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Energy communities as digitally decentralized energy supply systems

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Human progress has often gone hand in hand with our energy development. However, it is nowadays unequivocally considered that our energy development and particularly our energy consumption is gradually leading more and more to the phenomenon of climate change. Looking at various studies, we can see that in the last 150 years, as our energy consumption has gradually been increasing, our global surface temperature over land and water has also risen by about 1.5 degrees Celsius.

In the last couple of years, these developments have rung several alarm bells internationally, so that as a result, various treaties, agreements, etc. have been concluded on a global stage.
One of the best known and most extensive ones is probably the Paris Agreement. Following its magnitude and ambitious realization, the European Union then concluded the Clean Energy Package in 2019, in order to help push the implementation at the Union level.

The core content of the Clean Energy Package

Already in 2016, the European Commission presented the “Clean Energy for all Europeans Package” for the first time. It consists of four regulations and four directives, each of which were adopted by the European Parliament in the time frame from the end of 2018 to early summer of 2019.  The package aims to make a significant contribution to stopping climate change, but above all, to usher in a new era of energy policy and to focus on individual citizens, by giving them a great deal of flexibility but also an impetus to take action themselves.

Among other things, the Clean Energy Package should simplify the process of switching electricity suppliers (in up to 24 hours). In addition, dynamic pricing and intelligent electricity meters will help to save costs and energy. However, in the event of impending energy poverty – quasi-droughts – the member state should then have the authority and it should also be able to regulate market prices at short notice and actively support and protect affected households. Furthermore, a support cap for environmentally harmful power plants in Europe is to apply from 2025. This measure will include all power plants that use fossil fuels.

The member states are also instructed to assess the risk of capacity bottlenecks, draw up national plans and to cooperate and support each other on a regional level.

Thus, ultimately, by 2030, in addition to the goal of gaining 32% of energy demand from renewable sources, greenhouse gas emissions should be reduced by 40%.
At the same time, energy efficiency should increase by at least 32.5% and at least 15% of the networks should be interconnected on a Union-wide level.

However, in achieving these ambitious goals, the European Clean Energy Package envisages that one of the key segments should be the new format of so-called energy communities – which have been defined in the Renewable Energy Directive 2018/2001 and are to be implemented nationally in the same way as the other directive topics according to Art 288 TFEU.

Two concepts of energy communities

The EU has set two similar concepts of energy communities through its directives –
the “renewable energy communities” (Renewable Energy Directive (EU) 2018/2001) on the one side and the “citizen energy communities” (Internal Electricity Market Directive (EU) 2019/944) on the other side. The idea behind both of them is to push the creation of communities that organize collectively and of citizen-driven energy actions, which will help to pave the way for a much-needed clean energy transition while moving the individual citizens to the fore.
Let’s take a deeper look at their respective structure.

Art 2 sec 16 of the Renewable Energy Directive (RED II) defines a renewable energy community as a “legal entity”,

  • which, in accordance with the legislation currently in force, is based on open and completely voluntary participation, is autonomous/independent and is under the effective control of the members or shareholders established in the immediate vicinity of the renewable energy projects owned and operated by that legal entity,
  • whose members or shareholders are natural persons, local authorities or municipalities, or small and medium-sized enterprises,
  • and whose aspiration is not primarily based on financial gain, but is to provide economic, social community and/or environmental benefits to its shareholders or members in which it is active.

Those communities have the right to collectively generate, consume, sell and store renewable energy. In addition, those entities shall generate a wider adoption of renewable energies, active participation in the energy transition, local investments, a reduction of energy consumption, lower supply tariffs, an improvement of energy efficiency and, in view of that, lead to the elimination of any energy poverty.

On the other hand, there is the citizen energy community, which was introduced by the Electricity Directive (ED II). It is defined in art 2 sec 11 as a legal entity,

  • which is based on open and completely voluntary participation and which is actually controlled by its members or shareholders, who may be natural persons, but also legal entities (like local authorities or small businesses);
  • whose main focus is not based on a financial return, but rather on offering community, economic or environmental benefits to its members/shareholders or to the local areas in which it operates;
  • and may additionally operate in the areas of generation, supply, distribution, consumption, aggregation, storage and services (in the energy sector) for its shareholders/members.

