Investing in a Renewable Future - Renewable Energy Communities, Consumer (Co-)Ownership and Energy Sharing in the Clean Energy Package - Score
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Investing in a Renewable Future –
Renewable Energy Communities,
Consumer (Co-)Ownership and Energy
Sharing in the Clean Energy Package
by Prof. Dr iur. Jens Lowitzsch *
premises, (i) individually, that is, households
I. Introduction: The Active and non-energy small and medium sized
Consumer as Prosumer and Co- enterprises (SMEs) and collectively, for example
Investor in the Energy Transition in tenant electricity projects (Art. 21 RED II), or
(ii) as part of Renewable Energy Communities
(RECs) organised as independent legal entities
Consumer (co-)ownership in renewable energy (Art. 22 RED II).
(RE) is one essential cornerstone to the overall
success of Energy Transition. When consumers – Transposing the RED II into national Law
acquire ownership in RE they can become until June 2021 Member States – amongst
prosumers1 generating a part of the energy they others – have to adopt an enabling framework
consume such reducing their overall expenditure for prosumership and in particular for RECs.
for energy while at the same time having a Defining citizen’s rights and duties the directive
second source of income from the sale of excess links prosumership to such different topics as
production. In June 2018, the European Union fighting energy poverty, increasing acceptance,
agreed on a corresponding legal framework as part fostering local development and incentivising
of a recast of the Renewable Energy Directive2 demand-flexibility.
(RED II) which entered into force in December
2018: The RED II is part of the Clean Energy Package of
the European Union3 and its rules are embedded
– Consumers, as prosumers, will have the right in those of the 2019 Internal Electricity Market
to consume, store or sell RE generated on their Directive (IEMD) and Regulation (IEMR).4 The
transposition of these comprehensive rules – in
Volume 9 Issue 3 | July 2019
* Jens Lowitzsch holds the Kelso Professorship of Comparative Law, East
European Business Law and European Legal Policy at Europa-Universität 3 On 30 November 2016 the European Commission presented a package
Viadrina Frankfurt (Oder). He directs the HORIZON 2020 project of measures to keep the EU competitive as the energy transition changes
“SCORE – Supporting Consumer Co-Ownership in Renewable Energies as global energy markets with four main goals, i.e., energy efficiency, global
coordinator (CSA 2018-2021, see https://www.score-h2020.eu/). leadership in RE, a fair deal for consumers and a redesign of the internal
1 The artificial word probably first introduced by Alvin Toffler in his book electricity market.
The Third Wave (1980) stems from the Latin; as early as 1972 Marshall 4 On 18 December 2018 the proposals on both reached political agreement in
McLuhan and Barrington Nevitt suggested in their book Take Today, (p. 4) the inter-institutional negotiations (so-called Trilogue) and were published
that technological progress would transform the consumer into a producer on 14 June 2019 in the Official Journal with the IEMD (O.J. L 158/125)
of electricity. to be transposed into national Law until 31 December 2020 and the IEMR
RELP
2 O.J. L 328/82 of 21 December 2018. (O.J. L 158/54) to enter into force on 1 January 2020.2 | Consumer (Co-)ownership in Renewables
particular those on energy communities – requires Economic and Social Committee (EESC) further
developing, implementing and rolling out business issued two initiative opinions (TEN 578 and TEN
models that broaden the capital participation of 577) which strongly advocate the “prosumer
consumers in all 28 Member States. The challenge approach”. Consequently, when developing the
is to include municipalities and/or commercial new market design, the European Commission’s
investors like SMEs and advance to economies identified priorities were (1) (variable) RES
of scale while retaining the benefits of individual promotion and deployment, (2) market integration
consumer participation. and (3) putting consumers “at the centre of the
future energy system” which includes making them
This article gives an overview of the most self-consumers and (co-)owners.10
important new rules on (Renewable) Energy
Communities in the context of the RED II and the Drawing back on the challenges of system
IEMD/R. Against the background of the relevance integration, RE investments, the role of public
for financing RE prevalent business models for institutions and public acceptance, it was clear
RE-investments across the EU are looked upon to and acknowledged by the EU that providing
analyse how they fit the new framework.5 A specific the right framework for consumers is crucial.
focus lies on “energy/electricity sharing” within Following the launch of the framework strategy in
RECs and the underlying (digital) technologies. February 2015, the Commission published three
It also presents a financing concept for consumer preparatory documents and a public consultation
(co-)ownership compatible with the requirements in July, focusing on market design, especially
for (Renewable) Energy Communities, that is, the market compatibility of RES and their support
Consumer Stock Ownership Plan (CSOP). schemes on one hand and on the role of energy
consumers as active market players on the other.
To implement the approach described above, the
1. The Clean Energy Package – European Commissioned published the Clean
Regulatory Overhaul of the Energy Energy Package for all Europeans11 in November
Union 2016. The Directive on Energy Performance on
Buildings was adopted and published in the Official
In 2015 the European Commission issued two Journal already in May 2018. In summer 2018 the
Communications: “Delivering a New Deal for Energy Efficiency Directive,12 the RED II and the
Energy Consumers“ and “On a New Energy Governance Regulation reached political agreement
Market Design“.6 Their message was that the three in the inter-institutional negotiations (so-called
pillars of future consumer energy policy would Trilogue)13 followed by that on the IEMD/R in the
be consumer empowerment, smart homes and end of that year; as of February 2019 the latter
networks, and data management and protection. were not yet published in the Official Journal but
From the outset on the Commission explicitly the consolidated text of the agreement was already
emphasised the role of prosumers7 and thus available.
