Stronger rules and financing mechanisms to boost energy efficiency and renewable energy in the EU

The European Commission has reached a provisional agreement with the European Parliament and Council to reform and strengthen the EU Energy Efficiency and Renewable Energy Directives with the aim to reduce greenhouse gas emissions, in line with the European Green Deal.

The new regulations give legal strength for the first time to the energy efficiency first principle and significantly increase energy efficiency targets, setting the goal of 11.7% by 2030. They also set a binding renewable target for 2030 to a minimum of 42.5%. To fulfil the new requirements, the Directives implement measures to boost renewable energy production and consumption, and further strengthen provisions on energy efficiency financing to facilitate the mobilisation of investments in Member States.

These reforms were suggested in the ‘Fit for 55’ package, a set of proposals presented by the Commission in July 2021 to make the EU’s climate, energy, land use, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, as compared to 1990 levels. These reductions are crucial to clear the path for making the EU become the world’s first climate-neutral continent by 2050, a goal of the European Green Deal.

Energy efficiency and renewable energy are also key pillars of the REPowerEU plan, presented by the Commission last March 2022 to put an end to the EU’s dependency on Russian fossil fuels, as an answer to the perturbances in the global energy market caused by the war in Ukraine. This, together with the Green Deal Industrial Plan, will provide support to Member States for replacing fossil fuels, making a more efficient industry, and generating new ways of producing energy.

Main novelties under the EU Energy Efficiency Directive

An energy efficiency target of 11.7% by 2030

The new Directive significantly increases goals and requirements for energy efficiency in Member States, for both the public and the private sectors:

• The EU energy efficiency target by 2030 is increased to 11.7%, exceeding the 9% goal that was set in the ‘Fit for 55’ proposal. Member States will have to collectively ensure an additional reduction of final and primary energy consumption, compared with the forecasts made in 2020.
• The annual energy savings obligation is increased from the current 0.8% to 1.49% on average for the period 2024-2030. Moreover, EU countries will gradually have to reach 1.9% by the end of 2030.
• All enterprises will have to implement an energy management system, including SMEs that exceed 85TJ of annual energy consumption. Otherwise, they will be subject to an energy audit if their annual consumption exceeds 10TJ. An unprecedented reporting scheme for the energy performance of large data centres is also introduced.
• The public sector will also have to reduce its annual energy consumption by 1.9% and renovate each year at least 3% of the total floor area of its owned buildings, including the regional and local levels.
• EU countries will also have to promote local heating and cooling plans in large municipalities having populations above 45,000, and minimum requirements will be gradually changed to ensure a fully decarbonised district heating and cooling supply by 2050.

Further financing mechanisms for energy efficiency

The deal further strengthens provisions on energy efficiency financing to facilitate the mobilisation of investments, which will be necessary to meet its increased energy efficiency targets and requirements.

Under the new provisions, EU countries will be required to promote innovative financing schemes and green lending products for energy efficiency, by ensuring their wide and non-discriminatory offer by financial institutions.

As a control mechanism, the EU will also require Member States to report on their volume of energy efficiency investments.

A deal to reinforce the EU Renewable Energy Directive

The Commission has also reached a provisional agreement to reinforce the EU Renewable Energy Directive. The agreement raises the EU’s binding renewable target for 2030 to a minimum of 42.5%, up from the current 32% target and almost doubling the existing share of renewable energy in the EU.

By scaling up and accelerating home-grown renewable energy across power generation, industry, buildings and transport, the EU seeks to reduce energy prices over time and gain its energy independence from fossil fuels.

Main targets and measures to boost renewable energy

The proposed EU Renewable Energy Directive will put in place:

• Easier and faster permitting procedures for the rollout of renewable energy, especially in dedicated acceleration areas for renewables, where the potential is high and environmental risks are low. Cross-border cooperation will also be enhanced.
• Unprecedented targets for the industrial sector, establishing an indicative 1.6% annual increase in the use of renewables and a binding target to reach 42% of renewable hydrogen in total hydrogen consumption by 2030.
• Reinforced targets for renewable energy use in transport, with a 14.5% greenhouse gas intensity reduction or 29% share of renewable energy in final energy consumption.
• Higher targets for renewable energy uptake across further sectors of the economy, including the heating and cooling sector, district heating systems and buildings.
• Provisions to support energy system integration via electrification and waste heat uptake, as well as an enhanced system of guarantees of origin to improve consumers’ information. 
• A strengthened bioenergy sustainability criteria to ensure that forest biomass is not sourced from certain areas with particular importance from a biodiversity and carbon stock perspective, and to secure that woody biomass will have to be used according to its highest economic and environmental added value.

A reform of the EU’s electricity market design

The European Commission has also proposed to reform the EU’s electricity market design meant to accelerate the transition to renewable energies, make the EU’s industry cleaner and more competitive, and better protect consumers against the volatile prices of fossil fuels.

This is a response to the energy crisis that arose with Russia’s war against Ukraine, which underlined the need to quickly adapt the electricity market in order to reduce the EU’s dependence on Russian fossil fuels and accelerate the green transition. As part of the Green Deal Industrial Plan, this reform will allow industries to have access to a renewable, non-fossil and affordable power supply which is a key enabler of decarbonisation and the green transition

The new measures aim to incentivise longer-term contracts with non-fossil power production and bring more clean-flexible solutions into the system to compete with gas, such as demand response and storage. This will decrease the impact of fossil fuels on the consumer electricity bills, as well as ensure that the lower cost of renewables gets reflected there. In addition, the proposed reform will boost open and fair competition in the European wholesale energy markets by enhancing market transparency and integrity.

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Marina Marcos