eurelectric views on the eed proposal 2011 030 0758 01 e

8/4/2019 EURELECTRIC Views on the EED Proposal 2011 030 0758 01 E

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S e p t e m b e r 2 0 1 1

EURELECTRICviewsonthe

ProposalforaDirectiveonEnergyEfficiencyCommissionProposalCOM(2011)370finalof22/06/2011

AEURELECTRICPolicyPaper


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TheUnionoftheElectricityIndustryEURELECTRICisthesectorassociationrepresentingthecommoninterestsof

theelectricityindustryatpanEuropeanlevel,plusitsaffiliatesandassociatesonseveralothercontinents.

In line with its mission, EURELECTRIC seeks to contribute to the competitiveness of the electricity industry, to

provideeffectiverepresentationfortheindustryinpublicaffairs,andtopromotetheroleofelectricitybothinthe

advancementofsocietyandinhelpingprovidesolutionstothechallengesofsustainabledevelopment.

EURELECTRICs formal opinions, policy positions and reports are formulated in Working Groups, composed of

experts from the electricity industry, supervised by five Committees. This structure of expertise ensures that

EURELECTRICs publisheddocumentsarebasedonhighqualityinputwithuptodateinformation.

For further information onEURELECTRICactivities, visit our website, which provides general information on the

association and on policy issues relevant to the electricity industry; latest news of our activities; EURELECTRIC

positionsandstatements;apublicationscataloguelistingEURELECTRICreports;andinformationonoureventsand

conferences.

Dptlgal:D/2011/12.105/45

EURELECTRICpursuesinallitsactivitiestheapplicationof

thefollowingsustainabledevelopmentvalues:

EconomicDevelopment

Growth,addedvalue,efficiency

EnvironmentalLeadership

Commitment,innovation,proactiveness

SocialResponsibility

Transparency,ethics,accountability


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EURELECTRIC

views

on

the

ProposalforaDirectiveonEnergyEfficiencyCommissionProposalCOM(2011)370finalof22/06/2011

WGEnergyEfficiencyDanieleAGOSTINI(IT),Chair

MehmetBULUT(TR),RobertaD'ANCONA(IT),KatarzynaFRAS(PL),ErikGUDBJERG(DK),BojanHORVAT(SI),

AnnetteKROLL(BE),GintarasLABUTIS(LT),AngusMACRAE(GB),DanielaMLADENOVSKA(MK),YukioNAKANO

(JP),TapioOHMAN(FI),ColinOPENSHAW(ZA),MonicaOVIEDO(ES),PedroPAES(PT),RodolphePOIROUX(FR),

RodicaPOPA(RO),AllaouaSAIDANI(DZ),MichalSOUKUP(CZ),OlgaSTOROZHENKO(RU),DavidTHIEL(CH),

ZoltnTIHANYI(HU),ContantinosVARNAVA(CY),ElliottWAGSCHAL(NL),GuroWENSAAS(NO),Henrik

WINGFORS(SE),JanWITT(DE),HansZEINHOFER(AT),Members

Contacts:

JohnSCOWCROFT,HeadEnvironment&SustainableDevelopmentUnit([email protected] )

NicolaREGA,AdvisorEnvironment&SustainableDevelopmentUnit([email protected] )


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5

QuickStart

NecessaryimprovementstotheEnergyEfficiencyDirective

Energyefficiencyobligationschemes(Art.6) A well functioning market needs not only strong supply, but even more

importantlystrongdemandfromthecustomer;supplierscanencouragebutnot

forcecustomerstoimplementenergysavingmeasures.

Anysavings targetshouldbedefined in relation toeachmemberstatesoveralltarget.Ifappropriate,itcanbedividedintosubtargets.

Obligation schemes, if established, should ensure: (1) equal treatment of allenergy sectors, with no discrimination based on size or energy carrier, (2)

flexibility and predictability, (3) minimum administrative burden, (4) clarity over

costrecoverymechanisms,(5)nodiscriminationagainstearlymovers.

Extraattentionshouldbegiventoprogrammesaimedatstimulatingdemandforenergy savings by endusers. Alternative or complementary instruments

supportingthisshouldthereforebefullyrecognised.

Promotionofefficiencyinheatingandcooling(Art.10;AnnexesVIIVIII) National heating plans should aim to reduce demand first, while assessing the

marketpotentialforalllowcarbonheatingtechnologies.

Compulsory CHP units for all thermal power plants are inappropriate:jeopardisingelectricitymarketswillnotimproveenergyefficiency.

Energytransformation(Art.11,Art.19Para.5,andAnnexX) The approach proposed will lead to an excessive administrative burden and

threaten future investments. Electricity generators already have strong

commercialandregulatoryincentivestoundertakeenergyefficiencyinvestments.

PrimaryEnergyConversionFactor(AnnexIV,Footnote3) Keeping the conversion factor for electricity, by default, at 2.5 is arbitrary and

technically wrong. This will promote direct fossil fuel combustion instead of

electricity,thusincreasingimportdependencyandcarbonemissions.

Meteringandinformativebilling(Art.8andAnnexVI)andservicestobeofferedbynetworkoperators(AnnexXI)

More flexibility in billing methods and frequencies should be allowed to enablesupplierstomeettheircustomersneedsandpreferences.

The

new

directive

should

not

jeopardise

ongoing

investment

plans

on

the

roll

out

ofsmartmeters,asrequiredbythe3rdElectricityDirective.