advocated for both reducing energy costs through
self-generation and consumption8, and expanding The test with regard to consumer (co-)ownership
the consumer’s role through intermediation and models is whether or not the final result of the
collective participation schemes.9 The European Clean Energy Package, in particular the recast of
the RED and of the IEMD, will harness its potential
5 This analysis stems from the book Energy Transition Financing consumer
(co-)ownership in renewables 18 country studies and a comparative Member States. More and more consumers engage in collective self-generation
analysis , J. Lowitzsch (ed.), Palgrave McMillan, 2019. and cooperative schemes to better manage their energy consumption. This
6 COM(2015) 339 final and COM(2015) 340 final both of 15 July 2015. innovation by consumers is also resulting in innovation for consumers and
7 See in particular Best practices on Renewable Energy Self-consumption opens up new business models.”
(SWD(2015) 141 final), accompanying document to the Commission 10 European Commission “A Framework Strategy for a Resilient Energy Union
Communication Delivering a New Deal for Energy Consumers with a Forward-Looking Climate Change Policy”, Pub. L. No. COM2015/80/
Volume 9 Issue 3 | July 2019
(COM(2015) 339 final). EC, COM2015/80/EC COM2015/80/EC 21, 2015.
8 See COM(2015) 339 final p. 6, c) Reducing energy bills through self- 11 Eight legislative proposals on over 1000 pages covering governance, RE, EE,
generation and consumption: “Decentralised renewable energy generation, energy performance of buildings, internal electricity market, cooperation
whether used by consumers for their own use or supplied to the system, can of regulators, innovation, etc. For information on content and state of play:
usefully complement centralised generation sources. Where self-consumption https://ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/
exhibits a good match between production and load, it can help reducing clean-energy-all-europeans.
grid losses and congestion, saving network costs in the long-term that would 12 O.J. L 328/210 of 11 December 2018, amending Directive 2012/27/EU on
otherwise have to be paid by consumers.” energy efficiency.
9 See COM(2015) 339 final p. 6, d) Increasing consumer participation through 13 That is the negotiation between the two co-legislators (European
intermediation and collective schemes: Collective schemes and community Parliament and Council of the EU) moderated by the European
RELP
initiatives have been emerging with increasing frequency in a number of Commission.Consumer (Co-)ownership in Renewables | 3
to facilitate prosumership both individually as demands an efficient but simple framework. While
“Renewable Self-consumers” and collectively as support schemes should be predictable both for
“Renewable Energy Communities”. investors and public finances they need to adapt
flexible to evolving market conditions. Exemptions
2. Five Important Challenges remain from fees and levies for some consumers lead to
higher end-prices for the remaining threatening
As public discourse transcends ideological their acceptance of RE. Thus, five important
grounds and centres on the question of how to challenges remain:
most efficiently achieve the Energy Transition
policy makers are more and more perceptive to I. Creating a coherent incentive system for RES
arguments in favour of consumer ownership in and RE “prosumage”16 based on market related
RE. We observe a broad variety of policy initiatives price signals.
resulting in legislative support for RE consumer
(co-)ownership and prosumership. Examples for II. Designing a consistent structure of network
such legislative initiatives supporting both net charges permitting adaptation of network
metering and the recognition of collective or (co-) tariffs to changing conditions with a view to
ownership schemes both across the EU and in non- their influence on consumption behaviour.
EU countries14 are Brasil, California, Canada, Chile,
Denmark, India, Italy, the Netherlands, Pakistan, III. Market integration of consumer (co-)owned RE
Spain or Greece. While each of these regulations projects while avoiding sub-scale investments,
remained piecemeal the new EU framework allowing pooling of local projects and
indicates the way to a coherent legal framework partnerships with municipalities and strategic
for consumer ownership in RE. However, although investors.
the Clean Energy Package for all Europeans paves
the way to a EU wide legal framework it still IV. Integrating self-consumption and net metering
needs to be transposed into national law and into a future decentralised electricity storage
subsequently filled with implementing provisions. system including sector coupling and e-mobility.
Taking into account the complexity of the issues
involved consistent solutions are much needed, V. Regulating aggregation and direct marketing
solutions that link the role of the prosumer with including peer-to-peer as well as the challenges
that of the other agents on tomorrow’s energy of digitalisation such as smart grids, micro grids
markets. Here it should be borne in mind that the and blockchain technology.
attractiveness of RES in general is assessed on
the wholesale market, where they compete with
other generation sources while the attractiveness II. The Consumer at the Heart of
of self-consumption depends on retail prices15; the energy Markets – Slogan or
the challenge is how to frame a consistent policy Programme?
to incorporate prosumers, be it individuals,
municipalities or SMEs, as central actors linking
the two. Consumer (co-)ownership received explicit
recognition of its crucial role – in terms of
The – sometimes conflicting – goals of this process fighting energy poverty, increasing acceptance,
require trade-offs and pose tasks in three areas, fostering local development, incentivising
namely (i) policy efficiency and simplicity, (ii) demand-flexibility, etc. – and of its rights and
predictability and flexibility, and (iii) the sharing duties in the recitals 66 to 76 RED II.17 But, more
of benefits and costs. To reduce transaction costs
associated with integrating new, typically small or 16 An extension of the concept of “prosumption” (production and
Volume 9 Issue 3 | July 2019
medium sized actors in a complex policy setting consumption) to “prosumage” (production, consumption, and storage)
involves decentral energy storage by batteries enabling to detach the
moments of electricity generation and consumption. See W.-P. Schill et al.,
14 For an overview see C. Gauthier and J. Lowitzsch, “Outlook: Energy Solar prosumage: pros, cons, and an illustration of system effects in:
Transition and Regulatory Framework 2.0: Insights from the European J. Lowitzsch (ed.), Energy Transition, 2019, op. cit.
