Best Practices in Promoting Utility-based Energy Efficiency and Renewable Energy: Policy Options for Ukraine

Abstract

In 2014, Ukraine embarked on a path of reforms in all sectors, including energy. Over the last three years, the Ukrainian Government, in cooperation with the international community, has achieved significant progress in developing a legislative framework and creating an enabling environment for strengthening national energy security. While Ukraine is actively shaping the legislative landscape that will enable energy efficiency improvements in the residential and public sectors, the implementation of utility-based instruments, common in developed countries, can further accelerate development of Ukraine's energy efficiency market. This report summarizes best practices in utility obligations and energy efficiency resource standards, drawing lessons that can be helpful for the Ukrainian government in its ongoing reform efforts. This report describes the experience of the United States and European Union member states with instruments such as energy efficiency obligations, energy efficiency resource standards, and renewable portfolio standards. This report consists of two parts. The first part covers the utility-based energy efficiency requirements (called energy efficiency obligations in Europe and energy efficiency resource standards in the U.S.). Structurally and conceptually, energy efficiency obligations and energy efficiency resource standards are similar even though they carry different names in different countries. These mechanisms place obligations on utilities to find energy savings equivalent to a certain percentage of their energy sales; depending on the program design, utilities can invest in end-use efficiency with their customers, or purchase energy savings from third parties. Some schemes also allow for trading of the energy savings. The report provides an overall description of these mechanisms, key elements as well as best practices in program design. The second part of the report provides a brief overview of U.S. renewable portfolio standards, which are structurally similar to utilities' energy efficiency requirements, but for renewable energy. This part starts with a general overview of promotion of utility renewable energy requirements and proceeds with a description of the main components of the scheme. An Energy Efficiency Obligations (EEO) scheme mandates utilities in respective jurisdictions to achieve specific annual energy saving targets within a certain multi-year period. EEO is a market-based instrument to promote energy efficiency in generation, transmission, and end-use energy consumption. Design of EEO schemes varies significantly across jurisdictions, but several elements are crucial for any EEO scheme. They are policy objectives of the scheme, obligated parties, sectors and facility coverage, eligible energy conservation measures, time period, compliance regime, measurement and verification, funding. EEO's enabling regulation typically provides obligated parties with some flexibility to achieve their energy savings targets utilizing best available energy efficiency opportunities. This...

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“…Depending on the programme design, utilities can invest in end-use efficiency with their customers, or purchase energy savings from third parties. Some schemes also allow for trading of energy savings (Denysenko et al 2018).…”