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25/07/2023

Digital Platforms for Future Energy Communities

Service platforms Energy & Utilities Blog article

Author: Annika Hamann

The “Act to Relaunch the Digitalization of the Energy Transition” of spring 2023 has brought new momentum to the topic of 'energy sharing'. Energy communities experienced a hype a few years ago, but the expected boom has not yet arrived. How have they been developing so far? What opportunities do they really bring, and what type of digital services are needed to offer their users real added value through energy sharing?

Energy communities are seen as an important driver of the energy transition. They are associations of private households for the joint consumption of self-generated energy. The energy in these communities is used in a highly efficient manner. This can help stabilize the power grid on a national level by balancing it locally and utilizing flexibilities. Already in 2019 the EU has defined guidelines for different types of energy communities. Their potential is estimated to be very high. According to an analysis by the Institute for Ecological Economy Research, 30% of the renewable expansion in Germany would be possible by 2030 through energy sharing, and 90% of all households could be supplied in this way.

In Germany, so far only the tenant power model (Mieterstrommodell) has been implemented to some extent. In addition, a handful of neighborhood projects (Quartiersprojekte) are under development – all in all, a stark contrast to the original hype. For forms of energy communities that would enable all participants to be more self-sufficient and “genuinely share”, the corresponding legal framework is still not defined. The April 2023 Act to Relaunch the Digitalization of the Energy Transition takes the topic a step forward, but other EU countries are much further along.

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How can Germany catch up, and when it does, what type of platforms and functionalities will be needed?

Drivers of Decentralization

To achieve a faster increase in renewable energies, the Renewable Energy Sources Act (EEG) created favorable conditions, such as tax breaks for prosumers – private, decentralized producers. With rising prices and fear of supply shortages, the energy crisis has further strengthened the desire for self-sufficiency. Especially in the solar sector, one can speak of a real boom.

As of January 2023, the VAT on PV systems was set to zero percent. Customers often have to wait up to six months for new systems to be installed. Mobile plug-and-play PV solutions as well as balcony power plants are becoming more and more widespread. Installed capacity from photovoltaic systems increased by 10% in one year (as of 2022). Grid feed-in increased by 64% in three years (as of 2021). Sales of PV systems increased by 39% in four years (as of 2020). An unimpeded growth?

From Feed-in to Self-Consumption to Energy Sharing

One figure has dropped. The average revenue of homeowners from feed-in fell by 39% from 2014 to 2022. The Renewable Energy Sources Act had stipulated that the feed-in tariff should decrease annually. In 2000, the price that private operators of PV systems receive for feeding their electricity into the public grid was still 50 cents per kilowatt hour. Currently it is at 7 cents.

Therefore, in the face of the increased electricity prices, it can be assumed that more and more prosumers will switch to consuming their own electricity and storing surplus energy with the help of a PV battery. Feed-in no longer pays off.

An even greater efficiency could be achieved by sharing and consuming the energy locally within a physically connected community. This way, even private consumers without solar systems could avoid the expensive purchase of electricity from the public grid and use the surplus electricity of their neighbors for household and e-vehicles. The energy community could be extended by solar parks or wind turbines in the near vicinity to achieve a high degree of self-sufficiency.

EU Guidelines for Energy Communities

Looking ahead, the EU already defined various categories of energy communities in 2018 in the Renewable Energy Directive (RED II), which is intended to enable the joint consumption of decentrally generated energy. The EU countries are asked to follow suit with national regulations.

  1. Renewable Self-Consumer
    Individual private users of self-generated renewable energy – the precursor to the energy community
  2. Collective Self-Consumption (CSC):
    Several of the above entities interact with each other on a voluntary basis in an energy-related manner.
  3. Renewable Energy Community (REC):
    Independent communities of consumers and plants networked in close proximity to each other with the purpose of saving costs and acting ecologically and regionally. Participation is voluntary.
  4. Citizen Energy Community (CEC):
    Like No. 3, but not based on spatial proximity and physical networking, but a purely virtual collaboration that is possible across different regions.

Who benefits from Energy Communities?

We can speak of a win-win situation.

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Community Participants Benefit

For the participants of an energy community, an association of this kind can create a feeling of greater security of supply and control through increased self-sufficiency. Self-generation of renewable energies meets the desire to live in a climate-friendly way and contribute to the energy transition. In addition, self-consumption saves energy costs because no grid fees or electricity taxes are due for electricity from the PV systems within a community grid. Communities of this kind can also strengthen rural development, as they can reach a higher degree of self-sufficiency than large urban regions.

Energy Communities Support the Stability of the Entire Grid

There are several benefits for overall grid stability. The grid is already balanced locally and thus stabilised overall when electricity is consumed where it is produced. Decentralised plants can also be used by the grid for flexibilities and storage. Energy losses due to transport over power lines are eliminated, and the high data quality in energy communities makes the grid smarter and easier to control. In addition, the acceptance of renewable energies is promoted.

Who Else Could Profit?

Electricity providers might earn less from energy sales within energy communities, but just like providers of energy-related services – such as the sales and installation of PV systems or energy storage systems – they can achieve greater customer loyalty by offering digital platforms and services. Among other things, these can transparently map the generation and consumption, feed-in and power purchase of the participants in the system and offer many supporting functions. Principles for platforms will be explained later.

Germany compared to other EU countries

EU countries are at different stages of implementing the legal framework for energy communities in line with EU directives. No country has a final version yet, but many are ahead of Germany. Spain already has its own policy framework.