Union” (p. 749) and the concerning country reports in: J. Lowitzsch (ed.), 17 Article 296 Treaty on the Functioning of the European Union (TFEU)
Energy Transition 2019, op. cit.. requires that EU legal acts shall state the reasons on which they are
15 M. Welsch, S. Pye, D. Keles, A. Faure-Schuyer, A. Shivakumar, P. Deane, M. based on; the recitals are referred to in this article to interpret and clarify
Howells, “Europe’s Energy Transition: Insights for Policy Making”, Elsevier ambiguities as is settled case law of the European Court of Justice; see e.g.,
Academic Press. London; San Diego, CA; Cambridge, MA; Oxford, UK, Cases 24/62 of 4 July 1963, Federal Republic of Germany vs. Commission
RELP
2017. of the European Economic Community, C-244/95 of 20 November 1997, P.4 | Consumer (Co-)ownership in Renewables
importantly, clear definitions in Art. 2 RED II and EU to meet a 34% RES share in final consumption
two dedicated articles 21 and 22 RED II foster by 2030, would necessitate USD 73 billion per
consumer (co-)ownership in RE and prosumership. year, that is, 0.3% of the current EU-28 GDP and
However, going back on what made the first RED an increase of around USD 20 billion per year
a success, namely strong governance tools to compared to the 2016 investment level.25 Local
ensure long-term signals and regulatory stability, authorities in charge of energy efficiency (EE)
the Clean Energy Package takes a step back: (i) and climate policy with limited budgets often lack
Instead of national binding targets a binding means to initiate new and innovative projects.
EU-wide RES share target for 2030 is set to 32 Closing the financing gap becomes even more
per cent;18 (ii) although the level of 32 per cent important since investments in RE are an
is an improvement from the 2014 European important driver of economic development and
council decision of 27 per cent it is still coming employment. A Commission study26 finds that
short to reach the target of containing global “new industries with a strong lead market potential
warming to two degree centigrade.19 On the have been created, which contribute a value added
other hand, the governance tools, i.e., national of about 94 billion EUR or about 0.7 per cent of
action plans, reporting and monitoring, are set the total GDP and an increase in total employment
in the Governance Regulation20 that extends of about 2 million, that is, about 0.9 per cent
the reporting requirement and also includes a of the total workforce in Europe in 2011”. The
corrective mechanism should Member States Report of the European Commission Expert Group
strategies diverge from the collective path.21 R&I policy framework for Green Growth & jobs
Against this background it is worthwhile to recall confirmed that RES investments would positively
the relevance of consumer ownership for the impact job generation.27 The EESC28 concludes
Energy Transition against the background of the that the growth in renewables brings about new
prevalent business models to understand the jobs along its value chain “with this job generation
setting of RECs in the Clean Energy Package. effect being particularly high in the sectors of EE
(0.38 job-years/GWh), PV (0.87), biofuels (0.21)
1. Relevance: Closing the financing gap and wind (0.17) when compared to coal and gas
(0.11).”
In order to limit global warming to 2°C and avoid
the worst effects of climate change, it is estimated 2. Status quo – conventional business
that the world needs to invest an additional USD models
1 trillion per year through 2050.22 While the year
2015 saw global investment in the energy sector Prevalent business models – Present business
of approximately USD 1.8 trillion, a total of about models which fund RE investments of private
USD 3.5 trillion would be required each year individuals fall into two categories:
from 2016 through 2050.23 All in all, the IRENA
estimates that USD 25 trillion have to be invested (1) Genuine, more egalitarian ownership schemes,
in RES by 2050 to meet the latter requiring to for example, energy cooperatives, that typically
triple the actual annual investment rate.24 For the are small- or medium-sized projects confronting
the problem of being “sub-scale” investments.29
Moskof AE v Ethnikos Organismos Kapnou.
18 Along with a reduction of 40 per cent of GHG and 32.5 per cent for energy 25 In 2014, the European council agreed to a target of 27 per cent share
efficiency savings. of RES in energy consumption by 2030. However, the IRENA report
19 This, however, could be corrected by using the planned upward review “Renewable energy prospects for the European Union” ordered by the
clause in 2023. Commission estimates that a share of 34% could be attained with a saving
20 O.J. L 328/1, Regulation on the Governance of the Energy Union and potential compared to the reference scenario. Thus considering political
Climate Action (EU) 2018/1999 of 11 December 2018. (Paris Agreement) and technological developments (unexpectedly quick
21 European Commission, press releases: “Europe leads the global clean cost reductions), 27 per cent is considered a conservative and inadequate
energy transition: Commission welcomes ambitious agreement on further hypothesis.
renewable energy development in the EU” (14 June 2018) and “The Energy 26 “Employment and growth effects of sustainable energies in the European
Volume 9 Issue 3 | July 2019
Union gets simplified, robust and transparent governance” (20 June 2018). Union”, FINAL REPORT, Brussels, 2014; the gross value added of the RES
22 M. Fulton, R. Capalino, “Investing in the Clean Trillion: Closing The Clean sector may increase to about EUR 100 (120) billion and employment in the
energy Investment gap”, CERES report 2014. RES sector would amount 1.6 (2.1) million persons by 2030 if a target of 30
23 At the same time the decline in fossil fuel investment would be largely per cent (35 per cent) in terms of the gross final energy is implemented.
offset by a 150 per cent increase in RES investments between 2015 and 27 “Changing gear in R&I: Green growth for jobs and prosperity in the EU”,
2050; IRENA estimates that total demand-side investments in low-carbon Directorate-General for Research and Innovation, Brussels 2016.
technologies would need to surge by a factor of ten over the same period 28 “Changing the future of energy. Civil society as a main player in renewable
(IRENA 2017). energy generation”, Final Report, Brussels, 2015.
