**Facilitating the Energy Transition—The Governance Role of Local Renewable Energy Cooperatives**

#### **Donné Wagemans \*, Christian Scholl \* and Véronique Vasseur \***

International Centre for Integrated assessment and Sustainable development (ICIS), P.O. Box 616, 6200 MD Maastricht, The Netherlands

**\*** Correspondence<EMAIL_ADDRESS>(D.W<EMAIL_ADDRESS>(C.S<EMAIL_ADDRESS>(V.V.); Tel.: +31-(0)-43-3882659 (C.S.)

Received: 30 September 2019; Accepted: 31 October 2019; Published: 1 November 2019

**Abstract:** The governance role of local renewable energy cooperatives (LRECs) in facilitating the energy transition remains under-scrutinized in the scholarly literature.  This paper presents a study of the governance roles of LRECs in the province of Limburg, the Netherlands. Building on existing work on the cooperative movement and energy governance, we, first, develop a conceptual framework for our analysis. The framework is built around three key interactions shaping these governance roles, between (1) LRECs and their (potential) members, (2) LRECs and the government and (3) LRECs with other LRECs. The results of an online survey and qualitative interviews with selected cooperatives led to the identification of five key governance roles that these cooperatives take up in the facilitation of the energy transition: (1) mobilizing the public, (2) brokering between government and citizens, (3) providing context specific knowledge and expertise, (4) initiating accepted change and (5) proffering the integration of sustainability. The paper concludes by reflecting on the relevance of our findings in this Dutch case for the broader 'just transition' movement.

**Keywords:** energy transition; local renewable energy cooperatives; governance roles; citizen participation; mixed methods

#### **1. Introduction**

Community action and involvement in the transition towards a society based on sustainable renewable energy has increased significantly during the last decade, leading to changes in how energy systems are integrated into societies around the world [1]. Spurred not least by concerns about the negative effects of fossil fuels which pollute the biosphere, reinforce the greenhouse gas effect in the atmosphere and upset the balance of the hydrosphere. As opposed to traditional fossil fuel based energy, renewable energy (RE) originates from naturally replenished resources such as sunlight, wind, rain, tidal movements and geothermal heat [2]. Similar to many other European countries, the Netherlands has recently experienced the emergence of local renewable energy initiatives. These initiatives are community efforts that mean to transform the energy sector to make it more decentralized, democratic and sustainable [3–5]. A distinct type of a community effort is the Local Renewable Energy Cooperative (LREC). In recent years, cooperatives have been created to promote the use of renewable energies, most notably in Canada [6], the United Kingdom [7], Denmark [8], Belgium [9] and Germany [10]. Cooperatives are autonomous associations of citizens who collaborate voluntarily to meet their common economic, social and cultural needs and aspirations through a system of businesses that are jointly owned and democratically controlled [2].

As the energy industry is getting more diverse and decentralized these LRECs are one of the visible ongoing developments. By integrating equity and other concerns, they carry the additional potential of contributing to a 'just (energy) transition,' which according to recent scholarship transcend established concerns of a 'energy transition' [11]. Following the well-known concept of cooperatives which emerged in the United Kingdom in the 19th century [12], LRECs empower citizens outside the energy industry with the opportunity to bundle resources to implement renewable energies while also participating in cooperative energy consumption. As renewable energy is becoming increasingly relevant in many countries, LRECs are gaining ground. For instance, the European Federation of Renewable Energy Cooperatives (*REScoop*) represented 1240 LRECs in 2018 with a total of 650,000 European citizens as members. Given this remarkable success of LRECs, it is expedient to find out how the governance of and by these cooperatives plays a role in the facilitation of the energy transition [13].

Bauwens [9] researched the cooperative energy movement in Flanders, specifically investigating the role of cooperative members and the heterogeneity of their motivations and the implications this has on their level of engagement. He concluded that while cooperative members are often considered as one homogenous group, several categories of members with differing motivations and levels of participation can be distinguished. Our research did not include the perspective of the cooperative members as Bauwens did. Therefore, the identified governance roles only reflect the perspective of the cooperative board. It is suggested that future research will also include the perspective of the cooperative members to verify the identified governance roles.

Research conducted by Hoicka and MacArthur [6] investigated community energy projects within Canada and New Zealand. More specifically focusing on the participation of indigenous people. Their research investigated the role of incumbent resources, actors and the political environment to investigate the differing functions of community energy initiatives. Their research concluded that community energy initiatives play an important role in overcoming challenges of uneven economic development, inequality and fuel poverty similar to the results of our research in Limburg. These issues are especially prevalent in countries with a colonial history which differs it from the Netherlands. There are however similarities between the role of LRECs in peripheral areas such as Limburg and the uneven economic development and inequalities mentioned by Hoicka and MacArthur in rural communities within Canada and New Zealand.

