article

Economical opportunity and flexibility potential of the EU Energy Sharing Framework

by Jan Osenberg - 26 January 2024

Last December, EU legislators agreed to implement energy sharing across Europe. We expect the first use case to be on large commercial and industrial (C&I) roofs that have more generation potential than energy consumption. Furthermore, matching local consumption with local generation brings opportunities to lower constraints on the grid, and empower grid operators to become more proactive in flexibly managing their operations.

Energy sharing promises incentivises to maximise the installation size on roofs because excess energy can be sold to neighbours. However, whether this vision materialises at scale relies on economic conditions. It must be profitable to install additional capacity, i.e. the returns from the additional kW over the project lifetime must exceed the additional installation costs.

On the cost side of the equation, it’s promising that the costs for the additional installed kW are lower than the usual EUR/kW of a rooftop solar installation. All fixed costs for the installation only apply once, all additional costs stem from working time and material. The income side of the equation depends on the price that consumers are willing to pay. If the price from shared energy is sufficiently lower than electricity rates by a supplier, consumers have a reason to switch. The returns from that price will be lowered by network charges and taxes.

The majority of countries that already have energy sharing frameworks, which they call “collective self-consumption”, already apply network tariff reductions. The Brussels regions and Portugal charge only for the used voltage levels; Spain has a full exemption from network charges, and in France, the DSO proposes a network tariff exemption, which the customer may accept or reject. Some Member States also provide tax exemptions, such as Portugal. Member States may also grant subsidies to incentivise energy sharing. The reasons for that are to incentivise renewable installations on citizens’ dwellings and maximise installations on artificial structures.

Photo: © Greenvolt

In the beginning, we expect that large roofs with little self-consumption on the premises have the most promising business case. Today, solar developers favour these projects, such as Greenvolt, the energy sharing pioneer from Portugal. After these low-hanging fruits have proven successful, project developers might look towards bundling installations with larger shares of self-consumption, to optimise the usage of the residual electricity.

The second promise of energy sharing is to unlock a demand-response price signal, thereby freeing grid capacity. While aggregation proves to be a challenging business model, energy sharing could motivate participants via the symbolic and intuitive idea of sharing self-generated electricity. Energy sharing will also not require participation in electricity markets, which could reduce costs, however limiting economical bargaining options for the developer. We see energy sharing as an additional scheme to procure flexibility, on top of time-of-use tariffs, flexibility markets, or aggregation.

Research from Australia shows that under energy sharing, power exports at the substation is 16.7-17.2% lower during mid-day peak periods and power import 12.9-13.7% lower during evening peak periods. However, when additional battery capacity is included in the modelling, exports are 55.7% lower during mid-day peak periods and imports are 20.6% lower during the evening peak period. This demonstrates the additional demand response potential of adding centralised or distributed batteries to energy sharing. The modelling configuration consisted of 100 residential energy users including 60 consumers, 20 prosumers with solar PVs, and 20 prosumers with solar PVs and batteries in a single substation and distributed through two feeders.

An additional benefit may stem from the increased involvement of grid operators in this scheme. They have to allocate the electricity generated at one connection point to another connection point, and closely monitor their balance sheets. While they usually lack visibility of their grids today, this allows them to observe load shifts first-hand, experiencing the potential benefits for their operations. We believe this can empower them to actively procure flexibility. Regulators can support this empowerment by requiring that grid operators publish the available grid capacity and define priority areas for energy sharing.

The new rules in the revised EU electricity market design are expected to be adopted in March 2024. They will give all residential customers, public entities, and SMEs the right to participate in energy sharing. EU countries may open the scheme to large companies. Energy companies may manage and finance energy sharing arrangements for installations of a maximum capacity of 6 MW, each. In principle, energy sharing may take place across entire bidding zones. However, Member States have the right to define a smaller area.

EU countries will have until around mid-2026 to implement energy sharing. SolarPower Europe is standing ready to support the implementation with concrete recommendations. Many of them can already be found in our report on the regulatory framework of energy sharing.