Government agencies and budget

Publicly-funded programmes aim to overcome the barriers for energy efficiency that market actors face and to strengthen their incentives. The programmes should therefore include and integrate all the sector-specific policies and measures, particularly information, individual advice, financial incentives, financing, training, and research, development and demonstration.

Worldwide implementation status
They have already been widely implemented around the world. Examples of financial incentive programmes for building equipment is shown in the Czech Republic, where in 2009 with an annual budget of 61 million euro, the government started the Green Savings programme that supports heating installations and the utilisation of renewable energy in reconstructions and new buildings (Zelena Usporam).

Governance level
Budget-funded programmes can be implemented at national, trans-national, regional or local level.

Publicly-funded programmes can cover the residential, industrial, commercial or public sector.

Related sectors

• services
• residential
• industrial

Publicly-funded programmes can support the market introduction or breakthough in the most energy-efficient appliances in all sectors and end uses of energy.

For example:
• Refrigerators and freezers
• Cooking Stoves
• Washing machines
• Clothes driers
• Televisions
• Office equipment

Depending on the scope of the publicly-funded programme, it can address actors on both the supply side and the demand side, and those who are specialised in end-use energy efficiency improvement actions. They include

Related target groups

• Engineering consultant
• Retail company
• Investor
• User
• Energy Service Company
• Bank
• Research institution and university

As the programmes usually combine information and financial incentives or financing, in most cases the direct beneficiaries will be investors and users of energy-efficient appliances.

The indirect beneficiaries of government programmes are numerous and vary depending on the supported programmes. Actors on the supply sideespecially benefit indirectly because they can acquire jobs and gain experience.

Direct beneficiaries

• Investor

• User

• Retail company

Indirect beneficiaries

• Engineering consultant

Barriers addressed by governments through their programmes can be related to the market risk for suppliers and to a lack of information, motivation and financing on the investor side.

Relevant barriers

• Knowledge and information barriers: Particularly unavailability of information and Information search costs The information component of the programmes will reduce or overcome these important barriers for potential investors and also some suppliers.
• Economic and financial barriers: especially poor access to financing /lack of capital and risk exposure, irreversibility, discount rate required Financial incentives or financing are direct means of overcoming such economic or financial barriers for potential investors in energy efficiency. The signal to the market will also reduce risk and uncertainty for (potential) providers of energy-efficient technologies and solutions that they will find a market.
• Lack of interest and motivation in energy efficiency-improvement: In particular: transaction costs or hassle/inconvenience (in combination with) time constraints, focus on core activities and small size, low priority The financial incentives, as well as the information, will motivate investors and suppliers to consider the energy-efficient technologies and solutions supported by the programmes. The programmes should make it easy to actually implement energy efficiency.

Relevant incentives

• Directly increasing earnings or profits for actors on the supply side: Particularly if all three regulatory actions (recovery of programme costs; bonus for energy savings; and decoupling of revenues from energy volume) are implemented, energy companies will have a good incentive to run energy efficiency programmes, as they will increase their profits. The programmes will then also increase profits of suppliers of energy-efficient technologies and solutions to final consumers.
• Improved reputation: Assisting their customers to save energy and costs will increase the reputation of energy companies and may induce them to such programmes, even if the regulator does not offer a bonus payment. However, this is usually a much weaker incentive than the bonus.
• Saved energy costs: These are a major incentive for energy company customers to participate in the programmes and invest in energy efficiency.

Other policies, such as Minimum energy performance standards (MEPS) and Mandatory comparative energy labels or Energy performance certificates, or RD&D funding can provide an important basis for deciding which programmes/ measures to promote. Programmes should target solutions that exceed MEPS in energy efficiency by far, such as super-efficient appliances. They can thus prepare the next revision of MEPS.

• establish the rules and procedures of the programme 
• implement in co-operation with local agents, especially the evaluation of applications and funds approval
• monitoring and evaluating the energy savings and cost-effectiveness

Funding
The government’s budget needs to have sufficient resources allocated to the various programmes.

Test procedures
The programmes will normally rely on test procedures generated, e.g. in the preparation of MEPS and energy labels but not develop own specific test procedures for energy efficiency.

Others
The government agencies in charge of programme development and implementation need highly qualified staff with knowledge of energy efficiency solutions and potentials as well as programme design, implementation, and evaluation.

These will depend on the type of programme to be implemented. For instance, for a financial incentive programme the main funding areas, the rules (including eligibilities and energy efficiency requirements) and procedures, and the level of the financial incentives should be determined at the outset. In addition, a comprehensive cost and market assessment is essential for developing an appropriate level of funding and financial incentives. Furthermore, to ensure the effectiveness of the programme, the interactions with other policy instruments also need to be planned and communicated. Finally, monitoring and evaluation should be in place.

Quantified target
Although a publicly-funded programme does not need a quantified target, such as the amount of energy saved per year or number of participants, we recommend it. It may have a fixed amount of budget within a certain time period.