24 International Renewable Energy Agency, “Global Landscape of Renewable 29 I.e., optimisation of the size of technical installation, e.g., a 100 kW citizen
Energy Finance”, 2018, retrieved from /publications/2018/Jan/Global- wind turbine is not economically sound; scalable financing techniques on
RELP
Landscape-of-Renewable-Energy-Finance. the other hand would help small investors pool their investment, boost itConsumer (Co-)ownership in Renewables | 5
(2) Profit-oriented, market-centred investment regard to participation in decision-making the
schemes such as closed-end funds that attract involvement of citizens as consumers that become
money for large-scale projects but do not permit (co-)owners can take either of two forms:
investor participation in decision-making. passive financial participation which involves no
role in decision-making and where investment
If RE projects are to be combined with active return is the principal objective (e.g., bonds, loans,
citizen participation, both financial and silent partnerships and limited partnerships);
in decision-making, new models must be active financial participation, where citizens-
innovated. The question is how do we retain the owners also assume a role in the governance of the
benefits of individual consumer participation utility (e.g., coops, limited liability companies and
when advancing to economies of scale, while partnerships).
simultaneously including low-income households?
Support for business models that facilitate While financial participation in general may
consumer ownership in RES must first level the provide consumers with the incentive for
playing field. If investments in RE at the local/ maximum involvement, active participation
regional level are to succeed in an environment through voting rights provides them with the
of regulatory conditions which favour large power to exercise it. The literature defines these
investments, that is, the worldwide trend toward two types of financial participation as participation
direct marketing and auction models, consumer in a broader, i.e., passive sense and a narrower, i.e.,
ownership models must be able to co-exist active sense.32
with their commercial competitors. This is ever
more important in the light of the rent-seeking 3. Consumer (Co-)Ownership and
behaviour of large investors – often heavily Renewable Energy Communities –
invested in fossil fuels – aiming at securing Defining the Setting
advantages of their established market position
and thus profits regardless of increasing cost With regard to the future role of RECs on the
efficiency.30 European energy markets it is necessary to
understand the institutional setting they are to
Stakeholder involvement and financial operate in. In a more general sense they embrace
participation – Financial participation has participation schemes that (i) confer ownership
a complex relationship with participation in rights in RE projects to (ii) “active” consumers in (iii)
decision-making and stakeholder involvement a local or regional area. The link with the concept
in general. In addition to helping to close the of consumer (co-)ownership33 implies financial
financing gap, the involvement of all stakeholders participation combined with some degree of
is now recognized as crucial to the success of participation in decision-making in a legal entity
policies responding to climate change, including located in a specific geographic area where the
the shift to green energy. Participation can take consumer lives. Furthermore, as a rule this will
diverse forms and occur at different stages of also involve (co-)ownership of municipalities
project implementation: (i) information about as the pacemakers of the energy transition and
the on-going development; (ii) participation in commercial investors, both important in practice
decision-making during the planning process; but often difficult to combine.
and (iii) financial participation in the project.
While the first two forms of participation involve Referring to best practice experience34 and in
all stakeholders the last one is reserved to accord with the above criteria, a REC may embrace
shareholders. In addition to the obvious benefits a variety of different local partners that until now
of engaging citizens in decision-making during
the planning phase,31 financial participation in 32 Cf. Ö. Yildiz, “Financing renewable energy infrastructures via financial citizen
Volume 9 Issue 3 | July 2019
the project itself has material benefits, namely, participation – The case of Germany”, Renewable Energy 2014, pp. 68, 677-
685.
the right to share in the investment profits. With 33 A comprehensive definition of citizen financial participation in RE does
not yet exist inasmuch as forms vary greatly from country to country.
with leverage and build a more efficient standard industrial 3 MW wind Definitions in the literature often refer to unique national concepts shaped
turbine. by historical development and their corresponding business models (see,
30 Cf. G. C. Unruh, “Escaping carbon lock-in”, Energy Policy 30, 2002, 317- e.g., G. Walker, N. Simcock, “Community Energy Systems. International
325, p. 321. Encyclopaedia of Housing and Home”, 2012, pp. 194-198) or stem from
31 P. Devine Wright, “Beyond NIMBYism: towards an integrated framework for technologic, economic and political characteristics.
understanding public perceptions of wind energy”, Wind energy 2015, 8(2), 34 For a systematic review of 18 countries see J. Lowitzsch (ed.), Energy
RELP
p. 125-139. Transition, 2019, op. cit.6 | Consumer (Co-)ownership in Renewables
were used to participate in separate and distinct
investment models, depending on their specific III. The Regulatory Framework for
characteristics: While collective investments of Energy Communities
individual citizens/consumers as a rule would
take the form of RE-cooperatives, municipalities
would prefer public utility companies and SMEs or The RED II sections on self-consumption and
commercial partners special purpose vehicles. The collective local organisation call on Member States
challenge with regard to an ownership-oriented to “provide a more conducive investment environment
approach is to combine the participation models for self-generation and self-consumption” and “to
practised across the EU under the common roof suppress administrative and market barriers to
of a REC. In this regard, three approaches are new self-generation capacity, to replace lengthy
expected to be present in various combinations: authorisation procedures with a simple notification
requirement and to put in place efficient one-stop
– Schemes summed up under citizen energy, also shops.” Recital (70) of RED II states:
referred to as energy citizenship,35 typically
involving consumer ownership while not „The participation of local citizens and local
necessarily local / regional. authorities in renewable energy projects through
renewable energy communities has resulted in
– Community energy/community power models substantial added value in terms of local acceptance
representing locality and common interest of of renewable energy and access to additional private
resident consumers,36 although they may not capital which results in local investment, more choice
always foresee ownership rights for individual for consumers and greater participation by citizens
citizens, in particular voting rights. in the energy transition. Such local involvement is all
the more crucial in a context of increasing renewable
– Prosumership, that is, approaches where a energy capacity. Measures to allow renewable energy
consumer (co-)produces the goods or services communities to compete on an equal footing with
he or she consumes involving both individuals other producers also aim to increase local citizen
and enterprises (micro or SMEs). participation in renewable energy projects and
therefore increase acceptance of renewable energy.”