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TableofContent

QuickStart ............................................................................................................................ 5

SectionI:EURELECTRICviewsontheproposedEnergyEfficiencyDirective................... 11

1. Energyefficiencytargets(Arts.36)....................................................................... 11

2. Energyefficiencyobligationschemes(Art.6andAnnexV).................................. 12

3. Promotionofefficiencyinheatingandcooling(Arts.10,12;AnnexesVIIVIII)... 14

4. Energytransformation(Art.11,Art.19Para.5,andAnnexX) ............................. 16

5. PrimaryEnergyFactor(AnnexIV,Footnote3) ...................................................... 17

6. Meteringandinformativebilling(Art.8andAnnexVI) ........................................ 18

7. Servicestobeofferedbynetworkoperators(AnnexXI)...................................... 20

SectionII:Backgrounddocumentsforpolicymakers ....................................................... 21

1. ImpactoftheEEDonotherEUenergyclimatepolicies ....................................... 21

a) Impactonnational2020GHGandREStargetsandlongtermenergyclimate

goals ............................................................................................................................ 21

b) ImpactontheEmissionsTradingSystem(ETS) .................................................. 21

c) ImpactontheElectricityMarket......................................................................... 22

d) ImpactontheElectricitySystem......................................................................... 22

e) ImpactontheTransportSector.......................................................................... 23

2. Primaryenergyuseinelectricityproduction........................................................ 24

a) Aflawedconversionfactor................................................................................. 24

b) Changesinelectricityproduction........................................................................ 25

c) Negativeconsequencesoftheconversionfactor............................................... 27

3. Networks:recognisingtheroleofDSOsinSmartGridsandenergyefficiency... 28


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9

Introduction: The Role of Electricity Companies in Promoting Energy

EfficiencytoEndUsers

a) Electricitycompaniesasacatalystfortheenergyservicesmarket

ReachingtheEUs20%objectiveforenergyefficiencyin2020requiresnewthinkingand

new measures at EUlevel but, as important, the full implementation of existing

legislationtoallowittohaveitsfullimpactbeforedevelopingnewlegislation.

In addition, it also requires a steppingup of European and national energy efficiency

policiestoreleasethepotentialthatenergyservicescanbringtothemarket.

The European Commissions new plan for energy efficiency recognises this. We agree

withtheCommissionsassessmentthatthereisaneedtofurtherstrengtheninitiativesto

ensurethatmemberstatesreachtheenergyefficiencytargetin2020.Wealsoagreethat

aprerequisite foranenergyefficientEurope isthecreationofvalue forenergysavings

throughamarketmechanism.However,instrumentsareneededtocreateamarketand

toputafinancialvalueonenergyefficiency.

TheEuropeanelectricityindustrywantstobeapartofthesolutionandisreadytomeet

thechallengebyofferingmore,andmorespecialised,energyservices.

b) Openmarketsservebest

Energyefficiencyshouldbedrivenbythemarketonbusinessterms,wheneverpossible.

With an existing direct link to all electricity users throughout the EU, electricity

companiesalreadyhavecommercialincentivestodesignandprovidetailormadeenergy

services to their customers. Moreover, they have the potential to develop new

partnershipswithcustomersand,togetherwithESCOs,newbusinessmodelsforenergy

services.Energyefficiencyservicesarean instrumentforbuildingandmaintaining long

lastingcustomerrelationshipsaswellasameanstoreducepeakloadcurvesandtomake

roomfornewdemandsforelectricitysuchaselectricvehicles.

Marketsaredevelopingmorerapidlythanever;andclimatechangeandcompetition in

energymarketsareamongthemaindrivers.

TheCommissionproposaldoesnotsufficiently reflect thepositive impact thatmarkets

haveonenergyefficiency.Instead,itplacestoomuchemphasisonregulatorycommand

and control measures that do not reap the full benefit in terms of effectiveness and

efficiency.


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c) Tailormadesolutionstoachievecommontargets

Energycompanieswishtooptimizeandsaveenergytogetherwiththeircustomersand

other partners. However, conditions vary between and even within member states.

Thesedifferencesareafactbutnotathreattotheenergyservicesmarket.

We want to save energy in a way that will underpin the savings and turn them into

businessopportunities.Buttherearemanywaystodeliverenergysavings.Onesizedoes

not fit all. All market mechanisms for creating value for energy savings should be

acknowledgedfortheroletheycanplayinmeetingeachcountrystarget.

The subsidiarity principle thus plays a fundamental role. Before introducing new

measures, existing national experiences should be carefully analysed and compared,

especiallyasregardstheir

effectiveness, both in terms of additionality and of real reductions in energyconsumption;

sectoral coverage, to make sure that all sectors are able to contribute to moreefficient energy use in order to make sure no point of the energy process is

neglected;

abilitytodriveinvestmentswithamediumtolongtermpaybacktime; adequacyindrivingstructuralchangesinsociety.

In addition, any such analysis should specifically address the risk of free riders and

increased costs, as well as the measures effectiveness in driving investments in the

sectorswheresavingspotentialscanmostcosteffectivelybeexploited.

AnyEUwideinitiativeforregulatingtheenergyservicesmarketshouldtherefore

beconsistentwithexistingmeasures, deliveranaddedvalue,and becosteffectivei.e.theleastbureaucraticpossible.

Inconclusion,EURELECTRICwelcomestheCommissionsacknowledgementofthevariety

ofinstrumentsthatmemberstatescanusetopromotethemarketforenergyefficiency

services. The Directive should ensure that and we call upon EU Governments and

MembersoftheEuropeanParliamenttoensurethat:

Many types of market mechanisms exist, which create value for energy savingsbasedonnational/regional/localcircumstances;

The choice of the most appropriate instrument to turn energy efficiency into abusiness opportunity is left to each member state, in accordance with the

subsidiarityprinciple.


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SectionI:EURELECTRICviewsontheproposedEnergyEfficiencyDirective

Energy efficiency is one of the most costeffective way of addressing the EU's key

strategic policy objectives: tackling climate change, ensuring security of supply and

enhancing competitiveness, while creating jobs and contributing to affordability forcustomers. A welldesigned energy efficiency policy can significantly contribute to the

reductionofcarbonemissionsinallsectors,includingthetransportsector.

It is clear from EURELECTRICs Power Choices and the EU lowcarbon roadmap that

energyefficiencyplaysacrucialroleinEuropesenergyfutureandshouldbeprioritised.

Particularly,giventheongoingfinancialcrisis, it isextremely importantthattheEUand

memberstatesadoptmeasuresthatarebothcostefficientandequitable.

To achieve meaningful behaviour changes that reduce demand and use energy more

efficiently,theinterestsofcustomersshouldbeparamountincreatingflexiblesolutions

whichmeettheirrequirements.

We recognise that the intentof theproposedEnergy Efficiency Directive moves in this

direction. We believe, however, that the directive is overly prescriptive and often in

conflictwithEUenergyandclimatepolicies.Thiswoulddeliversuboptimalresultswhich,

in some cases, would even prevent investments in energy efficiency. It is therefore of

greatest importance that climate, renewable energy and energy efficiency targets

coherently support each other in meeting the EU objectives set out in the 2050 low

carbonroadmap.

