Concerted Action for Energy Efficiency in Europe

THE CHALLENGE

In 2012, I was working on the Energy Efficiency Directive and remember when its rapporteur Claude Turmes told the plenary of the EU Parliament:

“In 2011 alone, we lost the astronomic sum of EUR 488 billion in having to buy oil, gas and other energy supplies. This is the single biggest wealth transfer out of the European economy to oligarchs in Russia and elsewhere in the world. It is six times bigger than at the beginning of the century and constitutes almost 4% of our GDP.”

Energy efficiency and energy security continue to be our best allies in defence of our economies.

With some relief, after a course correction in 2018, in November 2022 the Commission concluded:

“Highly influenced by COVID-19 pandemic, in 2020 both primary and final energy consumption targets were overachieved.” Final energy consumption in the EU27 in 2020 was 907 million tons of oil equivalent, versus a 2020 target of 959 Mtoe.

What had happened ?

EU Energy use had reduced fairly constantly from 2007 to 2014, but then increased from 2014-17 requiring the EED recast in 2018. Covid in 2020 had delivered the targets, but as economies recovered, in 2021, the Union’s energy use bounced up to 968 Mtoe - 0.9% above its 2020 final energy consumption target.

With this in mind, and for 2030, the Commission’s recast Directive included an increased and binding EU energy efficiency target of 9% versus the 2020 Reference Scenario, equivalent to 787 Mtoe in final energy consumption in 2030.

Then, as a response to the energy crisis in May last year, the REPowerEU plan proposed an increase in this binding target from 9% to 13%, and this headline figure was finally agreed in March 2023 at 11.7% - which the EU Council defines as a binding 763 Mtoe final energy consumption in 2030 – a 21% reduction from 2021 use.

Formally, Member states need to ensure annual savings of 1.49% of final energy consumption in 2024 increasing to 1.9% by 2030. This is set against a long-term energy efficiency trend for final consumers of 1.1% per year between 2000 and 2019.

Put another way, over the thirteen years from 2007 to 2020, final energy consumption in the Union reduced around 9%. We now have to deliver over twice that reduction, from a lower base over eight years.

Jutta Paulus, a Parliament shadow rapporteur for the Directive noted that the 11.7% savings amounted to the total energy consumption of Spain.

And here we are. We certainly have our work cut out.

HOPE

In 2022 – as a response to higher prices and the invasion of the Ukraine – Europe reduced its gas use by 13%. This amounts to 50 Mtoe of energy savings – around a quarter of the 2030 final energy consumption target.

According to the IEA:

One fifth of this reduction was due to the record 50GW of new EU installations of wind and solar power displacing gas for power production.

-?????????This was not helped by less nuclear and hydro power production in 2022. Yet, overall EU electricity demand was down 3% versus 2021.

-?????????Gas use in buildings was 20% less in 2022, of which 60% was due to a warmer winter.

IEA thinks that thermostats were down by 0.6 degC and there was fuel switching.

Buildings efficiency is attributed around 6% of the EU’s reduced gas demand – with a third of this allocated to the installation of heat pumps.

EU industrial gas use fell by a record 25%: Just over half of this was the result of production curtailment – which was offset by imports of finished products with embedded energy: Meaning that final EU industrial output was largely unchanged and that greater use of renewables and fuel switching were also components.

There is nothing about the energy efficiency challenge in Europe which looks like “business as usual”. We also know there are no “silver bullets”.

At the highest level national energy savings strategies might as well sound like this: “double everything you are already doing, and then do more”.

That means energy efficiency gets double the amount of political capital, double the amount of public resources, double the number of people working in it across the economy, double the amount of private sector investments, double the number of banks focusing on it, double the number of energy efficiency experts and technical solution providers, double the number of civil servants working on it with double the number of cross ministerial collaborations in half the number of silos. And that’s just the start.

I mean, how much resource do you need to reduce EU final energy consumption by just 2.3 billion Megawatt hours? Which when valued at say 100 euros (per MWh) delivers 230 billion euros of economy wide savings annually…

In fact, Europe needs over Euro 2 trillion of new investments that deliver energy savings in these eight short years.

This may sound high until you consider that Goldman Sachs projects that EU household energy bills will increase by Euro 2 trillion just in 2023 due to the massive spike in prices.

And if that wasn’t enough, European inflation is directly linked to energy prices as we import 58% of primary energy resources, and much more if we consider the energy embedded in food, clothes, materials and electronics.

EU Energy inflation was 27% in 2021, and a further 13.7% in 2022 and when we strip out primary energy, core inflation remains stubbornly high.

REASONS TO BE CHEERFUL

Ok, so enough about the scale of the challenge: What’s the good news ?

