Implementation Models of RECs in Public-Private Partnerships: The Distribution of Risks and Benefits among the Participants in the Operation

Abstract

The aim of this work is to study possible models for the development of renewable energy communities (RECs) in public private partnership (PPP), aimed at supporting the transition of energy consumption of Italian public administrations towards renewable sources and the sharing of any energy-economic benefits with the community of reference. In particular, the research work analyses the correct balance of interests of the main protagonists of the operation: public concessionary authorities, private Concessionaire and the energy community as the subject that aggregates the interests of the reference community. Moreover, the work aims to highlight the main advantages and risks for each of the actors involved and examine in depth the system of rules and incentives that enhance the actors’ interest in these operations. The economic–financial balance of PPP operations has been investigated in order to quantify the residual economic benefits, after the amortization of the investments and the absorption of management costs. The results highlight that the sustainability of the investments for REC establishment is achieved only under certain conditions with rather modest returns and, in some cases, with the necessity of public capital contributions.

1. Introduction

The European Union is heavily focused on the energy sector, allocating significant resources to develop coordinated energy policies and implement measures to tackle the sector’s challenges and opportunities. A key component of this regulatory framework is the “Clean Energy for All Europeans” package, a series of laws proposed by the European Commission in 2016 designed to promote renewable energy and energy efficiency across the European Union. The primary objective of this package is to establish a more sustainable, competitive, and secure energy system for all European citizens.

According to Wierling A. et al. [1] citizens are engaging in different ways in renewable and low-carbon energy projects, thereby contributing to the sustainable energy transition. Within this regulatory framework, the RED II Directive [2] is of significant importance, setting binding targets for the share of renewable energy in the European Union by 2030 and promoting measures to facilitate the self-consumption of energy produced from renewable sources and the development of Energy Communities. In Italy, the RED II Directive is fully implemented through Italian Legislative Decree 162/2019 [3] and Legislative Decree 199/2021 [4], which have become key reference points in the energy sector.

In recent years, Italian legislators had a considerable commitment to supporting the creation of Renewable Energy Communities (RECs) [5]. In Italy, there are currently around 198 active communities, with many more in development. The “Electricity Market Report” [6] published by the Polytechnic University of Milan predicts that approximately 10,000 RECs will be implemented within the next five years. Despite growing interest from citizens, businesses, and the state regarding RECs, and despite encouraging estimates, surveys reveal modest numbers: only 13% of citizens and 32% of businesses are aware of and understand the topic of RECs, even though about 60% of citizens and 56% of businesses are willing to participate as main actors [7,8].

Numerous research works [9,10,11,12,13] and studies conducted by Italian institutions such as Legambiente and Unioncamere [14] indicate insufficient information provided to citizens and others regarding the risks and benefits as well as the establishment process of energy communities. Generally, citizens could benefit from better information about economic and environmental advantages and risks for the members of REC [15]. Therefore, one of the most significant issues for spreading RECs is related to the information available to potential community members about the implementation method [16], realization timelines, the extent of the expected investments, and the legal and economic convenience aspects of participating in an energy community [17].

An energy community is a legal entity characterized by the absence of profit, with general objectives aimed at ensuring environmental, economic, and social benefits for the community and beyond, but not predominantly financial [18]. According to Persico A. [19], the model of RECs significantly differs from previous schemes related to energy production and sales; the regulation of RECs only requires the availability of production facilities within the community, while the formal allocation of energy to the RECs, a private law entity, seems to be a fictio iuris.

The legal and procedural aspects related to the establishment and management of energy communities are outlined in Legislative Decree 199/2021, specifically in Article 31, which sets forth stringent and specific operational requirements for RECs. It also recognizes the right of end users to form energy communities, provided their aggregation does not have the sole and primary objective of financial profit but rather the self-consumption of energy. Despite the fact that the prerequisites for the establishment of energy communities are clear and detailed, the regulations concerning the formation of RECs or self-consumption groups are not so specific and exhaustive.

Thanks to several economic, social, and environmental purposes of RECs, these align perfectly with the “Triple Bottom Line” (TBL) framework introduced by John Elkington in 1994 [20], which addresses sustainability across different aspects and domains. This conceptual framework is based on three fundamental pillars:

(i)

Profit: the economic profile, which focuses on assessing the company’s economic sustainability and on its sustainable and enduring growth over time;

(ii)

People: the social profile, which considers the various social impacts of the organization’s activities, focusing on key aspects such as employee well-being, gender equality, and working conditions;

(iii)

Planet: the environmental profile, which evaluates the environmental impacts resulting from the organization’s activities.

In the literature, some authors connect the topic of energy transition to the TBL framework, including Liao Z. [21], who suggests that the TBL theory is commonly promoted as a method to assess sustainable development fairly and truthfully. Through a model based on the triple bottom line approach, in his study, Liao demonstrates the impacts and effects of choosing renewable energy production and consumption across economic, environmental, and social profiles, showing a positive correlation in all three fields considered.

The MASE (Italian Ministry of Environment and Energy Security) Decree [22] published on 14 February 2024 plays a crucial role in the potential significant development of RECs in Italy. This Decree aims to promote the establishment and development of renewable energy communities and self-consumption, outlining the procedures for incentivizing energy produced from renewable sources and setting the criteria and methods for allocating the funds provided by the National Recovery and Resilience Plan (PNRR).

