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Empowering European Energy Sharing: Seizing Growth Opportunities

Summary

Energy Sharing Models are rapidly gaining momentum and becoming a burning topic of the energy transition in Europe. We argue that instead of opposing the growth of energy sharing models because they represent a threat to traditional energy retail revenues, energy suppliers should instead start tapping into the business opportunities of this growing market.

The market for energy sharing models is reaching a tipping point in Europe

First of all, what are energy sharing models? 

Energy sharing models are transactive environments, parallel to the main electricity market and directed by internal rules, that allow the sharing of clean energy to bring economic and emotional benefits to consumers.  

Energy sharing models are key to increasing the affordability and accessibility of renewable energy: 

  • Consumers can benefit from decentralised renewable energy even though they might not be able to invest in individual self-consumption (because they are not homeowners or because they don’t have the investment capacity for example) 
  • They pay a fixed price for the energy shared, at a lower rate than electricity retail tariffs, thus providing them with a greater sense of control over their electricity bill, 
  • They feel more involved and connected to the local community, 
  • Producers and prosumers, on the other hand, can sell the energy they produce at a higher rate than the compensation they would receive from feed-in-tariffs or feed-in-premiums, thus improving the return on their investment.

 

Energy communities, energy cooperatives, peer-to-peer trading or collective self-consumption are all examples of energy sharing models. 

 

How is the market for energy sharing models growing in Europe? 

Up until rather recently, energy sharing models were dismissed as a niche market for climate conscious consumers, and even if there have been pilot projects of energy communities since the 1970s, the market remained immature due to: 

  • A lack of regulatory frameworks providing the conditions for energy sharing, 
  • A lack of interest and awareness from customers, 
  • A low smart meter rollout in most European countries, 
  • And the overall lack of proof of concept that energy sharing models are financially, technically and organisationally feasible, profitable and replicable at scale. 

 

However, the energy crisis, its impact on electricity prices and the increasing urgency of decarbonising energy have brought more attention to energy sharing models than ever before. The market has gained rapid momentum in 2023 as a result of both bottom-up and top-down drivers.

 

On the one hand: 

  • The reform of the European electricity market design highlights energy sharing as a key tool of the European energy transition. Member States will need to ensure that all customers have the right to participate in energy sharing and that they shall not be treated unfairly by market players because they do so.  
  • Under the drive of the European Union, Member States are adopting or improving the regulatory framework for energy sharing. Recent examples include the adoption of energy sharing frameworks in Belgium or the enlargement of perimeters for collective self-consumption in Spain and France.  
  • Public authorities are starting to take energy sharing models much more seriously as key instruments to reach their decarbonisation targets and to improve the affordability of energy. 

 

On the other hand: 

  • Residential and C&I (Commercial and Industrial) customers are very rapidly gaining interest in ways to stabilise and reduce their energy bill, as well as to decarbonise their electricity, 
  • They have also been showing a growing distrust of large energy companies and energy suppliers and gaining interest in alternative energy suppliers. 

 

The growth of energy sharing models is unstoppable. Its scale and volume will however depend on how these drivers play out against persisting barriers: 

  • DSO (Distribution System Operators) and energy suppliers have been shown in several countries to resist the development of energy sharing models,  
  • It is taking time for local authorities, DSOs and suppliers to adapt their processes and build the internal capacity needed to streamline and automate the creation and metering of energy sharing models, 
  • From the customer side as well, energy sharing models remain complex to set up and manage, which can deter potential users.  

 

 

Even while taking a conservative stance, we estimate the market for energy sharing models to grow at a 8% CAGR between 2022 and 2030 across 11 countries studied. This would bring the number of residential customers whose energy is at least partly supplied through an energy sharing model to close to 9 million by 2030. 

All the stakeholders active in the energy sharing market agree that the growth of this market could be even higher, provided some of the market barriers are removed.  

 

How are energy suppliers positioning themselves in relation to energy sharing?

Bluntly put, at the moment, most of them are resisting the growth of the energy sharing market. 

Why is that? Because the energy that consumers buy from an energy sharing scheme is energy that they don’t buy from the grid. So, for energy suppliers, the growth of the energy sharing market is perceived as a loss of traditional retail revenues. 

