DHC in white certificates. The Italian approach. 3...redemption ‐Monitoring of results and...

DHC in white certificates.The Italian approach.Filippini EttoreAIRU ‐ A2A Calore & Servizi ‐ Italy

This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.

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White certificates in Italy, a market‐based instrument• Command and Control component: End‐use Energy Efficiency Obligation

(EEO) placed on electricity and natural gas distribution system operator(DSOs)

• Four options to comply with the EEO:

‐ Develop own energy saving projects on final consumers

‐ Develop energy saving projects on final consumers jointly with third parties

‐ Buy white certificates (or energy efficiency certificates – EECs) attesting that a certainamount of energy has been saved by a third party via energy saving action on finalconsumers Market‐based component

‐ Do nothing and pay sanction for non compliance, but obligation still remain

• Rationale for trading (market‐base component): the possibility to tradecertificates will guarantee, at least in principle, that saving will occur whereit is more economic:‐ Parties with relatively high marginal costs of saving energy will be able to buy certificates

from parties capable to realize savings at relatively lower marginal costs

‐ The overall cost of meeting a certain target should thus be minimized


3

Major steps of the scheme

• 2001 – The Ministry of Industrial approve the legislative framework and fixthe first energy saving targets for the period 2002 ‐ 2006 (D.M. 24 April2001)

• 2002 ‐ 2004 ‐ The AEEG (Italian Regulatory Authority for Electricity and Gas)develop the regulatory framework (energy saving calculation methodology,white certification (EEC) emission and trade)

• 2004 – The Ministry of Production Activity review the legislative frameworkand update the targets for the period 2005 – 2009 (D.M. 20 July 2004)

• 2005 – The white certificate systems is fully operational since January 2005

• 2007 – The Ministry of Economic Development update the targets for theperiod 2008 – 2012 (D.M. 21 December 2007)


4

Model of Governance• Government:

‐ Targets

‐ Obliged parties (including apportion rules)

‐ Eligible parties

‐ Eligible measures

‐ Some M&V rules, i.e. ex‐post accreditation for conventional lifetime

‐ Trading “routes”

‐ Enforcement mechanism: general criteria for setting penalty, graceperiod

‐ Cost‐recovery: general principles

‐ Responsibilities regarding the definition of the implementingregulation, the administration of the system, the monitoring of theresults.


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Model of Governance• Regulator (AEEG):

‐ Technical rules for project design, development end evaluation

‐ Technical rules for the issuing of EECs (e.g. how many types, unit,lifetime)

‐ Technical rules for the functioning of the EECs market (jointly with theElectricity Market Operator)

‐ Definition of sanctions for non compliance

‐ Criteria and rules for cost‐recovery

‐ Day to day administration, e.g. project evaluation and certification ofenergy savings; annual compliance check with the target and EECredemption

‐ Monitoring of results and proposal to the Government: publishes anAnnual report and two interim reports about the results delivered bythe mechanism, with proposal to improve its effectiveness


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The Obliged Actors

• Obliged actors: electricity and gas distributors

> 50.000 customers as of 31 December of the year t‐2

(> 100.000 customers as of 31 December 2001 for the first three years of implementation)

• Apportionment rules

‐ Relative market share (total market in the first three years of implementation)

‐ Automatic adjustment mechanism in case of supply surplus >5%


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The targets /1

• Mandatory quantitative energy efficiency targets:

‐ national

‐ annual (first commitment period: 2005‐2009 – second period 2010 ‐ 2012)

‐ primary energy savings (toe);

• Target sectors:

‐ all energy end‐use sectors (plus intermediate uses in the gas sector)

‐ but at least 50% via a reduction of electricity and gas end‐uses


8

The targets /2


9

The targets /3


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Eligible projects and Eligible Actors /1

• Compliance with targets via the implementation of energy saving projects

• Eligible projects:all end‐use sectors (plus PV < 20 kW)

only “hard” measures

illustrative list: 15 classes of projects with more than 42 sub‐classes

projects implemented from 2001 to 2004 subject to the approval by theRegulatory Authority for Electricity and Gas (AEEG)

• Banded obligation (50% constrain) (in the first three years ofimplementation)


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Eligible projects and Eligible Actors /2

• Projects can be implemented:by distributors, directly or via controlled companies

by energy service companies (ESCO)

big energy end‐users (“with energy manager”)

