At the University of Technology (TalTech), research has been conducted on the concept of energy cooperatives, their potential business models and their viability. The study suggests that energy cooperatives may be advantageous in a number of important ways.

On the one hand, it would make it possible, at a relatively low cost, to significantly increase the share of renewable energy in the municipality's energy consumption and reduce its reliance on electricity provided by large power plants. On the other hand, it would also raise awareness of energy issues among citizens and officials alike and offer an alternative to individual small and large-scale producers.

Moreover, locally produced and consumed electricity boosts the community's energy independence in terms of supply security and cost. Energy cooperatives can contribute to renewable energy production and make their own investment decisions. The cooperation practices engages the community in a discussion about energy challenges in their neighborhood, so helping to anticipate and prevent increased costs.

TalTech researchers believe that local authorities should play a crucial role in establishing and running such cooperatives. Taking a broader view, cooperatives could be based on collaboration between local governments, enterprises and the community.

For the time being, however, this is all theoretical. The number of energy cooperatives launched in Estonia could be counted on one hand, and while researchers believe that energy cooperatives should be non-profit organizations, the cooperatives that have been established so far are mostly for profit.

Clarifying the topic

Tarmo Korõtko, a researcher at the Tallinn University of Technology's department of electrical power engineering and mechatronics, said that the general public does not have a clear understanding of the aims of the energy cooperative.

Energy cooperatives are often associated with classical entrepreneurship. So the cooperatives that set up so far also operate in the conventional business structure; namely, they try to generate income from their activities. However, Korõtko said, this is not really the purpose of an energy cooperative.

"In fact, the purpose of an energy cooperative is different; it is not intended to provide financial benefits to its members. However, economic efficiency is also important for energy communities," Korõtko explains.

The initial investment should be repaid, but not by withdrawing funds from the cooperative. Instead, the generated cash is reinvested in the introduction of new renewable energy solutions or other initiatives to enhance the quality of life in the community.

The energy cooperative has a specific legislative framework under the Electricity Market Act, and the current study is not intended to change it in any way. However, the many implementation options for energy cooperatives can be explored further. Studies can also help to determine the micro and macro-level effects of one strategy versus another.

Waiting for the first success stories

In Tartu, a pilot project on microgrids involving municipal government, the private sector and the emerging energy community is currently underway. The municipality is comparable to a public service contractor, the service is provided by the same company that needs the energy, and the energy is produced by a cooperative on the municipality's land.

"Essentially, the City of Tartu will allocate a parcel of land on which the energy cooperative will build a production unit to deliver power to a company that will provide energy supply services," Korõtko outlined the pilot project's idea.

In doing so, the researchers are hoping to create a model for the rest of Estonia in the future.

"Someone would take this route first in order to build a positive success story.
The local government could help by donating land and handling the paperwork.
After establishing examples of energy cooperatives and their efficacy, the initiative could be passed on," Korõtko said.

Energy cooperatives, K said, can help local governments and, eventually, the entire country in meeting climate goals. Several studies have found that forming energy communities increases public awareness of energy-related issues. This tends to improve people's overall energy behavior, such as producing more green energy and using energy in a more sustainable manner. It has been demonstrated that energy communities have a positive impact on energy efficiency.

Renewable energy has traditionally been produced in larger quantities by companies that install solar parks, for example, on the roof of a production building or on production land. It is also managed by the same company, which generates and installs its own energy and sells it to the grid. Legally, it has nothing to do with cooperative activity in this case. A company generates electricity in order to reduce its costs or to generate income.

Korõtko explained that establishing a co-op to operate a modest solar farm may seems unduly complicated. You would need to gather interested parties, obtain permissions and submit paperwork. For example, entrepreneurs who have €15,000 to spare or can take out a sufficient loan might be able to set up a 15-kilowatt solar farm entirely on their own.

Energy market shortages

Connecting an energy cooperative to the grid is the same as connecting any other solar or wind farm developer. However, the concept of energy cooperatives does not include selling electricity from neighbor to neighbor because the Electricity Market Act, in its current form, does not allow it. For that, a new electricity distribution network would be required. A smaller network cannot be integrated into the existing one under the current rules.

Energy cooperatives have been actively developed in Europe, for example, in Germany. The most common working arrangement for energy production units is cooperative ownership. A cooperative, on the other hand, may have several such production units and own the distribution network. In this case, it is up to the cooperative to determine whether it is qualified to register as a network operator in a specific area.

"Positive aspect of energy cooperatives is clearly their freedom to invest. Depending on their capacity, they may own one or more renewable energy producing units, as well as a distribution network, etc," Korõtko explained.

In the case of a network, it must be connected to and approved by the distribution system operator in the area's electricity network. This is especially important so that, in the event of a malfunction, the entire area served by the cooperative does not go without power.

Thus, the efficiency of cooperative action requires the collaboration of multiple people, which can emerge first and foremost from the interests of all parties involved. As a result, there may be practical benefits.

Korõtko said that at the moment there is still a great deal of confusion surrounding the concept, nature and terminology of energy cooperatives and that hinders the development of the sector.

"At the moment there is a lack of concrete effective tools. For instance, a model code of conduct that prescribes how to distribute shares should be established," he said.

Several possible scenarios

When residents in a settlement or village agree to form an energy cooperative, they should establish their goal as clear as possible, Korõtko continued.

For example, the cooperative could aim to increase the proportion of renewable energy consumed. A group of individual households, on the other hand, could form a cooperative to buy a battery bank or several charging points for their own electric cars and manage them cooperatively.

It is fairly straightforward: Collect cash from the cooperative's members, construct a renewable energy production unit, and install a grid connection point.

Because of the expected increase in the number of electric vehicles in the near future, charging stations for electric vehicles may become the most certain driving force in the development of energy cooperatives.

The first signs of change, Korõtko said, have already begun to emerge, with all electric car owners beginning to charge their vehicles during the cheapest electricity periods and the transformers at nearby substations being unable to handle peak demand.

However, at the moment, you cannot directly tell someone to charge their car at a higher price. "In such a case, an energy cooperative could purchase more electricity in the region, organize flexible charging, create additional charging stations and divide the costs among its members," Korõtko explained.

Another way in which energy cooperatives operate is by providing energy services. Korõtko said that an energy co-operative established in an energy-conscious community can provide energy audits, energy consultancy, etc.

"The key to establishing a successful energy cooperative is how well it handles ownership concerns - who contributed how much, who consumes what, etc.," Korõtko continued.

However, the researcher said that there are still some concerns about using the cooperative's energy for personal consumption. Bloodshed could erupt, so to speak, between cooperative members if someone consumed more electricity than others recommended at any given time. Thus, consumption allocation and accounting can become quite complex.

Due to this, Korõtko said that the driving force behind energy cooperatives as primarily the reduction of a commonly consumed energy cost, such as street lighting, general heating in apartment buildings, and so on.

The existing housing cooperative is currently the closest form of cooperative activity to energy cooperatives. Thus, energy cooperatives may gain traction on this basis, all the more so as many of them have already started their own green energy production, Korõtko explained. If an energy cooperative were to be developed on top of this, the income base of housing associations could be significantly increased and the generated funds could be used, for example, to improve maintenance, renovate buildings, etc. This would be an excellent way to improve energy efficiency.

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