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6-058-12 Dario Di Santo

White Certificates for the industrial sector

Dario Di Santo FIRE – Italian Federation for the Rational Use of Energy Via Anguillarese 301 00123 Roma IT Email: disanto@fire-italia.org Daniele Forni FIRE – Italian Federation for the Rational Use of Energy Via Anguillarese 301 00123 Roma IT Email: forni@fire-italia.org Enrico Biele FIRE – Italian Federation for the Rational Use of Energy Via Anguillarese 301 00123 Roma IT Email: biele@fire-italia.org

Abstract

The Italian white certificates (WhC) scheme is one of the most complete examples of a baseline and trade incentive scheme, created with the aim of promoting energy efficiency (EE) measures on final energy uses. The mechanism obliges energy network distributors (electricity and natural gas) to reach yearly energy saving targets certified by the presentation of a corresponding number of WhC (each equal to 1 toe). The distributors can reach their targets either by acting directly on their final consumers or by buying WhC from ESCOs or companies that have an appointed energy manager, as provided by law 10/1991.

After almost seven years and major problems in complying with the 2010 targets for lack of certificates on the market, the Italian electricity and gas authority (AEEG) changed the rules for presenting projects and introduced a set of multiplying coefficients to take into account the technical lifetime of EE measures. This change will have a particularly pronounced effect on the industrial sector, both because of the enhanced value of the incentive (often three times higher than before) and the progressive recognition of the energy monitoring plans method for saving evaluation.

The paper will present the new rules, focusing on their economic effect, and some examples of how EE measures in the industrial sector can be promoted through the scheme. In particular, the method for evaluating the energy savings will be described, in order to explain both the flexibility of the monitoring plan approach and its drawbacks. The effects on ESCO development will also be discussed. The Italian experience has additional significance inasmuch as WhC schemes have a central role in the new EE directive proposal.

The paper is based on the activities concerning WhC carried on by the authors, such as research and studies, surveys, cooperation with policy makers, implementation of standard evaluation files for different measures, information and dissemination, and support to energy manager and ESCOs.

Contents

This paper begins by explaining how the Italian White Certificate scheme works, its basis and market dynamics, with emphasis on the recent important modifications introduced by AEEG. It then focuses on the potential to apply monitoring plans to the cement industry, to show that the WhC system could perform well in the industrial sector, notwithstanding the modest results achieved by monitoring plans, to date, internationally.

Recently, monitoring plans in industry are even becoming the principal mechanism to obtain WhC in Italy, particularly in the industrial sector. This is building capacity in the consultant companies that usually present WhC proposals, some of which are becoming ESCOs and making an enhanced contribution to EE promotion in industry.

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Even if many issues remains in the Italian WhC scheme, it has achieved a certain maturity and if well managed, the mechanism could become more effective and interesting after the planned regulatory changes the Ministry of Economic Development is due to introduce in 2012.

The analysis of the Italian WhC is principally based on three surveys recently implemented by FIRE1 among energy managers and ESCOs [1][2][3][20], on studies realized by FIRE in recent years [e.g. 4], and on information, views, experiences, and issues communicated by policy makers, institutional officials, FIRE’s members, and energy managers at FIRE’s workshops, conferences, and training courses [e.g. 5].

The Italian White Certificate Scheme

Introduction Energy efficiency is recognized as a priority for its energy, environmental, and economic benefits. It is also well known – 1 – that many EE measures are characterized by positive NPV, high IRR and short PBT2, which means that the capital cost of investment is recovered in a suitable amount of time and that, in many cases, an EE investment has a higher financial return than many bonds or other investments.

Figure 1. McKinsey GHG3 abatement cost curve

Nevertheless, EE potential is not deployed as desired or, in policy terms, as required by the European 2020 targets. Many reasons could be found to justify the poor performance at European level described by the Commission’s Energy efficiency action plan 2011, and many studies have been written on the topic in the recent years. The main barriers are not economic, but cultural (see for example [25]). They include knowledge of EE opportunities, qualification of EE operators, behaviours and attitudes of building occupants and workers, and complexity of EE solutions. The complexity depends on the wide variety of EE solutions – with respect to size, involved sector, position in the learning curve, etc. – and on the connection between the performance and the use of buildings and industrial processes, location, and local climate. This creates an intrinsic difficulty in defining appropriate incentive schemes and in financing EE investments.

1 FIRE, the Italian Federation for the Rational Use of Energy, is a no-profit association established in 1987 that manages the Italian energy manager network on behalf of the Ministry for the Economic Development and promotes energy efficiency 2 NPV (Net Present Value), IRR (Internal Rate of Return), and PBT (Pay Back Time) are well known economic indicators to evaluate investments. 3 GHG, Green House Gas

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Among the support schemes for EE, WhC is one of the most discussed. It has already been implemented in many European countries. Some focused on particular sectors/actions, whereas others, like Italy and France, kept the scheme open to most EE solutions and sectors. Figure 2 summarizes the differences. One question we may ask is whether WhC can be considered an effective tool for promoting EE measures in the industrial sector. According to the European Commission, Directorate General Joint Research Centre, the dominant sector in the five countries indicated in Figure 2 has been the buildings, primarily residential. It seems that WhC does not effectively support EE in industry in any of the countries, with the UK opting explicitly for a focus on the residential sector.

So the question arises if this is due to the measurement and verification (M&V) rules of the different WhC mechanisms, to lack of policy maker attention to the industrial sector, or to some intrinsic limit of such schemes. We believe the problem is M&V: EE in industry is even more complex than EE in general and so it is difficult to define easy applicable M&V protocols and deemed savings methods.

The recent Italian experience is showing a rapid growth of WhC in industry, which started before the introduction of the new savings multipliers in the last November, and gives some useful information on the possible ways to promote EE in this sector through WhC.

