The European Union has set an ambitious goal to tackle climate change, and energy efficiency in the residential sector is among the measures required to close the gap between targeted and actual greenhouse gas emissions. While different policy tools have been applied, the diffusion rate of these measures remains low. A system dynamics simulation model of the residential sector was developed to assess the advantages and drawbacks of energy efficiency policy in the multi-family building sector based on experience accumulated over the last twelve years in Latvia. The model was validated in expert group model building sessions and with historical trends. Simulating the model, a hypothesis was tested that supported the idea that seemingly positive policy tools set the stage for a series of unintended adverse effects due to the complex interactions between different system components. The common assumption that information and financial support should result in significant energy efficiency diffusion proved to be wrong. It instead results in unintended long-term consequences that hamper national energy efficiency goals. The model carried out an analysis and brought insights for improving the effectiveness of government energy efficiency policy. It is concluded that models that broadly describe complex systems are needed to identify effective policies and foresee unintended side effects.

National energy sector management differs from country to country. Therefore, it is important to develop country-specific energy models to analyse the energy demand, structure and potential policy instruments. The paper presents a pathway for adaption and improvement of the standard TIMES model structure to the specific country requirements. The analysis is based on a three-sector (industrial, commercial and residential) case study of Latvia. Literature review presents experience of other research when developing different energy models as well as adapting the TIMES model structure. The main results show a distribution of the final energy consumption and the validation of the obtained results of the sectors studied. Method and intermediate results presented in the paper are part of an ongoing modelling process of Latvia’s energy sector.