1. Introduction
The emergence of local energy systems in Europe is changing who owns, generates and distributes energy. Citizens are transitioning away from being passive consumers and taking an active role as prosumers and co-owners of distributed energy systems [
1]. Active participation in renewable energy and prosumership are cornerstones of a successful energy transition. Community Renewable Energy (RE) initiatives offer multitudes of benefits—they democratize the energy transition [
2,
3], maximize the consumption of locally produced clean energy at lower prices, and can reduce grid stress by aggregating the potential of individuals to offer demand side management.
Historically speaking, community energy initiatives have displayed immense diversity—in terms of the organizational structures used, technologies deployed and areas of activities [
2]. The European Union (EU) attempted to homogenize this diversity and offer a regulatory framework for such initiatives, leading to the two definitions of Energy Communities—Renewable Energy Communities (RECs) under the Renewable Energy Directive (RED II) [
4] and Citizen Energy Communities (CECs) under the Internal Electricity Market Directive [
5]. This article focuses on RECs which are entities entitled to produce, consume, store, sell and share renewable energy. RECs can participate in energy markets directly or through aggregators and can enjoy favorable conditions under enabling frameworks to be developed by all Member States [
4].
Germany offers ideal conditions as a ’regulatory sandbox’ to test the next stage of growth of community energy projects under the new regulatory frameworks. It has been a pioneer of the European energy transition since the 1990s and has a strong movement of community energy projects due to a favorable regulatory landscape and intrinsically motivated citizens [
6,
7,
8]. In 2019, Germany had over 1700 community energy projects,—the highest in the EU [
2,
9], and these initiatives collectively formed the 14th largest energy retailer in Europe in 2016 [
10]. The country also offers untapped technical potential for prosumership: 3.8 million apartments are found to be suitable for PV installations [
11] and the unused rooftop area suitable for PV installations is estimated to be 89%; the potential for facade installations is even higher [
12].
In terms of regulatory provisions, Germany has not fully transposed the latest directive on RECs in the national laws. Currently, the possibility for RECs in Germany is under the Tenant Electricity Model (Mieterstrommodel) within the Renewable Energy Sources Act 2021 (EEG 2021) [
13]. Under this model, landlords or third parties can install PV panels in the multi-apartment buildings (with greater than 40% area dedicated to residential uses) and supply the tenants with the electricity generated [
11]. The landlord is free to supply the excess electricity to residential or ancillary buildings in the neighborhood, provided the public grid is not used or can feed it to the grid [
13,
14]. To incentivize participation in the model, the self-consumed electricity is exempt from all surcharges and the landlords receive a bonus (called Landlord Bonus or Tenant Electricity Surcharge) to compensate for the additional administrative costs. The Tenant Electricity Model can technically produce 14 TWh of additional renewable electricity across 3.8 million apartments [
11]. Despite the high technical potential and availability of incentives, only 1% of the budget for the Tenant Electricity Model had been used up by 2019 and 30 MW of systems installed, remaining significantly below targets [
11,
15]. Since tenants do not own any RES, do not interact with each other and remain passive consumers within this model, it does not comply with the RED II. However, it is worth testing the provisions on a potential REC to explore the reasons for the slow uptake of Tenant Electricity.
Community energy initiatives and collective prosumership have been well-researched in the scientific literature; however, these studies tend to focus on specific disciplines, e.g., energy, economics, regulatory, or social. Caramizaru and Uihlien [
2] studied the regulatory provisions for RECs and identified the benefits of RECs for stakeholders and the energy system. Lowitzsch et al. [
16] studied the regulatory and governance criteria for RECs; and found that only 9 of the 67 met all the governance criteria of RED II and recommended that ‘enabling frameworks’ be designed to encourage the inclusion of a variety of actors and RE technologies in RECs. Guidelines to develop such enabling frameworks were offered in [
17] with a special focus on the inclusion of low-income consumers in the collective prosumership project. Fleischacker et al. [
18] researched the economic and ecological impacts of forming an energy community in Austria and concluded that forming energy communities could lead to a reduction in system costs and Greenhouse Gas (GHG) emissions but these were inversely related, that is, minimum systems costs were accompanied by maximum GHG emissions and vice versa. Moncecchi et al. [
19] developed a techno-economic model for energy sharing within an energy community in Italy and assessed the overall feasibility of the project and the impact of financial incentives on the Net Present Value (NPV) of the project. They concluded that systems based on only energy production had higher NPV than those based on self-consumption and energy sharing. Azarova et al. [
20] looked at energy communities in Germany, Austria, Italy and Switzerland from a social perspective to conclude that choice of RE influenced the social acceptance of initiatives, with energy communities based on PV and power-to-gas technologies enjoying higher acceptance across the nations compared to other technologies. Horstink et al. [
21] studied organizational structures of community energy projects across nine European nations to find that the selection of the organizational structure was based on the available legal forms and access to support and subsidy schemes in the country. Lowitzsch [
16,
22,
23] looked at the organizational and financial aspects of RECs in the Czech Republic, Germany and Poland to demonstrate the Consumer Stock Ownership Plan (CSOP) as an emerging but viable model for tenants to collectively invest in and co-own renewable energy and energy efficiency projects.
