White Paper presenting 10 reasons why home appliances and electronics are one of the greatest single opportunities to reduce German energy consumption cost-effectively, together with a concept for what a German program to transform the home appliance market could look like.

1. White
Paper
Transformation
of
the
Energy
System
thanks
to
Home
Appliances?
©2013
Anne
Arquit
Niederberger,
Samuel
Shiroff
and
Peter
Böhm
It
may
seem
far-­‐fetched
to
the
lay
person,
but
home
appliances
and
electronics
are
one
of
the
greatest
single
opportunities
to
reduce
German
energy
consumption
cost-­‐
effectively
–
and
therefore
a
critical
element
in
transforming
Germany’s
energy
system.
Below
we
present
10
reasons
why
this
is
the
case
and
suggest
what
a
German
program
to
transform
the
home
appliance
market
could
look
like.
1. The
main
shortfall
with
respect
to
Germany’s
Integrated
Energy
and
Climate
Program
is
with
respect
to
electrical
efficiency
–
and
households
use
a
lot
of
electricity
The
Federal
Environment
Agency
has
found
that
the
energy
efficiency
measures
taken
to
date,
including
in
the
residential
sector,
are
insufficient
for
Germany
to
reduce
its
greenhouse
gas
emissions
by
40%
by
2020
and
its
electricity
consumption
by
10%
in
2020
and
by
25%
in
20501.
According
to
the
Arbeitsgemeinschaft
Energiebilanzen,
final
energy
consumption
in
Germany
was
8744
PJ
in
2011,
with
21.6%
in
the
form
of
electricity
(524
TWh).
Households
consumed
25.1%
of
total
energy
and
27%
(i.e.,
140
billion
kWh)
in
the
case
of
electricity,
exceeding
nuclear
power
generation.
2. Every
household
has
appliances
–
and
they
account
for
half
of
residential
electricity
demand
Refrigerators
and
washing
machines
are
virtually
ubiquitous
in
Germany,
85%
of
households
have
freezers
and
a
large
and
growing
share
are
acquiring
clothes
dryers,
so
the
potential
target
population
is
immense
–
and
should
reduce
any
equity
concerns
associated
with
incentive
programs
funded
by
surcharges.
As
a
result
of
these
high
penetration
rates,
home
appliances
currently
account
for
roughly
50%
of
residential
sector
and
roughly
one-­‐eighth
of
total
electricity
demand.
Four-­‐fifths
of
appliance
demand
is
from
the
major
domestic
appliances
(refrigerators,
freezers,
electric
ranges,
washing
machines,
clothes
dryers,
dishwashers)
and
the
remainder
from
small
kitchen
appliances.
3. Super-­‐efficient
appliances
can
easily
use
50%
less
energy
than
a
typical
product
–
and
the
aggregate
energy
savings
reach
utility
scale
Figure
1
shows
the
share
of
appliance
sales
in
Germany
in
2012
by
energy
efficiency
label
class.
In
the
case
of
fridge-­‐freezers
and
freezers,
dishwashers,
and
clothes
washers,
1
The
reference
year
for
the
GHG
target
is
2006.
The
reference
year
for
the
electricity
target
is
2008,
in
line
with
the
government’s
Energy
Concept.
The
target
electricity
consumption
levels
are
553
TWh/y
in
2020
and
461
TWh/y
in
2050.

2. A+++
appliances
must
be
at
least
50%
more
efficient
than
required
of
A+
appliances.
For
dryers,
new
requirements
will
go
into
effect
in
2013,
but
these
are
not
as
ambitious
as
they
could
be:
According
to
topten.eu,
Siemens,
BEKO
and
AEG
already
offer
A+++
heat
pump
dryers
that
are
over
70%
more
efficient
than
the
mandatory
energy
performance
standard
to
be
introduced
in
November
2013.
With
hundreds
of
thousands
to
several
million
of
each
type
of
appliance
sold
annually
in
Germany,
huge
savings
can
be
achieved,
if
consumers
purchase
the
best
products
instead
of
those
that
meet
mandatory
efficiency
requirements.