• The certification of the energy savings produced by each project is made via the issuing of White Certificates (EECS) that can be traded:

in a specific market

through bilateral contracts


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Measurement & Verification (M&V)

• What is special about M&V of energy savings?‐ You can not measure energy savings at the meter

‐ You have to measure energy savings via a comparison of the energy consumption before an after the project

‐ In same case the “before the project” is not known (data, new installations) and you need to make assumptions (“project baseline2; c.f. following slide)

‐ In other case the “before the project” scenario is known, but you need to net out the impact of consumption trends of variables other than those on which the energy project have influence

‐ In other case measure everything in not cost‐effective


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AEEG approach to M&V /1

• 3 types of M&V approaches:

- deemed savings (no on‐field measurement)

- engineering estimates (partial measurement)

- energy monitoring plans (subject to pre‐approval)

• Market Transformation measures (e.g. information campaigns, trainingprogram, ) are eligible only if they are associated to “hard measures”

‐ Provided they meet specific qualification requirement they entitle the hardmeasure to a “premium” on the amount of energy savings

• Only additional savings are considered, i.e. over and above spontaneousmarket trends and/or legislative requirements (baseline)

• Deemed savings and engineering methods developed also with thetechnical support of external consultants

• Ex‐post accreditation of annual savings + conventional year lifetime of 5/8years (relative stringency of the Italian EEO when comparing with othercountries experiences)

project /M&V complexity


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BASELINE SETTING

Some of the options:

• average installed technology

• average sold technology

• average technology offered on the shelves

• technology that meets mandatory standards

• best available technology

Energy Savings

+

-


15


B

B’

C

C’

B

Natural change(B – C)

Net project impact (C – C’)

t t’

A

Total gross

project impact (B – C’)

Ener

gy

cons

umpt

ion

time

ADDITIONALITY


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Time persistence of energy savings


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M&V: Deemed savings /1• Main Characteristics:

‐ simplified energy savings calculation

‐ limited reporting documentation to be provided

‐ simplified control and certification procedures

• Suitable for projects for which expected savings and reasonably wellunderstood and direct M&V would therefore be not cost‐effective (e.g: CFL,m2 of insulated wall, small PV plants, high‐efficiency boilers). For each typeof project a specific amount of saved energy is defined ex‐ante for eachinstalled unit (toe/unit/year)

• Default factors for: free‐riding (net‐to‐gross ratio), delivery mechanism andpersistence

• Threshold = 25 toe/year


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M&V: Deemed savings /2

Example:substitution of 1 lamp with a Compact Fluorescent Lamp (CFL)

main assumptions:- power difference (W)

between incandescent lamps and CFL

- place of installation (in which room)

- number of working hours in one year

- (weighted average)


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M&V : Engineering estimates• Main Characteristics:

‐ relatively simplified energy savings calculation

‐ reduced reporting documentation to be provided

‐ simplified control and certification procedures

• Suitable for projects whose saving impact is quite well understood but varies depending on a limited number of identifiable parameters (e.g. number of working hours).

• For each type of project a specific evaluation algorithm is defined, with pre‐defined values for some parameters while other parameters have to be measured case by case

• Threshold: ‐ 50 toe/year for ESCOs and small distributors

‐ 100 toe/year for big distributors


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M&V: Energy Monitoring Plans /1

• Main Characteristics:‐ direct measurement of energy usage (cf. following slide)

‐ pre‐approval of the methodological proposal

‐ extended documentation to be provided for ex‐post validation and certification

‐ extended control and certification procedures

• Applied to projects whose energy performance crucially depends on variables and parameters that change from case to case and is therefore less predictable

• Methodological M&V proposal to be developed according to pre‐determined criteria and format

• Threshold:

‐ 100 toe/year for ESCOs and small distributors

‐ 200 toe/year for big distributors


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M&V: Energy Monitoring Plans /2

BeforeEnergy Savings

Mesure

Energy saved (toe)

Monitoring plans

Application of ESMstime

Ener

gy

cons

umpt

ion

Threshold


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The trading mechanism

• Trading is a central element

• No authorisation needed

• Spot market trading plus “over the counter (OTC)”

• Electronic EEC Registry directly linked with the AEEG information system foradministering projects evaluation

• Electronic trading platform (one session per week)