The MASE Decree also aims to achieve all international decarbonization targets by 2030. The provision seeks to provide the necessary tools to achieve the set goals, which include significant measures to develop energy communities and self-consumption. Specifically, these are:

(i)

Capital grants provided by the Public Administration;

(ii)

Premium Incentive Tariff (PIT) for the shared electricity amount;

(iii)

Contribution for the shared electricity from Italian Regulatory Authority for Energy, Networks and Environment (ARERA).

Shared energy is the energy that is simultaneously produced and consumed by community members.

Regarding the first point, the Decree ensures that RECs with a power plant capacity lower than 1 MW and located in municipalities with a population of fewer than 5000 inhabitants can obtain a capital grant equal to 40% of the eligible costs based on the investment value, funded by PNRR resources. This contribution applies to the expenses incurred for the realization of plants powered by renewable energy sources (RES), within the limits of the eligible expenses and the estimated maximum investment costs based on the size of the plants, namely:

• EUR 1500/kW for power up to 20 kW;
• EUR 1200/kW for power between 20−200 kW;
• EUR 1100/kW for power between 200–600 kW;
• EUR 1050/kW for power between 600–1000 kW.

Regarding the PIT, the Decree indicates that the total tariff is composed of a variable part and a fixed part. The amount of the variable part varies according to the market price of energy, ranging between 0 and EUR 40/MWh of shared energy. The fixed part of the incentive rate varies according to the size of the plant, so the MASE Decree specifies that the PIT value is:

• EUR 60/MWh + max (EUR 0; 180/MWh-Pz) and Max. EUR 100/MWh for power greater than 600 kW;
• EUR 70/MWh + max (EUR 0; 180/MWh-Pz) and Max. EUR 110/MWh for power between 200 kW and 600 kW;
• EUR 80/MWh + max (EUR 0; 180/MWh-Pz) and Max. EUR 120/MWh for power less than 200 kW.

where Pz represents the variable part of the PIT, corresponding to the zonal price of electricity.

Regarding ARERA contribution, this is equal to EUR 10.7/MWh of shared energy, and it corresponds to the variable tariff for the high voltage Italian transmission grid.

Providing substantial public economic incentives for RECs establishment is a delicate and important public policy choice. Past experiences with other forms of incentives (e.g., for building renovations) have made the mistakes to avoid when dealing with the delicate issue of project promotions clear. In this case, projects related to the energy transition to renewable sources require incentives that enable the balanced development of these operations. Therefore, it is necessary to adequately evaluate the overall economic and financial balance of these operations to avoid speculative transactions that could distort the market.

The promotion of energy communities has been implemented differently in the various member states of the European Union and in the United Kingdom and Denmark. In the last two countries, it has been implemented through energy planning that limits the ownership of renewable plants to local actors and with tax exemptions. In Germany and Scotland, privileged access to loans is provided from specific government funds. In France, electricity produced by crowdfunded plants is encouraged. In Greece, the promotion take place through virtual net metering in local communities, with the involvement of municipalities in the fight against energy poverty. However, the conditions where the REC model is more likely to succeed is a balanced and moderate public support able to ensure the affordability of REC’s investments, reaching the breakeven between expenses and revenues in a few years then generating additional economic benefits in the long term for the investors (citizens or firms) [A]. Public support can manifest in several ways, such as incentives on the energy produced and consumed, privileged loans, tax exemptions, etc.

The incentive must produce positive effects that would not occur in its absence; if the market could independently support investments towards the energy transition, there would be no need for public incentives. This is particularly true when the project manufacturer/user is a Public Administration (PA) [23].

The establishment of a public energy community is, therefore, a complex activity that requires studying not only economic, but also risk–benefit balances, outlining efficient and effective implementation models. In this context, public–private partnership (PPP) mechanisms for the realization of RECs will be examined.

1.1. RECs and PPP Models

The PPP can be defined as a contract where public entities stipulate with private entities a long-term contractual agreement for the construction or management of the public infrastructure, or for the provision of services (using infrastructural facilities) by the private body to the community on behalf of the public authority [24]. According to Suđić et al. [25], the PPP unites the public sector and the private sector through long-term contracts, encompassing agreements and voluntary agreements aimed at regulating the provision of services, outsourcing, and private finance initiatives [26].

As observed by Carbonara N. et al. [27] and Martiniello L. et al. [28], in recent years, PPP has met with ever-increasing popularity, and its essential characteristics suggest that it could be an effective operational model for the establishment of a renewable energy community of public nature. They also consider PPP a win–win alternative for implementing projects focused on energy efficiency, as it ensures a beneficial and balanced situation for the main players in energy efficiency projects in the case of energy performance contracting (EPC).

The establishment and subsequent management of RECs through partnership operations can occur through public initiative. This does not significantly impact the broader goal of the community, but affects the roles played by the main stakeholders. In this REC configuration, the promoting entity is the public entity, which facilitates the community’s creation through calls for tenders and/or expressions of interest.

The granting public authority acts not only as the promoter of the initiative, but also as a prosumer, meaning it is both a producer and consumer of the energy. This is achieved by making public lands and surfaces available, for which the Concessionaire will pay an availability fee on which the REC’s plants are installed.

However, the Concessionaire become neither a member of the community nor a consumer of the produced energy. In this case, the REC members are represented by the granting public entity and all the private parties who join in its establishment. Finally, there could be a situation where the energy producer is a third party external to the concession relationship; in this case, for the REC configuration, the plants must still be available to the community. The third-party producer must supply the produced energy to the REC and not to other entities, to achieve the goal of widespread self-consumption.

In practice, two possible implementation models of public RECs in PPP are emerging and will be analysed. In this work, they are referred to as:

• Cold Operation REC Model;
• Hot Operation REC Model.

