4.1. Implementation process
Article 288 TFEU states, that regulations shall have general application. They shall be binding in their entirety and directly applicable in all Member States. Regulations are usually considered as akin to legislation made by Member States. This analogy is based on the fact that regulations are measures of general application, applicable to all Member States.380 While regarding directives, article 288 TFEU states that they shall be binding, as to the result to be achieved, upon each Member State to which they are addressed, but shall leave to the national authorities the choice of form and methods. So, directives differ from regulations in two important ways. They do not have to be addressed to all Member States, and they are binding as to the end to be achieved while leaving some choice as to form and method to the Member States. Directives are particu-larly useful when the aim is to harmonize the laws within a certain area, or to introduce complex legislative change.381 The discretion is left to Member States as to how the directive is to be im-plemented.382
As follows from the article 291(1) TFEU, Member States shall adopt all measures of national law necessary to implement legally binding Union acts. In case of directives, which, unlike regu-lations, are not directly applicable, it is always incumbent on the Member States to implement them fully.383 The fact that directives may have vertical direct effect or be enforced in other ways does not reduce the obligation of states to implement them properly.384 Article 288 TFEU pro-vides that the manner and form of implementation of directives are a matter for each Member State. However, according to the Court of Justice of the European Union (CJEU), the state’s freedom to decide on the manner of implementation “does not however release it from the obli-gation to give effect to the provisions of the directive by means of national provisions of a bind-ing nature”.385
385 Case 96/81 Commission v Netherlands [1982] ECR 1791
Legal provisions of IEMD and RED concerning the legal status of energy communities need to be incorporated by EU Member States into their national legislation. The deadline for the im-plementation of the provisions of IEMD concerning energy communities is 31 December 2020386, while the deadline for the respective provisions from the RED is 30 June 2021387. The directives contain obligations of result for Member States. Thus, Member States have broad dis-cretion on how to interpret and implement them.
The implementation of the recast IEMD and RED is expected to turn communities across the EU into prominent actors in the energy transition and to deliver more decentralised and polycentric energy governance.388 Law and policy have an important role to play in this transformation, by addressing the complex, layered, regulatory questions.389 In the following sections of this chap-ter, the challenges which Member States are likely to face in terms of implementation of the ena-bling framework for energy communities will be identified and explained.
The full implementation of the relative provisions into national law will be critical for the devel-opment and viability of energy communities. When developing their national energy and climate action plans, Member States should identify concrete measures to implement the new rights and obligations provided to citizen and renewable energy communities by the IEMD and the RED.390
4.2. Distinction between energy communities and other citizen initiatives
While acknowledging that energy communities can take different forms, the CEP explicitly dif-ferentiates energy communities from other initiatives developed by traditional market actors.391 National legislators need to ensure that these distinctions are clearly stated in national laws. The risk is that many existing energy companies would like to use energy communities as a platform for marketing consumer-centric services for commercial purposes.392 However, it is not the pur-pose of the CEP to empower traditional market players to set up their activities through energy
386 Article 71(1) of IEMD.
387 Article 36(1) of RED.
388 Savaresi Journal of Environmental Law 2019, p. 509.
389 Ibid., p. 509.
390 Caramizaru - Uihlein 2020, p. 32.
391 Recital 46 of IEMD.
392 Roberts European Energy Journal 2019, p. 21.
communities.393 Energy companies may participate as members within energy communities and provide them with services, but they are forbidden to exercise control over community.394
It is also stated, that the provisions of the IEMD on energy communities do not preclude the ex-istence of other citizen initiatives such as those stemming from private law agreements.395 Thus, proper differentiation between energy community and non energy community citizen initiatives will be very important for the successful development of energy communities. If they are not sufficiently distinguished it will be easier for energy companies to abuse beneficial treatment.396 So, it will be a legal challenge for national legislators to decide how to draw a proper distinction line between energy communities and other private initiatives.
4.3. Coherence between CECs and RECs at the national level
Another legal challenge for national legislators will be to decide how to define both CECs and RECs at national level in a coherent manner. The relationship between these two concepts must be clear for investors, stakeholders and regulators.
