EVENT HIGHLIGHTS | What role for ‘Local Energy Communities’ in the EU energy transition?

On the 17th of October, PubAffairs Bruxelles hosted a debate on ‘Local Energy Communities’ (LECs) as a new model of energy production and consumption and their role in the EU energy transition with Mr Siim Meeliste, Counsellor for Energy from the Estonian Permanent Representation to the EU, Mr Antonio Lopez-Nicolas, Deputy Head of Unit, Renewable Energy and CCS Policy, European Commission, Dr Jan Ole Voss, Legal Advisor, European Renewable Energy Federation, Mr Josh Roberts, Advocacy Officer, REScoop.eu, and Mr Luis Arturo Hernández, Innovation Team Lead, Decentralised Energy Systems, E.ON.

The debate was moderated by Hughes Belin, freelance journalist.

Mr Luis Arturo Hernández held an introductory presentation in order to give an overview of E.ON’s research and experimentation of decentralised energy systems or Local Energy Systems (LESs) after a short video projection that introduced the pilot project of a Swedish village in which a “micro-grid” entirely powered by renewable energy sources (RES) was set-up. Mr Hernandez explained that E.ON began to deal with Local Energy Systems by undertaking a preliminary strategy work which consisted of the assessment of E.ON’s capabilities of going beyond what the company was already able to offer in order to foster the penetration of renewables at a local level. During this exercise, the speaker explained E.ON’s researches firstly found out that “micro-grids”, namely a localised grouping of electricity sources and loads, are infrastructures which not only can operate connected to and synchronous with the traditional centralised electrical grid, the so-called “macro-grid”, but can also accommodate a large number of citizens’ need. The citizens’ needs, the speaker pointed out, stem from both the fact that they cannot be reached by the macro-grid itself and from their willingness to have a highly renewable energy supply. Starting from these findings, a comparative and geographically differentiated analysis of the different types of unmet costumers’ needs and industry’s new competences to develop took place. The speaker emphasised that LESs already fitted very well with EON’s capabilities at that time. Within this framework, the pilot project entered phase 1, which consisted of modelling a micro-grid that was able to handle a high penetration (up to 100%) of RES in the Local Energy System. This pilot aimed at conducting technical trials which would cover all possible types of micro-grid scenarios based on already market available LES technologies. The main technical challenge of the pilot was to test the capability of these solutions to cope with the drawbacks of renewable energy production and distribution such as low inertia, intermittence and storage. Mr Hernández added that the first phase of the pilot project was also important in order to provide an outline of the future of the energy market and take into account regulatory and behavioural barriers for LESs projects implementation. The speaker then elaborated on phase 2, which consisted of going beyond the mere technical perspective and gaining a more customer-centred perspective, as well as drawing lessons from available examples. Mr Hernández stated that the main issues which emerged from phase two were the need to actively involve citizens along with the disadvantages (e.g. behavioural change) that they could potentially experience by switching towards a LES-based technology. In addition, the speaker elaborated on the importance of the valuable waste of renewables due to the difficulty for the transmission grid to keep up with RES production, as in the example of northern Germany. The speaker also explained that the main objectives of the second phase were twofold: the first one was to empower customers to be able to decide whether they wanted to actively participate in the integration of renewables (e.g. avoid RES curtailment), while the second was to develop fully automated balancing technologies that would minimize the impact of such participation in their normal day-to-day lives. Mr Hernández also gave an overview of the Interflex project, which was implemented upon the strategic work previously explained; this is a valuable example of how six demonstrative projects in five European countries, namely the Czech Republic, France, Germany, the Netherlands and Sweden, were optimal tests of distribution networks flexibility, innovative IT solutions and increased network automation and of how they were able to fully integrate RES to the main grid. Finally, Mr Hernández closed his opening remarks by stating that the company is in the process of defining a roadmap for next projects which shall be in line with EU expectations of enabling the cost-effective integration of RES into the macro-grid and will concern the role of LESs and communities in the EU energy transition.

After introducing the speakers, Hughes Belin invited the panellists to delineate the added value of both the local players and the process of regulating LECs energy systems.