The following paragraphs highlight the views of the electricity industry on the main

aspectsoftheproposedEnergyEfficiencyDirective.

1. Energyefficiencytargets(Arts.36)

Multiple,overlapping targetsshouldgenerallybeavoidedand,wherenotpossible, the

interactionbetweenthemcarefullyassessed.

Withthis inmind,theneedfornationalenergyefficiencytargetsshouldbeassessedas

follows:

Need to create mechanisms that take into consideration member states earlyactionsonenergyefficiencyandtheircostefficientsavingpotentials;

Needtocreatemechanismsthatdonotdiscriminateagainstchoicesonnationalenergymixes;

Clarifytherelationbetweennonbindingnationaltargets(art.3)andthe impactofpossiblebindingmeasures(arts.4and6);


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Render clearly identifiable the additionality of measures that member stateswouldhavetoundertaketomeettheirnationaltargets;

Address the linkage between energy efficiency and carbon reduction measures,particularlyinthenonETSsectors.

The need for EUimposed binding national targets on energy efficiency must then be

assessedinthelightofthoseresults.

Astrongcommitmentfrompublicauthoritiesisparticularlyimportant,notonlyinsetting

incentives, but also in assuming a leadership role in opening up and stimulating the

demandforenergyefficiencyproductsandservices.

We therefore welcome the overall approach in arts. 4 and 5. However, we would like

more clarity on the overall financial implications for member states, particularly in

relationtogovernmentalmeasuresneededtotackletheongoingfinancialcrisis.

More generally, the means for achieving targets, e.g. obligation schemes and CHP

promotionshouldbecoveredbythesubsidiarityprincipleandshouldnotbethesubject

totheCommissionscontrolthroughdelegatedacts.

2. Energyefficiencyobligationschemes(Art.6andAnnexV)

Electricitycompanieshaveaninterestand,importantly,expertiseindevelopingarobust

market for energy efficiency services. This market is very specific, tailored to local

circumstances. Obligation schemes are just one of many tools to promote energy

services.Wethereforewelcomethepossibilityformemberstatestodevelopmeasures

thatbestsuittheircircumstances.

According to Art. 3, member states should set their own national target (based on a

seriesofparameterswhich includepreviousandongoingsavingefforts,actualtechnical

and economic potential, as well as external factors like economic growth and the

development of industrial activities). We therefore find most appropriate for member

states to set their own annual savings targets (Art. 6) to meet their overall national

target,insteadofasinglesavingstargetsetatEUlevel.

Where member states wish to introduce obligation schemes, it should be noted that

electricity companies need to have the right instruments to guarantee specific savings

(i.e. 1.5%) as they have limited influence over customer behaviour and lifestyle.

Therefore it is of great importance that electricity companies fulfil their obligation

without

economic

risk

and

are

able

to

cover

the

associated

costs

(e.g.

through

tariffs).


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Moreover, a wellfunctioning market needs not only supply push but, even more

importantly, demand pull. Demand comes from customers, whose engagement and

empowermentcannotbe ignoredorbypassed.Actionsdirectlyaddressingendusersor

theirclosestlevel(e.g.localauthorities)shouldbepromoted.Forinstance,energyaudits,

assetout inArt.7,andenergymanagement,asdefined inEuropeanand International

standards,arenotmeasuresofenergyefficiencybythemselves,buttoolsthatcanhelp

companies seek continuous improvement. Member States should aim to promote an

energysaving culture in all sectors rather than simply imposing the implementation of

energyaudits.

Itisalsoimportanttoensurethattheobligatedpartiesaregiventhefreedomtochoose

wheretoimplementtheobligation,e.g.intermsofsectors,energycarriers,supplyareas,

in the grid inorder tosecure thebest possible basis to fulfil the obligation. Member

states should also ensure flexibility for electricity companies regarding corrections and

changestotheschemewhennecessaryandappropriate.

Ourexperienceincountrieswithestablishedobligationschemeshighlightsthefollowing

conditionsforsuccess:

Costrecovery mechanisms should be a precondition when setting up theobligation schemes, as they play an important role in ensuring a levelplaying

field.

The measures should apply to all energy sectors (electricity, gas, other heatingandtransportfuels,allsupplyareasandthegrid).

Obligation schemes should leave sufficient flexibility and predictability to theobliged parties to enable competition for the best and most costefficient

solutions and allow for the creation of a liquid market for energy efficiency

products.Multiannualinsteadofyearlytargetswouldbemoreappropriate.

Theadministrativeburdenforobligedparties,includingtheprovisionofcustomerconsumptiondata,mustbeminimised.

The system must be set up in a way that does not discriminate against earlymoversontheenergyefficiencymarket.

Inadditiontoobligationschemes,successfulalternativeorcomplementary instruments

havebeendeveloped,andshouldalsobeacknowledged,forexample:

LocalandregionalprogrammesandactivitiesdevelopedwithsupportfromtheEUProgrammeofIntelligentEnergy;

Voluntaryschemes; Energyandclimate policies(e.g.carbonpricesundertheEUETS,taxation); Regulationdirectlyaddressingthedecisionmaker/enduser;


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Fundingmechanismsmanagedbynationalauthorities; Covenantsbetweenvarioussectors,i.e.building,housingandenergy; Urbandevelopmentprogrammes(e.g.SmartCities,SustainableCities); VirtualPowerPlantsmechanisms.

ForthesereasonswewelcometheprovisioninArticle6,para.9,asitgivestheflexibility

to member states to develop the most appropriate mix of measures tailored to local

realities.Atthesametime,article9shouldbereviewedaccordingly.

