Energy Efficiency

https://doi.org/10.1007/s12053-018-9657-1

ORIGINAL ARTICLE

Energy efficiency obligation schemes: their future in the EU

Tina Fawcett & Jan Rosenow & Paolo Bertoldi

Received: 10 November 2017 / Accepted: 29 March 2018

# The Author(s) 2018

Abstract EU member states have been encouraged to EEOS is assessed, with savings being most at risk in
introduce energy efficiency obligation schemes (EEOS) Croatia, Latvia and Spain. The paper concludes with an
to help meet energy saving objectives. As a result, there analysis of EEOS within the future policy mix. The
are now 15 EU EEOS in existence, compared with just discussion considers the place of EEOS in evolving
six prior to the introduction of the 2012 Energy Effi- EU policy, future savings from EEOS, their relationship
ciency Directive. At the same time, the long-standing with energy companies and the possible influence of
EEOS in Denmark and the UK have faced challenges different framings of energy efficiency. The continuing
because of concerns over increasing costs. This paper need for EEOS is explored, with concluding ideas about
considers the role of EEOS in current and future EU and how to secure a strong and effective future for this
national policy. Firstly, this paper sets out in more detail policy tool.
the place of EEOS in EU energy policy. Then, the future
of longer-established EEOS is explored, using Denmark Keywords Energy efficiency obligation schemes .
and the UK as case studies. Recent and planned rede- Efficiency . Policy . EU . UK . Denmark
signs in these two countries are detailed, with analysis of
the factors which led to changes in policy ambition. For
new EEOS, key risks to delivery of savings are an over-
Introduction
ambitious delivery target and time line in the absence of
policy learning opportunities. The policy risk for nine
Globally energy efficiency is increasingly understood as
a key component of low-carbon energy policy (IEA
T. Fawcett (*) 2016). The European Union (EU) is committed to ener-
Environmental Change Institute, University of Oxford, South Park gy efficiency as a key component of its energy strategy:
Road, Oxford OX1 3QY, UK
e-mail: [email protected] this is exemplified by its headline aim of delivering 20%
improvement in energy efficiency by 2020. Targets for
J. Rosenow 2030 are currently being negotiated, with proposed
Regulatory Assistance Project, Rue de la Science 23, overall targets of 30 and 35% energy saving compared
1040 Brussels, Belgium
with business as usual, from the European Commission
J. Rosenow and the European Parliament respectively. In many
Centre on Innovation and Energy Demand, University of Sussex, countries now, the question is not whether energy effi-
Jubilee Building, Falmer, Brighton BN1 9QE, UK ciency should be delivered, but how best to do so.
P. Bertoldi Which policies and policy mixes are most effective
European Commission, JRC, Directorate Energy, Transport and and cost-effective, and how should they be implement-
Climate, Via E. Fermi 1, 21027 Ispra, (VA), Italy ed? These questions are even more relevant with the
 Energy Efficiency

ratification of the UN Paris Agreement (UNFCCC arching directive, which sets binding national energy
2015) which sets an aspirational limit to global temper- efficiency targets up to 2020, and includes additional
ature rise at 1.5 °C, rather than the 2 °C which formed policy requirements and tools which help member states
the basis for much of earlier policy making. This paper to achieve their targets. Adoption of EEOS is specifical-
considers the current and future role of one particularly ly mandated within Article 7 of the EED, in addition to a
important policy—energy efficiency obligation full range of other policy options—known as alternative
schemes—for the EU and its member states. measures.1
Energy efficiency obligation schemes (EEOS) Despite this encouragement, not all EU countries
emerged out of a debate in the USA in the 1970s and have chosen to introduce EEOS. In 2015, 16 member
1980s around least-cost planning and later in the 1990s states had implemented, planned, or were actively con-
around integrated resource planning—an approach that sidering the implementation of EEOS (ENSPOL
requires systematic consideration of energy efficiency as 2015c). Since then, Estonia, Lithuania and Hungary
a means for achieving outcomes more cheaply. An have dropped their plans for EEOS, and others have
EEOS requires obligated parties, generally energy util- introduced schemes. The number of member states with
ities, to meet energy saving targets by delivering or an active EEOS is now 15 (Table 1) with 13 member
procuring energy savings at the customer end of the states having decided (to date) they can meet their
energy system. Within this general definition, individual energy savings targets without this policy instrument.
EEOS look very different from each other, with obliga- EEOS had been in place in a number of member
tions being variously placed on energy retailers, energy states prior to the introduction of the Energy Efficiency
distributors, or both; across different geographical Directive. The longest-established have been those in
scales; on a variety of energy types; with different levels the UK and Denmark, both in operation in some form
of ambition and metrics; and across all sectors of the for around 20 years. These EEOS have delivered higher
economy, or just for particular customer groups. This savings than in other EU countries (ENSPOL 2015a)
policy has been implemented in very different market and so could be seen as front runners. However, in both
structures and policy mixes, and no two countries or countries, the increasing ambition of savings targets,
regions have identical EEOS. In the USA, these obliga- and the cost of the schemes to bill payers has raised
tions are called energy efficiency resource standards political and public concern. This has influenced recent
(EERS) and have been adopted in 26 states, even in reductions in their savings targets. So while EEOS have
the absence of a federal mandate (Nadel et al. 2017). a good track record of success and are being adopted by
There are estimated to be around 46 EEOS across the the majority of EU member states, this is a good point in
globe (IEA 2017). time to consider their future role.
EEOS were promoted at EU level primarily because This paper questions whether established EEOS can
there is good quality evidence, from the EU and beyond, continue to deliver significant savings, whether new
that well-designed EEOS can deliver significant, cost- schemes will meet their targets and if EEOS have an
effective energy savings over many years (Bertoldi et al. important future role. Firstly, the paper sets out in more
2010; ENSPOL 2015a, b; RAP 2012). The evidence detail the place of EEOS in EU energy policy. This is
base for the social and economic value of EEOS is followed by a description of the methodology used to
strong and growing (e.g. Labanca and Bertoldi 2016; answer the research questions. Then, the future of
Rosenow and Bayer 2016). However, the literature also longer-established EEOS is explored, with case studies
stresses that the performance of schemes is determined from the UK and Denmark. The new EEOS, their am-
by the details of policy design, implementation, gover- bition levels and learning periods are described, and the
nance and market structure and conditions (Eyre et al. risks of under-delivery of savings are assessed. The
2009; Mundaca and Neij 2009). The success of an discussion focuses on the future prospects for EEOS. It
energy efficiency obligation scheme cannot be taken considers the place of EEOS in EU policy, future
for granted.
1
The EU has a range of policies to require member Alternative measures are classified in EED Art.7 as follows: energy
states to improve the efficiency with which energy is efficiency national fund, energy or CO2 taxes, financing scheme or
fiscal incentive, regulation or voluntary agreements, standards and
used (Pereira and Pereira da Silva 2017). The Energy norms, energy labelling schemes, training and education, and other
Efficiency Directive (EED - 2012/27/EU) is the over- policy measures.
Energy Efficiency

