When thinking about energy, most people tend to imagine a big central power plant sending electricity to homes and businesses over vast distances. However, groups of empowered consumers across Europe are trying to change that.
The EU 2020 Clean Energy for All Europeans package must be transposed into national law by the 27 national governments by June 2021. It will, for the first time, set up a framework enabling all consumers in Europe to band together to produce and sell their own energy, something that has long been stymied by utilities, grid operators and governments.
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One such project is the Brussels neighbourhood of Ganshoren, where residents have paid to put solar panels on the local school’s roof. The school buys the energy that is produced at a cheaper rate than that bought from the grid. When the school isn’t using the power, such as at weekends or over the summer, the energy is sold to nearby houses.
Such projects can have a significant impact, as Adrian Hiel from Energy Cities, a network of local governments including Brussels, explains.
“One of the great things about community energy projects is that they can be focused on a local school or recreation centre,” says Hiel. “There will be meetings in those buildings, there will be other parents at the school who will be engaged and talk about it. It is a trusted source, it is not a sales pitch. It is not a leaflet through your door.”
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By GlobalData
Free riding
For many years state-run utilities have viewed such projects as a nuisance at best, and a free-rider causing problems for the network at worse. For this reason, their development has varied geographically. While they are somewhat developed in northern Europe, they are rare in southern Europe and unheard of in eastern Europe.
REScoop, a federation of European citizen energy cooperatives based in Brussels, has worked since its inception in 2013 to explain this model to policymakers. It sees EU legislation on the issue as its crowning achievement.
“When the clean energy package came out, we had to do a lot of explaining,” says federation president Dirk Vansintjan. “The utilities gave us different names – buccaneers, pirates, free-riders or antisocial rich people trying to disconnect from the grid. But we had a lot of meetings, and explained that energy cooperatives have been around since the very beginning of the electrification of Europe.”
Energy communities have long been dogged by the accusation that they are a way for elites to disconnect from the main energy grid, thereby not contributing to the state utility and making energy prices higher for everyone else.
“If you imagine a system in which more and more people disconnect from the distribution network because they engage increasingly in self-consumption, that is generally a positive thing, but it means those people still connected to the system might have to bear a higher cost because the infrastructure is still in place,” says Henning Twickler from E.DSO, the association of distribution system operators of Europe’s electricity grids. “That would hit the most vulnerable consumers.”
But advocates say community energy doesn’t have to only be for high-income, high-information consumers. A 2016 report from consultancy CE Delft found that over 80% of EU households could potentially become active participants in energy markets by 2050, meeting 45% of the electricity demand in Europe with renewable sources.
Community history
Community energy has been around a long time. As utilities started electrifying cities at the start of the 20th century, rural areas were less interesting commercially and farmers, therefore, had to generate their own electricity. This was commonplace in Germany where local windmills or watermills powered groups of nearby farms.
“There were more than 6,000 energy cooperatives in Germany before the Second World War, but only 40 survived Nazism, communism and capitalism – which all concentrated energy production,” says Vansintjan.
It is in the post-communist world that the concept of energy communities has had the hardest time taking hold.
“In the east of Europe, cooperatives have a connotation of communism,” says Vansintjan. “When the communists came to power they put party members at the head of cooperatives.”
This is also why his organisation advised the European Commission to use the term “energy communities” rather than “cooperatives” in legislation, with the focus on these projects being controlled by communities, not public or private players.
Even in parts of Europe where the concept has garnered more support, “prosumers” have faced major resistance from utilities and grid operators to the idea they could generate their own electricity.
“I remember my first contact with the distribution system operator in Belgium,” recalls Vansintjan. “We were renovating an old water mill that used to produce electricity for the whole village. We told the DSO we were restoring the mill to produce electricity for 120 families. The answer was ‘you are not allowed to provide them with electricity, and you can’t sell it to us because we already have enough with nuclear power’.”
It took six years of lobbying to get a framework for renewable energy in Belgium, and it is only now with the clean energy package that distribution system operators and regulators have to figure out the advantages of community energy and remunerate people for it, says Vansintjan.
Industry reaction
Indeed, utilities and grid operators are now coming forward to emphasise their expertise and the opportunities for them in this changing landscape.