The authors have chosen to name the two models using the technical terminology typically used in economics for similar models.

1.1.1. Cold Operation Model

The first model under analysis, called “Cold model”, is a PPP scheme where the main user of the energy services is the public administration, which pays the Concessionaire an availability fee that includes the amortization of the invested capital and the maintenance-management services provided by the Concessionaire. The PA directly uses the renewable energy plants manufactured by the Concessionaire on public surfaces, with direct self-consumption based on its point of delivery (POD).

1.1.2. Hot Operation Model

The second model under analysis, called “Hot model”, is the implementation of a PPP scheme where the main user of the energy services is the public administration and the Concessionaire repays the investment made through the economic exploitation of the project, for instance selling for his profit the energy produced by renewable energy plants built on public surfaces.

2. Methods

This work employs a qualitative methodological approach through the analysis of a case study. The adoption of this methodology was preferred due to the novelty of the topic and the need to examine initial concrete experiences. The study includes a desk analysis of primary data such as articles, already-signed contracts, public documents, and other information. By collecting such information and data, the aim is to understand the main risks and benefits of these operations, focusing on the possibility of fairly balancing the interests of the private body implementing and managing the REC, the granting public administration, and the citizens participating in the REC.

In the second part of the work, through the mechanism of economic–financial simulations based on data from a real case, the Delta Energy Community (a fictitious name for privacy reasons), the economic–financial balance of a typical PPP operation involving the creation and management of a small REC will be explored. The objective is to quantify the economic benefits that can be allocated to the community after fairly remunerating the investments and management costs.

In particular, the work addresses three main research questions:

• Q1: What is the distribution of risks and benefits among the public Grantor, private Concessionaire, and the renewable energy community (REC) in different PPP models of REC?
• Q2: Are the PPP models of REC sustainable and economically–financially balanced after utilizing energy incentives?
• Q3: What are the residual economic benefits, after amortizing the investments and covering management costs, that can be allocated to the reference community and contribute to reducing energy poverty?

In this paragraph, the authors answer the three questions proposed above.

2.1. Distribution of Risks and Benefits in PPP REC Models

The “green call” in the energy sector is relevant now more than ever with the development of numerous energy community projects, both public-driven between local administrations and citizens and entirely private. As seen, according to the commitments made in the European Agenda 2030, Italy must increase its share of renewable energy in electricity demand to 65%. This goal still seems quite distant, although it is growing strongly compared to the past, with the percentage of electricity from renewable sources at 36.8% in 2023 [29].

For a proper balance of interests among the parties, it is necessary to clearly outline the expected risks and benefits for the three actors in the operation:

⮚

Public administration benefits:

(i)

Contribute to the energy transition by shifting its energy supply sources from traditional to renewable sources.

(ii)

Achieve savings on energy bills. This second benefit should be secondary to the first as it is not the main purpose of the intervention, but an additional effect.

⮚

Concessionaire benefits:

(i)

Obtain a fair return on the invested capital.

⮚

REC benefits:

(i)

Benefit from the Premium Incentive Tariff (TIP), of which it can be the sole beneficiary, to redistribute this value to the community.

(ii)

Contribute to the fight against energy poverty with targeted interventions.

(iii)

Contribute to greater democratization in energy consumption.

As a result of these benefits, depending on the implementation model used, the three Actors (REC, PA; Concessionaire) take on the following risks:

• Construction Risk: This is the risk related to adhering to the timelines and costs specified in the contract. Specific penalties are applied in case of non-compliance.
• Monitoring and Reporting Risk: This is the risk arising from incorrect management and reporting of energy values. Non-payment of incentives and contributions could be the results of such non-compliances.
• Demand Risk: This risk stems from macroeconomic trends in the shared energy market due to possible price fluctuations for the amount of energy sold.
• Availability Risk: This is the risk of the Concessionaire, who, in the event of insufficient maintenance of the plants, would face automatic penalties reducing the fee received from the public administration, in terms of both services and investments.
• REC Risk: This risk arises from the possibility given to the REC members to withdraw from the community at any time

Table 1. Risks and benefits of each actor in “Cold” and “Hot” operation REC models.

RISKS		Cold Operation REC Model			Hot Operation REC Model
		PA	Concess.	REC	PA	Concess.	REC
Construction Risk	Specific penalties are applied in case of non-compliance.
Monitoring and Reporting Risk	Non-payment of incentives and contributions due incorrect management and reporting
Demand Risk	Risk from price fluctuations of energy sold
Availability Risk	Fee reduction from the PA due to insufficient maintenance of plants
REC Risk	Withdraw of some attendees from REC
BENEFITS		PA	Concess.	REC	PA	Concess.	REC
Energy transition	Renewable Energy contributes to the fight against climate change by reducing CO2 emissions
Fight agaist energy poverty	Reducing social inequality caused by low incomes and high energy prices
Energy cost saving	Self-consumption reduces energy expenditure
Premium Incentive Tariff (PIT)	Economic incentives support the increase in energy production from renewable sources

assigns benefits and risks to each involved actor, differentiating them according to the model used and providing an immediate representation of the allocation of risks and benefits among the parties.

Answering to Q1, the analysis shows that, in both scenarios, the typical risks of PPP operations are present, defined as: construction, monitoring, and availability risks. However, the allocation of demand risks differs between the two models. In the hot operation model, the Concessionaire bears the demand risk related to the sale of the energy produced by the REC plants. In the cold operation model, differently, the demand risk remains to the Public Administration. Since the PA owns the POD and the energy sold, it also bears the risk related to the fluctuations in the sale price of the energy (so-called RID—Ritiro Dedicato: dedicated withdrawal) to the GSE (Italian Manager of Energy Services).

