Guest Post: Public energy companies necessary for a fair transition — TUED Bulletin 107

19 April 2021

Guest Post: Public energy companies necessary for a fair transition

By Dries Goedertier

This TUED Bulletin offers a guest contribution from Dries Goedertier, a researcher affiliated with the history department of Ghent University who also works as a consultant for the study service of ACOD (“Algemene Centrale der Openbare Diensten” — the General Central of Public Services). ACOD recently joined TUED.

This essay draws attention to issues similar to those presented in TUED Working Paper #13: “Transition in Trouble? The Rise and Fall of ‘Community Energy’ in Europe.”  It was originally published (in Dutch) by Apache Magazine, here. It reflects the views of the author.

The debacle with the reversing electricity meter [also called “net-metering” in many contexts — a billing mechanism that credits solar capacity owners for electricity they feed into the grid] shows the limits of Flemish energy policy, which places the responsibility for the much-needed energy transition in the hands of the individual as consumer, investor and entrepreneur. For a socially just and democratic energy transition, the necessary efforts of energy cooperatives will not be sufficient. Only the state can regain control of the energy sector on behalf of, and for the benefit of, society as a whole.
Flemish energy policy has recently suffered from a severe heat stroke. The Constitutional Court has put an end to the reversing electricity meter. The decision dealt a heavy blow to those families who, after the (apparently worthless) guarantees of a bunch of liberal energy ministers about the legality of this particular support scheme, decided to install solar panels on their roofs before the deadline of January 1, 2021. Many of them feel cheated and that is certainly understandable. However, a critical inquiry should not stop there. The whole debacle shows the limits of an energy policy that places the responsibility for the much-needed energy transition in the hands of the individual as a consumer, investor and entrepreneur.

“The sun has become a neoliberal investment product,” stated Dirk Holemans (Oikos). Holemans, together with Dirk Vansintjan (Ecopower & REScoop.EU), is arguing for a shift to a collective model in which citizens pool their resources and capacities in energy cooperatives. There is indeed a lot to be said for that. After all, energy cooperatives have a lot to offer in terms of democratic, social and ecological benefits.

If we really want to democratize the energy sector in function of social and environmental objectives, then public energy companies will have to play a major part

In my opinion, however, the admirable self-organization of thousands of citizens will not be enough to break the dominance of the current for-profit energy model. The market power of the established players is simply too great for that. Only the state has the capacities, resources and potentially democratic legitimacy to regain control of the energy sector on behalf of and for the benefit of society as a whole.

If we really want to democratize the energy sector in the service of social and ecological objectives, then public energy companies will have to play a major part. This does not have to be at the expense of energy cooperatives, as is sometimes incorrectly claimed. I am convinced that energy cooperatives in a public-driven model of energy democracy will actually have more opportunities to unleash their potential. But in order for that to happen, we must dare to question the liberalization of the energy sector.

The liberalization of the energy sector

The EU has championed the liberalization of the energy sector ever since the late 1990s. Electricity generation, distribution and supply are disconnected from each other (“unbundled,” in the jargon) while there is competition and free pricing in wholesale and retail markets.

However, Member States were allowed to support the fledgling (as yet non-competitive) renewable energy sector with public funds. These subsidies took various forms, but always guaranteed predictable and secure income flows to companies and investors.

Energy cooperatives will have more opportunities to unleash their potential in a public-driven model of energy democracy

Thanks to this state aid – and not some kind of market magic – renewable energy cooperatives in countries such as Denmark and Germany were able to take off. These and other forms of community energy strive for social justice and the self-realization of citizens in a collective partnership. That’s also what explains their wide appeal. They are an alternative to the individual rat race of late capitalism.

At the same time, liberalization offered civil cooperatives the opportunity to supply electricity to their members. Although this did not lead to an embrace of the underlying ideology of market glorification, it did entail an acceptance of the market and profit logic. Profit is never paramount for an energy cooperative.

But market participation inevitably results in a mixture of commercial and socio-ecological objectives. Holemans and Vansintjan also indicate this: “as a cooperative you not only have a say, but you also get a share of the profit”. If you want to pay out a dividend, you have to participate in the market. In this respect, the expectation of a financial return can just as easily inform the investment decision of an individual cooperant. In the same way, ecological motives can just as well be decisive for individual owners of solar panels.

Seen from this angle, I do not think Holemans and Vansintjan’s assessment of the individualistic approach is always that fair. We must refrain from making moral judgments about people’s energy choices. The bigger point is that in the neoliberal market everything revolves around profit and that no one – not even a cooperative – is really able to escape from this logic. This is particularly problematic since it is exactly this profit logic that blocks the acceleration of the energy transition, as I argued for Think Tank Minerva in Energy Democracy: Alternatives for a Sustainable Future.