While our research took a specific focus on the Dutch experience of the governance of energy transition, it can be seen within the wider movement of the democratization of energy and a just energy transition. This movement calls for more participatory forms of energy provisions, including local autonomy over energy in decentralized systems such as seen in LRECs. Energy cooperatives are expected to play a strong part in this movement as they are owned and managed by the members of their members and reflect the priorities of their communities as indicated by Stephens [14]. The identified governance roles found within this research align with these expectations for LRECs as they partially reclaim the energy infrastructure shifting toward more direct community-level economic benefits. At the same time, they contribute to the democratization movement by moving away from interests that concentrate wealth and power

In 2018 the Netherlands counted 484 energy cooperatives, an increase of 20% compared to 2017 [15]. Almost 70,000 citizens are currently a member of such a cooperative. The generally defined goal of these local renewable energy cooperatives is to involve citizens to participate in practices concerning energy saving, production and trade, with the proceeds of these activities flowing back to the local community as much as possible [15]. These efforts are vastly different from the status quo practices which often involve large energy providers with little to no connection to the local community. In many cases renewable energy projects will therefore experience resistance by local community members as they experience negative externalities of these projects and are not actively involved in the project themselves nor do they share in the benefits [16,17].

Similar to the rest of the Netherlands, the province of Limburg is in the process of working towards the energy transition in an attempt to contribute to the efforts set forth in the Paris Agreement to limit global temperature rise to well below 2 ◦C as compared to pre-industrial levels. In order to reach this goal, all the signatory parties including the Netherlands pursue a shift toward low carbon economies with a focus on using renewable energy sources, reducing energy demand and increasing energy efficiency levels. In specific terms the Netherlands as part of the European Union is committed to a 'binding target of an at least 40% domestic reduction in greenhouse gas emissions by 2030 as compared to 19900 [18]. As stated in the Nationally Determined Contribution of the EU and its Member States. This includes the effort to reduce energy emissions which has been described as the low carbon energy transition [19]. Additionally, the European Commission's RED II directive came into force in November 2016. This directive sets an overall target of 32% renewable energy consumption by 2030. RED II mentions activities of individual and collective self-consumption through renewable energy communities such as LRECs to collectively facilitate local participation in the energy system and attain the set targets [20].

Energy Cooperatives in Limburg have been supported by the *Natuur en Milieufederatie Limburg* (NMF), the Nature and Environmental Federation Limburg, since 2012 through the *Servicepunt Energie Lokaal Limburg* (SELL). SELL is a service centre that aims to support energy initiatives in order to accelerate the energy transition [21]. After the first cooperative initiatives were started, local projects soon began to take shape with the first cooperative wind turbine being built in Limburg in 2015 and five more in the works. Additional solar projects have been sprouting up in multiple municipalities as well. According to the national energy monitor '*HIER opgewekt*' (Dutch for "generated here"), the future of local energy cooperatives in Limburg is looking very promising as there are relatively few objections and short lead times. This resulted in an almost 35% growth of energy cooperatives in 2018 where the number of energy cooperatives in Limburg increased from 13 to 20 [22]. Therefore, Limburg provides a promising environment for researching the governance by LRECs.

As of 2017, there are multiple LRECs in Limburg with more than a hundred members generating revenues exceeding € 100,000. The cooperatives have plans to have a combined capacity of more than 70 MW within the near future together, aiming to circulate profits within the local community, support social goals and promote the liveability of small local communities [23]. These are ambitious goals. However, the feasibility of these goals will depend on whether the cooperatives can successfully facilitate the governance of the energy as well, as bad governance practices which could potentially smother the potential of LRECs [24].

In this paper, LRECs are analysed from a governance perspective. Thereby, we build on recent attempts by scholars who have started to scrutinize governance processes in community energy projects [7] and mapped legal governance issues of energy sector innovations by community energy services [5]. By studying LRECs in Limburg, we want to get to know in which ways local renewable energy cooperatives contribute to the renewable energy transition from a governance perspective. We conceive of governance as the process of steering society and the economy through collective action and in accordance with common goals [25]. More specifically certain dimensions of the 'governance paradigm' include: inclusion of institutions and actors from and beyond government; blurring roles and responsibilities; power dependence in relationships between institutions, autonomous self-organising networks of actors; and, governing with new techniques to steer and guide, rather than utilising command or authority [26]. By studying the role LRECs play in governance, we want to find out what their actual contribution is to the governance of the energy transition, how this contribution is hampered and how it could be amplified. Despite deeper insights in the governance roles taken up by LRECs, we also expect the results to contribute to give LRECs a better and more reflected place in the overall governance of the energy transition. While our research placed a specific focus on the Dutch experience of LREC governance the results will also be discussed in the wider context of the (energy) democratisation and 'just transition' movement.

