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1. National energy regulatory authorities shall apply the energy efficiency first principle, in accordance with Article 3 of this Directive, in carrying out the regulatory tasks provided for in Directives 2009/73/EC and (EU) 2019/944 regarding their decisions on the operation of the gas and electricity infrastructure, including their decisions on network tariffs. In addition to the energy efficiency first principle, national energy regulatory authorities may take into account cost efficiency, system efficiency and security of supply, and market integration, while safeguarding the Union’s climate targets and sustainability, as set out in Article 18 of Regulation (EU) 2019/943 and in Article 13 of Regulation (EC) No 715/2009.

2. Member States shall ensure that gas and electricity transmission and distribution system operators apply the energy efficiency first principle, in accordance with Article 3 of this Directive, in their network planning, network development and investment decisions. National regulatory authorities or other designated national authorities shall verify that methodologies used by transmission system operators and distribution system operators assess alternatives in the cost-benefit analysis and take into account the wider benefits of energy efficiency solutions, demand-side flexibility and investment into assets that contribute to climate change mitigation. National regulatory authorities and other designated authorities shall also verify the implementation of the energy efficiency first principle by the transmission system operators or distribution system operators when approving, verifying or monitoring their projects and network development plans pursuant to Article 22 of Directive 2009/73/EC and to Article 32(3) and Article 51 of Directive (EU) 2019/944. National regulatory authorities may provide methodologies and guidance on how to assess alternatives in the cost-benefit analysis in close cooperation with the transmission system operators and distribution system operators, which can share key technical expertise.

3. Member States shall ensure that transmission and distribution system operators monitor and quantify the overall volume of network losses and, where it is technically and financially feasible, optimise networks and improve network efficiency. Transmission and distribution system operators shall report those measures and expected energy savings through the reduction of network losses to the national energy regulatory authority. Member States shall ensure that transmission and distribution system operators assess energy efficiency improvement measures with regard to their existing gas or electricity transmission or distribution systems and improve energy efficiency in infrastructure design and operation, especially in terms of smart grid deployment. Member States shall encourage transmission and distribution system operators to develop innovative solutions to improve the energy efficiency of existing and future systems through incentive-based regulations in accordance with the tariff principles set out in Article 18 of Regulation (EU) 2019/943 and Article 13 of Regulation (EC) No 715/2009.

4. National energy regulatory authorities shall include a specific section on the progress achieved in energy efficiency improvements regarding the operation of the gas and electricity infrastructure in the annual report drawn up pursuant to Article 41 of Directive 2009/73/EC and pursuant to Article 59(1), point (i), of Directive (EU) 2019/944. In those reports, national energy regulatory authorities shall provide an assessment of the overall efficiency in the operation of the gas and electricity infrastructure, the measures carried out by transmission and distribution system operators and, where applicable, provide recommendations for energy efficiency improvements, including cost-efficient alternatives that reduce peak loads and overall electricity use.

5. For electricity, Member States shall ensure that network regulation and network tariffs fulfil the criteria set out in Annex XIII, taking into account network codes and guidelines developed pursuant to Regulation (EU) 2019/943 and the obligation set out in Article 59(7), point (a), of Directive (EU) 2019/944 to allow for necessary investments in the networks to be carried out in a manner ensuring the viability of the networks.

6. Member States may permit components of schemes and tariff structures with a social aim for net-bound energy transmission and distribution, provided that any disruptive effects on the transmission and distribution system are kept to the minimum necessary and are not disproportionate to the social aim.

7. National regulatory authorities shall ensure the removal of those incentives in transmission and distribution tariffs that are detrimental to the energy efficiency of the generation, transmission, distribution and supply of electricity and gas. Member States shall ensure efficiency in infrastructure design and the operation of the existing infrastructure, in accordance with Regulation (EU) 2019/943, and that tariffs allow for demand response.

8. Transmission system operators and distribution system operators shall comply with Annex XIV.

9. Where appropriate, national regulatory authorities may require transmission system operators and distribution system operators to encourage high-efficiency cogeneration to be located close to areas of heat demand by reducing the connection and use-of-system charges.

10. Member States may allow producers of electricity from high-efficiency cogeneration wishing to be connected to the grid to issue a call for tender for the connection work.

11. When reporting under Directive 2010/75/EU, and without prejudice to Article 9(2) of that Directive, Member States shall consider including information on energy efficiency levels of installations undertaking the combustion of fuels with total rated thermal input of 50 MW or more in the light of the relevant best available techniques developed in accordance with Directive 2010/75/EU.