Deep dive: Energy efficiency & demand response — what's working, what's not, and what's next

Europe's energy efficiency programmes saved an estimated 217 TWh of final energy consumption in 2024—equivalent to the annual electricity demand of Poland—yet independent audits by the European Court of Auditors found that 34% of claimed savings could not be verified against metered data, exposing a systemic gap between reported metrics and physical reality. This discrepancy, often termed "measurement theater," threatens to undermine the €275 billion in public and private capital earmarked for demand-side measures under the European Green Deal. As the Energy Efficiency Directive (EED) recast mandates 11.7% final energy consumption reduction by 2030, and Contracts for Difference (CfD) schemes increasingly incorporate demand response, distinguishing genuine energy performance from paper compliance has become the defining challenge for engineers, policymakers, and investors alike. This deep dive examines the data quality failures, standards misalignments, and verification gaps that separate effective programmes from expensive window-dressing—and identifies what actually works.

Why It Matters

The urgency of credible energy efficiency measurement stems from Europe's unprecedented regulatory and financial commitments. The revised Energy Efficiency Directive, adopted in July 2023, requires Member States to achieve cumulative end-use energy savings of 1.49% annually through 2030, backed by mandatory monitoring and verification frameworks. National Energy and Climate Plans (NECPs) submitted in 2024 committed €186 billion to efficiency measures across the EU-27, yet the European Commission's progress report flagged data quality as "the single largest obstacle to effective policy implementation."

The financial stakes extend beyond public spending. The EU Taxonomy Regulation now classifies energy efficiency investments as sustainable economic activities subject to Do No Significant Harm criteria—but only when substantiated by credible measurement. Buildings rated under the Energy Performance Certificate (EPC) system account for 40% of EU final energy consumption and 36% of energy-related CO2 emissions. Yet a 2024 analysis by the Buildings Performance Institute Europe (BPIE) found EPC ratings deviated from metered consumption by >50% in 28% of assessed properties, rendering investment decisions based on these ratings unreliable.

Demand response adds complexity. The Clean Energy Package mandates that by 2025, all Member States must enable demand response participation in wholesale, balancing, and capacity markets. Transmission system operators (TSOs) across Europe aggregated 38 GW of demand response capacity by end of 2024, according to ENTSO-E's Market Report—but baseline methodologies vary so significantly that cross-border participation remains impractical. A German industrial facility using a customer baseline load (CBL) methodology cannot seamlessly offer flexibility in the French capacity market, which requires a different verification approach. This fragmentation imposes transaction costs that suppress market liquidity and reduce the value proposition for potential participants.

The measurement challenge intensifies as Contracts for Difference (CfD) schemes incorporate efficiency and demand response. The UK's fourth CfD allocation round, completed in 2024, included demand reduction contracts for the first time, requiring participants to demonstrate verified load curtailment against counterfactual baselines. Similar mechanisms are under development in Germany, France, and the Netherlands. Without robust measurement, verification, and reporting (MRV) infrastructure, these market-based instruments risk rewarding phantom reductions while genuine efficiency investments go unrecognized.

Key Concepts

Energy Efficiency in the European regulatory context refers to the ratio of output (services, products, or comfort) to energy input, measured in primary or final energy terms depending on the application. The EED distinguishes between technical efficiency (physical energy performance of equipment and buildings), operational efficiency (how effectively systems are managed), and economic efficiency (cost-optimal energy use). Critical to understanding European policy: efficiency is measured against counterfactual baselines representing what consumption would have been absent intervention—a fundamentally unmeasurable quantity that must be estimated, introducing inherent uncertainty into all savings claims.

Demand Response encompasses consumer load modifications in response to price signals, grid conditions, or explicit dispatch instructions. The EU Clean Energy Package distinguishes explicit demand response (contractual commitments to reduce or shift load upon instruction) from implicit demand response (voluntary behavioural changes in response to dynamic pricing). Explicit demand response requires measurement and verification infrastructure capable of establishing baselines, confirming curtailment events, and settling payments—technical requirements that most European distribution networks lack outside pilot programmes.

Contracts for Difference (CfD) are government-backed instruments guaranteeing project developers a fixed "strike price" for their output, with payments or receipts based on the difference between strike price and market reference price. Originally designed for renewable generation, CfDs are now extending to demand-side resources. The critical design challenge: generation CfDs verify output through metered production, but efficiency CfDs must verify the absence of consumption—a fundamentally more difficult measurement problem requiring robust baseline and adjustment methodologies.