3. Promotionofefficiencyinheatingandcooling(Arts.10,12;AnnexesVIIVIII)

EURELECTRIC agrees that member states should seriously address energy efficiency in

heatingandcooling.Wethereforewelcometheproposaltoestablishheatingandcooling

plans, although the proposal should be further strengthened. In particular, member

statesshould:

Prioritisethereductionofheatingandcoolingdemand; Assess the potential for all lowcarbon heating and cooling technologies. With

various lowcarbonheatingoptionsavailable,e.g.highefficiencyboilers,district

heating,heatpumps,biomassandsolarenergy,itisnotefficientforpolicymakers

todictatethebesttechnologythisshouldbelefttothemarket;

Minimisenegativeimpactsoncompetitionwithinliberalisingenergymarkets; Takealongerview(2030years)oftheheatingandcoolingforecast, inlinewith

the implementation of Directive 2010/31 (Energy Performance of Buildings

Directive);

Facilitate,whenappropriateandnecessary,thedevelopmentoflocalheatingandcoolingnetworkinfrastructure;

Identify through costbenefit analysis at district/regional level opportunities forthepromotionofefficiencyinheatingandcooling.

EURELECTRIC supports the development of district heating and cooling, and the

promotion of highefficiency combined heat and power (CHP), where economically

feasible. However, we strongly oppose the proposal to mandate cogeneration (CHP)

unitsforallthermalpowerplants,whichrestrictsnotonlythechoiceoftechnologies,but

also the siting of thermal power plants. Moreover, while supporting the need for

strengthening grid access for high efficient CHP and the need to remove barriers to

accessing the grid, we are strongly against prioritised access or other instruments that

provideunfaircompetitiontoother,marketbasedproductioncapacity.


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EURELECTRICisopposedtomandatorycogenerationforthefollowingreasons:

Withthe increasingshareofvariableelectricity fromrenewableenergysources,the system will need flexible thermal generation. CHP isa heatled process and

does not necessarily constitute the most costefficient way to balance the

electricitysystem;

The use of waste heat wherever there is such demand from electricity orindustrialheatproductionistobewelcomed.Howeveratoostrongfocus,oreven

obligation,ontheuseofwasteheatmayhinderchoosingoptionsthatcouldyield

moreenergyefficiencyoverall;

Siting of power plants depends on many technical and economic factors otherthan

the

distance

to

heat

demand

points

(e.g.

fuel

transport,

cooling

possibilities,

permitting issues, connection to the grid, grid congestion). If siting is optimised

with regard to only one factor (use of waste heat) this will create economic

inefficiencies,resultinginextracostsforcustomers;

IndevelopedmarketswheretheshareofCHPandDH&Cishigh,regulationcouldeven be harmful. The proposed approach would be too mechanisticand inflate

costsforcustomerswithoutachievingenergysavings;

The guidelines for siting thermal power plants (Annex VIII) will delay or evenpreventtheconstructionofnewpowerstationsatatimewhennewcapacity is

neededinmanymemberstates.Surveyingallheatdemandpointswithin100km

meansstartingopenendedadministrativeprocedures;

With CHPas thedefault option for thermalpowerplants, thecombination ofprioritydispatchofelectricityfromhighefficientCHPandfromrenewableenergy

sources will lead to a progressive undermining of market principles. It is a core

market principle that each generation source, once competitive, bears its own

costsandcompeteswithothergenerationtechnologiesonalevelplayingfield;

Development costs for heating/cooling networks are significant and should beborne by the networks customers to safeguard the dynamics of markets

undergoingliberalisation.

Insummary, theCHPobligationadds further risks topermittingproceduresandmay

delay or even prevent the construction of new power plants which could hamper

competition and endanger security of supply (e.g. Germany will need at least an


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additional10GWontopofthecapacitiesunderconstruction inordertocopewiththe

shutdownofnuclear).1

4. Energytransformation(Art.11,Art.19Para.5,andAnnexX)

EURELECTRIC members are strongly committed to the continuous improvement of the

power plant efficiency, and substantial progress has been made in this direction over

time. Efficiency is at the core of our competitiveness. The recently adopted Directives

2009/29and2010/75,whenfullyimplemented,willfurtherdrive investmentsinenergy

efficiencyinoursector.

For these reasons, we believe that the directives focus on electricity generation is

misplaced. Multiple incentives to improve efficiency of combustion installations, in

particularinthepowersector,alreadyexist:

Fuel is a major cost for electricity generators, so in a competitive market theyhaveaparticularlystronginterestinitsefficientuse;

TheEUEmissionsTradingSystemwillprovideanevenstrongerincentivewiththeintroductionof100%auctioningofCO2allowancesfrom2013onwards;

TheIndustrialEmissionsDirective,whichrequirestheuseofBAT.

Theapproachproposed in thedirectivewill lead toanexcessiveadministrativeburden

andcouldthreatenfutureinvestments.Inparticular:

ExcessiveadministrativeburdenPower plants can operate in electricityonly, heatonly or cogeneration modes.

Moreover, power plants are often composed of different units, using different

fuels at different points in time. Reporting will become quite complex and

cumbersomeforbothpowerplantoperatorsandpublicauthorities.

Furthermore, electricity generation companies already report considerable data

tonationalregulators,statisticaloffices,TSOs(e.g.transparencyobligations)etc,

which allow conclusions to be drawn on the efficiency of electricity generation.

Additionalreportingrequirementsarethereforenotjustified, inparticularwhen

theyincludehighlysensitiveinformationsuchasoperatinghoursandoperational

efficiency.

1 For more detailed information on CHP, please see the EURELECTRIC position paper The Role of CHP in

the proposed Energy Efficiency Directive, soon available at www.eurelectric.org/energyefficiency


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ThreattoinvestmentsInvestments to improve the efficiency of a power plant take into consideration

not only the overall efficiency of the plant, but also the operating regime.

Mandating periodic investments in energy efficiency without assessing whether

theinvestmentwouldbecosteffectiveinthefirstplacewilldiscouragenewbuild,

locking

in

ageing

and

less

efficient

power

plants.

Moreover, fossil plant is likely to operate at lower load factors because of the

expansion of renewable generation, as promoted by the EU EnergyClimate

Package. This will mean less full load hours, more ramping, more startups and

shutdowns, thus reducing thermal efficiency. Consequently, there seems to be

littlepoint insettingstandardsfornameplateefficiencywhenoperatingregimes

willnotallowthemtobeachieved.

In conclusion, energy efficiency standards for thermal generation are unnecessary, as

outlinedabove,andcouldeitherencourageoperatorstocloseplantprematurelyoractasabarriertonewconstruction.