For this research, governance is studied by analysing it at a more concrete level of three interactions between an LREC and other parties reflecting the polycentric environment of power in which they operate, as indicated by Meadowcroft [27]. This environment is characterized by power

being decentralised and distributed to different groups who collectively determine the direction of developments. The first relationship is that of the LREC and its members (a) for example, opportunities for member input, the second of the LRECs amongst each other (b) for example, utilization of knowledge sharing opportunities, the third is the relationship between the LREC and the government (c) for example, regularity of meetings with city councils. These relationships are displayed in Figure 1. *Energies* **2019**, *12*, x FOR PEER REVIEW 4 of 20 utilization of knowledge sharing opportunities, the third is the relationship between the LREC and the government (c) for example, regularity of meetings with city councils. These relationships are displayed in Figure 1.

**Figure 1.** Key governance relations (a, b, c) that are the focus of the proposed research (authors' own)**. Figure 1.** Key governance relations (a, b, c) that are the focus of the proposed research (authors' own).

#### **2. Research Design and Methods**

and years of operation.

**2. Research Design and Methods**  The first phase of the research consisted of a literature review. First, a search for several key words regarding energy cooperatives and local energy initiatives were submitted to online academic databases such as: EBSCO, Web of Science, JSTOR, Scholar, Sage and Springer in search of relevant, peer-reviewed and timely articles with a focus on the European context of energy cooperatives. Based on the popularity of these articles as determined by the number of references, several articles where selected for the initial preparatory study. Second, by following up on key concepts, frequent authors and referred grey literature found in the initial study, a more extensive body of literature was created. The first phase of the research consisted of a literature review. First, a search for several key words regarding energy cooperatives and local energy initiatives were submitted to online academic databases such as: EBSCO, Web of Science, JSTOR, Scholar, Sage and Springer in search of relevant, peer-reviewed and timely articles with a focus on the European context of energy cooperatives. Based on the popularity of these articles as determined by the number of references, several articles where selected for the initial preparatory study. Second, by following up on key concepts, frequent authors and referred grey literature found in the initial study, a more extensive body of literature was created. The cumulative result of this study was the identification of several key governance dimensions that are relevant for local renewable energy cooperatives.

The cumulative result of this study was the identification of several key governance dimensions that are relevant for local renewable energy cooperatives. In the second phase of the research, the key dimensions of the LRECs within Limburg were investigated through an online survey created using the Qualtrics software for collecting and analysing data online. The online survey started with several short questions inquiring about general data on the cooperative, including amongst others the focus, the years of operation and the number of members. The data collected was helpful for having a general overview of the energy cooperatives in Limburg. In addition, the survey investigated the different governance dimensions and their In the second phase of the research, the key dimensions of the LRECs within Limburg were investigated through an online survey created using the Qualtrics software for collecting and analysing data online. The online survey started with several short questions inquiring about general data on the cooperative, including amongst others the focus, the years of operation and the number of members. The data collected was helpful for having a general overview of the energy cooperatives in Limburg. In addition, the survey investigated the different governance dimensions and their importance for the cooperative. Respondents were able to provide answers on a 5-point Likert scale ranging from 'not at all important' to 'very important' [28]. The option 'not applicable' was included to prevent respondents having to choose a level of agreement for statements that do not apply to their case. The score was then used for the typology development.

importance for the cooperative. Respondents were able to provide answers on a 5-point Likert scale ranging from 'not at all important' to 'very important' [28]. The option 'not applicable' was included to prevent respondents having to choose a level of agreement for statements that do not apply to their case. The score was then used for the typology development. There are several advantages of utilizing the Likert scale. First, the responses are easily quantifiable. Second, respondents are not forced to take a definite stand on a particular topic but to respond in a degree of importance. This is supposed to make answering easier for the respondent. There are several advantages of utilizing the Likert scale. First, the responses are easily quantifiable. Second, respondents are not forced to take a definite stand on a particular topic but to respond in a degree of importance. This is supposed to make answering easier for the respondent. Third, the responses accommodate neutral or undecided feelings on importance. Because of these reasons, the Likert scale offers a quick, efficient and suitable method for data collection [29]. The survey was distributed to all 23 known cooperatives in the province of Limburg. This led to 11 distinct responses from 11 different cooperatives. The response rate was 43%. We wanted as many cooperatives as possible to answer the survey to have an extensive amount of data available for the typology development. Preferably, the cooperatives should have different focusses, sizes, locations and years of operation.

