The Danish ESO scheme obliges energy distribution companies in the electricity, gas, heating oil, and district heating sectors to save a certain amount of energy each year. The companies are relatively free in the implementation of the obligation, all forms of energy saving measures are allowed (except in transport). The saving targets were usually met and have therefore, been steadily increased. From 2015, the target will be equivalent to more than 2% of energy consumption each year, which will be one of the highest values worldwide.
Danish energy policies are regularly evaluated. The 2008 and 2012 evaluations showed that the ESO scheme is cost effective, for both energy companies and customers as well as the national economy. However, the evaluations also showed that only about 40 to 50% of energy savings at the time were additional to what programme participants said they would have achieved without the support of the ESO scheme. By 2015, the targets will again be doubled compared to 2011, and so the absolute amount and the share of additional actions and savings can be expected to be much higher.
As a follow up to the earlier activities on the demand-side management of electricity companies from 1995, all Danish energy distribution companies (electricity, gas, heating oil, and district heating) have been obliged to promote a more efficient use of energy and save a specified amount of energy since 2006 (Togeby et al. 2009, p. 301). The companies are relatively free in the implementation of this obligation. Possible activities are financial incentives and advice such as energy audits (Togeby et al. 2009, p. 302). Company costs are recovered via the end-user prices. In 2010, the energy company costs amounted to more than 749 million DKK (100 million EUR) i.e. excluding customer investment costs, and were equivalent to 37 øre/(kWh/year) (5 EURcent/(kWh/year)) per kWh of registered annual (first-year) savings. A note used in the negotiations suggests that for the next period (2013-2015) the obligation will cost 51 øre/(kWh/year) (7 EURcent/(kWh/year)) which amounts to 1,500 million DKK (200 million EUR). (Togeby et al. 2012, p. 14).
The individual targets of the individual energy companies are usually met. However, it should be noted that registered savings, to which the energy companies contributed through advice and grants, are not the same as net (additional) savings that would not have occurred without the support from energy companies. The latter were estimated to be around 40 % of the registered saving for 2011 (Togeby et al. 2012). On the other hand, the cost to society also includes the part of the investment borne by the energy companies’ customers investing in energy efficiency. Calculating over 10 years with a 5 % interest rate, this resulted in average costs per net (additional) kWh saved of 0.33 DKK/kWh (4.4 EURcent/kWh) for business consumers but 2.34 DKK/kWh (31 EURcent/kWh) for households – in total 0.57 DKK /kWh (7.6 EURcent/kWh) (Togeby et al. 2012). This is cost-effective compared to a socio-economic cost of supply of ca. 0.73 DKK/kWh (9.7 EURcent/kWh).
Following the success of the scheme, the targets have already been massively increased, as Figure 1 shows. In 2010 for example, the target was first set at 5.4 PJ/year, then later revised to 6.1 PJ/year (1,694 GWh/year). From 2015, they will be 12.2 PJ/year (3,389 GWh/year), which will be an energy saving equivalent at around 2.4% of energy consumption each year and will be one of the highest values worldwide for an energy savings target.
Most of the savings in 2010 and 2011 were realised in the industrial sector. Energy savings for large energy users can typically be achieved at lower cost for society and the energy companies alike (Togeby et. al 2012).
With the previous consideration of first-year-savings only, many long-accustomed saving options were at a disadvantage (e.g. building insulation). Therefore in 2008, factors for benefiting long-term energy savings were introduced:
| Factor by energy | Lifetime of saving | ||
| < 4 years | 4 to 15 years | > 15 years | |
| District heating | 0,5 | 1,0 | 1,0 |
| Electricity and individual biomass | 0,5 | 1,0 | 1,0 |
| ETS: oil, gas coal | 0,5 | 1,0 | 1,0 |
| Non-ETS: oil, gas, coal | 0,5 | 1,0 | 1,5 |
Source: Dyck-Madsen (2011)
However, in comparison with other countries, where ESO-schemes are implemented, Denmark is the only country that historically has less than half of its energy savings coming from the residential sector (Lees 2012). As of 2011, the savings realised within the industrial sector have been registered separately from the commercial sectors and the reported savings within the industrial sector amounted to about half the total savings % in 2011, while residential savings only amounted to about a fifth.
An evaluation in 2008 estimated that the implemented projects were cost-effective for both companies as well as their customers but that only about 50% of the energy savings (0.35% of the then target of 0.7%/year) were additional to autonomous market trends (Togeby et al. 2009, p. 304). This was one reason for the government to increase the targets again by 75% from the 2013 target and therefore by 100% relative to the 2010-2012 targets from 2015 (cf. Figure 1). As the total energy savings increase to 2.4%/year, the share of additional savings increases as well (2.05%/year if 0.35% is still not additional). In order to meet the increased targets, the energy companies have now shifted their programme portfolio towards financial incentives. In 2011, 85% of the savings reported had already been achieved through financial incentive programmes (www.bigee.net/s/4f2jj9).
ESO schemes (with or without trading of energy savings (‘white certificates’)) are in place in the following countries or federal states: United Kingdom, Denmark, Italy, France, Belgium (Flanders region), Australia (New South Wales, South Australia, Victoria), Canada (Ontario), United States (California, Connecticut, Massachusetts, Minnesota, New York, Texas, Vermont), China, Korea, Poland (planned) (RAP 2012).
