Summary
It is estimated that there are approximately 11 % the population of the European Union, 54 million Europeans, is affected by or at risk of energy poverty. It is a phenomenon that affects not only vulnerable citizens but also everyone else indirectly due to the increase in negative externalities. Therefore, numerous documents at European Union level call on public administrations across Europe to engage meaningfully and systematically in order to protect many citizens from the growing trend of energy poverty.
In this text, the authors propose a mechanism for the association of vulnerable citizens with public bodies within citizen energy communities, and on the example of the city of Rijeka they show the indicative values of such a public policy.
1. INTRODUCTION
In recent years, we have witnessed a multitude of global health, economic and eventually energy crises, and although EU citizens may seem to have been less affected than the rest of the world, Eurostat shows that this is not the case. A significant part of the population is in direct danger of energy poverty. Energy poverty is a situation in which individuals or households do not have access to sufficient amounts of energy resources, such as electricity or heat, to meet their basic needs.[1]. Energy poverty can be caused by economic reasons (poor economic situation in the country, unemployment, etc.), arising from inadequate housing conditions, high energy costs or lack of quality energy infrastructure in the settlement or the entire country. One should also note the problem of the lack of education of the wider population on topics related to new energy sources or on the efficient use of energy, which often prevents them from improving their current situation.
Energy poverty can have serious social and health, quality of life and overall well-being consequences. People facing energy poverty may have problems warming their home during the cold months, which can lead to health problems, especially among the most vulnerable groups of the population, such as children and the elderly.
Many countries and NGOs recognise the importance of tackling energy poverty in order to improve citizens' quality of life and achieve sustainable development. This includes providing financial assistance, improving the energy efficiency of residential buildings, developing affordable energy sources and implementing energy efficiency education programmes. In this context, citizen energy communities are particularly important, enabling energy exchange in addition to production, and assistance to vulnerable people is often present as one of the important goals of their work.
The EU Commission has recognised the importance of energy communities and specifically addresses them through several articles of recently adopted recommendations to combat energy poverty[2]. These recommendations represent a strong incentive to resolve a number of obstacles that are incomprehensibly embedded in the Croatian interpretation and transposition of RED II directives, which completely prevents the development of energy communities in the Republic of Croatia.
Specifically from the EU COMMISSION Recommendation 2023/2407 (of 20 October 2023) on energy poverty, we can highlight the following points that underline the role of energy communities but local government (cities and settlements)[3]:
(35) Renewable energy is more advantageous for consumers if they can directly access. Collective self-consumption schemes can overcome the limited capacity of households affected by energy poverty to access renewable energy and become active as consumers while producing electricity (so-called ‘prosumers’). A prosumer participating in collective self-consumption schemes brings greater non-financial benefits, such as increased autonomy, new skills and social inclusion of the individual, and trust and interconnectedness for the community.
from EU COMMISSION Recommendation 2023/2407
(36) Collective self-consumption schemes include Energy communities and energy sharing systems. The Commission supports the ongoing effective implementation of Union legislation on energy communities by Member States and proposes specific provisions on energy sharing. Municipalities[4] play an important role in making collective self-consumption schemes open and accessible to households affected by energy poverty, especially in cases where market entry would otherwise imply financial requirements, and in complex administrative procedures and costs.
from EU COMMISSION Recommendation 2023/2407
It can be noted that the EU Commission in the aforementioned recommendations gave very clear direction to address energy poverty and support energy communities, but unfortunately according to the experience so far, it will take a long time before this turns into a Croatian operation.
2. ENERGY SOCIETY IN THE STATES OF THE EUROPEAN UNION
Energy poverty is a challenge in many Member States of the European Union[5] (EU). Although levels of energy poverty may vary between countries, there are common factors and initiatives applied at EU level to combat this problem. Paradoxically greater heating problems arise in southern Europe, but recent[6] research indicates that the key problem is the lack of adequate insulation of facilities and the fact that the price of energy products is almost identical throughout the EU, but the affordability or financial strength of households in the north of the southern EU is significantly different.