5. PrimaryEnergyFactor(AnnexIV,Footnote3)

TheconversiontableinAnnex IVsuggests2.5asdefaultcoefficientfactorforsavings in

electricity. Inotherwords,40unitsofelectricityrequire100unitsofprimaryenergy

(coal,gas,petrol,uranium).Thisvalue,theoreticallysubjecttonationalinterpretations,is

inrealityusedbytheCommissiontodefineefficiencycriteriaforenergyusingproducts

(ecodesignandenergylabelling).

Butwheredoesthisvaluecomefromandhowhasitbeendeveloped?

The2.5defaultvalue isthesamevalueused,backin2003, intheCommissionproposal

that led to the adoption of Directive 2006/32/EC now being repealed by the current

proposal.2Atthattime,theimpactoffuturelegislationwasnottakenintoconsideration

inparticular:

theimplementationofDirective2001/77onthepromotionofRESinelectricity, the2009energyclimatepackagethatsettargetsfor2020, the2004and2010packagesonelectricitymarkets.

By keeping the same conversion factor from 20002001 until 2020 suggests that the

Commissionisassumingthattheelectricitymixhasnotevolvedinthelast10yearsand

2 Proposal for a directive of the European Parliament and of the Council on energy end-use efficiency and

energy services, 10.12.2003, COM(2003) 739 final


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willnotevolveinthenextdecade.Thisisnottrueandcouldsendamessagetoinvestors

that:

the2020REStargetwillnotbemet,and/or the2020REStargetwillhavenoimpactinreducingprimaryenergyconsumption

inEurope.

RESshareinelectricityproduction

(Source:EUenergytrendsto2030 Update2009)

2000 2010 2020

15% 19% 33%

Keeping the conversion factor of 2.5 implying an efficiency of 40% for the whole

electricitymixisthereforebotharbitraryandtechnicallywrong.

Itcreatesaperverseincentivetofocusenergysavingsonelectricity(includingelectricity

generated from lowcarbon and renewable sources) and replace it by fossil fuels, thus

strengtheningfossilfuellockin.Itwillalso,bystrengtheningdependenceonimported

fossil fuels, be counterproductive, given the important role that electricity can play in

decarbonising heating and transport. To prevent these distortive effects, it would be

moreeffectivetoassessenergyefficiencyintermsofenergyenduse.

It is very important that member states are encouraged to apply national conversion

factors especially in countries where the share of CO2free electricity production is

high.

6. Meteringandinformativebilling(Art.8andAnnexVI)

Customersshouldbegiveneveryopportunitytousetheirenergymoreconsciously.We

therefore welcome the overall provision to strengthen and clarify aspects related to

meteringandbilling.

At the same time, the provisions on billing should leave room for different billing

methods (includingdirectdebitbilling)and frequenciesaccording tocustomersneeds,

useandpreferences.Theyshouldalsotakeintoaccountcostefficiency.


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In general, the manner in which the customer is informed about consumption data

shouldbe lefttothe market.Thepresentationofconsumption inrelationtohistorical

consumptionorrunningcostsandtheprovisionofusefulinformationforamoredetailed

"self check" does not fit within the minimum requirements of Annex VI. This is one of

many elements in which suppliers can and will distinguish themselves in a liberalised

market.

Wehaveconcernsaboutspecificprovisionsthatappeartobeinconflictwiththeongoing

liberalisation process and do not serve the interests of our customers, as they create

additionalcostswithoutdeliveringadditionalbenefits.Inparticular:

Distribution companies3 are already engaged in the rollout of smart metersaccording to timelines defined by the 3rd Electricity Directive (Directive

2009/72/EC),i.e.80%ofcustomerswhohavebeenpositivelyassessedbyacost

benefitanalysismustbeequippedwithsmartmetersby2020.Thenewdirective

should notjeopardise ongoing investment plans. The financial and operational

challenges linked to a largescale rollout of smart meters need to be carefully

assessedbytheCommission.

The proposals foreseen deadline of 1 January 2015 does not comply with the

constraintsoflogisticalrealityandshouldhencebepostponed.

It isalso worthnoting that theEURELECTRIC reportRegulation for Smart Grids4

clearlyshowsthattherolloutofsmartmetersinEuropeiscurrentlyhamperedby

two factorsatmemberstate level:the lackofclarityofthemandate (onwhom

willtherolloutobligationfall)anduncertaincostrecoveryconditions.Toensure

a smooth and quick rollout of smart meters in Europe, sound and forward

lookinggridtariffmodels(whicharesetbynationalenergyregulators)shouldbe

established. Laying down a stricter timeline without addressing these two main

barrierswillnotdeliverasmootherrolloutofsmartmetersinEurope.

The distinction between information provision and billing should beacknowledged: smart meters will in fact allow customers to receive accurate

informationfrequentlyenoughtomanagetheirconsumption.Oncesmartmeters

arefullyrolledout,energycompaniescouldoffercustomersmonthlybillsbased

onactualconsumption.Alternatively, theycanofferanequallyspreadpayment

schemewithanannualreconciliationbill, inwhichcasecustomerscouldreceivefrequentinformationonactualconsumptionthroughothermeanssuchasmobile

phones,inhousedisplays,ortheInternet.

To provide investors with the legal certainty needed to undertake these significant

investments(worthseveralbillioneuros),EURELECTRICrecommendsthattheEUshows

consistencywithexistinglegalobligationsandstickstothetimeframeforeseenbythe3rd

Electricity Directive adopted two years ago. For the sake of clarity and legal certainty,

doubleregulationofthesametopics indifferentdirectiveshastobeavoided. Issuesof

3 Except in the UK, where this is the responsibility of the supplier4 EURELECTRIC Report on Regulation for Smart Grids, February 2011, http://www.eurelectric.org


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billing and smart meteringshould therefore only be regulated within the 3rd

Electricity

Directive.

7. Servicestobeofferedbynetworkoperators(AnnexXI)

Theproposalforeseesthatnetworkregulationandtariffsshallallownetworkoperators

to offer system services and system tariffs for demand response measures, demand

managementanddistributedgenerationonorganisedelectricitymarkets

AnnexXIliststheseservices,amongthemenergystorage.