Table 1 EEOS in EU member states, current status ‘alternative measures’. This target must be based on a
EEOS status Member states nominal savings rate of 1.5% per year compared to the
average energy consumption in the period 2010–2012.
Active Austria, Bulgaria, Croatia, Denmark, France, However, the total energy savings target may be lower;
Greece, Ireland, Italy, Latvia, Luxembourg, this is because of member states’ use of exemptions and
Malta, Slovenia, Spain, Poland, the UK
exclusions, as allowed in the legislation (Fawcett and
None planned Belgium, Cyprus, Czech Republic, Estonia*,
Rosenow 2016). As a result, the notified saving targets
Finland, Germany, Hungary*, Lithuania*,
the Netherlands, Portugal, Romania, are only about half of this headline figure, i.e. the annual
Slovakia, Sweden, saving rate is about 0.75% (Forster et al. 2016; Ricardo-
AEA 2015).
*EEOS were planned, but these plans have been withdrawn
EEOS are a key policy tool: analysis of member state
reports shows they are expected to deliver 34% of
savings from EEOS, their relationship with energy com-
Article 7 savings—the biggest contribution of any pol-
panies and the possible influence of different framings
icy instrument. Other savings will come from financing
of energy efficiency. The conditions under which EEOS
schemes or grants (19%), and taxes (14%), regulation/
would no longer be a valuable policy option are ex-
voluntary agreements (11%), standards and norms (9%)
plored. The paper concludes with thoughts about how to
with smaller contributions from training, national ener-
secure a strong and effective future for EEOS.
gy efficiency funds, energy labels and any other policy
measures (Forster et al. 2016). Note that these figures
should be viewed with some caution—they are ex ante
Policy background estimations and not measured savings, and there are
considerable uncertainties around their reliability
EEOS within EU efficiency policy (Rosenow et al. 2016b).
National Article 7 targets can be met by delivering
Energy efficiency is one of five closely related and energy savings from all sectors of the economy and
mutually reinforcing dimensions in the EU’s energy energy end-uses. However, experience to date is that
union strategy, which was created to achieve a secure, savings have been unevenly distributed between sectors
affordable and climate-friendly European energy sys- and end-uses: most savings are expected from multi-
tem. EU efficiency policy has been implemented sector ‘cross cutting’ policies (44%), followed by build-
through three key directives—Ecodesign (2009/125/ ings (42%), industry (8%) and transport (6%) (Forster
EC), Energy Performance of Buildings (EPBD - et al. 2016). This pattern is influenced by requirements
2010/31/EU) and the Energy Efficiency Directive within Article 7, particularly the requirement for
(EED - 2012/27/EU). As their names suggest, the ‘additionality’—which means savings have to be addi-
Ecodesign Directive covers the energy efficiency of tional to those which are expected from existing EU
products, EPBD covers aspects of energy use in build- efficiency policies. In practice, this means that most
ings and EED is an over-arching directive. Under EED, savings are likely to come from efficiency improve-
EU countries are required to use energy more efficiently ments to buildings (beyond those mandated in the En-
at all stages of the energy chain from its production to its ergy Performance of Buildings Directive) or industrial
final consumption. processes and their management. Efficiency improve-
Within the EED, Article 3 requires that member ments to products, e.g. lightbulbs, boilers or motors, are
states set an indicative national energy efficiency target. largely non-additional as these are delivered via the
This target includes savings delivered by all national Ecodesign Directive. Similarly, additional savings from
and EU-level actions, including new action under other transport are likely to be limited, as the efficiency of new
provisions in the Energy Efficiency Directive. EED vehicles is also mandated by existing legislation (Regu-
includes several provisions and new routes to deliver lation (EC) Nos. 443/2009, 333/2014). Article 7 differs
savings—including energy audits and energy manage- from earlier legislation on energy efficiency in its com-
ment systems, EEOS and action in public sector build- plexity and flexibility (Rosenow et al. 2016b). It is trying
ings. EED Article 7 sets national energy savings targets to influence the more difficult areas for policy to reach,
for 2014–2020 to be delivered by EEOS and/or without a clearly defined route to doing so.
 Energy Efficiency