On the other hand, in the cold operation model, the REC risk is shared between PA and the REC. In this case, there is a direct relationship between these two actors, since part of the incentives produced by the REC must be retroceded to PA to pay the availability fee to Concessionaire. Conversely, in the hot operation model, the REC risk is shared between the Concessionaire and the REC, as the REC directly retrocedes to the Concessionaire the agreed-upon premium tariff portion aimed at supporting the financial sustainability of operation.

Regarding the benefits, in both models, the public administration is the main beneficiary, obtaining the change of energy supply source (renewables vs. traditional sources), the reduction of energy bills and the possibility of obtaining some revenues aimed at the fight against the energy poverty. Various choices can then be made regarding the allocation of the incentive (PIT) among the parties, provided that a portion of the incentive remains with the REC.

2.2. The Economic–Financial Balance in the Cold and Hot Operation Models

The present paragraph seeks to answer to the question Q2:

“Are the PPP models of REC sustainable and economically-financially balanced after utilizing energy incentives?”

2.2.1. The “REC Cold Model”

Characteristics and Risks of the Operation

In this model, the PA installs renewable energy plants on public buildings and directly uses the energy produced through its own “POD”, which is the connection to the electricity grid. The private partner (Concessionaire) acts as the manufacturer and manager of the plants, which are manufactured on behalf of the PA and repaid over the life of the concession through an availability fee that includes a share for services.

Simultaneously, the PA promotes the establishment of a REC and transfers the availability of the energy produced and not directly self-consumed for shared consumption with the community (citizens/businesses that decide to join the REC mainly as consumers).

Specifically, the PA obtains the following economic benefits in terms of cash flow:

• Direct savings on the energy bill due to energy self-consumption;
• Sale of energy to GSE through the RID at market prices;
• Possible amount as part of the PIT benefit in order to ensure the amortization of the investment without costs for the PA.

In this scenario, the PA, in addition to assuming the obligation to pay an availability fee, bears the following risks:

REC Risk: the risk that the REC is inefficient in shared consumption processes, preventing the reduction in the shared energy amount.

• Energy demand risk: the risk that the price of energy sold (RID) decreases due to market fluctuations.
• The Concessionaire assumes the following risks:
• Construction risk due to the efficient and effective construction of the renewable energy plants within the agreed-upon time and costs with the administration at the time of the bid/concession award.
• Monitoring and reporting risks due to the contractual obligations of managing and reporting the energy produced and consumed by PA and the REC. Correct monitoring and reporting to the GSE is necessary to obtain the PIT and optimize the consumption by the PA and the REC.
• Availability risk: related to the proper maintenance and management of the installed plants, under penalty of significant and automatic penalties reducing the fees paid by the PA in case of unavailability (or underperformance) of the plants.

Economic–Financial Balance

The following economic–financial analysis is based on data from a real case and aims to understand whether:

(A.1)

There are conditions of economic–financial balance and sustainability of the operation in the absence of upfront public contributions.

(A.2)

There is an amount of the premium incentive tariff (PIT) that the REC should retrocede to the PA in order to ensure the economic–financial balance of the operation for a private operator (Concessionaire).

For simplicity, a threshold of an internal rate of return (IRR) value of 6% is considered as the minimum acceptable “fair” return for a private investor to evaluate the sustainability of operation.

The main input variables are as follows:

• Concession duration of 20 years, consistent with the duration of the incentives.
• 4 photovoltaic plants for an overall power equal to 159 kW (each PV plant has a peak power lower than 200 kW). Photovoltaic plants are located in central Italy.
• Investment quantified at 208.000 as the maximum price allowed by MASE decree (eligible costs).
• Management costs equal to approximately 6% of the investment value, amounting to EUR 12,933 per year (ref. year 2024) and broken down into the following categories: plant maintenance, plant insurance, auxiliary plant consumption, surface rights, and administrative costs.
• Financial structure debt/equity ratio of 50:50 and interest rate on debt of 5%.
• CAP: 55% of PIT is given by REC to the Concessionaire (CAP: 55% is the maximum percentage value of PIT that the legislation allows to be used to support the expenses for the PV plant manufacturing).
• 45% of PIT is divided equally between REC and PA to ensure the sustainability of operation for the PA without additional costs to the its budget.

Other assumed parameters are summarized in the

Table 2. Input values employed in the analysis in “cold scenario”.

Abbrev.	Item	Unit	Value
PVpro	Annual energy production per KW	MWh/Y kW	1.20
Epro	Annual energy production	MWh/year	190.40
%cons	Direct self-consuming percentage	%	20.00
Esav	Energy self-consumption	MWh/year	30.08
Pcons	Price of purchased energy by consumer	€/MWh	300.00
Esold	Energy sold	MWh/year	152.32
RID	Energy price for seller	€/MWh	100.00
PIT	Premium incentive tariff	€/MWh	124.00 *
ARERA	ARERA contribution	€/MWh	10.57

* According to the Italian MASE Decree, EUR 4 is added to PIT for PV energy production in central Italy.

.

The annual energy production per KW (PV_pro) is the average value referring to production in locations in central Italy based on a PVGIS (Photovoltaic Geographical Information System) [30] source. P_cons and RID are data relative to Italy and provided by ARERA. The value of %_cons was chosen by the authors as a minimum percentage of direct self-consumption in a residential context.

