Protecting consumers in digitized and multi-source energy systems

ABSTRACT

This paper investigates if the consumer risks of digitized and multi-source energy systems are capable of being addressed under existing energy consumer protection frameworks. Two challenges are identified. First, under existing frameworks the decision about which entities are subject to consumer protection obligations is often binary and may not easily accommodate new energy products, business models, or supply arrangements. Second, the highly prescriptive and detailed nature of current frameworks are ill-suited to the changes occurring in energy markets that require policymakers to develop rules to mitigate consumer risks arising from a rapidly expanding group of products, sources and technologies. To address these challenges, we propose that frameworks adapt to be based around baseline rights for all consumers irrespective of how they source, manage, or consume energy. We also argue for greater reliance on co-regulation to develop, monitor, and enforce a series of codes to protect consumers from the risks of new energy products and services.

KEYWORDS:

• Local energy solutions
• community energy systems
• digitalization
• regulation

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ For example, some companies in Europe require that tenants in an apartment block who wish to benefit from the supply of energy from the building’s solar panels can no longer be supplied from an alternative traditional supplier (see Council of European Energy Regulators 2021).

² Council of European Energy Regulators (2021) discuss the risk that consumers agree upfront investments in products/assets that can only be used in combination with a service contract with a specific provider (e.g.: a compatible solar panel system). This potentially restricts the future use of the product/asset with other service providers.

³ This issue might arise in particular where a consumer participates in peer-to-peer or other energy trading platforms. Council of European Energy Regulators (2021) refers to blockchain based energy trading platforms where energy buyers engage in Contracts for Difference. This requires consumers to have a basic knowledge of financial concepts and derivatives and blockchain skills.

⁴ In Europe horizontal consumer protection laws include the: Consumer Rights directive (93/13/EEC), Unfair Commercial Practices Directive (2011/83/EU) and the Distance selling and door-to-door sales Directive (85/577/EEC). Vertical or energy specific consumer protections are contained in the Electricity Directives of 1996, 2003, 2009 and 2019 (respectively Directives 96/92/EC; 2003/54/EC; 2009/72/EC and 2019/944). In the USA, important horizontal consumer protections are contained in the Federal Trade Commission Act (1914), while energy sector specific consumer protections are determined at the state level. While some consumer protection obligations are placed on the retail suppliers, others are provided for under state law and apply directly to the consumer or are contained in a Consumer Bill of Rights, such as in New York and Texas.

⁵ For example, do all tenants renting a property within a building with a PV plant shared among different flat owners have the right to choose if they want to participate in community scheme or not.

⁶ The rights and obligations of citizen energy communities apply in accordance with the roles that they undertake, such as the roles of final customers, producers, suppliers or distribution system operators. Accordingly, once a citizen energy community is granted the status of a distribution system operator, it should be treated as, and be subject to the same obligations as, a distribution system operator.

⁷ The Clean Energy Package comprises four Directives (European Union 2018a, European Union2018b; European Union 2018c; European Union 2019a) and four Regulations (European Union 2018d, European Union 2019b; European Union 2019c; European Union 2019d). The most relevant of which is Electricity Directive (European Union 2019a) which considers consumer empowerment and protection issues.

⁸ An entity controlled by members (individuals, small enterprises or local authorities) that generates, distributes, supply consumes, or stores electricity, or provides charging services for electric vehicles or other energy services to its members where such activity is primarily to benefit its members or its local area rather than for financial profit.

⁹ European Union (2019a: Art. 2 (12)).

¹⁰ Section 218 (b2) of California Code, Public Utilities Code – PUC § 218.

¹¹ While there is no universal distinction between microgrids and energy communities, some argue that microgrids are defined by the technical ability to connect to the grid and be operated in both grid-connected or Island-mode. Energy communities do not necessarily focus on the technical capability to connect to the grid (although many community energy systems can be configured as microgrids) but rather focus more on who develops, owns and operates the project. See Warneryd, Håkansson, and Karltorp (2020) and Reijnders, van der Laan, and Dijkstra (2020).

¹² Ofgem (2020) concluded that “supplying electricity to EV charging points would be supply, but selling electricity to EVs from those charging points won’t necessarily be supply”

¹³ For example, EU Directives require that all energy bills issued by licensed supplier should – unless the national authorities determine it inappropriate – set out clearly: the current actual prices and how much energy used; a comparison with how much was used by the consumer in the same period during the previous year; details of who the consumer may contact to find out how to save energy, for example consumer organizations, energy agencies or similar bodies, including website addresses and, wherever possible and useful, comparisons with similar types of customers.

¹⁴ Some of these detailed billing requirements would clearly be difficult, and disproportionate, for small community systems to implement. For example, the project to put 120 kW of solar on 60 houses on two streets in Easton, Bristol UK which will operate as community owned microgrid to share solar energy (CEER 2019), or the GridFlex Heeten project in the Netherlands where 47 households will operate as an energy community (Reijnders, van der Laan, and Dijkstra 2020). Moreover, some requirements could also be redundant or inconsistent with the nature of the supply arrangements, such as where consumer commit to a long-term solar purchase agreement or where households share surplus energy with one another under a peer-to-peer arrangement.

¹⁵ Table 4 builds on and expands the analysis contained in Decker (2020).

¹⁶ The regulator has suggested that the standards might also apply to price comparison websites and potentially to auto switching sites (Ofgem 2019).

¹⁷ Further back in time, in 2007 the European Commission suggested that a co-regulatory strategy may be the best starting point for developing standard terms for the then liberalizing energy markets (European Commission 2007).

Additional information

Funding

The author(s) reported there is no funding associated with the work featured in this article.