Fit for Energy Efficiency First (EE1st)? An in-depth analysis of how to implement the EE1st principle in Germany, Hungary, and Spain

The recast of the Energy Efficiency Directive proposed by the European Commission as part of the Fit-for-55 package (July 2021) clarified in its new Article 3 that the Energy Efficiency First (EE1st) principle should apply to all planning, policy and major investment decisions related to energy systems as well as non-energy sectors that have an impact on energy consumption and energy efficiency. Member States provided limited, if any, information in their National Energy and Climate Plans (NECPs) in 2019-2020 on what EE1st means in their national context and how they plan to operationalise it. EE1st was then a relatively new concept, and implementing it has proved to be a difficult task for Member States. Acknowledging this, the European Commission developed further guidelines for the implementation of EE1st in the energy, end-use, and finance sectors. To support the implementation of EE1st in the Member States, this report offers a deep-dive analysis of the implementation of EE1st in three different countries: Germany, Hungary, and Spain. Under consideration are the different policy frameworks in these countries, with a focus on buildings and their energy supply (more specifically, power and district heating sectors). The main policies relevant for EE1st implementation, potential, gaps and national specificities are analysed. The policy assessment is based on the combination of literature review and semi-structured interviews. Most of the national policies analysed were not specifically designed to meet the EE1st principle, but some have been identified as fitting EE1st. For example, the main renovation programmes in Germany include criteria or requirements that favour projects achieving higher energy performance and/or combining different types of energy efficiency actions. However, the impact of these programmes on energy supply systems are rarely explicitly considered in their rationale. Rapidly developed incentives to replace fossil fuel heating systems as a response to the current energy crisis due to the Russian war in Ukraine are another example. Although an effective and straightforward direct response to this crisis, it creates a dilemma vis-à-vis the EE1st principle, and locks-in supply systems that could be different or downsized through a holistic approach that would incorporate energy efficiency solutions. Making EE1st a reality requires a systemic approach to policymaking, with integrated planning and investment decisions, so that supply-side and demand-side resources are considered jointly. The debate around EE1st should embrace policies that are often seen from a supply perspective. Reciprocally, the energy efficiency policies should be designed with supply-side impacts in mind, considering the energy system as a whole. Implementing EE1st is not necessarily about adopting new policies: it is firstly about ensuring that the existing policies are in line with the EE1st principle. It is important to identify policies that work against EE1st, such as revenues for municipalities when they award gas concessions (Germany), or subsidised fuel prices (Hungary). The indicator(s) used to set the main energy requirements in building regulations or financial incentives can also bias decisions in favour of investing in supply systems rather than reducing energy demand. The increase in the share of RES in the energy supply could represent an opportunity for more integrated energy planning, policies, and investment decisions if demand-side resources are well recognised as part of the solution. to secure that energy supply can meet a manageable demand. Another opportunity for more integration can be found in the adaptation, upgrading or development of district heating and cooling. The implementation of EE1st also calls for careful planning to anticipate the jobs and skills needed, especially cross-cutting skills: from the capacity to combine different models (for integrated energy modelling) to the capacity to coordinate building trades (for deep renovation dealing with both building envelope and heating system). EE1st means taking a new approach to policymaking, involving more integration across topics, and aligning policy targets and solutions to limit negative impacts (social, economic, urban planning, etc.). Planners, policymakers, professionals in other disciplines and the general public can all get multiple benefits from a successful implementation of EE1st