Mr Meeliste, who led a working group on RES in the Council, elaborated on the added value of the Estonian presidency regarding the Commission’s clean energy package. He firstly focused on digitalisation as a cornerstone of the Estonian Presidency’s agenda. In addition, Mr Meeliste pointed to the need of growing the appetite for RES for the final consumer as a vital priority to progress on the EU target of at least 27% share of renewable energy consumption by 2030. The speaker explained how, in light of the Tallinn e-energy declaration, an initiative signed by the EU28, as well as by numerous companies and business associations, aims at digitalising the energy sector and have the focal point on the citizens’ needs. In this connection, digital energy tools primarily serve three main functions, namely, more effectively organising ourselves as citizens, obtaining additional financing for projects (e.g. through crowd funding platforms), and eventually making solutions cheaper by creating platforms for transactions and by incentivising government and stakeholders to rethink both current business models and regulations.

Dr Voss pointed out the valuable acceptance problem of renewables at a local level. By outlining the example of Germany, where citizens are often protesting against local wind farms, he emphasised the importance of the interrelation between green energy production ownership and local acceptance. While the speaker expressed his belief that Local Energy Communities will not be established as a top-down process, including by implementing EU directives and regulations, he highlighted that both the juridical and social ownership processes of green energy farms have great influence on the perceptions of how green energy is produced and consumed. According to the speaker, LECs have grown over years, as a bottom-up movement which has highlighted the citizens’ intent to independently produce and purchase energy. For these reasons, their active participation to the project is the only means to foster public acceptance.

Mr Lopez-Nicolas outlined the Commission’s intention to put the consumer, and specifically the citizen, at the centre of its clean energy package and to create a sustainable and affordable energy system. The speaker explained that this principle is reflected in the entire package. In this context, Mr Lopez-Nicolas emphasised that the package is, inter alia, about increasing consumer empowerment and public acceptance and about reaching the common European target in a cost-effective manner. For this reason the Commission proposes to introduce best practices and principles in various areas, such as self-consumption, energy communities or active consumption.

Mr Roberts focused on the added value of local players by presenting REScoop.eu and its members. The speaker delineated LECs as a new market design for an integrated EU market as they, among others, generate renewable energy, provide energy efficiency services, are involved in electro mobility, and deal with storage and aggregation. Indeed, REScoop.eu members are energy cooperatives, SMEs and citizens, who create legal entities  that operate according to a set of ownership and governance principles that distinguish them from traditional for-profit actors in the market in order to provide community benefits for their members as well as local social (provision of services such as supply of local renewables at a fair price, addressing vulnerable consumers) and environmental (locating renewables generation close to consumption) benefits, and the opportunity to participate in the energy transition. Given this setting, Mr Roberts emphasised the LECs’ role as a vehicle to foster the energy transition. With regard to the Commission’s clean energy package, the speaker also highlighted the importance of legislation to give a set of rights to entities so that they have adequate space to operate in the market. For this reason, the speaker explained the importance of converging towards a functional definition of LECs that incorporates these different governance and ownership principles and aims, in particular value over profits, as distinguished from traditional market actors, in order to foster the energy transition.

A second focal point of discussion focused on the definition of Local Energy Communities (LECs), as well as on the barriers which have hindered LECs to prosper.

Mr Hernández elaborated on this topic by stating that in his view a clear definition of Local Energy Communities has not yet emerged at a European level and that this fact constitutes the first barrier for LECs to prosper. He continued by elaborating on the importance of having a solid operational concept of Local Energy Communities which should allow both citizens and businesses to consolidate current models and foster innovative practices in line with EU objectives. Furthermore, he emphasised that he has observed diverse understandings of LECs, while the idea of Local Energy Communities at European level seems to emerge merely as a ‘small unbundled utility model’ which is entitled to perform all activities of energy production and consumption. However, in light of his experience, the speaker raised the issue of failing infrastructures and asked what would happen in case of deteriorating assets. He also pointed out that LECs are mostly located in rural areas, where the density is relatively low and, as a result, the connection costs per person are the highest. In this context, Mr Hernández further remarked that the discussions should focus on the optimisation of the already existing energy models. The speaker also envisaged, on the one hand, to encourage distribution system operators to engage with customers and to allow them to increase their asset base, whereas, on the other hand, he suggested to find solutions to all the regulatory barriers which hinder the penetration of LECs in Europe.

