Directive on energy efficiency

(February 2017) European Commission presents this directive in order to correct market failures, leading to non-use of the full potential for energy savings, and to support the implementation of European targets for energy savings.

However the Commission has actually exceeded, respectively failed to follow the European Council conclusions (of October 2014) to present indicative 27% target and to analyze feasibility and efficiency for the presentation of 30% target (European Council called for the indicative target of 27% with a view to the possibility of adopting targets 30%), because the Commission directly presents binding 30% target (Art. 1).

a) Level of ambitions and bindingness of the target

Increase of the target by 3 percentage points may seem for the Czech economy as insignificant, but it is not. 30% target implies an obligation for the country to achieve an additional 58 PJ (16 TWh) savings compared to the assumption of the final consumption according to the State Energy Strategy Concept (ASEK). In this case, additional costs up to 2030 amount to 200-880 billion CZK, based on data from the European Commission. According to the internal study of the CEZ, additional costs for the Czech Republic for the period up to 2030 would reach approximately 550-600 billion CZK.

In the years 2021-2030 average 1.5 - 2% of the country's GDP (against the forecast of final consumption according ASEK) would be spent annually for the investment into energy savings.

Even if the target increase to the level of 30% is accepted, its binding nature still remains in contrary to the conclusions of the European Council, since the Commission has presented more ambitious target to the Member States, that will eventually lead to higher costs in both cases – its fulfillment (problematic cost curve for energy efficiency measures that is under study now in the Czech Republic) or failure to comply.

The target for energy savings should therefore remain indicative – in order to allow full reflection of cost efficiency of energy savings as national circumstances and specificities while setting national contribution to the European target, and thus avoid inefficiently expended investments into energy efficiency.

b) Obligation of new annual savings achievement of 1,5 % (Article 7)

One of the most important parts of the Directive is Article 7 that is from our point of view the most serious problem for the Czech Republic. It proposes a prolongation of the obligation to achieve new annual savings of 1.5% beyond 2020 that would represent a significant burden on the Czech economy with the potential to crowd out investments from areas where they are most needed. This obligation would also mean the need for the country to realize savings of around about 75 PJ and thus a reduction in (final) energy consumption by almost 32% against the original projections!

From the perspective of all stakeholders it is not desirable that the volume of savings, delivered by various instruments exceeds the target itself in cases where it is obviously uneconomical and ineffective in relation to other energy policy objectives and market stability.

(1) The directive should therefore fully reflect national conditions and characteristics and should not    require a "one-fits-all" obligation of all MS without taking into account their individual potential and cost reduction measures consumption.

(2) New annual savings should be proportional to each state's overall target in energy savings (projection of 30% EU target). For this reason, it is necessary to adopt an instrument in this article that would set a maximum volume of savings realized by measures taken under this Article (ie. the savings under Art. 7 would not outweigh the overall goal).

(3) The directive should also continue to maintain the possibility to address the obligations pursuant to Art. 7 through the use of an alternative scheme (it is part of the proposal now).

c) Overlaps with other EU targets and tools

The proposal of the directive has also some other negative impacts. The most serious of them is the overlap of the proposed Directive is negative impact on the functioning of the EU ETS. It is a paradox that the Commission called the proposal to be a cost-efficient option to help achieve the objective of the EU ETS, on the other hand, in the impact study, the Commission finds that the proposal, if adopted, would lead to a decline in the price of emission allowances (and thus a further weakening of the system). That shows that EED is not an effective way of emissions reduction. Because otherwise the energy saving measures would had been implemented already based on signals delivered by the EU ETS.

Decrease in energy consumption (due to higher volume of savings) would implicitly reduce the volume of GHG emissions and therefore influence the total balance of EAs in the EU ETS. Nevertheless, the proposal only states this fact without having further elaborated how to reflect and remove this negative overlap (eg. to withdraw corresponding volume of allowances from the circulation into the market stability reserve, etc.). The proposed target has even bigger impact on the ETS balance than the increase in the linear reduction factor from 1.74% now to 2.2% in 2020 would have (LRF would have to increase by more than 0.5 percentage point per year just to cover the proposed 30% target).

To conclude, the Commission sets with this proposal a hazardous trend – to move away from the EU ETS as the main instrument of the GHG emissions reduction, i.e. from one of the few working market-based instruments that efficiently promotes the implementation of low-carbon sources and decarbonisation of energy industries.