Now, if we look into more detail at how energy suppliers position themselves, we see that they take one of the following three stances: 

  1. Covert or outright hostility: although a minority, some energy suppliers are resisting rather fiercely the growth of the energy sharing market, by putting additional barriers to customers who wish to participate in an energy sharing scheme. The most famous example is Belgian energy suppliers who charge additional ‘administrative fees’ to anyone sharing energy, that range from 50€-150€/year.  
  2. Wait-and-see’ approach: many energy suppliers perceive the energy sharing market as too niche to either fear or tap into. They expect to continue business-as-usual until the market grows enough to justify investing resources in it. This stance is a threat in and of itself, because it means that energy suppliers don’t adapt their internal systems to adapt to the specific billing of energy sharing schemes. It can result in issues ranging from double billing of participants, lengthy delays, or even no billing at all, which impedes the operational management of energy sharing models. 
  3. Early adopters: a minority of energy suppliers also see an opportunity in energy sharing models and have started offering services to customers wishing to start or join an energy sharing model. Examples include EDF Communitiz in France, the work of Enel X in Italy, or Iberdrola in Spain. 

 

It is worth mentioning that the second stance will usually coexist with either the first or the third stances. Very few energy suppliers have invested resources in adapting their billing procedures to the needs of energy sharing models. 

 

Why is it increasingly risky for energy suppliers to resist the growth of energy sharing, whether they do so actively or not?

 While it might have been possible until recently for energy suppliers to adopt a ‘wait-and-see’ approach or to directly oppose the development of energy sharing models, the very rapidly growing interest from regulatory bodies, political authorities and consumers in this market will make it increasingly hard and risky for energy suppliers to do so: 

  • Legal risk: the reform of the European electricity market design is clear on the fact that Member States need to ensure that energy suppliers don’t discriminate against energy sharing and that all market players adapt their procedures to allow for the creation and operation of energy sharing schemes. It is likely that regulatory authorities are going to start obligating energy suppliers to allow for the clear, timely and smooth activation and billing of energy sharing models. In fact, in Spain, the Catalan government opened an investigation of Endesa for delays in the activation of schemes which should result in fines between 600,000 and 6 million euros. 
  • Reputational risk: aside potential legal damage, delays and opposition caused by energy suppliers only strengthen the mistrust that customers have of their retailer. Energy retailers have already taken a nosedive in terms of trust and brand reputation as a result of the energy crisis, with studies showing that as many as 88% of customers do not trust their energy supplier. If they continue to fail to meet their customers’ demands for cheaper and cleaner energy, they risk worsening their image as large corporates, remote from customers’ expectations and an obstacle to the energy transition.  
  • Business risk: if energy suppliers focus on the loss of traditional energy retail revenues caused by energy sharing, what they don’t see are the many business opportunities that this market offers. Being active in the energy sharing market would help energy suppliers create new revenue streams to outweigh traditional retail revenue losses. More generally, LCP Delta has previously shown that the energy sector is at a pivotal point where energy companies need to discard the traditional volume-based commodity sales business model and replace it with advanced risk management solutions to protect customers and transformational new energy services in the downstream sector. Energy sharing models are a key piece of this puzzle and energy suppliers need to start better tapping into this market. 

 

How can energy suppliers tap into the energy sharing market? 

First of all, suppliers don’t need to directly work with energy sharing models to give their customers an opportunity to share energy. There are other less disruptive ways for them to ease into the provision of shared clean energy, such as virtual energy communities, as has been done by sonnen, for example. Although they can be offered anywhere, these value propositions are particularly well suited to countries where the market barriers to energy sharing models are still prevalent.  

In countries where the opportunities of energy sharing are much greater, energy suppliers should start by adapting their internal procedures to allow for the smooth activation and billing of operations. The key thing about energy sharing models is that they are complex to set up and manage, meaning it is highly unlikely that customers can do so by themselves. As a result, there are many ways for energy suppliers to tap into the energy sharing market, whether it be through consulting services, software platforms or build, own and operate models.  

Companies that are already active in this market help show what supporting energy sharing models might look like and which collaborations are possible: 

  • For example, EnergySwap is an independent energy platform that enables direct supply (peer-to-peer) of self-produced electricity between consumers and businesses in Belgium. 
  • Enogrid has been a key enabler of the French energy sharing sector by supporting the initiation, creation and management of collective self-consumption projects. 
  • And companies like Vergy have been developing innovative turnkey solutions to reduce entry barriers to collective self-consumption in Spain. 

 

All in all, the irony of the growth of energy sharing in Europe is that the companies who are resisting this rising tide of change could, instead, seize the opportunity it brings to move forwards with and profit from the transition. Not only would such a bold approach replace lost revenues, but it would also position them on the right side of history: to be perceived as a change-oriented brand rather than a change-resistant one. 


 

Subscribers can access the main report here and the company profiles here. 

If you are interested in subscribing to LCP Delta’s New Energy Business Model Research Service, feel free to get in touch with us at chloe.deparis@lcp.com or nigel.timperley@lcp.com. 

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