The Italian White Certificates System: Measurement and Verification Protocols Marcella Pavan

1. EU and eceee Expert Seminar on Measurement and Verification in the European Commission’s Proposal for a Directive on Energy Efficiency and Energy ServicesBruxelles, 21 September 2004 The Italian White Certificates System: Measurement and Verification Protocols Marcella Pavan Head - Energy Efficiency Policy Division Italian Regulatory Authority for Electricity and Gas (*) (*) This is not an official document of the Italian Regulatory Authority for Electricity and Gas

2. The Italian frameworkThe targets • Mandatory quantitative energy efficiency targets: • national • annual (first commitment period: 2005-2009) • primary energy savings (toe); • Obliged actors: • electricity and gas distributors >100.000 customers at 31.12.2001 • 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

3. The Italian frameworkEligible projects • Compliance with targets via the implementation of energy saving projects • Eligible projects: • illustrative list: 14 classes of projects with more than 35 sub-classes • projects implemented from 2001 to 2004 subject to the approval by the Regulatory Authority for Electricity and Gas (AEEG) • Projects can be implemented: • by distributors, directly or via controlled companies • by energy service companies (ESCO) • The certification of the energy savings produced by each project is made via the issuing of White Certificatesthat can be traded: • in a specific market • through bilateral contracts

4. The Italian frameworkEconomic regulation • Cost-recovery possible via electricity and gas rates: • on the basis of criteria established by the Regulator (AEEG) • Sanctions for non compliance: • “proportional and in any case greater than the investment needed to compensate the non-compliance” • established and applied by the Regulator

5. The Italian framework and M&V Measurement and Verification is the keyfor an effective tradable certificates mechanism applied to the promotion of energy efficiency in end-use sectors the underlying technical problems are closer to those related to the issuing of (Co2 eq) Emission Credits rather than to those related to the issuing of Green Certificates for the promotion of renewable generation: you can not measure the energy savings/(CO2 eq.) emission reductions generated at the meter

6. The Italian framework and M&V - 2 • Technical issues • baseline setting: what technology (behaviour) we assume is substituted for with the implementation of the project (cf. following 2 slides) • treatment of free-riders: do we take into account savings that would have been achieved by project participants even in the absence of the project? If we do: how? • impact of differentdelivery mechanisms (e.g. direct delivery vs use of discount bonus) • treatment of free-drivers: do we take into account – and, if yes, how – positive impacts on non-participants who heard about the project thus changing their consumption behaviours in a more energy efficient direction? And what about extensive positive impacts on participants? • rebound effect: (is there anyone?) Do we take into account it? How do we measure it?

7. Additionality energy consumption A B B Natural change (B – C) B’ Total gross project impact (B – C’) C Net project impact (C – C’) C’ t t’

8. Baseline setting • Some of the options: • average installed technology • average sold technology • average technology offered on the shelves • technology that meets mandatory standards • BAT + Energy Savings -

9. The Italian framework and M&V - 3 • Technical issues (cont): • project technical lifetime • persistence of savings over time: the savings produced during the first year of operation gradually reduce over time (cf. following slide) • Market Transformation projects e.g. information campaigns, training programs: we include them in the eligibility list? How do we measure and verify the savings produced? • documentation requirements • accreditation requirements for Certifiers

10. Time persistence of energy savings

11. Trade-offs and guiding criteria • Trade-off: accuracy and economic efficiency • Our guiding criterion: balance between robustness and reliability of savings vs simplicity • Two alternative impact evaluation approaches: • ex-ante e.g. deemed saving values • ex-post i.e.direct measurement

12. M&V procedures: AEEG’s approach • 3 types of M&Vapproaches: 1) deemed savings (no on-field measurement) 2) engineering estimates (partial measurement) project/valuation complexity 3) energy monitoring plans (subject to pre-approval) • Conventional life-time (up to 8 years) for energy savings produced, regardless of the type of energy conservation measure (ECM) • Only additional savingsi.e.over and above spontaneous market trends and/or legislative requirements

13. Deemed savings • Main Characteristics: • simplified energy savings calculation • limited reporting documentation to be provided • simplified control and certification procedures • Suitable forprojects for which expected savings and reasonably well understood and direct measurement would therefore be not cost-effective  e.g: CFL, m2 of insulated wall, small PV plants, high-efficiency boilers • For each type of project a specific amount of saved energy is defined ex-ante for each installed unit (toe/unit/year) • Default factors for: free-riding (net-to-gross ratio), delivery mechanism and persistence • Threshold = 25 toe/year