Third, the responses accommodate neutral or undecided feelings on importance. Because of these reasons, the Likert scale offers a quick, efficient and suitable method for data collection [29]. The In the third phase and based on the survey results, a typology has been developed in two steps. First, the survey data was analysed to identify the greatest polarity of responses. If cooperatives

In the third phase and based on the survey results, a typology has been developed in two steps.

survey was distributed to all 23 known cooperatives in the province of Limburg. This led to 11 distinct

cooperatives as possible to answer the survey to have an extensive amount of data available for the typology development. Preferably, the cooperatives should have different focusses, sizes, locations

First, the survey data was analysed to identify the greatest polarity of responses. If cooperatives provide vastly different answers regarding the importance of a particular governance dimension, this could indicate that this dimension is suitable for typology development. If respondents indicate very similar preferences for one of the governance dimensions, this could indeed be a very important dimension but was not considered suitable for differentiating amongst the cooperatives. Out of the provide vastly different answers regarding the importance of a particular governance dimension, this could indicate that this dimension is suitable for typology development. If respondents indicate very similar preferences for one of the governance dimensions, this could indeed be a very important dimension but was not considered suitable for differentiating amongst the cooperatives. Out of the most polarizing governance dimensions indicated by the widest response ranges, two have be selected as the main variables for the typology development.

As the answers the respondents corresponded to an interval scale, an average score could be calculated for the two determining governance dimensions. These scores will correspond to a coordinate on an x-and y-axis. Resulting in a scatterplot indicating the positions of each individual LREC and the degree to which they fit into a certain type. This allowed for a clear and simple overview of the distribution of the research population as well as a straightforward indication of the most deviating cases, which qualified for further inquiry through interviews.

The fourth phase of the research consisted of two separate (group) interviews with five senior controlling cooperative members of two distinct cooperatives. The interviews were performed in a semi-structured format and inquired about the cooperatives and their different governance interactions at an in-depth level. The semi-structured format allowed the interviews to unfold in a conversational manner, offering the interviewees the chance to pursue issues they feel are important [30]. Interviews lasted ca. 90 min and, were audio-recorded and summarized afterwards. Four distinct LRECs were selected for follow up interviews based on the results of the survey and additional information they provided. As selection criteria, the cooperatives either had the most extreme scores in their respective category, were surprising outliers or they provided information indicating interesting governance perspectives which required further investigation. Out of the four selected cooperatives two agreed to an interview. These were *Duurzaam Roerdalen* and *Duurzaam Maasgouw*, established in 2017 and 2018, respectively. Both cooperatives are relatively young each having less than 100 members.

#### **3. Governance by Local Energy Collectives**

In order to identify the key dimensions that are relevant for analysing governance by local renewable energy cooperatives, we reviewed the literature of the two fields of energy governance and cooperative movements. During this search, we identified key dimensions for the analysis of the role of cooperatives in energy governance. These are: participatory practices, democratic decision making, mobilizing capacity, professionalization, legitimacy, collaboration with governmental institutions, support networks and the policy context. Each of them is briefly outlined below. For our analytical framework presented at the end of this section, these dimensions are then grouped together under the three key interactions of cooperative governance.

#### *3.1. Participatory Practices*

Participation is one of the key elements of environmental governance that contributes to better decision making [27,31]. It is recognized that issues regarding sustainability require the involvement of the public. Participation provides this link between the public and the governance of the energy transition in this instance. A strong public participation in environmental governance increases the commitment among stakeholders by providing a stronger sense of ownership. When stakeholders are allowed to voice their opinions and insert them into a project, this strengthens their belief in the cooperative project as well as fostering increased acceptance of any measures taken. An example is the increased acceptance of wind turbines if they are managed through participatory citizen initiates such as cooperatives [7]. In addition, some argue that the right to participate in matters concerning the protection of the environment such as the phasing out of fossil fuels for renewable energy, is a procedural right that should be considered as incorporated in the fundamental right to environmental protection [31]. From this perspective, governance of the energy transition is expected to operate by a framework of fairness, inclusivity and equality, which calls for the engagement of the public.

Yet, participation can take many forms, as already indicated by Arnstein [32] when she devised the participation ladder for the level of citizen involvement in government decision making. This ladder ranges from full scale citizen power (or member power when translated to cooperatives) trough forms of tokenism to nonparticipation. While the top rungs of the ladder indicating citizen power would be more in line with the cooperative movement philosophy, empirical testing might reveal disparities amongst the different energy cooperatives in Limburg.

#### *3.2. Democratic Decision-Making*

Participatory practices are closely linked to the way in which energy cooperatives organize internal democracy. Democratic control is one of the seven principles of the cooperative movement [33]. It is defined as the governance of an organization by its members through majority decision-making. The cooperative movement as a general rule employs the rule of '1 member = 1 vote' this eliminates the possibility that members with higher investments trump the decisions, leaving members with a smaller investment without decision making power [33].