Principally,EURELECTRICbelievesthattheroleofnetworkoperatorsshouldbetoactas

neutralfacilitatorsbyprovidingbehindthescenedemandsidemeasureswhilstservices

will be provided to the customers by ESCOs, suppliers and load aggregators. In this

regard,wewouldappreciateifthisapproachwouldbemademoreexplicitinthewording

ofAnnexXI.

Morespecifically,manyoftheserviceslistedinAnnexXIarecurrentlyprovidedorcould

in the future be provided by market actors.5 If these services were to be provided by

network operators, this would contradict the unbundling requirements under Directive

2009/72/EC on the internal electricity market, and would not provide cost effective

provisionoftheserviceslisted.Serviceswillbeprovidedmostefficientlywhenthereisan

adequate market price signal and free choice for customers so they only pay for the

servicestheywant.

At the same time, we consider that the adoption of the proposed Energy Efficiency

DirectiveshouldusherinpositiveregulatoryandtariffincentivesdesignedbyNational

RegulatoryAgencies thatwillput DSOs in the bestposition to facilitatedemand side

participationtothebenefitofcustomers.6

TheDirectiveshould,therefore,strengthenthedualroleofthenetworkoperator;both

as the agent in charge of reliability and as market facilitator to enhance the market

dynamicsdrivenbytheliberalisationprocess.

5 To take an example, the storage of electricity by pumping installations is carried out by agents involved in

the wholesale electricity market, buying and selling electricity at market prices.6 EURELECTRIC Views on Demand Side Participation, August 2011


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SectionII:Backgrounddocumentsforpolicymakers

1. ImpactoftheEEDonotherEUenergyclimatepolicies

a) Impactonnational2020GHGandREStargetsandlongtermenergyclimategoals

TheEuropeanCouncilhasestablishedanobjectiveofan8095%reductioningreenhouse

gas(GHG)emissionsby2050toaddressthegrowingriskofclimatechange.Moststudies

todateshowthatenergyefficiencyiscriticalindeliveringthelowcarbonobjective.The

studies, including the EUs 2050 roadmap to a low carbon economy, show that the

objectivecanbeachievedmosteconomicallybydecarbonisingtheelectricitysectorand

utilising electricity, by substituting it for fossil fuels, to decarbonise the economy. The

proposedEnergyEfficiencyDirective(EED)blocksthispossibility,reducingtheprospects

of

achieving

the

EUs

objective

and,

consequently,

increasing

the

risk

of

this

existential

threattotheplanet.

Thedifficultyarises inthemethodologybywhichenergysavingsareaccountedfor,and

theapplicationofanerroneousfactorfortheprimaryenergyequivalenceofelectricity.

Thisfactorassumesaconstant40%conversionefficiencyfortheelectricitysystem(see

section II.4), making it more attractive for governments to move away from electric

appliances.Thisunderminesthecapacityforelectricitytoreplacefossilfuelsand,inthe

contextofenergyefficiencycertificationforbuildings,positivelypromotestheopposite.

The more we promote direct use of fossil fuels in enduser appliances, the more we

promoteGHGemissions insectorsoutsidetheETS,primarily intransportandbuildings,

therebyincreasingthedistancetothe2020GHGreductiontargetformemberstates.

Atthesametime,renewableenergysources(RES)willprimarilybeusedintheelectricity

mix, so the more member states move away from direct use of electricity, the more

difficultachievingthe2020REStargetwillbecome.

Moreover,themorefossilfuelsarechosenoverthedirectuseofelectricity,themorethe

distancetotheEUgoalofsecuringenergysupplywillincrease.

b) ImpactontheEmissionsTradingSystem(ETS)

TheImpactAssessmentfortheproposedDirectiveandtheLowCarbonRoadmapto2050

indicatethatachievinga20%energyefficiencytargetandmeetingthemandatory20%

renewable energy target will result in a 25% reduction in GHGemissions by 2020. The

proposedDirectivemakesprovision(Art18)toextendthetargetbeyond20%.Boththe

CommissionersforEnergyandClimateActionhavepubliclyindicatedadesiretoestablish


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afurtherrenewablestargetfor2030(andbeyond)andhaveindicatedthepossiblescale

ofthistarget.

The effect of defining these measures is to ensure the current GHG emissions target

trajectoryismetataminimumwithoutanyfurtheractionrequired.InadoptingtheRES

Directive and the proposed EED, policymakers have determined the technologies and

methodologies by which the climate target will be met. In so doing they have moved

awayfromtheprinciplecontainedintheETSDirectiveofmeetingthistargetatminimum

cost, i.e.thecostofmeetingthetargetswillnowbetheETScost,plusthecostofRES

supprtmplusadditionalcostsfmandatingCHP.

Compliance costs to meet the 2020 targets will therefore rise, which will inevitably be

translatedintohighercostsforsociety,withunevendistributionalimpactacrossmember

states.

c) ImpactontheElectricityMarket

TheRESDirectiveprovidesrenewableformsofgenerationwithpriorityaccesstothegrid

andfordespatch.TheproposedEEDprovidesCHPwithsimilarpriorityaccess.Itfurther

specifiesthatallnewthermalgeneration,which includesnuclear,shouldbeCHPunless

proven uneconomic based on an assessment to be determined by the Commission.

Priority grid access and generation despatch, in a market increasingly dominated by

renewable generation holding this advantage, will significantly influence investment

decisionstowardsCHP.

However, priority access for CHP places this technology outside electricity market

mechanismsandleadstodistortionsofcompetition.Thiscomesinadditiontosignificant

volumesofrenewableenergieswhich dependingonsupportschemes alsodonotreact

to price signals on the wholesale market. The consequence for the residual cohort of

balancing plant that remains in the market is that it will have limited operation, with

lower marginal wholesale prices (zero on many occasions) that will make conventional

generators not economically viable. The resultant depression in electricity prices will

requireveryhighmarginalwholesaleprices if investmentcostsaretoberecovered,or

theintroduction/increaseofcapacityremunerationmechanisms.Theinevitableoutcome

of such a scenariowould see all plants centrally despatched and theelectricity market

ceasingtofunction.

d) ImpactontheElectricitySystem

TheverystrongincentiveforCHPintheproposeddirectivewillmodifythedesignofthe

electricitysystemandhasthepotentialto increasecosts.This isbecausethe locational

pricingsignalsfornewgenerationthatareprovidedbythenetworkmaybeoutweighed

by the advantage derived from priority access and despatch. Other locational factors,


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includingaccesstofuelsupplysystemsandcoolingwater,mayalsobeovercome,adding

toexcesscosts.

