Empowering Vulnerable Consumers to Join Renewable Energy Communities—Towards an Inclusive Design of the Clean Energy Package
“4. Member States shall provide an enabling framework to promote and facilitate the development of renewable energy communities. That framework shall ensure, inter alia, that:(a) unjustified regulatory and administrative barriers to renewable energy communities are removed;…(f) the participation in the renewable energy communities is accessible to all consumers, including those in low-income or vulnerable households;(g) tools to facilitate access to finance and information are available;(h) regulatory and capacity-building support is provided to public authorities in enabling and setting up renewable energy communities, and in helping authorities to participate directly;(i) rules to secure the equal and non-discriminatory treatment of consumers that participate in the renewable energy community are in place.”(emphasis by the authors)
2. Research Question and Approach
- How is the empowerment of vulnerable consumers to be conceptualised in the Energy Union and which form should it take? Individual empowerment in form of consumer empowerment has been frequently discussed in contemporary energy policy discourses. The transposition of the “enabling framework” in the context of RED II as a central element of the empowerment of vulnerable consumers has great potential yet the question of how to achieve it and with which concrete measures remains open.
- What are the main barriers for empowerment in a vulnerability context? To develop a concrete policy approach for collective empowerment of vulnerable consumers in RECs we review existing literature concerned with the dynamics vulnerability and inequality produce especially in the energy context. We discuss energy vulnerability as a multidimensional form of deprivation against the background of discriminating systems. We then link insights from behavioural economics on how vulnerability impacts decision making with the discussion of empowerment and its barriers.
- Which of the identified measures in particular with regard to participation of vulnerable consumers in RECs can be included in the RED II “enabling framework” when transposing the directive into national law? In the light of the discrepancy between the stated political aims and the lack of concrete policy measures it is crucial to make suggestions to lawmakers for the transposition of RED II into national law until June 2021. Therefore, we briefly revise the current versions of the NECPs as well as policy documents from the European Commission to understand the state of play both at the EU and national level. While it is beyond the scope of this paper to provide a comprehensive policy analysis it outlines central considerations any policy approach must take into consideration to facilitate the inclusion of vulnerable consumers. Taking into consideration the most important restrictions previously identified we formulate policy recommendations. In this way concrete ancillary measures to facilitate the participation of vulnerable consumers in RECs and thus their active inclusion in the energy transition can be developed.
3. Consumer Empowerment in a Vulnerability Context—Inclusion in RECs
3.1. The EU Energy Context
3.2. Prosumption as a Form of (Collective) Consumer Empowerment in RED II
3.3. Challenges of Empowerment in a Vulnerability Context
- Individual characteristics: Low savings/access to capital; lack of time, experience and knowledge about opportunities to engage in prosumption; limited access to supportive governmental schemes to participate in community energy projects.
- Discriminating structures: Complexity of existing opportunities and opacity of the energy markets cause high costs for information gathering to engage in prosumption and often a need for (expensive) legal and economic advice . In this way market inherent complexity discriminates against vulnerable consumers and exacerbates vulnerability.
- Policy making: Where supportive policies and programs exist their design often does not consider the specific conditions of vulnerable households and hence remain inaccessible to them . Other policies are mutually exclusive, especially where eligibility for means-tested transfers (e.g., energy or housing subsidies) would be impaired by asset formation effectively preventing participation in RE projects.
3.4. Individual vs. Collective Empowerment
3.5. Advantages of Collective Empowerment: The Example of Reactivating the Unemployed in Sociedades Laborales
- SLLs generally have higher survival rates than their conventional competitors, surviving long enough to amortise capitalised unemployment benefits: The average paid-out lump sum represents roughly the cost of 1.3 years-worth of unemployment benefits; on average, 88% of all SLs survive this long. Furthermore, in contrast to using up the unemployment benefits month to month both the (formerly unemployed) owner-worker and the SL make social security contributions leading to the accruing of a new expectancy for unemployment benefits from the first day of operation.
