What are energy communities? According to the European Union, an energy community is a legal entity that empowers “citizens, small businesses and local authorities to produce, manage and consume their own energy.” By handing “ownership” of the assets that produce energy to the energy community – which is made up of, among others, energy producers, consumers (private citizens, businesses, public administrations) and distributors – these communities can help their members access low-cost renewable energy, as well as access information on how to increase energy efficiency of their members’ buildings (residential and office, for example), enabling them to better control their energy bills while keeping investments affordable.
Energy communities that focus on creating and distributing renewable energy are called Renewable Energy Communities (RECs). More specifically, a renewable energy community is a group of citizens, commercial activities, local public administrations, and small- and medium-sized enterprises that come together to produce, exchange and use energy produced from renewable sources on a local scale.
Energy communities in the European Union were created through the EU’s “Clean energy for all Europeans package”. Adopted in 2019, the package introduced the concept of energy communities in its legislation, notably as citizen energy communities and renewable energy communities. Aside from enabling shared production of energy, such communities also aim to enhance grid flexibility through distributed Demand Response and storage services provided by the communities themselves.
Renewable Energy Communities aim to share the benefits derived from generating renewable energy within the local area where the REC operates. The creation of a renewable energy community helps to decentralize power distribution, in turn promoting a more sustainable energy production and consumption model. Furthermore – according to the European Commission – such communities “contribute to increasing public acceptance of renewable energy projects and make it easier to attract private investments in the clean energy transition. At the same time, they have the potential to provide direct benefits to citizens by increasing energy efficiency, lowering their electricity bills and creating local job opportunities.”
Participants in a REC can take part as:
- Producer-members, whereby they receive a part of subsidies reserved to the REC , helping them repay the investment in the renewable system in a few years;
- Consumer-members: In this case, they receive a quota of subsidies by simply consuming the energy, while incurring no costs;
- Producer and consumer-members: In this scenario, participants attain the benefits enjoyed by both producer members and consumer members.
How does an energy community work?
An energy community is a non-profit legal entity whose members share in the production, distribution and use of renewable energy at a local level. Through certain subsidies available to such communities, their members can save on energy expenditures, helping repay for the shared energy infrastructure and for the energy generated by its use. Once the legal entity has been established, the next step is to determine where the energy infrastructure will be located.
By law it must be built close to its consumer-members, so – taking for example a solar power facility – it could be built on the rooftops of participating members’ factories and office buildings as well as on public buildings, like schools and hospitals. Once the infrastructure has been built, the power then is shared, through the grid, with the energy community’s members.
The actual infrastructure does not necessarily have to be owned by the energy community itself: it can be owned by a single member or even a third party, external to the community itself. Once the infrastructure is up and running, the economic community can request access – either directly or via a delegated third party – to the specific subsidies that have been made available to energy communities to encourage their formation. Such incentives are not applicable to the total energy produced; they are available only for the energy shared within the community. In the case the energy produced exceeds the energy used by the community, the economic community is rewarded by the grid operator through payment for the excess energy produced. The excess energy produced can also be stored in batteries, to be used when renewable energy cannot be generated (during nights, for example) and/or when peaks in demand would otherwise strain the grid. Each energy community determines how to share among its members the revenues generated.
What are the benefits of an energy community?
Membership of a renewable energy community offers many benefits, including (but not limited to):
1. environmental – by encouraging the production of renewable energy at a local level, energy communities can generate reductions in CO₂ emissions;
2. economic – members can obtain incentives for the creation of energy communities. In Italy these can amount to 119 €/MWh for 20 years on energy shared among the community’s members. Furthermore, 100% of generated energy is sold to Italy’s grid operator (GSE) at market prices established by the national Power Exchange. Benefits are proportionally allocated based on the energy generated (producer-members) and on shared energy (consumer-members). Hence, all REC members take part in the overall economic benefits.
3. grid – by producing and distributing energy produced locally, an energy community can reduce loss of energy to the grid which takes place when energy has to travel greater distances;
4. social – everyone can be part of an energy community, even consumers that don’t have the means to set up a renewable power system on their own. Every member of the community reaps the benefits of being a part of it. Furthermore, membership in an energy community helps educate and raise awareness among citizens (private, corporate and public) about urban sustainability and the importance of natural resources as well as promotes energy conservation and its efficient use.
Examples of energy communities in Europe
Energy communities were given EU-wide recognition and regulation with the EU’s “Clean energy for all Europeans package”, adopted in 2019. However, such communities have existed in Europe for a few decades. According to energytransition.org, energy communities started to emerge in Europe in the 1980s and today there are 1,900 projects across the EU that involve over 1.2 million EU citizens, in countries including Greece, Denmark and Belgium. According to the same source, the European Commission estimates that by 2030 “citizen-led energy communities could own up to 17% of wind power and 21% of solar power.”
What are the regulations related to an energy community?
There are several pieces of legislation and regulations that have played a part in establishing and promoting renewable energy communities in the European Union, some of which have played key roles. The first one is EU’s “Clean energy for all Europeans package”. Adopted in 2019, the package introduced the concept of energy communities in its legislation, notably as citizen energy communities and renewable energy communities, thus paving the way for the setting up of the first EU-regulated such entities.
A second important piece of legislation that has enabled these communities is the EU’s “Renewable Energy Directive” of 2009, which established “the legal framework for the development of renewable energy across all sectors of the EU economy, supporting clean energy cooperation across EU countries”. In further support of ‘green energy’ sources, the directive also set a target of 20% renewables production/consumption in the EU by 2020 and established national binding targets. In 2018 the directive was revised. Among others, this revised edition – called “Renewable Energy Directive (RED) II – set a binding target of 32% for the overall share of energy from renewable sources in the EU's gross final consumption of energy in 2030.
It also included “common principles and rules for renewables support schemes, the rights to produce and consume renewable energy and to establish renewable energy communities…“ And it established rules to “remove barriers, stimulate investments and drive cost reductions in renewable energy technologies, and empowers citizens, consumers and businesses to participate in the clean energy transformation”. Finally, there is “Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity”. This sets the legal framework to protect such communities and give them equal treatment under EU law, enshrining the principle – in article 46 of the preamble – that such communities “should be allowed to operate on the market on a level playing field without distorting competition, and the rights and obligations applicable to the other electricity undertakings on the market should be applied to citizen energy communities in a non-discriminatory and proportionate manner.” Article 16 of the directive sets out the protections for these communities and the rules and regulations governing their functioning on an EU-wide basis.
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