In cooperatives, internal democracy includes consideration of rights and corresponding responsibilities. It also encourages the fostering of a "spirit of democracy" [33] within the cooperative. This spirit of democracy has proven to be a challenging task but it is considered to be socially valuable and essential. The major benefit is that it contributes to deepening democratic roots within civil society.

It is important that it is recognized that a democratic process, in itself, is no guarantee for competence. A fundamental characteristic of sustainable democratic systems is that democracy requires the protection of sound governance codes, democratic laws procedures and processes, similar to formalized models of organization management. Organizing internal democracy can be considered a key dimension of cooperatives. Cooperatives tend towards deliberative and participatory forms of democracy with constant engagement of members in day-to-day decision making according to the cooperative principles. Members are involved in proposing and approving fundamental strategic policy decisions and able to hold elected representatives on boards or committees and senior executives to account. One of the biggest challenges facing cooperatives is creating a culture that accepts and encourages debate rather than stifling it. Debate should be seen as a sign of a healthy democracy that encourages members to become an active part of the cooperative [33,34].

Cooperatives can take advantage of technological developments. Especially advances in modern mobile as well as internet communication make it easier to actively engage members in the democratic process of the cooperative [33].

#### *3.3. Mobilizing Capacity*

According to the European Commission [35] citizens are at the core of the energy transition. Citizens should take ownership of the transition, benefit from new technologies to reduce their bills, participate actively in the market and be protected when vulnerable. Since the European market is transforming from a centralized market dominated by large utilities to a decentralized market with millions of citizens that are active or prosumers, citizen involvement in the energy transition becomes more likely [35].

Cooperatives allow in different ways for the mobilization of citizens for investment in sustainable energy and for projects where energy is provided by citizens. Renewable energy cooperatives have transformed the energy landscape in many European countries while also consequentially contributing to revitalizing local economies and creating local jobs [36]. These mobilized energy communities deliver a significant share of renewable energy investments, promote local development and increase public support of renewable energy. For example Germany, where renewables deliver 40.4% of the country's electricity [37]. Nearly every second kWh of this renewable electricity is generated by a broad range of citizen initiatives. Therefore, it revitalizes the local economy while also generating jobs within the local domain [36].

#### *3.4. Professionalization*

The increasing scope and scale of cooperative projects has led to a trend of growth and a desire for professionalization in the Dutch cooperative energy section. Elzenga and Schwencke [38] indicate a clear wish among community initiatives to professionalize. There is a shift from providing energy saving services to more ambitious projects of energy production. According to Hermans and Fens [39], there is an increase in projects that include the actual supply of electricity. Thereby, cooperatives become electricity producers and take a role in service provision.

Almost two thirds of the cooperatives situated in the Netherlands deliver electricity to their members and customers through a resale construction. However, two recently founded cooperatives have taken this supply function to a new level. The cooperatives *NLD* and *DE Unie*, established respectively in 2013 and 2014, did acquire a supplier license. This enables them to act as an electricity utility and purchase electricity on the wholesale market to provide to its customers. The members of these two cooperatives are existing local wind and energy cooperatives who now no longer require mediation of a conventional commercial energy company to supply electricity to their members [40].

In order to obtain a supplier license, the cooperative has to comply with a list of stringent rules and regulations. This includes conditions set by the Consumer & Market Authority [41]. In order to comply with these regulations, a high level of organizational, financial and technical expertise are required for the cooperatives to meet their legal obligations for supplying electricity. Therefore, the acquirement of a supplier license by these two cooperatives forms an adequate illustration of the ongoing professionalization across energy cooperatives [40].

However, this trend towards professionalization does not apply to every cooperative as not all cooperatives have the ambition to increase the scope or scale of their projects. Seyfang, Park and Smith [42] state that 'although some groups do have ambitions to expand and grow, others are simply providing local solutions to local needs as an end in itself and have no desire to expand' (p. 988). This appears to be the case for the Netherlands, where scholars identified a tension between the small-scale idealists who prefer local small-scale solutions and the more commercially oriented cooperatives who would like to scale up local renewable energy projects [43].

The degree of professionalization is a relevant governance dimension as it is an indicator as to how far citizen initiatives take over utility services formally managed by either public governments or private businesses, indicating a blurring roles and responsibilities which are a key aspect of governance.

#### *3.5. Legitimacy*

The International Co-operative Alliance's (ICA) Guidance Notes on the Cooperative Principles state that openness, transparency and accountability are important for good democratic governance [33]. These three concepts are grouped together according to the ICA's approach, as they are firmly related to each other with effects on one having immediate impacts on the others. Together these three concepts reflect a sense of trust and legitimacy of the LREC. According to the ICA these three concepts are essential for any cooperative to be legitimate and thus effective [33]. Cooperatives should make agendas and write down minutes of meetings of their elected committees and boards. These should become available to members. However, there are types of information that cannot easily be shared openly. This could be because of commercial sensitivity, regulatory requirements or respect for employee privacy. However, within these limitations cooperatives should ensure that members have the opportunity to debate and hold the board accountable for decisions. Elected representatives should present regular statements of account, financial reports and performance reports to their members. These should be presented in such a way that it is understandable for laypeople [33].

