  high  level  of  technical competence  of  personnel,  and quality

28

 
and  reliability  of  energy  services  offered.  Proof  of  qualification,  certification  and
accreditation  for  this  purpose  delivered  by  Member  States  authorities  shall,  if
required by another Member State, be mutually recognized.

In  accordance  with  Article  14,  Member  States  shall  include  in  their  report  to  the
Commission  an  assessment  of  the  effectiveness  of  their  national  schemes  for
qualification,  certification  and/or  accreditation  and  on  the  possible  need  for  EU
harmonization.

Article 9
Financial instruments for energy savings

Member  States  shall  remove  or  amend  national  legislation  and  regulations  that
impede or restrict the use of financial instruments and contracts for energy savings in
the market for energy services, such as third-party financing and energy performance
contracting.

Member  States  shall  make  these  instruments  and  contracts  mentioned  in  paragraph
(1) available, in the form of model contracts, both to public and to private purchasers
of energy services and energy efficiency measures.

2.

1.

2.

Article 10
Tariffs and other regulations for net-bound energy

Member States shall ensure that:

(a)

(b)

1.

incentives to increase the volume of transmitted energy or sales of energy embedded
in tariff regulation  schemes  in  monopoly  segments  of  the  distribution  of  net-bound
energy  are  removed.  This  may  be  done  by  the  introduction  of  transmission  and
distribution tariff structures that take into account, in addition to the volume of sales,
such factors as the number of customers served, by the use of revenue caps or by any
other measures that can be deemed to have the same effect;

costs for investments made on the energy end-use side by distribution companies can
be recovered by including them in their distribution tariffs, where appropriate, having
due regard for the need to ensure equal competition and a level playing field for other
providers  of  energy  services.  Cost  recovery  may  be  allowed  for  costs  incurred  in
fulfilling energy service obligations pursuant to Article 6(a), provided that such costs
are deemed reasonable and competitive by the responsible authority.

Article 11
Funds and funding Mechanisms

Without prejudice to Articles 87 and 88 of the Treaty, Member States may establish a
fund or funds that will subsidize the delivery of energy  efficiency programmes and
other  energy  efficiency  measures  and  promote  the  development  of  a  market  for
energy  services,  including  the  promotion  of  energy  auditing,  financial  instruments
for  energy  savings  and,  where  appropriate,  improved  metering  and  informative
billing.  The  funds  should  target  higher  transaction  cost  or  higher  risk  sectors,  and
promote the development of energy service companies (ESCOs) and other providers

29

 
2.

3.

of  energy  services,  including  independent  energy  advisors  and  installers  of
equipment.

The funds should provide for grants, loans, financial guarantees and/or other types of
financing that guarantee results.

The  funds  should  be  open  to  all  qualified  providers  of  energy  services,  energy
efficiency  programmes  and  other  energy  efficiency  measures  active  in  the  internal
energy services market, such as ESCOs, independent energy advisors and equipment
installers.  Tendering  shall  be  carried  out  in  full  compliance  with  current  public
procurement  regulations,  ensuring  also  that  the  funds  complement  and  do  not
compete  with,  commercially-financed  energy 
services,  energy  efficiency
programmes and other energy efficiency measures.

Article 12
Energy audits

Member States shall ensure the availability of independent, high quality energy audit schemes
designed  to  identify  potential  energy  efficiency  measures  and  energy  service  needs  and
prepare  for  their  implementation.  The  audits  shall  also  be  available  for  smaller  domestic,
commercial  and  small  and  medium-sized  industrial  premises  and  undertakings  with
comparatively high transaction costs.

Article 13
Metering and informative billing of energy consumption

1.

Member States shall ensure that:

all  end-use  customers  of  net-bound  energy  distribution  and/or  retail  supply
companies are provided with competitively priced individual  meters  that accurately
reflect the customer’s actual energy consumption and actual time of use.

2.

Member States shall ensure that:

billing  reflects  actual  consumption  in  understandable  terms,  and  is  carried  out
frequently  enough  to  enable  customers  to  regulate  their  own  energy  consumption.
For  net-bound  energy,  and  where  appropriate,  distribution  charges  and  energy
charges shall be displayed in the same bill.