The crisis of the energy cooperatives

The liberalization of the energy sector achieved opposite goals from those its advocates had initially put forward. We did not get more competition and falling prices for the consumer, but rather the concentration of the market in the hands of five energy giants and rising consumer prices.

Support for renewable energy and the liberalization of the energy sector appeared to be incompatible

Propelled by the favorable wind from the subsidies, the energy cooperatives nevertheless bravely entered the fray. According to some, the falling cost of wind and solar energy would lead to a profound shift in ownership relationships: from fossil and nuclear, centralized large companies to renewable, decentralized, community energy. Unfortunately, these high expectations have not been met.

Support for renewable energy and the liberalization of the energy sector appeared to be incompatible. The arrival of renewable energy companies and the increase of the energy supply – especially on days when the sun was shining and the wind was blowing heavily – pushed wholesale prices down too sharply. As a result, the profitability of the energy sector and – closely related – the willingness to invest (also in renewable energy) was jeopardized.

In 2014, the EU tightened its state aid rules for renewable energy. Many Member States started auctions so that additional capacity and the associated subsidies only went to the most competitive players. However, these competitive bidding procedures have further shrunk profit margins. In conjunction with the sharply reduced subsidies, this reverberated into a serious decline in investment. In the record year 2011, USD 137.8 billion was invested in renewable energy in Europe. In 2017, this was only $ 63.9 billion.

Energy cooperatives in particular are the victims of this subsidy crackdown. Many of them have a hard time surviving without subsidies. In trailblazing Denmark, the number of cooperatives in the wind energy sector has fallen from 931 in 1999 to less than 200 in 2015. In Germany, Austria and the United Kingdom, the removal or tightening of support mechanisms has also been accompanied by the decline of energy cooperatives. Without subsidies, their income is not assured. It also makes it very difficult for them to get loans from the banks.

Clean Energy Package

Holemans and Vansintjan are not asking for new subsidies. They rightly indicate that subsidies (certainly in the context of solar panels) mainly benefit the upper middle class that does not need that support (anymore). The cost of the subsidy, however, has been passed on to the energy bill and falls heavily on the shoulders of the lower incomes.

Vansintjan and Ecopower believe that financing the energy transition is not the real problem. According to Jan De Pauw (project engineer at Ecopower), Flanders must add 1,000 wind turbines to achieve its European climate target of 2030. The total cost would be 3 billion euros (given that one windmill costs an average of 3 million euros). That is only 1.5% of the money currently parked in Belgian savings accounts.

Some major players apparently also set up cooperatives to adopt an ecological image

It is a nice analysis that also demonstrates Ecopower’s financial-technical knowhow and its capacity for socio-ecological planning. Nevertheless, I think it is impossible to realize this vision within the framework of the ‘free’ market in which the profit logic dominates and the big five are lord and master. Some major players apparently also set up cooperatives to adopt an ecological image and to cut the ground from under the feet of the cooperative movement.

REScoop.EU is therefore pleased with the Clean Energy Package, which indeed gives citizens and renewable energy communities (a new legal entity) the right to produce, store, consume and sell energy. Supposedly, this would enable a stronger participation of the green energy cooperatives in the energy market. With regards to competitive tenders, member States must also ensure that energy communities can compete on an equal basis with other market players.

REScoop Flanders advocates a Flemish environmental decree that reserves at least 50% of the ownership in renewable energy projects for citizen participation. The proposal is presented as an “invitation to project developers and energy multinationals to develop renewable energy projects together with the local community and not ‘at the expense of’” them. At most, this approach makes it possible to build support and keep part of the profit within the local community. But it falls far short from breaking the dominant profit logic and the power of the energy multinationals.

The advantages of public energy companies

Yet it is this very same profit logic that the energy democracy movement must challenge head on. Liberalization is always about profit. But in the energy sector, the low wholesale prices make it very difficult to turn a profit at the moment. The private, non-subsidized investments in renewable energy are therefore also “negligible” according to the International Energy Agency .

This shows how reckless it is to leave the energy transition to the market. “We have to plan that,” as Vansintjan rightly points out. However, this means that the state must be more than a “partner” that provides support to energy cooperatives. It must also actively shape the energy transition itself.

In this public perspective on energy democracy, national, regional and local government companies are given a greater role to plan and coordinate production, transmission, distribution and supply. Such an integration of the energy system would have numerous benefits. A decentralized approach driven by energy cooperatives cannot lead to a deployment of renewable energy that is socially fair, fast and comprehensive enough. Because it simply is not the case that every individual or community has the (financial) possibilities to organize with others in a collective fashion.

Research shows that publicly owned offshore wind farms are cheaper to finance, build and manage

A national public energy company, however, would be able to achieve these goals because of its greater territorial reach, competence, planning capabilities and financing options. The public sector can borrow on more favorable terms than private companies. As a result, the capital cost of renewable energy projects can be reduced, which is important for scaling the energy transition to much higher levels.

