In mid-October this year it was published. Electricity Market Act (ZTEE) which introduces numerous newspapers of which, for the purposes of this text, we find an interesting part related to energy communities. It is about the possibility of associating citizens into formations that would enable them to jointly produce electricity (here we assume the energy produced by photovoltaic power plant technology) and to share the produced energy in the scope of the same substation. The law provokes divergent views regarding its potential to accelerate individual micro-generation of electricity and the mutual sharing (trading) of generated energy surpluses among members of the energy community.
Uplatoon
In recent years, since the prices of solar panels have decreased significantly, photovoltaic power plants have become financially self-sustaining projects. The possibility of achieving profitability by investing in photovoltaic power plants justifiably directs the attention of citizens to investment. Also, lately, the term “” has often been encountered.prosumer’, a word composed of ’producer" and "consumer’ and denotes the entity that consumes (consumer) electricity, but it also generates (producer). The role of the entity in the consumption of electricity is known, but questions, especially practical ones, of implementation, arise precisely in relation to the process of electricity production.
Energy communities whose purpose is the production and sharing of produced electricity can be joined by citizens among themselves, but with them or independently and other entities such as local, regional self-government units, institutions, utility companies and other entities gathered around a substation. Here, the most intriguing is that limited possibility of pooling at a location covered by a substation, which significantly limits the meaning of sharing the electricity produced. It is emphasized that members of the energy community produced energy You can share, but not sell..
Bringing citizens together to share energy
Article 26. ZTEE stipulates that citizens can come together to jointly produce and share the energy produced for their own consumption. This will be done through so-called energy communities. Citizen Energy Community is a legal person established in the territory of the Republic of Croatia, whose shareholders or members voluntarily come together to benefit from the exchange of energy produced and consumed in a specific spatial area of a local community. It is particularly important to point out that a shareholder or member of a citizen energy community may be a natural or legal person, including local self-government units, a micro-enterprise or a small enterprise whose place of residence, establishment or business premises are in the territory of the local self-government unit where the citizen energy community is based. Thus, the regulation allows citizens to join forces with persons governed by public law such as cities, municipalities, institutions or utility companies in order to better exploit the potential of producing and (in-house) consuming (in-kind, sharing) the electricity produced.
Energy community activities
The citizen energy community may participate in the production of electricity for the needs of shareholders or members of the citizen energy community, as follows:
- From renewable energy sources;
- Electricity supply to shareholders or members of the citizen energy community;
- Managing the consumption of electricity by shareholders or members of the citizen energy community;
- Aggregation of shareholders or members of the citizen energy community;
- Energy storage for shareholders or members of the citizen energy community;
- Energy efficiency services for shareholders or members of the citizen energy community;
- Charging services for electric vehicles of shareholders or members of the citizen energy community;
- It may provide other energy services to shareholders or members of the citizen energy community in accordance with the rules governing individual electricity markets.
However, the provision of Article 3 of the Article 21 of the ZTEE defines the meaning of the Energy Community as a ‘legal person based on voluntary and open participation and effectively controlled by members or shareholders who are natural persons, local self-government units or small enterprises, whose primary purpose is to provide environmental protection. economic or social benefits to its members or shareholders or to the local areas in which it operates, and No financial gain and may participate in generation, including from renewable sources, supply, consumption, aggregation, energy storage, energy efficiency services or recharging services for electric vehicles, or provide other energy services to its members or shareholders.
The problem of non-profit
Also, the provision of Article 26 stipulates that the Energy Community shall act on the basis of the law governing Financial operations and accounting of non-profit organisations. It should also be added here that neither the Directive nor the ZTEE clearly define the concept of ‘sharing’ energy within a community. Energy sharing can be with or without compensation. Reimbursement can be financially or naturally nominated. In this respect, it is not clear whether any contribution to shared energy is allowed or prohibited. Of course, the ban on compensating those who share their excess energy should be inadmissible because, so to speak, it discriminates against the right of a member of the community to make a profit if all members of the community agree on the price of shared excess energy.
Finally, a member of the community in need of energy can take it from the grid and will pay a fee for the energy taken (energy price – HRK/kWh). He considers that price to be economically justified. The question is why he could not buy energy from his community member who at that moment has excess energy at a lower price than that of the grid (if such circumstances arise). Why should members of the community (those who surrender their excess energy to those who are currently claiming energy) not be provided with economic and financial benefits – one additional income and the other with savings? All the more so since these revenues and expenditures for purchased (shared) energy are not recorded in the account of the legal entity of the energy community, but in the private accounts of the members of the community. These are certainly questions that should be clearly answered before the implementation of the set goals of the energy transition and the operational association of citizens in energy communities begins.
