RED II and the Clean Energy Package: Quo Vadis Energy communities?

By Henrik Schapp, product manager Energy Communities at GreenCom Networks.

Energy communities have come a long way. Starting as a joint project by some visionaries it is now an EU-backed and vital step of the energy transition. Although: What is the actual status of energy communities? What role do the RED II and the Clean Energy Package, both initiatives of the EU, play? And if the legal groundwork has finally been laid, who will be the players in the new energy community field? Who will run such communities and what will the business model look like?

So far, energy communities have been struggling

Energy communities ought to be an important building block in the urgently needed conversion of energy systems towards more decentralisation and digitisation. In the past, especially in Scandinavian countries and in Germany, they were drivers of private investments in sustainable energy generation with wind and sun. Today, the EU directive RED II and the Clean Energy Package, among other things, are designed to enable and encourage joint consumption and storage, in addition to just generation. Especially the promotion and financial participation of citizens that can accelerate the vital expansion of generation capacities.

So far, regulatory requirements have prevented energy communities from spreading rapidly: They were either too complex, not attractive enough or simply non-existent to enable citizens to generate and consume electricity collectively.

In addition, there is still a lack of broad coverage of digital metering infrastructure, especially in Germany. Countries like Austria, Italy or Spain on the other hand are leading examples in this regard.

The third building block that has been missing so far, apart from the pure feed-in tariff, is financial incentives to promote joint electricity exchange and to get the corresponding business models off the ground.

EU directive RED II and Clean Energy Package push legal foundation and subsidies

For years now, the EU directive RED II and the Clean Energy Package have been calling for these unfavourable conditions to be eliminated and for the introduction of legislation that enables and promotes energy communities. The solutions emerging in the first countries, pioneered by countries such as Austria, Italy, Spain and others, are featuring digital solution platforms that read out the intelligent metering infrastructure and carry out the necessary calculations of the shared electricity volumes between the participants in energy communities. In addition, these digital solution platforms enable further use cases such as the optimization of self-consumption at the household level and, based on this, the optimization between participating households in energy communities. This in turn drives the economic attractiveness for everyone as well as for the community as a whole.

RED II and the Clean Energy Package: Quo Vadis Energy communities?​
Figure 1: RED and vital impulses for energy communities, Source:

Many open questions: Who are the participants? Who will run energy communities and what are the business models?

If the framework conditions are now gradually being created – unfortunately differently for each country and varying in implementation speed – the question arises as to who will be the actors within the energy communities, who will be the operators and which specific business models will be used.

The actors: At its core, the EU’s Clean Energy Package promotes and demands a legal framework that enables citizens to actively participate in the energy market. It can therefore be assumed that the future basic form of an energy community will follow the aim of generating and sharing electricity locally. Such a community will consist of citizens and, depending on the legal interpretation of the EU states, also of small and medium-sized companies as well as cities and municipalities.

Involved actors with energy communities
Figure 2: Energy Communities and the involved actors

The operators: The question of who will operate the future energy communities cannot be answered easily. Most likely we will find a balancing act between civic initiative and professional operating concepts. With the operator concepts, both the established energy suppliers and Energy Service Companies (ESCOs), which are already active in regional energy markets and are opening up a further field of activity with energy communities, can be expected. According to their previous focus, both players will offer services that include, for example, the legal framework for founding energy communities, they will drive the expansion and financing of generation capacities and of course they could provide the collection of energy data, the calculation of the electricity sharing amounts and the billing of the shared electricity to the participants of the energy communities. And, of course, they will also actively involve the participants by offering mobile apps to visualise energy flows within the households and the community itself, as well as making predictions about energy production and energy consumption. According to the EU directive, however, Utilities are not allowed to become active players within the energy communities.

The business model: Seeing the jurisdiction evolve in various EU countries, the central value driver of energy communities is the amount of shared electricity. It will therefore be important, firstly, to bring in large generation capacities when founding an energy community and to add suitable consumption profiles, and secondly, to strive for optimization of self-consumption within the community. How can this be done? By integrating larger flexible energy assets such as heat pumps, electric cars or battery storage within the community and using their flexibility.

The outlook: Prosumer and Consumer Communities become the norm, and Virtual Power Plants will be added

After laying the groundwork for future energy communities connecting prosumers and consumers, digital technologies will enable further business models based on them, such as virtual power plants with flexibility aggregation and the offering of products on central electricity markets.

Finally, the question arises as to which EU countries already have an Energy Community jurisdiction and thus enable the establishment of energy communities. We will examine this in the upcoming blog article.

More content