Research shows that publicly owned offshore wind farms are cheaper to finance, build and manage. In a public model, the factors that contribute to higher user fees in a market model – higher capital costs, calculated profit, and in the case of public-private partnerships (PPP) also higher transaction costs – would disappear. Governments can then make a trade-off between a lower energy bill or an extra effort from users for a faster energy transition.

A national public energy company can also achieve energy objectives (such as the development of renewable energy capacity) together with city companies and energy cooperatives. There are plenty of historical and contemporary examples of this. In the US, the New Deal focused on large-scale public energy companies (such as the Tennessee Valley Authority) and public investments (via the Rural Electrification Administration) in rural energy cooperatives. The electricity of modern-day Costa Rica is almost 100% renewable, partly due to the collaboration of the government company ICE with energy cooperatives.

Democratic central planning with decentralized implementation (and participation in the goal-setting) can also help develop the necessary energy storage capacities to accommodate the variability of renewable energy. The development of energy storage requires a system approach and a holistic view of the entire energy process. Public energy companies that integrate different functions (such as production, transmission / distribution and supply) have an advantage in this respect.

According to some observers, the US has an advantage over the EU here because its energy sector is less liberalized (and thus less unbundled). Here, too, the EU has opted for an approach whereby market actors sell their flexibility (for example stored solar energy) on a market (for example at times of peak demand). The technical obstacles to energy system integration are in themselves already very significant. On top of these, a market approach would raise some additional commercial concerns that will only make the challenge even more formidable. After all, individual market players will only offer their services if these are profitable.

It is unclear whether this condition will be possible (even without subsidies). In Flanders, I think the distribution network operator Fluvius would do better to develop energy storage facilities itself and involve the energy cooperatives through a policy of public tenders. However, the Flemish government does not allow Fluvius to own, develop, manage or operate an energy storage facility. In line with the EU, Flanders opts for a market approach to flexibility. From this viewpoint, a distribution network operator investing in energy storage would only “disrupt” the market.

In the meantime, Colruyt Group does want to set up a green hydrogen factory together with gas infrastructure company Fluxys . The company is also looking for Flemish subsidies (in the context of the Important Project of Common European Interest for hydrogen) because green hydrogen is currently not profitable. The unbundling logic of the liberalized energy sector is thus pushing essential infrastructure into the hands of the private sector and this is also bad news for the cooperative movement.

Offshore wind farm in the UK (Photo: Nicholas Doherty (Unsplash))

A shared struggle for energy democracy

Proponents of energy cooperatives sometimes claim that public energy companies are often just as profit-oriented as private energy multinationals. It is a criticism that is often justified and has recently been made evident by the investments of Fluxys (77% of which is owned by Belgian municipalities) in Brazil, because “gas still has a bright future there.”

However, this ‘corporatization’ is not an inherent characteristic of public energy companies, but a logical consequence of their submission to the profit logic of the (global) market. It is therefore not correct to exclude the option of public energy companies with large-scale renewable energy installations on that basis.

Public ownership is a necessary condition for the energy transition, but insufficient in itself

Public ownership is a necessary condition for the energy transition, but insufficient in itself. A struggle is also needed for its democratization. Energy companies must receive a mission that stems from a widely supported democratic process. The capitalist state, with its representative and executive bodies, is therefore an important battleground for energy democracy.

From South Africa, to Uruguay, France and Germany, activists (e.g. energy sector unions) are campaigning to get representatives of workers and communities in the management boards of the energy companies and authorized government agencies. At the local level, the movement for the re-municipalization of the essential gas, heat and electricity infrastructure is also of great democratic importance.

On a final note, I would like to emphasize one thing. Advocates of energy cooperatives and advocates of a public energy model are allies in a shared struggle for a democratic and socially just energy transition. More than is already the case, we need to exchange knowledge and ideas. The seriousness of the situation – a sluggish energy transition and the failure of the dominant for profit model – should also encourage joint projects and action points.

Take, for instance, the further development of Belgian wind energy in the North Sea. Let’s not leave this to private “entrepreneurs” who only invest if they are sure of a profit and count on subsidies for this to transpire. The cost price of the most recent wind farm (Northwester 2, now fully owned by the Colruyt Group) was 700 million euros.

A Belgian public energy company and an energy cooperative (with, for example, 50% of the capital) could jointly realize such a project cheaper, faster and with much greater democratic support. It is the best way to combine the advantages of both ownership types and to keep the proceeds in the national community for the benefit of broad sections of the population. It is time to join forces in this.
Dries Goedertier is a researcher affiliated with the history department of Ghent University. Since 2015, he has been working as a consultant for the ACOD study service. He is also a member of the editorial board of the magazines Sampol and Aktief.

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In solidarity,

The TUED team

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By |2021-07-07T11:14:27+00:00July 7th, 2021|News, Uncategorized|Comments Off on Guest Post: Public energy companies necessary for a fair transition — TUED Bulletin 107