Business Use Case 4

An advanced tech base to manage/operate a local energy community (LEC)

This call is open to third parties interested in optimally operating a LEC equipped with a significant amount of battery-based energy storage system (BESS), a photovoltaic (PV) power generating unit, and an automatic control system (interoperated via IEGSA platform), with the main objective of participating in both energy and ancillary service markets.

Third parties participating of this call should have broad knowledge of electricity markets and energy systems, while being highly specialized on IT-technology, in order to materialize and demonstrate the effectives of the system at the end-user/community level and how to it can be integrated at the market-level (through IEGSA).  

Type of service:

The selected third party will optimally operate demand from a LEC (assisted by a significant amount of energy storage) as a flexible energy resource connected to the distribution grid with the aim of: i) reducing energy cost for the end-users, and ii) providing flexibility and ancillary services to the grid operators (regulation, congestion, and ancillary services) by controlling the collective net demand.

The third party will make use of the resources and automatic operational tools developed in INTERRFACE demonstrator (T5.2) to manage the LEC. Some of the existing methods and operational tools of the demonstrator must be adapted and extended to meet the needs of the LEC manager to provide cheaper energy to end-users and flexibility services to grid operators. In this context, the third party will define innovative relationships and contracts among the LEC members. Moreover, it will manage the unified participation of the LEC in the energy market (directly or through a trader) and will also manage the interaction with systems operators for providing grid support services.

 Technical details:

Optimal management of LEC allows organizing collective energy actions around open participation of the community members with a consensual governance, which provides financial benefits to such members and flexibility services to the grid operators. Hence, the optimal operation must be continuously defined in day-ahead and real-time fashion, based on forecasted values for generation and consumption of aggregated assets. It is important to highlight that the third party will hinge upon artificial intelligence algorithms and mathematical optimization to manage LEC assets.

The commercial building used as a demonstrator in T5.2 can be a good candidate to develop an innovative energy community. Such a building, divided in different departments that might be considered as individual users, presents a peak demand lower than 100 kW most of the time, and has installed 40 kWp PV on the roof (which is planned to be increased). Moreover, the building is fully observable through an energy monitoring system. Thanks to INTERRFACE, this building will be equipped with a 200 kW/400 KWh BESS, which will enable it to extend its operational limits and to provide services to other household and buildings in its neighborhood. These energy assets will not only allow to reduce the electricity bill for the building users, but it will allow using the combined capacities of the PV roof and the BESS to serve energy to other end-users around when the building demand decreases –provided such neighbor users are closely connected at the same MV line (around 500m distance).

Demo area

The LEC to be operated by the selected third party, which was developed within the INTERRFACE project (T5.2), is located in Sofia, Bulgaria. This LEC was conceived as an Intelligent Distribution Node (IDN) in a multi-user building connected to Sofia’s distribution power system.

In Bulgaria, the engagement of energy communities is a matter of raising interest, as exposed in the session organized by Greenpeace Bulgaria, the Faculty of Economics of Sofia University St. Kliment Ohridski and the Association of Environmentalists from Municipalities in Bulgaria on November 27th, 2020; showing the possible benefits from establishing independent energy communities.

Although to this date no projects dealing with LEC have been implemented in Bulgaria, it is important to highlight that the European Renewable Energy Directive 2018/2001 (which defines the rights of citizens in the field of energy) must be transposed to Bulgaria by the end of June 2021. In this regard, the “Integrated Energy and Climate Plan (IECP) of the Republic of Bulgaria 2021–2030”[1] explicitly states the intention of encouraging a more active and effective participation of energy consumers in the market, by taking additional measures, which include “Promotion of local energy communities within the meaning of Directive (EU) 2019/944 and adopting rules on their establishment and functioning”. More specifically, when dealing with local policies for market integration, the IECP literally states: “Promote local energy communities by creating incentives for more active and efficient participation of energy consumers in the market and enabling the smooth transition of active customers to an open and fully liberalized market for electricity.

Description of the business case

Initiative

The energy portfolio at the INTERRFACE IDN consists of storing, generation, and consumption capabilities, resulting in a highly flexible aggregated energy asset (namely an LEC) connected to the distribution system. This LEC flexibility provides a unique opportunity for economic exploitation of such assets through optimization of their operation, not only participating in available energy and ancillary service markets, but also by direct transaction with neighbouring distribution system customers. According to the characteristics of the IDN, the third party must constitute a Distributed Energy Community. As shown in Fig 1, the multi-user building might be interested in buying/selling the renewable/stored energy from/to neighboring peers located within the immediate vicinity, using the existing distribution network. Normally, as the energy is produced and consumed along the same feeder, no tolls are charged for access to the distribution network among the users who have formed the energy community. However, if any energy surplus is sold to a trading company or market, such energy is taxed and tolls are applied.

Energy community crossing property boundaries

Hence, relying upon the maximization of the economic benefits obtained from energy and service markets and from local transactions with neighbouring peers, the third party must generate profit by optimally operating the LEC assets.

Expected Workflow

To successfully carry out this business case, the expected workflow can be divided into three main stages as follows.