3.

Member States shall ensure that:

in  or  with  bills,  contracts,  transactions,  receipts  at  distribution  stations  and  in
promotional  material,  all  energy  distributors  and/or  retailers  make  the  following
information available to final customers:

(a)

current actual prices and, where appropriate, actual consumption;

(b) where appropriate, comparisons of the consumer’s current energy consumption

with consumption for the same period in the previous year, in graphical form;

30

 
(c)

(d)

(e)

comparisons with an average normalised or benchmarked user of energy of the
same category;

environmental  impact,  such  as  CO2,  of  energy  distributed  or  sold  for
consumption;

contact information, including websites, where information on available energy
services, energy efficiency programmes and other energy efficiency measures,
as  well  as  technical  specifications  for  energy-using  equipment,  may  be
obtained.

CHAPTER IV

FINAL PROVISIONS

Article 14
Report

1.

2.

3.

Member  States  shall  report  to  the  Commission  on  the  overall  administration  and
implementation  of  this  Directive.  The  report  shall  include  information  on  the
measures  taken  or  planned,  including 
the  qualification,  certification  and/or
accreditation of energy service providers. It shall also include information on energy
audit schemes, on the use of financial instruments for energy savings, on improved
metering  of  consumption,  and  on  informative  billing.  Information  on  the  expected
impact and financing of the measures should also be included.

Not later than 2 years after adoption of this Directive and every three years thereafter
up to and including 2012, Member States shall submit to the Commission a report on
their  success  in  meeting  the  national  annual  energy  savings  target,  as  set  out  in
Article  4(1),  on  the  public  sector  target,  as  set  out  in  Article  5(1)  and  on  the
development of energy services, as set out in Article 6(a). The effect of measures of
previous years that has been taken into account in the calculation of the savings shall
be duly specified and quantified. This shall continue until the final year of the target
set out in Article 4 and 5 is reported on.

On  the  basis  of  the  Member  States'  reports  the  Commission  shall  assess  to  what
extent Member  States  have  made  progress  towards  achieving  their  national  targets.
The Commission shall publish its conclusions in a report, for the first time not later
than  3  years  after  adoption  of  this  Directive  and  thereafter  every  three  years.  This
report shall be accompanied, as appropriate and where necessary, by proposals to the
European Parliament and to the Council for additional measures.

Article 15
Repeals

Council Directive 93/76/EEC shall be repealed with  effect from the date  of  entry into force
indicated in Article 17.

31

 
Article 16
Transposition

1.

2.

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative
provisions necessary to comply with this Directive on 1 June 2006 at the latest. They
shall  forthwith  communicate  to  the  Commission  the  text  of  those  provisions  and  a
correlation table between those provisions and this Directive.

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official
publication. Member States shall determine how such reference is to be made.

Member  States  shall  communicate  to  the  Commission  the  texts  of  the  main
provisions of national law which they adopt in the field governed by this Directive.

Article 17
Entry into force

This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Union.

Article 18
Addressees

This Directive is addressed to the Member States.

Done at Brussels, […]

For the European Parliament
The President
[…]

For the Council
The President
[…]

32

 
ANNEX I

Methodology for calculating targets for end-use efficiency

The methodology used for calculating the national targets set out in Articles 4 and 5 shall be
the following:

1.

2.

3.

Member  States  shall  calculate the arithmetic average of  total  final  domestic  energy
consumption  for  the  most  recent  five  calendar-year  period,  previous  to  the
implementation of this  Directive  for  which  official  data  are  available,  using  this  as
the base period for the total duration of this Directive. This data shall be the amount
of  energy  distributed  or  sold  to  final  customers  during  the  period,  not  adjusted  for
degree days, structural changes or for production changes.

The  annual  energy  savings  targets  shall  be  calculated  on  the  base  period  and
expressed in  absolute terms  in GWh,  or  equivalent,  using  the  conversion  factors  in
Annex II.

Energy  savings  in  a  particular  year  that  result  from  energy  efficiency  measures
initiated  in  a  previous  year  not  earlier  than  1991  may  be  taken  into  account  in  the
calculation  of  the  annual  savings.  These  energy  savings  should  be  measurable  and
verifiable, in accordance with the guidelines in Annex IV of this Directive.