4. Investments
in
energy
efficiency
have
many
advantages
over
expansion
of
conventional
power
generation
capacity
• Significantly
lower
overall
cost
and
risk
(fuel
price,
siting,
technology,
compliance)
to
supply
energy
services
than
maintaining
and
supplying
new
generation
from
conventional
power
plants;
• Improved
viability
of
decentralized
renewable
solutions
with
lower
overall
and
peak
demand,
making
it
more
likely
that
fossil
generation
capacity
will
be
retired;
• Greater
customer
satisfaction
through
lower
energy
bills,
greater
end-­‐user
control
and
enhanced
productivity;
• Significant
(and
valuable)
national
economic
co-­‐benefits
(incl.
job
creation,
offsetting
impacts
of
regressive
energy
taxes
on
low-­‐income
households
and
avoidance
of
waste,
pollutant
and
greenhouse
gas
emissions);

3. • Greater
energy
security
resulting
from
decreased
demand
for
fuel
and
electricity
imports;
• Transforming
appliance
markets
more
rapidly,
leading
to
economies
of
scale
and
rapid
price
decreases,
thus
reducing
future
costs
of
climate
mitigation
and
other
energy-­‐related
external
costs.
• Savings
are
modular,
scalable,
quick
to
deploy,
and
sustained
throughout
the
equipment
lifetime.
5. Super-­‐efficient
appliances
can
help
consumers
avoid
higher
energy
bills
as
residential
electricity
rates
continue
to
increase
The
nominal
price
that
a
German
household
pays
for
electricity
has
increased
by
50%
over
the
past
decade
(to
over
€0.26/kWh
by
the
end
of
2012),
such
that
a
typical
household
of
three
persons
that
uses
4250
kWh
of
electricity
annually2
currently
spends
€1100
on
electricity.
And
households
must
brace
themselves
for
even
higher
bills
going
forward,
given
plans
for
major
investments
in
the
electricity
grid
and
local
renewable
energy
networks3.
Residential
electricity
rates
could
easily
increase
by
another
50%
or
more
in
the
coming
decade,
considering
that
the
renewable
energy
surcharge
on
electricity
rates
alone
will
increase
household
electricity
rates
by
another
51%
in
real
terms
by
2021
(to
nearly
€0.40/kWh
incl.
VAT),
compared
with
2011.
6. Households
chronically
under-­‐invest
in
energy
efficiency
The
total
cost
that
a
household
pays
to
own
an
appliance
over
its
lifetime
includes
its
purchase
price,
the
cost
to
operate
and
maintain
it
and
the
cost
to
dispose
of
it
(which,
in
Germany,
is
included
in
the
purchase
price).
Yet
shoppers
seldom
consider
the
full
costs
when
making
purchase
decisions.
Instead,
they
tend
to
focus
on
features
and
purchase
price,
and
the
most
efficient
major
domestic
appliances
tend
to
come
with
a
higher
price
tag.
This
can
lead
to
consumers
paying
more
than
necessary
for
the
energy
services
they
need
(e.g.,
cooling,
washing).
For
example,
the
purchase
price
of
an
A+++
fridge-­‐freezer
might
be
20
–
25%
higher
than
a
comparable
A+
model,
but
energy
bill
savings
would
exceed
this
incremental
cost
by
250%.
Table
1
provides
cost
of
ownership
comparisons
for
appliances
produced
by
Bosch
and
Siemens
Home
Appliances,
which
offer
comparable
levels
of
energy
services
with
differing
efficiency
levels.
2
Source:
EnergieAgentur.NRW
According
to
various
news
reports,
Germany’s
Finance
Minister,
Philipp
Rösler
(FDP),
has
stated
that
implementing
the
new
energy
vision
will
result
in
an
increase
in
household
electricity
bills
of
€30
–
40
annually.
3

4.
7. Programs
to
eliminate
barriers
to
super-­‐efficient
appliances
are
proven
and
cost-­‐
effective
There
are
two
basic
strategies
for
providing
the
underlying
energy
services
in
the
future:
(i)
invest
100%
in
generating
capacity
to
meet
the
projected
level
of
demand,
or
(ii)
invest
in
a
combination
of
end-­‐use
efficiency
programs
to
reduce
demand
and
in
generating
capacity
to
meet
the
residual
demand.