• Specific market rules and procedures to guarantee access, transparency,security of market deals both for sellers and for buyers, market liquidity


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The enforcement mechanism

• Penalties for non compliance defined by AEEG

• No pre‐defined unit penalty; case ‐ by ‐ case assessment on the basis ofgeneral criteria

• Minimum overall penalty: 25.000 euro

• Maximum overall penalty: 155 Meuro

• Grace period: one year if non‐compliance < 40%


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The cost‐recovery mechanism

• Costs born by distributors may be recovered via electricity and gas tariffsaccording the criteria and mechanism defined by AEEG:

‐ Obliged distributors, up to the target

‐ Including purchasing of EECs from third parties

‐ No pass‐through but standard allowed cost (efficiency goal)

‐ €/unit of primary energy saved flat and technology‐neutral(efficiency goal)

‐ Except transport uses

‐ Update on an annual basis according to a pre‐defined formula(inversely linked to past trends in energy prices = avoided energycosts).


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Where is the DHC ??? /1

• In 2005 AEEG approved the engineering estimates M&V methods for CHP eDHC (methods n° 21 and n° 22)

• The methods was criticized harshly by many district heating companiesbecause :

‐ the baselines adopted for calculation were too high:

8Average substituted boilers efficiency > 83%

8Average national electric power plants efficiency = 58%

‐ Heat recover from waste to energy plants (existing) was considerate withprimary energy consumption, proportionally to waste biodegradable fraction.

• Some district heating company decided to do legal action against AEEG andthe methods, meanwhile some projects (years 2001‐2005) were presentedanyway and have obtained the certification of energy savings .


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Where is the DHC ??? /2

• All the certificated projects (76 projects from 19 companies) came fromexisting DH network expansions with new users connections; whitecertificates system did not stimulate new DHC systems.

• Waiting the legal verdict, in 2006 AEEG stopped the evaluation of the newCHP and DHC projects.

• In 2008 the Council of State, the main Italian administrative court, hasrepealed the method and asked AEEG to reformulate it.


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Results 31/12/2009 – source AEEG

• Total savings: 5.181.093 toe‐ Electricity savings : 3.846.044 toe ‐ 74%

‐ Gas savings : 1.109.957 toe ‐ 21%

‐ Other fuels savings: 225.092 toe ‐ 5%

• Sectors‐ 58% Electricity savings in domestic sector

‐ 24% Fuel savings for heating in the civil sector

‐ 12% Electricity and fuel savings in the industrial sector

‐ 4% Electricity savings in the public lighting (street light) sector

‐ 2% Energy production and distribution in the civil section


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Results 31/12/2009 – source AEEG

• M&V procedures‐ 4.458.265 ‐ 86% Deemed savings ‐ Engineering estimates

‐ 722.828 ‐ 14% Energy monitoring plans

• Actors ‐ Energy service providers (including ESCOs): 80,8 %

‐ Electric distributors with obligation : 9,8 %

‐ Gas distributors with obligation : 8,4 %

‐ Distributors without obligation: 1,0 %

‐ Big energy end‐users (with energy manager): 0,1 %


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Results for Deemed savings ‐ Engineering estimates projects

EBF - Low-flow water taps 16,7

%

RA - Low-flow water

taps areators 5,4 %

DHC 1,6 %

CFL 66,3 %


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Market price

From 31/4/2008 to 31/5/2009 2.099.842 toe of EEC hasbeen trade on the market, equal to 95% of 2008national energy saving target


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Compliance of the targets


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Conclusions

• Italian white certificates is a launched system, with many positivecharacteristics (market‐based component).

• Certificate trading is taking place more than in other countries, because themajority of the projects are implemented by ESCOs.

…but…

• The majority of energy savings earned up to now comes from matureprojects (e.g. CFL‐ EBF)

• Obliged distributors have many doubts about how will be possible tocompliance the targets in the next years

• The AEEG choice of baselines often penalize the real calculation of energysavings


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Conclusions – DHC /1

• The 15th of April 2010 the AEEG has published the new methods for CHPand DHC (method 21‐bis and 22‐bis), but they not seems “fully compliance”with the verdict of Council of State.

• If new legal action will not occur, the AEEG will certificate energy savings forprojects from 2006 to 2008, and following years.