At first sight, they both seem quite similar, but there are some fundamental differences. In short, citizen energy communities are communities that operate on a supra-regional basis and jointly use, store or sell their generated energy, and are not limited to renewable sources.
Additionally, any actor can participate in such a community as long as shareholders or members, which are engaged in large scale commercial activity and for whom the energy area is constituting a primary field of economic activity, do not exercise any decision-making power. Renewable energy communities, on the other hand, are regionally active players that are spatially limited to the generation, use, storage and sale of renewable energy, but will additionally benefit from lower local grid tariffs and presumably from a tax exemption, as they can operate on lower levels of the grid due to their geographical regionality. The renewable energy communities must be capable of staying autonomous, and also the participation of the members mustn’t constitute their primary economic activity. As a practical example, one could outline the following simple scenario: If 10 households in a locality join together to form an independent society, invest jointly in a suitable photovoltaic system and use the energy generated from it together, this will be known as a renewable energy community.

The idea behind the energy communities seems promising on paper, but the EU`s goals behind them are ambitious and require, in addition to the legal framework, a social rethinking of the European population, a steady backing of the state (at least initially) and, last but not least, the support of power-generating companies, without which the plan to generate 100% of the total electricity demand from renewable energy sources in the near future (and fulfilling the goals set for 2030 and 2050) will not be feasible.

Challenges

One of the biggest challenges in this regard will be solving the question on how to create as many incentives as possible for every individual to ensure the establishment and participation in energy communities, as they are supposed to have such a large contribution to the energy transition.

One of these incentives could be that the energy communities would also be regarded as companies for tax purposes and thus become entitled to deduct input tax. The rules for when a community is considered a business / or has entrepreneurial status for tax purposes vary somewhat from state to state. However, most of them follow the principle of the three fundamental pillars – permanence, self-sufficiency and intent to generate revenue. The new energy communities are fulfilling all three of these conditions. Especially the critical third point, namely the intention to generate revenue is met, since an energy community is subject to an exchange of services – electricity for reimbursement of costs – which altogether should ultimately suffice for the status of entrepreneurship, regardless of whether the revenue generation is in the foreground or not. So in my opinion the option for input tax deductibility should be affirmative. In such a scenario, a community could at least be reimbursed, (depending on the respective state) in Austria or Germany, for example, with 20% of the costs for maintenance, repair, purchases and thus make the model of energy communities even more economically attractive.

Another issue is the choice of the corporate form. When the EU announced the Clean Energy Package including the energy communities, it also stipulated that an easy entry and exit from the community must be possible for each individual. Of course, this also raises the question of which legal form to choose. The choice of legal form ultimately determines the organizational effort, the costs and the liability regime to a large extent. The legal form of public limited companies will probably be too expensive for small energy communities of private means and superstructure.. In the case of limited liability companies, the strict formal requirements could result in difficulties with flexible changes of members, and in the case of associations and cooperatives, the ideational purpose must be clearly in the foreground, which could also become problematic in the instance of larger communities. Here, I think that real-life practice will show which legal form will prevail.

Likewise, the question of benefits vs. expenses is a valid one. From a purely economic and technological point of view, the entire power grid benefits from the fact that local energy communities are to consume the electricity where it is generated. This means that the electricity does not have to be transported over wide and higher-ranking network levels. This should also save the customers/members of such local energy communities a significant amount of money in grid fees for higher-level grid tiers. However, the question that is actually arising during the first implementation, is who and how exactly one would set up a simple, functioning platform where everyone from young to old, from technology aficionados to technology muffles can participate in this new way of energy consumption and exchange.

