What Are Renewable Energy Communities and How Will They Grow?

Aug. 27, 2021
Renewable energy communities — a natural companion to microgrids — are arriving in Europe as the result of a new EU directive. Here’s how they work…and how they may evolve.

The new Renewable Energy Directive (RED II) in Europe establishes a target of 32% renewable energy by 2030, and calls for citizens to help develop renewable energy. As part of that directive, the European Union enables renewable energy communities and self-consumption of renewable energy.

Every country in Europe by the end of the year is expected to incorporate these concepts into national laws. In Miranda do Douro, a municipality in northern Portugal, the process has begun, with Cleanwatts helping to establish the country’s first energy community  allowed under the country’s new legal framework that’s based on RED II.

An energy community is made up of participants who jointly benefit from local clean energy, said Michael Pinto, co-founder and CEO of Cleanwatts, a software company that aims to accelerate energy decarbonization for companies and communities globally. The communities — which generally use 100 kW to 2 MW of solar — can be based in remote villages, suburban neighborhoods, business parks, industrial parks, resorts or other locations and can include energy storage and other assets, in front of or behind the meter, he said.

Miranda do Douro chapter of Santa Casa da Misericórdia, courtesy Cleanwatts

Energy communities provide clean energy to participants — at costs up to 40% less expensive than traditional utility power — and are especially helpful to people experiencing energy poverty, said Pinto. His software company offers energy efficiency services and also aggregates clean energy assets, selling them into utility markets, much like OhmConnect in California.

The energy communities don’t island from the grid. Instead, the clean energy generation makes up about 40% to 70% of the community’s needs, he said.

One option for the communities is to deploy community storage. Pinto described this as smaller batteries scattered around the community to provide clean energy when energy costs from utilities are high.

Cleanwatts can manage the batteries and PV installed in the communities to help the grid avoid brownouts and blackouts, much like other software companies have done in California.

Gathering momentum

In addition to launching the first project in Miranda do Douro, a municipality with a population of about 10,000 people, Cleanwatts plans to convert about 100 more villages into energy communities across Portugal. And Cleanwatts is developing and supporting a variety of similar energy community efforts, as well as commercial and industrial self-consumption communities in countries across Europe and in the the U.S. and Brazil, he said.

Additional clean resources can help these energy communities thrive, said Pinto.

“We need to complement these communities with local implementation of microgrids, community solar and community choice aggregations. These kinds of things are gathering momentum the world over. We see interest in the US, Europe and Asia,” said Pinto.

Portugal’s first foray into energy communities will begin with an anchor tenant, which is critical to the process because such tenants can attract others into the community. In this case, the anchor tenant is the Miranda do Douro chapter of Santa Casa da Misericórdia, a Portuguese charity launched in 1498 that supports people affected by illness or disability and cares for abandoned newborns. The organization now employs more than 45,000 people worldwide and has more than 2,000 locations around the world, which provides opportunities to spread the word quickly about energy communities.

“The anchor tenant said, ‘We want to be the anchor and lure in other participants.’ It’s great for us. We don’t have to go door-to-door knocking,” said Pinto. The municipality, Miranda do Douro, and the charity organization have made it their mission to spread the word about the energy community.

Solar PV installed on rooftops will be a main feature of the community in Portugal. The community is expected to grow by adding energy consumers as well as prosumers who own solar and storage assets.

One selling point for energy communities that’s expected to boost their growth: Participants don’t make any upfront payments for the assets installed in their homes and businesses. They repay investors through monthly charges, which are lower than their utility bills.

Third-party capital

“…like “micro power purchase agreements with a community”

Under the Cleanwatts model for these communities, third-party investors pay for the cost of the clean energy assets, generally providing $1 million upfront.  Pinto said.

“We bring third-party capital. The investors invest $1 million upfront. We find engineering, procurement and construction. We bring that in and switch on our operating system. It’s like a turnkey solution,” said Pinto. The energy community owns the assets after about 15 years, he said.

Funds, banks and private investors are interested in these projects because investment rates of return are in the 5% to 10% range. “It’s a good investment and a win for local participants,” said Pinto. “If you don’t solve for the finance side early, you are stuck in limbo.”

Cleanwatts’ software is designed to combine real-time energy efficiency services with the ability to take advantage of local generation and storage assets, selling it into markets.

The company tracks what participants consume and then bills the communities.

Anchor tenants such as the charity organization in Portugal are expected to spread the word about the communities. Meanwhile, Cleanwatts is looking for partners in many countries, including the US. It is searching for partners in countries that incentivize distributed energy resources (DER). The partners might include commercial companies with a national or international presence or clean energy companies, he said.

Long term, a number of factors will help energy communities multiply in Europe and other countries.

Software is the play

“To integrate DER, utilities can’t wait for infrastructure upgrades but benefit instead from software programs that help with the integration.”

“The commoditization of DER drives demand for DER; people are buying into storage and PV. Local grids are not designed for this intermittency, which creates a need that has to be addressed,” said Pinto. To integrate DER, utilities can’t wait for infrastructure upgrades but benefit instead from software programs that help with the integration.

Ultimately, policies that encourage the use of DER  will help energy communities grow and thrive. A promising market in the US is California, which offers a number of DER incentives, said Pinto.

“The real magic happens with sound policies that incentivize equitable use of all these assets,” said Pinto.

A former employee of General Electric, Pinto decided to help create Cleanwatts after thinking long and hard about how he wanted to spend the last years of his career.

“For me, personally, this is hugely rewarding. I want to do something to help the energy transition,” he said.

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About the Author

Lisa Cohn | Contributing Editor

I focus on the West Coast and Midwest. Email me at [email protected]

I’ve been writing about energy for more than 20 years, and my stories have appeared in EnergyBiz, SNL Financial, Mother Earth News, Natural Home Magazine, Horizon Air Magazine, Oregon Business, Open Spaces, the Portland Tribune, The Oregonian, Renewable Energy World, Windpower Monthly and other publications. I’m also a former stringer for the Platts/McGraw-Hill energy publications. I began my career covering energy and environment for The Cape Cod Times, where Elisa Wood also was a reporter. I’ve received numerous writing awards from national, regional and local organizations, including Pacific Northwest Writers Association, Willamette Writers, Associated Oregon Industries, and the Voice of Youth Advocates. I first became interested in energy as a student at Wesleyan University, Middletown, Connecticut, where I helped design and build a solar house.

Twitter: @LisaECohn

Linkedin: LisaEllenCohn

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