Energy efficiency policy in restructuring European electricity markets

Lars Nilsson, Lund Institute of Technology
Stefan Thomas, Wuppertal Institute für Klima Umwelt Energie
Carlos Lopes, Ecole des Mines de Paris
Lorenzo Pagliano, Politecnico di Milano

Keywords

Abstract

Energy efficiency is a key low-cost strategy for meeting generally accepted energy policy goals for economic efficiency, energy security, and environmental protection. Yet, energy efficiency has usually taken a back seat, if it is even on board, in the electricity market reforms underway in Europe and elsewhere in the world; sharing this back seat position with other social obligations and public benefits traditionally entrusted to monopolistic electric utilities. An extensive review of European electricity markets and demand side management experiences, and an analysis of policy options, was reported to the European Commission in the autumn of 2000. The experience so far in countries which introduced reform early on demonstrates the need for nurturing and supporting the market for energy efficiency. Five important sets of energy efficiency policy mechanisms were identified: (i) financing mechanisms, (ii) changes in ratemaking of the remaining monopoly segments, (iii) obligations to implement energy efficiency, (iv) negotiated agreements, and (v) support mechanisms, such as monitoring/verification schemes and standardisation.

A critical assessment of these mechanisms is presented and the prospects for implementing a common European Union policy are discussed. Coherence with competitive market principles and other energy efficiency policies, such as standards, market transformation programmes, etc., is also addressed. It is concluded that policy mechanisms aimed at stimulating energy efficiency services and programmes by energy companies or other actors need not conflict with retail competition, and can be used to enhance the competitive market for energy efficiency services.