Since democratic member control is a key differentiating characteristic of cooperatives in comparison to conventional investor or shareholder-owned businesses, cooperatives should aspire to be open, transparent and accountable. This increases trust and legitimacy which is key for the success of the cooperative [44]. The democratic practices of an energy cooperative should be subject to critical assessments which can be achieved through cooperative-specific audits [33].

#### *3.6. Collaboration with Governmental Institutions*

Local renewable energy cooperatives collaborate with multiple governance levels and in multiple ways. Common amongst these is a collaboration through knowledge sharing at the local to regional level [45]. Cooperatives could be key in assisting municipalities to switch towards renewable energies. Yet, municipalities are often reluctant to work together with cooperative solutions initiated by citizens. In turn, many cooperatives are unsure about what to expect from municipalities. Even so, there seems to be a strong desire amongst both parties to find a way to work together while as of now they are still unsure about how this should happen [45].

Collaboration with cooperatives yields advantages for regional and local governments. Energy cooperatives have proven to be effective at mobilizing citizens in energy production and saving solutions. This indicates an opportunity for taking large steps towards the energy transition. One example of such a cooperation is the municipality of Haarlem. In this city there are five jointly managed roofs with solar PV installations, resulting in a combined amount of ca. 2000 solar PV panels [45]. According to the municipal policy makers in Haarlem, people who have been actively involved with citizen led energy initiatives will experience a lasting sustainability effect. This mindset could be key for meeting the national climate targets [45]. Haarlem is therefore a good example for collaboration between local governments and energy cooperatives.

Cooperatives, on the other hand, can also benefit from collaboration with local and regional governments. An example is the *Leudal Energie* cooperative, which initiated a project to change thousands of traditional lightbulbs within their community to more energy efficient LED-lights. In addition, they operate two solar PV stations on the roofs of local schools and are working on a local wind turbine. The *Leudal Energie* board indicated that the municipality is of great help when it comes to realizing these projects [45].

Collaboration with governmental institutions is not only about securing additional funding. The network that becomes available through collaboration can be as valuable as financial assistance. The *Leudal Energie* cooperative, for example, started working together with local housing cooperatives through mediation by the municipality. The municipality also assisted in the search of suitable fields for solar installations and offered the roof of the city hall for solar developments. Finally, the municipality contributes to the outreach of the cooperative by communicating successes on their website and to local newspapers [45].

The support from the community and other actors is an important dimension for cooperatives. On the local level, support from local residents and other local organizations such as schools, sports associations and community centres, create vital opportunities for cooperatives to find members as well as a strong basis for developing projects. Local businesses also form important partners. Shops, local installation businesses, restaurants or farms all provide valuable additions to a cooperative network [46]. Additionally, cooperatives also work together with larger commercial parties such as energy providers, for example, by reselling the electricity from an energy company to the cooperative members through resale construction [40].

On the other hand, a lack of community support or a limited network of other actors can cause great challenges for a cooperative. The absence of local resident support could result in public apathy, the NIMBY-effect ("Not in My Back Yard") and other forms of community resistance [47]. Even if cooperatives have the intention to generate benefits for the local community, this does not convince all residents and could even be regarded by some as bribery [17,38]. This can be illustrated by the case of the *Energie-U* cooperative in Utrecht. The cooperative worked in commission of the municipality on the development of a wind farm near the city for almost two years before the project was cancelled. The city council decided against the wind farm due to strong local resistance, which indicates the impact of the absence of local support for the success of cooperatives [38,48].

Strong support networks are thus of key importance for energy cooperatives. Not only on the local but also on the regional, national and international level, cooperatives provide and receive help from a range of organizations. Many energy cooperatives work together with other cooperatives to form a supportive network. An example of this is the *REScoopNL* network, which aims to support renewable energy cooperatives to make them successful [49]. These networks provide a knowledge sharing and mutual learning environment by providing 'distinctive expertise that is not readily available elsewhere' [50] (p. 4403). Networks also have the added benefit of allowing for a joint lobby force in cooperation with other initiatives [43].

The *REScoop* organization is also active at the European level. With a network of 1500 European renewable energy cooperatives, representing a combined 1,000,000 citizens *REScoop* wishes to empower citizens to achieve energy democracy by representing their voice, supporting start-up cooperatives, providing services and promoting the LREC business model. *REScoop* promotes collaboration amongst European cooperatives [51]. Cooperative networks are thus active from the regional to the international level.