The scheme’s basics The Italian WhC scheme (also known as TEE, acronym of the Italian legislative definition “titoli di efficienza energetica”, meaning “energy efficiency certificates”) created by the D.M. 20 July 2004, whose purpose is to promote measures to improve energy efficiency among end-users, is approaching its third phase4 starting in 2013.

4 The second phase was initiated by D.M. 21 December 2007 and set the targets from 2008 to 2012. D.Lgs. 30 May 2008 No. 115 and D.Lgs. 28 February 2011 No. 28 introduced then some important news, but the implementing decree is still to come. To help understanding the Italian legislative terminology, D.M. is the abbreviation for ministerial decree, a legislative second rank act that is issued in accord to a law or a legislative decree (D.Lgs.). The white certificate scheme was in fact provided for in the electricity and gas markets liberalization laws.

UK (CERT and CESP) Italy France Denmark Flanders region (Belgium)

Obligation period

2002-2005 (EEC-1)2005-2008 (EEC-2)2008-2012 (CERT)2009-2012 (CESP)

2005-2012 2006-2009 (first period)2011-2013 (second period)

2006-2009 (first period)2010-2012 (second period) 2003 –

Target size (ongoing phase)

293 MtCO2 lifetime savings in 2012 (CERT)19.25 MtCO2 lifetime savings in 2012 (CESP)

Cumulative savings of at least 22.4 Mtoe in 2012

345 TWh lifetime discounted (over the period January 2011- Dec. 2013)

2.95 PJ annual (first year savings) until 2009As of 2010: 6.1 PJ/y (first year savings weighted with prioritisation factors reflecting action lifespan)

Approx. 580 GWh (2009 target)3.5% of the amount of electricity supplied the year before to household and non-residential clients (2.5% in case of less than 2,500 clients).

Energy end-use sectors covered Residential All All excl. ETS All except transport Residential and non energy intensive industry and service

Restrictions in achieving the target

40% priority group and 15% super priority group. 25% insulation measures (CERT)Low income areas; max 4% by loft insulations; max 4% by cavity wall insulations; max 1% by energy advice

Until 2008 50% on own energy source

25 TWh cumac max achievable by information, formation and innovation programmes

None specificThe actions must always consist of financial contribution and an awareness-raising element

Measurement and verification options Standard values

Standard values (19 measures)Engineering approach (5 measures)Metered baseline method

Standard values (about 240 measures)Case-by-case approval for other measures

Standard values for approx. 200 measures Specific engineering calculation

Case-by-case approval by VEA

Dominant measurement and verification choice Deemed savings only Deemed savings Deemed savings Specific engineering calculations NA

Accreditation of savings Ex-ante Ex-ante (majority) Ex-ante Ex-ante (adjusted first year savings only) Ex-ante approval

Size of certificate NA 1 toe 1 kWh cumac NA NA

Validity of certificate NA (compliance in 2012) The entire phase of the scheme (2005-2012)

3 compliance periods(compliance in 2009 and 2013)

NA (only adjusted first year savings count) NA

Certification threshold size NA

20 toe/year, 40 toe/year and 60 toe/year for savings evaluated respectively by deemed, engineering and metered baseline methods

1 GWh cumac (projects can be pooled to reach the threshold)

NA NA

Trading* mechanisms Trading among suppliers Spot marketOTC (dominant) OTC only No trading No trading

Banking, borrowing

Banking of excess savings between phases (EEC-1 to EEC-2, EEC-2 to CERT)

Banking till 2012Borrowing for 1 year if under compliance below 40%

Banking three compliance periods

Banking till 2012As of 2010 borrowing if under compliance below 35% (45% in 2010)

Banking of excess savings

Figure 2. Summary of WhC schemes in Europe. Source: European Commission Directorate General JRC

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The system is based on the obligation, imposed on electricity and natural gas DSOs5 with more than 50,000 customers, to meet specific targets, expressed as primary energy savings and increasing over the years as shown in Figure 3, aimed at increasing end-use energy efficiency. These savings can be achieved through energy efficiency actions among end-users and are assessed using tons of oil equivalent (toe) as measurement unit6.

Figure 4 shows how the scheme works. A DSO or a voluntary subject – a DSO with less than 50,000 users, a company controlled or controlling a DSO, an energy service company (ESC)7, or a company or institution that have

5 DSO: distribution system operator. We use the acronym to indicate all the operator in the field of electricity and gas distribution, a natural monopoly in liberalized markets. 6 With the Italian production mix, one toe is about 1,200 m3 of gas or 5,350 kWh of electricity. That means that a 0.187 toe/MWhe and 0.086 toe/MWht coefficients are used. 7 In order to participate in the white certificate scheme it is not necessary to be an ESCO, as defined in the 2006/32/EC directive, but it is sufficient for the company purpose to deal with the implementation of energy efficiency measures. This is the reason

Figure 1. Yearly DSOs' targets and issued certificates

AEEG asks for WhC

Energy savings

End-user

GME

AEEG

WhC obliteration

Distributor

Authorises WhC emission

Tranfers WhC

1st step obtaining WhC

2nd step: target complaiance

Voluntary player

Voluntary company

GME market

WhC trading

Direct contracting (OTC)

WhC flows

cash flows

relations between parties

project implementation agreement

ENEA

WhC project evaluation

Figure 4. Italian WhC scheme with voluntary player as project proponent

Figure 3. Italian WhC yearly targets, issued certificates, and trend

!40%%

!20%%

0%%

20%%

40%%

60%%

80%%

!4.000%%

!2.000%%

%!%%%%

%2.000%%

%4.000%%

%6.000%%

%8.000%%

2005% 2006% 2007% 2008% 2009% 2010% 2011% 2012%

%"

ktoe

"Italian"WhC"targets"and"results"

(data"updated"to"May"31"2012)"

Primary%energy%saving%targets%(ktoe)% Issued%WhC%from%June%1st%to%May%31st%(ktoe)%

Excess%%or%missing%WhC%(ktoe)% (issuedWhC!targetWhC)/targetWhC%(%)%

Source:%FIRE%based%on%AEEG%and%GME%data%

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appointed an energy manager in accordance with article 19 of law 10/918 – may apply for WhC by presenting an energy efficiency project. If the project satisfies the rules set by AEEG (the Italian Electricity and Gas Authority) and is approved by ENEA (the Italian Energy Agency) – whose task is to check that the project is technically and administratively sound -, the owner receives from GME (Gestore dei Mercati Energetici9) a number of WhC corresponding to the recognized saving (one White Certificate equals to one toe of savings) on its account.