Under the roof of a Renewable Energy Community
these approaches, of course, would have to comply As to political and communication barriers
with the core requirements of the definition in to consumer ownership, the political climate
the RED II which are discussed in the following. which previously hindered implementation of
Consumer (co-)ownership as a result of co- new business models, like the Consumer Stock
investments of different type of local actors thus Ownership Plan (CSOP; see below section VI.) has
intersects with “citizen energy”, “prosumership” now improved because of the structural particulars
and “community energy” (see Figure 1) while the of the RE market. Measures necessary for
transposition of the concept into national law may decentralising energy production, such as planning
reflect the above-mentioned key elements to a designation or grid extensions, are more likely
varying degree. to gain acceptance when participants from the
society at large are involved. Not only have policy
makers changed their attitude, but the renewables
industry and even large energy suppliers are more
receptive to consumer (co-)ownership, regarding
it beneficial to the implementation of local supply
concepts and smart grids.37 Consumer owned
projects do not compete with or replace other
Volume 9 Issue 3 | July 2019
investors. Instead, consumer ownership expands
the society’s renewable capacity.
35 The term “citizen” in this context encompasses both natural persons
individually and organised, e.g., civil society groups, social entrepreneurs,
schools, micro enterprises, faith groups.
36 Commonly used in Anglo-American countries and in particular in the
UK, this term stresses the participation of local authorities, government 37 In the UK, as part of DECC’s Community Energy Strategy, published on the
departments and utility companies (see G. Walker, P. Devine-Wright, 27th January 2014, the renewables industry and the community energy
“Community renewable energy: What should it mean?”, Energy policy sector committed to work together to facilitate a substantial increase in the
RELP
2008, 36(2), pp. 497-500). shared ownership of new, commercial onshore renewables developments.Consumer (Co-)ownership in Renewables | 7
(S
y o ers rgy
Pr sumdeual, o
ME
d
ise
consumers
co ndiv
os r-p rga
,i
rg s
e
r o on
n i
an
as (co-)owners
En
um rodu nis
all l p
en
ers cer ation
du ca
ti z Consumer-
ivi ysi
h
co-ownership
Ci
ip
ind ph
in RE:
- property rights
- consumers
)
consumers - local context local
as citizens consumers
common local interest /
municipality as pace maker
Community
Energy
Figure 1. Renewable Energy Communities and their relationship to citizen energy, prosumership and community
energy.
1. Market integration – The legislative small RE producers can coexist and compete with
challenge for RED II and IEMD the large incumbent energy suppliers without
regulatory support. This issue directly impacts the
Market integration of RES aims at creating development prospects for (co-)owned consumer
competitive energy markets with renewables projects which are typically medium or small.
generally subject to normal market rules. This
entails the question of how to align subsidies The Council of the EU, on the one hand, stressed
with normal market rules and how to provide liberalization of markets and was reluctant to grant
a level playing field for all market participants. any preferential conditions for small players as
Here the ownership structure of the RE sector is proposed above. The European Commission and in
crucial. The optimal market design will avoid both particular the European Parliament on the other
concentrated ownership in the hands of a few – an hand, favoured modest preferential conditions
oligopoly detrimental to competition – as well for prosumers and local small producers in order
as a fragmented market with a plethora of small to ensure a level playing field and “equal footing”
players driving up transaction costs and impeding when competing for RE support. Above all the
governance. The 2018 negotiations between the question of a “right to prosume” and the right to
European Commission, Parliament and Council market generated energy directly (stipulated
concerning the Clean Energy Package is a good in Art. 21 RED II) as well as the framework
example of the policy challenges involved. While to facilitate Renewable Energy Communities
there seems to be consensus among policy makers (Art. 22 RED II) were controversial. On the one
Volume 9 Issue 3 | July 2019
to postulate a sufficiently large number of market hand the involvement of consumers as (co-)
participants to guarantee competition and prevent owners is inclined to facilitate their new role as
market domination by a few large players, there is active consumers which is key amongst others
disagreement about the degree of “actor diversity” for demand flexibility. On the other hand, a
necessary. At the root of this controversy lies the disperse ownership structure, acknowledging
question of what constitutes a level playing field the numerous actors on the RE markets and
and particularly the question of whether or not particularly the phenomenon of “Citizen Energy”,
RELP8 | Consumer (Co-)ownership in Renewables
raises the problem of market fragmentation. With Both directives expressly see the consumer “at
an expanding number of small units owned by the heart of the energy markets” defining him or
individuals, governance, control and predictability her – individually or jointly – as “Active Consumer”
of the energy markets where balancing supply and (IEMD) respectively as “Renewable Self-consumer”
demand and security of supply are crucial become (RED II). With regard to energy communities the
increasingly complex and thus problematic.38 IEMD mainly concerns the horizontal level, that
is, their rights and obligations towards public
Against the background of the RED II compromise authorities, other electricity enterprises and
reached in June 2018 and that on IEMD/R of consumers. This design is also reflected in recital
December 2018 confirming both fair conditions for 2 IEMR on the aim of the internal market in
self-consumption and collective local organisation electricity “to deliver a real choice for all consumers in
thereof, one way out of this dilemma again is to the Union, both citizens and businesses, new business
innovate and deploy new organizational models opportunities and more cross-border trade, so as to
for prosumership. Such contractual arrangements achieve efficiency gains, competitive prices and higher
would allow pooling and scaling of RE investments standards of service, and to contribute to security of
(co-)owned by consumers while opening them supply and sustainability.”