While energy communities and adjacent topics have been extensively researched across one or two disciplines as discussed previously, integrated and multi-disciplinary studies on RECs are lacking. We address this gap by assessing a potential REC in Germany across multiple disciplines including regulatory, organizational, technical, economic, and ecological aspects. A mixed-use neighborhood which is currently under construction within the German city of Kaiserslautern is used as potential REC to answer the following research questions (RQs):
- RQ1
How could a Renewable Energy Community (REC) be organized and financed to be compliant with the governance criteria set out in RED II?
- RQ2
What are the benefits of forming a REC and is such a project economically feasible?
- RQ3
Which regulatory provisions act as enablers for the development of RECs and which act as barriers?
Paper Structure
This article is the second in a two-part paper on RECs as modes of collective prosumership. In the first part [
24], a replicable model for assessing RECs was introduced. The model offers an evaluation suite from a technical, economic and ecological perspective. In this article, the assessment framework, including the modeling method, is applied to a real-world German demonstration district. The study is organized as follows:
Section 2 describes the methods used for the multi-disciplinary assessment of RECs and the framework and modeling method applied.
Section 3 gives details of the potential REC used as a case study while
Section 4 describes the different use cases and scenarios of prosumership analyzed.
Section 5 presents the results of the assessment of the potential REC.
Section 6 discusses the regulatory barriers and enablers for RECs and reflects on the limitations and areas of future research.
Section 7 concludes the study.
5. Results
The results section presents the different dimensions of the REC Assessment model, starting with a general part on the organizational perspective (
Section 5.1) and the overall energy demand (
Section 5.2) of the demonstrated REC. It is followed by a scenario-specific view on the outcome of the simulated scenarios as described in (
Section 3.2) with regard to energy self-consumption (
Section 5.3), greenhouse gas reduction (
Section 5.4), cost reductions from the consumer perspective (
Section 5.5) and NPV from the REC-OC perspective (
Section 5.7).
5.1. Organizational Structure
The organizational structure of the REC imagined within the EnStadt:Pfaff project is designed using the RE-CSOP due to its comparative advantages over traditional German energy cooperatives. The step-by-step formation of REC Pfaff is depicted in
Figure 3. In the first step, all the consumers of the Pfaff neighborhood form a trusteeship and elect a trustee to be a shareholder on behalf of the consumers and to represent their interests in the REC. Each tenant of a rental unit contributes a small monetary amount (10% of the initial investment which equals 120€ in the specific case) as a one-time investment into the REC. The trustee, together with other co-investors (landlords, municipal utility, other SMEs), forms the REC Pfaff (Box in Step 2). The trustee and co-investors together set up an intermediate entity to operate the REC (Step 3). This “REC Pfaff Operating Company” (REC-OC) is owned by the investors in proportion to their shareholding. For illustration, it has been considered that the trustee uses the contributions from tenants to contribute 10% of the investment needed as equity while 90% of the investment is funded by a loan. The loan is attributed to the trustee and co-investors in a 60:40 ratio. As a result of this setup, the tenants collectively own 64% of the REC and co-investors collectively own the remaining 36%, thereby fulfilling the criteria for autonomy and effective control as defined by the RED II.
The REC-OC raises a loan from the bank (Step 4) and invests it in PV systems on the buildings (Step 5). The REC-OC acts as a retailer and signs supplier contracts with the consumers in the buildings. It operates the PV assets and supplies PV-generated energy to the consumers (Step 6), who have now become prosumers, in return for a monthly tariff (Step 7). It sells any excess generated energy to the grid in return for a feed-in tariff or directly to the wholesale market once the period to avail of the feed-in incentive is over. Lastly, it purchases any energy needed to meet the demand that is not met through the PV.
