The cost saving acquired by minimising the consumption of energy by a private entity in an Energy Efficiency Obligation Scheme (EEOS) are utilised to fund the investments of the municipality. EEOSs are legitimately enforceable control mechanisms. The entities are assigned duties of meeting certain energy-saving aims by investing in eligible end-use energy-efficiency measures. This is achieved by setting up a quantitative energy-saving target that various enterprises are needed to achieve and a control mechanism to verify, regulate, measure, administer and report the energy savings (RAP, 2012).

Advantages: For the model to achieve its target, it encourages utilities to gather dedicated finances, either as a special charge or as part of the charges of conducting the business. The collected finances are then utilised to implement energy efficiency measures. For example, utilities may compose and adopt utility programmes that ensure there is a provision of funding incentives to end-users, including municipalities. Another advantage is that municipalities will only incur partial upfront investment costs of energy efficiency project. This directly benefits from the pressure created by EEOS in utilities to achieve targets through penalties imposed on the project.

Disadvantages: The implementation of EEOS requires having a strong regulatory framework and strong governance that may prove challenging to some local governments. Further, the municipality does not have full control over the project.

Projects that can be financed by this model: Financing energy efficiency upgrades  in countries that have implemented EEOS.

Case studies:

1. PRODESA - Energy efficiency in Greek municipal buildings

Further reading: