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Glossary · Energy industry & energy transition

Efficiency

Efficiency Energy power system Energy Efficiency efficiency Glossary

Efficiency describes the relationship between the input that is used and the benefit that results. In the energy sector this usually means: a given service such as light, heat, propulsion or computing power is provided with less energy, lower losses or lower follow-on costs. What an efficiency figure tells you depends on what counts as input and what counts as benefit. An efficient lamp delivers more light per kilowatt hour. An efficient electric motor delivers more mechanical work from the same amount of electricity. An efficiently organised power system secures supply, grid stability and decarbonisation with as few unnecessary conversions and bottlenecks as possible and makes good use of its assets.

Legal definition in the EU and Germany

The EU Energy Efficiency Directive (EU) 2023/1791 defines energy efficiency in Article 2, point 8, in general terms as the ratio of output of performance, services, goods or energy to the input of energy. The benefit therefore does not have to be energy. It can also be a product or a service. The same directive defines "energy system efficiency" as the selection of energy-efficient solutions that at the same time enable a cost-efficient decarbonisation pathway, additional flexibility and efficient use of resources. It also enshrines the "energy efficiency first" principle. Under the directive, national regulatory authorities are also to apply it when taking decisions on electricity and gas infrastructure, expressly including network tariffs.

In Germany, the Energy Efficiency Act (EnEfG) adopts this definition almost word for word in § 3 no. 14. It also defines final energy: the part of primary energy that is available to consumers after deduction of conversion and transmission losses. Ambient heat, ambient cold and solar thermal energy expressly do not count as final energy. The EnEfG is currently being amended. On 24 June 2026 the Federal Cabinet adopted a draft that is meant to implement the EU directive in full and to largely roll back national obligations that go beyond EU law. According to the sources reviewed here, the draft was still in the parliamentary process in autumn 2026. Anyone relying on specific obligations, thresholds or target values must therefore check the law as currently in force.

Efficiency ratio, losses and system boundary

Technically, efficiency is often stated as an efficiency ratio. This is the ratio of usable output energy to input energy, usually in percent. A motor with 90 percent efficiency converts 90 percent of the electrical energy it takes in into useful mechanical energy. The remainder is lost, mostly as heat. For power lines one speaks of grid losses rather than of an efficiency ratio. For storage systems the round-trip efficiency matters: it indicates what share of the electricity put into storage is available again after charging and discharging.

The term becomes blurred when different levels are mixed up. Electricity consumption is a quantity of energy, usually in kilowatt hours. Power, by contrast, describes the demand at a given moment, for example in kilowatts or megawatts. Final energy is the energy that arrives at the consumer, for example electricity, gas or district heating. Primary energy is the energy content of the original energy sources before conversion and transport. This distinction is central to electrification. Electricity consumption can rise while final energy and primary energy fall overall. This is because electric applications often replace processes in which a lot of energy is lost as waste heat.

An efficiency comparison also needs a statement about the quality of the energy. Electricity and mechanical energy can be converted fully into work. Heat can do so the less, the closer its temperature is to the ambient temperature. The EnEfG describes this usable share as exergy content. Anyone who uses high-quality electricity or fuel for low-temperature heat can therefore achieve a high energy efficiency ratio and still waste a lot of capacity to do work.

Example: heat pump

Heat pumps show why simple percentage figures do not always hold. A heat pump delivers several kilowatt hours of heat from one kilowatt hour of electricity. It lifts ambient heat from air, ground or water to a usable temperature level. Its coefficient of performance (COP) and its seasonal performance factor can therefore be greater than 1 without violating any physical laws. The heat is not generated entirely from electricity but is, to a large extent, brought in from the surroundings. How high the value is in practice depends above all on the temperature lift: the colder the source and the higher the required flow temperature, the less favourable it turns out. Defrosting cycles and domestic hot water production reduce it further.

For comparisons with a boiler, it is important to disclose the system boundary. Because ambient heat does not count as final energy under the German definition, a heat pump usually needs considerably less final energy than a gas or oil boiler for the same amount of heat. However, how much primary energy and how many emissions it causes additionally depends on how the electricity is generated and when it draws it. A comparison that merely sets efficiency ratios in percent side by side without naming the accounting boundary is therefore of little informative value.

Efficiency is not the same as savings

A more efficient application needs less energy for the same service. Whether total consumption actually falls depends on how intensively it is used, which devices are replaced and what cost incentives arise. If a device becomes cheaper to operate, its use may increase. Experts distinguish the direct rebound effect (more use of the same product), the indirect one (the money saved flows into other energy-intensive consumption) and the economy-wide one. According to analyses by the German Environment Agency (Umweltbundesamt), the size of the effects varies greatly by sector. For lighting, the direct rebound tends to stay below 10 percent; for space heating and car transport it is above average. Indirect effects come on top. If the additional consumption exceeds the original saving, this is called backfire. It is rather the exception, but possible. For assessment, therefore, what counts is not a device's laboratory value but consumption in actual operation, over its entire lifetime and in the respective usage pattern.

