Expert Talk: energy communities: What are they? And why can they be meaningful to you?

In recent years, the energy landscape has changed significantly. An important trend in this respect is that energy sources become more renewable and that energy is generated on a smaller and more distributed scale. In the past, electricity was only generated by large fossil or nuclear power plants. The rise of renewable energy has, however, created an evolution from consumers to prosumers, in which smaller consumers can both consume and produce electricity and supply it to the grid. Within Flanders, we see that households are taking the lead in this evolution by installing solar panels on the roofs (in 2019, 56% of the added solar power) (Energiesparen.be, 2020).

However, if we are to achieve the climate goals, greater changes and efforts are required. Unfortunately, projects related to renewable energy (PV and / or wind projects) are currently regularly failing because a feasible economic model is lacking: e.g. there is insufficient grid capacity to accommodate the extra production, the roof surface is not optimally oriented, or the demand for electricity from certain customers is insufficiently accustomed to decentralised production (e.g. a school closes during the summer holidays when a large amount of solar energy can be generated).

In these cases, energy communities provide substantial opportunities. An energy community brings consumers and producers together and allows them to exchange energy locally between buildings. Energy communities are a way of "organising" collective energy activities through an open, democratic system. By actively involving consumers, renewable energy can be further rolled out, so that all concerned citizens have access to green electricity and contribute to the integration of this energy in a flexible energy system.

An equal playing field for all citizens

To make energy communities possible, it is important that all citizens get equal opportunities to contribute. By means of the “Clean Energy For All Europeans Package”, Europe is obliging all Member States to develop a democratic framework by 2021 that gives citizens (households and businesses) a more central position and creates an equal playing field for production, storage, consumption, sharing and selling of energy.

As such, citizens will be able to work together in different ways: they can act individually (as a renewables self-consumer or as an active customer), they can join forces within the same building, e.g. an apartment building (as jointly acting renewables self-consumers or as jointly acting final customers) or they can organise themselves in a larger group (as a renewable energy community or as a citizen energy community).

Many advantages ...

The various forms of cooperation can offer an added value in a wide variety of domains; and in particular where traditional actors do not suffice. Additionally, these collective activities do more than contributing to the achievement of the climate goals. For instance, they will also make the energy transition more accessible to everyone, as energy communities offer various options for reducing our energy bill. As such, in particular families in energy poverty are given more opportunities.

Furthermore, collective activities also give access to extra capital and new forms of financing for decentralised energy projects in which citizens are in control, not only the traditional players. Local investments also guarantee a high degree of energy autonomy, while at the same time the value remains locally anchored. Examples of collective activities also demonstrate that benefits of collective activities are not limited to energy: some collective activities take up activities such as waste management, bicycle repairs... Finally, social cohesion also increases thanks to such projects.

It goes without saying that there are multiple benefits. At the moment, an appropriate regulatory framework is still being developed, so that these initiatives can also be legally approved and supported. The legal framework should be finalised by 2021.

… but also challenges

In order to give collective activities enough space to grow, VITO / EnergyVille investigated what needs to be done (apart from the regulatory framework) to enable large-scale implementation. At the moment, there are still a few bottlenecks and open questions. We summarise the most important recommendations below:

1. Knowledge and awareness creation

The energy landscape is very complex. It is often difficult for consumers to keep an overview of the various technology and market innovations. New concepts, such as collective activities must be understandable and tangible, so that it does not become too complicated to understand. Clear, comprehensive and tangible information is therefore of key importance.

2. Ensuring an economic incentive to participate

A new regulatory framework means collective activities must be assessed on their economic feasibility. At the moment, the business case for collective activities mainly focuses on: i) utilising their own production through the energy component, and ii) offering flexibility for the energy system. The consumer's energy bill, however, does not only consist of an energy part. Taxes, levies and network tariffs are also integrated into it. As such, the impact of the energy component is limited in the total energy bill. There is also a difference between the total value of energy injected by a citizen and the price paid for the use of this energy by this citizen.

Practical experience shows that, with current regulations, it is not always possible to have a profitable business case. Therefore, it is necessary to consider whether additional incentives are needed. These extra incentives can reward collective activities for the added value they create. For example, if the collective activity achieves specific grid and / or system benefits, this can be positively translated into an adjustment of the distribution grid tariff.

Nevertheless, changes in distribution grid tariffs should be made with caution as there are many important points to consider. Below some important ones:

• Not all collective activities will achieve (to the same extent) grid and / or system benefits.
• One needs to keep an eye on grid congestion. These are large power peaks that can put stress on the grid. The occurrence of these congestions and the number of participants on the same power line determine the extent to which collective activities can generate benefits.
• In the past, grid tariffs were developed with certain objectives in mind (e.g. cost reflectivity and non-discrimination) in order to achieve a balanced and fair contribution to the grid costs from all grid users. If reductions on individual grid tariffs are worked out for collective activities, these principles must be taken into account.