Every party with WhC on its account can then trade the certificates either on the real time GME market10, which usually is held once a week, or over the counter (OTC) through bilateral contracts registered on the GME’s platform. Operators that cannot present WhC projects may join the market as traders. The scope of WhC trading is to allow obliged DSOs to obtain a WhC amount sufficient to reach their targets. The certificates should be presented to AEEG by May 31st of the year that follows the obligation. In the case of an insufficient number of certificates there are two possibilities:

• if the number of WhC is at least equal to 60% the DSO’s target, the DSO is not subjected to penalties, but the following year it must add the WhC it lacks to its target;

• if the number of WhC does not reach 60% of the target, the distributor is fined, and must, nevertheless, add the WhC it lacks to its target for the following year.

It is worth noticing, since it is important in the scheme's framework, that AEEG has not set the value of the penalty. That means it will be calculated on the basis of the extent of the default and of the involved DSO's behaviour in complying with the request to correct it. Therefore, the market lacks this typical price upper bound.

The end-user can benefit from part of the economic value of the WhC or, less frequently, from a discount on the capital cost of the solution or on the energy service annual fee, where applicable. It can be an active party only if it is an organization that has appointed an energy manager, as provided by law 10/1991.

Almost every project involving an improved efficiency in the final consumption of energy are eligible under the scheme, from boilers to lighting systems, from solar thermal to cogeneration, from electric motors to industrial process projects. The exceptions are projects aimed at increasing efficiency in electricity generation and solutions that are not listed in dedicated tables provided by the ministerial decrees that set up the scheme11. Each of the eligible projects is expected to issue a certain number of certificates, depending on the installed or replaced units, or

on measured parameters (e.g. electricity and heat produced by a district heating plant), usually for a period of five years (eight years for building envelope related projects).

With the EEN 9/2011 delibera12, AEEG changed the basics of savings recognition, introducing a multiplier ( “tau”) that integrates energy savings by taking into account the technical life of the action, discounting them with a coefficient to consider wear and other causes of performance reduction over the years. So, for example, if an EE measure saves 100 toe/year and has an expected life of 15 years, the basic multiplier will be 15/5=3 (five is the number of years in which WhC are obtained), which becomes 2.65 once discounted, and the integrated savings will be 265

toe/year (see Figure 5). In this example the EE measure will get in its “WhC life” 265x5=1,325 toe VS 100x5=500 toe/year of the previous rules. The coefficients vary with the considered solution, ranging from 1 to 4.58. Figure 6 and Table 1 show a summary for industrial deemed savings files.

why we use ESC as acronym instead of ESCo. Before it can present a project an ESC shall demonstrate that it has complied with this requirement by obtaining an accreditation (“accreditamento”) with AEEG. 8 Industrial companies that have a primary energy consumption of at least 10,000 toe and the other type of companies or authorities other 1,000 toe have to appoint an energy manager by law. Their network is managed by FIRE. 9 GME manages the Italian Power Exchange and the Emission Trading, Green Certificates and WhC markets. 10 It is possible to participate in “viewer mode” to the sessions by following the directions given at the following link: http://www.mercatoelettrico.org/En/Mercati/AccessoTEE.aspx. 11 The Italian version of the D.M. 20 July 2004 is downloadable from the following link: http://www.autorita.energia.it/it/ee/def.htm. 12 The main AEEG’s decisions are called “delibera” and are classified by a number and an acronym that indicates the involved field of action. EEN stands for decision related to WhC.

Integrated savings VS yearly savings

0

50

100

150

200

250

300

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15year

toe

Yearly saving Integral discounted saving

Figure 4. Effect of multipliers on energy savings

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One of the main issues with WhC is the calculation of energy savings, since in many cases it is not feasible or practical to use meters13. For some actions, the savings are determined on the basis of special “files” defined by AEEG. In this case (deemed savings – with no on-field measurement – and engineering estimates – with on-field measurement) it is easy to evaluate the savings on the basis of the installed units or the produced kWh (e.g. solar heating, windows replacement, CHP and district heating). For example, every square meter of glazed solar thermal panels installed in Rome substituting an electric boiler corresponds to 0.154 toe14 that becomes 0.408 toe/year once integrated and discounted, since the tau multiplier is 2.65 in this case. For deemed savings, a preliminary survey is made by ENEA – previously by AEEG with the support of ENEA, RSE (Energy System Research center) or other subjects – in order to evaluate the standardized savings to be recognized by these files. If during the survey it is not possible to achieve a standardized method15, the engineering estimates approach is proposed. It implies that savings are calculated on the basis of an algorithm based on at least one measurement. For example in the case of centralized heating and cooling systems, the savings are calculated with respect to the amount of fuel consumption, the electricity consumption, and the useful heat supplied to the user. The deemed saving approach has the advantage of requiring no meters and of making the WhC available from the implementation of the EE measure. The engineering estimates approach requires some measurements, delaying the emission of the first WhC usually by one year16. Both approaches make it easy to present projects.

