Stimulating Investments in Energy Efficiency





Legislators can encourage investment in energy efficient technology by giving energy companies a role as providers of such technology. It often costs only a little more to choose the energy-efficient option when appliances are replaced or buildings need renovation. Even so, investment in efficient technology will frequently not be made because of lack of proper incentives. However, investment can be actively stimulated and huge savings achieved by involving energy companies themselves in efficiency programmes and by developing a wider market for energy efficiency services.


The idea:


Investments in energy efficient solutions and technology are usually very cost-effective in the longer-run, but these investments are frequently not undertaken because of the high front-end expense and the lack of proper incentives to think long-term. Legislators can help to overcome these obstacles and actively stimulate investment in energy efficiency by giving the energy companies a role as providers of energy efficient solutions and by combining financial incentives such as tax rebates with the provision of information for investors and consumers.


Some examples of programs to stimulate investment in energy efficiency are:

Energy companies themselves should be closely involved in efficiency programmes. Energy companies that incorporate end-use energy efficiency into their core business will have broader role and change from being just suppliers of energy to playing a broader role as providers of energy end-services, such as warm homes.


Particularly in liberalized energy markets, with their focus on price competition in the supply of energy, there is a need to create incentive structures and policy frameworks stimulating energy companies to integrate efficiency programmes in their core business and as a way to enhance their competitive position. This can be done through mandating an end-use energy savings requirement for all energy companies, funding programme costs via network charges or through levies on energy prices, which can be fed into an energy efficiency fund. This fund could finance energy efficiency programmes run by energy companies and other market actors.

A better market for energy efficiency services could also be created through arrangements where the service provider manages and finances the energy efficiency investments, and is subsequently paid from the energy cost savings generated until the investment and management costs have been recovered and a reasonable profit has been made. This can take between 3 and 10 years. After that the customer will continue to enjoy energy and cost savings until the end of the useful life of the equipment. Such energy performance contracting is usually offered for larger projects in heating, ventilation, air conditioning etc. in the tertiary and industrial sector.

Huge energy and cost savings have been achieved in many countries following frameworks similar to these.