Local Energy Communities require regulatory sandboxes, not reform

21. January 2019 | News
Lokale energisamfunn

Experience with Local Energy Communities is limited. They would be better supported by time-limited regulatory exemptions to facilitate experimentation than by reform of the current regime, which might put consumer protections and efficiency at risk.

A recently-published study of Local Energy Communities (LECs) conducted by THEMA, alongside Multiconsult and on behalf of NVE, provides an overview of their status in Norway and sets out their implications for the current regulatory regime.

Although Local Energy Communities are variously defined, our work looking at Norwegian Local Energy Communities used a set of guidelines to help identify projects of interest. These criteria included, for example, the involvement of at least 3 distinct parties in the ‘community’, the presence of local control or energy management, the active participation of end-users, and an ability to contain the project with a small geographic area.

On this basis, Norwegian Local Energy Communities remain somewhat immature – of the thirty potentially relevant projects identified, only seven had been at least partly implemented.

Over 70 percent of the projects identified were led by property developers, occasionally in partnership with local networks. These projects primarily focus on the creation of low-emission, self-sufficient developments that can command a price premium in the property market.

Many of the remaining projects are DNO-led and target the avoidance of network investment through the control of community peak load or the provision of flexibility services for use in network management.

The greatest barriers to the realisation of these projects appear to be less the existence of regulatory restrictions, than the absence of readily applied commercial models that can be used to support a sustainable business case. In practical terms, understanding how to apply the current regulation to the novel arrangements being considered may act as a more significant barrier than the actual regulatory requirements themselves.

Given the immaturity of existing projects and uncertainty as to both the form these projects will take and their wider costs and benefits, it seems premature to consider more general regulatory reform designed to accommodate Local Energy Communities at this stage. Such reforms might effectively involve allowing partial exemptions from existing regulations intended to protect consumers, avoid inefficient network investment, or prevent the abuse of market power. Reforming these regulations carries with it an inherent risk that these regulatory objectives will not be achieved.

Instead, NVE should consider the systematic use of regulatory sandboxes, which would grant time-limited regulatory exemptions for selected projects based on their potential innovation value. This would provide Local Energy Communities with the support they need while also allowing NVE a means to better understand the specific social costs and benefits involved and the relevant regulatory interactions. Information on the latter is, in our view, necessary before further consideration of the need for regulatory reform.

NVE is now working on a framework for pilots, which will make it easier to apply for exemptions when testing new solutions and business models.

Read the report:

THEMA Report 2018-20 >> Descriptive study of Local Energy Communities