Furthermore, one must remember that benefits of collective activities are not limited to grid benefits, as they can extend to social and ecological benefits (for example a reduction in CO2 emissions). Such added value is not always easy to identify, but certainly no less important. In order to achieve this added value, incentives outside the energy bill could also be provided so that these types of activities are also stimulated. To do this properly, it is in this exercise always important to consider what benefits there are, who these benefits are for, and how important they are to the individual, the local community and society.

3. Keep obligations and procedures feasible

When developing a framework for energy exchanges, it is also necessary to think properly about the obligations that come with it. Within the current Flemish regulations, a number of obligations apply to the supply of electricity (such as the supply license and the balance responsibility). The question is to what extent each of the European types of cooperation must meet these obligations. In this context, a distinction is often made between selling energy (energy flows outside the community) and sharing energy (energy flows within the community). In addition, some exemptions are proposed for sharing energy.

Consumer rights must also be monitored in collective activities. Certain rights are, however, less desirable for of a collective activity or involve risks (e.g. free choice of supplier, or freedom to participate or exit). It is therefore necessary to think carefully about how to deal with this.

Last but not least, administrative simplicity must be pursued from various points of view. When it comes to the energy bill, for example, simplicity is very important to the consumer. As such, in case there are different energy flows, it is preferred that the end-consumer ultimately receives one invoice.

Carefully selecting and combining participants

In theory, every citizen should be able to participate openly and voluntarily to energy communities. However, for certain types of partnerships, it is recommended to impose participation requirements or restrictions. Also, in terms of returns on investment, it can be beneficial to put a group of participants together in a smart way. A search for complementarity and/or flexibility is essential here. The formation of the participant group therefore determines the value to be achieved. It is important to ask whether a selective approach of the participants (and thus the exclusion of certain network users) is justified, depending on the additional added value within the collective activity and the motives of a collective activity.

The practical roll-out of a collective activity

As a last point, the practical elements needed to set up collective activities must be taken into account. All energy flows must be accurately measured. A digital meter or equivalent measuring system is essential. The registered data must be exchanged without losing sight of privacy issues.

It should also be examined how the distribution of the benefits of a collective activity should be done. In particular, attention should be paid to drawing up distribution keys that calculate a clear and fair individual benefits for the individual participants.

Some examples in the field

Convinced that collective activities can provide considerable added value, but not quite sure how this works in practice? A number of collective activities have already been set up in Flanders, both large and small initiatives. Thor Park, where EnergyVille is located, is one of these examples. Thor Park was recently given the label of regulatory sandbox, the first of its kind in Flanders. Within this test setup, EnergyVille aims to produce as much renewable energy as possible locally and wishes to exchange surpluses of energy efficiently. For example, the new parking building at Thor Park has a large roof surface (very suitable for solar panels), but relatively low consumption. Thor Central, the historic building of the mining site, cannot install solar panels itself, but uses a lot of energy. Within the regulatory sandbox, EnergyVille can experiment with the concept of energy communities. This allows EnergyVille to further investigate the above issues and formulate substantiated answers to the questions addressed.

Key takeaways

Collective activities such as energy communities have great potential within the energy transition, not only ecologically (through a higher integration of renewable energy and increased self-consumption within the community), but also economically and socially.
Europe has understood this message and, with the “Clean Energy For All Europeans Package”, instructs all member states to draw up a democratic framework by 2021 that places citizens (households and companies) at the forefront by creating an equal playing field for production, storage, consumption, sharing and selling of energy.
In order to enable a large-scale implementation of collective activities, however, there are still a number of bottlenecks and open questions that need to be resolved.

When regulatory steps are taken, it is expected that collective activities will be rolled out in our energy system in the relatively short term.
EnergyVille / VITO is investigating the concept of collective activities in a regulatory sandbox at Thor Park. Ultimately, the aim is to investigate the above issues and formulate substantiated answers to the questions addressed and thus facilitate a swift roll-out of collective activities.

Curious how this unique living lab, where new technologies, procedures, market models, etc. can be extensively tested, can also be relevant to you? Please do not hesitate to contact our experts.

Written by Annelies Delnooz, Janka Vanschoenwinkel, Hanspeter Höschle and Yuting Mou (all EnergyVille/VITO). Annelies Delnooz has more than 10 years of experience in the analysis of energy markets, price mechanisms, actors, market transactions, techno-economic analyses and business models. As a project manager she has participated in several national and international projects and regularly provides policy advice. Janka Vanschoenwinkel obtained her PhD in applied economics at Hasselt University in 2018. Since then she has been active in setting up techno-economic analyses for smart energy solutions, researching (multi-carrier) energy markets and analysing business models for district heating networks. Hanspeter Höschle successfully defended his PhD at KU Leuven in capacity mechanisms in 2018. He is the point of contact for taking future energy markets and electricity systems into account in the modelling of markets. This includes taking into account the impact of decentralised production, flexible demand, storage and interconnections. Yuting Mou obtained his PhD from the Université Catholique de Louvain in 2020 and has built up expertise over the years in modelling energy markets, algorithms for system optimisation, and designing rates for residential customers.