Several research projects are currently underway to solve these initial problems. It is already clear that a separate support and funding office is to be set up nationally (maybe even on a European stage), which is to serve as a kind of contact point for any questions from interested parties and is also to help and encourage the founding of energy communities in this regard. With this in mind, many countries are considering the use of additional limited funding, for example, through special quotas and funding opportunities that are only granted for a limited initial period. In this way, first movers would ultimately generate advantages and, as an additional effect, it would likely be possible to achieve a greater influx to the energy communities right from the start.

Opportunities

Energy communities will allow us to combine technological innovations. The goal is to turn a user not only into a consumer but also into a producer, a so-called prosumer.
Energy communities could soon be expanded to include other energy services, such as e-mobility concepts, where electric cars could also be used jointly as part of a car sharing system. In a further step, these e-cars could also serve as additional electrical storage units that can be supplied to the community via an intelligent e-charging station in the event of energy shortages.

Blockchain is also currently experiencing a big buzz in the energy sector. Just to name one example: This technology could be combined with digital platforms (apps) for energy communities in order to achieve better traceability and documentation by visualizing individual energy consumption, for example, and to create an additional incentive for the individual members of an energy community to save energy (competitions, prizes).

Through the implementation of energy communities on a large scale, the cityscapes will also have to change so that the broad masses will be involved as well. This opens up an opportunity to develop new innovations through broad public input and, subsequently, to work as a community on a sustainable city, community and region of the future.

Lastly, it is important to note that the Clean Energy Package and the goals it enshrines will also create many new jobs. Installations of megawatt solar farms on rooftops over agricultural land or between crops will provide additional revenue streams for farmers. The recycling of photovoltaic systems with a service life of 20-30 years will also offer a large, yet almost untapped, market with considerable potential. Experts expect up to 4 million new jobs to be created in the next 15-20 years in connection with the energy turnaround in the European Union alone.

As one can see, the goals are set high – it remains to be hoped that as many of these subpoints as possible can be implemented to finally achieve the great goal of the energy transition and the associated reversal of climate change in the upcoming decades.

Mak Bajrektarevic of the Vienna University of Economics. Besides researching legal and energy aspects of the contemporary world (authoring numerous articles and co-authoring the book on the topic for the US publisher), he is cofounder of the largest university sports platform in Europe, ACSL.

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Energy transition is a global challenge that needs an urgent global response

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COP26 showed that green energy is not yet appealing enough for the world to reach a consensus on coal phase-out. The priority now should be creating affordable and viable alternatives 

Many were hoping that COP26 would be the moment the world agreed to phase out coal. Instead, we received a much-needed reality check when the pledge to “phase out” coal was weakened to “phase down”. 

 This change was reportedly pushed by India and China whose economies are still largely reliant on coal. The decision proved that the world is not yet ready to live without the most polluting fossil fuels. 

 This is an enormous problem. Coal is the planet’s largest source of carbon dioxide emissions, but also a major source of energy, producing over one-third of global electricity generation. Furthermore, global coal-fired electricity generation could reach an all-time high in 2022, according to the International Energy Agency (IEA).

 Given the continued demand for coal, especially in the emerging markets, we need to accelerate the use of alternative energy sources, but also ensure their equal distribution around the world.

 There are a number of steps policymakers and business leaders are taking to tackle this challenge, but all of them need to be accelerated if we are to incentivise as rapid shift away from coal as the world needs. 

 The first action to be stepped up is public and private investment in renewable energy. This investment can help on three fronts: improve efficiency and increase output of existing technologies, and help develop new technologies. For green alternatives to coal to become more economically viable, especially, for poorer countries, we need more supply and lower costs.

 There are some reasons to be hopeful. During COP26 more than 450 firms representing a ground-breaking $130 trillion of assets pledged investment to meet the goals set out in the Paris climate agreement. 

 The benefits of existing investment are also becoming clearer. Global hydrogen initiatives, for example, are accelerating rapidly, and if investment is kept up, the Hydrogen Council expects it to become a competitive low-carbon solution in long haul trucking, shipping, and steel production.

 However, the challenge remains enormous. The IEA warned in October 2021 that investment in renewable energy needs to triple by the end of this decade to effectively combat climate change. Momentum must be kept up.