From an organizational perspective, both definitions share many commonalities and for the most part RECs can be seen as a subset of CEC.397 However, in reality it is more complex. A REC will almost always be also qualified as CEC under the following conditions. In order to be also quali-fied as CEC a medium-sized enterprises cannot be involved in the effective control of the REC.
This is because in CECs only small enterprises are allowed to be involved in the effective control besides natural persons and local authorities.398 Likewise, a CEC could also qualify as a REC if it does not have any members that are larger than a medium-sized enterprise, and as long as the effective control is held by local members.399
There is also a lack of clarity in the activities that are implied from the directives. For example, while energy production, consumption, sharing, storage are mentioned for both types of energy
393 Ibid., p. 21.
394 Recital 44, Article 2(11) of IEMD.
395 Recital 44 of IEMD.
396 Roberts European Energy Journal 2019, p. 21.
397 Ibid., p. 21.
398 Article 2(11) (a) of IEMD.
399 Article 2(16) of RED.
communities, for RECs term ‘sale’ is mentioned400, while ‘supply’ is a term used for CECs401. To ensure coherence, this terminology should coincide. The differences mentioned above will need to be reconciled at national level to ensure coherence between these two definitions.
4.4. Energy community as an electricity supplier
Recital 42 of the IEMD identifies ‘the need for consumers who self-generate electricity and sell it to the system to comply with the requirements for suppliers’ as an ‘administrative burden’
which should be removed. However, there is nothing mentioned about energy communities and their operation as electricity suppliers. Moreover, the definitions of ‘supply’ and ‘electricity sup-ply contract’ in the IEMD are kept in the same wording as in the earlier edition of the Di-rective.402 These definitions prescribe that any seller of electricity to a final customer should be treated as a supplier, with all the legal obligations following from that activity.403
In their enabling frameworks Member States must ensure that energy communities are subject to non-discriminatory, fair, proportionate and transparent procedures charges, including with re-spect to registration and licensing.404 This requirement for fair and proportionate procedures may justify simplifying procedures and requirements for energy communities to become a licensed supplier. However, it is still not certain.
Current regulatory framework prescribes particular obligations for electricity suppliers, such as obligations related to customer protection and information.405 There is no specific provisions stating what kind of responsibilities energy community has as electricity supplier. From that per-spective, it may be a challenge to transpose the CEP provisions in national law.406 Moreover, neither the IEMD nor the RED provides any solutions for consumer-to-consumer contractual relationships that would emerge within a community in terms of energy sharing.407
400 Article 22 (2) (a) of RED.
401 Article 2(11) (c) of IEMD.
402 Article 2 (19, 32) of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 con-cerning common rules for the internal market in electricity and repealing Directive 2003/54/EC.
403 Article 2 (12) (13) of IEMD.
404 Article 16 (1) (e) of IEMD.
405 Article 10 of IEMD.
406 CEER 2019, Regulatory Aspects of Self-Consumption and Energy Communities, p. 20.
407 Jasiak European Energy & Climate Journal 2020, p. 54.
In addition to that, except the isolated communities which do not have access to central grid, usually electricity produced by energy community covers only part of the consumption of its members.408 So, in most cases, ‘back up’ supplier will still be needed to meet demand when the local production is not generating.409 This means that a final customer, a member of energy community, may have various sources of supply such as a licensed supplier as well as an energy community. In these cases, the challenge will be also to allocate energy volumes between a li-censed supplier and an energy community as they directly affect balancing responsibility.410 From all mentioned above it can be concluded that there are still a lot of unresolved questions concerning the operation of energy communities as electricity suppliers and national regulators a lot of further work needs to be done in that area.