Utility-­‐scale
programs
to
promote
super-­‐efficient
appliances
frequently
overperform
and
have
proven
to
be
far
less
costly
(with
program
costs
typically
below
€0.03/kWh)
and
provide
greater
societal
co-­‐benefits
than
investments
into
new
generation
capacity
(at
a
cost
of
€0.14/kWh
at
present4,
which
is
expected
to
increase
under
the
new
energy
strategy).
At
€0.10/kWh,
far
below
the
cost
of
new
supply,
the
value
of
the
savings
achieved
by
a
super-­‐efficient
fridge
relative
to
a
standard
model
(Table
1)
would
justify
a
rebate
of
over
€200
per
unit,
which
would
eliminate
the
incremental
cost
barrier.
8. Super-­‐efficient
appliances
are
particularly
beneficial
for
low-­‐income
households
Low-­‐income
households
can
least
afford
the
up-­‐front
incremental
cost
of
super-­‐efficient
products
and
get
locked
into
high
energy
bills.
In
addition,
most
components
of
energy
tariffs
are
regressive.
A
supplier
efficiency
scheme
that
specifically
targets
low-­‐income
households
can
therefore
have
a
direct,
positive
social
impact
on
household
budgets
4
Source:
First
table
at
http://de.wikipedia.org/wiki/Strompreis

5. and
indirectly
stimulate
economic
activity
and/or
reduce
the
need
for
the
government
to
provide
financial
support.
A
low-­‐income
household
participating
in
a
program
that
enabled
it
to
acquire
the
most
efficient
products
included
in
Table
1
would
see
its
annual
electricity
bill
cut
by
€172,
relative
to
standard
efficiency
products.5
The
energy
bill
savings
that
accrue
over
the
15-­‐
year
lifetime
of
the
appliances
(€2586,
not
assuming
any
tariff
hikes),
exceed
the
incremental
cost
of
the
super-­‐efficient
appliances
(€1004)
and
offset
72%
of
their
total
purchase
price
(€3598).
When
new,
super-­‐efficient
appliances
are
replacing
existing
appliance
still
in
operation,
the
home
economics
look
even
better:
A
300-­‐liter
refrigerator
purchased
5
or
10
years
ago,
for
example,
could
easily
be
consuming
450
to
600
kWh/y,
so
the
household
could
see
its
electricity
bill
drop
immediately
by
€10
a
month,
just
by
replacing
the
refrigerator.
9. Energy
savings
are
easy
to
quantify
It
is
feasible
to
apply
simplified
engineering
approaches
or
assign
stipulated
electricity
saving
values
for
units
disseminated
under
appliance
programs,
reducing
uncertainty
and
cost
associated
with
quantifying
electricity
savings,
making
them
ideally
suited
to
supplier
obligation
programs
and
white
certificate
trading.
10. There
is
no
Federal
government
measure
currently
in
place
to
explicitly
speed
the
development
and
adoption
of
super-­‐efficient
appliances
in
Germany
In
fact,
there
are
few
policy
options
to
“pull”
the
residential
efficiency
market
at
the
cutting
edge
of
innovation,
which
is
one
of
the
key
market
functions
of
government
programs.
There
is
no
evidence
that
passing
the
EU-­‐ETS
production
cost
increment
(which
is
only
a
minor
component
of
residential
electricity
price
formation
in
Germany)
through
to
households,
for
example,
has
translated
into
a
discernable
price
signal
that
has
encouraged
consumers
to
purchase
high-­‐efficiency
appliances.
Targeted
product
policies
are
therefore
essential
to
speed
diffusion
of
efficient
household
appliances
and
to
achieve
more
cost-­‐effective
domestic
reductions
than
would
otherwise
be
achieved.
Super-Efficient Appliances under the Energy Efficiency Directive
Under
Article
7
of
the
EU
Directive
2012/27/EU
on
energy
efficiency,
each
Member
State
shall
set
up
an
energy
efficiency
obligation
scheme
that
establishes
targets
for
energy
distributors
and/or
retail
energy
sales
companies
operating
in
its
territory
that
are
at
least
equivalent
to
achieving
new
savings
each
year
from
1
January
2014
to
31
December
2020
of
1,5
%
of
the
annual
energy
sales
to
final
customers.
