Energy Communities in Europe

Version	Summary	Created by	Modification	Content Size	Created at	Operation
1		Georgios Yiasoumas	--	2635	2023-06-21 11:04:30	\|
2	format correct	Conner Chen	Meta information modification	2635	2023-06-25 05:34:35	\|

This entry is adapted from the peer-reviewed paper 10.3390/en16124703

energy communities regulatory barriers smart grids

1. Introduction

The 2022 energy crisis has shattered the myth of the assumed national energy independence of developed countries and highlighted the necessity for a diverse energy mix. Reacting to the crisis, the EU announced the REPowerEU package that sets its revised energy targets ^[1]. Governments, private companies and the energy sector as a whole are expected to intensify their efforts to cope with the new paradigm ^[2]. Now more than ever, radical ideas are needed to revolutionise the energy sector. Even though an EC is not a new concept, since there are as many as 3500 ECs across Europe, ECs are recognised by experts as one of these radical ideas ^[3]^[4]. More specifically, ECs are considered to be an effective system to fast-track the energy transition by increasing the involvement of citizens ^[5]. The EU has recognised the potential of ECs and, via the Clean Energy Package (CEP), officially issued a new general legislative framework for ECs ^[6].

Three dimensions of ECs were identified as key parts for their success: the regulatory, technical and financial aspects. For each of these aspects, the main challenges are analysed. Firstly, for the regulatory dimension of ECs, the new definitions of ECs, introduced by the CEP, are examined. Providing definitions inherent to ECs is intrinsically linked to the regulation and legal framework defined by each country. Thus, the general structure of the legislative frameworks will be presented according to their local particularities. Moreover, to comprehend these definitions, existing examples of ECs, along with their potential benefits, are analysed, not only from a general point of view, but also from a cross-cutting perspective. Secondly, the technical aspect is addressed with the examination of technologies that are implemented or have the potential to be implemented in an EC environment. However, technology integration is empowered through the use of energy services from both operational and financial perspectives. Therefore, such energy services will also be presented, along with their structure in the ecosystem of ECs and the data management challenges that arise by using them. Finally, recognising the importance of the financial sustainability of ECs, an economic analysis is presented that examines possible solutions to potential financial barriers.

2. Regulatory Framework for Energy Communities

The energy sector is undergoing a profound transformation at an exponential rate globally, moving from a “top-down vision of energy value chain with centralised production and rigid distribution framework, to a collaborative ecosystem of self-managed prosumers equipped with distributed energy resources and ability to act independently on liberalised energy markets” ^[7]. This paradigm shift has already had an impact on the value chain of the market, leading to (1) a constant increase in the number of renewable energy sources (RES) in the system; (2) upgraded electrical transmission networks that offer higher intra- and cross-border energy exchange and (3) prosumer-rich distribution networks with high decentralised energy production. ECs are one of the tools that can allow citizens to be an active part of this energy paradigm ^[3]. As a means to enable and boost the EC idea, the EU introduced two new definitions, which are presented in Table 1. First, Renewable Energy Communities (RECs) were introduced in the Renewable Energy Directive II (REDII) in 2018 ^[8], and then, Citizen Energy Communities (CECs) were defined in 2019 via the Electricity Market Directive (EMD) ^[9].

Table 1. RECs and CECs definitions.

Aspect	Renewable Energy Communities (RECs)	Citizen Energy Communities (CECs)
Form	“a legal entity” [RED II, Article 2, para 16]	“a legal entity” [EMD, Article 2, para 11]
Membership Eligibility	“in accordance with the applicable national law, is based on open and voluntary participation, is autonomous, and is effectively controlled by shareholders or members that are located in the proximity of the renewable energy projects that are owned and developed by that legal entity; the shareholders or members of which are natural persons, SMEs or local authorities, including municipalities” [RED II, Article 2, para 16]	“that is based on voluntary and open participation and is effectively controlled by members or shareholders that are natural persons, local authorities, including municipalities, or small enterprises” [EMD, Article 2, para 11]
Primary Purpose	“the primary purpose of which is to provide environmental, economic or social community benefits for its shareholders or members or for the local areas where it operates, rather than financial profits” [RED II, Article 2, para 16]	“has for its primary purpose to provide environmental, economic or social community benefits to its members or shareholders or to the local areas where it operates rather than to generate financial profits” [EMD, Article 2, para 11]
Activities	The REDII also states that RECs shall be entitled to produce, consume, store and sell renewable energy, including through renewables power purchase agreements. [RED II, Article 22, para 2(a)]	“and may engage in generation, including from renewable sources, distribution, supply, consumption, aggregation, energy storage, energy efficiency services or charging services for electric vehicles or provide other energy services to its members or shareholders” [EMD, Article 2, para 11]