4.5. The status of the individual participant of the energy community as a customer sup-plied by the community
Electricity supply is considered to be a service of a particular importance for our society. There-fore, electricity consumers benefit from a number of safeguards, such as basic contractual rights for electricity consumers (article 10 of IEMD), billing (article 18 of IEMD) and a right to alter-native dispute resolution (article 25 of IEMD). As follows from Article 16 (1) (c) of the IEMD, as well as Article 22 (2) (b) of the RED, members or shareholders of an energy community do not lose their rights and obligations as household customers or active consumers. There is a ques-tion, however, against whom such rights could be executed, for instance in small energy com-munities created by a few individuals. It should be established whether electricity sales between the members of the energy community or between the community and its members shall be treated as self-consumption or as supply.411 It should also be determined whether such electricity sales constitute a business-to-consumer or a consumer-to-consumer category of contract.412
Additionally, IEMD introduces the right of consumers to freely choose their electricity supplier, which from energy community perspective basically means that consumers should be able to
408 CEER 2019, Regulatory Aspects of Self-Consumption and Energy Communities, p. 19.
409 CEER 2019, Regulatory Aspects of Self-Consumption and Energy Communities, p. 19.
410 Ibid., p. 20.
411 Jasiak European Energy Journal 2018, p.35, p. 36.
412 Jasiak European Energy Journal 2018, p.35, p. 36.
choose whether they want to purchase electricity from energy community or from licensed elec-tricity supplier.413 For example, a tenant renting a property within a building with a PV plant which is shared among different flat owners have the right to choose if he / she wants to partici-pate in the self-generation and self-consumption model or if they choose a form of supply com-pletely independent of the energy community of the building. Conversely, they should also not be prevented from joining an existing energy community or sharing arrangement.414
The framework for energy communities should also guarantee the right to change supplier.415 This right is stated in the IEMD, however, in some cases consumers may not be able to effective-ly change supplier. For example, in cases when consumer shares ownership of the generation assets or storage facilities with other energy community members. Moreover, for consumers that are sharing energy, whether within a community or directly with other active consumers, the question of switching supplier not only regards the external supplier, but also the part of supply that is shared by other consumers. The Directive is not explicit whether switching provisions apply to such arrangements in an equivalent manner. It would likely be a challenge for national legislators to create such an operational framework that allows these rights to be realized. More than that, free choice and change of supplier should be made possible from the technical point of view as well, which is not always the case.
Neither of the two Directives addresses the relationships that citizens may have with energy communities as an investor or shareholder. It will be up to Member States to set a framework for how members may leave the energy community. At the same time both IEMD and RED ensure that energy community members maintain their rights and obligations as customers.416 This legal gap is likely to lead to a conflict of legal statuses of the individual participant of the energy community, who is at the same time both an investor or shareholder and a consumer supplied by the community.
413 Article 4 of IEMD.
414 CEER 2019, Regulatory Aspects of Self-Consumption and Energy Communities, p. 21.
415 Article 12 (1) of IEMD.
416 Article 16 (1) (c) of IEMD; Article 22 (2) (b) of RED.
Article 28 of RED requires that Member States take appropriate measures to protect final cus-tomers and ensure that there are adequate safeguards to protect vulnerable consumers.As follows from article 22(4) (f) of the RED, participation in a REC should be accessible also to low-income and vulnerable households. However, the RED does not provide explicit guidelines and measures to ensure that RECs are accessible to low-income households.
4.6. Energy community as a grid operator
As it was earlier discussed in the previous chapter, the IEMD states that 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.417
On the one hand, the idea of citizen’s control of network development seems consistent with the ideas of the CEP. On the other hand, however, network management is a key element of the en-ergy system and is subject to detailed regulation (chapter IV of the IEMD). When considering the community’s right to manage distribution networks such aspects as the unbundling regime and network integrity should be taken into consideration.418 Moreover, holistic approach to the energy system development should be followed. It is very important to make sure that not only some microgrids operated in small households in particular, but the whole electricity system from a holistic point of view will benefit from the new electricity market design regulations, meaning that the goals of cost efficiency, adequate quality of service and security of supply will be achieved altogether. These issues are left to the discretion of Member States.
4.7. The changing role of distribution system operator as a market facilitator
The role of the transmission and distribution system operators (TSOs and DSOs) is going to in-evitably change as a result of the energy transition.419 As the majority of small generation units, owned by consumers (individually or collectively), are connected to the distribution network, the DSO’s role is crucial for providing them with the opportunity to sell their energy services (self-generated energy and flexibility services, such as demand response and storage) to the market.