Stage 1 – Technology endowment: The third party will inherit control over the energy portfolio implemented in the IDN developed within INTERRFACE. At this stage, the following challenges must be addressed by adapting and extending existing operational tools provided by the IDN:

  1. Communication protocols, metering and procedures enabling a successful participation of the LEC aggregated assets in energy and ancillary services markets should be ensured.
  2. Development of multi-objective optimization algorithms to minimize cost of energy in a LEC with shared resources and to provide grid services to the DSO/TSO.
  3. Development of attractive remuneration programmes for promoting LEC members to participate in energy and service markets.

Stage 2 – Contractual relationship establishment: The third party at this stage is expected to:

  1. Involve end-users in the LEC by conducting an advertising campaign and personal contacts.
  2. Set agreements and procedures with market operators and retail traders to integrate the LEC in the electricity market.
  3. Define tariffs, contracts, and settlement mechanisms for the LEC members to participate in energy and services trading.

Stage 3 – LEC interoperability: Once contractual relationships have been established, the third party will generate and optimal bid for LEC participation in energy and service markets through the IEGSA by taking into account the following.

  1. predictions of consumption and generation at the LEC,
  2. calculating optimal schedules for flexible assets via optimization algorithms, and
  3. fulfilling demand requirements of multiple users connected at the LEC.

At this stage, the LEC interoperability between the LEC and the IEGSA platform should be ensured, enabling IT-based mechanisms to access to data from the LEC smart meters.

Expected outcome       

The successful implementation of the business case should lead to the following outcomes:

  1. Surplus energy will be stored for consumption at times of high market prices or will be sold directly to the electricity market if the energy is not going to be used. This will generate energy arbitrage economic rewards via participation in energy markets, taking advantage from operating the LEC energy assets.
  2. Knowing the predictions of flexible consumption and being calculated the optimal bids for the energy community, the offers for balancing, congestion or non-frequency ancillary services, can be presented. Consumers would receive a share of these profits as the LEC manager will modulate their consumption to provide such service.
  3. The third party, which participates in the electricity market by offering and managing the renewable energy, must handle drawbacks associated to generation uncertainty, by responding to the demand of its users (who may agree to reduce their consumption) in order to comply with the contract, receiving compensation.

Important information for applicants

An LEC enables democratization of renewable energies in urban environments, reduces costs associated with distributed generation resources by grouping different users under a single entity, allows contributing to an efficient and fully usable grid by providing flexibility services, and decreases the economic impact for the end-user electricity bill, which additionally allows reducing energy poverty in EU member states. Since cooperative-owned projects are often cause-oriented rather than profit-oriented, they regularly offer more favorable tariffs for vulnerable households, while reinvesting in energy efficiency. It is estimated[2] that an energy community can reduce the total annual levelized costs of energy by 40%, including investment for PV and BESS, operation and maintenance costs, and cost for imported energy. In addition, their long-term sustainability will be contingent on the development of viable business models moving towards innovative financing and remuneration schemes[3].

This modality is very relevant in Europe, where 46% of the population lives in flats[4]. This presents the problem of energy democratization, as not all flats have suitable spaces for installing PV panels and batteries. However, they can be installed in nearby locations or buildings with which energy resources are shared. Without this possibility not all consumers could have access to self-consumption models. In addition, due to scale factors affecting to both capitalization and O&M, it is more interesting and profitable to install all the PV panels and batteries in the same installation and share them as a cooperative resource among the members forming a LEC.

It is expected that LEC will play a key role in the decentralization of the energy systems and the local operation of renewable energy, facilitating the local optimization of power flows and reducing the energy losses[5]. According to the recast Electricity Market Directive, Member States will give the option to grant energy communities the right to own, establish, purchase or lease grid infrastructure. In addition, energy communities will bring different benefits to the system operators, both DSO and TSO. The CEER[6] has identified as main enhancements the improvement of quality service and reduce or postpone network investment by increasing hosting capacity and improving flexibility.

This call however goes beyond existing interactions between the LEC and the grid operators by precisely modulating the demand response (DR) thanks to the use of the IDN developed in T5.2. In this call the LEC will be a fully active resource, not only able to accommodate demand schedules according the operator requirements, but also to provide flexibility services, such as short-term and operational congestion management, mFRR, aFRR and FFR, together other advanced ancillary services not provide yet by LEC, such as inertia emulation, power oscillation damping, islanded operation and black start, to mention a few.  

Currently, DR is becoming an increasing valuable resource in terms of grid reliability[7]. However, to accumulate a significant amount of properly managed DR, collaboration among end-users is essential. In this regard, LECs open the doors to integrate end-users as active players in providing grid services, and to define formal agreements and operational procedures with system operators. However, electricity power demand is still considered to be highly inelastic, which will require enabling new incentives and mechanisms to increase demand response controllability and dynamics. As an example, different tariffs, contracts or financial incentives on elastic systems (such as energy storage, responsive appliances and aggregated EMS) can be promoted to induce end-users to modify their consumption according to grid requirements.