Governments
are
also
free
to
achieve
part
or
all
of
the
targeted
savings
through
alternative
policy
measures.
Regardless
of
the
exact
model
chosen
by
the
German
government,
careful
5
In
net
present
value
terms,
the
total
savings
over
15
years,
discounted
at
3%
per
year,
would
amount
to
€137
per
year.

6. attention
should
be
given
to
the
residential
sector,
because
the
savings
and
co-­‐benefits
could
be
“utility
scale”.
Consider
a
program
to
build
an
efficiency
power
plant
(EPP)
equivalent
to
one
of
Germany’s
remaining
1400
MWe
nuclear
power
plants,
using
super-­‐efficient
appliances
as
the
“fuel”.
One
such
EPP
could
be
built
within
three
years
by
incentivizing
4.6
million
households
annually
to
purchase
the
super-­‐efficient
appliances
in
Table
1
instead
of
the
standard
models.
This
would
be
roughly
a
doubling
of
the
normal
turnover
rate
of
appliances.
At
a
program
cost
of
€0.10/kWh,
an
average
incentive
of
€980
per
household
could
be
paid,
essentially
eliminating
the
incremental
up-­‐front
cost,
thereby
instantaneously
removing
the
greatest
barrier
to
market
transformation
and
making
a
large-­‐scale
program
feasible.
These
efficiency
investments
would
remain
“online”
for
the
roughly
15-­‐year
appliance
lifetime.
While
a
1400
MWe
EPP
would
cost
only
€900
million
all-­‐in
(including
incentives
over
3
years
and
“operation”
for
another
12
years
or
so),
the
average
construction
cost
alone
of
the
equivalent
new
capacity
would
likely
be
at
least
three
times
higher
(€2
million/MW),
without
considering
operating
(or
retirement/decommissioning)
costs,
such
as
fuel
costs
or
renewable
energy
subsidies.
As
a
“free”
side
benefit
of
building
an
EPP,
carbon
dioxide
emissions
could
be
reduced
by
50
million
tons
over
the
12-­‐year
lifetime
of
the
EPP
(applying
an
emission
factor
of
0.5
tCO2/MWh).
The
above
estimates
are
intended
to
be
conservative.
Other
than
in
the
case
of
low-­‐
income
households
that
live
from
paycheck
to
paycheck,
for
example,
it
is
not
necessary
to
completely
offset
the
incremental
cost
for
incentives
to
be
effective.
Most
programs
have
managed
to
keep
program
costs
below
3
euro
cents
per
kWh.
And
it
can
be
expected
that
building
a
1400
MWe
EPP
within
three
years
would
lead
to
such
economies
of
scale
in
appliance
manufacturing
that
a
second
EPP
could
virtually
build
itself,
as
the
incremental
cost
dwindles
to
zero.
It
makes
sense
to
implement
such
a
large-­‐scale
model
immediately.
These
estimations
underscore
the
critical
role
that
residential
energy
efficiency
can
play
in
realizing
Germany’s
new
energy
vision.
A
well-­‐designed
scheme
of
supplier
efficiency
obligations
and
tradable
white
certificates
can
be
expected
to
be
highly
cost-­‐effective6,
and
we
anticipate
that
the
market
will
confirm
our
conviction
that
programs
targeting
home
appliances
would
be
particularly
attractive.
Authors
Dr.
Anne
Arquit
Niederberger,
Policy
Solutions
Samuel
Shiroff,
BSH
Dr.
Peter
Böhm,
BSH
6
The
California
Public
Utility
Commission
has
defined
cost-­‐effectiveness
as
“an
indicator
of
the
relative
performance
or
economic
attractiveness
of
any
energy
efficiency
investment
or
practice
when
compared
to
the
costs
of
energy
produced
and
delivered
in
the
absence
of
such
an
investment.”
(http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/EM+and+V/2009_Energy_Efficiency_Evaluation_Report.htm)