2.2.2. The “REC Hot Model”

Characteristics and Risks of the Operation

In this model, the Concessionaire manufactures the renewable energy plants on public properties, granting the public administration a surface right. The Concessionaire directly utilizes the produced energy through its own “POD”, or connection to the electricity grid. Thus, the Concessionaire sells the energy at the average zonal price for the amount of energy produced, subject to efficiency loss.

Specifically, the Concessionaire assumes all risks previously illustrated in the “cold plant” scenario, in addition to the energy demand risk, i.e., the risk that the energy selling price decreases due to market fluctuations.

Economic–Financial Balance

The following economic–financial analysis is based on the same input data used to illustrate the cold plant scenario, except for the absence of energy self-consumption (

Table 3. Input values employed in the analysis in “Cold scenario”.

Abbrev.	Item	Unit	Value
PVpro	Annual energy production per KW	MWh/Y kW	1.20
Epro	Annual energy production	MWh/year	190.40
%cons	Direct self-consuming percentage	%	0
Esav	Energy self-consumption	MWh/year	30.08
Pcons	Price of purchased energy by consumer	€/MWh	300.00
Esold	Energy sold	MWh/year	152.32
RID	Energy price for seller	€/MWh	100.00
PIT	Premium incentive tariff	€/MWh	124.00 *
ARERA	ARERA contribution	€/MWh	10.57

* According to the Italian MASE Decree, EUR 4 is added to PIT for PV energy production in central Italy.

).

3. Results

3.1. Results of the Cold Operation Model

Given the price variables shown in Table 2, the conditions for economic–financial balance (IRR = 6%) are achieved without costs to the public budget when PA transfers to the Concessionaire:

• 100% of the value of the energy sold.
• 73% (%_con,conc) of the savings achieved through self-consumption (%_cons).

where %_con,conc is the percentage of the savings achieved through self-consumption (%_cons) conceded to the Concessionaire.

When the REC efficiency (REC_eff) is equal to 96%, REC_eff is the ratio between the shared (incentivized) energy and the energy to the power grid.

In detail (Table 3), the Concessionaire absorbs EUR 33,583 to cover the costs of manufacturing and maintenance of the plants in the form of an availability fee when the expected total revenues is EUR 46,335 per year i.e., 72% of economic benefits has to be assigned to the Concessionaire.

Table 4. Cash flows and economic benefits in “Cold scenario”.

	Total	Concessionaire	PA/Granter	REC
	EUR/Y	EUR/Y	EUR/Y	EUR/Y
COST SAVINGS	11,424	8378	3046	0
RID	15,232	15,232	0	0
PIT	18,133	9973	4080	4080
ARERA	1546	0	773	773
TOTAL	46,335	33,583	7899	4853
COST SAVINGS	100%	73%	27%	0%
RID	100%	100%	0%	0%
PIT	100%	55%	22.5%	22.5%
ARERA	100%	0%	50%	50%
TOTAL	100%	72.5%	17.0%	10.5%

(REC_eff.: 96%; %_cons = 20%; PV_pro: 1.2 MWh/kWp, %_cons,conc = 73%).

shows the cash flows and economic benefits for each participant in the cold operation.

The remaining amount is shared between the PA and the REC. The PA could retain an additional percentage of the premium tariff and contribution, bringing its economic advantage to EUR 7900, while the REC would obtain a benefit of approximately EUR 4800 in the form of PIT and ARERA contribution.

Table 5. Profitability indicator of project with “Cold operation”.

Profitability Indicators	Values
IRR	6.00%
WACC	5.15%
NPV	€14,603

(REC_eff.: 96%; %_cons = 20%; PV_pro: 1.2 MWh/kWp, %_cons,conc = 73%).

presents the profitability indicators of the operation, assuming a capital cost of approximately 5.15%.

The economic results shown in Table 4 are obtained as the best scenario based on the parameters given in Table 2 and varying other main parameters. Economic analyses have been carried out varying the photovoltaic producibility (PV_pro), the percentage of self-consumed energy (%_cons), and the REC_eff.

The following values have been considered in relation to the variation in PV_pro [30]

• 1.1 MWh/kW as reference value for northern Italy (PIT = EUR 120/kWh + EUR 10/kWh)
• 1.2 MWh/kW as reference value for central Italy (PIT = EUR 120/kWh + EUR 10/kWh)
• 1.3 MWh/kW as reference value for south Italy (PIT = EUR 120/kWh)

Additional values of %_cons of 20%, 30%, and 50% and REC_eff values of 50%, 60%, 70%, 80%, 90%, and 100% have been investigated. The respective profitability indicators obtained are shown in

Table 6. Profitability Indicator of project with the “Cold model” with different values of PV production, REC efficiency and percentage of self-consumed energy (%_cons,conc = 73%). The green cells indicate IIR values over 6% and the yellow cells indicate IIR values less than 6% with positive NPV.

