Energy communities as flexibility providers

♦ 4 min read  ♦ Elise Viadere

The “Clean Energy for All Europeans” legislative package adopted in 2019 by the European Commission placed citizens at the heart of the European energy policy framework. Small energy consumers now have the means to become active participants in the market with local energy generation, consumption, and trading. At the core of this role lies the concept of Energy Communities (ECs).

ECs are local citizen energy initiatives that present an alternative design to the traditional electricity system organised around large producers and retailer  (European Commission, 2022). Local energy systems are not new market models and have existed for decades in North-Western European countries to ensure energy security of supply in remote rural areas  (Lowitzsch, 2020).  Nonetheless, local energy schemes benefit form a renewed attention driven by the rise of decentralised renewable energy production and by the resultant evolution of the European energy policy framework  (Lowitzsch, 2020). ECs can include a variety of features such as decentralised power generation units, active consumers/prosumers, storage, and demand flexibility.

Until recently, ECs were not defined in the European Union and in the Member States’ legal frameworks, hence the literature on ECs’ business models and electricity market integration is still limited. In the framework of the DemandFlex research project, this blog aims to launch a discussion on the aggregation business model, which targets the provision of (demand-side) flexibility from ECs.

How can energy communities provide demand flexibility?

ECs can yield demand flexibility by design. By sharing energy among multiple buildings and local actors, ECs can integrate a broad variety of energy demand profiles, smooth their collective energy consumption, and therefore increase the flexibility of the local system (Koirala, 2016). For instance, in Brussels, the energy community pilot project Nos Bambins has been founded by 12 residential consumers, and two solar PV prosumers including the local school  (Bambins, 2022). By sharing energy locally, community members are able to consume the electricity produced by the two solar installations passing through a very limited portion of the electricity grid. The complementarity of the residential and the prosumer school electricity consumption profiles increase the community’s solar PV self-consumptionⁱ. For instance, in 2022, 74% of the electricity produced by the local productions units has been consumed within the community. Therefore, by design, ECs can be flexible consumption units as part of its consumption can be locally provided outside of the conventional grid.
 

Figure 1: Schematic representation of an energy community’s locally produced electricity sharing among multiple buildings, local actors and decentralised generation and storage units 
 

ECs can provide demand flexibility by creating incentives for consumers to be more active. First, when community’s members consume the locally produced electricity, they often face lower electricity tariffs than those offered by conventional electricity suppliers. This implicit economic advantage incentivises consumers to shift part of their consumption when the local renewable productions units are producing (i.e., sunny and/or windy days). In other words, community members react to market conditions and provide flexibility. On top of energy tariffs, transmission and distribution network tariffs can be reduced as only a limited portion of the grid is used.  Second, communities’ members tend to be more active as they are by essence co-founders of the initiative. As local citizen energy systems, ECs are co-managed by small consumers and prosumers that may co-own decentralised power generation units. The value proposition of ECs goes far beyond the economic dimension  (Hicks, 2018). Among other, the communities can offer opportunities for environmental contribution, autonomy, and social innovation. Less tangible factors can enhance the magnitude of individual and collective engagement toward energy community multiple objectives such as demand flexibility provision  (Bomberg, 2012).

What could be the energy communities’ demand flexibility business models on the electricity markets and services?

Even though these communities do not run for profit, their business models must ensure investment return for the community members by benefiting from cheaper energy supply, self-consumption, power generation surplus and reduction of grid dependency  (Reis, 2021). European directives define ‘key activities’ of ECs’ business models as local generation, supply, storage, consumption, trading, e-mobility, energy related services and aggregation  (Reis, 2021). In Figure 1, a schematic representation of these activities with electricity sharing is provided. Furthermore, in this blog, the business model of aggregation is highlighted as it falls into demand flexibility market integration.

ECs can engage in demand flexibility (i.e., demand-side management) strategies through aggregation  (Rajabi, 2017). Small consumers are typically excluded from flexibility markets as they may face high costs and fail to meet the requested volume requirements. Hence, in European electricity markets, industrial and large consumers are commonly part of the aggregation business model as their size allow them to provide larger amounts of flexibility and cope with market constraints  (Malizou, 2018). However, ECs are likely to make small consumers demand flexibility commercially attractive. Furthermore, European directives actively support aggregation, acknowledging the ability of this business model in producing revenues in balancing and ancillary markets (Rajabi, 2017). Therefore, with the aggregation business model, small consumers participation to these markets can be possible. The regulatory system and technological capacities are crucial determinants for the flourishment of the ECs’ aggregation business model as it can constraint the aggregators scope of participation in existing markets.

Energy communities: DemandFlex first case study

After the completion of the Task 1.1 identifying the economic, legal, and technical barriers to the deployment of demand flexibility in Belgium, the DemandFlex research project is currently conducting a case study on ECs.

From the economic perspective, the study of ECs contributes to the project in two manners. Firstly, through the analysis of small consumers’ flexibility behaviour facing monetary and non-monetary incentives. Secondly, through the assessment of the impact of demand-side flexibility integration into the electricity wholesale market.

From the legal perspective, ECs can be an insightful example to illustrate the impact of power allocation in federal Belgium and of the regulatory regimes as well as the legal hurdles for small consumers to access to the market. A case study on ECs is relevant for the analysis of legal regimes’ impact (i.e., on regional, federal and European level) on the deployment, the market integration and the design of ECs. Additionally, as ECs require a data flow between the local actors and with the distribution system operator, this case study is also related to legal research on data management and privacy.  

From the engineering perspective, focusing on ECs for a case study will gather useful insights that can support further study of low-voltage grid demand estimation and modelling.
 

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References

Bambins, N. (2022). PMO Nos Bambins. Retrieved January 2022, from https://nosbambins.be/

Bomberg, E. &. (2012). Mobilizing community energy. Energy policy, 51, 435-444.

European Commission. (2022, January). Energy communities. Retrieved from https://energy.ec.europa.eu/topics/markets-and-consumers/energy-communities_en

Hicks, J. &. (2018). An exploration of the boundaries of ‘community’in community renewable energy projects: Navigating between motivations and context. Energy Policy, 113, 523-534.

Horváth, D. &. (2018). Evolution of photovoltaic business models: Overcoming the main barriers of distributed energy deployment. Renewable and Sustainable Energy Reviews, 90, 623-635.

Koirala, B. P. (2016). Energetic communities for community energy: A review of key issues and trends shaping integrated community energy systems. Renewable and Sustainable Energy Reviews, 56, 722-744.

Lowitzsch, J. H. (2020). Renewable energy communities under the 2019 European Clean Energy Package–Governance model for the energy clusters of the future? Renewable and Sustainable Energy Reviews, 122, 109489.

Malizou, A. (2018). Electricity Aggregators: Starting off on the right foot with consumers. BEUC, The European Consumer Organization.

Rajabi, A. L. (2017). Aggregation of small loads for demand response programs—Implementation and challenges: A review. IEEE International Conference on Environment and Electrical Engineering.

Reis, I. F. (2021). Business models for energy communities: A review of key issues and trends. Renewable and Sustainable Energy Reviews, 144, 111013.

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ⁱSelf-consumption refers to the consumption of locally produced power. In common language, the term auto-consumption is sometimes used. However, in technical terms, the prefix auto is mainly used against manual.