Moreover, according to the proposed directive, if the performance of thermal power

facilitiesisassessedtobewellbelowthatprovidedbyBAT,theCommissionshallpropose

requirementstoimprovetheenergyefficiencylevelsachieved.

However there is a difference between optimal design efficiency of a power plant and

actual operational efficiency determined by market conditions. While the former is

certainlypursuedfornewpowerplants,the latterwilldeterminethetimingandneeds

fornewinvestmentsinexistingpowerplants.

Forcinginvestmentswhennoteconomicallyrewardingwoulddelayinvestments,withthe

perverseeffectofloweringtheelectricitysystemsoverallefficiency.

e) ImpactontheTransportSector

The proposed directive addresses the energy efficiency of the heating sector and the

electricitysector.Thetransportsector,the fastestgrowingenergyusesector intheEU

andglobally,isoutofthescopeofthedirective. Thelogicingivingnoconsiderationto

thesectorwiththegreatestenergysavingspotentialandthehighestgrowthindemandis

unclear. It is therefore crucial to tap the enormous energy saving potential in the

transport sector as well. Possible instruments include efficiency standards for cars, the

taxationofconventionalfuels inthetransportsector,taxrebatesandotheradvantages

forhighefficientvehiclesetc.Thisway,electric vehiclescanbepromotedandmakea

valuablecontributiontoenergyefficiencyinthetransportsector.


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2. Primaryenergyuseinelectricityproduction

a) Aflawedconversionfactor

EURELECTRICstronglyopposestheuseofaPrimaryEnergyFactor(PEF)of2.5toconvert

electricitytoprimaryenergy,asthedefaultcoefficientintheproposedEnergyEfficiency

Directive(AnnexIV,footnote3).

Theuseofthisconversionfactorwould,inouropinion,be:

discriminatory, technicallywrongand undermine the longterm objectives of EU energyclimate policies, as stated in the

recently published Commission Communication "A Roadmap for moving to a

competitivelowcarboneconomyin2050".

While member states could in theory still opt for a different value, the European

Commission has, in fact, repeatedly tried to apply this default value in ecodesign and

energy labelling implementing measures. This has been justified by referring to the

default

value

first

proposed

in

the

existing

directive

2006/32/EC

as

an

authoritative

source,thusdevelopingaselffulfillingprophecy.

Following the Commission suggestion, a member state could be inclined to meet the

2020 energy efficiency target primarily by saving electricity over other energy carriers,

thuslockinginCO2emittingtechnologieslikeboilersforthenext3040years.

The consequences of applying such an arbitrary figure would result in artificially

distortingtheinternalmarketbyexcludingcertainelectricitybasedproducts.Evenmore

importantly, it could cause serious social consequences in those countries or regions

wherenoalternativeinfrastructuretoelectricityexists.

EURELECTRIC is thus of the opinion that using the Primary Energy Factor should be

seriouslyreconsideredand,ifdeemednecessary,adjusteddownwards,soasto:

- reflectchangesintheelectricityenergymixsince2000withregularreview,or- be based on 2020 figures, as appliances installed from 2011 onwards will have an

expectedoperationallifeatleastuntilthatdate.


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b) Changesinelectricityproduction

Theconversionfactorof2.5was introduced inthefootnotetoAnnex IIoftheDirective

on energy enduse efficiency and energy services (Directive 2006/32/EC). The footnote

wasalreadyintheCommissionproposalforadirective,tabledinDecember2003,where

itwasstated:

ForsavingsinkWhelectricityMemberStatesmayapplyadefaultcoefficientof

2.5 reflecting the estimated 40% average EU generation efficiency during the

targetperiod.Source:Eurostat.

Taking into consideration the structural delay in publishing official data, Eurostat data

usedintheCommissionproposalwere,atbest,basedon2001values(Eurostat, infact,

collectsstatistics,notforecasts!).

Since 2001, the electricity generation mix has changed, in part arising from the EU

Directive on the promotion of renewable sources in electricity. In this respect, the

Commissionwebsiteclearlystates:

SincetheadoptionofDirective2001/77/EC,theCommunityhassettargetsand

triedtoremovebarrierstoencouragethegrowthintheshareofelectricityfrom

renewableenergysources.Thissharehasrisenfromroughly13%in2001to16%

in2006,butunderthenewdirectiveonrenewableenergyitisexpectedtoneed

todouble,toover30%fortheEUtoreachitsoverallrenewableenergytargetof

20%by2020.

Concerningthermalpowerplants,new investments incombinedcyclegasturbinesand

moreefficientcoalfiredpowerplantshavesignificantlyimprovedtheefficiencyoftheEU

portfolioofplants.Moreover,lookingtothe2020horizon,theEUETSwillbeoneofthe

primarydriversinboostingefficiencyincombustionplants.

The recentlypublished EURELECTRIC study, Power Choices, based on the2009 PRIMES

model,shows investments in thepowersector which tookplace inthe pastand those

expectedtomeetthe2020targets:


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Observed Projection MarketData

Model results for

Mitigationscenario

GWnet

Capacity

in2005Capacity

in2010

Decommis

sionings

20102020

Confirmed

constructions

20102020Capacity

in2020Investment

20102020

Coal/lignite 195.7 191.9 76.9 32.0 167.3 48.5

Gas Turbine

CC 74.1 117.4 5.4 73.2 150.8 82.1

Small gas

plants 84.0 89.5 27.5 9.1 76.0 19.5

Oil 62.1 55.8 36.8 2.7 40.0 14.7

Nuclear 134.4 127.0 27.0 12.0 123.5 16.1

Biomass 17.5 24.1 2.3 15.4 46.2 31.0

Windonshore 39.9 80.1 79.5 162.7 122.8

Wind

offshore 0.7 4.3 35.0 53.1 52.4

Solaretc. 2.9 16.2 0.4 38.0 43.9 41.4

Hydro 104.5 107.3 0.2 7.7 114.3 10.0

TOTAL 715.7 813.8 176.4 304.6 977.9 438.5

Investments inelectricitygenerationhave improvedtheefficiencyofcombustionplants

andincreasedtheamountofelectricityfromrenewablesources.Asaresult,theshareof

technologiesusedinthetotalelectricitymixin2000wasdifferentfromthatin2010,and

willbedifferentagainfromthat in2020.Thetrendtomorethermallyefficientandless

carbonintensiveplantisclear:


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TWhnet Sharesin%

2000 2010 2020 2000 2010 2020

Nuclearenergy 892 880 849 31.7 28.5 24.5

FossilFuels 1503 1597 1511 53.5 51.7 43.5

Solidsfired 870 786 707 31.0 25.5 20.4

Oilfired 158 62 63 5.6 2.0 1.8

Naturalgas 449 722 704 16.0 23.4 20.3

Derivedgasses 26 27 37 0.9 0.9 1.1

Renewableenergy 416 612 1112 14.8 19.8 32.0

Hydro(pumpingexcluded) 348 318 335 12.4 10.3 9.7

Windonshore 22 147 349 0.8 4.8 10.1

Windoffshore 0 14 174 0.0 0.5 5.0

Solar 0 17 50 0.0 0.5 1.4

Other renewables (tidal

etc.) 0 0 3 0.0 0.0 0.1

Geothermalheat 4 6 12 0.2 0.2 0.3

Biomasswastefired 42 110 188 1.5 3.5 5.4

TOTAL 2812 3090 3473 100 100 100

These figuresclearlyshowthatsettingtheconversion factorat2.5 is,attheverybest,

outdated. Moreover, if the European Commission believes that Europe will meet the

2020target,itwillalsohavetorecognisethatanyconversionfactorsetatthe2010level

will

be

too

high

for

the

subsequent

period.

c) Negativeconsequencesoftheconversionfactor

Inadditiontotheabove,keepingtheconversionfactorat2.5willdiscriminateagainstthe

use of electric appliances, as they are deemed, in effect, to be no more than 40%

efficient. This is fundamentally wrong, considering the real, high efficiency of electric

appliances,andhasthefollowingnegativeeffects:


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Highercostsinmeetingthe2020GHGemissionreductions

EmissionsfromtheelectricitysectorfallwithintheEUETSwheretheyareaccountedfor

atthepointofgeneration.Consequentlytheuseofelectricityinelectricalapplianceshas

no associated CO2 emissions as this would constitute double counting. Replacing fossil

energy use with electricity thus results in a 100% saving in emissions for the nonETS

sectors(transport,buildings,SMEs,agriculture),forwhichgovernmentsareaccountable.

Asthecorrespondingincreaseinelectricitydemandmustbedeliveredwithintheexisting

fixed ETS cap, the result is a real reduction in EU emissions. Ignoring this effect would

thus increasecostsformemberstates inmeetingtheir individualeffortsharingtargets,

as they must offset CO2 emissions associated with directuse of fossil fuels elsewhere

amongtheothernonETSsectors.

Highercostsinmeetingthe2020renewableenergytarget

Themostcosteffectivewaytointegrateelectricitygeneratedfromrenewablesourcesis

throughdevelopingcontrollabledemandsidemeasureswhichcanadapt instantaneous

demandtothefluctuatingsupplythatistypicalofrenewablesourceslikewind.Electrical

heatingandcoolingappliancesingeneral,andboilersinparticular,offerthisopportunity.

Indoingsotheyalsoallowbenefitsfromthedeploymentofsmartmeterstobebetter

realised.

Discriminating against electric appliances in favour of directuse of fossil fuels will, in

effect, result in lockingin CO2emitting gas technologies operating for the next 3040

years.

3. Networks:recognisingtheroleofDSOsinSmartGridsandenergyefficiency

Thecoretaskofdistributionsystemoperators(DSOs)istodevelop,maintainandoperate

themediumvoltageandlowvoltageelectricitygridsinanefficientandreliablemanner.

Energy efficiency services, by contrast, should be delivered by competitive market

providers.

DSOscannevertheless facilitateenergyefficiencybyestablishingasmart infrastructure

that

will

enable

the

provision,

by

market

players,

of

energy

efficient

solutions/offers

as

emphasised in the proposed directives article 12 and the related annex. These new

solutionssuchasdemandresponseanddemandsidemanagementoffertheprospect


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of large energy savings for households, ranging from 515% depending on research

projectresults.

However,DSOsarecurrentlynotinapositiontoinvestinnewtechnologiessuchassmart

meters

and

smart

grids,

although

these

could

provide

energy

efficiency

gains

to

society

as

a whole and enable a more efficient use of energy through better demandside

participation. As a regulated business, DSOs actions are strictly circumscribed by the

regulatory framework that determines their level of revenues and expenditures. This

framework set by national energy regulators often disregards climate and energy

efficiencyobjectivesandonlyfocusesoncostefficiency.

EURELECTRIC hence strongly welcomes the first provisions in article 12 (onenergy

transmission

and

distribution)

and

its

call

on

Member

States

to

ensure

thatnetworktariffsandregulationsprovideincentivesforgridoperatorstooffer

systemservicestonetworkuserspermittingthemtoimplementenergyefficiency

improvement measures in the context of the continuing deployment of smart

grids.WeanticipatethataskingMemberStatestoadjustthenationalregulatory

framework (i.e. the socalled grid tariff models) will give European DSOs the

means toactasneutralmarket facilitatorsandasenablersofenergyefficiency.

ThiswhilekeepinginmindthatitistheenergycompaniesandESCOswhoarein

directcontactwithcustomers,offeringservicesthatwillallowthemtogetagrip

onenergysavingsandefficiency.

Similarly,EURELECTRICsupportsthemeasureproposedintheDirectivesarticle12 (4) to decouple the revenues earned by network operators from the

electricity they distribute by removing those incentives in transmission and

distribution tariffs that unnecessarily increase the volume of distributed or

transmittedenergy.

EURELECTRIC does not support article 12, paragraphs 5 and 6, deeming it atechnical challenge, often unfeasible or open to misreporting, to assess ex ante

whichCHPplantisoperatinginhighefficiencymodeinordertoguaranteehigh

efficiencyCHPpriorityaccess.


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