EU regulation
These provisions could, through their vague wording, make it more difficult for the immediate organisation, organisation and final implementation of the intended purpose and objectives. It would be inferred from those provisions that an economic advantage does not involve the making of a financial profit. Also, there is a limitation or assurance of the legislator that energy communities must not be legally organized in any other way than in a way that implies recording business changes in accordance with the rules of non-profit organizations, that is, associations or cooperatives. This could be controversial because Directive of the European Union in paragraph 44 of the preamble stresses that “Member States should be able to ensure that citizen energy communities are subject to any form, for example an association, a cooperative, a partnership, a non-profit organisation or a small or medium-sized enterprise;, “as long as such an entity may, acting in its own name, exercise rights and be subject to obligations”.
Therefore, the question remains as to why the legislator limited Croatian citizens exclusively to non-profit organisations of all the above mentioned possibilities of founding forms. Such formulations of the ZTEE could, in immediate practice, give rise to a number of contentious situations.
Purchase and exploitation of photovoltaic plants
In order to achieve the purpose of its establishment, the Energy Community will focus its attention on two groups of processes. The first refers to the preparation, procurement, design, installation, financing and maintenance of the photovoltaic plant, while the second group of processes refers to the sharing of the generated energy among the members of the community. However, before the practical implementation of the project, several questions need to be answered.
- Will the legal owner of the photovoltaic power plant be the energy community as a legal person or will the legal owners be the members of the community installing the power plants on their roofs?
- Who will be the economic owner in these cases?
- Will the surpluses of energy produced be shared between the members of the community who are its co-owners, or will the co-owners of the community be able to share their surpluses with other neighbours within one substation who are not formal owners of the legal entity of the energy community?
- Will the sharing be operationally carried out with financial compensation (will it be possible to trade with each other the surpluses produced) or will the surpluses produced be given to community members? Or, on the other hand, will some calculation price of the surpluses produced be formed in advance, which will be divided among the members according to certain keys?
- Finally, how will energy surpluses be shared among its members in cases where the supply of surpluses is lower than the energy demand among members?
- In this case, who will have priority in taking over the energy surplus – proportional split or split according to the criterion of the maximum price offered?
The general organisation of the relationships between entities within and outside the energy community within a substation can be illustrated by schema 1:
Legend: G – a citizen who is a member of an energy community or a citizen who is not a member of an energy community but who falls within the territory of the same substation.
Purchase of photovoltaic installations
Rational members of the energy community in the preparation phase, and upon the formal establishment of the energy community, which could be either an association or a cooperative within the ZTEE, will ask the question of how to procure the plant. Whether the power plant will be purchased as works, as a service of availability, or whether it will give the surfaces in its legal ownership to a third party and conclude an energy purchase contract with it (so-called energy purchase contract). the PPA Agreement). The procurement of works is preceded by the procurement of design and financing. The following is the procurement of contractors (installation of a photovoltaic power plant) and maintenance of the power plant in its lifetime. It should be noted here that the risks of design and maintenance, and partly assembly, are taken over by the energy community. Members of the community will, in this regard, assess their knowledge and skills in the implementation of these processes, i.e. their capacity to take on the aforementioned risk groups. In this case, the energy community will be the permanent legal and economic owner of the plant. All energy produced belongs to the energy community.
Under the second option, the procurement of the availability of a photovoltaic power plant, the energy community will prepare a preliminary design with precisely defined output characteristics of the plant and procure a project executor who, based on the preliminary design and defined standards, will design, finance, install and maintain the plant in its lifetime. During the period of the contract for the procurement of the power plant, the community will pay a fee for the availability to the contractor as long as the power plant is operational in accordance with the defined standards and output characteristics of the project. In this case, the energy community will be the permanent legal owner of the facility, but the economic owner will be the contractor. Upon termination of the contract, the energy community will also become the economic owner. All energy produced belongs to the energy community.
In the third case, the members of the community will acquire a contractor who will design, install, finance and maintain the plant and conclude a contract with the energy community, or its members, on the purchase of electricity based, if available, on a predetermined quantity and price. Here, all energy produced may belong to the Energy Community or its members, depending on the content of the contract.
In these processes related to the procurement of a photovoltaic plant, the citizen is recognized as a co-owner of the energy community, who with his financial contribution participates in the full or partial financing of the procurement of the power plant. The question here is who will be the legal owner of the power plant – the energy community or a citizen member of the community? Both options are possible.
Exploitation of photovoltaic power plant
Once the PV plant is installed and put into service, community members are expected to use the energy produced. Energy will most likely be used in the following ways:
- For self-consumption (each member of the community will first use the energy produced on, for example, the roof of their building for their own energy needs in order to replace more expensive energy from the grid with cheaper energy from their own plant and thus achieve savings);
- They will share the excess energy produced with members of the community;
- To compensate for the energy shortage by taking over the surpluses generated by the photovoltaic power plants of other members of the community who currently have surpluses at their disposal;
- Compensate the energy shortage with energy from the grid;
- Excess power handed over to the grid.