“When we started to work on this topic during the negotiation of the package back in 2016, we understood that for our members it is a big opportunity,” says Gabriel de Couëssin, a specialist in retail and wholesale markets with electricity industry association Eurelectric. “It is a way to encourage electrification and decarbonisation, but it is also a business opportunity for our members.”
Citizens don’t always have the tools and means to establish these communities, particularly when it comes to physical hardware, and that is where utilities can help, he says. Utilities have proposed that the legislation allows them to be given the status of “energy community manager”. The EU package does not create such a position, but Eurelectric believes it could be approved under national legislation when countries transpose the directive.
“Utilities have great experience, we do this all the time and we can help communities,” says de Couëssin. “The legislation should ensure that cooperation with utilities is open.”
He also insists communities are given “all the rights and all the responsibilities” of other actors in the sector” to avoid communities acting as “free-riders”.
E.DSO’s Twickler agrees.
“Imagine you have an energy community that for most of the year produces its own electricity and self-consumes, but for a few times a year its own generation doesn’t meet demand and it needs to import electricity from the wider distribution network,” he says. “This drives up the cost for us. Even if you consume just once a year, the network needs to be ready for that”.
This could be an issue as consumers need more electricity to charge electric cars or use heat pumps, he says.
“Energy communities should reap financial benefit, but when they produce costs for the system they must also pay for that. If you as an energy community remain connected to the wider system, you must pay a proportionate price,” states Twickler.
Community energy advocates, however, are wary of utilities getting involved as managers, worried this could lead to the same top-down cooperative management seen in years past. There are also concerns that utilities have a profit incentive to stymie these projects, and the EU package gives much leeway to national governments in how they want to write these laws.
“All member states are now transposing the directives, but of course there is an interpretation margin,” says Vansintjan. “We are curious, but also worried, about how this will be done.”
Community potential
Hiel says small projects represent low-hanging fruit that giant energy projects can’t deliver.
“A big government-led or corporate-led project needs a big singular site; community energy is really good at tapping into the spaces in-between where we live,” he explains. “You are getting carbon-free energy generation without using any additional land.”
He agrees community energy projects bring some complications, but believes that ultimately everyone benefits.
“There is no question they complicate life for grid distributors to a certain extent,” says Hiel. “A world where you have one generator that supplies everyone is simpler. But they are also a lot less efficient and worst for consumers. You will also have some grid distributors who will see the value in being able to move a lot of demand off their books because it will be met with community energy.”
Studies show that investment in community energy can yield a greater return than investment in big centralised energy projects. The financial benefits of a locally owned wind farm are up to eight times greater than a corporate-owned equivalent, according to a 2016 study by the Institute for Distributed Energy Technologies. A normal target dividend from a community energy project would be about 6% – higher than the yield from investing in fossil fuel companies over the last decade.
Community energy also has a completely different pot of money from which to gather financing, which is not available to big projects. Researchers estimate the energy transition in Belgium will require investment of €300–400bn to 2050. Belgian citizens together have about €278bn of sleeping savings in banks, which could be invested locally. Such investment could create 20,000–60,000 jobs, and save the state up to €20bn a year in avoided imports of fossil fuels and uranium, says Energy Cities. Studies also show that people who participate in community energy projects tend to reduce their own consumption at home, being more aware of the need for efficiency.
The biggest game changer may be the demise of feed-in tariffs, an unpredictable structure that, until now, was the determining factor in how much a person can make from a home renewables installation. The community energy model will not depend on these tariffs. Rather than selling energy to the grid at a low or unpredictable price, projects will sell it to their neighbours at an agreed rate. Sellers will probably charge more than the price at which they could sell to the grid, and buyers will buy for less than they would pay to the grid.
That might sound like a dangerous proposition to electricity providers and grid operators – the middle men who were benefitting from feed-in tariffs and are now effectively being cut out –but for the more astute in the electricity sector, there are plenty of opportunities.
“Everyone can see that this new phenomenon of energy communities is there,” says de Couëssin. “We have no interest to oppose that, but what we want to ensure is that the challenges of the full system are taken on board.”