 This is especially important for countries like India where coal is arguably the main driver for the country’s economic growth and supports “as many as 10-15 million people … through ancillary employment and social programs near the mines”, according to Brookings Institute.  

This leads us to the second step which must be accelerated: support for developing countries to incentivise energy transition in a way which does not compromise their growth. 

Again, there is activity on this front, but it is insufficient. Twelve years ago, richer countries pledged to channel US$100 billion a year to less wealthy nations by 2020, to help them adapt to climate change. 

The Organization for Economic Cooperation and Development estimates that the financial assistance failed to reach $80 billion in 2019, and likely fell substantially short in 2020. Governments say they will reach the promised amount by 2023. If anything, they should aim to reach it sooner.

There are huge structural costs in adapting electricity grids to be powered at a large scale by renewable energy rather than fossil fuels. Businesses will also need to adapt and millions of employees across the world will need to be re-skilled. To incentivise making these difficult but necessary changes, developing countries should be provided with the financial support promised them over a decade ago.

The third step to be developed further is regulation. Only governments are in a position to pass legislation which encourages a faster energy transition. To take just one example, the European Commission’s Green Deal, proposes introduction of new CO2 emission performance standards for cars and vans, incentivising the electrification of vehicles. 

This kind of simple, direct legislation can reduce consumption of fossil fuels and encourage industry to tackle climate change.

Widespread legislative change won’t be straightforward. Governments should closely involve industry in the consultative process to ensure changes drive innovation rather than add unnecessary bureaucracy, which has already delayed development of renewable assets in countries including Germany and Italy. Still, regardless of the challenges, stronger regulation will be key to turning corporate and sovereign pledges into concrete achievements. 

COP26 showed that we are not ready as a globe to phase out coal. The priority for the global leaders must now be to do everything they can to drive the shift towards green energy and reach the global consensus needed to save our planet.

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Pakistan–Russia Gas Stream: Opportunities and Risks of New Flagship Energy Project

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source: twitter

Russia’s Yekaterinburg hosted the 7th meeting of the Russian-Pakistani Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation on November 24–26, 2021. Chaired by Omar Ayub Khan, Pakistan’s Minister for Economic Affairs, and Nikolai Shulginov, Russia’s Minister of Energy, the meeting was attended by around 70 policy makers, heads of key industrial companies and businessmen from both sides, marking a significant change in the bilateral relations between Moscow and Islamabad.

Three pillars of bilateral relations

Among the most important questions raised by the Commission were collaboration in trade, investment and the energy sector.

According to the Russian Federal Customs Service, the Russian-Pakistani trade turnover increased in 2020 by 45.8% compared to 2019, totaling 789.8 million U.S. dollars. Yet, there is still huge potential for increasing the trade volume for the two countries, including textiles and agricultural products of Pakistan and Russian products of machinery, technical expertise as well as transfer of knowledge and R&D.

Another prospective project discussed at the intergovernmental level is initiating a common trade corridor between Russia, the Central Asia and Pakistan. Based on the One-Belt-One-Road concept, launched by China, the Pakistan Road project is supposed to create a free flow of goods between Russia and Pakistan through building necessary economic and transport infrastructure, including railway construction and special customs conditions. During the Commission meeting, both countries expressed their intention to collaborate on renewal of the railway machines fleet and facilities in Pakistan, including supplies of mechanized track maintenance and renewal machines; supplies of 50 shunting (2400HP or less) and 100 mainline (over 3000HP) diesel locomotives; joint R&D of the technical and economic feasibility of locomotives production based in the Locomotive Factory Risalpur and other. The proposed contractors of the project might be the Russian Sinara Transport Machines, Uralvagonzavod JSC that stand ready to supply Pakistan Railway with freight wagons, locomotives and passenger coaches. In order to engage import and export activities between Russian and Pakistani businessmen, the Federation of Pakistan Chamber of Commerce signed a memorandum with Ural Chamber of Commerce and Industry, marking a new step in bilateral relations. Similar memorandums have already been signed with other Chambers of Commerce in Russian regions.