The REC-OC uses the payment from selling the electricity to pay back the loan to the bank (Step 8). Once the loan has been repaid and the investment has recouped itself, the REC-OC can share any profits generated with the members of the REC, either as dividends (Step 9) or by further reducing the community electricity tariff. Other forms of returning the profits to the community can also be considered, for instance, using the profits to reinvest in solar panels reaching the end of life, to set up additional PV systems or even invest in energy efficiency to make the neighborhood even more sustainable and energy independent over time.
This setup leads to a few other advantages beyond the ones mentioned in
Section 2.1. Tenants may not want to invest in RE ventures because they may not accrue the benefits if they leave the neighborhood before the investment pays off. However, under this organizational structure, tenants can be members of the REC with minimal upfront investment and can easily transfer their shares within the trusteeship to the next tenant. A two-tiered structure means that the decision making is simple for non-prosumer co-owners (i.e., municipal utility and landlords) who only interact with the trustee (and not multiple prosumer co-owners) for day-to-day decisions. The REC enjoys collective leverage to raise one loan instead of multiple micro loans. Lastly, having the Municipal Utility as part of the REC-OC brings operational expertise to the REC [
16]. For the (development) bank, the two-tier system is advantageous as it cuts transaction costs of offering loans. Instead of providing small loans to individuals, the banks are able to offer a single loan that is secured against the value of the PV assets and the future earnings of the project. The organizational design of REC Pfaff using the RE-CSOP offers an innovative alternative for consumer co-owners to organize community energy projects in the future in full compliance with the RED II.
5.2. Energy Demand and Generation
The energy demand of REC Pfaff amounts to 6.8 GWh/a (see
Table 1 total annual consumption including EVs). A total of 95% of this demand is attributed to the buildings (of which 77% is from offices, 12% from residential and 11% from commercial buildings) while 5% of the demand is for EV charging. REC Pfaff generates 3.9 GWh/a of PV energy. The community produces PV for 4300 h in a year with the PV generation exceeding the load (in kW terms) for 1700 h. Both the energy demand and the PV generation in the REC vary with the time of day and the season of the year. The daily and seasonal variability of energy demand and PV generation is shown in
Figure 4.
One can see that the load matches consumption well during the workdays resulting in a self-consumption share of the REC (SSS) of 66% compared to 49% during Sundays. This is mainly due to the high number of offices and commercial units within the community. Working hours go well in line with daylight hours, which leads to a natural match of production and consumption without the need for energy management. During Sundays and public holidays, the energy consumption share by offices is reduced and the match is less pronounced. Naturally, during winter time, less PV production occurs, leading to a higher PV self-consumption share (+34% increase), while the self-sufficiency share is lower (−40% decrease) compared to the summer period. The seasonality of the load is less pronounced due to the installation of a high-temperature district heating system in the neighborhood which excludes the possibility of power-to-heat sector coupling for this particular community.
5.3. Increase in Self-Sufficiency Share (SSS) and Self-Consumption Share (SCS)
A major benefit of prosumership is that the REC can reduce its dependence on the grid. As
Figure 5a shows, the Base and No Prosumership use cases have the lowest SSS (0%) and are fully reliant on the grid. The Full Prosumership use case leads to the highest SSS of 35.1% with flexibility, followed by 34.4% without flexibility. The Partial Prosumership and Tenant Electricity use cases offer an SSS of 28.8% with flexibility and 28.4% without flexibility.
A similar trend is seen in SCS: the Full Prosumership use case makes the highest utilization of locally generated PV energy, having an SCS of 61.2% when flexibility is offered and 60% when no flexibility is offered. The Partial Prosumership use cases (including the Tenant Electricity Model) lead to an SCS of 49.5–50.2%, with the excess energy being supplied to the grid. The Base and No Prosumership use cases do not consume any of the PV energy generated and have an SCS of 0%. The flexibility offered through demand response has only a minor impact on the SSS and SCS of REC Pfaff since EV charging only accounts for 5% of the overall load.
With regard to the KPIs of the different actors: for the electricity utility, half the PV energy can be sold locally under Partial Prosumership. An additional 10% can be sold locally through energy sharing, making this the most attractive option. For the tenants’, the Full Prosumership is the most attractive option, by supplying 35% of their demand themselves.
5.4. Reduction in GHG Emissions
By pursuing prosumership and consuming locally produced GHG-neutral energy, REC Pfaff can avoid GHG emissions that would have resulted from consuming GHG-intensive electricity from the grid.
