II. BACKGROUND AND THE ROLE OF ENERGY COMMUNITIES IN THE EU
2.4. The role of energy communities, in adapting electricity market to the needs of energy
It is possible to identify the bottom-up approach in the recent legislation enacted in by EU in the energy sector, where the active role of consumers is strongly emphasized.163 This trend is very clearly reflected in the Energy Union Strategy and in the Clean Energy for All Europeans Pack-age, in particular in the IEMD and RED – one of the cornerstones of EU climate and energy pol-icy and a key means to enable the energy transition in the EU.164 Although there is no legal defi-nition of a bottom-up approach to a problem, it is generally understood as a situation that begins with details and works up to the highest conceptual level.165 There is a connection between bot-tom-up approach architecture and decentralization.166 The idea behind this approach is to aim at economic change towards a low-carbon future through promoting energy efficiency and inducing technological breakthroughs throughout the economy.167 The purpose of this approach is to make bottom-up climate arrangements a useful supplement, and not a replacement, to top-down cli-mate policies.168 Bottom-up approach is nowadays increasingly advocated for as means to deliv-er a democratic and inclusive endeliv-ergy transition.169
To integrate the growing share of renewable energy, the future electricity system should make use of all available sources of flexibility.170 Flexibility is understood as the ability of a power system to maintain continuous service in the face of rapid and large swings in supply or de-mand.171 As it was already discussed in the previous section, increase of the share of RES in the system, including decentralized generation from RES, means that energy supply becomes more intermittent and fluctuates more. In particular, increasing share of intermittent renewable energy sources in the system lead to the challenges in keeping the balance between supply and demand at all times.172 Therefore, more flexibility in the energy system is needed to accommodate
163 Leal-Arcas Seton Hall Journal of Diplomacy and International Relations 2018, p. 4; Leal-Arcas – Lasniewska -
Proedrou Columbia Journal of European Law 2018, p. 293.
164 Savaresi Journal of Environmental Law 2019, p. 487.
165 Leal-Arcas Asian Journal of Law and Economics 2011, p. 25.
166 Ibid., p. 25-26
167 Leal-Arcas Asian Journal of Law and Economics 2011, p. 25-26.
168 Ibid., p. 25-26.
169 Savaresi Journal of Environmental Law 2019, p. 487.
170 Recital 7 of IEMR.
171 Welsch 2017, p. 150.
172 Huhta, Oil, Gas & Energy Law Intelligence (OGEL) 2019a, p. 19.
creasing number of renewable energy sources and to make sure that supply and demand will be equal.173 Flexibility entails the ability to foresee changes in energy system conditions and adapt to them in a swift, secure and cost efficient manner.174
It is possible to distinguish several types of flexibility:
Flexibility of supply, which can be offered by players involved in the production and sale of electricity (ex: through storage or capacity cuts to avoid overloads).175
Flexibility of demand, which can be provided by consumers / prosumers through active market participation. This can be referred to as demand-side response, understood as the changes a consumer is willing to make to his electricity consumption patterns in reaction to an external incentive signal.176
Grid flexibility refers to the capacity of network to adjust to changes in supply and de-mand.177
Energy communities have an essential role to play in achieving the flexibility necessary to adapt the electricity system to variable and distributed renewable energy generation.178 Energy com-munities can improve the flexibility of the energy system by playing a more active role in both the demand for and supply of energy.179 In particular, energy communities can provide the mar-kets with more flexibility through demand response, self-consumption and storage.180 Consumer flexibility on the demand side is needed in terms of shifting energy demand to times of the day when (renewable) energy is available and also reducing energy demand when the supply of ener-gy is limited.181 This is referred to as demand response (DR).182 Demand response is understood as the change of electricity load by final consumers from their normal or current consumption
173Cseres European Journal of Risk Regulation (EJRR) 2018, p. 232; CERRE 2016. The Changing World of the DSO in a Smart Energy System Environment, p. 17.
174 CERRE 2016. The Changing World of the DSO in a Smart Energy System Environment, p. 17.
175 CERRE 2016. The Changing World of the DSO in a Smart Energy System Environment, p. 18.
176 CERRE 2016. The Changing World of the DSO in a Smart Energy System Environment, p. 18.
177 CERRE 2016. The Changing World of the DSO in a Smart Energy System Environment, p. 18.
178 Recital 10 of IEMD; Schuitema – Ryan – Aravena 2017, p. 53.
179 Schuitema – Ryan – Aravena 2017, p. 54.
180 Huhta Oil, Gas & Energy Law Intelligence (OGEL) 2019a, p. 4.
181 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 54.