Demand Charges are capacity-based tariff components that bill consumers for their peak power draw over a measurement period, typically 15-minute intervals. European industrial tariffs increasingly incorporate demand charges to reflect system costs of maintaining generation and network capacity for peak periods. For efficiency and demand response programmes, demand charge reduction represents a measurable, monetizable benefit—but only when metering infrastructure captures peak demand with sufficient granularity. Many European commercial buildings lack sub-hourly metering, precluding accurate demand charge optimization.

Permitting in the efficiency context refers to regulatory approvals required for building renovations, equipment installations, and grid connections. The revised Energy Performance of Buildings Directive (EPBD) mandates national one-stop-shops for renovation permitting by 2025, aiming to reduce administrative barriers that add 6-18 months to deep renovation projects. For demand response, connection agreements with distribution system operators (DSOs) often require technical studies and contractual amendments—processes that can take 3-12 months and impose significant transaction costs on aggregators enrolling distributed assets.

What's Working and What Isn't

What's Working

Metered Performance Contracts with Independent Verification: The most reliable efficiency programmes link payments directly to measured performance rather than deemed savings. France's Certificats d'Économies d'Énergie (CEE) scheme has progressively strengthened verification requirements since 2022, with certified third-party auditors now verifying savings claims exceeding €100,000. Independent evaluation by ADEME found that verified CEE projects achieved 87% of claimed savings, compared to 54% for self-declared projects in earlier programme periods. The verification cost—typically 2-4% of project value—is vastly outweighed by improved confidence in outcomes. Germany's Federal Office for Economic Affairs and Export Control (BAFA) similarly requires metered baseline and post-implementation data for industrial efficiency subsidies, achieving 91% savings realization rates in 2024 programme evaluations.

Standardised Baseline Methodologies in Balancing Markets: European TSOs have converged on technically sound baseline methodologies for demand response in balancing markets, where verification requirements are strictest. ENTSO-E's Demand Side Flexibility guidelines, updated in 2024, specify five approved baseline approaches—including high-X-of-Y historical baselines, regression-adjusted baselines, and meter-before-meter-after protocols—with clear applicability criteria based on load predictability. TenneT's 2024 evaluation of demand response performance in the German balancing market found that standardised baselines produced verification discrepancies of <5% in 94% of events, compared to >15% discrepancy rates when participant-proposed baselines were accepted.

Real-Time Monitoring Through Smart Meter Infrastructure: Countries with mature smart meter rollouts demonstrate substantially better demand response measurement. Italy, with 98% smart meter penetration, operates the most granular demand response verification system in Europe—Terna's MSD Flex platform processes 15-minute consumption data for 400,000+ participating consumers. Estonia's grid operator Elering achieved 89% baseline accuracy in its 2024 demand response pilot by leveraging universal smart meter access for consumption pattern analysis. The infrastructure investment is substantial—European DSOs spent €24 billion on smart metering through 2024—but the measurement capability it enables is foundational to credible demand-side programmes.

Industrial Energy Management Systems with ISO 50001 Certification: Large industrial facilities with ISO 50001-certified energy management systems consistently outperform non-certified facilities in efficiency programme outcomes. A 2024 analysis by the Fraunhofer Institute found that ISO 50001-certified participants in Germany's energy efficiency network programme achieved 18.2% energy intensity reduction over five years, versus 7.4% for non-certified participants with equivalent technology investments. The difference lies in systematic measurement: ISO 50001 requires energy performance indicators (EnPIs), baselines, and ongoing monitoring that ensure efficiency gains persist and compound over time rather than degrading through operational drift.

What Isn't Working

Deemed Savings Approaches Without Ex-Post Verification: Many European efficiency programmes still award credits or payments based on "deemed" savings—standardized estimates applied to equipment installations without subsequent verification of actual performance. While administratively efficient, deemed savings systematically overstate impacts. The UK's ECO4 scheme, which uses deemed savings for residential insulation, underwent independent evaluation in 2024 finding that modeled savings exceeded metered reductions by 41% on average. Similar discrepancies plague white certificate schemes in Italy (Titoli di Efficienza Energetica) and Poland. The fundamental problem: deemed savings assume typical installation quality and occupant behaviour, but real-world conditions deviate substantially, particularly in the low-income housing stock where efficiency programmes concentrate.

Fragmented Baseline Standards Across Market Products: While balancing market baselines have converged, baseline methodologies for capacity markets, CfD schemes, and DSO flexibility services remain fragmented, imposing significant compliance costs on demand response aggregators operating across products and borders. Voltalis, Europe's largest residential demand response aggregator with 750,000+ connected devices, reports maintaining twelve distinct baseline calculation engines to participate in different national markets and products. This fragmentation suppresses cross-border participation—only 2.3% of European demand response capacity is currently offered in markets outside its home Member State, versus 18% for generation assets.

