Energy communities as a business model for utilities

Energy Communities are one of the most talked about recent advancements in the world of energy, but what they are exactly and what kind of value proposition they provide is seen on a broad spectrum. There are many different definitions of communities – therefore, understanding energy communities requires us to first unpack the idea of community itself.

At a most basic level, a community is a group of people who share the same interests, needs or beliefs. When it comes to energy, we’re seeing that the common interests are often energy independence and climate change. While the trend towards local consumption and sharing economy is growing, the role of utilities has been brought into question. However, it can be argued that the energy industry is a perfect match with this idea of community – enabling distributed energy exchange, self-sufficient energy supply and possibly even peer-2-peer trading. Once utilities realize the importance and relevance of small scale distributed energy assets in households or businesses, they will also succeed with enabling the local energy transition.

The myth of self-sustainability

Self-sustainable energy communities are a great idea, but they don’t purely work on residential solar installations. Additional energy sources have to be deployed to cover night-time consumption, or times of low solar irradiation. This need could be covered with wind turbines, batteries or biogas installations, but the initial investment for those can be quite high, and that’s without factoring in maintenance costs. All elements considered, the idea of locally shared energy consumption has to be combined with some general supply and storage resources. This will require the necessary investment, being covered by the community or single sources, which will ask for a respective return as well.

Even if high initial investment costs are not a hurdle to set up a community network, regulation is currently making it especially difficult, or even impossible to move in the direction of a self-sufficient energy supply. In Germany, for instance, a trader of energy needs to first become an officially recognized energy producer – consequently, only a handful of energy communities, often implemented as pilot projects, have been realized to date.

Energy from the region for the region

However, energy communities could prove to be a realistic model if driven by the regional utility. By building a digital platform such as tiko’s, the utility can assess and optimize consumption and production of the community, and help to strengthen local energy security as well as grid stability. It will also help to reduce the need to import additional energy supply to the region or construct more transmission lines cutting through the countryside.

By connecting local households and balancing their energy consumption and production within a balancing group, utilities can provide valuable and innovative products and solutions to both existing and potential new customers. It gives utilities the opportunity to build stronger ties and transparency with its consumers – providing the solar, battery, and e-mobility solutions that are set to define the future of our energy supply.

The co-operative structure of energy communities will allow utilities to attract regional renewable energy producers to offer their energy locally as well. With that, new regional energy products and solutions can be offered on the basis of peer-to-peer exchange. As a result, the acceptance of new local wind or solar plants will increase drastically.

Digitalization as enabler for energy communities

Business models that are based on community solutions (the sharing economy) provide customers with a greater freedom of choice. This can only be realized with the help of digital innovation, such as allowing members of a community  to set individual preferences and visualize the local energy supplied by themselves and other members in the community. In this way, users will be able to see the degree of self-sufficiency present in their homes and community, and more importantly, where the energy has been generated. In addition, all of the devices in households and small businesses can be integrated on community platforms, thus assembling virtual decentralized power plants that will help us to further become independent of fossil fuels and drastically lower our CO2 levels.

For utilities to create valuable business models in the future it is important to provide a first set of solutions today, setting the stage to develop them further based on customer needs and market development.

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