A recent agreement to reform Europe’s electricity market has enshrined into EU law the unprecedented right of consumers to produce, sell and share their own electricity in newly-defined “citizen energy communities”.
The move is seen by energy policy enthusiasts in Brussels as a potential turning point for the mass deployment of small-scale renewables like solar power.
“Europe is on the brink of a clean energy revolution,” said Miguel Arias Cañete, the EU Commissioner for climate action and energy, when he unveiled the proposals back in November 2016.
“Consumers and communities will be empowered to actively participate in the electricity market and generate their own electricity, consume it or sell it back to the market,” the Commission promised at the time.
Two years on, it’s fair to say that the EU has largely delivered on this promise – at least on paper.
“A new horizon is opening for energy ownership and democracy in Europe,” said green campaign group Friends of the Earth Europe in reaction to this week’s agreement, calling the reform of Europe’s electricity market “a climate game-changer”.
At the centre of the EU’s vision are “active consumers” who generate, store, sell or share their own electricity, using things like rooftop solar panels, batteries, and charging stations for electric vehicles.
By 2030, the European Commission estimates that more than 50 GW of wind and solar could be owned by energy communities, representing 17% and 21% of installed capacity, respectively.
‘Effective control’ by citizens
The deal reached this week introduces the concept of “citizen energy communities” into EU law, enabling consumers in the same neighbourhood or building to produce and share their own electricity.
“It is an entity which is open to the participation of everybody,” says Dario Tamburrano, an Italian lawmaker from the Five Star Movement, who was among the negotiators on the bill.
Around half of EU citizens could produce their own renewable electricity by 2050, according to a study by Dutch consultancy firm CE Delft, published in 2016. And about 37% of it could come from energy communities, the study showed.
Importantly, Tamburrano said the “effective control” of energy communities should take place “as close as possible to the citizens” who will benefit from their services. This is designed to “prevent energy communities from being set up and controlled by larger private actors, in particular, the ones active in the energy sector,” he told EURACTIV in e-mailed comments.
“This does not mean that shareholders or members who are bigger in size cannot participate in an energy community or in their governance altogether, but that subject to national law the ones empowered to take major strategic decisions on behalf of the community are citizens and SMEs that are not already involved in the energy sector,” he explained.
For the most part, talks were wrapped up last month, when EU legislators defined the legal concept of local energy communities and renamed them ‘Citizen Energy Communities’, in a move aimed to reinforce their autonomy.
“The name goes far beyond the semantic. It designates an entity that is autonomous, local and managed by real people,” said Florent Marcellesi, a Green lawmaker from Spain who sat alongside Tamburrano in the European Parliament’s negotiating team. This week’s agreement also ensures “proportionate and non-discriminatory treatment” of energy communities in comparison to private energy groups, he said.
One key aspect is that energy communities will have to be “clearly separate” from the private companies that may be involved in them, Marcellesi told participants at an EURACTIV event held earlier this month.
“It’s really the start of something,” said Manon Dufour, head of Brussels office at E3G, a think-tank working to accelerate the transition to a low-carbon economy.
Encouraging citizens to produce their own energy “could make a drastic difference” in the fight against global warming, she pointed out, saying people taking part in local energy communities not only produce clean electricity but also tend to consume it more responsibly than average households.
“We’ve also seen that local energy communities bring greater local benefits and welfare than commercial or foreign investments,” Dufour added, citing the experience of Germany where local energy communities have brought “eight times more economic benefits” than traditional energy utilities.
The local benefits were also highlighted by Naomi Chevillard of SolarPower Europe, an industry association, who pointed to the “big potential” of energy communities for the local economy.
“We see a lot of business models being created in this area,” she said, citing smart energy management systems for instance.
“Not clear” yet what EU member states will do
Now that rules for citizen energy communities are adopted at European level, the question is how EU member states will apply them at a national level. And that still leaves room for interpretation.
“It’s still not clear what the national regulators should do,” said Luis Hernández, head of decentralised energy at E.ON, a German energy company which specialises in electricity distribution networks and services.
E.ON first got involved in local energy communities with a project in the village of Smiris, in Sweden. The EU-funded project, called local energy systems, aimed at making the village entirely self-sufficient, using 100% renewable and locally produced electricity.
The solar PV park and wind turbines already in place in Smiris were connected to a smart control system, and a storage battery, which feeds electricity back into the local grid when the sun stops shining or the wind doesn’t blow.
To store the excess energy, citizens were encouraged to use appliances like hot water boilers, heat pumps, batteries and rooftop solar panels, which are owned and shared by the people of Smiris.
Looking into the future, E.ON believes more people will be interested in such models, and sees “a business opportunity” in building and operating the facilities, such as micro-grids.
