Robust legislative framework for “energy communities”, as well as for self-generation, has been introduced into European legislation by the Clean Energy Package (known also as “the Winter Energy Package”).
Distribution System Operators (DSOs) see the energy communities as “a span-new concept”, with the challenging legislation to apply. DSOs note questions are being asked about what energy communities are, how to define them, etc. (DSOs as facilitators of energy communities, E. DSO, June 2021, p. 2).
In more detail the term: “an energy community” is used in the context of:
- “citizen energy community” (CEC) in the Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market in electricity (recast) and
- “renewable energy community” (REC) in the Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (recast), known as “the RED II”.
Despite important differences, both types of energy communities share some similarities, for example:
- they are entities that are set up as a legal person (as the recital 46 of Directive 2019/944 underlines, CECs "constitute a new type of entity due to their membership structure, governance requirements and purpose"),
- they must be effectively controlled by their shareholders or members, and
- their primary objective is to provide environmental, economic and social community benefits rather than financial profits.
In turn, among major differences between CECs and RECs are the membership issues (much more regulated in RECs than in CECs):
- in RECs there is an additional reservation for private undertakings that their participation must not constitute their primary commercial or professional activity,
- the shareholders or members in RECs must be located in the proximity of the renewable energy projects that are owned and developed by the REC.
CECs are free from the above restrictions.
Moreover, RECs are also able to engage in the collective management of other energy carriers, e.g.renewable gas, while the CECs’ scope is limited to electricity.
According to Article 2(11) of the recast electricity market Directive “citizens energy community” means a legal entity that:
(a) is based on voluntary and open participation and is effectively controlled by members or shareholders that are natural persons, local authorities, including municipalities, or small enterprises;
(b) has for its primary purpose to provide environmental, economic or social community benefits to its members or shareholders or to the local areas where it operates rather than to generate financial profits; and
(c) may engage in generation, including from renewable sources, distribution, supply, consumption, aggregation, energy storage, energy efficiency services or charging services for electric vehicles or provide other energy services to its members or shareholders.
More on CEC can be found in Article 16 of the recast electricity market Directive.
According to Article 2(16) of the RED II “renewable energy community” means a legal entity:
(a) which, in accordance with the applicable national law, is based on open and voluntary participation, is autonomous, and is effectively controlled by shareholders or members that are located in the proximity of the renewable energy projects that are owned and developed by that legal entity;
(b) the shareholders or members of which are natural persons, SMEs or local authorities, including municipalities;
(c) the primary purpose of which is to provide environmental, economic or social community benefits for its shareholders or members or for the local areas where it operates, rather than financial profits.
Recital 26 of the RED II requires the EU Member States to ensure that RECs can participate in available support schemes on an equal footing with large participants.
To that end, measures are allowed, such as providing information, providing technical and financial support, reducing administrative requirements, including community-focused bidding criteria, creating tailored bidding windows for renewable energy communities, or allowing renewable energy communities to be remunerated through direct support where they comply with requirements of small installations.
Further, specific provisions on RECs are laid down in Article 22 of the RED II.
However, as observed by the EU energy market regulators (Regulatory Aspects of Self-Consumption and Energy Communities, CEER Report, Customers and Retail Markets and Distribution Systems Working Groups, 25 June 2019, Ref: C18-CRM9_DS7-05-0, p. 14) energy sharing, be it directly or within energy communities, in some respects “defies the classical supplier-customer relationship”.
The regulators’ concern is involved with the fact that energy communities may act as a supplier, as a service provider (e.g. providing aggregation services) or, if allowed by the relevant Member State, as a grid operator (i.e. activities that are regulated in the energy market legislation).
The CEER Report of 25 June 2019 refers to the fact that some EU Member States, such as France and Austria, have developed a framework for collective self-consumption, where energy can be shared within a group of customers, without requiring the direct involvement of a supplier.
The regulators’ observation is that with the new provisions from the Clean Energy Package “this kind of direct sharing of electricity will become a right, without necessarily requiring active involvement from the supplier of the remaining electricity” (p. 17).
In this regard Article 16(3)(e) of the recast Electricity Directive states that citizens energy communities “are entitled to arrange within the citizen energy community the sharing of electricity that is produced by the production units owned by the community”, subject to other requirements laid down in Article 16 of the Directive and “subject to the community members retaining their rights and obligations as final customers”.
Where electricity is shared, this must be “without prejudice to applicable network charges, tariffs and levies, in accordance with a transparent cost-benefit analysis of distributed energy resources developed by the competent national authority”.
According to ACER's Questions and Answers on REMIT (point II.3.9), “CEC, as a legal entity active on wholesale energy markets (but not necessarily each of its members separately), is considered a REMIT market participant. The same considerations apply to active consumers, as defined in Article 2 (8) of Regulation 2019/943. For the reporting obligations, the thresholds set-out in Article 4 of Commission Implementing Regulation (EU) No 1248/2004 apply”.
Energy communities as the DSOs
The recast Electricity Market Directive (Art. 16(2)(b) envisions that the EU Member States may provide that CECs are entitled to own, establish, purchase or lease distribution networks and to autonomously manage them subject to conditions set out in the directive (note that no such provisions exist with respect to RECs in the RED II).
However, the regulators consider as the “challenge for both NRAs and project developers, regardless of whether they are CECs or not, is to unleash the benefits of microgrids in a way that is compatible with the principles of the European energy market.”
Regulators underline that “in the role of a market facilitator, it is key that the DSO acts in a non-discriminatory manner to all parties involved.
This remains true if a CEC essentially takes on the role of DSO – for example after successfully participating in a tender for a concession.
In such cases, CEER believes that CECs should fall under the regulatory regime applicable to any other DSO of the same size under the national regulatory regime.
In many MS, if the DSO has less than 100 000 customers, the unbundling regime is less stringent.
In those cases, the CEC owned DSO could act as a producer or supplier through the same legal entity as the DSO and would not need to create a separate brand for its non-DSO activities.
However, the CEC acting as DSO would not be exempt from the obligation to act in a non-discriminatory way towards other suppliers, producers, aggregators, service providers or connected customers that are not members of the CEC.
It would consequently be difficult for such a grid to be designed and operated in a way that prioritises the CEC’s assets” (Regulatory Aspects of Self-Consumption and Energy Communities, op.cit. p. 30).