By analysing the two definitions, as well as the directives in which they were released, key differences can be observed between RECs and CECs. First, concerning the technologies that can be used, no limits are set for CECs, in contrast to RECs, where the REDII is stated that they can only use renewable energy technologies. Second, RECs have limitations regarding their membership eligibility because the members or shareholders have to be located in the proximity of the developed energy projects, in contrast to CECs, where no restrictions apply. Furthermore, an alteration can be observed regarding the ownership and government principles of the EC; concerning the RECs, small- and medium-sized enterprises (SMEs) can take control of a REC if their primary commercial activities are not related to the energy sector, but for CECs, this is restricted to small and micro enterprises. This, in turn, does not mean that there are no legal mechanisms that allow the active participation of large companies in the decision-making bodies of ECs, but that the regulatory basis for decision making must be controlled by social and citizen action in strict compliance with the law. Finally, both definitions mention the allowed activities of each type of EC, with the CECs to be limited only to the electricity sector, in comparison to RECs that can be active in all energy sectors.

With the two definitions, the EU has set the basic regulatory framework for ECs. However, as recognised by the Council of European Energy Regulators (CEER), a host of regulatory aspects are not addressed, and a lot of freedom is given to the member states (MS) to transpose the EU legislative framework into national law ^[10]. Therefore, key differences between MS are expected that will finetune the framework based on the particularities of each MS. However, there is the danger of misinterpretation of the concept, which can result in the abuse of the concept. In order to properly address this, it is very important to consider existing examples of ECs and implementations that can become the blueprint for new ECs and to adopt novel solutions that can mitigate any potential misuse of the EC idea.

The regulatory framework and the associated challenges of ECs have been a topic of many studies. Many researchers have proposed ways to enable the correct and fast adoption of ECs following the basic regulatory framework set by the EU. For example, Chantrel et al. ^[11] proposed a participative governance structure that uses blockchain technology, a fair, transparent and secure way to settle and record transactions between multiple parties without the involvement of a third party, which can facilitate the regulatory compliance of ECs. Moreover, Dorahaki et al. ^[12] introduced an integrated operating model that is based on the definitions of the CEP. In addition, a study provided a collection of business models that can be used in an EC and follow the basic rules of the regulatory framework for ECs ^[13]. Studies have also examined the regulatory challenges in different MS. Silvestre et al. ^[14] investigated the regulatory challenges that emerge on an international scale and analysed further the case of Italy. More recently, a similar analysis was conducted by Bashi et al. ^[15] that highlighted the need for regulatory reform in many MS.

2.1. Energy Communities Examples and Their Objectives

As mentioned before, there are many ECs around the EU ^[6]^[16]^[17]. New ECs need to have access to information about established ECs ^[18]. In this section, examples of the two types of ECs, RECs and CECs, and their objectives are described. It is important to stress that the majority of the cases presented are not officially regarded as RECs or CECs since most of them preceded the regulatory framework. However, the examples that best fitted the definitions were selected to best represent the concept of each definition.

Regarding the RECs, a notable case is the three-wind turbine project developed by a rural community in Denmark with the aim to finance the modernisation of their local harbour ^[19]^[20]. Moreover, a community in Germany established a bioenergy combined heat and power (CHP) plant in order to satisfy the heating demand and to tackle the problem of unreliable fuel deliveries in the area ^[21]. Additionally, a local cooperative in Edinburgh, Scotland, installed community-owed PV systems on public buildings, and all profits are divided between its members ^[22]^[23].

There are numerous examples of CECs, as well. A case worth mentioning is a housing association located in Estonia. An association was formed within the framework of an apartment complex, which managed the rehabilitation of the solvent installations, as well as the installation of a PV site on the complex, with the aim to improve the living environment of the residents by funding retrofitting projects and to produce their electricity ^[24]. The Svalin co-housing complex is another EC established in Denmark. The EC was formed to produce its electricity collectively and to utilise strategies such as P2P trading ^[25]. Lastly, in the Netherlands, an island called Amerland established a cooperative that plans and develops many different energy projects, such as a blue hydrogen production facility and a solar farm across the island. The island aims to become 100% energy self-sufficient ^[26]^[27].

