Economics driving the growth in community energy schemes

Sound economics as well as sustainability make community energy schemes a rational choice for many towns and cities in Europe, says Maikel van Verseveld.

Community energy initiatives are on the rise across Europe. In the UK alone at least 5,000 community groups explored the opportunity between 2009 and 2015. These communities – coalitions of consumer groups, businesses, local governments or simply groups of neighbours – are mobilising around the generation and distribution of their own energy.

Current media and industry buzz would suggest that these groups are being driven by sustainability aspirations. However, our recent research study highlighted that while sustainability is important, the primary goal of community energy initiatives is economic. Many distribution network operators are still formulating their strategy related to this trend. But with decades of experience managing assets and the related costs while assuring grid resilience and safety, surely utilities are well equipped to play an important role in shaping the new energy economy?

The pull of potential economic benefits

While sustainability often provides the initial impetus to considering a community energy scheme, we found that the main driver is the possibility of achieving real economic benefit. The potential for more affordable energy, as well as the opportunity to keep the value generated by their local energy system inside the community, is frequently cited as the central reason why people become involved in community energy initiatives.

Indeed, we are seeing growing recognition from US and European citizens that community energy schemes are economically viable. Energy technologies, such as solar photovoltaics and storage have matured and proliferated in less than half a decade, bringing down the related costs. Our analysis shows that the cost savings from a community energy scheme could be enough today to prompt consumers to make the switch. We estimate that a single household could make a one-off saving of nearly £3,000 from a community energy scheme compared with going it alone, while also effectively hedging against rises in energy prices. While the sum is not “life-changing” for many consumers, it makes the switch a choice of reason rather than principle.

On a larger scale, the pull of economic benefit – cost savings realised and new value generated – is illustrated by a smart grid project in Rotterdam. The City of Rotterdam, Stedin, a Dutch system operator, and Lyv Smart Living, an independent aggregator, and Siemens alongside Omnetric Group, are aiming to implement a distributed energy management system across the city starting in the Merwe-Vierhavens harbour area. This system will enable more flexible management of energy demands and generation across the district reducing congestion on the electricity grid and provide savings in energy and distribution cost.

The smart grid will also stimulate investment in more sustainable electricity generation, and innovation related to electricity storage, as well as lowering investments related to future grid build-out. The city’s Alderman believes that in addition to the emissions reductions it brings, there is an opportunity to build economic and sustainable value for the district and to expand the model more broadly across the city and surrounding areas.

A role for utilities

While consumers’ enthusiasm for community energy is growing, a lack of in-depth technology and business knowledge has held some schemes back. Their economic ambitions cannot be achieved without existing industry knowledge and dedicated resource. This need is causing new roles to be created.

For example, Lyv Smart Living, the aggregator in the Rotterdam project, will manage the solution that will enable the creation of new energy-related services for the city’s residents and local businesses, as well as for the regulated network operator, Stedin, with which they are closely collaborating. Stedin brings deep technical competence around how to safely and reliably manage the smart grid.

Broadly speaking, we see three possible models utilities can employ to help them adapt to the rise of community energy:

1. Collaborative community partner – participating as a technical observer and sounding board.
2. Community service provider – consulting to communities and providing ecosystem solutions that meet their unique energy needs.
3. Community energy platform provider – acting as a market-maker, utilities can develop and package a suite of solutions for communities designed to enable communities’ active participation in energy distribution

Utilities observing the disruption in other industries – transport and hospitality, for example – know that the regulators will struggle to protect the status quo. Moreover, there could be net benefits to “getting in front” of this new model, both business and technical. Looking across the pond at the New York REV, the distributed system platform model is similar to our “Role 3”. It proposes an intelligent network platform that fosters broad market activity to monetise system and social values by enabling active customer and third party engagement that is aligned with the wholesale market and bulk power system. This shift clearly changes the game for the utility, but keeps the utility integral to it.

We are seeing a shift in customer mindset when it comes to the consumption of community energy. A new energy economy is emerging, driven by the economic benefits on offer. This focus on energy affordability, combined with technological advancements and growing expertise, means that energy supply is no longer the reserve of the traditional players. Utilities would do well to consider ways they can profit from, and help forge the new opportunities available.