What are Renewable Energy Communities?

This text is driven by natural curiosity, rooted in the author's background, and informed by personal experience and independent research. Its purpose is to share a summary of the benefits offered by the formation of Renewable Energy Communities under the European Union directives auspice. While every effort is/will be made to remain unbiased, the author may unapologetically advocate for innovation and sustainability.

Preamble

The following article will approach the concept of Renewable Energy Communities (RECs) and further delve into its notable benefits with examples.

Introduction to RECs

The European Union (EU) introduced the concept of energy communities in 2019 and since then several other diplomas have chiselled the current framework, most notably through the Directives EU 2018/2001 (European Parliament, 2018) and EU 2019/944 (European Parliament, 2019). EU members have further endorsed the concept into local rules and regulations.

As depicted in this very simple illustration, RECs allow consumers, who may also generate or store energy (known as prosumers), to supply neighboring consumers directly, with compensation provided for their services. The energy exchanged within the community will consequently not be paid to the grid operator and/or its energy producers/retailers despite the exchange passing through the meters. In other words, it creates a virtual connection between consumers and prosumers that emulates a behind-the-meter setup.

Like individuals, associations or municipalities, companies can also be part of an energy community.

There are some rules to be attended when forming RECs. These may differ from country to country and may evolve in time. For example, a typical rule is the maximum distance between members of the community and for electrical systems this distance can vary depending on the voltage level of the physical connections to its grid. Please refer to local regulations.

To close this chapter, I will just highlight the fact that the EU framework is agnostic to the energy form, e.g. countries can allow the exchange of heat or cold mediums, not only electricity.

To clarify some of the most common questions, ENEL prepared some answers to FAQs.

RECs vs Microgrids

To clarify, the term "microgrid" typically refers to islanded systems that can configure small grids or islanded installations normally belonging to a single entity. In contrast, RECs involve multiple entities (or individuals) agreeing to exchange energy, making them a collaborative model for energy sharing.

RECs maybe equipped with infrastructure to enable temporary microgrid operations, such as black-start, frequency regulation, synchronous connectors, amongst others, however this is an additional feature that is not relevant in most cases.

Let us look at an example

The following schematic illustrates a REC with two consumers and one prosumer. This could well be a typical case where an installation belonging to an entity has abundant real estate and can produce more electric energy than its individual needs would dictate, but maybe not enough capacity to become a grid power supplier. One possibility is to form a REC with neighboring consumers 2 and 3, and serve those consumers with renewable energy at an agreed price whenever the renewable assets generate surplus energy, not consumed by prosumer 1.

In this particular example, if the consumers do not absorb the surplus energy from the prosumer the remaining portion of energy will be delivered to the grid and the prosumer may also be compensated for that residual flow. Individual country regulations for energy markets apply to cover this energy injection on the grid.

Prosumers or consumers may install energy storage infrastructure for individual benefit only or to make the stored energy available to the community whenever there's sufficient flow to cater for own needs. The same rules apply to energy supplied from batteries as they do renewable energy produced locally.

Nota bene: additional regulations or schemes to promote renewable energy deployment or energy storage may co-exist with communities however, as with most topics this author writes about, individuals and entities ought to seek professional advice and clarifications with the governing authorities before any investment decision.

Some practicalities

An administrative entity must be formed to act as the community accountant which monitors the energy exchanged within the community and invoices the members with the reconciled figures at the agreed calendar schedule.

The community admin efforts, profits (if allowed by the regulations) and its tax duties whenever relevant, are sponsored by member fees. These costs (or how to sponsor them) are agreed by all members and can be fixed or variable.

We haven't seen enough communities formed to recommend typical terms or business models. This is a new business and will evolve in time, but we are appreciatting the opportunity to sell or lease infrastruture to community members and some companies are publicly advertizing to be REC proponents to create synergies using their real-estate potential for renewable energy production.

For example, companies like HivePower, MapsEnergy, FlexyGrid or Cleanwatts offer services to RECs in the form of design assistance, establishment practicalities, funding, technical installation/operational services and administration services.

The benefits of RECs are multifaceted, including cost savings, increased revenue streams for prosumers, and broader advantages for the energy grid and local communities.

The following is a listing of the most common benefits associated with the proliferation of RECs.

1) Energy cost savings for consumer members

1.1) The energy supplied by prosumers to the consumers within the community is typically cheaper than the energy provided by retailers. The more energy exchanged, the bigger are the savings by avoiding the more expensive tariffs of energy from the grid.

2) Augmented and guaranteed revenue streams for prosumers

2.1) Without the community, the surplus power from prosumers might not represent a revenue stream due to the difficulties of establishing agreements for relatively small amounts of energy. Instead, consumers in communities will value that energy and provide the agreed compensation for it. In turn, this will also unlock the sizing limitations on these small facilities allowing for increased capacity to be installed.

2.2) The community agreements locking consumers to the use of the surplus energy are a demonstration of offtake guarantees, often required by financial institutions or investors to prosumers.

3.3) BESS are fuelled with surplus energy. The availability of surplus energy in RECs enables the viability of energy storage business models. These BESS can deliver energy in the peak periods, typically linked to higher tariffs, to the owner of the BESS but also to the community members.

3) The proliferation of communities increases the resilience of the grids and delays larger infrastructure investments

3.1) The RECs local distributed energy production reduces the strain on the interconnections between the classic large production facilities (Gas, Coal, Nuclear or Offshore Wind) and the consumer areas, by reducing the energy demand from those central units.

3.2) Moreover such reduction in demand, mitigates the ever-growing energy consumption associated with the electrification of industrial and domestic systems, EV chargers, etc. In some areas, it may also mitigate the impact of the rapid population increase. This allows for grids to be planned and built in time without affecting the service quality.

3.3) In areas susceptible of natural disasters, or otherwise impacted by grid incidents, forest fires, etc. local REC production can serve as a mitigation measure for reduced energy transmission capacity by serving the local areas affected by such limitations.

3.4) The above-mentioned BESS, enabled by the availability of surplus renewable capacity in the RECs, can make more energy available in the peak-demand periods minimizing the risk of transmission and distribution systems overload.

3.5) Higher energetic availability (with or without BESS) locally enables the deployment of EV fast-chargers in grid-congested areas.

Renewable Energy Communities epitomize sustainable value creation

In conclusion, RECs not only drive the deployment of renewable energy sources but also create shared economic benefits for consumers and prosumers. Moreover, they contribute significantly to environmental sustainability and local economic development to the wider society.

Disclaimer

The views and opinions expressed in this article are solely my own and do not reflect the views or opinions of my employer or any affiliated organizations. The information provided herein is for general informational purposes only and does not constitute professional advice. While I have made every effort to ensure the accuracy of the information, I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information contained in this article. Any reliance you place on such information is therefore strictly at your own risk.

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