Well, by category, reducing final energy consumption by a quarter in eight years without impacting our quality of life, nor expectations of mobility, comfort and lifestyle is more than possible:

IN TRANSPORT:

While light-duty vehicle fleet efficiency has been gently reducing at 1% per annum for decades from 7 liters of gasoline equivalent per 100 km to 6, the Tesla model 3 delivers 2.5 times as much distance on the same primary energy input as the 2016 Toyota Prius, and over 5 times the amount of distance per energy input than the average 2016 Ford Fusion ICE.

These are dramatic step changes that also can short-circuit the incredible inefficiencies involved in extracting, refining and transporting the fuel to the car (albeit not in FEC).

-?????????And that is without modal shift and shared solutions:

-?????????Train travel is around three times as energy efficient as travel by road (for goods and people) and 57% of EU27 rail is electric with just 2% of cars in Europe hybrid or electric in 2020.

IN BUILDINGS:

New buildings built in Europe now are near Zero Energy Buildings.

• In practice their actual energy use depends on where you are and what you use them for. In Belgium nZEB homes use 20 kWh/m2y and in Estonia 132 kWh/m2;
• and Belgian non-residential nZEBs use 30 kWh/m2 whereas they use 176 kWh/m2 in Malta.

This is the result of four regulatory interventions since 2006 which has reduced minimum energy performance standards for new construction by 70% over these 15 years. But the majority of European buildings remain old, inefficient and will still be in use in 2050.

• Average residential buildings in the EU use 180 kWh/m2/year.
• Non-residential buildings are on average 40% more energy intensive than residential buildings at 250 kWh/m2.
• Experts suggest that most buildings can be renovated to achieve energy intensities of 60-80 kWh/m2/year.
• 9% of buildings have some renovation each year, but just over 1% have renovations that impact energy performance, and only 0.2% optimise for energy efficiency.

Studies of real projects suggest that it is not unreasonable to think that cost-effective deep renovation of poorly performing buildings can deliver 50-80% energy savings in all but exceptional cases.

Practically, Europe abounds with cost effective energy saving renovations which save over half the energy consumption of the target buildings:

Examples include VIPA from Lithuania, Kredex funded renovations in Estonia, 25,000 KfW55 Houses in Germany, and EIB funded social housing upgrades in Navarra in Spain.

Yes, weather is a driver of energy use: but there is no weather related reason why Sweden’s buildings require 18% less energy per m2 than Finland’s and Cyprus has over twelve times the amount of solar water heating per capita than Spain.

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IN INDUSTRY:

The European Strategic Energy Technology Plan (the SET Plan Implementation Action number 6) reported in 2021 that by 2030, 27% of the energy use in Iron & Steel, Chemicals, Pulp & Paper and cement can be saved.

For non-energy intense businesses, the IEA notes that 70% of the savings potential lies in their electric motors (which in 2011 used 40% of global electricity) – with variable speed drives and upgraded models able to save 25% of energy used – and in HVAC sometimes 60%.

Finally, Danfoss identifies 245 Mtoe of reusable heat that is just wasted across Europe.

• Their research maps excess heat from industries, wastewater facilities, data centers, supermarkets, metro stations and commercial buildings and shows how it could be reused to supply a nearby factory with heat or warm water, or exported to neighbouring homes and industries through a district energy system.
• This is more than all the energy savings required by 2030.

Finally, the 2-2.6 euro cent investment per KWh to deliver energy savings in industrial and buildings projects is still substantially below the amounts required to produce that extra energy. As demonstrated by the 24,000 real energy efficiency investment projects contributed to DEEP – Europe’s largest pan-EU database of such projects, produced by the Energy Efficiency Financial Institutions Group, which I’m happy to have led for a decade.

Certainly the required investment in projects that appear on EED’s mandatory energy audits with paybacks less than 5 years should be addressed as a matter of European national security.

Even EEFIG’s hundreds of financial institutions will tell you that there is no lack of funds searching for energy efficiency projects. So if the potential is there, and public and private sector financing is available – what is missing ?

Priority and people.

PRIORITY

Maro? ?ef?ovi? wasn’t wrong in February 2015 when he launched the Energy Union strategy as an “ambitious EU blueprint for energy union to loosen Russian grip on gas”.

This is where energy efficiency first was born as one of the pillars of that strategy.

For me, the energy efficiency first principle exists at three levels:

1. At the regulatory level: As originally conceived and implemented from 2015-2018, the EU Commission recognised that it needed to balance the consideration of demand-side measures to reduce energy needs before promoting technical solutions from the supply-side in its own legislation. This led to the definition of energy efficiency first in article 2 of the Governance regulation (2018); and the energy efficiency first principle’s appearance in the Energy Efficiency Directive recast in 2018. I saw that just this week the energy efficiency first principle also appeared in the Commission’s draft Net-Zero Industry Act (NZIA) and is also strengthened in EPBD.
2. At the energy system and infrastructure level: Here Article 3 of the current recast Directive requires Member States to ensure that energy efficiency solutions are considered in energy system and the planning, policy and investment decisions for non-energy sectors. This requires the development of cost-benefit assessment methodologies to consider multiple benefits of energy efficiency solutions and an entity responsible for monitoring how the principle is applied and reporting this back to the Commission.
3. At the deal or asset level: Putting energy efficiency first in each vehicle investment, building renovation or industrial equipment choice is perhaps the most intuitive and obvious application of the principle. To me this just means “think energy efficiency” when any asset is upgraded or maintained: Energy efficiency may not be the primary driver of the upgrade, but if it is considered first before the transaction advances then energy savings can be embedded in each material asset upgrade.

In practice, the reason why the energy efficiency first principle is a “principle” is because it’s both very easy to understand and yet hard to precisely define. That’s why the Commission’s 59 pages of guidelines read more like clues, approaches and ideas than a precise instruction book. Diversity and giving space for national circumstances is the strength of our Union, and therefore I think a good-faith technical application of the tools provided by the Commission and exchanged by you in these meetings is critical.

Energy efficiency first means, think twice before you over-install LNG capacity, extend rail and not road, re-consider your new regional airport, build resilience in electricity grids, extend EV charge networks, re-use heat, and renovate and replace all fossil dependencies.

Together with 30 financial experts and members of EEFIG, I am nearing the end of an 18-month journey to describe how financial institutions can operationalize the energy efficiency first principle, and we are mapping tools at Governance, portfolio and deal or asset level. There is no “right answer” but a very clear direction of travel.

PEOPLE (Finally, and MOST Importantly)

In June last year, the U.S. Department of Energy published the 2022 U.S. Energy and Employment Report (USEER), which is a survey of 33,000 private energy businesses combined with public labor data designed to track and understand employment trends across the energy sector.

This survey boldly claims that there are 2.2 million people working in energy efficiency in the USA. This is defined as employment in the production and installation of products that increase energy efficiency and the provision of services that reduce energy consumption by the end-user. Digging further, I find that this includes building design, providing insulation, improving natural lighting, and the manufacture of ENERGY STAR labeled products.

I wonder if these people know they are providing energy efficiency, or just a new HVAC ?

Conversely, I know for certain that there are 13,000 energy efficiency experts listed in a searchable database in Germany who are all Government accredited by energy agency DENA and can co-sign KfW renovation loans and access other government subsidy schemes. (to me this sounds like 13,000 "One-Stop-Shops")

I also know for certain that there are nowhere near enough: If each energy efficiency expert can deliver say 10 projects a year, we need 350,000 of them to deliver the 3.5 million annual renovations called for in the EU Renovation Wave.

I also know that there are not enough energy efficiency experts, like you, in Government: Mainly because whenever I talk to one she/he is incredibly busy and over worked, and because in structuring Euro 52 million of investments in energy savings in Spanish cities my firm has patiently waited months, and occasionally years for administrative approvals, the contested outcomes of tenders or final signatures on pieces of paper.

I was pleased to see that the Commission in its draft Net-Zero Industry Act (published last Thursday) states that “Saving energy is the cheapest, safest and cleanest way to meet” the 2030 targets and highlights the ‘Energy efficiency first’ principle’s importance in practical policy and investment decisions. The NZIA goes on to call for an expansion of the Union’s manufacturing capacity for energy efficient technologies, such as heat pumps and smart grid technologies and it provides seed-funding, to establish European Net Zero Industry Academies.

I can only assume that there will be many Net-Zero Energy Efficiency Project Manager Academies launched by this Act, as the Commission complies with its own Energy Efficiency First principle across all EU legislation.

The NZIA also develops the concept of One-Stop-Shops, which I could have sworn was an energy efficiency thing… I certainly hope that (you) energy efficiency people (as we REPower Europe) can develop the concept of “go-to areas” for energy savings where the permit-granting processes should not take longer than one year.

But in all seriousness, there is one final tool to rapidly help you recruit technicians which you can develop under the recast Energy Performance of Buildings Directive, which appears in the Commission proposal, the Council’s consensus agreement and last week’s Parliament position, and that is “Mortgage Portfolio Standards”.

Provided to you in Article 15 of the directive and formally defined, Member States can (and need to) require mortgage lenders to align their mortgage portfolios with your National Integrated Energy and Climate Action Plans. This could immediately activate a renovation proposal to over 30 million buildings with mortgage loans across the EU27.

There are 138,000 bank branches in Europe, each branch would only have to identify – or identify for training – 3x energy efficiency project managers to deliver the necessary personnel to execute the EU Renovation Wave.

A lot has changed since then US Secretary of State, Dr Steven Chu said at Copenhagen’s COP15 that “energy efficiency is not just low-hanging fruit; it is fruit lying on the ground.” And exhorted Governments to “put the foot to the floor to accelerate energy efficiency”.

There is nothing as powerful as a good idea whose time has finally come….

Thank you.

(Speech given by Peter Sweatman to open the EU Commission's Concerted Action meeting for 120 energy Ministerial and agency technical staff working on transposing the recast Energy Efficiency Directive in Madrid, March 2023).