up to various combinations of municipal or
commercial investment, especially by SMEs. In The Directive provides – amongst others – energy
particular as RECs as regulated in Art. 22 RED communities with a level playing field vis-a-vis
II require that local shareholders or members, other market participants (see Art. 65 IEMD). RED
i.e., “natural persons, SMEs or local authorities, II on the other hand additionally has an important
including municipalities” control them39 as defined vertical element as it ensures for example that
in Art. 2 of RED II necessitate a multi-purpose RECs can compete for support as Art. 22 para 7
corporate vehicle allowing joint investments by the puts it “on an equal footing with other market
various agents mentioned. participants” and calls on the Member States to
“take into account specificities of renewable energy
2. Relation between Electricity Market communities when designing support schemes”.
Directive/Regulation and Renewable
Energy Directive Such while the enabling framework under IEMD
is primarily a “regulatory framework” (see Art. 16
Energy communities are mentioned and defined in para. 1, sentence 1) that of RED II has the explicit
both the RED II and the IEMD. While the recast of aim “to promote and facilitate the development of
the renewables directive focuses on the promotion RECs” (see Art. 22 para. 4, sentence 1) including
of RE and thus speaks of “Renewable Energy preferential conditions or incentives. However,
Communities” (RECs) the directive on the internal above distinction is not always sharp since the
electricity market of the European Union as the IEMR/D also contain elements that support
more general legal act addresses “Citizen Energy the deployment of RES.40 Enshrined in Art. 12
Communities” (CECs). This raises the question of the IEMR for example defines the principle of
the relation between these two types of energy priority dispatch for RE plants with an installed
communities – and more generally between these electricity capacity of less than 400 kW41 (and for
two legal acts. RE plants commissioned after 1 January 2026
less than 200 kW) and for demonstration projects
While the purpose of IEMD/R is the completion for innovative technologies.42 Furthermore, with
of the internal market in electricity that has regard to RECs Art 8 para. 3 IEMR stipulates that
progressively been implemented in since 1999
that of RED II on the other hand is to specifically
40 See also recital 4 IEMR stipulating as an explicit aim “to ensure the
support the deployment of RES for energy functioning of the internal market for electricity and includes requirements
Volume 9 Issue 3 | July 2019
production including electricity and to foster related to the development of renewable forms of energy and environmental
policy, in particular specific rules for certain types of renewable power-
acceptance for renewables among the Europeans. generating facilities, concerning balancing responsibility, dispatch and
redispatching as well as a threshold for CO2 emissions of new generation
38 This problem is also reflected in the “energy trilemma” – a term coined by capacity where such capacity is subject to temporary measures to ensure the
the World Energy Council – summing up the difficulty to find a balance necessary level of resource adequacy, namely, capacity mechanisms.”
between the three goals defining energy policy, i.e., energy security, 41 RE-plants that concluded contracts before the entering into force of the
affordable/competitive energy prices, and sustainabil ity/decarbonisation. IEMR continue to benefit from priority dispatch.
39 The RED II proposal of the European Commission and the European 42 Pursuant to Art. 2 pt. (24) IEMR “a project which demonstrates a technology
Parliament s position were even stronger requiring a minimum of 51 per as a first of its kind in the Union and represents a significant innovation that
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cent ownership stake and corresponding control rights of these groups. goes well beyond the state of the art.”Consumer (Co-)ownership in Renewables | 9
regulates internal
electricity market
promotes RES adressing persistent
not only electricity obstacles to completion
fosters acceptance aims at efficiency gains,
entices local initiatives competitive prices, etc.
ensures „equal footing“ also elements of
RES support
-> Renewable Energy horizontal level
Community between market
participants
-> Citizen Energy
Community
Source: Own elaboration.
Figure 2. Relation of the RED II and the IEMD/R.
“Nominated electricity market operators shall such initiatives would not benefit from the specific
provide products for trading in day-ahead and enabling regulatory framework of IEMD and in
intraday markets which are sufficiently small in particular from the preferential conditions or
size, with minimum bid sizes of 500 Kilowatt or incentives foreseen in the enabling framework to
less, to allow for the effective participation of promote and facilitate the development of RECs
demand-side response, energy storage and small- under RED II. This governance model can thus
scale renewables including directly by customers.” be described as an opt-in mechanism aiming to
Figure 2 illustrates the relation of the RED II and incentivise replication across the EU. A different
the IEMD/R. question yet, however, left open by the European
legislator, is how to deal with energy communities
In sum, generally speaking RECs are a specific that disqualify as a REC either deliberately or
form of CECs that are benefitting from an enabling because they involuntarily cannot keep up the RED
framework promoting and facilitating their II requirements.
development. However, they have an own area of
operation not falling under the IEMD/R as far as 3. Defining prosumership and
other types of energy, that is, not electricity, are consumer (co-)ownership in
concerned. In this regard the possibility to benefit renewables
from RECs small-scale back-up conventional
generation is an important element for micro- Art. 2 RED II defines three categories of actors that
grid solutions be it on or off-grid (more details in benefit from preferential conditions with regard
section V. below). to market access and authorisation procedures,
namely, “Renewable Self-consumers“ and
Volume 9 Issue 3 | July 2019
With regard to energy communities, of course, “Jointly Acting Renewable Self-consumers” (both
European energy law does not rule out other regulated in Art. 21 RED II) as well as “Renewable
private law citizens’ initiatives or consumer- Energy Communities” (see Art. 22 RED II). The
oriented initiatives that are facilitated by and introduction of jointly acting prosumers is a major
implemented with the participation of the public step ahead with regard to tenant energy projects
administration in the Member States;43 however, that empower in particular low-income households
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43 See M. Jasiak, “Energy Communities in the Clean Energy Package”, European Energy Journal, Vol. 8, 2018, p. 30.10 | Consumer (Co-)ownership in Renewables
Consumer (Co-)Ownership
& Prosumership in RED II
Art. 21 „Renewable „Jointly acting
Renewable Self- Art. 22 „Renewable Energy
Self-consumer“ Consumers“ (min.2) Community“ (REC) a legal entity
- a final customer that
- located in same building - based on open & voluntary participation,
- generates renewable electricity
or multi-apartment block - autonomous, and controlled by
- for its own consumption
- operating within its premises -> additionally allowed to shareholders or members
(also SME if not primary share RE produced on - located in proximity of the RE projects
commercial / professional activity) their site / sites - owned & developed by that legal entity
individually or MS shall provide MS shall provide
through aggregators enabling framework enabling framework
are entitled to to promote & facilitate are entitled to to promote & facilitate
- generate RE, incl. for - access of prosumership to all - generate,consume - access to RECs for all con-
own consumption, consumers, incl. low - income / store and sell RE, sumers, incl. low - income /
- store and sell excess vulnerable households incl. through PPA vulnerable households
electricity Production - access to financing of RE - share produced RE - support for public authorities
- including via PPA, projects within community setting up RECs helping them
suppliers & P2P - access to support schemes - access all suitable to participate directly
trading and all market segments energy markets - tools for access to financIng
- receiving market - incentives for prosumership to directly / via - removing regulatory and
based remuneration building owners and tenants aggregation administrative barriers
non-discriminatory
without being MS may MS shall
and proportionate
subject to provide that take into account
charges and fees
- discriminatory or permissible if - specificities of RECs when
disproportionate - RE supported via support schemes RECs are
designing support schemes
procedures & charges - from Dec. 2026, if overall share of open to
- to allow them to compete for
- any charges or fees for prosumer installations exceeds 8% cross-border
support on an equal footing
electricity remaining in of MS total electricity capacity participation
with other market participants
their premises - installations above 30 kW
Source: Own elaboration.