“We understand this as being the endgame – the 2050 vision of where we want to be,” Hernández said. “What we are trying to understand is the implications of moving in that direction.”
But the way EU countries will implement those rules is still unclear. And E.ON is trying to figure out how regulators at a national level will make them work in practice.
Indeed, local energy systems can look very different depending on the context and history of the infrastructure in place. In France, for instance, the energy distribution network is a monopoly owned by Enedis, a state company, while in other countries the networks may be open to competition from private companies.
In Spain, for instance, electricity utility Iberdrola is directing 42% of new investments into distribution networks, hoping to reap the benefits of an economy-wide electrification process currently underway in Europe.
So the way member states will apply the EU’s new electricity rules at a national level will matter significantly.
Dario Tamburrano, the Italian Five-Star MEP, said he was “disappointed” for example that the principle of “autonomy” was only vaguely defined in the EU text.
Energy cooperatives warn about risk of abuse
To be sure, not everybody feels comfortable allowing big energy utilities a role in citizen energy communities.
Chief among the sceptics is REScoop.eu, the European federation of renewable energy cooperatives, which accused utilities of copying their model by adopting the same legal structure.
In a number of instances, companies like Electrabel and EDF in Belgium have seized control of the cooperative, said Dirk Vansintjan, the president of REScoop.eu who is also director of Ecopower, an energy cooperative based in Flanders.
The difference between the two models can be significant, Vansintjan pointed out. When local energy communities redistribute the benefits locally, energy utilities will repatriate all the profits to the company’s headquarters and redistribute them among shareholders.
“It’s about where the money flows. Is the money spent in the local community or is it going out?”
But Vansintjan’s scepticism is not universally shared, even among the green movement. “We’re looking at a growing electricity sector,” remarked Manon Dufour of E3G, pointing to the growing range of services that will be on offer in the near future, including demand-response, aggregation and storage.
“Of course, local energy communities and traditional energy utilities are competing. But they’re competing in a growing market,” Dufour remarked, suggesting there was enough room for both models to co-exist.
What’s more, energy companies may have a convincing value-added proposition to offer in the eyes of environmentally-friendly customers: they have the financial resources and technical know-how not only to build the infrastructure but also to maintain it after it is installed.
Hernández cited a hypothetical example to illustrate this point: an energy community collects enough money to acquire a wind turbine. But the gearbox has a failure after four years in operation and needs to be repaired. “You now need €400,000 to repair it and you’re out of warranty. Are you going to go back to the citizens to collect money in order to repair it?” Hernández asked.
Companies like E.ON can more easily deal with such kinds of risks, and save local energy communities the hassle of managing repair and maintenance work, he said.
“We definitely support the bottom-up approach of citizen energy communities,” Hernández said in response to the scepticism of cooperatives.
“What I struggle to understand is whether a model where citizens are exposed to increased risk will take us to a happy end,” he added.
Pierre Braun, from industry association Eurelectric, echoed that point, saying energy communities can happily develop as “a complement” to the wider electricity system. They can even represent “a win-win” for citizens and utilities by providing flexibility services that help stabilise the grid, he remarked.
However, they can also pose a risk for the stability of the electricity system, according to Enedis, the French distribution system operator. “As a DSO, Enedis would like to be involved when designing local energy communities,” said Marie Picut from the Brussels office of Enedis. “Because it means we can find a cost-efficient solution and avoid a situation where the rest of society – consumers – pay for the others”.
“Don’t be so suspicious about us. We are a public service, we are here to defend all consumers”.
Grid ownership and governance
Energy cooperatives have other grievances, however. For instance, REScoop.eu says the governance rules of citizen energy communities are more loosely defined in the electricity market directive than in the renewable energy directive, which was adopted in June this year. This “leaves the door open for abuse by big companies” by allowing them to have a stronger decision making power than citizen members, it said, calling on legislators to align the two texts.
Dario Tamburrano, the Italian MEP, said there were other reasons for disappointment in the final agreement struck by policymakers this week.
For instance, although EU law now recognises the right of citizen energy communities to share electricity using ICT tools like distributed ledger technologies or virtual net metering, there was no explicit reference to those methods of sharing in the final text.
“Another missed opportunity, in our view, is the recognition of the right of citizen energy communities to own and manage their distribution grid,” Tamburrano said. According to the newly-adopted rules at EU level, the decision on grid ownership is left to the discretion of national governments – a concession made to France which has a monopoly over the energy distribution network.
“Member states still have the possibility of granting such a right” when transposing the rules at national level, Tamburrano remarked. “And we hope that where the right conditions are in place, they could make this additional step forward.”