Policy design for Energy Efficiency First: taking stock of measures for moving from principle to practice

Energy Efficiency First (EE1st) means balancing end-use energy efficiency and other demand-side resources with energy generation, networks and other supply-side resources from a societal cost viewpoint. In parallel with its evolving legal status in EU legislation, a growing literature discusses policy approaches to help implement the principle. However, a theoretically substantiated framework for these policies is not yet established. This paper aims to review and categorize dedicated policy approaches for the implementation of the EE1st principle in the EU. First, we provide a theoretical background to policy design for EE1st by referring to market failure theory and explaining how policies addressing EE1st differ from traditional energy efficiency policies. Second, we link theory and practice by taking stock of potential policy approaches for EE1st, attaching them to individual market failures, and thus providing a comprehensive catalogue of policies for moving from principle to practice. The paper shows that there is no single policy lever for implementing the principle. Instead, EE1st requires a broad policy response that goes beyond the established energy efficiency policy portfolio. We conclude by identifying promising innovative policies warranting more detailed assessment, including electricity market reforms moving towards marginal cost pricing, performance-based regulation for network companies and more.