EU policy support for EEOS beyond 2020 conclusions drawn on their likely success. Findings
from both sets of analysis are brought together, along
On November 30, 2016, the European Commission with reflection on broader trends in energy and energy
published a comprehensive set of energy proposals policy, to inform a discussion on the future role of
called ‘Clean energy for all Europeans’, also known as EEOS.
the Winter Package (European Commission 2016a).
The aim of the package of measures is ‘to keep the
European Union competitive as the clean energy transi- Future of long-established EEOS
tion is changing the global energy markets’. Included in
the proposals is an extension of the energy savings EEOS have been in place in a number of member states
requirement of Article 7, EED to 2030. The proposal prior to the introduction of the Energy Efficiency Direc-
also suggests that Article 7 be amended to make it clear tive, namely Bulgaria, Denmark, France, Italy, Poland
that member states can achieve the required energy and the UK. Briefly, in Denmark, France, Italy and the
savings through an energy efficiency obligation scheme, UK, up until 2013, each national scheme has been
alternative measures or a combination of both ap- increasing the energy savings targets to be achieved,
proaches (European Commission 2016b). In fact, this while also evaluating progress and amending scheme
is not substantively different from the original Article 7. rules to meet changing objectives and circumstances.
In addition, an overall target of 30% energy saving for These schemes are generally considered to have been
2030 is proposed. This target has been debated exten- successful in delivering significant, cost-effective sav-
sively in advance of the Commission’s proposals, with ings. The picture in Poland is more complex as the first
the European Parliament calling initially for a target of phase of the scheme was not successful, and the EEOS
40% (European Parliament 2016). In 2018, the Parlia- has been comprehensively redesigned (ENSPOL
ment endorsed committee proposals for binding EU- 2015a). In Bulgaria, an existing EEOS scheme is report-
level targets of a 35% improvement in energy efficiency ed as having been adapted to fit with the requirements of
(European Parliament 2018). The final decision on tar- EED (Republic of Bulgaria 2016). The Bulgarian EEOS
gets and other legislative details is expected during is less well documented (in English) than the other
2018. schemes. In addition to these national schemes, the
Belgian region of Flanders also had a very successful
EEOS (ENSPOL 2015a).
Methodology The longest-established EEOS are those in the UK
and Denmark, both in operation for around 20 years,
This paper addresses three research questions: whether and these are described in more detail below. Despite
established EEOS can continue to deliver significant their successes, in both countries, the increasing ambi-
savings, whether new schemes will meet their targets tion of savings targets and the cost of the schemes to bill
and if EEOS have an important future role. The first payers have raised political and public concern. This has
question is investigated by providing structured, analyt- influenced reductions in their savings targets. Under-
ical case studies of the two longest-established EEOs— standing how these EEOS have developed in recent
those in the UK and Denmark. There are two key years, what concerns were raised about their impact
reasons for choosing these examples and excluding the and how the public debate evolved should help other
long-running schemes from France and Italy. First, a countries retain support for ambitious savings targets.
closer focus on just two cases allows more detailed
description and analysis. Secondly, the savings ambition
UK case study2
of the UK and Danish schemes has recently been re-
duced, which has not happened in France and Italy.
The EEOS began in 1994, when the UK was the first
Thus, they are of greater relevance in answering the
country in Europe to impose energy efficiency obliga-
research question. To answer the second question, first-
tions on energy suppliers. Suppliers were allowed to
ly, key characteristics of successful EEOS are distilled
from the literature. Then, the characteristics of the newer 2
Strictly speaking, this section refers to Great Britain (the UK without
schemes are compared with these characteristics, and Northern Ireland)—but we use UK, as it is more familiar.
Energy Efficiency

raise money to meet energy savings targets from a 2. to provide support for a wider range of measures to
charge on residential and small and medium enterprise vulnerable customers, largely people receiving so-
(SME) customer bills. SMEs were no longer included in cial benefits who would not be expected to take on
the scheme from 2002 and subsequently, it has covered Green Deal loans (DECC 2011).
the residential sector only, a feature which is unique in
the EU. The scheme has been redesigned approximately It was also designed, in part, to take account of the
every 3 years, and four different names have been ending in 2011 of the government-funded programme
employed since 1994. The current scheme, 2013– designed to reduce fuel poverty. Thus, the EEOS had
2017, is called ECO—the Energy Company Obligation. changed from a scheme which supported large-scale in-
The UK objectives, measures, savings, costs and mech- stallation of cheaper measures (particularly loft and cavity
anisms have varied over time. These are described more wall insulation) to a scheme primarily targeting expensive
fully elsewhere (ENSPOL 2015a; Rosenow 2012). insulation measures—not because all the available cheaper
Redesigns prior to 2013 were primarily aimed at in- measures had been installed, but because the government
creasing the savings delivered. The success of early phases judged they should no longer be generally subsidised.
of the scheme led to confidence that suppliers could reach Unfortunately, Green Deal was a very unsuccessful policy,
higher targets. The obligations started at a relatively low with minimal take of up loans, and it was effectively
level but eventually became a major climate change miti- withdrawn in July 2015 (Rosenow and Eyre 2016).
gation policy for the residential sector. In 2008–2012, the In mid-2014, ECO was redesigned ‘to reduce pres-
scheme was saving around 1% of UK residential energy sures on consumer bills and ensure ECO provides value
use annually. Until the sudden changes adopted in 2013, for money for energy consumers; whilst continuing to
EEOs had developed incrementally and grown steadily in help tackle fuel poverty, support the development of a
scale (Fig. 1), resulting in general support as a policy sustainable energy efficiency supply chain and improve
mechanism across changes in political administration and the energy efficiency of our housing stock’ (DECC
market structure. Targets in Fig. 1 are ‘estimated’ because 2014a). As well as reducing the savings target of the
UK targets are set in terms of lifetime carbon savings, and main strand of ECO by 33%, some cheaper measures
these have to be translated into annual energy savings. were reintroduced to the scheme from 2015.
The policy redesign of ECO (2013–2017) was to A number of factors influenced this decision:
ensure it fit well with a significant new policy, the
‘Green Deal’ loan scheme. Green Deal was expected & Energy companies argued that targets could not be
to establish a new market for energy efficiency measures delivered at the costs suggested by government, and
for ‘able to pay’ customers, installing measures previ- cheaper measures needed to be included.
ously subsidised through the earlier EEOS phases. ECO & The markets for low-cost insulation measures (loft
was designed to and cavity wall insulation) originally excluded from
ECO had been severely damaged due to the very
1. support insulation measures in any household that low uptake under Green Deal. The job losses
were too expensive to meet the Green Deal funding entailed, and concern about this business sector put
rules, such as solid wall insulation, and pressure on the government to make changes.