Levels of efficiency in the power system

On the generation side, the issue is conversion losses in power plants and generation facilities. For fossil-fuel power plants, the efficiency ratio determines how much fuel is needed for each kilowatt hour generated. In combined heat and power, the heat used is also counted, which is why EU law distinguishes between electrical efficiency and overall efficiency. For photovoltaics and wind energy, the efficiency ratio of an individual installation says less about its effect in the system, because sun and wind cause no fuel costs. More important here are location, full-load hours, grid connection, land requirement and the time profile of feed-in.

On the consumption side, efficiency concerns appliances, buildings, industrial processes, lighting, data centres, drives and heat supply. A variable-speed industrial drive can save electricity and at the same time reduce load peaks. A well-insulated building envelope reduces heat demand and thereby the electrical load of a heat pump on cold days. Efficiency measures thus do not only avoid kilowatt hours. They can also reduce the need for grids, generation capacity and reserve capacity.

With weather-dependent generation, the timing of consumption becomes more important. A kilowatt hour remains a kilowatt hour. For grid operation and the electricity market, however, it makes a difference whether it is consumed in an hour with plenty of wind and solar power or in a cold, low-wind evening peak. Efficiency reduces the amount of energy required. Flexibility shifts consumption or generation in time. The two can complement each other but are not interchangeable. A very efficient device can be inflexible. Conversely, a flexible load can benefit the system despite higher energy demand if it avoids bottlenecks or absorbs surplus electricity.

Rules, incentives and economic viability

Efficiency is often understood in a shortened way as purely a property of devices. Losses and inefficiencies also arise, however, from rules, responsibilities and incentives. Network charges, tariffs, funding conditions, levies, metering concepts and market deadlines help determine whether efficient behaviour pays off economically. Anyone who pays only a fixed energy price per kilowatt hour receives hardly any price signal about when to consume electricity. If industrial flexibility triggers high fixed costs or regulatory disadvantages, technically available potential remains unused. EU law takes up this connection by also applying the "energy efficiency first" principle to regulatory authorities' decisions on network tariffs.

Efficiency and economic viability must likewise be considered separately. A measure can be energy-efficient and still not pay off for the individual, for example because of high investment costs, short service life or unfavourable tariffs. Conversely, a profitable measure may be of little benefit to the overall system if it shifts costs onto grids, other consumers or later points in time. From a system perspective, therefore, it is not only a matter of whether a kilowatt hour is saved. What is also decisive is which infrastructure is thereby less heavily used and which costs actually fall away.

This is particularly clear with storage. A battery storage system has conversion losses: every kilowatt hour discharged is smaller than the amount charged. It can nevertheless make sense if it shifts electricity from hours with plenty of renewable generation into scarcity hours, reduces grid bottlenecks or provides balancing energy. The round-trip efficiency only says how large the losses are. It does not say whether the storage system makes economic or operational sense in the specific system.

Distinction from sufficiency

Efficiency is not the same as sufficiency. Efficiency improves the ratio of input to benefit and leaves the service as unchanged as possible. Sufficiency changes the scope or the nature of the desired benefit, for example through less living space, lower room temperatures or fewer trips. For political and economic debates this distinction is important. Technical standards, price signals and behavioural change are different instruments with different responsibilities.

Significance for the energy transition

For the energy transition, efficiency is important because it determines how much has to be expanded and adapted. Every kilowatt hour permanently avoided does not have to be generated, transported, stored or backed up. At the same time, electricity consumption can rise even though the energy system as a whole becomes more efficient. Electric mobility replaces combustion engines with high waste-heat losses. Heat pumps replace heating systems that burn fuels. Electric industrial processes can displace fossil process heat. The share of electricity then grows while final and primary energy use may fall. Anyone who looks only at rising electricity volumes overlooks this improvement.

An efficiency figure is therefore informative only once the boundary under consideration is named: device, building, process, grid section, market rule or the entire energy system. Without this boundary it remains open which losses are counted, which benefit is meant and which costs become visible. In the power system, efficiency is most informative when technical efficiency ratios, time-based load profiles, infrastructure needs and institutional incentives are considered together. An efficient solution is not automatically the one with the lowest energy input at a single point. The efficient solution is the one that provides a clearly named energy service with the lowest possible avoidable losses and follow-on costs.

Sources

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Edited by eCMS on 11.11.2026 19:42

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