%cons	20%			30%			50%
PVpro	1.1	1.2	1.3	1.1	1.2	1.3	1.1	1.2	1.3
RECeff	50%
IRR	2.54%	3.75%	4.8%	3.40%	4.56%	5.66%	4.84%	6.06%	7.27%
WACC	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%
NPV	−42,048	−22,832	−5297	−28,480	−9745	8592	−5124	15,631	37,183
RECeff	60%
IRR	3.16%	4.28%	5.3%	3.86%	4.98%	6.09%	5.13%	6.36%	7.56%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%
NPV	−32,408	−14,300	3107	−21,054	−2788	16,110	−318	20,862	42,633
RECeff	70%
IRR	3.66%	4.77%	5.8%	4.29%	5.40%	6.52%	5.42%	6.65%	7.86%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%
NPV	−24,265	−6373	11,598	−14,233	4239	23,749	4517	26,021	48,119
RECeff	80%
IRR	4.18%	5.25%	6.3%	4.69%	5.82%	6.95%	5.70%	6.94%	8.15%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%
NPV	−15,928	1618	20,303	−7567	11,327	31,336	9372	31,194	53,607
RECeff	90%
IRR	4.65%	5.72%	6.8%	5.10%	6.23%	7.36%	6.0%	7.22%	8.44%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.15%	5.2%	5.15%	5.15%
NPV	−8312	9701	28,961	−862	18,564	38,966	14,271	36,393	59,095
RECeff	100%
IRR	5.11%	6.20%	7.3%	5.50%	6.64%	7.78%	6.27%	7.51%	8.72%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%
NPV	−653	17,940	37,678	5908	25,824	46,622	19,291	41,591	64,612

, where the green cells indicate IIR values over 6% and the yellow cells indicate IIR values less than 6% with positive NPV.

In order to answer the question A1, the Table 5 highlights how an IRR over 6% is achieved (green cells):

• In northern Italy (PV_pro = 1.1 MWh/kWp):

  o

  Never with %_cons = 20%;

  o

  Never with %_cons = 30%; IRR over 5% with REC_eff over 90%;

  o

  with %_cons = 50% and REC_eff over 90%.

• In central Italy (PV_pro = 1.2 MWh/kWp):

  o

  with %_cons = 20% and REC_eff over 96%;

  o

  with %_cons = 30% and REC_eff over 90%;

  o

  with %_cons = 50% and REC_eff over 50%.

• In southern Italy (PV_pro = 1.3 MWh/kWp):

  o

  with %_cons = 20% and REC_eff over 80%;

  o

  with %_cons = 30% and REC_eff over 60%;

  o

  with %_cons = 50% and REC_eff over 10%.

Then, there are several possible scenarios in the “Cold model” where the project is bankable in the absence of public capital grants.

Finally, analyses were carried out with the hypothesis of reducing the value of %_cons,conc (in previous analyses %_cons,conc = 73%). In this case, the results (

Table 7. Profitability indicator of project with the “Cold model” with different values of PVpro, REC_eff, and %_cons (%_cons,conc = 60%). The green cells indicate IIR values over 6% and the yellow cells indicate IIR values less than 6% with positive NPV.

%cons	20%			50%
PVpro	1.1	1.2	1.3	1.1	1.2	1.3
RECeff	50%
IRR	1.48%	2.96%	4.1%	3.11%	4.31%	5.41%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.15%
NPV	−57,633	−35,560	−17,839	−33,081	−13,844	4422
RECeff	70%
IRR	2.93%	4.06%	5.1%	3.75%	4.92%	6.03%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.15%
NPV	−35,989	−17,947	−1230	−22,843	−3923	15,083
RECeff	90%
IRR	4.00%	5.02%	6.1%	4.38%	5.51%	6.65%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.15%
NPV	−18,944	−2113	15,779	−12,715	6122	25,978

) demonstrate that %_cons,conc values below 60% almost always make the project economically unsustainable.

In order to answer the question A2, analyses were conducted on the reduction in the value of CAP (55%), and the results are illustrated in Figure 1.

The graph shows IIR for different values of REC_eff, %_cons, and CAP (40%, 45%, 50%). The points placed in the green area are the acceptable economic-financing conditions (IIR > 6%), and it is clear that these conditions are only achieved for %_cons over 50%. Therefore, in order to be economically viable, the operation cannot afford to divest less than 55% (maximum admissible CAP by law) of the PIT to the Concessionaire.

In this context, energy storage could play a crucial role as it would allow the REC_eff to be brought to 100%. However, the (still high) cost of batteries would increase the capital invested by reducing IIR.

Table 8. The maximum expense that the batteries should have in order to have an IIR equal to 6%.

%cons	20%			30%			50%
PVpro (MWh/kWp)	1.1	1.2	1.3	1.1	1.2	1.3	1.1	1.2	1.3
Max Battery Cost (k€)	[-]	4	30	[-]	14	40	5	35	63

shows the maximum expense that the batteries should have in order to have an IIR equal to 6%. In the case study examined (PV power:159 kW), comparing the IIR values of Table 6 with those of Table 8 shows that an investment in energy storage can be sustainable:

• In southern Italy (PVpro = 1.3 MWh/kWp):

  o

  with %_cons = 20% and REC_eff (without batteries) > 60%.

• In central Italy (PVpro =1.2 MWh/kWp):

  o

  with %_cons = 20% and REC_eff (without batteries) > 90%;

  o

  with %_cons = 30% and REC_eff (without batteries) > 70%;

  o

  with %_cons = 30% and REC_eff (without batteries) > 40%.

• In northern Italy (PVpro = 1.1 MWh/kWp):

  o

  RECeff (without batteries) > 30%.

3.2. Results of the Hot Operation Model

Given the price variables shown in Table 8, the conditions for economic–financial balance are achieved (IRR = 6%) without costs to the public budget when PA transfers to the Concessionaire:

• 100% of the value of the energy sold;
• 73% (%_con,conc) of the savings achieved through self-consumption (%_cons).

In this case, the REC_eff = 100% and the cost of the PV plant is 70% of the total eligible cost, i.e., a cost reduction in the PV plant (%_reduction) = 30%.

Table 9. Cash flows and economic benefits in the “hot scenario”.