In other cases, when a simplified file is not available, the proponent must get a prior approval for the procedure of measurement and evaluation of the savings (PPPM) he intends to use. These are calculated on the basis of measured quantities (the so-called “metodo a consuntivo”, or energy monitoring plan). In fact, the proponent must do a market survey to estimate the baseline of the solution with respect to market standards and the related “additional” savings, and propose a methodology to calculate the savings based on appropriate metering. Major projects – such as many industrial projects, building renovation, and waste heat recovery – are presented utilizing this procedure.

EE Measure tau IND-T Industrial processes: generation or heat recovery for cooling, drying, burning, melting 3.36 IND-GEN Industrial processes: electricity generation from renewable sources, heat recovery, or cogeneration 3.36

IND-E Industrial processes: efficient drive systems (motors, etc.), automation and power factor measures 2.65

IND-FF Industrial processes: interventions other than the above, for the energy optimization of production processes and plant layout designed to achieve a lasting energy consumption reduction normalized by quantity and quality of production

3.36

Table 1. Reference values for the tau coefficient for monitoring plans in industry Independently from the chosen M&V method, an important issue is that only additional savings are considered for WhC. Additional savings are evaluated with respect to a standard market baseline, depending on the solution and/or sector under consideration, that represents the average energy performance of the typical action. This is the proper approach, in order to give the incentive only to the savings resulting from the scheme – and not to the ones that would be obtained in any case because of technological improvement, mandatory standards, or market developments –, thus theoretically ensuring that the incentive is both cost-effective and able to promote an increase in energy efficiency17. Unfortunately, the identification of the baseline is often complex, due to the lack of reliable

13 Either because it would be too expensive or because it would be difficult or impossible to isolate the effects of the energy efficiency solution (e.g., for buildings thermal insulation). 14 This number will change in case of different location (the table distinguishes five solar zones), of gas boiler or district heating integration, or of evacuated tube collectors. See “List of deemed savings file” chapter in [20]. 15 For example, because there is no agreement among the stakeholders (technology manufacturers, energy providers, DSOs, consumers, associations, etc), or because the savings vary a lot depending on some variable. 16 That is the time required to “measure” the savings. 17 For the actual effect of additional savings and its lack of capability to limit the free riders effect in Italy, see for example [20].

min max min max max minTauFile

number Technology Unit Unit per toe Saving (10-3

toe/unit/year)Units needed to

reach 20 toe

Industrial deemed savings files

9 VSD electric engines for industrial pumping systems1 turn industry 1 kW 12 42 24 83 314 91 2,65

2 turns industry 1 kW 6 20 49 166 153 45 2,653 turns industry 1 kW 3 11 95 319 80 24 2,65

seasonal industry 1 kW 11 38 27 90 284 84 2,6511 high efficiency electric engines

1 turn industry 1 kW 37 294 3 27 2.220 283 2,652 turns industry 1 kW 19 149 7 53 1.126 142 2,653 turns industry 1 kW 10 77 13 102 581 74 2,65

seasonal industry 1 kW 35 270 4 29 2.040 262 2,65

Figure 5. Industrial deemed savings files summary.

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market data, and this represents a constraint to the definition of simplified M&V methods and the implementation of energy monitoring plans. The net result is the small number of available deemed savings and engineering estimates files: presently there are 24 files, of which 18 deemed savings18. With regard to monitoring plans, the effect is both to make difficult for proponents to implement proposals with respect to simplified M&V protocols, and to require a significant effort for ENEA to evaluate such proposals, which usually are not approved as presented, but require some additional refinements, leading to a longer approval time and to higher costs for the WhC mechanism.

In Table 2 the results from 2005 to 2011 are shown. Almost 45% of the approved PPPMs require at least a revision from the proponent before they can be accepted and the savings counted. This is usually due to insufficient or incorrect information provided with respect to project description, proposed algorithm, M&V meters, baseline and additional savings evaluation, etc. It is worth noticing the importance of information campaigns. More than half of all proposal have been presented in the last two years, and 2011 accounts for approximately one third of the total number. Presentation of energy monitoring plans started to increase when FIRE and ENEA undertook a series of activities (conferences, workshops, training courses, guidelines, FAQs) to illustrate, in detail, how to present such proposals with many practical examples19. Before then, the complexity of the process put off potential proponents to the WhC scheme, notwithstanding that the incentive flowing from the white certificates for industrial EE measures was already significant before the introduction of the tau multiplier.

Approved Rejected Other Total 2005-2011 at 1st

attempt at 2nd

attempt at 3rd

attempt at 4th

attempt at 5th

attempt at 1st

attempt at 2nd

attempt at 3rd

attempt Suspended Retired Under approval

PPPMs No. 399 270 41 3 1 86 12 4 9 31 117 973 PPPMs % 41% 28% 4% 0% 0% 9% 1% 0% 1% 3% 12% 100% 74% 10% 16%

Table 2. Results of PPPM’s approval procedure, showing frequent revisions. Source: ENEA [21]. A relevant exception to basic M&V rules is cogeneration, that since the D.M. 5 September 2011 follows a different path with dedicated rules. The algorithm is calculated without considering the additional savings20, the assessment authority is the GSE (Gestore dei Servizi Energetici, the state-owned company which promotes and supports renewable energy sources in Italy), and the WhC can be retired at the previous year DSO’s reimbursement tariff, or sold to the market.

The scheme provides a minimum threshold for presenting projects, which varies from 20 to 60 toe, depending on the type of M&V method (see Table 3). This is mitigated both by the fact that integral savings are considered (i.e. applying the tau multiplier) and that projects implemented among different users can be combined to achieve the required threshold, provided that they use the same M&V system. With these new limits, from two to eight times lower than the previous ones, the threshold should not be an issue even for small projects.