Figure 5b shows that the use cases without prosumership (Base and NP) have the highest GHG emissions of 2284 tons CO2eq per year. Pursuing Partial Prosumership under PP and TE use cases can reduce GHG emissions by 28.5%. Full Prosumership further cuts the GHG emissions down by 8.9%, offering an overall reduction of 35.2% reduction over the Base/NP case when offering flexibility and 34.3% without flexibility.
It is worth noting that REC Pfaff feeds excess PV energy to the grid, which can lead to the overall reduction in the GHG emissions attributed to the German electricity grid. This impact from a single REC is negligible and not quantified but as RECs and other decentralized energy systems based on RES proliferate in the coming decades, the GHG emission factor of the German electricity grid will also decrease, making grid electricity less GHG-intensive. Overall, prosumership facilitates actual reduction in GHG emissions from electricity consumption.
5.5. Economic Viability: Overview on Money Flows
Before investigating the economic impact of REC Pfaff from a consumer (
Section 5.6) and an investors (REC-OC) view (
Section 5.7), a general overview of money flows and prices are given. In
Figure 6, the energy supply chain for 100 kWh of electricity is presented in green and the money flow in exchange for those 100 kWh is visualized in blue based on the total annual costs. For 100 KWh demand in the REC, 28.9 Kwh are self-consumed and 6.31 kWh are consumed from shared energy. The remaining demand of 64.87 kWh is supplied by the grid. Excess energy generated in the REC, amounting to 22.26 kWh is fed-in into the grid. For this 100 kWh consumption, the tenants pay 27.56 € to the REC-OC which distributes the money further: 3.16 € go to the DSO for grid usage and 19.54 € to the municipal utility for energy supply. After 4.06 € as taxes, the REC-OC ends up with a retailer margin of 0.79 €. In addition, the 22 kWh fed into the grid are remunerated with 1.35 € as an income of REC-OC.
5.6. Economic Viability: Cost Reduction for Consumers
An economic perspective for the consumers within REC-Pfaff provides useful insights to answer the question of whether the founding of REC makes sense from a financial view. Prosumership brings down the overall cost of energy consumption for prosumers, partly due to the reduced demand for grid electricity and partly due to the reduction in taxes and levies which are provided as incentives to encourage self-consumption of energy (see
Table A1).
Figure 7 shows the breakdown of energy cost under various use cases in descending order. The data includes fixed-cost components (€/a) and consumption-dependent components (€/kWh). To make the data comparable, all costs are summed up over the period of one year and divided by the annual consumption.
To showcase the cost savings, all the benefits of reduced costs are passed on to the prosumers. The higher the level of prosumership, the lower the cost of energy consumption. The average electricity price for the base case scenario is 29.15 ct/kWh. It decreases by 4% in the Tenant Electricity use case and 5% when Partial or Full Prosumership is followed. In all cases with prosumership, the root cause of the decline in energy costs is the tax component. This is because the self-consumption of energy is exempt from all taxes and surcharges. Further, energy consumed from the grid declines when going from No Prosumership to Full Prosumership. Due to the combined effect of reduced taxes and lower amounts of energy on which these taxes are applied, the tax component falls from 4.88 ct/kWh in the Base case to 4.08 ct/kWh under Partial and Full Prosumership use cases. A second cause of the decline is the grid cost. The labor cost component of grid usage cost depends on the amount of energy consumed from the grid. As a result, the Base and No Prosumership use cases pay the highest grid cost (3.94 ct/kWh) while the cases with self-consumption reduce these costs by 22% to 3.11 ct/kWh. While a cost reduction of 5% is only a small incentive to join such an energy community, another benefit of the described setup is price stability. Since about a third of the energy is consumed locally, this fraction of the energy supply is independent of volatility in market prices and energy imports.
5.7. Economic Viability: NPV of REC-OC
While RECs offer multitudes of benefits discussed previously, like higher self-sufficiency, lower energy bills for consumers and GHG emissions avoided, it is pertinent to see if investing in RECs is an attractive proposition for investors/lenders.