#### *3.7. Policy Context*

The context in which energy cooperatives operate is shaped by government regulations and therefore forms an important dimension for their analysis. There is a wide body of laws, policies and regulations that together form the regulatory and policy context or as titled by Bakker [40] the 'rules of the game.' These are the conditions under which the interaction between LRECs, their members, society and the wider governance system takes place.

Navigating along these rules can be tough for cooperatives as the current electricity law in the Netherlands dates back to 1998 and therefore is often unsuited for these changes in the energy system. The main structure of the law has remained unchanged and although several amendments were made throughout the years current rules and regulations do not always seem to be equipped to handle the rapidly changing role of civil actors in the energy market. This is especially true for community energy actors such as cooperatives who produce their own electricity, as this means that the consumer will operate within the regulated domain [40,52]. Dutch law dictates that each consumer needs to have an energy company that is, a party with a supplier license, to cover their electricity demand. However, as the term "prosumers" [53] suggests, a growing number of previous consumers in the electricity supply chain are now also producers, by taking part in a small energy company next to buying energy. In the Netherlands, it is still challenging for consumers to acquire a license needed to legally fulfil the supplier role. As indicated before, some energy cooperatives manage to obtain such a license. This requires a highly professionalized organization of the cooperative, which is often challenging for citizen's initiatives and may come with adverse effects concerning internal democracy.

The policy context also is critical where it comes to the amount of taxes consumers pay for electricity. In the Netherlands, individual producers generating their own electricity are exempted from this tax through feed-in tariffs. Where producers of electricity receive around six to seven eurocents for each kWh produced, the consumers pay roughly 20 eurocents for each kWh [40]. The difference is caused by distribution costs and taxes. When a consumer has a solar panel that produces electricity, they can deduct the produced energy from their total energy bill [54]. This saves roughly 20 cents per kWh of electricity generated by the solar panel, as this electricity is for direct use and not distributed through grid. On the other hand, if solar panels produce more than the users demand, the excess electricity is compensated with six or seven cents per kWh [54]. Up until 2016, it was legally impossible to generate energy anywhere outside of your personal, privately owned property. This was challenging for energy cooperative as due to these regulations they had to base a profitable business plan on the low six to seven cent rate. This has changed since 2016 with the introduction of the 'postcoderoos' (Dutch for 'zip code area arrangement') postal code regulation, providing more room for LRECs [40]. The 'postcoderoos' regulation provides a tax rebate which gives members of an energy cooperative a discount on their energy bills. If consumers invest in the generation of renewable energy within their

area, they have a right to this rebate. The condition is that participants have to live within certain nearby postal zones of the project. Participants may only use a maximum of 10,000 kWh/year [55].

Multiple cooperatives in the Netherlands have also been pushing for self-delivery (e.g., *NLD* and *DE Unie*). This is the direct delivery of power to their members without having an energy company working as an intermediary. Thereby, cooperative members can avoid VAT and energy taxes. The institutional framework forms a barrier in this case as self-delivery is against the rules of the game and is not allowed under the current legal framework [54].

These rules of the game are of vital importance to the local renewable energy cooperatives as decisions made at higher government levels-over which they have little to no say- could create opportunities for energy cooperatives or, conversely, limit their ability to operate. Therefore, we consider the "rules of the game" a critical dimension for the analysis of the governance by energy cooperatives. In recent developments, however, cooperatives have been increasingly involved in the development of policy, indicating a blurring line between the roles of citizens and governments in shaping the energy transition [56]. *Energies* **2019**, *12*, x FOR PEER REVIEW 10 of 20 development of policy, indicating a blurring line between the roles of citizens and governments in shaping the energy transition [56].

#### **4. Analytical Framework for Studying Governance by LRECs 4. Analytical Framework for Studying Governance by LRECs**

In order to analyse the governance by LRECs and their influence of the facilitation of the energy transition key interactions between LRECs and respectively, their members, government and other LRECs were identified. Figure 2 works out the three key interactions of LRECs—with their members, other LRECs and governments—in a more detailed way integrating the dimensions identified in the literature review above. This figure served as analytical framework for this article and guided the analysis of the research data. Whereas we do not want to claim that this conceptual framework is an exhaustive and perfect representation of all the complex governance interactions that LRECs engage in, we believe that it sufficiently specifies the dimensions that are relevant for an analysis of their governance roles. The analytical framework also guided our development of a typology of LRECs which can serve to structure future comparative research into these governance roles. In order to analyse the governance by LRECs and their influence of the facilitation of the energy transition key interactions between LRECs and respectively, their members, government and other LRECs were identified. Figure 2 works out the three key interactions of LRECs—with their members, other LRECs and governments—in a more detailed way integrating the dimensions identified in the literature review above. This figure served as analytical framework for this article and guided the analysis of the research data. Whereas we do not want to claim that this conceptual framework is an exhaustive and perfect representation of all the complex governance interactions that LRECs engage in, we believe that it sufficiently specifies the dimensions that are relevant for an analysis of their governance roles. The analytical framework also guided our development of a typology of LRECs which can serve to structure future comparative research into these governance roles.

