Efficient and service oriented infrastructure operation: the role of the Energy Efficiency Directive in driving change towards Multi Utility Service Companies

Infrastructure operation can be described as separate utility systems provisioning unconstrained demand, with higher throughput corresponding to higher profits. In contrast, an efficiency perspective would prioritize coordinated infrastructure operation focused on essential service delivery at the lowest possible resource use. We investigate how to accelerate the adoption of alternative infrastructure operation configurations which are: centred on the end-user and their demand for services; concerned with resource efficiency improvements; and consider multiple infrastructure streams. We call these alternative modes of operation Multi-Utility Service Companies (MUSCos). Market and system failures, that arise in privatised utility systems, present barriers to the adoption of MUSCos. This paper categorises these barriers and investigates the extent to which the Energy Efficiency Directive (EED) overcomes them. The EED is analysed because energy is required to deliver the majority of household infrastructure services and as a result energy policy will have influence over the related infrastructure systems. Our research finds that the EED could increase adoption of service-oriented contracts in the public sector, potentially resulting in spillover to the domestic and commercial sector. However, without changes to accounting practices, financial instruments and standardisation of contracts, investment risks and transaction costs would remain high and it is unlikely that this spillover would occur. In addition, the continued fragmentation of policy and cross-sector information asymmetries augments existing barriers to more integrated infrastructure operation. We describe additional measures that might overcome these weaknesses; including measures to reduce contractual barriers and risks in the domestic sector, provide more appropriate financing and accounting arrangements and more explicitly address the interconnectivity of infrastructure systems in future policy.