It is therefore necessary to eliminate the negative overlaps between different EU policies in the energy and climate field, in this particular case between the EED proposal and functioning of the Emissions Trading System (EU ETS).

For this reason, in parallel with the examination of this proposal it would be appropriate under the reform of the EU ETS to reduce the amount of allowances in the system by the CO2 emissions saved as a result of energy efficiency measures, in order to avoid cannibalization between targets for energy efficiency and decarbonisation.

d) Ultra-conservative approach to the electrification of the Commission

Proposal of the recast of the Directive does not fully reflect changes in the energy mix that are expected in the forthcoming decade. It brings drawbacks to the Czech Republic because of two main reasons:

(1) The first one is the slowdown of the development of electrification (ie. contrary to the Czech plan of electrification of consumption), because despite the proposed reduction coefficient for PEF electricity from the current 2.5 to 2 (Annex IV), there will be higher pressure to reduce electricity consumption rather than on consumption of natural gas or coal (especially in heating industry).

(2) The second one is the pressure to move away from nuclear power. Under the current PEF for non-combustion devices, nuclear sources operate with 33% efficiency, based on using the "physical energy content" (Point 16 of the Preamble presented by the Commission). So it seems very convenient just to reduce the consumption of electricity from nuclear sources to achieve primary energy savings, which creates pressure to prefer other than nuclear technologies in the energy mix and threatens decarbonisation efforts of the Czech Republic, that are partly based on the use of nuclear energy. In addition to the RES, gas sources would be preferred, that would lead to further increase in import dependence of the Czech Republic. Continuous use of this factor in this case by the EC is both mechanical and irrational. Data on the thermodynamic efficiency of power stations has nothing to do with their contribution to the decarbonisation and energy security, which are the main objectives of EED.

Insufficient reduction of the PEF coefficient may result in discrimination treatment of electricity, in threatening of the security of supply security and in weakening of the decarbonisation efforts. It would be desirable to use factor of 1 (the same as used for RES) to calculate the consumption of primary energy sources for nuclear power plants (recalculated energy content), in order to avoid discrimination of this energy source. In practice, this means allowing also use of the method of "direct equivalent" aside the "physical energy content" method, proposed by the Commission.

Proposal for a revision of the Directive on energy performance of buildings

The Proposal contains a number of positive aspects like simplification of investment into measures reducing energy consumption in buildings.

It contains also attempt to create conditions for easy and inexpensive installation of charging infrastructure in buildings. This is a step in the right direction along with other measures to help remove one of the barriers to the development of e-mobility - a lack of charging infrastructure. Implementation of charging infrastructure or preparation for its installation under construction or reconstruction is also cheaper, faster and with less impact on the operation of the building in relation to the implementation ex post.

However it seems that the „one-fits-all“ solution in this field rather anticipates than reflects the gathered expertise or national specificities as Member states differs in speed and penetration of electric vehicles penetration. Generally, we tend to think that such specific requirements should be based on practical experience developing e-mobility market and it would be appropriate to systematically evaluate the implementation of infrastructure.

a) 10% share of parking places equipped with recharging infrastructure

The proposal de facto anticipates ten per cent share of electric vehicles in the fleet (every ten parking spaces are to be fitted / ready for charging infrastructure). In the context of expected developments in the Czech Republic we consider this share within this timeframe as way too high (see projections of penetration of electric vehicles in the National Action Plan for Clean Mobility). Demand for electric charging is also not going to be uniform - the demand for charging will vary significantly in different regions and thus blanket set of target for the infrastructure is not efficient at all, with great risk of wasted costs.

Therefore, we recommend the Directive to allow Member States to determine the share of parking spaces equipped with charging infrastructure at national level, as it is possible under the target for the number of charging stations (Directive 2014/94/EU).

b) The anticipation of particular type of recharging stations to be installed

We consider the obligation to install recharging stations (in non-residential buildings) as unnecessary and prejudging the specific type of recharging stations. We see the two main problems within this topic:

 i. The first problem is that the installation and commissioning of charging stations requiresufficient energy input (assuming that the goal is to make the installed charging stations connected and functional, so the building must have such electrical power to ensure the functioning of all installed recharging points). We could therefore observe wasted expense on the side of the building owner (establishment of the station, circuit breaker) and on the side of DSO (who must reckon with the required input) in all cases where the demand for electric charging is lower than number of installed recharging points. All the situations where customers require increased power input but they do not use it is very unhappy also from the point of development and operation of local distribution system and tariff structure. If all buildings covered by the directive are to be equipped with the required amount of recharging points, it would mean considerable costs both for building owners, but also for the population in the form of higher distribution costs.