In order for energy to be shared and distributed transparently and securely billed and recorded, an intelligent system will be needed to enable automatic monitoring and recording of energy surpluses and deficits produced and shared among members of the community, automatic comparison of prices produced by members' individual PV systems with the price of energy procured from the grid, and in particular recording and accounting of shared internally traded surpluses. In relation to the above, since the Directive and the ZTEE are not clearly defined, it will be of particular importance for the more efficient implementation of energy communities to clearly define what energy sharing means – whether this redistribution at a predetermined fixed fixed price or sharing also implies trading internal prices between members of the community (possibly citizens who are not members of the community because they are not able to participate materially and financially in the procurement of a photovoltaic power plant, but they contribute to the achievement of common interests with formal members of the community).
Managing the part related to the exploitation of a photovoltaic power plant within the energy community is also a good idea to consider the possibility of bringing together different members whose rhythm of production and consumption of the energy produced is in a kind of discrepancy – when one member produces energy and does not consume it, the other member consumes energy, and the opposite. For example, it is efficient to associate citizens and schools because the school in the morning hours of the day consumes the energy that citizens produce, but do not consume because, most often, they are in workplaces dislocated from their place of residence (energy production). On the other hand, the school in the afternoon does not consume energy while the citizens spend it. Also, school in the summer months is the predominant energy producer, and citizens are the predominant consumer. Such ‘symbiosis’ can make a significant contribution to better achieving the transition targets.
Financing the procurement of energy communities
A particularly important issue, arising from the questions raised above, relates to the financing of the procurement of photovoltaic power plants within the energy community. For the implementation of the processes related to financing, it is important to answer the question of who is the legal and economic owner of photovoltaic power plants, especially if the members of the energy community are local and regional self-government units and institutions or companies in their ownership. If the energy community will be an investor in photovoltaic power plants, then it will obtain sources of financing and refund them from the availability fee or the price of energy sold to other members of the community. It is clear here how important it is to define precisely the dual role of a member of the community – as a co-owner of the community (procurement processes of a photovoltaic power plant) and as an energy consumer (processes of exploitation of a photovoltaic power plant).
Power Plant Procurement Variants
The purchase of the power plant will most likely be financed from its own sources (contribution of community members, the so-called equity, a founding bet) and from debt obtained from, most often, commercial banks. Of course, the relationship between one's own and another's debt sources will depend on the overall risks of the project. Scheme 2 presents two possibilities of community financing:
As far as possible a) on scheme 6, the energy community, as a legal entity established by the role of its members, invests in photovoltaic power plants on the property of its members. The legal entity of the energy community, in addition to the founding roles of its members, also obtains debt sources of financing in order to settle the capital value of the investment. The legal basis for an investment may be, for example, a lease agreement for members' assets.
The legal person of the energy community will compensate the acquired right to invest on other people's property by means of a fee (rent) to the owners of the property (members - but this immediately raises the question whether the legal person of the energy community could conclude contracts on the lease of property and other citizens who are not members of the energy community). From the price of energy sold to its members, the legal entity of the energy community will settle debt sources of financing and reduce its income and expenditure account to zero (0) since it keeps business books according to the rules for non-profit organizations. As far as possible b) members of the energy community obtain financing sources themselves (own and others – debt) in order to invest in a photovoltaic power plant on their assets. Also, for the purpose of sharing energy surpluses, it will conclude an agreement with the legal entity of the energy community in which it will precisely define the rules of energy sharing.
In order to encourage citizens to invest in photovoltaic power plants within energy communities, it is also worth raising the issue of easier use of financial instruments in order to make commercial sources more accessible and minimize their own sources. The financial instruments of the Multiannual Financial Framework 2021-2027 could be used significantly here. Namely, Regulation (EU) 2021/1060 programming, design and implementation of financial instruments has been significantly facilitated. A wide range of possible financial instruments suggests that, precisely for the purpose of financing energy communities, instruments could be created that would contribute to accelerating the implementation of such projects. According to the authors, this could be a non-repayable aid instrument (to cover part of the costs of project preparation) combined with a subordinated loan. Such an instrument could facilitate and speed up the preparation of a project for citizens and enable the reduction of own funding sources with a higher probability of obtaining commercial debt financing sources.
Zplugin
The entry into force of the ZTEE is a major step forward in the implementation of the goals of the energy transition, especially in the part related to the goal of energy production at the place of consumption, while the choice of energy production technology will meet the goal related to decarbonisation. However, the current articulation of regulations is insufficiently clear for the immediate implementation of the set goals and poses significant risks in terms of achieving the set goals. In this regard, it is of particular importance to stimulate and conduct expert discussions in the shortest period of time in order to clearly define all the processes necessary for the low-risk implementation of projects. A specially programmed EU combined financial instrument structured with capital assistance to cover part of the costs of project preparation and a subordinated loan with a reduced interest rate and an extended repayment period in relation to the current market conditions could also contribute to accelerating the implementation of projects of this type.
This is the second part of the extended version of the text originally published in the Journal the Center for Public and Non-Profit Sector Development, Tim4Pin No.1 2022
The first part is available at:
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