33

 
ANNEX II

Primary energy content of selected fuels for end use - conversion table

Energy commodity

kJ (NCV)

kgoe (NCV)

kWh (NCV)

1 kg coke

1 kg hard coal

28500

0.676

7.917

17200 - 30700

0.411 - 0.733

4.778 - 8.528

1 kg brown coal briquettes

20000

0.478

5.556

1 kg black lignite

10500 - 21000

0.251 - 0.502

2.917 - 5.833

1 kg brown coal

5600 - 10500

0.134 - 0.251

1.556 - 2.917

1 kg oil shale

1 kg peat

8000 - 9 000

0.191 - 0.215

2.222 - 2.500

7800 -13800

0.186 - 0.330

2.167 - 3.833

1 kg residual fuel oil (heavy oil)

40000

1 kg light fuel oil

1 kg motor spirit (petrol)

1 kg paraffin

1 kg LPG

1 kg natural gas62

1 kg LNG

1 kg wood (25% humidity)63

1 kg pellets/wood bricks

42300

44000

40000

46000

47200

45190

13800

16800

0.955

1.010

1.051

0.955

1.099

1.126

1.079

0.330

0.401

11.111

11.750

12.222

11.111

12.778

13.10

12.553

3.833

4.667

1 kg waste

7400 - 10700

0.177 - 0.256

2.056 - 2.972

1 MJ derived heat

1 kWh electrical energy

1000

3600

0.024

0.086

278

2.564

62

63

64

93.0% methane.
Member States may apply other values depending on the type of wood most used in the Member State.
For  savings  in  kWh  electricity  Member  States  may  apply  a  default  co-efficient  of  2.5  reflecting  the
estimated 40% average EU generation efficiency during the target period. Source: Eurostat.

34

 
                                                
ANNEX III

Eligible energy efficiency programmes and other energy efficiency measures

This  annex  provides  examples  of  where  energy  efficiency  programmes  and  other  energy
efficiency  measures  may  be  developed  and  implemented.  To  be  taken  into  account  for
meeting  the  energy  savings  targets  set  out  in  Articles  4  and  5,  energy  services,  energy
efficiency  programmes  and  other  energy  efficiency  measures  must  contain  activities  that
result  in  verifiable  and  measurable  savings  that  reduce  energy  use,  without  increasing  the
environmental impact. The energy services, energy efficiency programmes  and other energy
efficiency measures shall be cost-effective and their delivery and implementation open to all
certified,  qualified  and/or  accredited  providers  of  energy  services,  energy  efficiency
programmes and other energy efficiency measures. This list is not exhaustive but is intended
to provide guidance.

1. Eligible  areas  where  energy  efficiency  programmes  and  other  energy  efficiency

measures may be identified and implemented:

a)  heating  and  cooling  (e.g.  new  efficient  boilers,  installation/efficient  update  of  district

heating/cooling systems, etc.);

b)  insulation  and  ventilation  (e.g.  wall  cavity  and  roof  insulation,  double/triple  glazing  of

windows, etc.);

c)  hot  water  (e.g.  installation  of  new  devices,  direct  and  efficient  use  in  space  heating,

washing machines, etc.);

d) lighting (e.g. new efficient bulbs and ballasts, digital control systems, etc.);

e) cooking and refrigeration (e.g. new efficient devices, heat recovery systems, etc.);

f)  other  equipment  and  appliances  (e.g.  new  efficient  devices,  time  control  for  optimised

energy use, stand-by loss control, etc.);

g) product manufacturing processes (e.g. more efficient use of compressed air, condensate and
switches  and  valves,  use  of  automatic  and  integrated  systems,  efficient  stand-by  modes,
etc.);

h)  motors  and  drives  (e.g.  increase  in  the  use  of  electronic  controls,  variable  speed  drives,

integrated application programming, frequency conversion, etc.);

i)  fans,  variable  speed  drives  and  ventilation  (e.g.  new  devices/systems,  use  of  natural

ventilation, etc.);

j) demand response management (e.g. load management, peak shaving control systems, etc.);

k) mode of travel used, e.g.

