Abstract
This essay explores the role of Renewable Energy Communities (RECs) in Portugal’s energy transition, emphasizing their potential to drive environmental sustainability and reduce energy costs. With rising global energy consumption and the push for carbon neutrality, RECs present an innovative model for decentralized, renewable energy production. The essay examines the principles underpinning RECs, including decarbonization, decentralization, and digitalization, and evaluates their implementation challenges and successes. Through a case study of the Cleanwatts pilot project in Miranda do Douro, the analysis highlights the benefits of local energy production, including cost savings and reduced carbon emissions, while also addressing barriers such as regulatory complexities, technical expertise, and financing. The prospects for RECs in Portugal are considered, underscoring the need for continued investment, public education, and regulatory support to realize their full potential in the transition to a sustainable energy future.
Key-words: Renewable Energy Communities (RECs); Energy Transition; Decentralization; Decarbonization; Energy Costs.
Introduction
As global energy consumption continues to rise, driven by new societal demands such as electric mobility and increasing reliance on remote work,[1] the search for neutral carbon emission energy supply becomes a major challenge. Increasingly, Renewable Energy Communities (RECs) are finding a position in this transition as an innovation that grants citizens the opportunity for direct involvement in energy production and consumption in decentralized ways, and in a sustainable manner.[2] In this sense, inspired by the 8th GoP2P Global Observatory meeting in Lisbon (hosted in collaboration with NOVA Green Lab), the present essay examines the contribution of RECs to environmental sustainability, reduction of energy costs, and other wider challenges associated with energy transition, by analysing their development in Portugal.
Portugal, like many other nations, is heavily invested in achieving carbon neutrality by 2050, as an effect of the European Green Deal.[3] This ambitious target requires a profound shift in how energy is produced and consumed. The integration of renewable energy sources and decentralized energy production are central to this transition, but they necessarily imply significant changes, both in the mode of production and in the mode of consumption of energy. The growing dependence on electricity, coupled with the need to rapidly adopt low-carbon technologies, underscores the urgency of developing new models for energy distribution and consumption. This puts RECs in the position to be one of those models, contributing to a decrease of energy costs for the consumer and ensuring a greater level of energy security in Portugal and the EU.[4]
In this context, using the Cleanwatts pilot project case study,[5] this essay will explore the concept of Renewable Energy Communities (RECs) and their role in the energy transition in Portugal, focusing on both the successes and challenges faced by these communities. The analysis will provide a comprehensive understanding of their potential to reduce energy costs, promote environmental sustainability, and contribute to Portugal’s energy transition goals.
Understanding Key Concepts: Energy Transition and Self-Consumption
The concept of energy transition refers to the shift from fossil fuels to low-carbon energy sources, essential for mitigating climate change.[6] Portugal, along with the European Union (EU), has committed to achieving climate neutrality by 2050, as agreed at the COP 28 climate summit.[7] This transition requires an increased focus on renewable energy, which includes promoting self-consumption practices. The European Union’s energy transition framework, specifically the European Green Deal, aims for a decentralized energy system.[8] This decentralization encourages the creation of smaller, localized energy production points across Member States, fostering self-consumption and empowering citizens to engage in the energy sector in sight of the decarbonization goals.[9]
Against this backdrop, the RECs arise.
RECs represent an organized group of citizens, local businesses, and/or institutions that collaborate to generate, consume, and even sell renewable energy. These communities empower local citizens to become ‘prosumers’ — both producers and consumers — actively participating in the energy market.[10]-[11] This decentralized model of energy production aligns with the European Union’s broader push for energy transition through the European Green Deal, which emphasizes the importance of localized, renewable energy sources. By fostering local energy production and reducing reliance on fossil fuels, RECs contribute to a more resilient and sustainable energy system.[12]
Considering these circumstances, we can identify three guiding principles regarding the role of self-consumption in the ongoing energy transition, particularly within the European context: (i) decarbonization, (ii.) decentralization, and (iii.) digitalization. Decarbonization aims to increase the production and use of renewable energy sources. Decentralization seeks to establish numerous small-scale energy production units located close to their end consumers. Digitalization involves the implementation of information systems that enhance the efficiency and management of self-consumption models and renewable energy sharing, ensuring the effective operation of energy production and distribution in a smart cities context.[13]
Regulating the matter of self-consumption in Portugal, we currently have Decree-Law No. 15/2022, of January 14, which transposes Directive 2019/944 and Directive 2018/2001, establishing the organization and operation of the National Electric System. This law addresses, in Article 81 and subsequent articles, the activity of self-consumption energy production. In parallel, there are other regulatory frameworks that govern various aspects of electricity production for self-consumption, particularly regarding licensing processes, the installation and sizing of self-consumption production units, commercial activities, and the use of the public electricity grid. This means that RECs are not governed by a single legislative act. Instead, their regulation is dispersed across multiple – at national and EU level – legal instruments, with specific provisions varying depending on the context of application or the particular aspect of renewable energy production and consumption being addressed.