	Total	Concessionaire	PA/Granter	REC
	€/Y	€/Y	€/Y	€/Y
RID	19,040	19,040	0	0
PIT	23,610	12,986	5312	5312
ARERA	2013	0	1006	1006
TOTAL	44,663	32,026	6319	6319
RID	100%	100%	0%	0%
PIT	100%	55%	23%	23%
ARERA	100%	0%	50%	50%
TOTAL	100%	72%	14%	14%

(REC_eff: 100%; %_con = 0%; PV_Pro: 1.2 MWh/MW; %_reduction: 30%).

presents the cash flows and economic benefits for each actor in this “hot operation model”.

Table 9 highlights that the Concessionaire absorbs EUR 32,000 € to cover the costs of manufacturing and maintenance of the plants when the expected total revenues is EUR 44,600.

The lower cash flows of this model are mainly due to an absence of savings and to the efficiency decay (−0.75%/y) of the plant, which, over a 20-year management horizon, can lead to a significant reduction in the value of the energy produced and sold.

The remaining amounts generated from premium tariffs and contributions will be divided equally between the Grantor/PA and the REC, withholding, respectively, PIT (EUR 5700) and ARERA (EUR 1006).

Table 10. Profitability indicator of project with “Hot operation”.

Profitability Indicators	Values
IRR	6.0%
WACC	5.2%
NPV	8835 €

(RECeff = 100%; %con = 0%; PVPro = 1.2 MWh/MW; %reduction = 30%).

presents the profitability indicators of the operation, assuming a capital cost of approximately 5.15%.

Similarly, to the cold model, additional analyses have been carried out to vary both the photovoltaic producibility and the REC_eff (

Table 11. Profitability indicator of project with “Hot operation” model with different values of %_reduction, PV_pro, and REC_eff.The green cells indicate IIR values over 6% and the yellow cells indicate IIR values less than 6% with positive NPV.

%redu	0%			20%			30%			40%
PVpro	1.10	1.20	1.30	1.10	1.20	1.30	1.10	1.20	1.30	1.10	1.20	1.30
RECeff				60%
IRR	−4.20%	−1.82%	0.19%		0.47%	2.22%		1.70%	2.29%		3.21%	5.10%
WACC	5.15%	5.15%	5.15%		5.15%	5.15%		5.15%	5.15%		5.15%	5.15%
NPV	−107,069	−86,697	−65,853		−48,860	−32,542		−32,400	−27,435		−16,119	−422
RECeff				70%
IRR	−2.57%	−0.45%	1.23%	−0.20%	1.67%	3.27%		2.93%	4.60%		4.49%	6.27%
WACC	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%		5.15%	5.15%		5.15%	5.15%
NPV	−93,601	−72,798	−53,891	−54,484	−37,988	−21,586		−21,767	−5650		−5687	10,176
RECeff				80%
IRR	−1.16%	0.71%	2.13%	1.05%	2.73%	4.23%		4.03%	5.61%	3.83%	5.66%	7.37%
WACC	5.15%	5.15%	5.15%	5.15%	5.15%	5.15%		5.15%	5.15%	5.15%	5.15%	5.15%
NPV	80,207	59,997	42,767	43,756	−27,406	−10,861		−11,376	491	−11,223	4536	20,722
RECeff					90%
IRR	0.09%	1.62%	3.0%	2.13%	3.69%	5.1%	3.41%	5.04%	6.6%	5.00%	6.74%	8.4%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.2%	5.15%	5.15%	5.2%	5.15%	5.15%	5.2%
NPV	−66,966	−49,198	−31,910	−33,441	−17,062	−341	−17,304	−1199	15,424	−1292	14,596	31,269
RECeff				100%
IRR	1.07%	3.42%	3.7%	3.11%	4.57%	6.0%	4.43%	6.0%	7.5%	6.08%	7.77%	9.4%
WACC	5.15%	5.15%	5.2%	5.15%	5.15%	5.2%	5.15%	5.2%	5.2%	5.15%	5.15%	5.2%
NPV	−55,745	−22,743	−21,286	−23,366	−6917	10,164	−7407	8835	25,971	8450	24,656	41,838

).

In order to answer the question A1, Table 10 highlights how an IRR over 6% is achieved (green cells):

• In northern Italy (PV_pro = 1.1 MWh/kWp):

  o

  with %_reduction = 30% and REC_eff = 100%;

  o

  Never with %_reduction < 30%.

• In central Italy (PV_pro = 1.2 MWh/kWp):

  o

  with %_reduction = 40% and REC_eff > 80%;

  o

  with %_reduction = 30% and REC_eff = 100%;

  o

  Never with %_reduction < 30%.

• In southern Italy (PVpro = 1.3 MWh/kWp):

  o

  with %_reduction = 40% and REC_eff > 70%;

  o

  with %_reduction = 30% and REC_eff > 90%;

  o

  with %_reduction = 20% and REC_eff = 100%;

  o

  Never with %_reduction < 20%.

Then, in the “hot operation model”, there are a few scenarios (difficult to achieve) where the project is bankable in the absence of public capital grants. In any case, to be sustainable, the cost of the project must be lower than the estimated cost (minus 30%).

In this context, storage systems could play a crucial role as they would allow the REC_eff to be brought to 100%. However, the (still high) cost of accumulators would increase the capital invested, going against the hypothesis of reducing the total investment cost of the project.

4. Residual Economic Benefits after Amortizing Investments and Covering Management Costs

Answering Q3, the analysis shows that in a small REC, the amortization of investments and the coverage of management costs over a 20-year horizon almost entirely absorb the cash flows generated by incentives and energy sales.

