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Energy
News article13 December 2022Directorate-General for Energy

In focus: Energy communities to transform the EU’s energy system

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To tackle high energy prices and a rampant inflation, the European Commission and EU countries are actively promoting actions that help citizens reduce their energy consumption, increase their energy savings and lower their energy bills. Individual action can make an important difference for each household – by reducing their energy use or switching to renewable energy providers, as much as 83% of all EU households could contribute to renewable energy production, demand response and/or energy storage in 2050. But the collective dimension of citizen engagement can particularly contribute not only to a ‘smarter’ energy use, but also to increasing the EU’s renewable energy production.

Beyond their traditional role of consumers, more and more citizens are becoming ‘energy prosumers’, who both consume and produce energy. Prosumers can be individuals, for instance, households that install solar panels on their roofs to use the power of the sun, or collectives, such as energy communities, which bring together citizens to take joint action to produce local, clean energy. These communities contribute to increasing social acceptance and investments linked to local energy projects, which benefit communities both at societal and economical level.

What is an ‘energy community’?

Energy communities are legal entities that empower citizens, small businesses and local authorities to produce, manage and consume their own energy. They can cover various parts of the energy value chain, including production, distribution, supply, consumption, and aggregation. Energy communities may vary depending on their location, involved actors and provided energy services.

In energy communities, citizens can access low-cost renewable energy by taking ownership of production installations, as well as access information on how to increase energy efficiency in their households, which can help them to better control their energy bills while keeping individual investments affordable. At local level, these communities contribute to the creation of jobs opportunities and enhance social cohesion through annual general assemblies and local activities.

Choosing an energy community model

Energy communities can be engaged in energy production, distribution and supply, consumption, aggregation, storage, energy efficiency services, electromobility, and provide other energy services to its members or shareholders.

Today, the most frequent business models for energy communities are

  • Generation and supply:Supply of electricity and gas sourced from external local producers through Power Purchase Agreements, wholesale markets, or community-owned production capacity to their customers.
  • Collective investments in production installations: In collective investments, consumers pay a fixed membership fee or a variable stake to become members of an energy community that acts as an energy producer. Power Purchase Agreements are often in place within cooperative investments to cover the produced energy and related financial products, like green certifications or guarantees of origin.
  • Collective self-consumption: They link energy consumers and producers in the same area. As national regulation highly influences them, members’ ability to sell their electricity to other community members and to make use of off-setting mechanisms of the electricity meters might change from country to country.

These models can be combined and are not exhaustive – for instance, there are community-owned grids and district heating systems.

When launching an energy community, the regulatory context and financial incentives need to be taken into account to identify the permits, licenses and production capacity it will need to successfully participate in the energy system. Another important element is the type of available energy within the community, as the availability and deployment of technologies such as solar panels, wind turbines and batteries, among others, play a defining role in their establishment and development.

EU legal framework

Acknowledging the important role of local actors in the energy transition, the European Commission included provisions around the concept of energy communities in the Clean energy for all Europeans package, adopted in 2019. Among others, it included rights to allow consumers to choose and take energy supply, production and storage into their own hands, either individually as prosumers, or collectively through energy communities.

Building upon these rights, the energy community concept was further defined in the Renewable Energy Directive and in the Internal Electricity Market Directive, which set a regulatory framework for citizen energy communities and for renewable energy communities in the EU.

For citizen energy communities, all types of generation technologies and entities can be involved, including municipal companies and NGOs. Only natural persons, local authorities or small enterprises can be, each individually or collectively, in effective control, irrespective of their geographical location.

Renewable energy communities can operate in both the heating and electricity sector provided it is renewable energy based, but only SMEs, local authorities and natural persons are allowed to participate. Effective control is limited to those actors that are located in proximity of the community-owned renewable energy project. The renewable energy community also needs to be autonomous, which ensures balanced and democratic decision-making between the actors in effective control.

Under EU legislation, energy communities can take the form of an association, a cooperative, a partnership, a non-profit organisation, or a limited liability company, among others. Their participation structure is open and voluntary. Their main purpose is to provide environmental, economic or social community benefits for its members and the local areas where they operate. As legal entities, they should access all suitable energy markets on a level playing field with other market actors. Because of the strict participation and governance criteria, these communities benefit from additional privileges, such as support schemes, capacity building and access to financing and information.

As the concept of energy communities has emerged bottom-up, EU countries have also implemented national policies to support energy communities and related business models. For instance, the Netherlands applies regulatory exemptions in licensing requirements for new businesses models, while Germany applies special rules in auction schemes for renewable energy sources support.

EU initiatives

Beyond the existing EU legal framework defining and supporting energy communities, the European Commission set up two initiatives in 2022, which aim to contribute to the dissemination of best practices and provide technical assistance for the development of energy community initiatives across the EU. These initiatives are working closely together, with internal transfers of communities being possible depending on their needs.

  • The Energy Communities Repository assists local actors – including citizens, local authorities, and businesses – with setting up and advancing clean energy projects driven by energy communities in urban areas across Europe. This initiative will provide different forms of support to at least 150 energy communities, mainly through data collection and analysis and technical assistance.
  • The Rural Energy Community Advisory Hub aims to accelerate the development of sustainable energy community projects in the EU’s rural areas. Its main objective is to identify best practices and provide technical assistance and networking opportunities to support local authorities, businesses, farmers and citizens in setting up their own rural energy communities. With specific technical and financial support, these communities can improve energy security and bring economic benefits and employment opportunities to rural areas.

Overcoming barriers to decentralise energy in the EU

Energy communities in the EU provide citizens, businesses and local authorities an opportunity to actively contribute to climate change mitigation and to the transition to a renewable, resilient energy system. However, they are still a niche in most national energy markets, with an estimated 9000 energy communities currently in operation across the EU.

As they are often financed by local authorities, small businesses or citizens, and run by citizen volunteers, energy communities are faced with a lack of time and resources to develop, implement, operate and expand their energy projects. These issues lead to a variety of barriers, such as burdensome and complex administrative registration, permitting, grid access and licensing procedures. Public and technical support and funding opportunities are equally important to remove barriers to their development.

In the face of current and future energy price shocks, energy communities are well-equipped to ensure access to affordable clean energy for consumers, whether it is through self-consumption or by shifting or reducing demand at times of energy price peaks, imbalances or congestion issues. Under the impulse of empowered consumers, energy-sharing or collective self-consumption can become an economically viable solution to circumvent gas wholesale market prices and facilitate access to low-cost renewables, but these self-consumption schemes need to be connected to optimise grid capacity and avoid local congestion.

Energy communities will play a prominent role in spreading renewable energy technologies across the EU and will therefore contribute to the EU’s renewable energy production targets and to its decarbonisation objectives. Moreover, they have the potential to empower consumers and put communities at the heart of the energy transition, creating economic resilience through local revenue streams, reinvesting benefits into the community and reinforcing solidarity among its members.

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Publication date
13 December 2022
Author
Directorate-General for Energy