Figure 1: Percentage of EU households that can heat a dwelling
In general, the two dimensions are critical when analysing the problem of energy poverty and have the greatest impact on the status of vulnerability – ownership of real estate and the type of energy product used for heating, which is also the largest single expenditure. Namely, by consulting the available EU statistics[7] (Table 1) is a noticeable vulnerability of almost one third of the population of the EU, with the most vulnerable being users of social housing, owners of buildings, and the least tenants. The result is also interesting due to the fact that it clearly indicates the cost that owners have to maintain their facilities (maintenance is ignored due to lack of funds) and possibly increase the energy efficiency of the facilities they own, so if there is no investment in improvements, the costs for heating increase and thus enter the risk zone. Analyses that would take into account the type of building – for example, family houses opposite multi-apartment buildings are unfortunately not available, but it can be assumed that the costs of energy renovation per m2 are significantly higher for detached buildings than for row buildings or multi-storey buildings.
Table 1: Inadequate heating and inability to pay bills (2018)
Another critical component is the technology and type of energy source used for heating. The table shows the type of energy that is most common in several selected countries and shows great differences that are conditioned not so much by the degree of technological development, but also by some social or historical reasons (the example of Greece, which is highly dependent on fossil fuels, Bulgaria, where electricity is predominant primarily because of several nuclear power plants built during socialism, or Croatia, where the extreme use of biomass (wood, pellets, briquettes) is simple due to the wide distribution and local availability of such energy products). This can immediately be correlated with the previous table where it becomes clearer why the average Greeks (although with a higher GDP per capita) are more at risk than Croats or Portuguese. The type of energy product also determines the possibility of its substitution, if the energy product is electricity. then it can be relatively easily replaced with energy produced from sustainable energy sources (photovoltaic power plants or wind power plants) and in combination with energy communities it is possible to ensure a relatively simple distribution of surpluses. However, it should be noted that the replacement of energy products or heating technologies must be carried out together with the energy renovation of the building, otherwise the planned savings will not be achieved and the reconstructed heating will not be able to meet the needs of users (a good example is the replacement of heating with conventional radiators and a heating oil boiler with low-temperature underfloor heating and heat pumps).
Table 2: Energy products used for heating in selected countries
A rapid transition to green energy will not be possible without state support and must be carried out in phases in order to reduce the harmful side effects for vulnerable energy consumers and avoid a situation where the energy transition increases energy poverty. In other words, vulnerable energy consumers need support to compensate for higher energy costs. However, these subsidies put additional pressure on budgets and create additional deficits, which on the other hand reduces the scope for increasing social expenditure.
In 2009, a European project investigating the link between poverty and energy efficiency estimated that between 50 and 125 million people in the EU were at risk of energy poverty (EFP). Energy poverty directly affects the health of about 34 million people and is a major problem throughout the European Union. However, while health is often used as a justification to address EFP, definitions, EFP measurements and corresponding health consequences are often different and vaguely defined. The health impact of EFP is likely to be complex and there are many potential covariates affecting health outcomes, making it difficult to measure and separate and thus verify correlations.
Despite the rather clear impact on citizens' health, it seems that the EFP is often more processed in energy, financial and economic disciplines than in public health. Increase in the number of deaths during winter in the EU[8] is indicative, although the impact of the global Covid-19 pandemic is not negligible. Ultimately, the solution to the problem lies in the balance between the speed of the energy transition, the proper distribution of the burden of the transition to all stakeholders and special care for vulnerable groups in order to avoid unnecessary additional deaths of EU residents.
