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Energy efficiency as a
fuel to compete with
electricity generators
All EU-28 countries are legally obliged to achieve a certain amount
of final energy savings by 2020
Energy efficiency which
is regarded as a “fuel” by
many countries has not been
openly embraced by utilities.
While ensuring energy
supply security is imperative and discussions
for nuclear is underway within
the different stakeholders, the author
wishes to present an alternative which
could be as financially attractive.
Utilities have the potential to
engage with their customers to drive
energy efficiency. Whilst information
campaigns, the provision of free
energy audits, or similar have often
been undertaken by the government
of Malaysia, such “soft” activities have
had negligible impact on overall energy
consumption. While the utilities have
taken steps to engage with the public to
encourage energy efficient behaviour,
utilities have only been shown to be
capable of either delivering or fostering
large scale energy conservation in the
case of capacity constraints (such as in
Japan post-Fukushima) or where there
is strong regulation and incentive to do
so.
A Utility Energy Efficiency Obligation
(UEEO), also known as a white certificate
scheme, is a regulatory method of
financing energy efficiency upgrades
and driving large investment in
energy efficiency that utilities can, if
they so choose, use to decouple their
income from the sale of energy. This
is an emerging form of policy, used in
Australia, the US, Europe and Brazil.
This is an ideal regulatory intervention
which does not require the creation of a
new act. Enabling such a scheme would
likely require an amendment to the
Electricity Supply Act, or alternatively
a new Act.
UEEOs are used by several European
countries (eg Italy, France, Demark, the
UK, Poland), roughly half of the states
in the United States, in four Australian
states, in China and in Brazil. The
European Union Energy Efficiency
Directive (2012) mandates that all EU-28
countries are legally obliged to achieve
a certain amount of final energy savings
by 2020. A range of mechanisms
By Kevin
Hor
(Project
Manager and
Component 3
Consultant)
kevin.hor@jkr.
gov.my
Figure 1: Deeming savings brings forward actual savings,
Figure 2 - Example of on-bill financing applied to purchase
of a high efficiency air conditioner
are required, one of which is the
obligation to use energy efficiency obligation
schemes or other targeted policy
measure.1
UEEO places an obligation on energy
utilities to save energy, with a fixed
amount of “negawatts” or negative
watts to be generated each year. This
obligation is placed on the utility to purchase
the “negawatts” from a purpose
created “Energy Efficiency Generator
(EEG)” as has been done in the USA
state of Vermont.
UEEOs are operationalized through
deemed forward savings method
where essentially the benefits are paid
for before they are realised. This creates
an adverse initial cash flow, with a
high upfront initial investment required
to realise the savings. For example if
across all measures implemented in
a UEEO scheme the average deeming
period is 10 years, an amount equal to
the cumulative savings over ten years
has to be paid for up front as shown in
Figure 1.
A long term guarantee purchase
contract has to be provided to the EEG
to allow the EEG the security to raise
funds required to generate annual
target for energy savings, effectively
generating “negawatts.” This competes
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november-december, green+.2014