- SLLs are set up not only by unemployed persons but also by ordinary entrepreneurs and typically involve external investors which account for 27% of their partners. Unlike conventional start-up subsidies for jobseekers, SLs offer not only access to capital but practical assistance and entrepreneurial advice to an unemployed person joining or setting up an SL.
- With respect to secondary employment according to employment data for 2008–2013, 1.3 additional jobs were created in Spain per founding worker partner. In contrast, the EEPO review concludes that across several studies approximate only 0.2 additional jobs were generated in start-up firms set up under ALMP start-up subsidy programs .
3.6. Participation in Renewable Energy Communities—Learning from the Sociedades Laborales
4. Discussion: Putting Forward Collective Empowerment Strategies for RECs
4.1. Local Conditions for Collective Empowerment in RECs
4.2. Implications of Behavioural Economics
- Individuals assess cost and opportunities differently over time [100,101,102]. Time-varying discount rates not only affect the average consumer by changing consumer preferences depending on the time frame in which financial benefits are received but affect vulnerable consumers in a financial precarious condition in particular . Vulnerable consumers for example perceive financial benefits of prosumption which typically materialise over a timespan of several years as irrelevant if confronted with the immediate need to pay overdue electricity bills to avoid electricity cuts. Here the vulnerability context reinforces this heuristic.
- According to the prospect theory consumers tend to make decisions by assessing the extent to which a choice differs from a specific reference point such as the status quo . Rather than assessing costs and benefits of a choice against each other consumers tend to accept more risks to prevent potential losses rather than realise potential gains (status quo bias). As discussed, vulnerable consumers often rely on some form of social transfer payments and are unlikely to engage in any decision that jeopardises their claim for support, e.g., by acquiring assets in a RE project . Empirical evidence confirming this barrier has been gathered in the course of interviews in the SCORE project in the Czech Republic as well as in Germany. Therefore, it is important to understand the prevailing reference point and preferences of different vulnerable households.
- The cognitive capacity to process information as a basis for decision-making is limited, a phenomenon that can also be placed under the theory of bounded rationality . Cognitive capacity (sometimes referred to as bandwidth) is utilised by internal processes to derive insights and decisions . Especially under time constraints or in situations where multiple decisions under consideration of their consequences (trade-offs) need to be taken bandwidth is depleted and thus less cognitive capacity remains for other tasks . Moreover, under time pressure rather than engaging in a rational cost-benefit-calculation (utilising and assessing all available information) consumers tend to engage in intuitive judgements and simplified choice strategies . In addition to behavioural economics, an extensive string of social and cognitive psychology investigates the impact vulnerability and here in particular different forms of scarcity (e.g., time, nutrition or financial scarcity) have on the availability and utility of bandwidth. Scarcity as a condition captures one’s mind, alters the content of cognition and the perception of options . It adds difficult trade-offs to everyday experiences , shifts attention and selects information according to its internal logic to overcome scarcity . As a result, simple activities such as grocery shopping translate to constant and effortful overcoming of buying temptations requiring massive bandwidth . Each of these bandwidth-consuming dynamics alone do not create a burden; cumulative, however, they start to deplete bandwidth restraining its availability for more profound cognitive processes such as those required for efficient economic decision-making.
4.3. Providing the Prerequisites for Empowerment of Vulnerable Consumers in RECs
4.3.1. Access to Finance
4.3.2. Appropriate Ownership and Governance Models
4.4. Providing Incentives for Vulnerable Consumers to Participate in RECs
4.4.1. Incentives for Participation
4.4.2. Framing the Participation in RECs
- Direct energy subsidies for vulnerable consumers could be tied to membership in a REC; these subsidies then could be capitalised and paid out as a lump sum to join an existing or set up a new REC. Once the REC is operative over time this would increase disposable household income while providing a strong incentive to participate actively in the energy transition. Furthermore, with regard to the acquisition of (co-)ownership in RE to promote prosumership vulnerable consumers receiving subsidies for energy expenditures could be automatically enrolled as (co-)owners in newly founded RECs.
- Investments in RECs should be exempt from necessity to liquidate one’s assets when applying for means-tested social transfers; this exemption could have a cap of at least EUR 1000 per person per year which should increase for investments designed to benefit child education and the like.