Therefore it would be appropriate to require that preparations are made (glands or cabling) in buildings, allowing future seamless installation of recharging stations based on real demand of owners of parked electric vehicles. If there is some obligatory minimal share of parking places with recharging points (ie. combination of recharging stations + preparations), it should be determined at the national level following a strategy in this area (see above).

 ii. The second problem is the requirement for the capability of recharging stations to start and stop charging in reaction to price signals that we found to be premature. The station equipped with this functionality is significantly more expensive (about double) than the simpler type of station. It is not yet clear whether price signals will have real effect on the recharging process (if the vehicle driver will be interested to adapt charging to price signals). It is not also clear what will be the real sensitivity of interest to recharge the vehicle on electricity prices (it is estimated that the vehicle operator will be interested in recharge his vehicle in the first place or in achieving certain driving range respectively). It is expected that the "smart" recharging functions will play more significant role until when greater market development is reached, around the horizon of 2030 rather than 2020.

Given the lifetime of recharging stations and the risk of rapid obsolescence it appears more appropriate to install these types of stations later, for example during the replacement / refurbishment of recharging points. Otherwise we would face the risk of wasted investments into technology with no real use for the time being, that could become outdated (parameters) at the time when the real use could appear as the technologies in e-mobility are developing dynamically. In this context, it is not clear how would this station be operated (who would be operator) and how taking account of price signals would be carried out (could be the user able to prefer certainty of recharge or price signals?) and how billing and other matters related with traffic would take place.

For these reasons, we should not prejudge a specific type of recharging stations, but rather leave the specification either at the choice of the Member State or the owner of the building that may consider installing more sophisticated infrastructure if he finds reasons for.

c) Conflict with the strategy of building of public charging infrastructure

In the case of non-residential premises that can serve as parking areas accessible to the public, the proposal gets into a collision course with the strategy of building of public charging infrastructure, because it de facto forces owners of such non-residential premises to become operators of public charging stations. We consider this as hazardous, potentially for two reasons - the operator of such building may not be interested in this role and in the case another entity takes care of this role (the operator of public charging infrastructure), there may raise a problem that the required percentage of charging stations could be considered as unnecessary by this entity (because of the risk of non-use). In both cases, it can lead to inefficient and wasted costs.

Thus we recommend (as in other cases) to realize the preparation for the installation of charging infrastructure (glands or cables) at the level defined by the Member State and keep the installation and operation of stations on the market-driven signals.

d) The requirement to retrofit all buildings from 2025

CEZ considers the requirement to retrofit all the buildings from 2025 as another one-fits-all solution not reflecting the real situation in all countries. The reasons have been already described above - we do not expect significant penetration of the electric vehicles fleet in the Czech Republic that would justify the implementation of the measures at proposed levels. Compared to installation of recharging points in new or refurbished buildings, the retrofitting of (especially) older buildings could be very costly. And in case that these added recharging points will not be used, it is clearly another example of wasted resources, both at the level of the building owners and the general public (see impact on distribution tariffs described above).

For the declared reasons we recommend deleting this requirement, or leaving the decision to the Member State. This measure should be implemented only when the real need for such parking spaces equipped with infrastructure in given buildings will appear. 

e) Energy poverty

A proposal for a new Article 2A contains another potential issue. The proposal asks all Member states to alleviate of energy poverty by the contribution of the long term renovation strategy. This could cause further distortion on the electricity market and in some countries it could be even used as an argument for the protection of non-market protection of selected customer groups and for the introduction of social tariffs.

We believe that the efforts of the European Commission to introduce the obligations for Member States in the field of energy poverty may be a violation of the principle of proportionality. Problem solving in the social sector (including dealing with eventual energy poverty) should remain in the full range within the responsibility of the Czech Republic with the full rights to access the energy poverty in its own way (e.g. through its social policies), but not under the régime given by this Directive, that should focus on the energy performance of buildings in the first place.