Prime example: Italy

Italy is often used as an example of a successful implementation. Here, the emergence of energy communities was possible earlier due to the high distribution of smart meters and lower bureaucratic obstacles. In addition, parts of the public grid can be included in the energy community without high grid fees. As long as the units of the community are connected to the same substation, there is no upper limit on the number of participants, participant type, or size of the included area.

Germany’s Rigid Tenant Power Model

The tenant power model, which is possible in Germany, has not yet caught on.
Why is that?

In this model, there is usually the owner of a property on whose roof a PV system is installed and the tenants of the house who purchase the electricity. PV system and consumption are not in the same hands. Moreover, the local grid cannot be included. Because of this local limitation, there are often not enough participants. Membership is voluntary and not tied to a rental agreement. Participants can drop out. If there are too few, the administrative work that arises does not pay off. If not enough electricity is produced, additional electricity has to be bought from the local grid, but at a higher price than paid by the tenants. This creates a high risk for plant operators.

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Main factors obstructing the distribution of energy communities in Germany

  • Lack of smart meters that would allow continuous, contactless reading
  • A low offer of dynamic electricity tariffs
  • Legal, regulatory and bureaucratic hurdles for system operators
  • Few financial incentives to offset the hurdles
  • Lack of legal and regulatory framework for energy communities as intended by the EU

A Step Forward with the Act to Relaunch the Digitalization of the Energy Transition

Some of the necessary foundations for energy communities will be created in the foreseeable future. The Act to Restart the Digitalization of the Energy Transition of April 2023 promises improvement. Two of the most important points are:

  1. The smart meter ramp-up will be accelerated, clearly anchored in law and can start immediately in the form of an “agile rollout”. Most end customers will be equipped by 2030.
  2. All electricity providers are obliged to offer dynamic tariffs from 2025. In this way, consumers can control their electricity transactions, e.g. execute purchases in times of high renewable energy generation and favorable prices.

Digital Platforms for Energy Communities

Once the technical and legal challenges are overcome, new types of communities and business models will be possible. We want to prepare for this moment. What will digital platforms need to offer in order to support not only today’s needs but also those of future energy communities?

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Principals

User Centricity

Energy communities should be all about empowerment. This means everyone should be able to participate, regardless of background, age, or technology expertise. Language, interface, and interactions should support this.

Transparency and Security

The platforms enable a sustainable lifestyle and direct participation in the energy transition. Here, citizens act in an area that was previously entirely in the hands of the energy suppliers. Trust in the latter has been diminished since the energy crisis. The new platforms must be transparent and secure for all participants to ensure trust. This applies to transactions within the community as well as to interactions with public networks and markets, such as energy trading or flexibilities. In addition, the best possible protection against cybercrime should be just as self-evident regarding the basic supply of people as the protection of personal data.

A Benefit for all Involved Parties

The advantage compared to traditional energy transactions must be obvious for all parties involved. Participation in energy communities is by definition open and voluntary. Anyone who does not see a benefit will not participate. As implemented in the tenant power model, the price of the energy within the community must also be noticeably below the price of the local distribution grid in the models of the future.

Sector Coupling

Among the assets of the community, there can be feeders such as wind, biogas, or solar plants. On the other side are the loads, such as households with power supplies and appliances like heat pumps and e-charging stations. PV batteries store the generated electricity. To create a balance within the community, it is essential to provide this sector-coupled system with intelligent control. A tricky task. However, this is the only way to use the energy locally in the most efficient way. For example, the heat pump can be operated or e-vehicles can be charged when the sun is shining and the connected PV systems are generating plenty of energy, or while the wind turbine on the edge of the settlement is highly productive.

Flexibility Utilization

Marketing flexibilities means financial gains for the communities, and it is an equally important contribution to overall grid stabilisation. If fed in at the right time, regular as well as short-term fluctuations in the public grid can be balanced. To secure the feed-in at the right time, the energy of the community must be pooled or aggregated. This can be done by controlling a swarm of batteries within the community, or via a separate aggregator that pools the surplus energy of a community and feeds it into the public grid at a strategically favourable time.

Peer-to-Peer-Trade

The concept of genuinely sharing energy with people they know well – trading locally and socially – can become a motivation for many to become part of an energy community. Direct trading with certain people or ‘giving away’ electricity, e.g. to acquaintances or financially weak participants as a donation, should be supported and taken into account in the billing. In this way, a sense of solidarity can be created, cohesion can be strengthened and a long-term commitment to the energy community can be ensured.

Reducing bureaucratic obstacles

Another important aspect is the greatest possible automation when it comes to bureaucratic activities and processes such as billing, receivables management, balancing, and leveraging flexibilities within and outside the community. All of this is important for energy communities with the goal of keeping bureaucratic efforts for plant operators as low as possible and ensuring adoption.

In conclusion, energy community platforms of the future offer financial savings, a sense of autonomy, security of supply, transparency, and social action in a local context. Rural communities can be strengthened because larger cities will not be able to secure their energy needs locally. Different business models such as peer-to-peer trading or aggregation and flexibility marketing can be supported and offer communities the opportunity to participate in energy markets. In addition, communities contribute to the stabilisation of the overall grid through local energy balancing and flexibilities. If the platforms are implemented carefully, people, society, the energy grid, and the environment all can benefit from these new forms of energy sharing.

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