ERSE, the Portuguese Energy Services Regulatory Authority, has established a mechanism to promote efficiency in electricity consumption called PPEC, which consists of a tender mechanism, by which eligible promoters submit measures to improve electricity consumption efficiency. These measures are selected through technical and economical evaluation criteria presented in this paper. The benefits for the electricity sector and the environment from PPEC 2008 are much higher than the correspondent costs, up to a factor of 9 in the services segment. From 2007 to 2008, the expected cumulative avoided consumption more than doubled from 390GWh / 144 455 tonCO2 to 878GWh / 324 794 tonCO2. The costs per ton of CO2 avoided (PPEC 2008: 9,2€/MWh; PPEC 2007: 21,2€/MWh) are much lower than the cost resulting from the implementation of equivalent measures in the supply side, such as the promotion of special regime generation (41,6€/MWh). INTRODUCTION The purpose of this paper is to demonstrate the importance of measures to improve electricity consumption efficiency, that act on the demand side, in meeting international and national objectives for CO2 emissions reduction. The most effective way to promote energy efficiency is through the definition of tariffs that allow the recovery of costs associated with each and every activity of the electricity sector and by tariff structures and prices that reflect marginal or incremental costs. This methodology is incorporated in the Portuguese electricity tariff code. Nonetheless, environmental externalities not reflected in prices and the existence of barriers to the adoption of efficient behaviours justify the implementation of initiatives to foster energy efficiency. DEMAND SIDE ELECTRICITY EFFICIENCY PLAN (PPEC) ERSE has developed a mechanism for promoting efficiency in electricity consumption – “Plano de Promocao de Eficiencia no Consumo” (PPEC). PPEC consists of a tender mechanism, by which eligible promoters (suppliers, network operators, consumers’ rights associations, energy efficiency agencies, etc) submit initiatives to improve electricity efficiency in the industrial, services and household/residential sectors. PPEC budget has risen from 20 million Euros for both 2007 and 2008 to 23 million Euros for both 2009 and 2010, representing about 0,2% of final prices charged to consumers each year. Those amounts are supported through the Global Use of System Tariff, paid by all consumers. Types of measures admissible PPEC comprises two types of measures: Tangible – installation of equipment with a level of efficiency superior to standard equipment on the market, therefore producing measurable consumption reductions. In Table 1 some examples of tangible measures are shown, as well as their technical characteristics. Intangible – disseminating information on energy efficient practices in order to promote a change in behaviours. An example of this kind of measures is energetic audits, information campaigns, seminars and conferences. Measure Assumptions Residential lighting (Fluorescent Compact Lighting 18 W) Aimed for the household segment Useful lifetime: 6 years Annual consumption reduction: 62 kWh (relative to 75W incandescent light bulb) Electronic ballasts Aimed for the services segment Useful lifetime: 16 years Annual consumption reduction: 63 kWh (relative to a ferromagnetic ballast and considering T8 bulbs of 36W) Electronic speed variator (<=70KW) Aimed for the industrial segment Useful lifetime: 15 years Annual reduction in consumption: 25% Table 1. Technical characteristics of tangible measures (examples) TECHNICAL AND ECONOMIC CRITERIA FOR EVALUATING ENERGY EFFICIENCY MEASURES The measures are analysed and approved by means of a competitive process and ranked according to pre-established rules, based on a cost-benefit analysis. Evaluation criteria for energy efficiency tangible measures In evaluating tangible measures, the first step is to calculate the Social NPV (Net Present Value from a social C I R E D 20th International Conference on Electricity Distribution Prague, 8-11 June 2009