Unintended consequences: The snowball effect of energy communities

• Published in: Energy policy 2020-08, Vol.143, p.111597, Article 111597
• Main Authors: Abada, Ibrahim, Ehrenmann, Andreas, Lambin, Xavier
• Format: Article
• Language: English
• Subjects: Batteries; Business; Community; Consumer participation; Cooperation; Cooperative game theory; Decentralized power production; Deployment; Energy; Energy communities; Energy distribution; Energy policy; Financial analysis; Game theory; Humanities and Social Sciences; Investments; Mathematical analysis; Mathematical models; Micro-grids; Non-cooperative game theory; Renewable energy; Solar energy; Solar panels; Tariffs
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2020.111597

In 2019, the European Commission finalized a legal framework for “Citizens” and “Renewable Energy Communities”, paving the way for their deployment. While the benefits of such communities have been discussed, there is increasing concern that inadequate grid tariffs may lead to excess adoption of such business models. Furthermore, snowball effects may be observed following the effects these communities have on grid tariffs. We show that restraining the study to a simple financial analysis is far from satisfactory. Therefore, we use the framework of cooperative game theory to take account of the ability of communities to share gains between members. The interaction between energy communities and the distribution system operator then results in a non-cooperative equilibrium. We provide mathematical formulations and intuitions of such effects, and carry out realistic numerical applications where communities can invest jointly in solar panels and batteries. We show that such a snowball effect may be observed, but its magnitude and its welfare effects will depend on the grid tariff structure that is implemented, leading to possible over-investments in photo-voltaic panels. In particular, we find that setting a fixed grid tariff strongly mitigates such over-investments. •Grid tariffs may strongly condition the formation of energy communities (ECs).•Investments therein will be affected too.•Grid cost recovery constraints mean tariffs may increase following EC formation.•This may cause further EC formation (snowball effect).•Connection fees favour EC formation, possibly at the expense of system efficiency.