Figure 8 shows the NPV for REC-OC, for setting up and operating REC Pfaff, under different forms of prosumership. When all benefits of prosumership are passed onto the prosumers in the form of lower energy bills (green bars), the NPV of the REC is negative under all cases of prosumership, ranging from −3.0 M€ under Full Prosumership with an annual revenue between 276 k€ and 407 k€ to −0.6 M€ under No Prosumership with annual revenue between 303 k€ and 385 k€. This is because when all cost savings are passed onto prosumers, the overall revenues from operations of REC-OC and the applicable incentives (feed-in and tenant el. incentives) are not sufficient to recoup the initial investment within the project lifetime of 25 years. Alternatively, when the cost savings are not initially passed onto prosumers and are used to repay the loan faster (orange bars), the NPV of the project remains negative but within a smaller range: −1.2 M€ under Full Prosumership use cases, −2.5 M€ under Partial Prosumership and −0.5 M€ under No Prosumership.
One way for the project to break even within 25 years is by decreasing the variable supply costs charged to consumers by at least 20% (3.62 ct/kWh), specifically under Full Prosumership. The price decrease required to break even under other forms of Prosumership would be lower. Currently, RECs may be successful in attracting the interest of investors and can be economically viable through price decreases for consumers but may not be favored by tenants as they do not realize the immediate benefits of becoming prosumers and may even have to bear higher energy costs until the project breaks even.
7. Conclusions
In this paper, we investigate an existing neighborhood in Germany to evaluate how it can and should be organized as a Renewable Energy Community (REC). We look at compliance with the Renewable Energy Directive (RED II) as well as the ecological and economic implications of establishing a REC. Derived from our quantitative simulation results, we discuss which elements of the current EU and German regulation act as enablers or barriers for RECs. While our literature research demonstrated that a wide array of studies on specific RECs as well as papers looking at the regulatory aspects of RECs, there is a lack of studies looking at RECs from a holistic perspective involving their regulatory, organizational, technical, ecological and economic aspects simultaneously. The novelty of this paper is its contribution to closing this gap by undertaking an integral, multi-disciplinary assessment of a potential REC.
The study contributes to existing knowledge firstly by organizing and financing a REC that can be set up in a tenant-occupied, mixed-use urban district with a methodology that can be applied to similar neighborhoods. This is achieved using the emerging concept of Renewable Energy Consumer Stock Ownership Plans (RE-CSOPs), which are compliant with RED II and offer additional benefits over existing organizational forms of community energy initiatives, and therefore may become favored organizational structures for RECs across the EU compared to the traditional forms such as cooperatives.
Secondly, the study classifies collective prosumership into various use cases based on the activities pursued and differentiates the impact of regulatory provisions based on the degree of prosumership pursued.
Thirdly, we use a single, replicable model to assess the technical feasibility, ecological benefits and economic viability of pursuing prosumership through RECs. We find that collective prosumership through RECs offers a multitude of benefits to the citizens, local energy systems and the environment and the extent of these benefits varies with the type of prosumership pursued.
When compared to the Base Case, Full Prosumership (involving self-consumption and sharing of energy within the REC) offers the highest self-sufficiency (SSS of 35%) and GHG reduction of 35%, followed by Partial Prosumership (where the PV energy is self-consumed and the excess is fed to the grid), which offers an SSS of 28% and 29% GHG avoided. The lowest benefits are accrued from No Prosumership (where PV is generated only to be supplied to the grid). The benefits of RECs are not only limited to the prosumers but other stakeholders as well, e.g., by opening a new revenue stream for energy utility as an operator and service provider for RECs.
Lastly, we find that although Partial and Full Prosumership lead to energy bill savings of 5% for consumers compared to the Base Case, we find that the NPV for all use cases would be negative, leading to the conclusion that such projects will face challenges in attracting investments. A financial boost of 3.6 ct/kWh was found to be needed to become profitable. Anyway, RECs are envisioned as entities whose primary purpose is to provide environmental, economic or social community benefits for members or for the local areas where it operates, rather than financial profits [
4].
The EU and German regulatory frameworks were found to have several enablers that favor collective prosumership via RECs but are bogged down by several barriers. On the EU level, the RED II in its current form encourages self-consumption, whereas energy sharing is not defined. Establishing energy sharing would, however, allow future RECs to pursue Full Prosumership and realize its maximum benefits, which are higher than Partial Prosumership as shown by this study. At the German national level, the Tenant Electricity Model offers incentives to residential consumers to consume local green energy and save money simultaneously and has removed barriers that previously discouraged landlords from participating. However, by limiting participation to residential-dominated buildings and by forbidding the usage of the public grid when exchanging energy, the model discourages the formation of scalable RECs in mixed-use neighborhoods consisting of several buildings.