Threshold toe (with tau)

Deemed savings 20 Engineering estimates 40 Monitoring plan 60

Table 3. Minimum required thresholds to present a project

Possibility to sum different actions in a project to reach the minimum threshold

Homogenous savings evaluation methods Non homogeneous savings evaluation

methods

One client Deemed savings Engineering estimates

Monitoring plan Monitoring Plan

Many clients Deemed savings Engineering estimates

Monitoring plan Not permitted

Table 4. Possibility to sum up different actions to reach the thresholds of Table 3 Finally there are now five types of WhC:

• Type I: electricity savings;

18 D.Lgs. 28/2011 asked ENEA to provide at least 15 new simplified M&V files by September 2011. ENEA respected the deadline and eventually added two additional files. These 17 new files should be issued by the Ministry of Economic Development in 2012. 19 This delay in the campaign launch was due to the fact that ENEA has become responsible for the evaluation of the proposal in 2006 and has not been awarded economic resources to carry on information activities in the beginning. 20 Savings are correlated directly to the PES index defined in 2004/8/EC directive on cogeneration and varies with respect to the installed power.

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• Type II: natural gas savings; • Type III: savings of other fuels (LPG, diesel oil, etc.) for other purposes than transportation; • Type IV: savings of other fuels (LPG, diesel oil, etc.) for transportation with simplified M&V methods; • Type V: savings of other fuels (LPG, diesel oil, etc.) for transportation with energy monitoring plans.

This classification exists because end users pay a tariff component on electricity and natural gas distribution to allow obliged DSOs to recover costs “not covered in other ways”21. This component gives way to a reimbursement for obliged DSOs that is currently worth 86.98 Euro/toe (it ranged between 88.92 and 100.00 Euro per toe from 2005 to 2011) and is assigned to DSOs upon the presentation of type I, II, III, and IV certificates to the AEEG22.

Demand, supply and WhC pricing The scheme therefore works on the basis of a demand, represented by the obligation imposed on DSOs (e.g. 5.3 millions toe in 2011), and a supply, represented by the certificates held by parties who have presented and got approved energy efficiency projects. Figure 7 summarizes the trend.

Since there is a demand/supply driven market, periods of oversupply, as in 2008, when the price tends to remain relatively low can be followed by periods when the price goes up because of a shortage of certificates. The certificates are bankable until 2012 and can therefore be withheld by the owner to be sold at a time considered more favourable. Due to the difficulty in reaching the 2010 and 2011 targets (see Figure 3), WhC prices have continued to increase steadily until recently, when the first effects of the tau coefficient begun to feed more WhC to the market. As anticipated in note 22, type IV and V still have not entered the market, because of their lack of reimbursement for DSOs.

The trend of WhC presentation, as Figure 3 shows, is that yearly targets remain far from being achieved. It has been a success to meet the 70% threshold for the 2011 target. Of course this has been possible due to the tau coefficient that anticipates future savings increasing WhC on the market, thus needing an increase in targets to achieve the same yearly savings to comply with European savings targets (2006/32/EC directive and the new directive on EE). 21 This definition, provided by D.M. 20 July 2004 and meaning that the DSOs reimbursement shall take into account the earnings related to energy efficiency investments, is not easy to translate into numbers. Since DSOs are mainly passive parties, because they usually do not implement projects, it is possible to say that the DSOs reimbursement shall be substantially similar to the WhC market price. DSOs actually claim a reimbursement higher than the market price, in order to cover the expenses related to their units dealing with WhC and the reduced energy earnings from distribution. 22 Type V certificates do not give access to reimbursement, thus making them not worth to exchange on the market. Up to now, in fact, type IV certificates do not exist, since the simplified M&V file are yet to be issued from the Ministry of Economic Development.

Figure 6. WhC’s price trend

0"

10"

20"

30"

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07/03/2006"

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25/07/2006"

24/10/2006"

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27/03/2007"

05/06/2007"

28/08/2007"

06/11/2007"

29/01/2008"

08/04/2008"

17/06/2008"

09/09/2008"

18/11/2008"

17/02/2009"

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22/09/2009"

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20/07/2010"

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22/03/2011"

31/05/2011"

30/08/2011"

15/11/2011"

07/02/2012"

17/04/2012"

WhC

's&price&(Euro)&

Market&session&data&

WhC&price&trend&

"May"31st"session"" "DSO's"reimbursement"" "Type"III"" "Type"II"" "Type"I""

Source:"FIRE"evaluaIon"based"on"AEEG"and"GME"data"

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WhC in the cement sector

In order to show how WhC work in Italy for the industrial sector, a summary of a guideline for the cement industry that FIRE has implemented for ENEA is given23.

Italy is among the largest cement producers in Europe; with a total production of 36.3 million tons of cement it was in 2009 the main producer, despite the significant decline in recent years (-15.6% in 2008). The production facilities are located throughout the country and currently total 88 manufacturing units, of which 58 are full-cycle and 30 are grinding factories. There are 80 active rotary kilns, all based on the dry or semi-dry technology that enables the achievement of greater energy efficiency.

Since the production of cement and its main component, the clinker, is an activity that requires a high energy consumption per unit of final product, in recent decades significant changes have been made throughout the production process. This has resulted in a drastic reduction of energy consumption (thermal and electrical) per unit of cement produced, as well as an increase in productivity, properties, and performance of the clinker.

Guidelines on BAT for the manufacture of cement are shown in BRef24 produced as part of 2008/01/CE Directive for Integrated Pollution Prevention and Control (IPPC). The document [22], which mainly deals with issues related to emissions, also shows the state of the art technology with regard to energy consumption. The guidelines focus only on energy considerations and the best available techniques (BAT) that are deemed appropriate for the Italian sector as a whole.

