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More needs to be done to actually implement ESCOs and to ensure their success

    Selina Roskam
    More needs to be done to actually implement ESCOs and to ensure their success

    Summary

    Building on its previous reports, investigating the status of the ESCO market in the EU, the Joint Research Centre (JRC) reviewed the efforts made by Member States to stimulate the market of energy services in the broad sense, focusing on the...

     
    Abstract: 

    Building on its previous reports, investigating the status of the ESCO market in the EU, the Joint Research Centre (JRC) reviewed the efforts made by Member States to stimulate the market of energy services in the broad sense, focusing on the compliance with Article 18, and has collected and updated current knowledge on the ESCO markets, in particular the size of the national markets with their main characteristics during the period 2015-2018. The findings show new developments since the last report published by the JRC in 2017.

     

    Download the report:

    https://publications.jrc.ec.europa.eu/repository/bitstream/JRC104394/kjna28405enn.pdf

    Executive summary
    The European Union has committed to an economy based on energy efficiency as the first fuel, and has been progressing towards sustainable energy and climate change mitigation strategies via the combination of direct regulations and supporting market actors. Setting out the 2030 climate and energy framework, includes EU-wide targets, policy objectives, long-term goals, new and improved policies, as well as provisions for stepping-up Member States’ efforts require measures and actions on all levels and by all market stakeholders. On this road, the private sector, including energy service markets can play a critical role. Energy service companies (ESCOs) have the necessary know-how to provide turnkey services and solutions achieving significant energy cost reductions while addressing various market related barriers on the ground. ESCOs can handle projects, manage or mobilize financial resources, undertake installation and maintenance work as well as collaborate with other market players. When providing Energy Performance Contracting (EnPC)1, ESCOs share the unique characteristic to assume performance risks by linking their compensation to the performance of their implemented projects, thus incentivising themselves to deliver savings-oriented solutions.
    The value of ESCOs in unlocking the energy saving potential in the market is recognized by various EU directives and initiatives in the European context, such as the Energy Efficiency Directive (2012/27/EU; EED), which sets explicit requirements to promote the market of energy services through its Article 18. The EED provides definitions for energy performance contracting, energy services and energy service providers and calls for Member States to take actions to strengthen the energy services market. The "Clean Energy for All Europeans" package frames the further development and strengthening of energy policy, and has been implemented with the revision of the key Directives in 2018, further underlining the role of the market. Accordingly, the role of energy services and EnPC must increase, in particular in the public sector. The use of EnPC is reinforced in the revised Energy Performance of Buildings Directive (2010/31/EU), in particular as regards provisions on inspections of heating and air conditioning systems and in the context of the strengthened obligations on national long-term renovation strategies.
    Building on its previous reports, investigating the status of the ESCO market in the EU, the Joint Research Centre (JRC) reviewed the efforts made by Member States to stimulate the market of energy services in the broad sense, focusing on the compliance with Article 18, and has collected and updated current knowledge on the ESCO markets, in particular the size of the national markets with their main characteristics during the period 2015-2018.
    The findings show new developments since the last report published by the JRC in 2017.
    The average ESCO market of the European Union has been on a steady rise for the last decades, and the growth and maturity has continued or even increased slightly between 2015-2018. Even if the financial crisis of 2008 caused a short backdrop, and some national markets have been fluctuating or decreasing for local reasons afterwards, as of 2018, almost all Member States have a growing ESCO market. Belgium, Croatia, Denmark, Italy, Slovenia have experienced fast growth since 2015, and only Cyprus and Malta remain without ESCO activity due to either a lack of interest and small market size (Malta) or in spite of recent efforts, which might lead to a kick-start of the market (Cyprus). Luxembourg has had an ESCO market, which can be supplied by international companies, and local companies are rare. Only Sweden has reported a steady decrease in the market size and activity. In many countries (e.g. Austria, Denmark, Hungary, Lithuania, Slovenia, the United Kingdom, etc.) the clientele is changing, either because of a saturation of energy efficiency projects in the sectors where ESCOs were active before (Slovenia and Denmark), or because of new policies and broadening of the activities (Lithuania, the United Kingdom), or because of restrictions in the previously popular areas (Hungary, Austria).
    Traditionally, energy services markets in Europe included a variety of contract types, many types of contractors (suppliers) and a few types of clients (mainly industry and public sector). As of 2018, there are even more types of contracts, among which, energy performance contracting or EnPC is more and more regarded as a distinguished contract type, and companies started to be classified based on their offerings. In parallel, both Energy Supply Contracting and Energy Performance Contracting have extended to almost all sectors by now (transport being an exception), including traditionally ignored ones, such as residential and SMEs. Contracts are flexible and can be adapted to the client’s particular needs and conditions.
    The Energy Efficiency Directive’s specific article on energy services, Article 18, is being implemented to at least some level in all Member States, however implementation success is extremely patchy. A number of provisions are not (yet) taken effect in Member States. For example, information provision is considered largely successful, although this is a result of mostly bottom-up activity, with a strong role of the ESCOs themselves and of intermediaries and international projects. Information on financial instruments is less widespread, but claimed to be successful in Bulgaria, Belgium, Czech Republic, Germany, the Netherlands, Slovenia. Quality labels and certification systems can significantly contribute to the development of ESCO markets, but implementation is limited so far. Schemes exist in Austria, Czech Republic, Finland, and Spain, but the success and extent of application would need further research. Model contracts that are successful are published in Austria, Cyprus, Czech Republic, France, Germany, Greece, Slovenia, Spain and the United Kingdom.
    In conclusion, the ESCO markets of the Member States have improved, in particular have matured in many countries, and ESCOs play an important role in energy efficiency. Barriers still remain, and the ESCO markets are very far from their potentials. The provisions of the EED are expected to help in this development; however, more needs to be done to actually implement them and to ensure their success.

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