Figure 2: Increase in the number of cold deaths in the EU
In the Republic of Croatia, energy poverty has not been clearly defined, nor have general criteria or methodologies for determining energy poverty been established so far. However, it is interesting to introduce energy poverty as a term in the Energy Efficiency Act, without any description of how it is determined, how it is measured, and how to avoid or solve it. There are no clearly defined criteria covering broader categories of energy vulnerability of households than the existing (and narrow) criteria to help vulnerable households meet their electricity costs. The definition of an energy vulnerable household in the Regulation on criteria for acquiring the status of vulnerable grid energy customers does not take into account all aspects of vulnerability and the status of vulnerable energy customer should apply not only to electricity but also to other forms of energy (e.g. heat).
Furthermore, it is not clear which ministry should be responsible for this issue (Ministry of Labour, Pension System, Family and Social Policy or Ministry of Economy and Sustainable Development), so there is no more specific responsibility for defining and implementing measures. Consequently, Croatia currently does not have a system in place to monitor energy poverty, which is why there is no clear insight into the actual situation of energy-vulnerable households, but according to established practice, the funds are "helicopterly" distributed, creating long-term damage to all participants in the energy transition. Only survey data shown in Figure 1 are available, which clearly show the vulnerability of Croatian households.
Chart 1: Inability to pay energy bills in the past 12 months
In the Republic of Croatia, similarly to the entire European Union, almost 50 % uses final energy consumption for heating and cooling, of which 80 % in buildings. In the case of Croatia, it is evident that greenhouse gas emissions caused by heating are significantly higher than in Norway, for example, primarily due to the difference in building insulation (Graph 2). The long-term strategy of mobilizing investments in the renovation of the National Building Fund of the Republic of Croatia by 2050 provides some potential solutions to improve the energy envelope of buildings. In line with the proposals put forward, three key energy renovation programmes are expected to be adopted for the period 2021-2030 for residential buildings, single-family houses and public buildings.
Chart 2: Greenhouse gas emissions from heating and cooling per capita
According to the Strategy, the Croatian national stock of residential buildings consists of 762,397 buildings (multi-residential and family houses), while the non-residential building stock consists of 124,924 buildings (commercial and public). Energy efficiency and characteristics of buildings, as well as their energy consumption, are largely determined by the construction period, but also by the widespread problem of inadequate maintenance of buildings. In the Republic of Croatia over 90 % The housing stock is privately owned[9] House 73 % and apartments 27 %), in other words, the entire burden of the energy transition is on the backs of financially well-exhausted citizens. In this context, the availability of new technological solutions at affordable prices is favorable (for example, a photovoltaic power plant in combination with a heat pump costs less than a smaller family car), and if the co-financing of the renovation of the energy envelopes of buildings in combination with the sharing of energy surpluses through energy communities is resolved, it is rational to expect that the risks of energy poverty in the Republic of Croatia could be reduced.
2. ENERGY COMMUNITIES IN THE REPUBLIC OF CROATIA
Energy communities are not-for-profit business formations established for the purpose of sharing and storing renewable energy generated within a community. The initiative for the existence of citizen energy communities stemmed from Directive (EU) 2019/944, and operations in the Republic of Croatia are regulated by energy regulations and regulations governing the operation of non-profit organisations. The purpose of citizen energy communities stems mainly from climate trends, so that the small-scale production of renewable energy contributes to the reduction of greenhouse gas emissions, reduces the price of electricity and achieves a stable price in the long term. Of course, there are co-benefits related to the purpose, and they are mostly related to the relief of the national electricity system and the reduction of the need for electricity imports. The subject of energy communities derives from its regulations of permitted activities: production of renewable energy, storage of energy produced, energy efficiency activities, energy supply, management of energy consumption, aggregation, etc.