Fig. 1 Estimated annual energy 140

savings of the EEOS in the UK,
Implicit annual energy savings

120
1994–2017. Source: Rosenow
((2012, 2013), 1994–2012), 100
(TWh lifeme)

author estimate 2013–2017

80
target

60

40

20

0
1994 - 1998 - 2000 - 2002 - 2005 - 2008 - 2013 -
1998 2000 2002 2005 2008 2012 2017
 Energy Efficiency

& Very high levels of public concern about energy Danish case study
prices led to pressure on government to reduce
‘levies’, which is how the cost of ECO was present- Denmark has had an EEOS for about 20 years. There
ed by its opponents (Rosenow and Eyre 2016). have been several phases of the EEOS in Denmark; the
overall policy objective of delivering cost-effective sav-
The savings target was reduced, despite the over- ings has not changed significantly, but the means by
whelming contrary response to the government consul- which energy savings have been delivered. The different
tation (DECC 2014a) and government evidence that this phases have built on experience and adapted to external
would result in net higher energy bills overall (DECC factors such as the development of the energy system,
2013). technological development, and the consequences of
The government plans to keep ECO as part of its other policies. Over time, the Danish scheme has includ-
policy mix with plans for a supplier obligation to run for ed increasing numbers of energy distribution companies
5 years from April 2017 at an estimated level of £640 (also known as DSOs—which are regulated monopo-
million (€732m) per year. It has designed an interim lies), supplying different fuels, including smaller com-
scheme for an 18-month period from April 2017 to panies. It has also increased the savings targets, moved
September 2018, which will act as a transition towards towards supporting technological measures rather than
a longer term scheme from 2018 to 2022 (BEIS 2017a). education and advice, and has implemented more formal
Figure 2 shows the government’s intention in outline procedures to calculate and document savings and en-
in terms of the content of the policy. The transitional sure additionality. The scheme is based on a voluntary
extension for 2017–2018 will be smaller in terms of agreement between the energy trade associations and the
expected energy company spend (26% reduction), with government (although obligations can be imposed if
more of a focus on the fuel poor—both moves will actors refuse to take part voluntarily). This scheme is
reduce energy savings delivered. In October 2017, the widely considered to be successful.
UK government published its ‘Clean Growth Plan’ The Danish EEOS began with electricity companies
(BEIS 2017b). In this, it has committed to extend sup- in the 1990s. Initially, the focus was on awareness -
port for home energy efficiency out to 2028 at least at information, education and campaigns. The scheme
the current level of ECO funding. It will review the best covered private households, industry, trade and services
form of support beyond 2022 ‘recognising the need to sector and the public sector. In 2000, the gas distribution
both save carbon and meet the Government’s commit- companies joined the scheme. From 2006, the scheme
ment to upgrade all fuel poor homes to EPC Band C by was changed radically, with savings targets being intro-
2030’ (BEIS 2017b, p. 77). duced which were two to three times higher than previ-
The recent and planned changes to the UK scheme ously. The focus moved to implementation of energy
were not inevitable. They were driven by a number of savings. At this stage, the oil companies joined the
factors—with political concerns, within a programme of scheme, and district heating companies either joined
economic austerity, being the key. Governments, of voluntarily or were required to realise energy savings
course, are entitled to make political decisions. The cur- under the same conditions as the companies that joined
rent plans mean that the UK will use its future EEOS to the agreement. In 2009, more precise requirements for
tackle fuel poverty rather than introduce fuel poverty documentation of savings were introduced to ensure
policies funded through general taxation, an alternative alignment between the DSOs and to increase
way of funding energy efficiency but incompatible with additionality. As the size of the obligation grew, there
austerity politics. This raises questions as to whether this was also an increased focus on costs and their documen-
will retain public support, and if is it a sufficient or tation. In 2010, the EEOS target was doubled, and it has
sensible way to address fuel poverty. Given that the future continued to increase over time (Fig. 3). The 2015–2020
EEOS is not designed to deliver significant energy sav- target is equivalent to saving 3% of final energy in
ings (DECC 2016), there will be a gap in the UK policy Denmark, excluding transport. A more detailed account
mix designed to meet Article 7 targets. Whatever the of the development of the EEOS is available elsewhere
future relationship of the UK with the EU, it still needs (ENSPOL 2015a).
strong energy efficiency policy and effective delivery to The current Danish EEO, known as ‘The Energy
meet its national carbon reduction targets (CCC 2015). Savings Agreement’, runs from 2012 to 2020 and is
Energy Efficiency

Fig. 2 Change in design of UK

Solid wall insulaon

Solid wall insulaon

Solid wall?
Low cost insulaon Low cost Heang +
EEOS, 2013–2022 insulaon insulaon
Insulaon in certain for the fuel
areas (e.g. rural) Heang + poor
insulaon for
Heang + insulaon the fuel poor
for the fuel poor