In constructing a new plant (or in case of a substantial renovation), the BAT for the production of cement clinker is a dry process kiln with preheater and multistage precalciner. The value of the thermal budget associated with the BAT is about 3,300 MJ/t of clinker.

Despite remarkable advances in technology, in terms of energy efficiency, there are still margins for improvement. The BAT considered in the BRef indicate a value of 3,000 MJ/t of clinker for thermal energy and 90 kWh/t of cement for electricity. The savings that would result from the transformation of the entire cement factories park is about 300 MJ/t of clinker. Given the annual national production of 36.3 million tons of cement, a clinker/cement ratio of 0.75, and assuming an approximate percentage of plants renovation of 50%, the global saving will be around

23 The final guideline has not been published yet. It will be available on the website www.efficienzaenergetica.enea.it. 24 The BRefs – brief reference documents – contain the description of the most used production processes and indication of the best available techniques to reduce GHG emissions and energy consumption for the main industrial sectors. The documents are available at the link http://eippcb.jrc.es/reference/.

CE

MB

UR

EA

U BA

T Reference D

ocument

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Chapter 3

Figure 7. Cement manufacturing process (dry process) [22]

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100 ktoe/year. For the consumption of electrical energy, considered over the entire production line, the possible reduction from the baseline is about 25 kWh/t of cement. Considering again a penetration rate of 50% the global saving will be around 85 ktoe/year.

Monitoring plans In order to prepare a monitoring plan the following points must be addressed:

• process description;

• description of the EE solution; • identification of the baseline, and thus of additional savings;

• definition of the algorithm to calculate the energy savings;

• description of the M&V system.

Usually the third and fourth points are the most difficult to address, for different reasons.

The baseline for additional savings The baseline shall be evaluated by for one of two possible situations: installation of a new facility or revamping of an existing system.

For new plants (or a complete renovation of an existing plant) the reference is the market average, i.e. the typical solution proposed in that period of time for the same intervention. As mentioned above, currently it is the dry process with multiple stage preheater and precalciner.

Reference values Thermal energy Electricity

BRef 3,000 – 4,000 MJ/t clinker 90 - 150 kWh/t cement

Italian current practice 3,860 MJ/t clinker 114 kWh/t cement

Breakdown by production steps

Grinding of raw materials 84 MJ/t clinker

38 kWh/t cement 35 kWh/t raw material

(raw material/clinker = 1.52; humidity 5%)

Clinker burning 3,768 MJ /t clinker

25 kWh/t cement 33 kWh/t clinker

(clinker/cement = 0,77)

Cement grinding 43 kWh/t cement Other consumption (fans, fuel preheating, etc.)

8 MJ /t clinker 8 kWh/t cement

Table 5. Reference values for the calculation of the baseline.

For the renovation of an existing plants, provided an hardware intervention is implemented and not only an improvement of the plant management or of the regulation of the energy devices, the baseline reference is the higher between the specific consumption of the ex-ante plant and the specific consumption of the current practice in the same industrial sector. Table 5 reports the reference values to be compared with the ex-ante system in order to define the baseline.

The savings to be considered within the WhC scheme are the difference between the baseline energy use and the ex-post energy use.

For projects that do not cover an entire production line, but just some phases of the cycle, some references from the literature can be helpful [24]. For example, comparing them with the account data of industrial cement industry, it is possible to estimate that clinker burning accounts for a 22% share of the total electricity consumption in cement production, whereas the higher consumption is related to cement grinding, with 38% of electricity consumption. Starting from these percentages, it is possible to calculate the value of the specific consumption of electricity in the various phases of the production process.

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The algorithm to calculate the energy savings The algorithm is not an issue technically, but it is important that it is chosen taking into account the necessity to normalize the savings with the industrial production – the clinker in this case – and to ensure that the effect of the EE intervention is correctly isolated from other energy consumption. Most problems that arise in this connection are due to an insufficient number of meters or to their incorrect positioning. But there are may also be errors in the definition of the savings formula.

The variables to be measured are:

• Amount of fuel used in the oven;

• Lower calorific value of fuel (LHV);

• Amount of clinker produced (tonnes);

• Annual consumption of electricity.

Thermal energy savings:

Rt = (CSTB - Cstpost) x B [toe/year]

where:

CSTB = specific heat consumption baseline [toe/t clinker]

Cstpost = Et/B = specific heat consumption ex-post [toe/t clinker]

Et = annual consumption of thermal energy = amount of fuel used x LHV [toe]

B = tons of clinker produced [t clinker/year]

Electricity savings:

Re = (CSEB - Csepost) x B x c [toe/year]

where:

CSEB = specific electricity consumption baseline [kWh/t clinker]

Ee = annual consumption of electricity [kWh]

Csepost Ee/B = specific consumption of electricity [kWh/t clinker]

B = tons of clinker produced [t clinker/year]

c = 0.187 x 10-3 [toe/kWh]

The last coefficient has been determined by AEEG as the primary energy conversion factor for electricity. It corresponds to a 46% efficiency of the centralized power generation park.

Issues related to M&V Since in the cement industry fuel and clinker consumption present high values – on the order of hundreds of thousands of tons per year – an accurate measurement may be difficult. To address this issue, one possibility is to refer to the measurement uncertainties listed in Annex VII of the Decision 2007/589/EC related to the emission trading scheme (directive 2003/87/EC)25.

The use of alternative fuels is still limited, so its effects on the final result is still not very significant, but considering the Italian interest in refuse derived fuel (RDF) from industrial and municipal waste, the implications of its use should be analysed, both with respect to WhC and ETS. Two of these implications are already evident today: the difficulty in measuring flow and heating value, and the increase in the auxiliary services consumption and in excess air, which should lead to a different baseline for RDF fired plants.

Typical savings recorded from approved PPPMs Below is a summary of the types of projects recorded, with an indication of what can be achieved (of course they are only indicative and may differ significantly due to the particular EE measure and the starting baseline).

