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New policy brief: Less is More. The role of energy efficiency in the transition to climate neutrality

Less is More. The role of energy efficiency in the transition to climate neutrality

 

 

Executive summary

  • The improvement of energy efficiency is the most cost-effective way to meet the demand for energy in the course of the ongoing energy transition.
  • This holds for comparing investment into energy efficiency both with an increase in clean energy generation, and with no action and continued use of coal to generate electricity and heat.
  • This finding is based on calculations performed for electricity used by appliances in residential and office buildings, thermal energy produced from coal to heat residential buildings, and energy used to generate process heat in industry.
  • Reducing the demand for electricity used by cooling and lighting appliances in residential and office buildings by 1 megawatt hour (1 MWh) by deploying more energy-efficient equipment will cost PLN 97.00 on average in 2021-2030. Producing the same amount of electricity from renewable sources will cost thrice as much (PLN 299.00), while producing the same amount of energy in an existing coal-fired power plant will cost PLN 320.00. For scale, a typical household in Poland uses annually approx. 2 MWh per year.
  • In the analysed period of 2021-2030, an improvement in the energy performance of a building that reduces its demand for heat will cost PLN 52.00 for each gigajoule of saved thermal energy on average (1GJ is the amount of heat used by a typical non-retrofitted house in 3 days during the heating period). The cost of producing the same amount of heat from coal burnt in a household boiler, including the costs of its purchase and maintenance, currently amounts to 63.00 PLN/GJ. In view of the planned imposition of emission charges on emissions from buildings, this cost may increase to 103 PLN/GJ by 2030. Replacing a coal boiler with a heat pump without prior energy retrofitting of the building involves a comparable cost of 105 PLN/GJ. The cost of a comprehensive transition to decarbonised heating by means of a combination of deep energy retrofitting and heating electrification is 88 PLN/GJ.
  • In industry, the cost of reducing the demand for energy by 1 GJ in low-temperature processes by deploying more efficient equipment and using waste heat is PLN 33.00. Producing 1 GJ of heat for the same processes in the variant of no action and continued use of coal costs PLN 75.00 in the analysed period. Eliminating coal by installing a non-carbon heat source, i.e. a large-scale heat pump, without any improvement of energy efficiency, costs 86 PLN/GJ. On the other hand, the cost of a comprehensive solution that includes an energy efficiency improvement and installation of a heat pump to meet the remaining demand for energy is PLN 74.00 per 1 GJ.
  • The transition to climate neutrality will involve utilisation of electricity for heat generation and powering vehicles. In the sectors which are difficult to electrify, fossil fuels will be replaced by non-carbon hydrogen, including hydrogen produced by electrolysis. It will lead to a rapid increase in the demand for renewable electrical energy in areas where electricity has not been used before. Without improving energy efficiency, the development of renewable generation capacity at a rate which would allow meeting this increasing demand will constitute a challenge. This will be due to barriers related to inter alia the availability of resources, space or qualified labour, the duration of administrative procedures and energy grid constraints. Utilising the energy efficiency potential is essential if the energy transition is to be accomplished within the timeframes resulting from the EU’s climate goals.
  • Failure to improve energy efficiency will lead to high costs of both energy production and emission charges for the entire society. For example, the failure to achieve the energy efficiency improvement targets for industry and residential buildings set by the National Energy and Climate Plan (Krajowy Plan na rzecz Energii i Klimatu (KPEiK)) will incur an additional annual cost of PLN 11 billion by 2030. In the entire period of 2021-2030, the accumulated cost of additional expenditure, which can be avoided thanks to efficiency improvement, will reach PLN 51 billion. At this point it should be noted that the energy efficiency targets set out in KPEiK are far from satisfactory in view of the EU’s new climate goals.

 

Recommendations

  • Public policy in the area of energy efficiency should comprehensively take into consideration all of the costs and benefits of energy efficiency improvements in the medium and long term.
  • When designing support instruments and regulatory measures, such as efficiency standards, policy makers should take into consideration the medium- and long-term goals, i.e. the necessity to decrease the demand for energy up to 2030 in the entire EU by at least 9% as compared to 2020 forecasts, as well as the goal of climate neutrality which the EU has committed to achieve by mid-century at the latest.
  • Financial support instruments facilitating investment in the improvement of energy efficiency are required. Those should be subsidies in the case of households and repayable instruments in the case of companies, while companies should also have access to subsidies if they implement innovative solutions.
  • Support instruments should promote complex and deep energy retrofits and other activities resulting in a significant reduction of the demand for energy, as those are the most cost-effective in the long run.
  • Support instruments must be accompanied by straightforward regulatory measures, i.e. gradually increasing obligatory energy efficiency standards.
  • Furthermore, it is necessary to implement measures to raise awareness of available solutions and best practices, available support mechanisms, the economic calculus of investments in energy efficiency improvements, and EU goals and policies concerning energy efficiency.
  • Utilisation of the potential of energy efficiency improvement in the economy requires qualified specialists, hence, it should also be a goal of public policy to ensure an appropriately large workforce with the required skills. Competencies related to energy efficiency may constitute a promising retraining option for people leaving employment in fossil fuels sectors.

 

The policy brief can be accessed at the following link

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