From this perspective, the role of DSO should change from a passive network operator into an
417 Article 16 (2) (b) of IEMD.
418 Jasiak European Energy Journal 2018, p. 38.
419 Lavrijssen European Energy and Environmental Law Review 2017, p. 177.
active one, to which network users, including consumers, provide their energy services (self-generated energy and flexibility services, such as demand response and storage).420 The distribu-tion network should become an open platform for sharing of different types of energy services and data among multiple market players and final consumers.421 DSOs are considered to be well suited to act as neutral market facilitators.422
The need for clarification of the DSO’s new role vis-à-vis the consumers and other market play-ers is acknowledged by the Clean Energy for All Europeans Package.423 The DSO’s key respon-sibility is to “operate, maintain and develop a secure, reliable and efficient electricity system with due regard to the environment”424. Member States shall provide the necessary regulatory framework to allow and provide incentives to distribution system operators to procure flexibility services, including congestion management in their areas, in order to improve efficiencies in the operation and development of the distribution system.425 In particular the regulatory framework shall ensure that distribution system operators are able to procure such services from providers of distributed generation, demand response or energy storage and shall promote the uptake of ener-gy efficiency measures.426 Distribution system operators shall procure such services in accord-ance with transparent, non-discriminatory and market-based procedures.427 Thus, DSOs are en-visaged to play a key role in facilitating that flexibility services delivered by flexibility units, such as storage units and distributed generation, connected to their grids, can reach the market in a transparent and non-discriminatory way.428
It is also stated in the IEMD, that Member States are obliged to provide an enabling regulatory framework ensuring that relevant distribution system operators cooperate with citizen energy communities to facilitate electricity transfers within citizen energy communities.429
420 Lavrijssen European Energy and Environmental Law Review 2017, p. 177.
421 Ibid., p. 177.
428 Lavrijssen European Energy and Environmental Law Review 2017, p. 179.
429 Art.16 (1) (d) of IEMD.
The evolving DSO’s tasks are not yet addressed by national regulatory frameworks. The archi-tecture of the distribution systems is still based mainly on the traditional model of centralized production and supply of energy in response to demand from a passive end-user.430 Hence, new regulation should be designed and implemented by Member States. Viability of the new system in which consumers are expected to play active role in many ways will depend on the regulation of the new role of the DSO in this system.
4.8. Network charges and remuneration
Economic viability is crucial for an integration of energy communities into the electricity market.
Thus, for energy communities, the key question will be how to calculate and balance economic incentives, such as remuneration that communities receive for energy resources they provide to the grid, with the energy system costs, such as charges, levies and taxes they have to pay.
Interestingly, it is stated in RED that remuneration for the self-generated renewables electricity fed into the grid may take into account its long-term value to the grid, the environment and socie-ty.431 These provisions generally say that where energy communities are capable of benefiting the public network, such as relieving grid load, they should receive incentives, such as reduced network tariffs and remuneration for different services comparable with the energy system bene-fits they provide.
Moreover, Both IEMD and RED prescribe that before developing network charges (ex: reduced network charges or remuneration for different services) for energy communities, a “transparent cost-benefit analysis of distributed energy sources” needs to be developed by the “competent national authorities”.432 It basically means that remuneration and grid charges for energy com-munities must reflect the value or cost-savings (ex: reduced transmission / distribution losses, avoided investment in infrastructure, reduced CO2 emissions, reduced air pollution) provided to the grid through their activity.433
Moreover, Both IEMD and RED prescribe that before developing network charges (ex: reduced network charges or remuneration for different services) for energy communities, a “transparent cost-benefit analysis of distributed energy sources” needs to be developed by the “competent national authorities”.432 It basically means that remuneration and grid charges for energy com-munities must reflect the value or cost-savings (ex: reduced transmission / distribution losses, avoided investment in infrastructure, reduced CO2 emissions, reduced air pollution) provided to the grid through their activity.433