The Rise of Renewable Energy Communities in Portugal
Under Article 2(16) of Directive (EU) 2018/2001, a REC is defined as a legal entity characterized by several key attributes. It must operate with open and voluntary participation, maintain autonomy, and be controlled by shareholders or members who are located near the renewable energy projects it manages. Its members can include individuals, small and medium-sized enterprises, or local authorities such as municipalities.
In Portugal, for a REC to engage in the production and storage of electricity from renewable sources, it must navigate specific administrative requirements. This includes obtaining a production and operational license, prior registration, or certification, as outlined in Article 11 of Decree-Law No. 15/2022, with reference to Article 81 of the legislative act. The Direção-Geral de Energia e Geologia, as the licensing authority, oversees this licensing process. Once licensed, the REC is subject to the rights and obligations set forth in Article 31 of Decree-Law No. 15/2022. Electricity generated by the REC can be sold through bilateral contracts with electricity traders or organized markets, with prices set freely according to Article 88(1)(e) and Article 17 of Decree-Law No. 15/2022.
This concept has been reasonably well-received in Portugal in the last couple of years, especially with government policy on decentralizing energy production and encouraging self-consumption. The creation of the country’s first REC in Miranda do Douro by Cleanwatts in 2021 marked a significant milestone. This community, developed in collaboration with local institutions, aimed to reduce energy poverty while promoting sustainable energy practices.[14] Solar panels were installed in strategic buildings such as the Santa Casa da Misericórdia, enabling the community to produce and consume its own energy. This project highlighted the potential economic and environmental benefits of RECs, with an estimated annual savings of €18,000 and a reduction of 19 tons of CO2 emissions within the first year of operation.[15]
This is one of the main advantages of RECs: local and sustainable energy production. In times of increasing energy prices and unstable global supply chains, RECs guarantee some – increasingly valuable – degree of energy independence and security to their members. By producing renewable energy locally, communities can protect themselves from the volatility of energy markets. For example, the Cleanwatts project in Miranda do Douro not only reduced the cost of energy for its members in about 30% below the electricity tariff of the public grid,[16] but also provided a stable, more resilient supply from their locality, which is better protected from exogenous shocks.[17] Besides, the environmental merits are self-evident with RECs. Operating from renewable sources of energy such as solar, wind, or hydropower, these communities reduce carbon emissions quite substantially and hence contribute to both local sustainability goals and broader national decarbonization efforts.
Beyond these immediate benefits, RECs also play a crucial role in fostering social inclusion and economic development.[18] By enabling communities to collectively manage and benefit from renewable energy projects, RECs promote the democratization of energy production. Individuals who may otherwise be excluded from the energy market – due to financial constraints or geographic limitations – are able to participate and reap the benefits of lower energy costs. In regions affected by energy poverty, such as rural areas or low-income neighbourhoods, the implementation of RECs can help reduce energy costs and improve the overall quality of life for residents.
In addition to their social and environmental contributions, RECs also empower consumers to take an active role in the energy market – hence becoming prosumers. Traditionally, energy consumers have been passive participants, purchasing electricity from centralized producers. However, RECs shift this dynamic by enabling citizens to produce their energy and even sell excess power back to the grid. [19] This shift not only gives consumers greater control over their energy usage but also encourages more sustainable consumption patterns. By being directly involved in energy production, community members are more likely to adopt energy-efficient practices and reduce unnecessary consumption.
Challenges Facing Renewable Energy Communities
Despite the benefits, the widespread adoption of RECs in Portugal is not without its challenges. One of the primary obstacles is the complexity of the legal and regulatory framework surrounding RECs. Although the concept of RECs is supported by national and European legislation, the process of obtaining permits and licenses to establish and operate these communities remains cumbersome. Streamlining these regulatory procedures is essential to facilitate the growth of RECs and encourage more communities to embrace this model of energy production.[20]
In addition to legal barriers, technical challenges also pose a significant hurdle for many communities interested in establishing RECs. The installation and maintenance of renewable energy infrastructure require specialized knowledge and resources that are not always readily available. Moreover, managing the technical aspects of energy production, consumption, and distribution within a community can be a daunting task for those without the necessary expertise. Partnerships with energy companies, such as Cleanwatts, that provide energy management software and technical support, can help alleviate some of these challenges by offering communities the tools and knowledge they need to succeed.