- An “enabling framework” should support capacity building of local municipalities which in turn can then offer coaching and training programs to facilitate the apprenticeship of vulnerable consumers when joining RECs. Of course, they could also provide financial assistance when doing so; this should include easier access to credit, low or no interest loans, credit guarantees and the like. Capacity building would include—building on best practice—the setting up of networks between local banks, impact investors and RECs to provide low interest rate loans to vulnerable households.
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|(i)||Individual characteristics (age, gender, income, health, ethnicity, religion, political orientation)|
|(ii)||Discriminating structures among which housing markets (e.g., vulnerable households have access only to poorly insulated flats) and energy markets (e.g., lack of transparency and complexity of offers and opportunities)|
|(iii)||Policy making (e.g., political underrepresentation of certain social groups, provision of information, compatibilities of different social policies, support programs to not cater for the needs of vulnerable households e.g., credit programs require a certain percentage of equity)|
|Individual Ownership||Private Law Partnership||Limited Partnership||Cooperative||Trusteed Scheme e.g., CSOP|
|Type of investment||PV||PV||Wind||PV and local heating network||PV and local heating network|
|Size of investment||Small||Medium||Large||Medium–Large||Medium–Large|
|Financing Mix||High equity ratio||High equity ratio||Low equity ratio||High equity ratio||Low equity ratio|
|Influence on decision-making||Owner in full control, with oversight from local councils and other such stakeholder groups||Consumer-partners in full control: Voting rights according to contributions/full information rights||Right to demand information; control and veto rights for consumer-shareholders only under exceptional circumstances||Direct: “one member one vote”; general assembly concentrates decision-making power||Indirect: Trustee exercises rights for consumer-shareholders, e.g., participation in management meetings or the right to demand information|
|Liability||Unlimited personal liability||Unlimited personal liability jointly with partners||No personal liability; liability instead limited to value of share||No personal liability; liability instead limited to value of share||No personal liability; liability instead limited to value of share|
|Transfer of shares||Not required, unless because of inheritance between individuals||Consent of all consumer-partners needed||Managerial consent needed; entry into the commercial register||Transferable albeit with restrictions; entry into the commercial register||Freely transferable; low transaction cost; only trusteeship agreement is altered|
|Costs||Low initial setup costs||Low initial setup costs||Higher initial costs to enter commercial register; higher administrative expenses||Higher initial costs to enter commercial register; higher administrative expenses||Expenses of incorporating trusteeship (and holding Ltd. If required due to absence of trust legislation); administrative expenses|
|Limited Partnership||Co-Operative||Trusteed Scheme Like CSOPs|
|Equity contribution||Moderate; access to credit only against collateral or with guarantor||Moderate; membership shares have to be bought requiring liquidity||Low; future earnings are used to repay acquisition loan|
|Basic knowledge||Medium; managing partners external management possible||High; setup and management by members; no external management||Low; setup and supervision by trustee; external management possible|
|Time commitment||Low; involvement limited to control rights||Medium; members expected to be involved in all aspects||Low; involvement limited to crucial decisions; apprenticeship over time|
|Risk||Low; liability limited to value of share||Low; liability limited to value of share||Low; liability limited to value of share|
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Hanke, F.; Lowitzsch, J. Empowering Vulnerable Consumers to Join Renewable Energy Communities—Towards an Inclusive Design of the Clean Energy Package. Energies 2020, 13, 1615. https://doi.org/10.3390/en13071615
Hanke F, Lowitzsch J. Empowering Vulnerable Consumers to Join Renewable Energy Communities—Towards an Inclusive Design of the Clean Energy Package. Energies. 2020; 13(7):1615. https://doi.org/10.3390/en13071615Chicago/Turabian Style
Hanke, Florian, and Jens Lowitzsch. 2020. "Empowering Vulnerable Consumers to Join Renewable Energy Communities—Towards an Inclusive Design of the Clean Energy Package" Energies 13, no. 7: 1615. https://doi.org/10.3390/en13071615