In Europe, there are about 3 500 so-called renewable energy cooperatives[8] – a type of energy communities, which are found mostly in North-Western Europe. The most widespread involve energy generation. Examples include school buildings or farm roofs equipped with solar panels, or windmills installed by residents in a village.

Added value on INTERRFACE project

This call spins around the multi-user building equipped with PV and a large-scale BESS; i.e., the IDN developed in T5.2. Therefore, the selected third party prove profitability of the IDN when operated as an LEC. It is important to highlight, that this will be the first LEC implemented in Bulgaria.

The third party will use the cloud-based applications for energy management, service management, and local data management developed within INTERRFACE T5.2 as a starting point for the development of a fully functional LEC. In addition, the third party will participate in energy and service markets available at the demo are via IEGSA.

As third party specialized energy trading are clear candidates to participate in this call, they would not act as services providers, but as energy management services (EMS) providers for the LEC. The grid services designed and provided by these companies would extend the INTERRFACE scope and the business cases born around IEGSA. Therefore, the innovation brought about by IEGSA will promote potential business opportunities associated to extend energy communities over Europe. At the same time, this call will enable designing and implementation of new business cases and regulations that respond to the specific conditions existing in the demo area.

Incorporation of Third Parties in particular for household consumers

A third party will act as a manager/aggregator for the LEC, combining RES, energy storage, flexible and inflexible demand, to make an optimal mix of energy products to serve the energy requirements of the household consumers. Such a mix will consist of an optimal combination of energy demands for energy markets and traders, energy surpluses to be traded within the LEC, and flexibility service bids offered the system operators. Such LEC manager/aggregator can make profits by exploiting different income streams depending on the LEC assets composition and controllability, although all the exploitation strategies start from the same premise: the main goal is minimizing the cost of energy for the LEC by taking advantage from all the resources provided by the household consumers and prosumers (local generation, energy storage, responsive demand, controllable appliances, smart contracts, …).

Although the third party  is the natural actor to manage the LEC, it could incorporate other third parties when planning the business case, such as a financial investor, investment bank, or any actor interested in practically evaluating the benefits of sponsoring this innovative business case, as well as any company specialized on IT/software, technology development (smart meters, PV panels, batteries, …), or renewable integration, all them interested in gaining technical knowledge about developing and operating LEC in energy markets. The integration of such third-parties is well aligned with the European policy for collective citizen participation in the energy system.    

Third Parties benefit from getting involved in the business case

One of the main benefits provided by the INTERRFACE project to a potential applicant interested in this call is the possibility of using the hardware and software systems developed in T5.2 as a realistic sandbox to develop innovative business models to manage a LEC, which, in addition, can become profitable in the short term.

The demonstration of a realistic exploitation of a LEC at Sofia, Bulgaria can be an excellent window-display for the third party applying to this call, which can open further opportunities for expanding such business model and technology over the country, and even export it to other countries with similar conditions and interests.  Thank to this call, the third parties will become more competitive and innovative, and will develop valuable technical knowledge about management of LEC in recent energy markets, and even in unprecedented flexibility service markets.


[1] Integrated Energy and Climate Plan of the Republic of Bulgaria 2021–2030. Dec. 2019. https://ec.europa.eu/energy/sites/ener/files/documents/bg_final_necp_main_en.pdf

[2] PV-Prosumers4Grid. (2020). Enabling Consumers to become PV prosumers in a system friendly manner. https://www.pvp4grid.eu. This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 764786.

[3] Caramizaru, A. and Uihlein, A., Energy communities: an overview of energy and social innovation, EUR 30083 EN, Publications Office of the European Union, Luxembourg, 2020,ISBN 978-92-76-10713-2, doi:10.2760/180576, JRC119433.

[4] Teodóra Brandmüller, Iuliana Lupu and Åsa Önnerfors (Eurostat, Unit E.4., Regional statistics and geographical information) Louise Corselli-Nordblad, Catherine Coyette, Annika Johansson, Helene Strandell and Pascal Wolff (Eurostat, Unit B.4., Digital dissemination). (2016). Urban Europe. StatiSticS on citieS, townS and SuburbS, 2016 Edition, 282. 2020, De https://ec.europa.eu/eurostat/documents/3217494/7596823/KS-01-16-691-EN-N.pdf/0abf140c-ccc7-4a7f-b236-682effcde10f Base de datos.

[5] Caramizaru, A. and Uihlein, A., Energy communities: an overview of energy and social innovation, EUR 30083 EN, Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-10713-2, doi:10.2760/180576, JRC119433.

[6] CEER, ‘Regulatory Aspects of Self- Consumption and Energy Communities CEER Report’, No. June, 2019.

[7] Demand response failed California 20 years ago; the state’s recent outages may have redeemed it. On-lie available at https://www.utilitydive.com/news/demand-response-failed-california- 20-years-ago-the-states-recent-outages/584878/

[8] REScoop MECISE, Mobilising European Citizens to Invest in Sustainable Energy, Clean Energy for All Europeans, Final Results Oriented Report of the RESCOOP MECISE Horizon 2020 Project, 2019.