— Today, the ties between Russia and Pakistan are objectively strengthening in all areas including economic, political and military collaboration. But we, as businessmen, are primarily interested in the development of trade relations and new transit corridors for export-import activities. For example, the prospective pathways of the Pakistan-Central Asia-Russia trade and economic corridor project are now being actively discussed at the intergovernmental level, — said Mohsin Sheikh, Director of the Pakistan Russia Business Council of the Federation of Pakistan Chambers of Commerce and Industry. — For Islamabad, this issue is one of the most important. Based on a similar experience of trade with China, we see great prospects for this direction. That is why representatives of Pakistan’s government, customs officers, diplomats and businessmen gathered in Yekaterinburg today.

However, the flagship project of the new era of the Pakistan-Russia relations is likely to be the Pakistan Gas Stream. Previously known as the North-South Gas Pipeline, this mega-project (1,100 kilometers in length) is expected to cost up to USD 2,5 billion and is claimed to be highly beneficial for Pakistan. Being a net importer of energy, Pakistan will be able to develop and integrate new sources of natural gas and transport it to the densely populated industrialized north. At the same time, the project will enable Pakistan—whose main industries are still dependent on the coal consumption—to take a major step forward gradually replacing coal with relatively more ecologically sustainable natural gas. To enable this significant development in the Pakistan’s energy sector, Moscow and Islamabad have made preliminary agreements to carry on the research of Pakistan’s mineral resource sector including copper, gold, iron, lead and zinc ores of Baluchistan, Khyber Pukhtunkhwa and Punjab Provinces.

A lot opportunities but a lot more risks?

The Pakistan Stream Gas Pipe Project undoubtedly opens major investment opportunities for Pakistan. Among them are establishment of new refineries; the launch of virtual LNG pipelines; building of LNG onshore storages of LNG; investing in strategic oil and gas storages. Yet, it seems that Pakistan is likely to win more from the Project than Russia. And here’s why. The current version of the agreement signed by Moscow and Islamabad has been essentially reworked. According to it, Russia will likely to receive only 26 percent in the project stake instead of 85 percent as it was previously planned, while the Pakistani side will retain a controlling stake (74 percent) in the project.

Another stranding factor for Russia is although Moscow will be entitled to provide all the necessary facilities and equipment for the building of the pipeline, the entire construction process will be supervised by an independent Pakistani-based company, which will substantially boost Pakistan’s influence at each development. Finally, the vast bulk of the gas transported via the pipeline will likely come from Qatar, which will further strengthen Qatar’s role in the Pakistani energy sector.

Big strategy but safety first

The Pakistan Stream Gas Pipeline will surely become an important strategic tool for Russia to reactivate the South Asian vector of its foreign policy. Even though the project’s aim is not to gain a fast investment return and economic benefits, it follows significant strategic goals for both countries. As Russia-India political and economic relations are cooling down, Moscow is likely to boost ties with Pakistan, including cooperation in economy, military, safety and potentially nuclear energy, that was highlighted by Russian Foreign Minister Sergey Lavrov during visit to Islamabad earlier this year. Such an expansion of relations with Pakistan will allow Russia to gain a more solid foothold in the South Asian part of China’s BRI, thus opening up a range of new lucrative opportunities for Moscow.

Apart from its economic and political aspects, the Pakistan Stream Project also has clear geopolitical implications. It marks Russia’s growing influence in South Asia and points to some remarkable transformations that are currently taking place in this region. The ongoing geopolitical game within the India-Russia-Pakistan triangle is yet less favorable for New Delhi much because of the Pakistan Stream Project. Even though the project is not directly aimed to jeopardize the India’s role in the region, it is considered the first dangerous signal for New Delhi. For instance, the International “Extended troika” Conference on Afghanistan, which was held in Moscow last spring united representatives from the United States, Russia, China and Pakistan but left India aside (even though the latter has important strategic interests in Afghanistan).

