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Energy communities and digitalised energy

What does European law say and how to implement these concepts?

By Roland Tual, project manager

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 With the implementation of the Clean Energy Package and especially now that the European Commission has announced its Energy Digitalisation Roadmap, the terms “energycommunities”, “flexibility”, "collective self-consumption, and “energy sharing” have become buzzwords in the energy sector. However, their legal meaning may differ significantly depending on who you talk to in the energy sector. For whoever would like to further investigate these trends, it is important to understand the legal foundations of these concepts, and to then realise how they overlap and support innovation in the energy sector. 

Energy communities in the Clean Energy Package

In 2019, the Clean Energy for All Europeans legislative Package (CEP) introduced the concept of energy communities for the first time in European legislation. The Electricity Directive defined “Citizen Energy Communities” and the Renewable Energy Directive (RED II) defined “Renewable Energy Communities”. Rather than referring to a specific technical activity, the EU directives define an energy community as an organisational or social concept that allows for collective ownership in the performance of different energy activities. Both the citizen energy community (CEC)  and renewable energy community (REC) definitions are composed of participation and governance criteria.  

The CEC is a legal entity based on open and voluntary participation and controlled by its members. There are no limitations on who may participate, but the control must rest with be natural persons, small or micro-enterprises or local authorities. Such an entity also cannot have profit as a main purpose but rather environmental, economic or social community benefits. 

The REC definition is a bit stricter: it requires the energy community to be autonomous (meaning democratically governed) and to be located in the proximity of an energy project owned by the community. Moreover, it doesn't allow large enterprises to become members, and restricts participation of energy companies. and ClientEarth have published a transposition guidance note which analyses on all these criteria and how they should be transposed at the national level. 

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The two concepts (CEC and REC) largely overlap and both keep open what possible services the energy community could offer.

  • On the basis of its definition, a CEC may engage in generation, distribution, supply and  other energy services to its members (IEMD, art. 2 (11)).
  • On the other hand, a REC is entitled to produce, consume, store and sell renewable energy, share renewable energy and  access all suitable energy markets (REDII, Art 22 (2)). 

This means that energy communities, like any other market actor, are entitled to provide most energy services, from the most complex (such as aggregation or energy sharing) to the most conventional (such as energy production, supply, energy efficiency services, etc.). 

Energy communities include civil society

Looking at the two definitions, community energy can be interpreted as a way to involve non-professional actors (citizens, SMEs and local authorities) in the energy transition. 

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Ecopower a Belgian citizen energy cooperative involves citizens in the energy transition (c)Ecopower cv

Energy communities may target people both as citizens and workers, giving them a legal vehicle to get involved in energy activities, without having profit as a main goal. Practically, it gives the possibility of involving households, workspace facilities and public buildings into joint energy projects which can take various shapes.

Citizen energy cooperatives represent one of the possible forms of such initiatives: 

  • Cooperatives are open and their members can join voluntarily and based on transparent criteria;
  • They’re controlled by their members mainly through their vote in the General Assembly;
  • The vast majority of them gather citizens, sometimes together with their municipality(ies);
  • Their primary purpose is providing community benefits, in most Member States cooperatives are restricted in the distribution of their financial benefits

More broadly, energy communities can be seen as the social economy applied to the energy sector. Furthermore, energy communities may not only be put in practice through citizen energy cooperatives, but new partnerships between actors could be foreseen. In particular, the participation of SMEs in such initiatives is still relatively unexplored and we lack examples of how businesses can put their energy assets to good use for the benefit of the community through roof space for solar panels or waste heat for district heating for example. New partnerships remain to be created and the field remains far from being fully explored. 