Figure 3. Overview – prosumership and consumer (co-)ownership in the RED II. Source: Own elaboration based
on C. Gauthier and J. Lowitzsch, “Outlook: Energy Transition and Regulatory Framework 2.0: Insights from the
European Union”, in J. Lowitzsch (ed.), Energy Transition, 2019, op. cit.
typically renting their home and not owning real subject to discriminatory charges and – with regard
estate with the same “right to prosume”. When to electricity that remains in their premises – any
transposing the RED II Member States shall thus charges or fees. Figure 3 summarizes the position
Volume 9 Issue 3 | July 2019
ensure that prosumers individually or through of the three categories of actors against the
aggregators, are entitled to generate and store RE pending transposition of RED II by the Members
as well as to sell excess production to the grid at States of the European Union.
a market-based fair remuneration without being
RELPConsumer (Co-)ownership in Renewables | 11
the relevant measure need to be taken into account
IV. Focus: Renewable Energy equally.47 In analogy to the established principles
Communities for cooperatives48 it seems appropriate to assume
that preferential tax treatment for RECs will fall
outside the scope of the State aid rules provided
Under the new rules different types of (local) that with a focus on their (local) controlling
consumers organised in energy communities, have shareholders or members: (a) the REC acts in their
the right to consume, store or sell energy generated economic interest; (b) their relations are not purely
on their premises. As mentioned above the RED commercial, but are linked to their local individual
II also obliges the Member States to provide an RE energy supply; (c) they are actively involved
enabling framework to promote and facilitate the as prosumers in the local RE project; (d) they are
development of RECs on the basis of an assessment entitled to equitable distribution of the results of
of financing, administrative and regulatory barriers economic performance.
as well as discrimination in procedures or charges
concerning support schemes, grid interaction and Other than the proven benefits of RECs to closing
market rules. Pursuant to Art. 22 para 5 RED II the financing gap and increasing acceptance for
this framework will be integrated into the updates RE projects mentioned above the justification to
of the Member States’ integrated national energy promote and facilitate the development of RECs
and climate plans and progress reports mandated is to be seen in the overall objective to integrate
by the Governance Regulation. Finally, the RED variable RES in the energy markets as given in
II emphasises in recital 71 that “(t)he specific the recitals of both RED II and IEMD. While,
characteristics of local renewable energy communities e.g., recital 8 RED II states that “(c)onsumers are
in terms of size, ownership structure and the number essential to achieving the flexibility necessary to adapt
of projects can hamper their competition on equal the electricity system to variable and distributed
footing with large-scale players, namely competitors renewable generation. …” recital 37 IEMD links this
with larger projects or portfolios” (emphasis by to behavioural changes necessary stressing that “…
the author) and calls for measures to offset these (t)he benefits of such active participation are likely
disadvantages which “include enabling renewable to increase over time as the awareness of otherwise
energy communities to operate in the energy system passive consumers is raised about their possibilities
and easing their market integration”. Therefore, as active consumers and as the information on the
RED II recognises the possibility of introducing possibilities of active participation becomes more
preferential rules and opens the field for possible accessible and better known.” Moreover recital (43)
(positive) discrimination since is follows from IEMD declares “… This Directive aims to recognise
the general principle of equality in EU law44 that certain categories of citizen energy initiatives at the
while similar situations have to be treated equally Union level as ‘citizen energy communities’, in order
dissimilar situations may be treated differently.45 to provide them with an enabling framework, fair
This also regards taxation where possible collisions treatment, a level playing field and a well-defined
with European competition law became a thorny catalogue of rights and obligations.” It is thus
issue in the light of the extension of the definition conclusive that recital (76) RED II ascertains: “The
of State Aid in the sense of Art. 107 para. 1 TFEU.46 Energy Union strategy also recognised the role of the
Referring to preferential taxation for cooperatives citizen in the energy transition, where citizens take
in Italy the ruling of the European Court of Justice ownership of the energy transition, benefit from new
of 8 September 2011 defined more precisely the technologies to reduce their bills, and participate
test criteria for State aid establishing that further actively in the market.”
to being cumulatively fulfilled motives and aims of
44 Settled case law of the European Court of Justice; see, e.g., Case 8/82 of 23
Volume 9 Issue 3 | July 2019
Feb. 1983, KG Hans-Otto Wagner vs. BflM, ECLI:EU:C:1983:41.