Citizen energy communities may have different business models that mostly depend on the procurement model of the facilities and devices used to perform the activity. Which business model the energy community will choose will depend, among other things, on the situation on the date of its establishment. For example, citizen energy communities whose members already own energy generation and/or storage facilities will be steered towards a business model where the energy community itself provides services to its members in the area of sharing and recording of shared energy and demand response services. On the other hand, energy communities whose members are only planning to invest in installations could choose a business model in which a legal person of an energy community invests in installations on the assets of its members. The third option of a business model may be a combination of the above with the ambition to develop installations in available public areas. Such a business model will be preferred by members who have available areas owned, but do not have the technical ability to invest, for example due to the protection of urban units or construction constraints.
It is particularly interesting here to draw attention to the business model, that is, the possibility for one group of community members to use the capacities of surfaces owned (roofs, gardens) by other members. This is because, under this business model, individual members of the community invest in plants whose production capacity exceeds their needs in order to share the excess energy produced with members of the community who do not have the technical ability to invest in production capacity, but are willing to pay for that part of the energy produced. Thus, here, a monetary value is assigned to shared energy as compensation for the use of other people's capacities for the purpose of overcoming the technical constraints of a community member who pays for shared energy.
In the wake of this last business model, a whole range of options and opportunities open up in the market for energy produced within citizen energy communities. One of these opportunities is the great potential of energy communities in contributing reducing energy poverty citizens in need.
One of the objectives of public policies regulating activities aimed at reducing energy poverty of citizens is to increase the availability of cheaper energy to those citizens whose income is not sufficient to meet the costs of the total energy needed in a year. Due to a lack of income, citizens give up a part of the total energy needed, which can be a cause of health damage, and consequently an increase in public costs of treatment. In order to overcome the income restriction, public authorities usually subsidise part of the income of these citizens. However, such a measure is often time-limited and the non-permanence of the subsidy contributes to the additional uncertainty of the subsidy recipient. Overcoming this uncertainty while achieving the objectives of sustainable increased availability of cheaper energy is possible through the mechanism of bringing together public authorities (on the one hand) and citizens in need (on the other) in energy communities where public authorities produce renewable energy on their assets, which they make available to citizens in need at a reduced price or free of charge. Such a solution also carries the assumptions of long-term implementable public policies due to the very nature of photovoltaic plants. The possible structure of the organisation and procurement is shown in schema X:
Scheme 1: Organisation and financing of energy communities to reduce energy poverty
Public authorities (municipalities, cities) (3) invest in renewable energy plants for sharing within the citizen energy community. Facilities (2) can be procured (1) as works or as an availability service (PVaaA[10]). In both cases, the renewable energy produced is owned by the public body and is therefore free to share it (4) with citizens (6) through an energy sharing system (5) within the energy community. The monetary amount of the shared energy shall be determined by the public authority. Depending on the material and social condition of citizens (members of the energy community) it can be from 0 €/kWh to its producer price (approximately 4-6 €c/kWh). Of course, here should be added the cost of using the distribution and transmission system.
By implementing public policies related to contributing to the alleviation of energy poverty in the proposed way, the following objectives of public and private interest could be achieved:
- Increasing the health of citizens by increasing the affordability of the required annual amount of energy;
- Reducing the cost of treatment;
- Increase the number of working hours;
- Reducing greenhouse gas emissions from renewable energy production;
- Reinforcing trust in the opportunity to live in solidarity.
Therefore, these are tangible goals that can contribute to a better relationship between the price and quality of public services, but also to strengthening trust in public institutions.
3. OPPORTUNITIES FOR THE PUBLIC POLICY OF CONTRIBUTION TO REDUCE ENERGY SYROMAGE OF CITIZENS
Public policy of contributing to the reduction of energy poverty of citizens can be implemented by installing photovoltaic plants for the production of affordable electricity for citizens who cannot afford sufficient amounts of electricity for their annual needs, that is, for citizens who are at risk of potential inability to afford the required amount of electricity for annual needs. The policy could be implemented in the following ways:
- Installation of photovoltaic installations on the roofs of citizens in need;
- Installation of photovoltaic installations on the roofs of public buildings and/or public areas owned by public bodies;
- Combining the installation of photovoltaic installations on the roofs of public authorities, public areas and the roofs of citizens in need.