Energy sharing: not just for energy communities 

While the Clean Energy Package introduced new rights for consumers, it also included a range of new possible activities: 

  • Individual self-consumption and flexibility activities: 

Individual consumers can produce, store or participate into flexibility mechanisms as “active customers” (IEMD, art.2 (8)) or can generate, store or sell  renewable electricity as “renewable self-consumers” (REDII, art. 2 (14))

  • Collective self-consumption : 

Groups of consumers can perform activities above jointly as  “jointly-acting active customers” (IEMD, art.2.8) or “jointly acting renewable self-consumers” (REDII, art. 2 (15) where self consumers are located in the same building or multi-apartment block.

  • Energy sharing: 

Self-consumption beyond customers’ premises can be performed by a group of users according to the definitions of “active customers”  (IEMD) and  “renewable self-consumers” (REDII), only where permitted by Member States. However, renewable energy communities are entitled to share renewable energy that is produced by the production units owned by that community, while respecting all customers rights and obligations. (REDII, art 22.2 (b)).

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Renewable energy communities should be able to share the energy produced by their community-owned installations. However, community members should not be exempted from relevant costs, charges, levies and taxes which would be borne by final consumers, who are not community members, by producers in a similar situation, or where public grid infrastructure is used for those transfers. (REDII, Recital 71). 

European legislation therefore provides for a right to energy sharing for energy communities, but does not exclude other entities from this type of activity. This may lead to different integration of energy sharing in national legislation. There are regulations where energy communities and energy sharing are closely linked, for example in Flanders, Belgium. And there are situations where energy communities and energy sharing are legally separated like in Spain.

However, the specific mention of energy sharing in the provisions for energy communities together with the improved economics of this activity, the interest from local actors (municipalities in particular) in implementing energy sharing and a growing offer by service providers to facilitate this type of initiatives, put energy communities at the centre of this new market trend in many European Member States.

Local flexibility market: a possible next step in the (far) future

From a strictly legal point of view, energy communities have little to do with “local energy markets”. Part of the confusion emerges from the fact that the concept of an “energy community” was introduced into the energy regulation at the same time as “aggregation” (however in different articles, e.g. IEMD, article 16 Citizen energy communities and article 17 Demand response through aggregation) and that they represent two major innovations of the Clean Energy Package. Nevertheless, if energy communities significantly expand in the field of energy sharing, local energy markets could be the next target.

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In Spain, citizens test cooperative flexibility tools (c)Som Energia

What are local energy markets?

The multiplication of decentralised energy resources and the rise of prosumers leads to a set of trends: (i) The multiplication of production units on the distribution network leading to additional congestion; (ii) the increased variability of the energy mix, leading to additional needs in balancing resources; (iii) the more local and more fragmented character of distributed energy resources (DERs) calling for new intermediaries like aggregators. 

This situation has led to new initiatives like “flexibility platforms” or “local energy markets” which may address one or several of these aspects: congestion management services to Distribution System Operators (DSO) (and sometimes Transmission System Operators (TSOs)), balancing services to TSOs, enabled through the intermediary of aggregators. References to different initiatives can be found in Entso-e 's paper on flexibility platforms.

The actors involved in local energy markets may be local actors representing production, storage or demand acting directly or through aggregators. These actors may be energy communities, as they are granted access to all energy markets but, as a first step, they are more likely to be commercial actors, as these services may require significant specialised skills. 

Nevertheless, if the “citizen energy” movement keeps on expanding (individual citizens, energy communities together with farmers and public initiatives investing in distributed energy), the contribution of these new actors could be crucial in supporting a decentralised energy system based on distributed resources. If energy communities are to play this role, they will have to take on new tasks, such as controlling devices, processing data or entering new markets. Thus, energy communities need a whole range of support measures: (i) administrative simplification and support; (ii) up-skilling and professional training and (iii) complementary services, in particular digital ones. Regarding the latter, technology service providers will play a key role in the adaptation of energy communities to a more complex energy system.

One can hope that the digital technology industry will enable citizens, local authorities and SMEs to provide innovative energy services.  However, a lot of work and cooperation will be needed to align expectations (commercial interest versus societal interest) and fairly allocate potential market benefits.