45 Cf. M. Jasiak, loc. cit. p.34; see e.g., Cases C558/07 of 7 July 2009,
S.P.C.M. et al. vs. v Secretary of State for the Environment, Food and
Rural Affairs, EU:C:2009:430, para. 74, C579/13 of 4 June 2015 P&S 47 That is, that the measure (a) be financed by the State or through State
vs. Commissie Sociale Zekerheid Breda et al., EU:C 2015 369, para. 41 or resources, (b) be selective, (c) have a possible effect on trade between
C477/14 of 4 May 2016, Pillbox38 Ltd vs. Secretary of State for Health, Member States, and (d) potentially distort competition on the Single
ECLlU:C:2016:324. Market in the Joined Cases C-78/08 to C-80/08 O.J. 2011, C 311/06 (Paint
46 This regards in particular the criterium of “selectivity”; see J. Blumenberg Graphos).
Aktuelle Entwicklungen des EU-Beihilferechts im Bereich der deutschen 48 See Commission Notice on the notion of State aid as referred to in Article
Unternehmensbesteuerung, pp. 19-27, p. 65; ifst-Schrift 516 (2017); for 107(1) TFEU (2016/C 262/01), section 5.4.1. Cooperative societies (nos
RELP
details see L. Neckenich, “Selektivität im Steuerrecht”, HFSt 8 2018. 157-160).12 | Consumer (Co-)ownership in Renewables
1. Core elements of the Renewable commercial actors.53 Under a systematic and under
Energy Communities under RED II and a teleological point of view barring medium-
IEMD/R sized enterprises from the group of shareholders
controlling a CECs can be seen as the equivalent of
The IEMD and the RED II have in common that the requirement for “local” control in RECs. Since
an energy community is a legal person, able to RED II limits the control and autonomy of RECs
act in its own name, to exercise rights and to be to their local shareholders or members in practice
subject to obligations. Consequently, projects it may be questionable whether a medium-sized
that are not incorporated and solely based on enterprise would qualify as “local” if it had, e.g.,
contractual arrangements between individuals headquarters or subsidiaries not located in the
or legal entities are not subject to this regulatory proximity of the RE-project; for such enterprises
framework. Art. 2 para 16 RED II defines a REC participating in a REC thus would come at the price
as “a legal entity (a) which, in accordance with of not being among the shareholders controlling
the applicable national law, is based on open and the project. At the same time if a medium-sized
voluntary participation, is autonomous, and is enterprise is a genuine local partner it opens
effectively controlled by shareholders or members that up access to financing for RECs which – as a
are located in the proximity of the renewable energy specific form of CECs – are benefitting from an
projects that are owned and developed by that legal enabling framework promoting and facilitate their
entity; (b) the shareholders or members of which are development. Furthermore, as pointed out above,
natural persons, SMEs or local authorities, including RECs have an own area of operation not falling
municipalities”. Tying the “effective control” – which under the IEMD/R as far as other types of energy,
should generally be understood as 51% of the that is, not electricity, are concerned which may
shareholding but in cases of a disperse ownership require a different size of professional partners.
structure might be a lower threshold49 – to the
local members of a REC is a structural feature in With regard to the purpose of energy
governance stemming from the 32% target of communities RED II and IEMD are equal. Art 2
renewable’s in the energy mix whose achievement para. 16 (c) RED II stipulates the primary purpose
depends to a large extend on the acceptance of RE of a REC “to provide environmental, economic or social
projects by the local population. community benefits for its shareholders or members
or for the local areas where it operates, rather than
While CECs in principle are open to all types of financial profits” which is almost the identical
entities the definition in Art 2 pt. 11 IEMD is very wording of Art. 2 pt. 11 IEMD. The scope of
similar with three differences, i.e., (i) the absence operation of energy communities in general is
of the notion of geographic proximity,50 (ii) the defined in Art. 2 pt. 11 IEMD as follows A citizens
lack of the requirement to be autonomous51 and energy community “may engage in generation,
(iii) a limitation for enterprises being included in including from renewable sources, distribution,
the shareholders controlling the entity to those supply, consumption, aggregation, energy storage,
of small and micro size.52 While the former two energy efficiency services or charging services for
features are clearly rooted in the characteristics of electric vehicles or provide other energy services to
REC’s distributed RE generation the latter aims at its members or shareholders;”. However, as already
establishing a level playing field on which citizen stated RECs have an additional scope of operation
led initiatives can compete with the incumbent where energy that is not electricity is concerned.
Within this range energy communities are entitled
49 Since the notion of “effective control” is neither defined in RED II nor to sell their production, including through power
in IEMD its interpretation when transposing the directives will depend
on the principles of national company, tax or contract law or other rules purchase agreements. Interestingly, Art. 21 para
determining when a shareholder or member of a legal person is ultimately 5 RED II stipulates that “(t)he renewables self-
responsible for their decisions; see also M. Jasiak, loc. cit. p.32.
50 Proximity will have to be further defined by the Member States when
consumer’s installation may be owned by a third
Volume 9 Issue 3 | July 2019
transposing RED II through land use, zoning or similar national legislation; party or managed by a third party for installation,
see also M. Jasiak, loc. cit. p.32.
51 “Autonomy” in this context should be understood as a 33% ceiling for
ownership stakes of individual shareholders or members; more generally, 53 This is confirmed by recital (44) IEMD stipulating that “Membership
recital 71 RED II stipulates that “REC should be capable of remaining of citizen energy communities should be open to all categories of entities.
autonomous from individual members and other traditional market actors that However, the decision-making powers within a citizen energy community
participate in the community as members or shareholders, or who cooperate should be limited to those members or shareholders that are not engaged
through other means such as investment”. in large scale commercial activity and for which the energy sector does not
52 For the definitions see Commission Recommendation of 6 May 2003 constitute a primary area of economic activity. Citizen energy communities are
concerning the definition of micro, small and medium-sized enterprises, considered to be a category of cooperation of citizens or local actors that should
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2003/361/EC, OJ L 124. be subject to recognition and protection under the Union law....”You can also read