182 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 54.
patterns in response to market signals.183 Demand response measures are a part of demand-side management programs (DSM).184 Demand-side management is the term used to describe a range of measures for improving the efficiency and flexibility of the demand from the consumer side in response to price signals.185 Energy storage in the electricity system is understood as deferring the final use of electricity to a moment later than when it was generated, or the conversion of electrical energy into a form of energy which can be stored, the storing of such energy and the subsequent reconversion of such energy into electrical energy or use as another energy carrier.186 Consumers can facilitate a flexible energy system by investing in new smart technologies. Thus, smart meters and other smart technologies enable consumers to directly control and manage their individual consumption patterns.187 However, such investments are usually quite significant. So, economic instruments should be provided by the government to support consumer investment in clean energy technology that supports flexibility of the system.188
Energy communities also increasingly play a role in improving the flexibility of the energy sup-ply.189 Consumers that are also active agents on the supply side are usually referred to as
‘prosumers’ meaning that they are both consumers and producers at the same time.190 Energy prosumers is an umbrella term referring to self-generating energy providers, whether individuals, households or energy communities.191 ‘Prosumers’ are consumers in the traditional, passive sense who also produce goods or services for sale in the energy marketplace.192 Prosumers con-tribute to the energy supply via their own installed renewable energy capacity, more often solar roofing, wind energy, or combined wind and power.193 Prosumers can not only adjust their de-mand in response to price signals, but also actively offer services that electric utilities or system operators have to bid for.194 Thus, prosumers can provide flexibility services to centralized
183 Article 2(20) of IEMD.
184 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 54.
185 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 54.
186 Article 2(59) of IEMD.
187 Cseres European Journal of Risk Regulation (EJRR) 2018, p. 232.
188 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 57.
189 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 54.
190 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 54.
191 Leal-Arcas – Lasniewska – Proedrou Netherlands Yearbook of International Law 2017, p. 141.
192 Jacobs 2016, p. 521.
193 Leal-Arcas – Lasniewska – Proedrou Netherlands Yearbook of International Law 2017, p. 141.
194 Sovacool – Parag Nature Energy 2016, p. 2.
gy generation through their decisions on whether to sell their self-generated energy back to the grid, store it or consume it themselves.195
It is possible to distinguish three possible prosumer market models: peer-to-peer model, prosumer-to-grid model and community-organised prosumer groups.196 Peer-to-peer model is inspired by the sharing economy concept197. Peer-to-peer platform allows electricity producers and consumers to bid and directly sell and buy electricity and other services.198 Under this mod-el, the distribution grid is paid a management fee plus a tariff for its distribution function.199 Peer-to-peer markets may involve numerous long-term or short-term contractual relationships between prosumers, for example when one person generates electricity which is stored by anoth-er panoth-erson or one panoth-erson sell electricity to anothanoth-er one.200 Prosumer-to-grid model involves bro-kerage systems for prosumers that are connected to a microgrid201. The microgrid itself can oper-ate in connection to a main grid or operoper-ate autonomously in an ‘island mode’. The third model, community-organised prosumer groups, is envisaged for goal-oriented prosumer community clusters, with relatively similar energy behaviours located in the same geographical area, to al-low efficient energy sharing among local members.202 This model may present opportunities for local organisations, neighbourhoods or communities to manage their energy needs efficiently.203 Communities or local authorities can pool their presumption resources to generate a revenue stream for community benefit.204
195 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p.54; Lavrijssen European Energy and
Envi-ronmental Law Review 2017, p. 179; European Parliamentary Research Service 2016, Understanding electricity markets in the EU, p. 5.
196 Sovacool – Parag Nature Energy 2016, p. 2.
197 The well-known expression, ‘sharing economy’ refers to the sharing activity of underutilized assets with the help
of it-based technology. Görög Management 2018, p. 183.
198 Sovacool – Parag Nature Energy 2016, p. 2.
199 Ibid., p.2
200 Ibid., p.2
201 A microgrid is a single, controllable, independent power system comprising distributed generation (DG), load, energy storage (ES), and control devices, in which DG and ES are directly connected to the user side in parallel. For the macrogrid, the microgrid can be deemed as a controlled cell; and for the user side, the microgrid can meet its unique demands, for example, less feeder loss and higher local reliability. Fusheng – Ruisheng – Fengquan 2016, p.
4.