2013-2017 2017-2018 2018-2022

(not to scale). Adapted from DECC (2016)

renegotiated every 3 years. Evaluations of the scheme quality advice on how to design, implement, monitor and
feed into the renegotiation process and can be influential evaluate an EEOS (Lees and Bayer 2016; RAP 2012) in
(Bundgaard et al. 2013). For the first time in the history addition to EU-level initiatives to encourage mutual
of the scheme, savings targets in 2013 and 2014 were learning between member states (e.g. the ENSPOL pro-
not met. In 2015, obligated parties looked into the ject, the bigEE project, Concerted Action programme).
possibility of realising more savings in the transport A key question is whether the new EEOS are likely to
sector and energy production and from SMEs emulate the success of schemes in Denmark, France,
(ENSPOL 2015a). The savings target in 2015 was met Italy and the UK in delivering significant energy savings
(Bach 2016). over a sustained period. Success is not determined by
In the summer of 2016, politicians proposed that the who the obligated party is, the way the targets are set, the
obligation should be moved from distributors to re- sectors across which it operates and the degree of
tailers. This was in part due to their belief that this would tradability of savings—which have varied between these
deliver more competition and ultimately result in countries. Factors that the successful schemes have in
cheaper energy efficiency/energy savings, benefiting common are the following: (1) beginning with modest
customers (Pers. Comm., Nikolaj Nørregård Rasmus- levels of savings; (2) increasing in ambition level over
sen, June 13, 2016). Their views were influenced by two time; (3) learning from early phases and redesigning the
Danish studies about reforming the EEOS, one official EEOS to be more efficient and effective; (4) consistently
and the other unofficial. This change would represent a evaluating the performance of the EEOS and having an
major disruption to the Danish scheme. Discussions independent authority to check them and be ready to
about future changes are continuing, but the DSOs are implement sanctions if savings are not delivered; (5)
currently expected to remain the obligated parties until having effective sanctions in case of non-compliance
at least 2020. However, the latest agreement between the and (6) transparent methods of calculating savings.
government and obligated parties (signed late December The established schemes have proven that they can
2016) has reduced the savings target to 10.1PJ per deliver high levels of savings, so it is clear that EEOS
annum for 2016–2017 (Pers. Comm., Mikael Togeby, of the right design and implementation can deliver a
January 16, 2017). considerable share of a country’s Article 7 savings.
Current Article 7 targets have to be met between
2014 and the end of 2020, giving a relatively short time
Introduction of new EEOS for newly introduced EEOS to deliver significant sav-
ings (although the Winter Package is now expected to
In 2016, new EEOS were present in Austria, Bulgaria, extend the time frame to 2030). Successful schemes
Croatia, Ireland, Latvia, Luxembourg, Malta, Slovenia typically have limited savings targets on introduction.
and Spain (for more details, see Bertoldi et al. (2015); In France, the first 3 years of the EEOS (2006–2009)
Fawcett and Rosenow (2016). Since then, Greece has were treated as a trial period with low savings targets, so
also introduced a scheme, starting in 2017 (ATEE 2017). that obligated parties could acclimatise to the system
The Polish scheme has been completely redesigned after and build relationships with the various stakeholders
failure to deliver significant savings in the first phase and needed to deliver measures. The scheme was redesigned
can be treated as a new EEOS. There is a lot of high- after experience in the first phase. There was a similar
 Energy Efficiency

Fig. 3 Danish EEOS—annual

energy savings targets, 2005–
2020, expressed as first year
savings. Source: Bach (2016),
plus personal communication as
in text below

pattern of gradual introduction, learning and redesign in The analysis shows that of these approaches, Austria,
Italy and Denmark. In the UK, significant savings tar- Ireland and Slovenia have taken the first approach, and
gets were only set after the first 8 years of the scheme.3 Luxembourg has taken the second. Having taken neither
However, the time it typically takes before EEOS can of these approaches, and having fairly ambitious targets,
deliver significant savings can be cut short in the new Croatia, Latvia and Spain are at high risk of savings
EEOS schemes. shortfalls—they may not deliver savings at the antici-
Two ways in which the initial learning period could pated rate. Given the problems with Phase 1 of its EEOS
be shortened are as follows: and its high ambition level, saving from the Polish
scheme must also be at some risk.
(1) build on existing experience of a voluntary scheme
for obligated parties;
(2) adopt (and adapt) a successful EEOS design from Discussion
another country.
This discussion focuses on the future prospects for
Each of the new EEOS is assessed against those EEOS, picking up on the evidence presented earlier
criteria to establish whether or not the schemes are likely and wider trends in energy and energy policy. It con-
to be at risk of delivering lower savings than anticipat- siders first the place of EEOS in EU policy, future
ed4 (Table 2). Our assessment is subjective and based on savings from EEOS, their relationship with energy com-
limited evidence in literature and assessment reports. panies and the possible influence of different framings
However, this evidence shows that all successful of energy efficiency. Then, thoughts about what it would
schemes display either a learning period or are modelled take to not need EEOS as an option in the policy mix are
on successful EEOS. In the absence of either of the two presented, with concluding ideas about how to secure a
factors, it is much more likely that new EEOS will strong and effective future for EEOS.
under-deliver. A good example is the Polish EEOS
which was very ambitious in terms of the target, com- EEOS in EU policy
plex in design but unsuccessful in delivering significant
savings in its first iteration. The EU’s Winter Package has reaffirmed that EEOS
have a future in meeting European and national energy
saving goals, with the proviso that meaningful energy
3 savings targets are set. Not all countries see them as a
This was a result of limited regulatory powers of the regulator and not
driven by the need for learning. Without the limitations that were necessary policy however, with a number of member
overcome in 2002, the targets most likely would have been increased states choosing not to use an EEOS. There may simply
earlier (Rosenow 2012).
4 not be the need for an additional policy within a national
Risk of savings shortfall is only estimated against these criteria. We
have not considered whether member states have sufficient low cost- policy mix, or the energy market structure may not be
efficiency opportunities which can be delivered by their EEOS. conducive to EEOS. Most of the longer-established
Energy Efficiency