Financing is another critical challenge that many RECs – and overall ‘scaling up’ renewable energy projects – face.[21] The initial investment required to purchase and install renewable energy technologies, such as solar panels or wind turbines, can be substantial. Although these costs can be offset over time by the savings generated through self-consumption and the sale of excess energy, securing the necessary funds to get a project started can be difficult, particularly in regions where access to capital is limited. The novelty of the REC model in Portugal may also deter some investors who are unfamiliar with its potential returns.[22] Addressing this financing gap through government incentives or public-private partnerships could help accelerate the development of RECs across the country though.
Another significant challenge is the variability of renewable energy production. Solar and wind power, two of the most used energy sources in RECs, are inherently intermittent, meaning that energy production does not always align with demand. For example, solar panels produce energy during the day, but many households consume the most energy in the evening. Managing this imbalance requires advanced energy storage solutions, such as batteries, which can store excess energy produced during peak hours for use when production is low. While energy storage technology is rapidly advancing, it remains a costly investment for many communities.[23]
Furthermore, public awareness and engagement remain critical issues. Despite the growing interest in renewable energy, many citizens are still unaware of how RECs function or the benefits they can offer.[24] This lack of understanding can lead to scepticism or reluctance to participate in REC initiatives. Effective public education campaigns and the dissemination of successful REC case studies, such as the Miranda do Douro project, could play a key role in building trust and encouraging wider participation and enhance prosumer autonomy.[25]
Looking Forward: The Future of Renewable Energy Communities in Portugal
Looking to the future, the potential for RECs to contribute to Portugal’s energy transition is immense. By 2030, RECs are expected to produce up to 21% of the country’s solar energy, with even more ambitious targets set for 2050.[26] Achieving these goals will require continued investment in infrastructure, regulatory reform, and public engagement. Local governments and municipalities have a particularly important role to play in supporting the growth of RECs, considering how important prosumer autonomy is in this energy model. By working closely with citizens and energy providers, they can help bridge the gap between national energy policies and local implementation, ensuring that the benefits of renewable energy reach all communities.
Moreover, RECs have the potential to reshape the broader energy market by creating localized energy trading platforms. These markets, often referred to as “peer-to-peer” (P2P) energy markets, [27] allow members of a REC to trade surplus energy directly with one another, without the need for intermediaries.[28] This model not only reduces energy costs by eliminating transportation fees but also fosters a sense of community and cooperation among members. Although still in its early stages, the development of P2P energy markets could revolutionize how energy is traded and consumed, promoting a more decentralized, diverse and democratic energy system.
Renewable Energy Communities represent a promising solution to many of the challenges associated with the energy transition. By decentralizing energy production, empowering citizens, and promoting the use of renewable energy, RECs offer a sustainable and resilient alternative to traditional energy models. However, it is essential to adopt a realistic perspective regarding the implementation of these models. While the notion that an REC can effectively function with a public interest objective is compelling, it remains somewhat idealistic. The implementation of an REC presents several significant challenges, including difficulties in securing financing, a shortage of individuals with the technical and legal expertise required to manage the community (smart grid), and limited engagement from businesses, institutions, and local authorities. Establishing an REC necessitates a profound societal transformation, underscoring the need for increased public awareness and education. Energy illiteracy represents a considerable barrier that must be addressed, along with the lingering scepticism among citizens towards such initiatives. Once these obstacles are overcome, RECs hold the potential to be a viable solution and make a substantial impact in the process of decarbonization.
Realizing the full potential of RECs will therefore require overcoming significant legal, technical, and financial barriers. Through continued investment in infrastructure, education, and regulatory reform, Portugal can unlock the potential of RECs and lead the way toward a greener, more inclusive energy future.
Peer-Reviewed by:
- Lucila de Almeida, Professor at NOVA School of Law, Director at NOVA Green Lab.
[1] Md Omar Faruque and others, ‘The Rise of Remote Work and Its Impact on Small Businesses’ (2024) 14 American Journal of Industrial and Business Management, 869.
[2] European Commission, ‘Focus on Energy Communities to Transform the EU’s Energy System’ (13 December 2022) https://energy.ec.europa.eu/news/focus-energy-communities-transform-eus-energy-system-2022-12-13_en accessed 17 September 2024.
[3] ‘The European Green Deal – European Commission’ (14 July 2021) <https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en> accessed 10 September 2024.
[4] Isabel Azevedo, ‘A Dimensão Europeia Das Comunidades de Energia’, in CRISPIM, JOÃO / MENDES, JOSÉ GOMES (coord.), Comunidades de Energia Renovável (UMinho Editora, 2023) 25.
