Building Energy communities in Europe

European policymakers want to see more citizen engagement in Europe’s energy sector. One way of achieving this goal is to support the development of more local energy communities. Still, local authorities are feeling the pressure from the ambitious climate goals that have been set over the past decade. Energy communities, at a local level, have been seen by some authorities as an ideal means to comply with climate regulations. However, setting up energy communities is a complex process, especially considering the numerous new technical solutions that digitalisation enables. Local authorities and citizens are often lacking the necessary knowledge and understanding of what it takes to set up such a community. In the long run, this could mean public authorities find themselves locked in their existing technology systems and saddled with solutions that ultimately bring low public value. 

EUROPEAN ENERGY TRANSITION

Technologies we are producing come from how we think, they produce us as thinkers
Gretchen Bakken | Leaders in Cleantech 73

Today’s European energy system is centrally structured – energy streams from big power plants to millions of small households. This energy is mainly produced using dirty fossil fuels and flows in one direction only to a passive end-user. Tomorrow’s energy system, however, could be green and increasingly decentral. Many small households should be able to contribute their own green energy to the system. Still, what this future system will look like is technically impossible to predict right now. Today’s policymakers are surrounded by technology and social advocates, each with their own vision of the future’s energy system. It will take decades for the entire system to transform, but the first changes are already happening, mostly at a local level. 

THE POTENTIAL FOR DIGITALISED, LOCAL TRANSFORMATIONS

As organisations, “energy communities can take any form of legal entity, for instance, that of an association, a cooperative, a partnership, a non-profit organisation or a small/medium-sized enterprise” – European Commission.
 
The terms “energy community” or “local energy community” do not have common definitions in literature or in policy documents and could refer to a wide range of collective energy actions. Thus, as a broad concept, energy communities differ in their governance models; geographic scope; service offerings to their members and many other technical or socioeconomic factors. But there is one common factor in local energy communities: all energy communities should be run by actors who are not commonly active in the energy field.

The decreasing price of renewable energy assets and new digital solutions allow for producing and consuming energy where it is most efficient, making energy communities feasible. Citizens increasingly want to play a part in sustainability efforts, so are motivated to volunteer in setting up such energy communities. Unfortunately, enthusiasm is not enough to build a successful energy community for the 21st century. The first energy communities that emerged in 1970s Denmark obtained common ownership of large energy production assets, such as wind turbines, and shared the profit from energy sold back to the grid. However today, local energy communities are comprised of hundreds of individual energy producers, sharing energy with each other in real-time. Digitalised local energy communities can provide community members with new types of services and can build – if regulation allows – new forms of energy sharing at the local level. Thus, local energy communities could transform into significant actors in the European energy landscape, making our economies less dependent on fossil fuels by integrating more renewables.

REGULATION AND POLICY SHIFTS 

The first step in promoting energy communities as catalysts to restructure Europe’s energy system has already been taken. The Clean Energy Package (adopted in 2018 and 2019) acknowledges that citizens and communities have the right to participate directly in the energy sector. More precisely, the Renewable Energy Directive (EU 2018/2001) and the revised Internal Electricity Market Directive (EU 2019/944) have defined for the first time the roles and responsibilities of renewable citizens energy communities. While European policymakers have set the scene, the actual decision on how the directives will be transposed and implemented is in the hands of individual members states. This has not been easy for national policymakers. Within the framework of the BRIDGE initiativewe have conducted over 15 interviews with ministries in charge of the directive’s transposition. In all 15 cases, each interviewee had a different understanding of the meaning of an energy community, and in smaller countries, there was a clear lack of awareness of the barriers that such initiatives are facing. 

THE STORY ON THE GROUND: DIFFERENT STRUCTURES AVAILABLE TO ENERGY COMMUNITIES

Although European policy is encouraging the development of energy communities, the policy settings are unclear, resulting in a time-consuming and burdensome administrative and negotiation process for the community. Furthermore, they are not defined in a manner that would support a long-term positive business case for such entities. Policymakers must solve issues around fiscal (e.g., tariff scheme in the micro-grid and with the central grid), technical (e.g., incompatible grid parameters) and legal uncertainties (e.g., access to ancillary services markets or wholesale market rules) that would allow energy communities to flourish. 

Bax & Company has been working with over 10 new energy community initiators in Europe over the past 3 years. We have been either co-developing or supporting those communities in building the new local energy market in the Netherlands, Spain, Estonia, Sweden and the UK. Each of these communities has had a similar goal in mind: increase local renewable energy production. However, the means and environment for building a community have been in each case unique. In the Netherlands, we supported the creation of a citizens’ peer-to-pool energy community; in Spain, a community in an industrial setting where members are SMEs with one-on-one energy sharing ambition; and in Estonia, a community of co-owned renewable assets that could potentially cover the entire city.  

Video: RENAISSANCE H2020 – Local energy community launch in Eemnes

When starting an energy community in an urban area, the initiators – whether local volunteers or local authorities – are facing a number of questions that often lack a pre-existing answer. These questions vary from: what legal form is a community is allowed to take? What is the best form to share benefits? Will the regional grid operator allow them to use the grid structure to exchange or sell energy locally?

In practice, these questions require a specialised answer to build a community that can bring long-lasting benefits. To achieve the best results, a lawyer, business model expert and technical expert should be involved in the community building process. However, a volunteer-based, often non-profit entity, lacks the financial means to answer these questions with professional help. 

A local energy community should be self-sustaining and offer shared benefits to local citizens

ROAD TO FUTURE

Energy communities offer a means to re-structure our energy systems by harnessing energy and allowing citizens to participate actively in the energy transition and thereby enjoy greater benefits
– European Commission

The key solution could be building the reputation of energy communities as drivers of change in our energy systems. But as with anything else, chances of success are low without support in the early stage of technology or concept development. Therefore, if European member states see the value in energy communities as the European Commission does, they too should produce the necessary tools for support.

Firstly, national governments should offer free technical and legal advice to energy communities or subsidies for community projects to hire technical assistancesimilar to the support schemes offered to renovation projects in Europe (e.g., ELENA technical assistance programme). This would allow small communities to be somewhat on par with big utilities that have the resources for departments of experts.

ELENA: Supporting organisations across Europe to fund large sustainable investments

Secondly, market access rules and grid usage rules should be more in favour of energy communities. This could be a win-win situation: communities managing their own grids can integrate more renewables in local areas, allowing them to act as an aggregator and offer flexible services to the regional or national grid. A local energy community can play a role in making the future grid more reliable and efficient and thus more cost-efficient for society as a whole.

Finally, as energy communities are often limited to not-for-profit status and are relatively small compared to traditional energy players, communities face issues regarding access to funding and finance. European finance institutions should help to cover this risk and offer guarantees and support for energy community initiators that are supported by the local governments. 

HOW WE CAN HELP

At Bax & Company, we have been supporting many community initiatives in making informed decisions and choosing the pathway that fits best with their local characteristics. When designing an energy community, it is necessary to map the stakeholder relations and understand both the historical and cultural background. Building a cooperative varies drastically by region. If you want practical guidance on how to build a community step-by-step, get in touch with a member of our team: 

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