Table 2 Risk of policy failure

based on presence of voluntary Ambition level (share Voluntary Adoption of Risk of savings
phase and/or adoption of suc- of EEOS of total phase successful shortfall
cessful designs Article 7 savings) (%) design

Austria 42 ✓ Low
Croatia 41 High
Ireland 48 ✓ Low
Latvia 65 High
Luxembourg 100 ✓ Low
Malta 17 Moderate
Source: authors’ illustration; Poland 100 Moderate
share of EEOS of total Article 7 Slovenia 33 ✓ Low
savings taken from Fawcett and Spain 44 High
Rosenow (2016)

EEOS are continuing to deliver increasing levels of residential sector in France and the UK, and predomi-
savings and are expected to do so into the future. De- nantly from the industrial sector in Denmark or Italy5—
spite being paid for via energy bills rather than through although residential savings are becoming more impor-
taxation, EEOS can come under public and political tant in both of these countries as well now (ENSPOL
pressure—as happened most notably in the UK. With- 2015a). In the residential sector, EEOS have been used
out public and expert understanding of the benefits of primarily to deliver relatively low-cost energy-efficien-
this policy, it may be vulnerable to reduction in scope or cy measures. This clearly maximises benefit-cost ratios,
ambition. The question arises as to whether there is a but does not support more comprehensive, whole-house
political limit to the scale of EEOS, or at least the scale retrofits. This may prove important in the context of the
of revenue that can be raised via these schemes on need to deliver substantial change in the built environ-
customer bills. ment, as it is difficult to see how EEOS focused primar-
Most of the new or redesigned EEOS are at low or ily on cost-effectiveness will support deep and complex
moderate risk of not achieving their savings goals, as refurbishment, one of the key challenges within energy
they have taken action to shorten the initial learning efficiency policy.
phase. However, for three schemes (those in Croatia, Given the limited experience with using EEOS for
Latvia and Spain) because they have not had a voluntary delivering deeper energy efficiency improvements, it is
phase, or copied a scheme design from elsewhere, the difficult to predict whether or not this type of policy
risk of under-delivery can be judged as high given the instrument can deliver more costly and complex energy
limited experience with this policy instrument in those saving measures. In theory, if EEOS are to deliver deeper
countries and the complexity of EEOS implementation. and more comprehensive energy efficiency improve-
Overall, there is considerable potential for successful ments in residential (and other) buildings, in principle,
member state EEOS—but failure is a real risk, as expe- this can be achieved by (a) establishing incentives for
rienced in Poland in Phase 1 of its scheme. While deeper energy efficiency improvements and (b) limiting
failure, or only partial success, may not be fatal to an the extent to which the most cost-effective measures can
EEOS—in Poland, a comprehensive redesign has been be utilised. Both of these moves have been incorporated
undertaken—clearly policy designers and implementers in the UK scheme, with quotas for (relatively expensive)
will want to avoid this by making best possible use of solid wall insulation, and limits on installation of cheaper
the available experience and evidence. measures—as described briefly earlier.
Including fewer, more expensive measures in EEOS
has social equity implications. EEOS are funded
What savings do EEOS deliver now, and what might be
their role in future?
5
Previously, the residential sector dominated savings from the Italian
EEOS but after a change in the calculation methodology in 2012
EEOS have delivered savings from different sectors in valuing the benefits of longer-lived measures, there has been a shift
different countries—primarily or solely from the to industrial measures.
 Energy Efficiency

through energy bills, which means that all customers them in EEOS programmes and to deliver their savings
pay for the programme. If the EEOS saving target is targets. This would also apply more generally to energy
delivered via fewer projects, a smaller number of people policies promoting energy efficiency, demand response
and organisations benefit from the scheme. In other or uptake of renewable energy. However, these more
words, the benefits are concentrated and the costs are engaged customers may seek out energy savings oppor-
dispersed. This can become controversial. The same is tunities themselves, and not be so reliant on incentives
true for other energy efficiency finance policies that rely and information delivered by EEOS and other policy
largely on public subsidies and is not uniquely problem- instruments, which will then target the less-engaged.
atic for EEOS. One of the anticipated benefits of EEOS is that they
However, there are ways to dampen the effect of would change the relationship between energy compa-
concentrated energy saving benefits versus dispersed nies and their customers. In the USA, with its more
energy bill costs: in France, many energy efficiency interventionist regulatory framework, some state govern-
measures are part-funded by EEOS and tax rebates ments have attempted to use lost-revenue adjustment
which results in lower EEOS bill surcharges (Rohde mechanisms and performance-based incentives to decou-
et al. 2015). In principle, such an approach could be ple utility revenues from sales, thus changing companies’
used to employ EEOS for the purpose of delivering business models (Brown and Wang 2017). However, this
technologies with higher costs and deeper energy effi- is not an option in EU countries. Rather, the introduction
ciency improvements. The EEOS would be the primary of EEOS was expected to encourage and incentivise
delivery mechanism and the firm targets ensure that energy retailers to become more like energy service
energy savings are being achieved. At the same time, companies, ESCOs—which exist throughout Europe
funding for less cost-effective measures would be pro- (Bertoldi and Boza-Kiss 2017). The evidence for these
vided by a mechanism funded through general taxation changes is mixed (ENSPOL 2015a). Energy distributors
in order to part-fund those measures together with the in Denmark are reported to have used EEOS to develop
EEOS. Using multiple policy instruments in this way better customer relationships. In Italy, the EEOS has
increases the risk of double-counting and lack of supported a growing market for ESCOs, although not
additionality. This would have to be recognised and the transformation of energy companies into ESCOs. In
guarded against in policy design and implementation. France, the source of EEOS programmes/funding is not
understood by recipients, and in the UK, the energy
EEOS and energy companies retailers have not notably changed their business model.
While EEOS can be an important efficiency driver, this
The unique feature of EEOS is that they are an obliga- policy is not sufficient to fundamentally move energy
tion on energy companies, whether retailers, distributors retailers away from being kilowatt hour selling
or both. Because of this, the way in which energy businesses.
company relationships with their customers are chang-
ing, driven by changes in the energy landscape, is rele- EEOS in different framings of energy efficiency
vant to the future of this policy. For example, more
consumers are generating their own energy and selling The flexibility of EEOS also leads to their meaning and
as well as buying from their energy retailer, and are aims changing over time, in a similar way that interpre-
becoming ‘prosumers’ (Parag and Sovacool 2016). tations of energy efficiency can change (Mallaburn and
The roll-out of smart meters (European Commission Eyre 2013). For example, they can be designed to de-
2014) and feedback options means that customers can liver reductions in fuel poverty, to generate job oppor-
be better informed than ever about their own energy use. tunities in chosen sectors (see for example the DECC
The rising percentage of renewables in the electricity (2014b) estimate of 28,000–34,000 jobs supported by
generation mix has increased interest in customers’ ca- EEOs in the UK), or to grow the market for particular
pacity for ‘demand response’ (Grunewald 2016). These technologies, as well as to deliver savings. As the policy
and other developments may lead to more engaged, objectives change, so the design of the policy is likely to
active customers with greater interest in the benefits of change. This flexibility probably means that EEOS can
energy efficiency. If energy customers are more active, be relevant; however, energy efficiency is framed—
then it should be easier for energy companies to engage whether as an aid to economic efficiency, as first fuel
Energy Efficiency