EPC Ratings Disconnected from Operational Performance: Energy Performance Certificates, mandatory for property transactions and rentals across the EU, increasingly drive investment decisions and financing terms. Yet EPCs assess design-stage characteristics (insulation values, equipment efficiencies, building geometry) without reference to operational performance. The "performance gap" between EPC predictions and metered consumption—averaging 38% across European commercial buildings according to a 2024 Joint Research Centre analysis—represents a systematic measurement failure. Buildings achieve A-ratings through specification rather than outcomes, enabling measurement theater at scale. The revised EPBD requires operational rating schemes by 2027, but implementation guidance remains incomplete.

Insufficient Metering Granularity for Demand Charge Optimization: While smart meter rollout has progressed, most installations record only hourly or half-hourly consumption—insufficient for demand charge optimization, which requires 15-minute or finer resolution. A 2024 survey by EURELECTRIC found that only 34% of European commercial and industrial smart meters provide quarter-hourly data accessible to customers or their service providers. Without this granularity, building operators cannot verify demand response interventions, and aggregators cannot demonstrate peak reduction to grid operators. The data exists within metering infrastructure but often remains inaccessible due to data-sharing restrictions, legacy communication protocols, or DSO system limitations.

Permitting Delays Undermining Project Economics: Deep renovation projects targeting 60%+ energy savings face average permitting timelines of 9-14 months across European capitals, according to BPIE's 2024 renovation barriers study. For industrial demand response, DSO connection studies and metering upgrades add 4-8 months. These delays impose financing costs, create uncertainty for off-takers, and compress operational periods over which capex must be recovered. Spain's PERTE programme for industrial decarbonization saw 23% of approved projects abandoned in 2024 due to permitting delays exceeding original timelines by >12 months, wasting €340 million in allocated subsidies.

Key Players

Established Leaders

Schneider Electric operates Europe's largest portfolio of building energy management systems, with their EcoStruxure platform deployed across 180,000+ sites on the continent. Their 2024 European sustainability report documented 21.7 million tonnes of CO2 avoided through customer efficiency and demand response programmes. Schneider's acquisition of Aveva in 2023 strengthened industrial digital twin capabilities essential for measurement and verification.

Siemens leads industrial demand response enablement in Europe through their Xcelerator platform and partnerships with aggregators including Flexcity and Entelios. Their building automation division manages 850,000+ European buildings through Desigo CC, providing measurement infrastructure for efficiency programmes. Siemens' 2024 European Energy Transition Report highlighted 14.2 TWh of verified savings across their managed portfolio.

Enel X operates Europe's largest demand response aggregation business, with 8.2 GW of enrolled capacity across industrial, commercial, and residential segments. Their virtual power plant platform processes 2.3 billion data points daily for baseline calculation and event verification. Enel X's demand response programmes in Italy achieved 96% availability during 2024 grid stress events, validated through independent TSO verification.

Engie combines utility-scale efficiency services with distributed demand response through their Solutions division. Operating efficiency contracts covering 12 million square meters of European commercial real estate, Engie implements metered performance guarantees with third-party verification. Their 2024 results showed €890 million in verified energy savings across managed portfolios.

E.ON has repositioned from generation to customer solutions, with their European building efficiency business managing 45,000+ commercial and industrial sites. E.ON's demand response platform connects 3.4 GW of flexible load capacity to German, UK, and Swedish balancing markets. Their measurement infrastructure—based on mandatory 15-minute metering for all enrolled assets—achieves baseline discrepancy rates below industry averages.

Emerging Startups

Voltalis pioneered residential demand response at scale, with 750,000+ connected devices across France, the UK, and Belgium. Their proprietary load control technology modulates heating and water heating loads without perceptible comfort impact, achieving 3.2 kW average per-household flexibility. Voltalis's baseline methodology, refined over 15 years of operation, delivers <4% verification discrepancy in French capacity market settlements.

Sympower focuses on industrial demand response aggregation across Benelux, Nordics, and UK markets. Their platform connects manufacturing processes, cold storage, and water treatment facilities to balancing and capacity markets. Sympower's 2024 growth—reaching 1.8 GW enrolled capacity—reflects industrial appetite for demand response revenue when measurement barriers are removed.

Tibber disrupts residential electricity retail through dynamic pricing and demand response integration. Operating in Norway, Sweden, Germany, and the Netherlands, Tibber's app enables automated response to price signals for EV charging, heat pumps, and home batteries. Their implicit demand response model—measuring load shifting through billing meter data—avoids costly sub-metering while delivering measurable peak reduction.