Co-operation of countries
International co-operations that share best practices of the design and implementation of programmes funded by public budgets and implemented by government agencies can help policy-makers at national, regional/local level to improve their policies.

Monitoring
Monitoring and reporting procedures need to be specified in the description of the publicly-funded programme.
For evaluation of energy savings from the programmes, the documentation should cover the number of participants or beneficiaries, the energy efficiency actions they have taken (e.g., purchase of energy-efficient buildings or refrigerators), and the unitary gross energy savings achieved by each action (either via agreed deemed savings or ex ante agreed calculations, or via ex-post evaluations). To ensure sufficient and useful monitoring and evaluation data can be provided from the programmes, the provision of this data should be part of the funding requirements to programme beneficiaries.
For evaluating economic benefits and costs, implementing agencies need to separately monitor their costs incurred, for programme design, administration, communication and evaluation costs and for any financial incentives. They should also monitor the incremental part of the energy or power (kW) prices that the participants/beneficiaries would have paid for the energy or power they saved. Furthermore, incremental costs incurred by the customers to invest in energy efficiency or operate their premises and equipment in an energy-efficient way need to be estimated via market monitoring or ex-post evaluation.

Evaluation
In order to be credible, evaluation should be done by independent institutes or consultants and not by the government agencies themselves.
The possibilities and formulas for evaluating energy savings will depend on the type of energy efficiency action supported as well as the type of energy efficiency programme (e.g., information only programmes are more difficult to evaluate than financial incentive programmes, see our detailed files on these types of policies and measures). The same holds for economic benefits and costs from either the customer/participant perspective or that of the national economy/society.
In addition to the data directly monitored for the energy efficiency programmes, evaluation of net energy savings compared to baseline trends should address side-effects such as rebound, multiplier, and free-rider effects, and the ‘lifetime’ and potential deterioration of energy savings.
For the economic benefits from the perspective of the national economy/society, standard values for the incremental energy supply costs that will be avoided in the long run for a kWh of energy or a kW of load should be developed by the government.

Relevant individual dynamics and side-effects

• Minimising free-rider effects: The programmes should also be designed to minimise free-rider effects, e.g., by promoting only technologies and solutions with high energy efficiency levels while maximising uptake of these at the expense of low-efficiency solutions. Otherwise, publicly-funded programmes can create free-rider effects where energy efficiency technologies would have been implemented anyway by the investors even without the programmes (UNEP 2007; Rezessy & Bertoldi 2010).
• Creating Spill-over effects: Publicly-funded energy efficiency programmes can have spill-over effects, when the market transformation process of specific energy efficiency products is being advanced with the programme.
• Dynamic market transformation and/or innovation: Publicly-funded energy efficiency programmes should aim to increase the demand for specific energy efficiency products and thus stimulate market dynamics of these technologies.
• Avoiding lost opportunities: The programmes should also aim to avoid lost opportunities by trying to maximise both participation rates and energy savings per participant or for the energy-efficient technologies and solutions promoted.
• Minimising rebound effects: Energy efficiency funds should try to design their programmes so that they minimise rebound effects. This can include absolute limits on the energy consumption of energy-efficient appliances as well as educating consumers on energy-efficient use of appliances.

Sustainability aspects
Publicly-funded energy efficiency programmes can be designed to promote sustainability aspects, such as resource efficiency, by including these aspects in their scope, e.g. for advice and grants.

Co-benefits
The increasing demand of granted energy efficiency products creates job opportunities in these fields. In addition, when a publicly-funded programme targets social groups having low income and low chance to obtain credits, it also addresses the social sustainability.

• The appropriations for programmes in the government’s budget are more likely to be subject to cuts and fluctuations which leads to stop-and-start in progress. As a result, potential target groups may hold on their uptake of energy efficiency measures and anticipate the renewed funding or better grant conditions (Rezessy & Bertoldi 2010). 
• There could be a high administrative burden, high transaction costs and a low participation rate, when the application and approval process is too complex (UNDP 2010). 
• There may be a low level of public awareness of the programs (UNDP 2010).

• Sufficient budgetary provisions should be mandated and secured by legislation. 
• The application and verification process should be easy to understand and operate (UNDP 2010). 
• The publicly-funded programme should be accompanied by the provision of information to the target group about the programme and/or energy efficiency options and their cost-effectiveness as well as training for the target group(s) (UNEP 2007; IEA 2007).

The potentially achievable energy savings depend highly on the programme. An example for the energy efficiency improvement of building equipment shows the achievable energy savings: the Green Savings programme initiated by the Czech Republic aims to support heating installations utilising renewable energy in new or refurbished residential buildings. The energy savings over the next 15 years of the granted projects between April and end 2009 are estimated to be 267 GWh (Valentová 2009) .

The costs of an energy efficiency programme depend highly on the programme setting. For instance, the overall allocation of the Green Saving programme in the Czech Republic is up to 25 billion Czech crowns (around EUR 1 billion).

With proper design and implementation, programmes operated by government agencies and funded from the public budget can be highly cost-effective for society, beneficiaries and even for the government’s budget.