or as a means to delivering multiple social, economic savings target still in place, the following conditions
and environmental benefits. However, it is worth con- might mean EEOS are no longer needed:
sidering how EEOS fits with two currently popular
framings—‘energy efficiency first’ or ‘first fuel’ and 1. No significant energy efficiency potential available
with energy efficiency as a means to achieve multiple from standardised measures, or little available in the
benefits (IEA 2014). sectors which typically deliver most savings via
The policy approach proposed in the Winter Package EEOS
is ‘energy efficiency first’. Arguably, this framing im- 2. EEOS policy is shown to fail in terms of efficacy/
plies a role for EEOS within the way the energy sector is efficiency/cost-efficiency/equity
regulated and structured—although how that plays out 3. Energy company resistance to delivering this aspect
will depend on the national regulatory structures and the of government energy policy
industry. EEOS naturally are a good fit with the new 4. Public/political resistance to energy price rises
policy principle—although they were first implemented 5. A stronger focus on distributional issues of policy,
in vertically integrated markets (in the USA), where so that regressive revenue raising via (residential)
requiring energy companies to provide energy efficien- energy customers, or highly unequally distributed
cy in addition to energy is perhaps easier (Rosenow et al. benefits were not acceptable
2016a). 6. Energy companies become more like ESCOs—so
A multiple benefits framing suggests that energy that they already deliver an (economically) opti-
efficiency has many environmental, social and econom- mum amount of energy efficiency—or this function
ic benefits, such as improved health, new job creation is delivered by other market actors.
and increased productivity, and that these are not prop-
erly understood or taken account of in decision-making Condition 1 does not apply generally, with plenty of
(IEA 2014). Some of these benefits are quantifiable, energy efficiency potential identified within, for exam-
with good-quality data and agreed methodologies, and ple the buildings sector (Graham et al. 2013) and SMEs
can already be included in policy design and evaluation, (IEA 2015). However, the requirements of the
or individual and organisational decision-making (BEIS Ecodesign Directive have ensured domestic appliances
2018; Rasmussen 2017). Article 7 has only been struc- and lighting are no longer included in EEOS
tured to deliver energy savings; it does not consider the programmes. These standardised measures, which for-
multiple benefits of energy efficiency. While the pro- merly delivered savings through this policy route, have
posals for a revised Article 7 do include considerations become mandatory. Even in the long term, an argument
of the social benefit of ensuring that households in can be made that innovation will lead to regrowth of
energy or fuel poverty benefit from the scheme, this is ‘low-hanging fruits’ (Gilleo 2014). Condition 2 would
about distribution of benefits not broadening the defini- be unlikely based on evidence to date—but poorly de-
tion of benefits. Including multiple benefits in policy signed and implemented schemes could fail to achieve
design could affect targets set for EEOS, e.g. higher the successes of the past, as discussed earlier. As we
targets can be set if energy efficiency is shown to deliver have shown, Condition 3 was a factor in the UK scheme
societal benefits beyond energy saving. Given that it is being designed to be less ambitious, as was Condition 4.
government which has multiple social, environmental While in some countries it seems that EEOS have been
and economic objectives which can be delivered via influential in redesigning energy companies’ relation-
energy efficiency—rather than the obligated parties— ships with their customers (e.g. Denmark), this is not
the interaction of multiple benefits framing with this universally true and continued support of energy com-
policy needs some careful thought. panies for this policy cannot be taken for granted. The
Commission is trying to address Condition 5 by its
inclusion of a requirement to deliver some of the bene-
What would it take for EEOS not to have a future? fits of EEOS to those in energy/fuel poverty. However,
there is also the issue of unequal distribution of benefits,
One of way of thinking about the future place of EEOS which applies particularly in the residential sector for
in EU policy is to consider what would make this policy more expensive measures, and could also be an issue in
redundant. Assuming that there is a strong energy the industrial/commercial sector. Concerns about the
 Energy Efficiency

regressive nature of this policy remain (Barrett et al. order to achieve energy efficiency improvements at
2018). The evidence shows we are a long way off scale. This includes innovative instruments such as en-
energy companies becoming ESCOs. However, Condi- ergy efficiency feed-in tariffs (Bertoldi et al. 2013; Eyre
tion 6 may be met if the new business models developed 2013), linking carbon offset mechanisms with tradable
by aggregators, ESCOs or commercial and development ‘white certificates’ from EEOS (Oikonomou et al. 2012)
banks deliver significant energy efficiency savings from and auctions (IEA 2017).
large number of customers, reducing or removing the
role of energy companies in delivering energy
efficiency. Conclusions

