On June 5, 2014, the European Union’s Energy Efficiency Directive (“EED”) will become applicable in all EU Member States. This Directive establishes an EU-wide framework aimed at promoting energy efficiency and will provide important challenges and opportunities for companies doing business in Europe.

What is the purpose of the Directive?

The EED is one of the main instruments of the EU to achieve its target of a 20% cut in Europe’s energy consumption by 2020.  To help achieve this objective, the Directive imposes binding EU-wide energy efficiency targets for 2020 that are expressed in maximum values of primary and final energy consumption:  1474 Mtoe (Million Tonnes of Oil Equivalent) primary energy, and 1086 Mtoe final energy.

The Directive requires EU Member States to translate the EU wide targets into national indicative targets, which vary per Member State and may become mandatory in the future.  For example, the United Kingdom envisages a maximum of 157.8 Mtoe final energy consumption by 2020 (i.e., a 18% energy saving by 20%).

What does this mean in practice?

In order to reach the targets it sets, the EED requires Member States to take specific energy saving measures that will have a significant impact on public authorities, energy companies, energy retailers and distributors, and industry as a whole.  These measures include:

1. Annual Energy Saving of 1.5% on Energy Distributors and Retailers: Energy distributors and retailers are required to achieve an annual saving of 1.5% on their volumes of energy sales to final consumers (compared to the period 2009-2011).  Member States may adopt different mechanisms to ensure that energy distributors and retailers achieve this ambitious target.  They may set up so-called “energy efficiency obligation schemes”, i.e., schemes that impose targets on companies, failing which they will be subject to penalties.  They may also impose a combination of other measures, such as energy or CO2 taxes, fiscal incentives for energy efficient technologies, or energy labelling schemes.

2. Promotion of the Energy Services Market: Member States must promote energy services (i.e., energy solutions that demonstrably lead to energy efficiency improvements or energy savings) delivered by so-called energy services providers (“ESPs”).  These services include the supply and installation of energy-efficient equipment, building refurbishment, maintenance and operation, or facility management.  Among other measures to promote energy services, Member States may develop certification schemes, adopt model contracts for energy performance in the public sector, encourage the development of quality labels, and provide final consumers with accurate information on energy services.

3.  Compulsory Energy Audits for Large Companies:  Large companies (other than SMEs) are also required to perform energy audits every four years starting on December 2015.  Member States have an obligation to encourage SMEs to perform energy audits, through for example, tax incentives, financial aid, and advisory services.

4. Renovation of 3% of Public Buildings Per Year: The Directive also requires the public sector to play an “exemplary role” in the saving of energy.  It requires central governments (i.e., excluding regional and local authorities) to renovate 3% of the buildings that they own and occupy per year.  These renovations must meet the national minimum energy performance requirements of the Energy Performance of Buildings Directive.

5. Public Procurement of Energy Efficiency Products: Central governments are also required to purchase high performing energy-efficiency products, services and buildings, for which the Directive identifies the applicable energy efficiency standards.  It also encourages Member States to apply these public purchase requirements to other public bodies, including regional and local authorities.

6. Access to Individual Meters and Accurate Billing Information:  Member States must also improve consumer access to energy consumption data by means of more accurate metering.  As far as technically possible, Member States must ensure that final consumers of electricity, natural gas, district heating, district cooling and domestic hot water are provided with “competitively priced individual meters.”  Where technically possible and economically justified, Member States must also take measures to ensure that energy distributors, distribution system operators, and retail companies provide consumers with accurate billing information based on actual consumption.

7. National Efficiency Action Plans:  Member States are also required to prepare and submit to the Commission National Energy Efficiency Action Plans outlining their national measures to remove barriers to facilitate energy savings.

Importantly, the new European Commission that will come into office in the Autumn of 2014 is expected to propose an increase of the energy efficiency targets for 2030.  This is likely to result in stricter energy efficiency requirements for both public authorities and companies in the near future.