202 Sovacool – Parag Nature Energy 2016, p. 4.
203 Ibid., p. 4.
204 Ibid., p. 4.
Figure 4. Three prosumer market models.205
Residential battery storage has significant flexibility potential as it allows consumers to shift the times they use electricity, reduce how much electricity they use from the network, or disconnect from the network entirely.206 In particular, it helps to reduce the network load especially during peak times. So far, electrochemical storage in the form of lead–acid batteries has been the most common form of electricity storage for residential PVs.Because of its high costs, it has almost exclusively been used in off-grid applications.207 Now, with electricity prices increasing in some regions and battery prices decreasing, viable battery storage options are emerging for grid-connected households. 208
Delivering on the Energy Union's ambition of making the European Union the world leader in renewable energy will involve creating an environment in which renewables can attract the re-quired investments.209 As follows from the International Renewable Energy Agency (IRENA) assessments, EU average total yearly investment needs in renewable technologies until 2030 are 73 billion USD per year.210 Energy prosumers, whether individuals or energy communities, who
205 Ibid., p. 3.
206 Agnew – Dargusch Nature Climate Change 2015, p. 316.
207 Agnew – Dargusch Nature Climate Change 2015, p. 316.
208 Ibid., p. 316.
209 COM(2015) 340 final, p. 6.
210 International Renewable Energy Agency (IRENA) 2018, p. 52.
invest in renewable energy technologies could help EU to finance the energy transition, increase the share of renewable energy sources and facilitate a flexible energy system by adopting new technologies.211 One of the ways to kick start the market is to encourage grass-roots innovations and community initiatives to advance adoption of technologies collectively.212 Such a bottom-up approach is more likely to engage consumers, because the initiative is their own rather than im-posed on them via top-down procedures. Moreover, a sense of ownership and contribution is likely to keep consumers interested and committed to the project.213 Energy communities enable individuals and small-scale entities to invest their pooled resources in infrastructure to generate and distribute the energy that they themselves are primarily using.214 The benefits of community projects may be larger because, in contrast to individual consumers, the total energy demand of communities is larger, which makes it more likely that they can, for instance, negotiate a contract for DR. This may increase the benefits for the community in general, as well as for each individ-ual member.215 Collective projects together with small businesses, households and public enti-ties, could own as much as 45% of Europe’s renewable generation by 2050 (Figure 5).
Figure 5. Share of electricity production by investor type in the EU-28 in 2050216
211 Cseres European Journal of Risk Regulation (EJRR) 2018, p. 234; Welsh 2017, p. 227; Schuitema – Ryan –
Aravena IEEE power & energy magazine 2017, p. 57.
212 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 58.
213 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 58.
214 Leal-Arcas Seton Hall Journal of Diplomacy and International Relations 2018, p. 13.
215 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 58.
216 Caramizaru - Uihlein 2020, p. 7.
One more topic that should be covered while discussing the consumer’s role in flexible energy systems is the public acceptance of renewables and energy infrastructure.217 Major infrastructure projects are often hindered or stopped by public resistance and lack of consumer acceptance. So, consumer acceptance of renewable energy sources and infrastructure is an important precondi-tion for the realizaprecondi-tion of a flexible energy system.218 This has a potential to help to eliminate the NIMBY (“not in my back yard”) reactions that local people quite often have when the new re-newable energy project is negotiated to be constructed in their home region. Local opposition is a frequent phenomenon with regard to renewable energy (RE) infrastructure projects such as wind farms. Many of those who oppose local renewable energy projects seem to do so because these would be built in their vicinity, or virtually in their backyard. The slogan “Not in my backyard”
has become synonymous with local communities’ resistance to such developments.219 However, it is argued that people often do not resist change per se, but they resist change for various, often valid, reasons such as increased costs and exposure to risks and seeing limited or reduced bene-fits.220 The costs, risks and benefits are steered by underlying psychological factors such as val-ues and lifestyles as well as attachment to place, personal identities, symbolic meanings and emotions.221 Moreover, the communication process between consumers and the involved authori-ties and industries is very important for encouraging consumer acceptance. If consumers trust the involved parties, they are much more likely to accept the proposed infrastructure changes.222 In addition, fair and transparent procedures have been shown to increase acceptance levels, thereby reducing the risk that lack of consumer acceptance will hinder the building of infrastructure needed for a flexible energy system.223 The participation of local citizens and local authorities in renewable energy projects through renewable energy communities contributes to the local ac-ceptance of renewable energy projects.224
Improved flexibility helps to effectively manage increasing number of renewable energy sources in the system while maintaining the security of electricity supply. As the consumer, individually
217 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 59.
218 Ibid., p. 59.
219 Schwenkenbecher Environmental values 2017, p. 2.
220 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 59
221 Schuitema – Ryan – Aravena IEEE power & energy magazine 2017, p. 59.
222 Ibid., p. 59.
223 Ibid., p. 59.
224 Recital 70 of RED.
or collectively via energy community, may deliver flexibility for balancing energy demand and supply in an optimal way, his behavior may contribute to a more efficient network use and re-duce the need for large and expensive investments for network capacity upgrading.225 Moreover, by becoming active, consumers can benefit financially from lower energy costs in two ways:
self-consumption and enhanced demand management.226 Prosumers can also benefit from the financial gains they make by selling the excess energy they produce or by selling flexibility ser-vices.227 On top of these, prosumers become less sensitive to abrupt international energy price increases and/or supply disruptions.228