On 25 June 2019, the Council of European Energy Regulators (CEER) issued a report entitled Regulatory Aspects of Self-Consumption and Energy Communities. Following the introduction of recognised terms Renewable Energy Communities (RECs) and Citizen Energy Communities (CECs), or collectively Energy Communities, CEER has developed a regulatory approach to analyse these energy market developments.
What is an Energy Community?
With renewable generation, small-scale batteries and the electrification of transportation, technology has brought energy generation and flexibility within the economic reach of many EU citizens and communities. The finalisation of the Clean Energy for All Europeans package (which we reported on in Energy:2030 issue 16) accordingly introduced formal definitions of RECs and CECs.
The Energy Community concept is characterised by individual self-consumption and covers the generation, storage and sale of energy. Collective self-consumption extends the concept from the individual premises out to the locality, with sharing of energy between self-consumers and other final customers; this is often not permitted to use the public networks.
An Energy Community concept would also be a separate legal entity responsible for the energy production and sale. This is controlled by shareholders or members and has the primary objective of providing environmental, economic and social community benefits rather than simply maximising profits.
There are keys differences between RECs and CECs. Both can have individuals, local authorities and municipalities, and small- and micro-businesses as members. The REC limits these to ones which have a non-energy primary purpose to their commercial or professional activity.
REC members must also be in the same location as the renewable energy projects being developed. CECs can be cross-border, with no geographical limitations.
CECs are limited to activities in the electricity sector but can use any technology, while RECs can be active in all energy sectors, as long as the energy produced, consumed and sold is renewable.
CEER identified three types of project which can be defined as Energy Communities. The most common type is community-owned generation assets. These often do not self-consume energy, instead selling it to a supplier. Income is shared with members or reinvested in energy projects. Community activities can include a social element like energy efficiency services, but do not usually have an active role in energy markets.
Some Energy Communities that operate generation assets share not only the profits but energy among members. This can be facilitated by a supplier, which matches generation to consumption and provides balancing energy.
The third project type is sharing power production through a local energy network. This has previously been common in areas such as islands, where communities can build and own the local network infrastructure. More recently, initiatives have set up network-replicating grids to allow consumption of locally generated energy.
While the rights and duties of citizens and Energy Communities are set out in the Clean Energy for All Europeans package, implementation by Member States will determine exactly how the requirements translate into rules.
CEER highlighted the following areas:
- consumer rights: linking generation and supply will still require consumer protections, for example, the right to switch suppliers
- balancing and flexibility: effective market design should require RECs and CECs to integrate renewables and EV into the grid in a manner to decrease overall systems costs, as well as local costs
- multiple suppliers to a consumer: to manage transparently through contracts and data
- business models and market design: this should ensure that RECs and CECs respond to effective market price signals – larger bidding zones are seen as more cost-reflective, and
- grid ownership and development: this should avoid duplication of assets, deliver economic efficiency and be subject to appropriate regulation to ensure quality of service.
With energy sales a regulated activity in EU Member States, the Energy Community may be required to take on some level of licensing or other regulatory burden. This may be avoided through exemptions or derogations or minimised by “supplier light” models. CEER notes that, while energy could be sold on top of conventional supply, the conventional supplier would be left with higher costs. Grid fees remain, and the supplier will sell fewer kWh to the customer, which it could have to source at a higher cost (when renewable generation is low) and will result in higher balancing costs than passive consumption. The costs of taxes and levies must be covered by the supplier or the community, and consumer rights must also be protected.
Some states, such as France and Austria, have instituted frameworks allowing Energy Communities to share energy between customers without the involvement of a supplier. The Clean Energy for All Europeans package will institute this as a right in all Member States, though each individually will decide how the requirement is implemented.
One of the key consumer protection rights is the right to opt-out of the Energy Community. This is especially important for tenants in shared buildings, who must be allowed to opt-out or to change supplier. The right to opt-in is also guaranteed, as is the provision of information on energy price and how this is determined.
Flexibility and networks
While regulatory issues around flexibility and consumption management are not specific to Energy Communities, CEER notes that they may bring new perspectives to solving these issues. They can offer routes to access flexibility markets and offer to consumers to provide these services. However, the customer protection role is important here too, especially where working with vulnerable consumers, and Energy Communities remain responsible for any imbalance generated.
When operating networks, network-replicating or otherwise, Energy Communities have the same duties as a licensed network provider to offer a reliable and safe network; this like any distribution network must optimise local flows and support wider networks. They must also deliver efficient costs and ensure their long-term financial viability. CEER explained that this may be a concern when approaching end-of-life of expensive assets, replacement of which may result in higher costs.
Delivering micro-grids in a way compatible with these goals will be a challenge for Energy Communities, particularly where cost-savings overall might not arise as a result of avoiding costs which are then paid by the wider user-base of the public networks.
The analysis is based on several case studies submitted by National Regulatory Authorities, including the Easton Energy Group – a community-owned micro-grid – and pilot projects in Luxembourg.
CEER will ensure that the potential benefits of energy communities are maximised by reducing barriers to adoption but also ensure there is appropriate weight for consumers in or out of CECs.
Correctly implemented, though, local networks offering regional generation, flexibility and self-balancing could be the future of power provision, and several of Pixie Energy’s innovation projects are driving in this direction.
Council of European Energy Regulators
If you have enjoyed reading this article and want to read about the latest developments from energy markets around the world, please contact us on 01603 604400 for a free month’s trial.