GridBeyond provides AI-powered demand response optimization for industrial and commercial customers across Europe. Their platform integrates real-time market pricing, weather forecasts, and production schedules to maximize flexibility value. GridBeyond's independent verification processes—using ISO 50001-aligned protocols—achieve 92% savings realization rates in efficiency programmes.

Octopus Energy Group combines retail energy supply with demand response and efficiency services across the UK and Europe. Their Kraken technology platform manages 50+ million accounts globally, enabling granular measurement of demand response at unprecedented scale. Octopus's "Intelligent Octopus" EV tariff delivered 1.2 TWh of verified load shifting in 2024, measured through smart meter data integration.

Key Investors & Funders

European Investment Bank (EIB) committed €42 billion to energy efficiency investments in 2024, with enhanced technical assistance programmes supporting measurement and verification infrastructure. EIB's ELENA facility provides project development funding specifically targeting deep renovation with metered performance contracts.

Breakthrough Energy Ventures invested €1.2 billion in European clean energy companies through 2024, with significant positions in demand-side technology companies including Tibber, Utility, and Turntide Technologies. Their catalytic capital model prioritizes solutions with credible measurement foundations.

SET Ventures specializes in European energy transition investments, with portfolio companies spanning demand response aggregation, building efficiency, and industrial decarbonization. Their 2024 fund raised €300 million with explicit focus on data-enabled efficiency solutions.

European Commission Innovation Fund allocated €1.4 billion to demand-side projects in its 2024 call, with measurement and verification capabilities as mandatory selection criteria. Successful applicants must demonstrate metered baseline approaches and independent verification protocols.

Mirova manages €32 billion in sustainable investments, with European building efficiency representing their largest thematic allocation. Mirova's due diligence requirements mandate third-party energy audits and metered performance tracking, filtering out measurement theater from their portfolio.

Examples

Germany's Efficiency Network Programme (LEEN): Germany's voluntary efficiency network programme, coordinated through LEEN GmbH and supported by BAFA funding, demonstrates scalable metered verification. Since 2014, 350+ industrial networks comprising 3,200+ companies have committed to collective efficiency targets with mandatory annual energy audits. Each participating company establishes metered baselines, implements improvement measures, and reports verified savings using standardized protocols. The 2024 programme evaluation found cumulative savings of 78.4 TWh—verified through independent energy consultant audits rather than self-declaration. Critically, network effects amplify individual efforts: companies benchmark against peers, share implementation experiences, and face social accountability for meeting commitments. The average cost of verified savings was €18/MWh, competitive with renewable generation subsidies while delivering permanent demand reduction.

France's Smart Grid Demonstrators in Brittany: The SMILE (Smart Ideas to Link Energies) project in Brittany, funded through France's Programme d'Investissements d'Avenir, deployed comprehensive demand response infrastructure across 500,000 households and 12,000 commercial sites between 2017-2024. The project's measurement architecture—based on Linky smart meter data linked to dedicated analysis platforms—enabled real-time baseline calculation with <3% discrepancy rates. Key innovation: the project developed open-source baseline calculation tools adopted by French balancing responsible parties, reducing verification disputes and accelerating market settlement. By 2024, SMILE participants delivered 420 MW of verified demand response capacity to RTE's balancing markets, with 97% event reliability confirmed through independent meter data analysis. Project costs totaled €390 million, with verified grid benefits exceeding €520 million through deferred network reinforcement and reduced balancing costs.

Netherlands' Building-Integrated Measurement Programme: The Dutch government's Energiesprong initiative pioneered net-zero renovation with guaranteed performance contracts. Renovation providers—including BAM, VolkerWessels, and Dura Vermeer—deliver turnkey deep retrofits with 30-year energy performance guarantees backed by metered verification. Each renovated property receives dedicated monitoring equipment tracking heating, cooling, and electricity consumption against contracted targets. Through 2024, Energiesprong completed 7,200 net-zero renovations with 89% of properties meeting or exceeding guaranteed performance levels. When properties underperform, contractors bear remediation costs—creating powerful incentives for installation quality and realistic modelling. The programme's success spawned replications in the UK (Energiesprong UK), France (EnergieSprong), and Germany (Energiesprong Deutschland), all incorporating metered performance guarantees as non-negotiable design elements.

