In December 2018, EU legislators hammered out a political agreement on a new energy market design. As the dust settles, it’s time to determine whether all Europeans will have the tools to become active energy citizens. Josh Roberts takes a look.
Europe’s energy market design: finding a new approach
Europe’s energy policy is outdated. Regulation still supports a centralised energy system dominated by large companies that produce energy from nuclear and dirty fossil fuels.
If we are to address the climate crisis, our energy system must be rapidly decarbonised. The good news: the momentum is there. Renewables are becoming cost-competitive and flexible, the energy system is becoming more decentralised, and technology now allows citizens to become active – individually and through community initiatives.
This trend will only continue. According to a CE Delft study, almost half of EU households could produce renewable energy by 2050, about 37% of which could come through involvement in a cooperative. The study concludes that when demand response, energy storage and energy efficiency are included, 83% of Europe’s citizens could participate in the energy sector by 2050.
In order to realise this potential, regulation and policy need to catch up. National markets are currently incapable of valuing benefits of renewables self-consumption, flexibility, and storage. Individuals and communities that participate in the energy market are treated by decision-makers, at best, as an afterthought and, at worst, a threat to be quashed. Governments have also further undermined markets by introducing new ‘capacity mechanisms’ that remunerate dirty power plants to sit unused.
Energy democracy: an essential ingredient for a successful transition
Energy transition advocates have waited with cautious optimism for the conclusion of a new energy market design (the Electricity Directive and the Electricity Regulation, respectively). Much anticipation has built up around new rules that empower citizens and new actors such as aggregators (that is, a third party that packages together small amounts flexibility or production so they can participate in larger markets) to become active in the market.
The final political agreement is far from perfect. Nevertheless, together with the Renewables Directive, which we recently summarised, the new market design includes a potentially transformative concept: active energy citizens and communities.
Why is this so groundbreaking? For perspective, in the EU’s Third Energy Package (concluded in 2009), citizens as active market participants were not mentioned even once. Now, citizen participation is a governing principle of Europe’s energy market. It is an important step in challenging the existing orthodoxy that ‘the market’ alone should guide the energy transition – all citizens and communities should have a fair opportunity to participate.
Similar to the Renewables Energy Directive, which now defines ‘renewable energy communities’, the Electricity Directive will contain a definition of ‘citizens energy communities’ (CECs).
Significantly, CECs are defined as a type of market actor based on membership, governance and purpose that is different from traditional profit-oriented energy companies. CECs can focus on renewables, but also any activity throughout the power sector.
Originally, the Commission proposed ‘local’ energy communities. The change to ‘citizens’ is a significant win as it sends a political signal that this initiative promotes ownership by citizens, SMEs and local authorities, not larger industry or energy companies that simply want to create and control CECs to sell new services.
Most importantly, CECs will have a right to ‘equal’ and ‘proportionate’ regulatory treatment and to access all markets on a level playing field with larger market actors. Citizens must also be able to establish CECs without facing discriminatory or burdensome hurdles, supported by enabling national frameworks.
Likewise, Member States are required to maintain priority dispatch for smaller renewable generation projects at least until 2026. This will ensure that community-owned renewables projects can feed generated electricity into the grid.
Moreover, CECs will have a right to share energy. This will empower citizens living in apartments, shared buildings or neighborhoods to innovate with storage, peer-to-peer trading, and other flexible technologies.
CECs will not be required to be autonomous in their internal decision making. This safeguard – which is contained in the renewable energy communities definition – would have ensured democratic governance, preventing members with more resources to invest, like larger companies, from exercising disproportionate influence.
Unfortunately, it will be optional for Member States whether to grant CECs the right to set up, own and operate local power networks. Many governments will simply ignore this text.
EU oversight of capacity mechanisms will also be weak. While Member States will be required to assess whether capacity mechanisms are needed and must exhaust other options before adopting one, there is little the Commission can do if a Member State implements a capacity mechanism that is not warranted. Furthermore, loopholes such as exemptions for installations finished before 2020 and CO2 limits that only apply to existing installations after 2025 allow new coal power plants to benefit from these mechanisms at least until 2035. This will shoulder consumers with huge costs, slow coal phaseouts, and undermine incentives to encourage citizen participation.
Lastly, rules on how network operators charge CECs to connect and use the grid are contradictory. Rules promote both efficient and flexible use of networks while also allowing practices that cause inefficient use of the network. Complex debates between citizens, industry and governments on this issue are therefore likely.
Now: the real work begins. Are all these changes really transformative? In truth, the real impact will only be visible after Member States transpose the new EU rules into national legislation. Success will be determined by the ability of governments to take their commitments, and the voices of citizens and communities, seriously.
The transition to energy democracy will be long and hard. As for its role, the EU has given citizens an early win.
Josh Roberts serves as Advocacy Officer of REScoop.eu, a federation that represents citizen cooperatives and energy initiatives around Europe that work on renewable energy, energy efficiency, and other clean energy technologies. He was in charge of coordinating REScoop.eu’s input into the negotiations on the EU’s clean energy package legislation.