The first way implies the activities of the city or municipality related to investment in the installation of photovoltaic plants on other people's property (roofs of private buildings). This option will be implemented by concluding a roof rental contract under which the city or municipality will rent the roof of a private building and install a renewable energy plant. In accordance with the regulations governing the electricity market, the energy produced will be divided among occupants of a multi-dwelling building according to a certain key, preferring occupants in need. The advantage of this option is the status of self-generation in which case the energy provider (city or municipality) does not need to connect with the energy user (citizens in need) in the energy community. The disadvantage could be the complex procedure of contracting the installation process, the organization of energy sharing in the form of a group of jointly acting end customers and the complex process of monitoring and managing the process.
The second is based on the assumption that the city or municipality installs photovoltaic installations on the roofs of buildings owned by them. These can be general public buildings, public buildings that are not in any public function or use (abandoned complexes), public parking lots in open areas and the like. The condition for sharing the energy produced to citizens at risk of energy poverty is their connection to the energy community of citizens. This is a possibility regulated by the regulations governing the electricity market. While there are currently outstanding issues in the implementation of energy communities, they are expected to be adequately addressed in the coming period. The advantages of this method, assuming the practice of functional establishment of the energy community, is a relatively simple procedure of implementation of installation of the plant as well as energy sharing. Citizens in need appear as some kind of passive members of the energy community in the role of customers or users of renewable energy. The shortcomings are believed to be temporary and mainly relate to the currently unclear demands that the legislator places on members of energy communities.
The third way is more complex and refers to the combination of the previous two. It is about installing photovoltaic plants on the roofs of publicly owned buildings, public areas and on the roofs of private buildings inhabited by citizens in need. The processes of establishing a functional system within this possibility are complex, and the advantages are mainly related to the possibility of using larger capacities of produced renewable energy. Weaknesses mainly stem from the multiplication of the complexity of procedures and management risks arising from such complex procedures.
4. POSSIBILITY OF PROCUREMENT OF PHOTONAPON FACILITIES FOR ENERGY COMMUNITIES OF CITIZENS
Assuming the awareness and readiness of the community to contribute to reducing the risk of energy poverty of a part of the citizens, contracting authorities (providers of cheaper or free renewable energy to citizens in need), in the decision-making process on articulating, adopting, preparing and implementing public policies to reduce the risk of energy poverty of citizens will face the question of the possibilities of procuring renewable energy plants. Of course, there is always the possibility of traditional procurement of works, but recently the practice of procuring such plants as an availability service has been developing.
In the context of the procurement of works, the contracting entity (city, municipality) concludes a works contract under which the contractor is obliged to acquire and install the installation. The cost of the works performed will be paid by the client from his own budget sources or from other debt sources within the capital budget. Maintenance and management of the facility will be the responsibility of the client.
Unlike the procurement of works, the procurement of the availability service of a photovoltaic installation is carried out by means of an availability contract.[11] (PVaaA). The availability service provider does not participate in the project exclusively at the installation stage, but also for a longer period of use of the facility. The contractor is responsible for the functionality (availability) of the installation in order for the contracting authority to use the energy generated by the operation of the installation. For the availability service delivered, the contracting entity shall pay, if the facility is available, an availability fee. Payments of availability fees shall be recorded in the operational budget of the contracting entity.
In terms of co-financing from EU sources (capital aid or grant, debt financial instruments), these procurement models have the same status with the difference that in the case of the procurement of works, capital assistance will reduce the purchase price of the installation, and in the case of the procurement of the service of availability, the availability fee.