The highest energy savings in relation to the energy consumption of the target groups have been reached in Denmark—as presented here—, California (see our file on the policy package for energy efficiency in buildings in California), Massachusetts, and Vermont. The latter example is special since the energy companies have to collect the levy but most of the funds are used by Efficiency Vermont, an Energy efficiency fund (see our file on Efficiency Vermont).
Concrete figures in energy savings/year
With an energy saving obligation, the threat of sanctions usually ensures that the targets are met. The expected energy savings therefore equal the targets set:
Energy saving target 2006-2009: 2.95 PJ/year of first-year savings to be achieved in each calendar year (0.7%/year of consumption in the sectors included)
Energy saving target 2010-2012: 6.1 PJ/year (1.2%/year of final consumption in the sectors included and losses in grids) each year
Energy saving target 2013-2014: 10.7 PJ/year (2.1%/year) each year
Energy saving target 2015-2020: 12.2 PJ/year (2.4%/year) each year
Only final energy savings count towards the target and savings only count the first year, i.e., not as lifetime savings (kWh) but as savings in annual consumption (kWh/yr).
Concrete figures in energy savings/year
In 2006 to 2009, targets were over-achieved:
| Savings compared with target 2006 - medio 2009 | |
| Electricity companies | 112% |
| Natural gas companies | 115% |
| District heating companies | 109% |
| Oil companies | 103% |
| Total | 111% |
Source: Bach 2009
In recent years, most of the savings came from industry.
Figure: Reported savings in the Danish EEO 2006–2011 distributed on sectors. The reported savings is measured in first year savings. Note that the commercial sector was not reported separately from industry until 2010 and savings in transmission grid, installation of solar power, and switching energy type were not included in the agreement until 2010 (Ea Energy Analyses et al. 2012).
In 2006 to mid-2009, the savings achieved by the four energy distribution sectors in this period were split between the end-use sectors and fuels as follows:
The registered savings in 2011 were 2,098 GWh and the target 1,694 GWh = 6.1 PJ) and the 2012 evaluation estimates the net effect to be 760 GWh, i.e. 36% of the target.
Source: Ea Energianalyse, NIRAS and Viegand & Maagøe, 2012
Comparing the target to a range of studies on energy efficiency potentials, the policy will almost fully use the technical and economic potential for energy efficiency in Denmark.
For 2010, the expected costs were 6.7 EUR cents/kWh saved (Moller Mikkelsen).
Average costs for the distribution companies to reduce annual consumption by one kWh:
2006-2009: 4.5 EUR cents per kWh of registered first year savings (kWh/year, as opposed to net lifetime savings in kWh; for the latter see at “Is the policy actually cost-effective? (from ex-post evaluation)”)
2010: 4.9 EUR cents per kWh of registered first year savings
2011: 5.6 EUR cents per kWh of registered first year savings
These average costs show an increasing trend with the increase of the target. Still, if related to net lifetime savings, they are in the range of 1 to 2 EUR cents per kWh, i.e. much lower than the cost of energy supply.
They include costs of the energy companies to assist and incentivise customers to save energy, administrative costs of the Danish Energy Agency, and costs for the administration and quality assurance of the distribution company (Moller Mikkelsen). They exclude customers’ investments.
“In January 2012 the Danish Energy Regulatory Authorities published the first benchmarks of the cost spend on implementing the energy efficiency obligation on energy distributors in Denmark” (Moller Mikkelsen). The benchmarks show that the costs for implementing the target were lower than expected (expected costs: 6.7 EUR cents/(kWh/year) saved (51 øre/(kWh/year))), real costs: 4.9 EUR cents/(kWh/year) saved). Total costs of registered savings in 2010 were about 100 million EUR (749 million DKK) (Moller Mikkelsen).
The 2008 evaluation of the Danish ESO scheme showed, that this is instrument is one of the most cost-effective in Denmark. See figure 3.
Figure 3: Estimated socio-economic cost of the key policies. A value of less than 1 indicates that the total cost of energy efficiency is lower than the cost of supplying energy.
The figure below shows the socio-economic cost of the obligation (i.e., the total of investments—not just the part given as grant by the energy companies—and programme administration costs) per kWh of net (additional) savings, calculated with 5 % of interest rate over 10 years, in 2010 compared to the socio-economic energy price excluding taxes (“Energipris”). The max and min indicate the robustness of the result relative with respect to lifetime, additionality and share of energy company cost used for grants. (Husholdninger = household sector, Erhverv = Business sector, Værdi = value.)
Calculating over 10 years with 5 % of interest rate, this resulted in average costs per net (additional) kWh saved of 0.33 DKK/kWh (4.4 EURcent/kWh) for business consumers but 2.34 DKK/kWh (31 EURcent/kWh) for households – in total 0.57 DKK /kWh (7.6 EURcent/kWh) (Togeby et al. 2012). This is cost-effective compared to a socio-economic cost of supply of ca. 0.73 DKK/kWh (9.7 EURcent/kWh).
We would like to thank the following people for their contributions to this article
Kirsten Dyhr-Mikkelsen, Ea Energy Analyses
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