• The role of DHC in white certificates is actually not significant, mainlybecause:‐ White certificates benefits are not enough to improve the realization of

new DHC networks, they don’t change the economic figures forinvestments

‐ Other system like green certificates (CV) are more attractive, but notcompatible with white certificates

‐ Existing DH systems could have marginal benefits for new networkexpansion, already planned.


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Conclusions – DHC /2

• Italy still have to receipt the new European regulation for CHP(COM 2004/8/EC: Directive on the promotion of cogenerationbased on a useful heat demand in the internal energy market).

• Italian DH association (AIRU) and Italian DHC companies hopethere will be a new engineering estimates M&V methods forCHP e DHC, with more realistic baseline assumption, longerlifetime of energy savings (10 years ?).

• In this case there will be the possibility of a better role for DHCin Italian white certificates system.


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APPENDIX


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APPENDIX /1: M&V ‐ Deemed savings ‐ Engineering estimates

• 1, 1‐bis, 1‐ tris) Compact Fluorescent Lamp (CFL)

• 2) Replacement of electric water heaters with gas water heaters (residential)

• 3) Installation of efficient (i.e. 4 stars) gas water heater (residential)

• 4) Replacement of gas water heaters with more efficient gas water heaters (residential)

• 5) Double glazing (residential, offices, commercial, hospitals, schools)

• 6) Wall insulation (residential, offices, commercial, hospitals, schools)

• 7) Small PV plants (residential, offices, commercial, hospitals, schools)

• 8, 8‐bis) Thermal solar for water heating

• 9) Inverter application on hydraulic systems (big)

• 10)Energy recovery from natural gas de‐compression


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• 11) High efficiency electric motors (industrial uses)

• 13a, 13a – bis, 13b, 13c) Low‐flow water taps, showers’ water taps (EBF)

• 14) Low‐flow water taps aerators (RA)

• 15) Heat pumps

• 16) Inverter application on electric motors for pumping (industrial uses)

• 17) Light‐flow regulators (public lighting, street light systems)

• 18) Na (sodium) lamps (public lighting, substitution of HG lamps)

• 19) Air conditioning (residential sector)

• 20) Wall insulation for conditioning (residential)

• 21‐bis) CHP

• 22‐bis) District Heating

• 23) LED on traffic lights (new)

• 24) LED on votive lamps (new)


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• 25 a, 25 b) Switch off system for stand by loads (residential, hotels) (new)

• 26) High efficient heating/conditioning systems for condominium (residential) (new)


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CFL

EBF

RA

http://www.tonix.it/kit_file/pl_hc_z1.jpg

http://ablamp.files.wordpress.com/2007/06/cfl_all2.jpg


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APPENDIX /4: Supportive documentation

I. Marcella Pavan‐ Head of Energy Efficiency Policy Division Italian Regulatory Authority forElectricity and Gas – “The Italian White Certificates System: Measurement and VerificationProtocols” ‐ EU and eceee Expert Seminar on Measurement and Verification in the EuropeanCommission’s Proposal for a Directive on Energy Efficiency and Energy Services ‐ Bruxelles, 21September 2004 (Slide presentation)

II. Paolo Bertoldi & Silvia Rezessy – “Assessment of Supplier Obligations and White CertificateSchemes in the European Union” ‐ European Commission, Directorate General JRC ‐Warsaw14 July 2009 (Slide presentation)

III. Marcella Pavan‐ Head of Energy Efficiency Policy Division Italian Regulatory Authority forElectricity and Gas – “White Certificates in Italy” – Climate Protection Through EnergyEfficiency in the EU and Germany, Federal Ministry for the Environment, Nature Conservationand Nuclear Safety and the Wuppertal Institute – Berlin, 10 December 2009 (Slidepresentation)

IV. Autorità per l’energia elettrica ed il Gas – “Il meccanismo dei Titoli di Efficienza Energetica(Certificati bianchi) dal 1° giugno al 31 dicembre 2009 – Primo Rapporto StatisticoIntermedio relativo all’anno d’obbligo 2009, predisposto ai sensi dell’articolo 8, comma 1, deldereto ministeriale 21.12.2007”

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Ettore Filippini

[email protected]

phone +39 030 3554202

fax +39 030 3554286

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DHC in white certificates. The Italian approach. 3...redemption ‐Monitoring of results and...

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