The residual economic benefit for the REC has been quantified at approximately EUR 7900 in the cold model scenario and approximately EUR 6300 per year in the hot model scenario. However, the “Hot model” scenario is difficult to pursue (southern Italy, high REC_eff, and significant cost reduction in the PV plant). According to the REC simulator, RECON (developed by ENEA [31]), in order to have an REC_eff equal to 100%, considering a PV production of 190 MWh per year, the REC has to consist of almost 250–300 consumers (POD of residential activities). Therefore, the economic annual benefit would be almost EUR 25–30 per POD.

Greater benefits could be achieved only if the investments were entirely financed by the public administration and, thus, realized through forms of contracting rather than PPP.

Correctly informing citizens about the economic benefits of joining the REC therefore involves explaining that such membership will not aim at economic gain or reducing their own bill costs, but at the higher goal of contributing (at no cost) to the energy transition of their municipality and starting small, targeted initiatives that use the limited cash flows accrued to the REC.

RECs can be constituted by an aggregation of citizens and firms, with the possibility of also including local authorities which carry out their activity within a specific territory with the main purpose of offering its members or the territory in which it operates environmental or social benefits.

This allows us to divide energy communities into two categories: those composed of private individuals and legal entities and those in which local authorities (so-called local actors) can also participate.

In the first case, it seems reasonable to include them in recognized associations, cooperatives, non-profit organizations, or limited liability companies.

The second case appears more problematic, where a local authority participates in an energy community; in fact, the problem would arise in establishing in which typology of subjects recognized by the legal system this “mixed aggregation” should fall between public and private, considering that such entities can assume the qualification of manager of the energy distribution system. In the opinion of some authors [32], it is necessary to look at the purpose for which the energy communities were conceived, that is, to offer its members environmental and social benefits within a specific territory without a predominant profit-making purpose. Then, it seems possible to arrange RECs with public-centred governance mainly through the legal instrument of the share foundation, which is able to ensure stability for the governance over the time.

5. Conclusions

The research has explored the realization of public RECs through public–private partnership instruments, focusing on the importance of public and private investments in the renewable energy sector and highlighting the need for properly implemented and stable public incentive policies.

In general terms, the work highlights some considerations that can support legislators in defining the necessary and sufficient public incentives to structure operations that balance interests and risks between public and private entities.

In particular, regarding the need for economic–financial equilibrium of RECs, the analyses show that the incentives provided by the regulation (PIT and ARERA contribution) are not oversized and are indeed essential for the balance of the analysed operations, enabling the PA to carry out these investments at no cost to the public budget and with a small residual benefit for the REC members. However, in the hot case, additional capital contributions (almost 30% of capital) may even be necessary in order to increase returns for the private operator and further encourage the use of private capital in these operations.

From the perspective of the triple bottom line, this research highlights that:

(i)

Profit, economic profile: Public RECs in PPP are economically sustainable thanks to the incentives, allowing these investments to be replicated and yielding a fair (though very modest) return for the private capital invested in these operations.

(ii)

People, social profile: RECs produce a social impact by directing the generated income to social projects and activities mainly aimed at combating energy poverty.

(iii)

Planet, environmental profile: There are significant environmental benefits resulting from the realization of such projects.

More specifically, this research, through numerical simulations on real case data, has shown that, in the absence of upfront contributions and with an investment fully financed with private capital to be amortized through energy revenues and PIT energy incentives:

• The cold model achieves economic–financial equilibrium of the investments with rather modest returns for the private operator, which would increase only if the Concessionaire were to achieve a high level of efficiency in the construction and management of the facilities, thereby containing the investment or management costs envisaged in this simulation. A comparison between the two models shows that the cold model is more economically sustainable as it ensures a fairer IRR for the private investment and a more manageable risk level for the Concessionaire. On the other hand, the hot plant model transfers greater risks to the Concessionaire and might be of interest to PAs with additional contributions (beyond PIT and ARERA contribution) to allocate to the operation to also transfer the demand risk to the private operator. In fact, the hot model struggles to achieve economic and financial equilibrium with an IRR only slightly higher than the WACC, which could discourage private operators from promoting this type of operation.
• The Grantor (PA) obtains very modest savings, but participates in the green call of our country by contributing to the energy transition process towards renewable sources.
• There is a social benefit for the reference community, which, however, tends to be very limited, since most incentives must be allocated to pay for the construction and management of the facilities. Specifically:

  o

  In the cold scenario, the REC benefits from a residual profitability of about 10%, which can increase up to 21% of the operation’s cash flows if the administration decides not to withhold any benefit for itself (in addition to the bill savings).

  o

  In the hot scenario, the REC benefits from a residual profitability of about 14%, which can increase up to 27% of the operation’s cash flows if the administration decides not to withhold any benefit for itself. Regarding this aspect, the data show that sharing these incentives among REC members would result in each benefiting by only a few euros per year (in this study, about EUR 25–30 per POD of residential activities). Therefore, it seems more interesting to imagine specific activities with which to use the incomes generated by the REC to fight energy poverty of specific subjects.

This work aims to produce an impact in terms of more conscious development of RECs in PPP, a strategic objective not only for the Italian country, but for European countries in general. It also contributes to enriching the literature in a new field that is at the starting line. REC projects require a delicate balance between regulations, incentives, market, and sustainability, being composed of contracts and financial plans that must aim at models that can balance the interests of various stakeholders to support the sustainable and lasting development of energy communities across the national territory. With this work, we hope to have contributed to an increased consciousness of the risks and economics factors influencing private and public choices.