[5] ‘ERSE Aprova Projetos-Piloto de Comunidades de Energia Promovidos Pela Cleanwatts e Pela Galp – ERSE’ <https://www.erse.pt/comunicacao/destaques/erse-aprova-projetos-piloto-de-comunidades-de-energia-promovidos-pela-cleanwatts-e-pela-galp/> accessed 10 September 2024.
[6] Anna Kowalska-Pyzalska, ‘Introduction to Innovative Energy Services (IES) in Transitioning Energy Markets’ in Anna Kowalska-Pyzalska (ed), Diffusion of Innovative Energy Services (Academic Press 2024) 5 https://doi.org/10.1016/B978-0-12-822882-1.00007-X. Accessed 14 September 2024.
[7] ‘COP28’ (Consilium) <https://www.consilium.europa.eu/pt/policies/climate-change/paris-agreement/cop28/> accessed 10 September 2024.
[8] COMUNICAÇÃO DA COMISSÃO AO PARLAMENTO EUROPEU, AO CONSELHO, AO COMITÉ ECONÓMICO E SOCIAL EUROPEU E AO COMITÉ DAS REGIÕES Objetivo 55: alcançar a meta climática da UE para 2030 rumo à neutralidade climática 2021.
[9] Azevedo (2003) 24
[10] ‘Energy Communities’ <https://energy.ec.europa.eu/topics/markets-and-consumers/energy-consumers-and-prosumers/energy-communities_en> accessed 10 September 2024.
[11] Shoaib Ahmed, Amjad Ali and Antonio D’Angola, ‘A Review of Renewable Energy Communities: Concepts, Scope, Progress, Challenges, and Recommendations’ (2024) 16 Sustainability 1749.
[12] Sajjad Ahmed and Ancuța Maria Măgurean, ‘Renewable Energy Communities: Towards a New Sustainable Model of Energy Production and Sharing’ (2024) 55 Energy Strategy Reviews 101522.
[13] MENDES, JOÃO MARQUES, “Autoconsumo e comunidades de energia”, in Estudos de Direito da Energia, Almedina, 2023, p.173.
[14] ‘Primeira Comunidade de Energia Nasce Em Miranda Do Douro. Governo Quer Mais, Para Ajudar a Baixar Fatura Da Luz – ECO’ <https://eco.sapo.pt/2021/08/24/primeira-comunidade-de-energia-nasce-em-miranda-do-douro-governo-quer-mais-para-ajudar-a-baixar-fatura-da-luz/> accessed 10 September 2024.
[15] ‘Miranda do Douro Comunidade de Energia Renovável’ (Cleanwatts) <https://cleanwatts.energy/pt-pt/case-study/miranda-do-douro/> accessed 10 September 2024.
[16] ibid.
[17] Luísa Matos, ‘Mercados Locais de Energia’ in João Crispim and José Gomes Mendes (eds), Comunidades de Energia Renovável (UMinho Editora 2024) 109.
[18] ‘energy communities are an effective means of maximising socioeconomic empowerment. As they depend on trust, both within and outside the community, these systems involve and educate people who would otherwise be excluded or passive in clean energy transitions’ in International Energy Agency (IEA), Empowering People – The Role of Local Energy Communities in Clean Energy Transitions (IEA 2023). https://www.iea.org/commentaries/empowering-people-the-role-of-local-energy-communities-in-clean-energy-transitions accessed 17 September 2024.
[19] Ibid., 112.
[20] Azevedo (2023), 32-33.
[21] ‘Breaking Down Barriers to Clean Energy Transition’ (World Bank) <https://www.worldbank.org/en/news/feature/2023/05/16/breaking-down-barriers-to-clean-energy-transition> accessed 10 September 2024.
[22] Lurdes Ferreira, ‘O Envolvimento dos Cidadãos para a Redução de Emissões’ in João Crispim and José Gomes Mendes (eds), Comunidades de Energia Renovável (UMinho Editora 2023) 54
[23] José Villar et al, ‘Coordenação com o sistema energético’ in João Crispim and José Gomes Mendes (eds), Comunidades de Energia Renovável (UMinho Editora 2024) 74 ss.
[24] Lurdes Ferreira (2023) 53.
[25] Azevedo (2023) 33.
[26] Lurdes Ferreira (2023) 52.
[27] Abba Lawan Bukar and others, ‘Peer-to-Peer Electricity Trading: A Systematic Review on Current Developments and Perspectives’ (2023) 44 Renewable Energy Focus, 317.
[28] Mohsen Khorasany and others, ‘A New Method for Peer Matching and Negotiation of Prosumers in Peer-to-Peer Energy Markets’ (2021) 12 IEEE Transactions on Smart Grid 2472.
