Energy sharing under the EU’s proposed electricity market design reform should be safeguarded for smaller actors in a way that not just gives them choice, but encourages them to exercise this choice writes Josh Roberts.

Op-ed by Josh Roberts, senior policy advisor

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As we approach the trilogue negotiations over Europe’s electricity market design, the EU stands at a critical juncture in shaping its internal electricity market for the next decade. The stakes are high: we must continue phasing out fossil fuels, while bringing the price of renewables down, upgrading networks, and making the energy system more flexible.

Against these macro-level issues, there is a fundamental question that cannot be overlooked: will this transition to a clean and more decentralised energy system truly benefit the local communities and citizens who will bear the financial burden, or will it serve the interests of profit-driven companies?

The battle for energy democratisation: energy sharing

As an evolving concept, energy sharing enables consumers, through an energy community or another organisational form, to self-consume locally produced renewable energy close to real time.

While the concept of energy sharing is promising, the way it is regulated and implemented holds significant implications. In an effort to provide more legal clarity and make energy sharing more accessible to citizens, the Commission proposed to open it up to all final consumers, and to clarify the rights and obligations of consumers that engage in energy sharing, system operators that are in charge of facilitating the activity, and other companies that aim to provide related services.

What is at stake

While the Commission’s objective itself is welcomed, it also opens the door to risks, primarily from commercial market actors. One significant risk is corporate capture of energy sharing. By opening it up to other market participants, third parties could own production facilities and control the price of the shared energy.

Unfortunately, we've already seen that initiatives owned by third parties increase prices to boost profit margins.This represents an inherent conflict of interest, one which we have seen play out during the energy crisis. The profit motive undermines the main added value of energy sharing, which is to empower consumers to control the means of self production in order to pay the lowest price possible.

Therefore, third party ownership should provide more equitable access to local renewables production, for instance for vulnerable and energy-poor households.However, there is already precedent for regulating energy sharing on a non-profit basis. For instance, in Denmark, district heating, one of the great early successes of the energy transition, operates according to the not-profit principle.

The Parliament has taken great lengths to safeguard against corporate capture, but, holes remain and unfettered third party ownership constitutes a distinct possibility.

Most Member States have yet to implement enabling frameworks required under the Clean Energy Package. Within this context, the Commission's neglect to include provisions to support energy communities in energy sharing risks undermining the progress made in setting up enabling national frameworks and addressing the competitive disadvantages that they face compared to their for-profit counterparts.

To its credit, the Parliament has included language to support a level playing field in energy sharing, particularly around obtaining a grid connection. This is a long-standing barrier for energy communities that is only getting worse with increasing grid congestion. The Commission and the Parliament have also proposed a number of useful clarifications around the roles of DSOs, particularly around providing transparency around connection procedures, contact points to receive information, and improving IT infrastructure.

The profit-focus orientation around energy sharing also poses a threat to consumer protection, and neither Commission nor Parliament positions guarantee consumers the ability to maintain control over how services are provided, or even to switch service providers. This could result in integrated utilities capturing consumers by bundling supply and other services around energy sharing, which would be hard to separate from one another - essentially leaving dissatisfied customers with little option but to leave frustrated.

Lastly, depending on how energy sharing is defined, it could undermine energy decentralisation. The Commission proposed to broaden the scope of energy sharing to the bidding zone level, which in some cases spans an entire Member State or beyond. Furthermore, the Parliament’s position could be interpreted to allow large enterprises to engage in energy sharing. Taken together, this could contribute to grid congestion and minimize grid space for local renewables projects.

The Council as the wildcard

While the Parliament took great efforts to improve the Commission’s energy sharing proposals, the Council has completely overlooked energy sharing. This creates significant uncertainty as to whether and how the above risks are dealt with. Appropriate time and attention should be paid to further improving the energy sharing provisions, as it is going to influence the ability of citizens and local actors to engage in the energy market.

Where to from here

One thing is certain: the resulting market design reform will have significant implications for how energy sharing evolves over the next decade.

While energy sharing should be open to all consumers, outside of large companies, it should not be based around profit motives. Furthermore, a level playing field needs to be in place so that energy communities can navigate procedures and obtain grid access.

There is also a need to promote energy sharing as a way to help system operators integrate more distributed renewables while also providing flexibility. This will require concrete duties for DSOs and incentives for market actors, through for instance components of network tariffs, or through other geographical limitations to energy sharing, respecting how Member States organise political units and the grid.

Ultimately, energy sharing should contribute to putting citizens at the core of the energy system, where they can take ownership and benefit from cheaper renewable energy. As such, energy sharing should be safeguarded for smaller actors in a way that not just gives them choice, but encourages them to exercise this choice. The democratisation of Europe’s energy transition is only starting to spread its wings. Let's not sell it out to corporate interests before it even gets off the ground.