25 The Guidelines, for example, give an uncertainty of measurement of the amount of clinker produced by 2.5%.

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The good number of applications demonstrates that even if monitoring plans are complex, they can successfully be used, especially when the available savings are good enough to justify the effort. In Italy, there is a minimum threshold to present a single EE measure of 60 toe, that at present WhC prices corresponds to 6,000 €/year for five years. This figure must be compared with the real savings in the energy bill, that are in the order of 10,000 €/year26, and demonstrate the important weight of WhC in promoting EE measures in industry. So the minimum threshold is already a sum that allows ESC and companies to present a PPPM, since it covers both the cost of preparing the proposal – limited to the first year – and the administrative costs – due after the acceptance of the PPPM to communicate the measurements, obtaining the WhC and selling them on the market –, leaving space for additional earnings. To reach that threshold savings in the order of 100 MWh of electricity or of 200,000 m3 of natural gas per year are needed, an easy result for medium and large industrial companies.

Moreover, Table 6 shows that it is not difficult to present projects capable to get tens of thousands of euros per year, considering the typical production per factory. That means WhC can make a significant contribution to EE investments in this industry. The same result can be obtained in all the energy intensive sectors and in many high energy consumption companies.

EE measure No. Savings Furnace renovation 5 (2÷13) x 10-3 toe/t clinker Furnace substitution 4 (4÷13) x 10-3 toe/t clinker Heat recovery 3 (0.11÷1) x 10-3 toe/t clinker RDF recovery 7 (2÷4) x 10-3 toe/t clinker Cement mill modify 2 (0.5÷3) x 10-3 toe/t cement Cement mill substitution 3 (2÷4) x 10-3 toe/t cement Fan advanced regulation 3 (0.05÷0.4) x 10-3 toe/t clinker Advanced management systems 3 (0.2÷0.4) x 10-3 toe/t clinker Raw materials mill substitution 2 (0.7÷2) x 10-3 toe/t clinker

Table 6. Recorded savings from approved PPPMs.

Conclusions

It is yet to be demonstrated WhC ensure the best cost/benefit performance (see for example [20]), but nevertheless they have the advantage of covering nearly the entire spectrum of EE interventions without the need for policy makers to know EE measures capital costs in details. Any support scheme for EE confronts the same issue of developing a valid M&V system in order to ensure that the maximum savings are obtained at the minimum cost for the system. Of course M&V represents the most important issue to address.

Deemed saving and engineering estimates methods have the obvious advantage of being very simple to use. They also reduce the cost of controls and assessment for the involved authorities (ENEA in Italy). On the other hand, especially if only additional savings are taken into account and if a rigorous savings evaluation method is considered, it is difficult to define a large number of deemed savings files, unless a very reliable and extensive statistical data on market prices and technical solutions is available27. This is even more difficult in the industrial sector: in Italy only two deemed savings files and one engineering estimates file have been issued, apart from cogeneration.

Monitoring plans are evidently more difficult to manage, since they both require the proponent to make a significant proposal and require a substantial effort to evaluate the proposal by the assessment body28. Another relevant shortcoming is that the required effort is rarely compatible with those small and medium actions that are typical for SMEs29. Since SMEs are the backbone of European, and especially Italian, economies, this is a major drawback. To

26 One toe costs approximately 400-600 euro in the industrial sector and Table 1 shows that there is typically a tau of 3.36, thus the threshold of 60 integral toe corresponds to more or less 20 yearly toe of real savings. 27 To define a deemed saving file the following are needed: a market analysis to define the baseline and the potential, a technical analysis to identify the EE solution performance and typical savings, which need to be replicable among different users and vendor’s solution with a limited variance, and a regulation analysis to keep into account all the relevant technical standards and the applicable legislative measures. Often the required effort leads either to an insufficient data collection, or to good results on that front, but with scarce energy saving values per unit that make the issuing of a file useless because of poor economic performance. 28 It is difficult to standardise how to write the proposal. For the same EE measure different proponents will create very different documents with respect to the style, the length, the attached information, and even the algorithm and the baseline evaluation. 29 Small and medium enterprises. See: http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm.

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ensure that they can avail themselves of WhC, simplified M&V schemes should be developed, even at the cost of giving up to some engineering exactness.

With large EE interventions, like the ones considered in the cement industry, monitoring plans are working well. Industrial companies have come to understand the opportunity that WhC represent and are trying to join in. This is good news for a system lacking a large number of WhC to attain its 2012 targets. More importantly, it means that EE is finally being promoted by the mechanism. Monitoring plans have in fact already overtaken deemed savings and engineering estimates in Italy in the last months in terms of issued certificates. This presents another interesting added value for EE: the complexity of the plans obliges the proponents, in particular ESCs, to fully understand and study the presented EE actions30. This is improving their knowledge of the industrial sectors in which they operate, with positive effects on their potential to promote and replicate similar actions. Some of the ESCs have indeed become full ESCOs this way, fulfilling one of the original aims of the WhC scheme in Italy.

A final important aspect: the real trigger to success of the scheme and of the involvement of industry is information and training. It is fundamental to devote sufficient economic and personnel resources to these activities. The advantages for the system in general are enormous compared with the cost of implementing these actions.

