Unintended consequences: The snowball effect of energy communities

Significance 

Development of alternative renewable energy sources and their incorporation within existing grid systems has been the focus of numerous reports of late. In particular, the US community and Shared Solar initiatives provide some vehicles to broaden the participation of individuals in the energy transition by giving access to an investment option into solar technology. For instance, shared solar that falls under the Community Solar umbrella, allows multiple participants to benefit from a jointly produced energy. Such a shared system necessitates a fair value sharing to ensure the long-term stability of the communities. This requires, in particular, that the coalition generates some value (in the form of reduced grid charges and electricity bills) that could be shared in a satisfactory way among its members, so that no sub-coalition can form in the community. More precisely, stable allocations are such that the sharing of the total value created by an energy community is done in a way that satisfies all sub-coalitions: members of any sub-coalition receive more than what they get when they stand alone. In addition, the existence of such communities might create a negative impact on the power system. For instance, low-contributing customers (the communities extracting less power from the grid) result in lower income for distribution companies that incur some costs to maintain the grid and that might then increase their tariffs to all customers. Higher tariffs might hence lead to more consumers investing in PV and forming energy communities, creating a snowball effect. Available literature on this has so far concentrated on individual prosumers and on the fact that the presence of the grid provides a service (in terms of reliability).

The choice between fixed or variable grid charges will affect the investment choices of the community. In the US, the first signs of the snowball effect are starting to appear. Therefore, a worthwhile solution would be timely. To this end, ENGIE Impact scientists: Dr. Ibrahim Abada and Dr. Andreas Ehrenmann, in collaboration with Professor Xavier Lambin at the Grenoble School of Management in France critically evaluated the interaction between stable energy communities as mediated through grid tariffs, using an equilibrium formulation in a non-cooperative game theory framework. Their work is currently published in the research journal, Energy Policy.

In their approach, the inner stability of an energy community was addressed using cooperative game theory by finding stable core allocations. Then, their focus was to model and solve the non-cooperative equilibrium between the Distribution System Operator and energy communities. The team developed a simple setting depicting how a snowball effect may arise and how game theoretical considerations may modify conditions for such phenomena to occur. Overall, they engaged in numerous numerical analysis of various energy communities which they modeled along with the System Operator.

The authors reported grid tariffs to be strong determinant of community formation, and of the subsequent installation of new technologies once communities are formed. In addition, they noted that a constraint in grid cost recovery meant substantial spillovers between communities via a snowball effect.

In summary, the study demonstrated that restraining and focusing on a simple cost-benefit analysis is far from satisfactory to assess a snowball effect of energy communities.  Game-theoretic considerations are also needed. The authors also note that depending on policymakers’ motivations, the snowball effect may be deemed beneficial especially if the policy goal is to increase PV or battery installations. In a statement to Advances in Engineering, the authors explained their study was able to draw some recommendations regarding the grid tariff composition, that allowed them to bring the overall structure of energy communities close to the optimal system investment setting of renewable production and storage devices.

Unintended consequences: The snowball effect of energy communities - Advances in Engineering

About the author

Xavier Lambin is an applied theory and empirical economist. His research interests cover Industrial Organization, Machine Learning, Market Design and Regulation. He is an engineer from Ecole Polytechnique and Ecole des Mines. After two years of strategy consulting, he completed a PhD in Industrial Economics at the Toulouse School of Economics in collaboration with ENGIE, obtained in 2019. He joined Grenoble Ecole de Management the same year as Assistant Professor. His research focuses on the architecture of electricity markets and the digital economy.

About the author

Andreas Ehrenmann holds a Diploma degree in Wirtschaftsmathematik (Mathematics with Economics) from the Karlsruhe Institute of Technology Germany, a PhD in Management Science, University of Cambridge, The Judge Institute of Management. He received the prize for the best Energy publication by INFORMS in 2013, is an associate researcher to the University of Cambridge Energy Policy Research Group and member of the editorial board of the IAEE journal Economics of Energy and Environmental Policy.

Andreas Ehrenmann is currently a director at ENGIE Impact responsible for a department that provides economic analysis about the future evolution of the energy systems to support investment decision and market design question like the current discussion on capacity markets or congestion management rules in the context of market coupling and data driven analysis and risk assessment.

About the author

Dr. Ibrahim ABADA is a Senior energy systems Analyst with ENGIE Impact. He holds a PhD in Economics with a specialization in Applied Mathematics from the University of Nanterre, an engineering degree from the Grande Ecole Polytechnique of France and a Masters degree in Physics. Ibrahim has more than 10 years of experience in the energy sector, where he combines his skills in economics, mathematical programming and machine learning to assist different decision makers to deeply analyze energy systems and markets with the purpose to achieve the overall energy transition. In that vein, he recently contributed to projects of the European Commission analyzing regulatory and financial levers to foster the development of Citizen Energy Communities in Europe. He also actively contributes to the research on the topic of investments in risky environments in the context of increasing penetration of renewables in the European power systems.

During the past three years, Ibrahim focused his interest on the application of advanced geographical and analytical techniques to help actors involved in the effort of rural electrification in Africa.

Reference

Ibrahim Abada, Andreas Ehrenmann, Xavier Lambin. Unintended consequences: The snowball effect of energy communities. Energy Policy; volume 143 (2020) 111597.

Go To Energy Policy

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