5. EVALUATION OF INVESTMENT IN THE ENERGY COMMUNITY OF CITIZENS IN THE PURPOSE OF REDUCING ENERGY SIROMATIA ON THE EXAMPLE OF THE CITY OF RIJEKA
In order to illustrate the volume of investments in energy communities of citizens whose purpose is to reduce energy poverty or protect against the risk of increasing energy poverty of citizens, the authors have prepared a framework analysis of the structure and volume of required investments in the city of Rijeka based on publicly available data and estimates of the authors. Attention is drawn to the fact that this analysis is indicative and that for the purpose of establishing public policy and its implementation it is necessary to prepare amendments.
The structure of the assumptions and their estimated values is shown in Table 3.
Table 3: Structure of assumptions for estimating the volume of investments in the city of Rijeka
Legend: Min (minimum estimated value), ML (most likely value), Max (maximum estimated value), E (expected value).
Considering publicly available data on the population in the city of Rijeka and data on citizens at risk of energy poverty, it is estimated that there could be between 7 and 8 thousand citizens at risk of energy poverty in the city of Rijeka, that is, citizens who cannot or can barely afford a sufficient amount of energy in a year. To sustainably protect these citizens from the risk of energy poverty, investment in installations is estimated to range from €15.5 million to €17.6 million. The implementation of this public solidarity policy could cost between 700,000 and 1 million euros per year for all citizens of Rijeka. Of course, the implementation of a policy to protect citizens from the risk of energy poverty should start with a pilot project with a sample of, for example, 500 citizens. The capital value of such a pilot project could range from 1 to 1.5 million euros, i.e. the average annual budget expenditure could range from 50 to 80 thousand euros. The public area required for the implementation of the pilot project (public ground areas or roofs of public buildings) is estimated to be in the range of 1800 to 2100 m2.
5. CONCLUSIONS
The Citizen Energy Communities Mechanism could be an effective instrument for public policies aimed at reducing the risk of energy poverty for citizens. Different options of the procurement model of renewable energy plants enable public buyers to quickly implement this public policy without engaging initial budgetary sources of financing. On the example of the city of Rijeka, it is evident that the pilot project, which would include about five hundred citizens who are most at risk of energy poverty, would cost all citizens of Rijeka negligible in relation to the benefits that vulnerable citizens would have from the implementation of such a public policy. It remains to be believed that local public management will also accept this or a similar initiative.
[1] https://energy.ec.europa.eu/topics/markets-and-consumers/energy-consumer-rights/energy-poverty_en (15.12.2023.)
[2] https://energy.ec.europa.eu/news/commission-publishes-recommendations-tackle-energy-poverty-across-eu-2023-10-23_en (18.12.2023.)
[3] https://eur-lex.europa.eu/legal-content/HR/TXT/HTML/?uri=OJ:L_202302407 (18.12.2023.)
[4] We see here an inadequate translation of the original English text of the recommendations – a much more appropriate translation would be the local self-government units consisting of cities and municipalities
[5] https://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20200120-1 (15.12.2023.)
[6] https://www.euronews.com/green/2022/12/09/europes-energy-crisis-in-data-which-countries-have-the-best-and-worst-insulated-homes (17.12.2023.)
[7] National indicators – European Commission (europa.eu) (17.12.2023.)
[8] EPAH_Energy Poverty National Indicators Report_0.pdf (europa.eu) (15.12.2023.)
[9] https://ec.europa.eu/eurostat/cache/digpub/housing/bloc-1a.html#:~:text=Houses%20are%20most%20common%20in,and%20Malta%20(both%2057%20%25) (15.12.2023.)
[10] PVaaA - PhotoVoltaic as an Availability – the contracting authority procures the availability of the facility. The supplier installs the installation on the property and keeps it available for the contract period. For the Availability Service, the Client pays an Availability Fee. More about this in D., D.; Medved, D. (2023) Acquisition of plant, device and equipment availability services, Tim4Pin No 12.
[11] PhotoVoltaic as an Availability. More about this model in: Juricic, D.; Medved, D. (2023) Acquisition of plant, device and equipment availability services, Team 4 Pin, number 12.
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