Mr Roberts replied to these remarks by stating that while in Europe there are several geographical and cultural cleavages among member states, in his view the main barriers, rebus sic stantibus, are of a regulatory nature. In addition, he emphasised that there are not only differences among old and new member states, but also between EU countries which have a long standing tradition of local cooperation in the energy field and newcomers. The speaker explained that the cooperative model in Europe is mostly based on the juridical institution of cooperatives, which, on the one hand, hinders to fully act in the energy market due to regulatory barriers and, on the other hand, has a fair amount of difficulty to gather financing. The speaker added that Europe was somehow able to create a level playing field in countries with an older tradition of local engagement in energy production, however, as in the case of Germany, the market has valuably expanded, while the financing domain has shifted from a loan-based structure to a tender-based structure making more disadvantageous the participation of small players, especially renewable energy cooperatives. Mr Roberts concluded by elaborating on the case of Germany where he has observed a split between wind energy and the other types of renewables, for example ground-mounted solar PV, as for the former set of players the criteria to qualify as a LEC have been broadly extended, while the status of the latter has not changed during time, a fact which has further widened the gap between small and large players.

Mr Meeliste focused on the Council’s work on the renewable energy directive as the institutional discussions included the definition of a new legal entity which might constitute a LEC, as well as the attribution of what this entity should be entitled to do. The speaker explained that, at the beginning of the clean energy package legislative process, there were two different definitions available: while the electricity directive employed the concept of LECs, the renewable energy directive referred to renewable energy communities (RECs). As a result, it was necessary to merge the two definitions. As far as electricity production and consumption was concerned, the definition of the new legal entity entitled to act as a LEC was based on the concept of ownership with a focus on natural persons in order to foster participation and inclusiveness. The result of the Council work, the speaker explained, should enable all actors, including small players, to conduct all activities which are part of the electricity directive as, for example, they should be able to operate their own distribution system. For these reasons, Mr Meeliste explained, that one of the Council’s main concerns was to ensure that citizens and small players are able to participate on an equal footing with all other stakeholders in the energy sector. The speaker also stated that the work of the Council aimed at overcoming legal barriers, which are often the result of different juridical systems, in order to converge towards a functional definition of LECs.

Mr Lopez-Nicolas highlighted that the legislative process of the Clean Energy Package is still ‘work in progress’. In line with Mr Meeliste, Mr Lopez-Nicolas tried to clarify the process and the challenges of defining Energy Communities at a regulatory level. According to the speaker, the Commission’s objective is to enshrine best practices in legislation. He added that the REC definition is not only limited to electricity and does not cover any grid aspects, whereas the LEC definition, as laid out in the Electricity Directive, was more broadly designed. However, while the latter does not only cover grid aspects, but also future business models, it was not explicitly focused on renewables. Furthermore, the speaker emphasised that from the point of view of the European Commission energy communities have to be local by nature and target citizens’ participation and juridical as well as social ownership of renewable energy production in order to help increase acceptance of renewables. Defining the concept too broadly might lead to sub-optimal solutions.

The other parts of the debate and the Q&A session covered the following issues: Local Energy Communities and community benefits, the lessons from the German case, how to create a level playing field in Europe, the question of ownership, the question and the risks of unbundling, how to deal with failing infrastructures, the role of smart grids, the proliferation of community owned distribution system operators (DSOs), the example of Denmark, LECs as a new market model, LECs and the role of the industry, the importance of local control, the comparison between the US and the EU models, the role of EU institutions in the fostering of renewables, the local management of LECs and possible individual contributions, such as the sustainable use of energy.

Do you want to go further into the issues discussed in our debate? Check our list of selected sources which we have provided for you!

Clean energy For All Europeans, European Commission

Energy Roadmap 2050, European Commission

A policy framework for climate and energy in the period from 2020 to 2030, European Commission

Energy 2020: A strategy for competitive, secure, and sustainable energy, European Commission

Energy Union – The year of engagement, European Commission, Press release, November 2017

European leadership in the energy transition, Policy Network

The Future of Europe and the Future of Climate Action, Heinrich Boll Stiftung

Regional and Local Energy Communities—A European Union Perspective on Community Benefits, Oxford University Press

Local Energy Systems, E.ON

[Swedish] Lokala energisystem, E.ON

[VIDEO] E.ON 360° Video – Local Energy Systems – Simris

Rescoop.eu – European federation for renewable energy cooperatives

WiseGrid.eu – Smarter systems. Empowered citizens

Interflex Project, Interactions between automated energy systems and flexibilities brought by energy market players

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