The value that energy efficiency generates in the energy system

SENSEI has issued a report on the mechanisms by which energy efficiency’s value can be rewarded and the changes needed to enable those rewards, at the policy, regulatory and industry level.

Energy efficiency provides value to the energy system in different ways: it reduces energy costs, avoids the need for costly capacity, lowers carbon emissions while enabling environmental standards to be met more cheaply, avoids or defers the need for costly network upgrades and allows heating and cooling systems to be used more flexibly.

These diverse value streams are often not acknowledged, with energy efficiency suppliers under-rewarded for the services they provide. As a result, fewer energy efficiency measures are undertaken, energy systems cost more to maintain, bill payers are worse off and, because of the non-energy benefits that energy efficiency provides, the wider society suffers. This report examines the three main mechanisms in place in the United States to reward energy efficiency as an energy system resource and draws recommendations for future efforts in the European Union:

  • Dedicated energy efficiency markets, such as Energy Efficiency Obligations (EEOs), are a proven way of rewarding energy efficiency
  • Capacity markets should enable energy efficiency to compete fairly
  • Network operators should be regulated to align their incentives with energy system goals through performance-based regulation (PBR), an approach taken in the United States and in recent pilot programmes in the United Kingdom.

Prime quality energy efficiency measurement and verification are preconditions for market participation. Energy efficiency suppliers need to make improvements in evaluation, measurement and verification, if they are to take advantage of forthcoming opportunities in the EU, as National Regulatory Authorities make changes to allow demand-side measures more access to energy system resources.

Read more here.