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Why do energy communities benefit communities, and why are they so rare?

Energy communities could be a great opportunity to support system optimisation, reduce emissions and retain customers in an increasingly competitive supply market. However, beyond a few trials and pilots, most initiatives have failed to deliver enduring benefits. There is a need to reframe the narrative around the real needs of the community. Regulators, service providers and enablers must change their approach if energy communities are to find their place in the energy ecosystem.

Energy communities bring collective self-consumption and peer-to-peer (P2P) business models to life

Energy communities can be enabled by collective self-consumption or peer-to-peer (P2P) trading to manage the local energy flows and reduce the need for grid reinforcement. Collective self-consumption is a model pooling generation amongst a group of consumers. Peer-to-peer is a term used to describe the economic transactions between prosumers and consumers. Either group may benefit from communal investment in a renewable energy asset and share the energy produced.

Energy communities can enable grid optimisation and savings for participants

Energy communities can be an enabler for local energy optimisation. Whether generating or consuming, price signals encourage load shifting to create savings on their energy bills. In energy communities load shifting is encouraged through ToU (time-of-use) tariffs that favour matching production and consumption in some countries.

Working examples already exist

Energy Local has implemented a PPA agreement with a local hydro power plan in Bethesda and incentivise optimisation through a ToU tariff which is lower at times of production from the power plan and higher at time of grid imports. Another solution is trialled in Germany by Greencom, where in the shine community ToU tariff is also implemented in a virtual peer-to-peer exchange. Lastly, the Italian government have approved a FiTs scheme that gives subsidies on the shared energy (the energy consumed within the community when the community assets produce) to encourage system optimisation and avoid congestions.

These schemes can help grid congestion management by reducing the inflows and exports and provide demand response services to the DSO when supporting technologies and regulations are in place.

Even though energy community potential is well understood across all the value chain, parties have failed in delivering scalable energy communities models.

In theory, it looks like a win-win situation: the DSO network is optimised and could even defer network upgrades through flexibility services and transactional optimisation, the members of the community save on their energy bills, and more individuals invest in clean, carbon-neutral energy.

However, the reality is different. So far, the uptake of energy communities and peer-to-peer trading, has been slow and driven by either top-down innovation teams with lengthy processes, expensive technological solutions and few participants or by enthusiastic environmentalists active in their communities but without sustainable business models or local network benefit to support the ideologic justification.

Both top-down and bottom-up approaches face obstacles. The private sector struggles to find participants while communities lack financial and industry expertise.

The industry group prefers to use sandboxes and have the support of experts familiar with the technological and regulatory hurdles to setting up an energy community/ P2P trading scheme, but struggle to find communities that want to embark in the journey with them. The second group takes on average 10 years to get projects up and running with a team of passionate but less expert enthusiasts facing regulatory, political and planning risks to the business case.

It emerged that regulators are focusing on energy when they should be focused on the community.

It was at the recent goP2P observatory[1] conference that we realised that all the participants were talking more about flexibility, market structures and regulations than the communities.

Local pollution, and energy and economic security are real concerns for communities

So, we asked what are the pain points that an energy community / a P2P scheme can solve for a community and its members?

The following points emerged.

  • energy communities can be an alternative to the construction of polluting fossil fuel based powerplants and improve the air quality for the local communities that live close by
  • communities living in grid constrained areas, and experiencing seasonal or extreme weather blackouts events, can find solutions through the installation of extra distributed generation and storage as microgrids to improve resilience
  • impoverished communities could find protection from energy price volatility e.g. during an energy crisis. However, those communities would struggle to invest in renewable energy assets
  • the surging energy crisis has brought up a new pain point: most customers found that their energy bills tripled and are thinking of new ways to reduce it

Energy communities will not be successful unless they help address the community’s real needs.

Energy and economic security were the themes that came through, together with realising that energy communities might not be the cheaper nor simplest option but do relieve those pain points in a world where security has become as important as price in customers’ decisions.

We have been researching developments in energy communities at Delta-EE for 3 years, and have found that:

  • EC are not always the best solution for a community, neither they are always wanted.
  • Successful EC are built where there is a real need that brings together the community.
  • Communities that are built in collaboration with the local DSOs enable system optimisation and bring benefits to both the community and the DSO.
  • CSC and peer-to-peer optimisation can reduce the need for network reinforcement and allow the community to operate with a smaller and cheaper grid connection.

Find out more about our Local Energy Systems Research Service on our website.

[1] The Global Observatory on Peer-to-Peer, Community Self-Consumption and Transactive Energy Models (GO-P2P) is a Task of the User-Centred Energy Systems Technology Collaboration Programme (Users TCP), which runs under the auspices of the IEA (International Energy Agency). GO-P2P is a forum for international collaboration which aims to understand the policy, regulatory, social and technological conditions necessary to support the wider deployment of peer-to-peer, community/collective self-consumption and transactive energy models.

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