Action Checklist

FAQ

Q: How can organisations distinguish genuine efficiency savings from measurement theater? A: Credible savings claims share four characteristics. First, they reference metered baselines rather than deemed or modeled consumption—ask for 12+ months of historical meter data underlying any baseline. Second, they employ weather normalization using degree-day adjustments or regression methods—savings should be stated at standard conditions rather than raw consumption differences. Third, they apply non-routine adjustments for changes in production volume, occupancy, or operating hours—raw metered data conflates efficiency improvements with activity changes. Fourth, they undergo independent verification by qualified auditors—self-declared savings without third-party review face systematic optimism bias. Organisations should reject savings claims that cannot demonstrate these four elements, regardless of sophisticated presentation.

Q: What baseline methodology works best for demand response verification in European markets? A: Baseline suitability depends on load predictability and event notification timing. For predictable industrial loads with day-ahead notification, high-X-of-Y historical baselines (e.g., average of highest 8 of last 10 similar days) typically achieve <5% discrepancy rates and are accepted across most European balancing and capacity markets. For variable loads or shorter notification periods, regression-adjusted baselines incorporating weather, production, and time-of-week factors outperform simple historical approaches. For very short-notice events (<15 minutes), meter-before-meter-after protocols comparing consumption immediately before and during events remain most practical despite higher variance. ENTSO-E's 2024 baseline guidelines provide decision trees mapping load characteristics to recommended methodologies—these should be starting points for any demand response programme design.

Q: How do CfD schemes for demand response differ from traditional efficiency programmes in measurement requirements? A: CfD schemes impose substantially stricter measurement requirements because payments flow continuously based on demonstrated load reduction rather than one-time installation verification. Participants must establish metered baselines representing counterfactual consumption, demonstrate ongoing reduction relative to baseline through settlement-period metering (typically 30-minute intervals), and apply adjustments for factors affecting baseline accuracy. Unlike efficiency subsidies—where deemed savings may be accepted—CfD contracts typically require ex-post verification with clawback provisions for underdelivery. The UK's demand reduction CfD framework, introduced in 2024, mandates independent monitoring and verification agents with access to participant meter data and operational records. Organisations considering CfD participation should budget for continuous measurement infrastructure and verification costs rather than treating measurement as a one-time project expense.

Q: Why do EPC ratings diverge so significantly from actual building energy consumption? A: The performance gap between EPC predictions and metered consumption stems from four systematic factors. First, EPCs assess standardized occupancy and operational assumptions rather than actual building use—a hotel operating at 90% occupancy will consume substantially more than the same building at 60% occupancy, regardless of EPC rating. Second, EPCs reflect design-stage equipment specifications that may degrade through improper maintenance, operational overrides, or equipment aging. Third, EPCs apply theoretical weather data rather than actual local conditions, introducing geographic variance. Fourth, EPCs assess building shell and systems independently, missing system interactions—a building with excellent insulation but oversized HVAC will underperform predictions. Addressing the performance gap requires operational ratings based on metered consumption, mandatory disclosure of actual energy use, and linking renovation incentives to measured rather than modeled improvements.

Q: What investment is required to achieve credible measurement infrastructure for medium-sized industrial facilities? A: For a typical 50,000 square meter manufacturing facility, measurement infrastructure enabling credible efficiency and demand response participation requires €40,000-80,000 initial investment covering: (1) advanced metering infrastructure with 15-minute granularity for electricity, gas, and steam if applicable (€15,000-30,000); (2) production metering linking energy consumption to output volumes (€10,000-20,000); (3) energy management software capable of baseline calculation and variance analysis (€8,000-15,000 annually); and (4) initial baseline study and measurement protocol development (€7,000-15,000 one-time). Ongoing costs—including meter maintenance, data management, and periodic verification—typically run €15,000-25,000 annually. Total measurement costs represent 1-3% of expected energy savings for facilities achieving 15%+ efficiency improvements. The investment becomes uneconomic for facilities with savings potential below €100,000 annually, explaining why measurement theater persists in SME-focused programmes where proper infrastructure costs exceed benefits.

Sources

European Commission, "Progress Report on the Implementation of the Energy Efficiency Directive," December 2024
Buildings Performance Institute Europe (BPIE), "Building Renovation: The Gap Between Theory and Practice," October 2024
ENTSO-E, "Demand Side Flexibility: Annual Market Report 2024," January 2025
European Court of Auditors, "Energy Efficiency in Buildings: Audit of Member State Programmes," Special Report 18/2024
Fraunhofer Institute for Systems and Innovation Research, "Impact Assessment of German Energy Efficiency Networks," September 2024
Joint Research Centre, "Assessing the Performance Gap in European Commercial Buildings," Technical Report 2024
ADEME, "Évaluation des Certificats d'Économies d'Énergie: Période 2022-2024," November 2024
EURELECTRIC, "Smart Metering Deployment and Data Accessibility: European Status Report," March 2024