-  subsidised financing of buying/leasing energy-efficient vehicles;

- 

incentives for transport fleet drivers to reduce fuel per trip/day/week/month, etc.;

35

 
-  energy efficiency add-ons for vehicles, e.g. streamlining for trucks, fuel computers, tyre

pressure monitors;

-  eco-driving courses with measurable follow-up activities;

-  energy efficiency audits on vehicles, e.g. tyres, emissions, roof racks, etc.;

- 

third-party  financing  projects  involving  transport  fleet  companies  with  the  aim  of
reducing the amount of energy used;

l)  modal shifts of travel, programmes that provide, e.g.

-  car 

free  home/office  obliging, 

implementation  of  mobility  guarantees 

for

residents/workers, e.g. bicycle, public transport pass, easy access to hire cars, etc.;

-  car free delivery days of children to schools and kindergartens;

-  de-investment:  car  users  renounce  car  ownership  and  in  return  receive  reduced-cost
alternative mobility, e.g. bicycle, public transport pass, easy access to hire cars, etc.;

-  parking spaces in connection with public transport stops (park and ride systems).

2.  Eligible horizontal measures

Focused  horizontal  measures  may  be  considered  eligible  if  energy  savings  can  be  clearly
measured  and  verified  according  to  the  guidelines  in  Annex  IV  of  this  Directive.  This
includes the following (non-exhaustive):

-

-

regulations, taxes, etc. that aim primarily at reducing energy end-use consumption;

standards and norms that aim primarily at increasing the energy efficiency of products and
services;

- campaigns that promote energy efficiency and energy efficiency measures.

36

 
ANNEX IV

Guidelines for Measurement and Verification of Energy Savings

1.  How Energy Savings should be measured

Energy savings shall be determined by estimating and/or measuring before and comparing to
the use after the implementation of the measure, while ensuring adjustment and normalisation
for  extrinsic  conditions  commonly  affecting  energy  use.  Conditions  commonly  affecting
energy  use  may  also  differ  over  time.  Such  conditions  may  be  the  likely  impact  of  one  or
several plausible factors (not exhaustive):

- weather conditions, such as degree days;

- occupancy levels;

- opening hours for non-domestic buildings;

-

installed equipment intensity (plant throughput);

- using schedule for installation and vehicles;

-

relationship with other units.

In measuring the energy savings set out in Article 4, a bottom-up model shall be used. This
means that energy savings obtained through a specific energy service, or in a specific energy
efficiency  programme,  measure  or  project,  shall  be  measured  in  kilowatt-hours  (kWh),  in
Joules (J) or in kilogram oil equivalent (kgoe) and added together with energy savings results
from  other  specific  services,  programmes,  measures  or  projects.  The  assigned  public
authorities  or  agencies  set  out  in  Article  4(5)  will  ensure  that  double  counting  of  energy
saving, which results from a combination of energy efficiency measures, are avoided.

The achieved energy result to be reported in accordance with Article 14 in the Directive shall
be based on the following:

(1)

(2)

If the service or programme/project is finalised and sufficient data are available at the
time of reporting, the results shall be measured according to point 2.1 in this Annex.

If the service or programme/project is not finalised or sufficient data are not available
at the time of reporting, the results shall be measured according to point 2.2 in this
Annex.

How  to  calculate  the  base  year  energy  consumption  is  described  in  Annex  I,  a  conversion
table  is  contained  in  Annex  II  and  examples  of  energy  services,  energy  efficiency
programmes and other energy efficiency measures are listed in Annex III.

2.  Data and Methods that may be used (Measurability)

Several methods for collecting data to measure and estimate energy savings exist. At the time
of the  evaluation  of  an  energy  service,  energy  efficiency  programme,  measure  or  project,  it

37

 
will not always be possible to rely strictly on measurements. A distinction is therefore made
between methods measuring energy savings and methods estimating energy savings.

2.1 Data and Methods based on Measurements

Bills from Distribution Companies or Retailers

Metered utility bills may form the basis for measurement for a suitable and sufficiently long
period  before  the  introduction  of  the  energy  service,  energy  efficiency  measure,  service  or
programme. These may then be compared to metered bills for the period after the introduction
and use of the measure, also for a suitable and adequately long period of time. The findings
shall also be compared to a control group (no participation group) if possible.

