Energy communities – is a business licence required?
Energy communities are the new model for a more decentralised energy supply (for further details please see "Sparking change: Renewable Energy Expansion Act published for evaluation"). An energy community can generate, consume, store, distribute and sell energy, with the focus being the use of the jointly generated energy by the community members. According to the draft Renewable Expansion Act (EAG), which will be passed shortly, energy communities may also actively participate in the electricity market and provide energy services.
Electricity companies versus energy communities
Energy communities' generation, supply and sale of electricity and offering and rendering of energy services raises the question of whether they fall within the scope of the Industrial Code 1994. In principle, all commercial activities fall within the scope of the code, unless they are covered by one of the exceptions listed therein. Electricity companies are generally excluded from the scope of the code. Since energy communities carry out similar activities to electricity companies (ie, the generation of electricity), the question inevitably arises of whether energy communities are electricity companies. The answer to this question primarily depends on whether a 'profit intent' is required for electricity companies.
Under the requirements of EU law (which have been implemented in the draft EAG), an energy community's main purpose must not be financial gain. Therefore, as a rule, energy communities deny any intention to make a profit. However, since energy communities are not completely excluded from making a profit (the wording of the law allows profit making as a "secondary purpose"), caution is needed. For example, the profitable generation and sale of 'surplus' energy (ie, energy that is not consumed by the community itself) could be classified as an intention to make a profit that is relevant under electricity law. The community would then be exempt from the Industrial Code 1994, but would fall under the regulatory regime of electricity law (the Electricity Industry and Organisation Act 2010). However, if the energy generation is not systematically geared towards generating excess energy, there will likely be no generation with a profit-making intention, and the mere sale of electricity is not considered an activity of an electricity company, regardless of whether a profit is made. Therefore, the questions of demarcation are quite complex.
If the exceptions needed to qualify as an electricity company are not met, the question of commercial activity (ie, whether a commercial licence is required) must be answered when establishing and structuring an energy community. According to Section 1 of the Trade Act, an activity is carried out commercially if it is done so independently, regularly and with the intention of generating income or another economic advantage. The criterion of regularity will be met in the case of energy communities. However, the criteria of independence and an intention to generate income must be assessed on a case-by-case basis. Arguably, the commercial law term 'intention to generate earnings' should not be equated with the electricity law term 'intention to make a profit' (ie, if an energy company is denied due to a lack of intention to make a profit, it must not be automatically assumed that that there is no commercial activity). The legal requirement that an energy community may not be primarily geared towards financial gains does not exclude an intention to generate income or another economic advantage from the outset. This is shown by the comprehensive jurisprudence on the possible commercial nature of non-profit associations.
Whether the Trade Act applies will depend on the specific design of the energy community. When founding and structuring an energy community, questions relating to energy law and commercial law must be answered.
This article was first published on International Law Office, 12.04.2021.
authors: Bernd Rajal and Stefanie Orator-Saghy