With the recent withdrawal of the U.S. military forces from Afghanistan, Moscow has become literally the only warden of Central Asia’s security. As Russia is worried about the possibility of Islamist militants infiltrating the Central Asia, the main defensive buffer in the South for Moscow, the recent decision of Vladimir Putin to equip its military base in Tajikistan, which neighbors Afghanistan, seems to be just on time. Obviously, Islamabad that faces major risks amidst the Afghanistan crisis sees Moscow as a prospective strategic partner who will help Imran Khan strengthen the Pakistani efforts in fighting the terrorism threat.

From our partner RIAC

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How wind power is transforming communities in Viet Nam

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In two provinces of Viet Nam, a quiet transformation is taking place, driven by the power of renewable energy.

Thien Nghiep Commune, a few hundred kilometres from Ho Chi Min City, is a community of just over 6,000 people – where for years, people relied largely on farming, fishing and seasonal labour to make ends meet.

Now, thanks to a wind farm backed by the Seed Capital Assistance Facility (SCAF) – a multi-donor trust fund, led by the United Nations Environment Programme (UNEP) – people in the Thien Nghiep Commune are accessing new jobs, infrastructure and – soon – cheap, clean energy. The 40MW Dai Phong project, one of two wind farms run by SCAF partner company the Blue Circle, has brought new hope to the community.

For the 759 million people in the world who lack access to electricity, the introduction of clean energy solutions can bring improved healthcare, better education and affordable broadband, creating new jobs, livelihoods and sustainable economic value to reduce poverty.

“It’s not only about the technology and the big spinning wheel for me. It’s more about making investment decisions for the planet and at the same time not compromising on the necessity that we call electricity,” said Nguyen Thi Hoai Thuong, who works as a community liaison. “The interesting part is I work for the project, but I actually work for the community and with the community.”

While the wind farm is not yet online, a focus on local hiring and paying fair prices for land has already made a big difference to the community.

“I used the money from the land sale to the Dai Phong project to repair my house and invest in my cattle. Currently, my life is stable and I have not encountered any difficulties since selling the land,” said Ms. Le Thi Doan.

Powering change

The energy sector accounts for approximately 75 per cent of total global greenhouse gas emissions (GHGs). UNEP research shows that these need to be reduced dramatically and eventually eliminated to meet the goals of the Paris Agreement.

Renewable energy, in all its forms, is one of humanity’s greatest assets in the fight to limit climate change. Capacity across the globe continues to grow every year, lowering both GHGs and air pollution, but the pace of action must accelerate to hold global temperature rise to 1.5 °C this century.

“To boost growth in renewables, however, companies need to access finance,” said Rakesh  Shejwal, a Programme Management Officer at SCAF. “This is where SCAF comes in. SCAF works through private equity funds and development companies to mobilize early-stage investment low-carbon projects in developing countries.”

The 176 projects it seed financed have mobilized US $3.47 billion to build over one gigawatt of generation capacity, avoiding emissions of 4.68 million tons of carbon dioxide (CO2) equivalent each year.

But SCAF’s work isn’t just about cutting emissions. It is bringing huge benefits across the sustainable development agenda: increasing access to clean and reliable electricity and boosting communities across Asia and Africa. SCAF will be potentially creating 17,000 jobs.

This is evident in Ninh Thuan province, where the Blue Circle created both the first commercial wind power project and the first to be commissioned by a foreign private investor in Viet Nam.

Here, the Dam Nai wind farm has delivered fifteen 2.625 MW turbines, the largest in the country at the time. These will generate approximately 100 GWh per year. They will avoid over 68,000 tCO2e annually and create more than an estimated 302 temporary construction and 13 permanent operation and maintenance jobs for the local community.

Students from the local high school in Ninh Thuan Province were also given the opportunity to meet with engineers and technicians on the project, increasing their knowledge about how renewable energy works and opening up new career paths.

SCAF, through its partners, is supporting clean energy project development in the Southeast Asian region and African region. SCAF has more than a decade of experience in decarbonization and is currently poised to run till 2026.

UNEP

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