14. Deemed savings - 2 • Example: substitution of 1 lamp with a CFL • deemed savings = 14.6 10-3 toe/CFL/year => threshold: 1712 CFLs. • 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)

15. Engineering estimates • Main Characteristics: • relatively simplified energy savings calculation • reduced reporting documentation to be provided • simplified control and certification procedures • Suitable forprojects whose savingimpact 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

16. Energy Monitoring Plans • 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 criteriaand format • Threshold:- 100 toe/year for ESCOs and small distributors - 200 toe/year for big distributors comparable/coherent with IPMVP (with stricter rules)

17. Energy Monitoring Plans - 2 Energy consumption baseline Monitoring plans metering (kWh, m3) Energy saved (toe) Threshold time Application of ECMs BeforeECMs

18. The Proposal and the Italian framework: anything useful? - 1 TYPE OF ACTIVITY DIRECTIVE PROPOSAL ITALIAN FRAMEWORK PROJECTS MEASURE PROGRAMME HORIZONTAL MEASURE

19. The Proposal and the Italian framework: anything useful? - 2 TYPE OF VALUATION DIRECTIVE PROPOSAL ITALIAN FRAMEWORK • MEASUREMENT • Distribution Bills • Energy products Sales Data • Equipment/Appliances Sales Data • End-Use Load Data DIRECT MEASUREMENT • ESTIMATES • Enhanced: Inspection • Simple: Non Inspection ENGINEERING ESTIMATES (Pre-defined criteria and methologies) DEEMED SAVINGS (Ex-ante values)

20. Conclusions • EU Proposal for a Directive much wider in scope compared to the Italian White Certificates framework (both policies/horizontal measures and projects/programs and measures) • The Italian WC framework is project-based and does not include policy measures • The Italian WC framework includes financing mechanism via tariffs  asks for a rather accurate M&V of ‘actual’ savings • The Directive will have to be implemented in different Member States M&V guidelines will have to be flexible and adaptable to country-specific features  Guidelines for M&V within the Directive (Annex IV) can not be too detailed and burdensome • But we do need some common/homogeneous rules on common methodological issues (e.g. baseline, lifetime, persistence) that will be applied on a country-by country basis

21. Conclusions - 2 • To this respect the Italian M&V approach could be one useful reference to integrate the guidelines for M&V of energy saving projects/measures reported in Annex IV • In particular the deemed savings and the engineering methods, properly adapted to national circumstances, can be transferred to other national contexts.

22. APPENDIX

23. Deemed savings (1) Developed so far • Compact Fluorescent Lamp • Replacement of electric water heaters with gas water heaters (residential) • Replacement of gas water heaters with more efficient gas water heaters (residential) • Installation of efficient (i.e. 4 stars) gas water heater (residential) • Double glazing (residential, offices, commercial, hospitals, schools) • Wall insulation (residential, offices, commercial, hospitals, schools) • Small PV plants (residential, offices, commercial, hospitals, schools) • Thermal solar for water heating • White goods: fridges, frizers, dishwashers, whashing machines • Low-flow showers’ water taps • Low-flow water taps • 17) 18) 14)

24. Deemed savings (2) Developed so far • High efficiency electric motors (industrial uses) • Heat pumps • Light-flow regulators (pubblic lighting) • Na lamps (pubblic lighting, substitution of HG lamps) • Inverter application on hydraulic systems (small) • Air conditioning (residential sector) • High efficient (4 stars) boilers for condominium …and others to come

25. Engineering estimatesDeveloped so far • Energy recovery from natural gas de-compression • Inverter application on hydraulic systems (big) • CHP • District Heating …and others to come

26. Supportive documentation In English: • Pavan, M. - What’s up in Italy? Market liberalisation, tariff regulation and incentives to promote energy efficiency in end-use sectors. In Proceedings of the 2002 ACEEE Summer Study on Energy Efficiency in Buildings, August 2002 • Pavan, M. - Tradable White Certificates: new instruments to promote energy efficiency and reliability of supply in a liberalised market context, Metering, Billing and CRM/CIS Europe 2003 (slide presentation) In Italian: www.autorita.energia.it

27. Contacts Marcella Pavan mpavan@autorita.energia.it tel +39 02 65565263-313 fax + 39 02 65565230