As the transition to a sustainable economy requires decarbonizing our energy systems, there is an opportunity to renegotiate the social structures of energy. An economic scheme for producing renewable energy is the so-called “energy communities,” in the European Union, and “communities solar,” in the United States. In these schemes, residents and businesses pay for shares in a photovoltaic park—receiving back the corresponding energy produced or even creating their own park. Could schemes like this host the democratization of our energy system?
Traditionally, energy markets have been characterized by oligopolies due to physical barriers to the exploitation of carbon sources and the very high costs that this entailed. This has resulted, not only in unabated greenhouse gas emissions, but also in keeping energy prices high. The Sustainable Development Goal 7: “Ensure access to affordable, reliable, sustainable and modern energy for all,” requires us to think “outside the box” of profit maximization, and energy management as we know it. Energy communities are a scheme created to respond to this effort.
While the main idea of the energy community is the same in the EU and the U.S., the legal frameworks are a bit different. The term itself in the EU (Renewable Energy Directive (EU) 2018/2001) refers to cooperation between the citizens of a community in the energy sector. This concept includes “participating in a coordinated and collective change to new energy suppliers, in collective investment in photovoltaic projects, but even the establishment of an energy supply company owned by its users or even the collective ownership of a network energy distribution.” In other words, the creation of legal entities or even informal forms is possible. Energy communities are expected to offer high levels of security and quality of supply to their members, but this can be difficult, especially for small community-owned networks. Nevertheless, the Directive provides for proportionate rules to protect consumer rights.
In the U.S. an “energy community” is geographically located in an energy production area, of any type. The respective policy is called the Community Solar Program. According to the definition of the U.S. Department of Energy, Community Solar is: “any solar project or purchasing program, in which the benefits flow to multiple customers such as individuals, businesses, nonprofits, and other groups”. Program participants have the option of either subscribing or buying a share of the energy produced in a particular solar park. Specifically, it is possible to establish a special purpose entity (SPE) to act as the owner of the community solar project. Alternatively, there is a non-profit model, where the community solar system, e.g. of a municipality, comes from sources that do not directly reap the benefits of the electricity generated.
Data shows that these communities have a significant presence in both the U.S. and the EU. Specifically, Europe now counts 9252 energy communities across member countries, with significant differences between member countries. Half of these communities are concentrated in Germany, where 4848 communities are hosted. Similarly in the U.S., with data from December 2022, Such ventures exist in 44 states, with 17 states enacting legislation specifically for low-income community solar. Interestingly, almost 75% of the total market share is concentrated in just four states—Florida, New York, Minnesota, and Massachusetts. In both cases, these differences can be attributed to geographical factors and local legislation’s technicalities.
At a first glance, both the EU and the U.S. give to the residents the option of either switching to an energy provider that already owns a PV installation, or starting or participating in a joint facility project. However, in the EU, energy communities have greater legislative support and the possibility of citizen participation in the management of energy resources, while in the U.S. the market is more focused on private providers, limiting opportunities for direct citizen participation in the decision-making process. Therein lies the question of democratization. Citizens’ choice between two energy products from an already established market provider does not make the energy democratic. Firstly, this way, any degree of community involvement is bypassed. The communities have no say in the management decisions of the installation, but even in the case of surplus energy, its sale is undertaken directly by the company. Moreover, the price of renewable energy that subscribers pay includes the company's profit percentage, thus leaving low-income households out of the transition.
When the social factor is introduced, it becomes apparent that low-income households may find it more difficult to invest in such ventures upfront. On the other hand, subscriptions to already established providers of the electricity market may initially be more appealing, however, in the long run we know that the more economic actors are in a position to produce energy, the lower the prices will be kept. As we are approaching the deadline for the Agenda 2030, it is imperative that the community has a say in managing the photovoltaic installation and that this management is done in a democratic way. Of course, this also necessitates a clearly defined legal framework to ensure that the energy transition will be inclusive for humans and to avoid disrupting ecosystems.
Policies that could enhance participation, leaving no one behind can create the right incentives for the formation of new “energy” or “solar” communities. Legal incentives can facilitate the establishment of such communities and provide the operating frameworks that will ensure transparent operations and the just allocation of the shares. Then, through fiscal policy, financial assistance can be given to low-income households exclusively for investing in such communities. For instance, in 2018, the state of Illinois introduced the Long-Term Renewable Resources Procurement Plan. This initiative allocates over half of the state's resources designated for renewable energy initiatives to support community solar projects.
Energy communities can play a pivotal role in leading the energy transition. The challenge concerns the vulnerable citizens, trapped in energy poverty, not to be left behind, but all households benefit from having access to cheap and clean energy. Energy communities can serve as a pathway toward achieving this objective, if they succeed in the inclusion of low-to moderate-income stakeholders at the policy design table.