Energy Communities are reshaping The Energy value chain

Rodolphe Héliot, Market Development @ Aster

Driven by the low cost of solar PV and lowering cost of energy storage, Energy Communities are on the rise. Energy Communities cover aspects of collective action to reduce, purchase, manage and generate energy. As members of a community, consumers can share their self-produced energy with other members of the community. Doing so, consumers can achieve significant savings. Energy Communities involve major changes in the way the Energy value-chain is structured, and will push traditional players such as energy retailers and DSOs (Distribution System Operators) towards deep transformation.

Drivers: fall of renewables and energy storage costs, ubiquitous digital capabilities

Solar photovoltaic (PV) will soon be the cheapest source of electricity: the average cost of solar PV fell by 61% between 2009 and 2015. Utility-scale solar installations cost today less than $1 per watt, and solar PV LCOE (Levelized Cost of Energy) is soon expected to range between €0.02–0.04/kWh, depending on geographies[1;2]. Residential PV installations cost today less than $3, with huge productivity gains to be expected in the upcoming years.

The PV hardware cost reduction was achieved through sheer scaling of PV production infrastructure. The same revolution is now coming to energy storage, as we see huge investments worldwide in battery facilities. Energy storage cost dropped from more than $500/kW.h in 2013 to ~$200/kW.h today, and is expected to reach less than $100/kW.h in 5 to 10 years[3]. This creates room for new applications and business cases, as the Levelized Cost of Storage is better understood and compared to use-cases and their economics[4].

Last but not least, technological barriers to the Internet of Things (IoT) have dramatically been lowered: smaller, more powerful and affordable hardware, connectivity enablers and supporting tools such as big data frameworks and cloud-based infrastructure are now ubiquitous. This creates new opportunities for disruption, i.e. new drivers for transformations of a century-old industry: the Energy value chain.

Energy Communities

As a result of the low-cost of Distributed Energy Resources (DERs), Energy Communities are being set up of multiple types. They can be local with physical boundaries[5], or virtual with a larger geographical scope[6]. Energy Communities cover aspects of collective action to reduce, purchase, manage and generate energy. As members of a community, consumers can share their self-produced energy with other members of the community. Doing so, consumers can achieve significant savings. This is the main value proposition of Energy Communities and the main driver for change from customers point of view, although other drivers exist such as access to clean energy, social impact, independence from traditional utilities, etc.

In a nutshell: Energy is moving from a commodity value to an exchange value. Because of locally distributed resources (in space), and their varying availability (in time), consumers can leverage the community to make the most of DERs.

Multiple innovative players position themselves as actors of this transformation, with different strategic positions: end-customer solutions turned communities (e.g. Sonnen, Lumenaza), utilities solutions providers (e.g.Smarter Grid Solutions, Opus One Solutions), microgrid (e.g. Advanced Microgrid Solutions), or transactive energy players (e.g. Powerpeers, LO3 Energy, TransactiveGrid).

Impact on the Energy value chain

The above-mentioned players are inventing new models for generating and capturing value in the Energy value chain, selling smart DERs, community-based energy services, peer-to-peer energy trading platforms, etc.

This has a profound impact on the Energy value chain.

Distributed generation, mostly distributed solar, has already massively impacted generation-focused utilities (1). Increased self-consumption and community-based energy exchange now decrease revenues for both energy retailers (2) & DSOs (Distribution System Operators) (3).

But Energy Communities are also an incredible opportunity for established players. For retailers, Energy Communities are a great way to re-engage with their customers, by making customers become participative customers. For DSOs, local DERs can become a flexibility resource for active network management, thus reduction network CAPEX and OPEX costs. By doing so, retailers and DSOs can become enablers of change, reaping its benefits. In short, utilities need to embrace change, and do so rapidly. Indeed, because of network effects driven by Energy Communities, there will be in a not-so-distant-future strong first-mover advantages to offer energy & energy services.

Rodolphe Héliot, Market Development @ Aster

[1] http://cleantechies.com/2016/09/20/jinkosolar-marubeni-score-lowest-ever-solar-pv-at-us%C2%A22-42kwh-in-abu-dhabi/
[2] https://www.pv-magazine.com/2016/12/28/danish-solar-auction-delivers-european-low-cost-of-us-1-81-centskwh/
[3] https://www.bcgperspectives.com/content/articles/energy-environment-how-batteries-and-solar-power-are-disrupting-electricity-markets/?chapter=2#chapter2
[4] https://www.lazard.com/media/438042/lazard-levelized-cost-of-storage-v20.pdf
[5] http://brooklynmicrogrid.com/
[6] https://www.sonnenbatterie.de/en/sonnenCommunity