Useful links and references

Links of institutions and associations related to white certificates in Italy AEEG, Italian electricity and gas authority, www.autorita.energia.it

GME, Italian energy market operator, www.mercatoelettrico.org

ENEA, Italian Agency for new technologies, energy and environment, www.enea.it

RSE, Energy System Research center, www.rse-web.it

MSE, Ministry of Economic Development, www.sviluppoeconomico.gov.it

Federutility, Federation of DSOs, www.federutility.it

Agesi, www.agesi.it, and Assoesco, www.assoesco.org, ESCos associations

FIRE, Italian Federation for the Rational Use of Energy, www.fire-italia.org

References [1] “Le ESCO in Italia”, a FIRE survey on ESCOs in Italy, 2008,

www.fire-italia.it/indagini/2008-12_indagine_ESCO_report.pdf

[2] “Indagine di monitoraggio della partecipazione al meccanismo dei TEE”, a FIRE survey on WhC in Italy, 2009, www.fire-italia.it/indagini/TEE/TEE_1.asp

[3] “Indagine sul gradimento dei TEE tra gli energy manager”, a FIRE survey in cooperation with ENEL on the energy managers participation in WhC in Italy, 2011, www.fire-italia.it/indagini/TEE_ENEL/TEE_ENEL.asp

[4] “Osservazioni sul meccanismo dei certificati bianchi e spunti per l’aggiornamento”, D. Di Santo, RdS, 2010, http://old.enea.it/attivita_ricerca/energia/sistema_elettrico/Elettrotecnologie/6%20Osservazioni%20meccanismo%20CB_10.09.2010.pdf

[5] FIRE conference and workshop proceedings dedicated to white certificates (www.fire-italia.it/convegni.asp):

a. FIRE conference – Milano – 22-23 March 2012 – “Certificati bianchi: titoli di efficienza a portata di mano”

b. FIRE workshop – Rimini – 10 November 2011 – “Le nuove regole per i certificati bianchi”

c. FIRE workshop – Rimini – 4 November 2010 – “Certificati bianchi: risultati e proposte di miglioramento”

d. Key Energy 2009 workshop – Rimini – 29 October 2009 – “Certificati bianchi: la partita si fa seria”

e. FIRE workshop – Roma – 22 April 2008 – “Il nuovo sistema di incentivazione dell'efficienza energetica”

30 It is worth noticing that since ESCs are often consultants that come into action after the EE measure has been implemented, it is not obvious they have a solid know-how on the matter.

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f. Older workshops not listed here but available on the indicated web page

[6] AEEG’s annual reports about white certificates, www.autorita.energia.it/it/pubblicazioni_ee.htm

[7] GME’s monthly newsletters, www.mercatoelettrico.org/It/Tools/newsletter.aspx

[8] Concerted Action for the implementation of the 2006/32/EC directive, core theme number 3, information gathered through FIRE’s participation in working groups

[9] Energy Efficiency Plan 2011 - Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee and the Committee of the Regions, COM(2011) 109/4

[10] “European Workshop on Experiences and Policies on Energy Saving Obligations and White Certificates” proceedings, 27-28 January 2011, http://re.jrc.ec.europa.eu/energyefficiency/events/WhC_Workshop.htm

[11] “Tradable certificates for energy savings (white certificates) - theory and practice”, P. Bertoldi, S. Rezessy, 2006, European Commission Joint Research Centre, Institute for Environment and Sustainability

[12] “Polices for increasing energy efficiency: Thirty years of experience in OECD countries”, H. Gellera, P. Harringtonb, A. H. Rosenfeldc, S. Tanishimad, F. Unanderd, Energy Policy 34 (2006) 556–573

[13] “What can we learn from tradable green certificate markets for trading white certificates?”, R. Haas, N. Sagbauer, G. Resch, ECEEE 2009 Summer Study - Act! Innovate! Deliver! Reducing energy demand sustainably

[14] “Energy company obligations to save energy in Italy, the UK and France: what have we learnt?”, N. Eyre, M. Pavan, L. Bodineau, ECEEE 2009 Summer Study - Act! Innovate! Deliver! Reducing energy demand sustainably

[15] IEA documentation and proceedings available through the web sites: www.ieadsm.org/ViewTask.aspx?ID=17&Task=14, www.ieadsm.org/Content.aspx?ID=7#ancMilan

[16] Energie Plus, Maitriser l’energie durablement, Revue de l’Association technique energie environnement, biweekly newsletter and bimonthly insight, all numbers from 2007 to 2011

[17] Ademe & Vous, Ademe international monthly magazine, all numbers from 2007 to 2011

[18] “Impact of the financial crisis on carbon economics – Version 2.1 of the global greenhouse gas abatement cost curve”, McKinsey & Company 2010

[19] “Energy saving obligations and tradable white certificates: comparative analysis of experiences in the European Union”, N. Labanca, European Commission, Directorate General JRC, proceedings from the conference “Certificati bianchi: titoli di efficienza energetica a portata di mano”, www.fire-italia.it/convegni/Confereza_TEE_2012/Labanca_JRC.pdf

[20] “The White Certificate scheme: the Italian experience and proposals for improvement”, D. Di Santo, D. Forni, V. Venturini, E. Biele, ECEEE 2011 Summer Study - Energy efficiency first: The foundation of a low-carbon society

[21] “Come sfruttare le opportunità: i progetti a consuntivo”, N. Di Franco, ENEA, proceedings from the conference “Certificati bianchi: titoli di efficienza energetica a portata di mano”, www.fire-italia.it/convegni/Confereza_TEE_2012/DiFranco_ENEA.pdf

[22] “Reference Document on Best Available Techniques in the Cement, Lime and Magnesium Oxide Manufacturing Industries”, European Commission, May 2010

[23] “Rapporto annuale”, AITEC, 2007-2010

[24] “Energy Efficiency Improvement Utilising High Technology”, World Energy Council, Reports & Case Studies, 1995

[25] “Soluzioni regolatorie per le barriere non-economiche alla diffusione dell’efficienza energetica in Italia nell’uso dell’elettricità”, D. Di Santo, G. Tomassetti, V. Venturini, a FIRE’s study for ENEL, 2011, www.fire-italia.it/indagini/ENEL_barriere/2011-07%20Barriere_non_economiche_ENEL_ES.pdf