ECs have been the subject of many European Projects in recent years ^[3]. In order to give an overview of the general requirements and challenges of real cases of ECs, the pilots of the EU project Next-Generation Integrated Energy Services fOr Citizen Energy CommuNities (NEON) project are presented. Within the NEON project framework, the authors of this paper analysed four CECs from the Mediterranean Area, namely, CEC 1—Berchidda (Italy), CEC 2—Domaine de la Source (France), CEC 3—Polígono industrial las cabezas (Spain) and CEC 4—Stains city (France). These communities are in different establishment and operational stages and are planning to adopt different tools and technologies for achieving their primary goals. Hence, the issues and challenges that they encounter are according to their particularities.

Some of the challenges and issues that communities are facing are presented in Table 2. Specifically, the engagement of existing or potential members of the community and the efforts to convince them to join the EC or to adjust their energy behaviour is considered to be a major issue. Connected to that is the need for effective business models and contracting schemes, and also ways to convince the members of the community that their energy security is ensured.

Table 2. Challenges and requirements for EC establishment and operation.

Challenges	Requirements
- User engagement and behaviour change	Collective self-consumption Joint purchase
- Need for effective business models and contracting schemes	Remuneration and smart contracts for energy saving and shared flexibility Energy Performance Contracting (EPC) and Pay for Performance (P4P) contracting
- Need for improved energy efficiency, energy conservation and reduced energy consumption	Maintenance and control of community assets Analysis of flexibility potential and balancing of exported energy Optimisation of the community energy profile Optimisation of energy production and demand response strategies Building management and consumption optimisation
- Environmental aspects and CO₂ reduction	Prepare decarbonisation scenarios for decreasing the final energy consumption and operation costs

Moreover, there is a need to improve the energy efficiency of the building stock of the community and address environmental aspects related to potential new projects or regulatory compliance. The actors identified in this analysis are also shown in Figure 1. As presented, the new actors, prosumers and aggregators play an important role in achieving the EC’s objectives. The prosumer is an electricity consumer that uses electricity produced from his/her power plant ^[28]. Because of the need for more controllable generation and load on the demand side, demand-side flexibility is urgent and hence the requirements for optimisation of prosumers’ energy profiles on a building and EC level. The role of the aggregator is to interface with the Transmission System Operator (TSO), Distribution System Operators (DSOs) and Balance Responsible Parties (BRPs) ^[29].

Figure 1. A high-level view of the interactions between the identified actors in an EC context.

All the examples presented have the EC as a common asset, which is governed according to the rules established based on its governance system. This system is a socio-economic management environment, democratically constituted and that must have a legal figure established and contemplated according to the legislation of each country. It can be associations, cooperatives, foundations and even trading companies that, regardless of their legal essence, must contemplate the three pillars of ECs: the social sphere, environmental benefit and economic justice.

2.2. Potential Benefits of Energy Communities

As set by the definitions, the primary goal of an EC is to provide benefits to its members. In this section, some important EC benefits are examined to understand not only the potential effect that ECs can have on the energy transition, but also on their members. Following the categorisation, set by the framework of RECs and CECs and as described in the preceding section, the benefits are organised into financial, environmental and social categories.

A significant social benefit is the participation of citizens in renewable energy projects, which will increase the support for green technologies ^[30]. With the participation of the public, a culture that is based on sustainability and clean energy will be cultivated and reflected in future government strategies that will enhance the efforts towards energy transition ^[6]. Furthermore, getting the public involved can affect their behaviour as consumers, making them more conscious of the impact of their decisions ^[31].

Financial benefits are strongly linked with social benefits because they can drive social innovation ^[32]. On a community level, economic benefits might be profits from energy production, energy savings and possible employment opportunities connected to local energy projects ^[33]. These benefits can have a greater effect on rural communities ^[33]. On a wider scope, ECs can support the decentralisation of the electricity grid with locally produced electricity that can reduce transmission losses and help avoid expensive upgrades connected with a centralised grid ^[31]. Furthermore, the development of advanced green technologies will boost the integration of RES into the energy mix and drive the cost of energy down ^[34].

Lastly, ECs can also generate environmental benefits, which are closely connected to the financial and social benefits, though they are difficult to quantify since they usually have an indirect connection. For instance, a conscious user will reduce the amount of energy they consume. As a result, the collective avoidance of carbon emissions will be a significant environmental benefit ^[35]. Moreover, beyond the financial benefits, a decentralised system will also result in the reduction of carbon emissions associated with electricity production ^[36].

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