IEEE Power & Energy Magazine - January/February 2017 - 64

Energy Conservation

Although for almost half a century there has been much
talk about energy conservation, energy savings, and energy
efficiency, these appear to be among the most difficult targets to achieve. After an evaluation in 2014, the policy was
adjusted, but it remains questionable whether the target will
be reached. It is also not entirely clear what the reference
baseline will be. In the future, it will become more important to clarify what is meant by the "consumption" of "prosumers" who avail of storage (which may have significant
efficiency losses of up to 20-30%). Will only demand from
the grid be taken into account?
Furthermore, many support schemes are not cost reflective, such as net metering and feed-in tariffs. The ensuing
zero-marginal-cost electricity production by households
may stimulate frivolous electricity consumption. As a consequence, the entire concept of "energy efficiency" may
lose its meaning. In the end, a more generalized concept of
"resource efficiency" (including investment cost, manufacturing and installation labor, fuel usage, if applicable, and so
forth) and flexibility in consumption may be called for. This
actually comes very close to the idea of economic efficiency,
which may be the only meaningful concept in this context.

Interactions Among EU Energy Policies
The philosophy behind the cap-and-trade EU ETS system
for GHG reduction is to achieve the GHG reduction target
in the most economically efficient way by reducing first
where it is cheapest. (Technically, this means that reductions take place first where the marginal abatement costs
are the lowest.) The significant deployment of renewables
(especially wind and PV solar, but also biomass) with substantial public support has not actually impacted Europe's
CO2 emissions, as they are capped under the EU ETS. They
may have helped limit emissions to the cap, but at a cost
higher than what could have been optimally the case. These
RES will have reduced the CO2 emissions in particular
countries, but not in Europe as a whole. In other words, the
avoided CO2 emissions by these subsidized renewables will
be replaced by other CO2-emitting electricity-generating or
heating sources in industry that also belong to the EU ETS.
To put it bluntly, the subsidies for renewable energy have de
facto made it easier for burning more fossil fuels in industry and coal for electricity generation.
A few comments are in order.
✔✔ The same reasoning would apply to new nuclear
plants or to the enforced (premature) closure of coalfired plants with regard to the local versus overall European CO2 emissions.
✔✔ If the ETS had not existed, then the only alternative
might be a combination of measures such as RES
support and energy savings policies. Or, viewed positively, the contributions to reductions in CO2 emissions due to RES may allow for a faster reduction of
the CO2 cap in the ETS.
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✔✔ At present, the CO2 cap in the EU ETS is hardly

reached, and a massive surplus of allowances exists,
so that it may seem that the previous reasoning is incorrect. However, if there were fewer emissions than
emission allowances in the market, then the price of
these allowances should be zero. The nonzero price
means some actors withhold allowances from the
market so that the cap of actually "available" allowances in the market is, indeed, be reached.
✔✔ A few exceptions exist concerning the statement
made previously about CO2 price reduction. For example, if locally produced PVs were to be dedicated
to feed heat pumps that effectively replace (smallscale) CO2-emitting boilers, then overall CO2 emissions would be reduced, not because of the PVs as
such-because that is still part of the electricity sector and thus the ETS-but because of the avoided
CO2 emissions for small-scale boilers, which belong
to the non-ETS sector, as shown on the right-hand
side of Figure 2. This last argument does not apply to
industrial heat pumps replacing large industrial boilers because they are part of the capped ETS.
Another unintended policy effect is caused by the promotion of CHP, as the deployment of small-scale CHP units
creates a shift of emissions from the ETS to the effort-sharing (non-ETS) sectors. While a small-scale CHP usually
saves primary energy and replaces the emissions of a local
boiler, the total amount of CO2 emitted by the CHP is larger
than the boiler only (due to the additional electric power that
is generated). Because these local emissions are now part of
the residential sector (the right-hand side of Figure 2), which
is not under the CO2 ETS cap, emissions have increased
and are acting against reaching the country-specific target.
The fact that emissions under the ETS have declined is not
rewarded; it simply allows other facilities under the ETS to
emit more.
For large-scale CHP, the same reasoning as for the RES
deployment discussed earlier applies because the electricity sector and the heating sector for large industries are all
part of the EU ETS (meaning that promoting large-scale
CHP does not reduce GHGs in Europe because of the cap).
Indeed, there are fewer emission certificates needed than
would have been the case for separate generation. To summarize, it is almost certain that the promotion of CHP in
both cases will turn out to have a higher CO2 abatement cost
than if only one GHG reduction target had existed; these
cross-policy effects discourage an efficient route toward satisfying CO2 targets.
The price evolution of EU allowances (EUA)- the price
of CO2 for the power sector and large industrial facilities-
is depicted in Figure 3. As can be observed, the CO2 price
has fluctuated considerably over the past years and is quite
low at the time of writing, around €5/ton CO2 in the fall of
2016. The behavior we see in Figure 3-even with the sudden jumps and prices going to zero-is perfectly explainable
january/february 2017

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