Securing a strong and effective future for EEOS An energy efficiency obligation scheme, correctly de-
signed, can successfully deliver sustained energy sav-
On balance, there is still good policy space for EEOS for ings over multiple years. It is flexible and can be de-
those member states which choose to use them. How- signed in a variety of way to meet national needs, and to
ever, there are also risks, most notably a lack of energy fit within very different policy mixes. EEOS have been
company, public or political support for this policy. used to deliver savings primarily through upgrading the
Energy companies can have internal reasons for oppos- building stock, early replacement of inefficient appli-
ing the policy (too burdensome, not their core business ances and equipment, and improving industrial process-
etc.), which they may present as protecting their cus- es—efficiency savings which are not covered by mini-
tomers from rising prices due to unnecessary govern- mum standards or regulations. EEOS have delivered
ment policy. In order to maintain public and political considerable energy savings and are expected to do so
support, it is vital that the policy has support from into the future. In total, 15 EU countries now have an
trusted actors and interest groups (e.g. consumer groups, EEOS, while the other member states have not adopted
environmental and social NGOs), and that the evidence EEOS and are not currently planning to do so. In addi-
is available to show its benefits. This evidence must be tion, as EEOS have delivered higher energy savings in
communicated clearly and persuasively. EEOS cannot Denmark and the UK, there has been public and political
remain a policy only understood by a few experts. concern about the cost to bill payers, and this influenced
An important conclusion from the experience over the reduced ambition levels of the UK and Danish
the past decade is that a rigorous and public process of EEOS.
review can drive innovation in delivery routes, can build EEOS are likely to continue to evolve in objectives,
greater public awareness of the services being offered design and delivery as the energy and policy landscape
and is quite useful, perhaps essential, to ever-deeper changes around them. The new European framework of
savings levels over a period of years. EEOS are unlikely ‘energy efficiency first’ supports EEOS, and the planned
to meet deeper savings targets over multi-year periods extension of the Energy Efficiency Directive to 2030 is
without the discipline of programme reviews, including also vital. EEOS have a very strong track record in
ex-post evaluation and policy redesign, leading to inno- securing savings from low-cost measures and they are
vations in implementation. expected to continue to do so. However, their scope may
Finally, experience shows that relying on EEOS as need to widen as savings targets increase, and if (or
the only instrument to deliver energy efficiency mea- when) low-cost opportunities reduce over time. Deliv-
sures is risky. When political support for levy-funded ering higher cost measures, particularly deep retrofit to
energy efficiency policy drops, this could have signifi- buildings, is very challenging whatever policy instru-
cant repercussions for the sustainability of the energy ment or policy mix is used. EEOS may be able to make a
efficiency market. Using EEOS as a single instrument contribution to this, but careful thought will be needed
also does not exploit the potential synergies with other, to ensure that the policy is seen as fair, and retains
complementary measures and a policy mix has been energy company, public and political support. The ex-
shown to be more effective than relying on single in- pertise and evidence which exists showing the benefits
struments (Rosenow et al. 2016b). The significant car- of EEOS needs to be shared with and understood by
bon reduction required following the Paris Agreement is wider civil society, so that this is not a policy only
likely to require the full suite of policy instruments in understood by experts.
Energy Efficiency

Funding information Tina Fawcett’s contribution was funded Bertoldi, P., Rezessy, S., Lees, E., Baudry, P., Jeandel, A., &
by the UK Research Councils (grant no: EPSRC EP/L024756/1) Labanca, N. (2010). Energy supplier obligations and white
as part of the Decision Making Theme of the UK Energy Research certificate schemes: comparative analysis of experiences in
Centre Phase 3. Part of Jan Rosenow’s time was funded by the UK the European Union. Energy Policy, 38, 1455–1469.
EPSRC through the Centre for Innovation and Energy Demand Bertoldi, P., Rezessy, S., & Oikonomou, V. (2013). Rewarding
(CIED; http://cied.ac.uk/; grant no: EP/KO11790/1). energy savings rather than energy efficiency: exploring the
concept of a feed-in tariff for energy savings. Energy Policy,
Compliance with ethical standards 56, 526–535.
Bertoldi, P., Castellazzi, L., Oikonomou, V., Fawcett, T.,
Conflict of interest The authors declare that they have no con- Spyridaki, N.A., Renders, N., Moorkens, I. (2015). How is
flict of interest. article 7 of the Energy Efficiency Directive being implement-
ed? An analysis of national energy efficiency obligation
schemes. Proceedings of ECEEE Summer Study. European
Open Access This article is distributed under the terms of the Council for an Energy-Efficient Economy, Presqu' Ile de
Creative Commons Attribution 4.0 International License (http:// Giens, France.
creativecommons.org/licenses/by/4.0/), which permits unrestrict- Brown, M. A., & Wang, Y. (2017). Energy-efficiency skeptics and
ed use, distribution, and reproduction in any medium, provided advocates: the debate heats up as the stakes rise. Energy
you give appropriate credit to the original author(s) and the source, Efficiency, 10(5), 1155–1173.
provide a link to the Creative Commons license, and indicate if Bundgaard, S.S., Dyhr-Mikkelsen, K., Hansen Kjaerbye, V.,
changes were made. Togeby, M., Sommer, T., Larsen, A.E. (2013). Spending to
save: evaluation of the energy efficiency obligation of
Denmark, Proceedings of ECEEE Summer Study.
European Council for an Energy Efficient Economy,
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