Energy Product Sales Data

The  consumption  of  different  energy  products  (e.g.  petroleum,  coal,  wood,  etc.)  may  be
measured  by  comparing  the  sales  data  from  the  retailer  or  distributor  obtained  before  the
introduction of the energy services, programmes or other energy efficiency measures with the
sales data from the time after the measure. A control group shall be used.

Equipment and Appliance Sales Data

Performance  of  equipment  and  appliances  may  be  calculated  on  the  basis  of  information
obtained directly from the manufacturer. Data on equipment and appliance sales can generally
be obtained from the retailers. In some cases special surveys and measurements may also be
carried out to obtain more precise data from the manufacturer or the retailer. The accessible
data can be checked against sales figures to determine the size of savings.

End-Use Load Data

Energy use of  a building or  facility can  be fully monitored  to  record  energy demand  before
and  after  the  introduction  of  an  energy  service,  programme  or  other  energy  efficiency
measure.  Important  relevant  factors  (e.g.  production  process,  special  equipment,  heating
installations,  etc.)  can  be  metered  more  closely.  At  the  micro  level,  specific  circuits  or
equipment affected by the introduction of the new measure can  also  be  monitored to  record
energy demand before and after.

2.2 Data and Methods based on Estimates

Enhanced Engineering Estimated Data: Inspection

Energy  data  may  be  calculated  on  the  basis  of  information  obtained  by  an  external  expert
during an audit of, or other type of visit to, one or several targeted sites. On this basis, more
sophisticated  algorithms/simulation  models  could  be  developed  and  be  applied  to  a  larger
population  of  sites  (e.g.  buildings,  facilities,  vehicles,  etc.).  This  method  will  only  confirm
energy savings, not verify them.

Simple Engineering Estimated Data: Non-inspection

Data  may  be  estimated  using  engineering  principles,  without  using  on-site  data,  but  with
assumptions  based  on  equipment  specifications,  performance  characteristics,  operation
profiles of measures installed and stipulations based on statistics.

38

 
3.  How to Deal with Uncertainty

All the methods  listed in Chapter 2 of  this  Annex  may  contain  some  degree  of  uncertainty.
Uncertainty may derive from:65

- 

instrumentation  errors:  these  typically  occur  because  of  errors  in  specifications  given  by
the product manufacturer;

-  modelling errors: these typically refer to errors in the model used to estimate parameters of

interest from the data collection;

-  sampling error: this typically refers to errors resulting from the fact that a sample of units

was observed rather than the entire set of units under study.

Uncertainty  may  also  derive  from  planned  and  unplanned  assumptions;  these  are  typically
associated with estimates, stipulations and/or the use of engineering data. The occurrence of
errors is related to the chosen system  of data  collection that  is outlined  in  Chapter 2  of this
Annex. A further specification of uncertainty is advised.

Member States may choose to use the system of quantified uncertainty when reporting on the
targets  set  out  in  this  Directive.  Quantified  uncertainty  shall  then  be  expressed  in  a
statistically meaningful way, declaring both accuracy and confidence level. For example, “the
quantifiable error is found with 90% confidence to be ± 20%”.

If the method of quantified uncertainty is used, Member States must also take account of the
fact that the acceptable level of  uncertainty required in  savings calculations  is  a  function  of
the level of savings and the cost-effectiveness of decreasing uncertainty.

4.  How to Verify the Energy Savings

As  far  as  economically  feasible,  the  energy  savings  obtained  through  a  specific  energy
service, energy efficiency programme or measure shall be verified by a third party. This could
be  done  by  certified  consultants,  ESCOs  or  other  market  players.  The  appropriate  Member
State  authorities  or  agencies  referred  to  in  Article  4  may  give  further  instructions  on  this
matter.

Sources:  A  European  Ex-post  Evaluation  Guidebook 
IEA, INDEEP database; IPMVP, Volume 1 (Version March 2002).

for  DSM  and  EE  Service  Programmes;

65

A  model  for  establishing  a  level  of  quantifiable  uncertainty  based  on  these  three  errors  is  given  in
Appendix B in the International Performance Measurement & Verification Protocol (IPMVP).

39