**Figure 2.** Conceptual framework of local renewable energy cooperative (LREC) interactions and governance dimensions. **Figure 2.** Conceptual framework of local renewable energy cooperative (LREC) interactions and governance dimensions.

The framework can be explained as follows. There are three main interactions between local renewable energy cooperatives and other governance actors, similar to the upwards, downwards and sideways interactions as indicated by Meadowcroft [27]. First, there is the upward interaction between members and the LREC. Here the members of the cooperative steer the cooperative through collective action. The LREC itself is however still in control. Similar to how citizens steer the state The framework can be explained as follows. There are three main interactions between local renewable energy cooperatives and other governance actors, similar to the upwards, downwards and sideways interactions as indicated by Meadowcroft [27]. First, there is the upward interaction between members and the LREC. Here the members of the cooperative steer the cooperative through collective action. The LREC itself is however still in control. Similar to how citizens steer the state through a

transparency and accountability and the mobilization of communities. Secondly, the LRECs also cooperate with each other through sideways interactions such as collaboration, knowledge sharing practices and networks through a set of different governance dimensions that operate at the mesolevel. These reflect the interaction amongst LRECs. This interaction is very similar to cooperation between cities in city networks such as found in conventional governance literature [57,58]. Third, there is the downward interaction at the macro-level between LRECs and the state. These interactions are characterized again by collaboration-which now represents collaborative efforts between cooperatives and the state, professionalization and the rules of the game reflecting the entire law and

policy environment in which the LRECs operate.

representative democracy while the state is still the official source of legitimate power, LRECs are controlled by their members who are represented in the board. Thus, this reflects a form of sub-level governance. Here, key dimensions are—democracy, participation, openness, transparency and accountability and the mobilization of communities. Secondly, the LRECs also cooperate with each other through sideways interactions such as collaboration, knowledge sharing practices and networks through a set of different governance dimensions that operate at the meso-level. These reflect the interaction amongst LRECs. This interaction is very similar to cooperation between cities in city networks such as found in conventional governance literature [57,58]. Third, there is the downward interaction at the macro-level between LRECs and the state. These interactions are characterized again by collaboration-which now represents collaborative efforts between cooperatives and the state, professionalization and the rules of the game reflecting the entire law and policy environment in which the LRECs operate.

The conceptual framework served as a visual tool initially with the purpose to assist in the design of the interview grid, which covered all these different dimensions of interactions. During the interview phase, these interactions where the main thread that guided the semi-structured interviews, thereby ensuring that the cooperatives could discuss all the three interactions in more depth with a focus on their governance roles.

#### **5. Towards a Typology of LREC Governance**

Based on the data collected from the surveys, we attempted to develop a typology of differentiation. In order to determine the two key characteristics to be used for typology development, the variables with the biggest range amongst respondent answers are of importance. If the range is rather large, this means that respondents have given vastly different answers within this group. If the cooperatives provide different answers, this is interesting for typology development as it indicates that the cooperatives differ on this area. Hence, this approach employs diversity as the guiding principle for selecting the two analytical dimensions.

The two groups with the widest difference in responses were the categories "collaboration" and "ambition" and therefore served as the central axes for the typology development. Any other combination of two variables would have resulted in a less clear delineation between the cooperatives of this dataset. "Collaboration" reflects the degree to which cooperatives wish to collaborate with other cooperatives and government institutes. "Ambition" reflects the difference between cooperatives preferring small scale projects with a local impact and those which would like to have a larger scale impact. When these two variables are plotted against each other (see Figure 3), the following observations can be made. Almost all cooperatives are located in the *important*/*important* quadrant of this figure. Only one cooperative is located in the *not important*/*important* quadrant. However, this cooperative is still located rather close to the median of the collaboration axis, indicating that cooperation is still somewhat important. Therefore, based on this figure no clear typologies can be developed as that would require the cooperatives being spread out more across the four quadrants and ideally more towards the extremes of these quadrants.

Therefore, based on the available data no sufficient evidence for the creation of different governance typologies can be identified. Fortunately, the survey data revealed several other interesting issues, which helped to guide the further research on LRECs governance roles. It is however recognized that a sample of 11 cooperatives is rather small and therefore there is a large chance of making a Type II Error where the cooperatives were actually different but it is concluded that they are not [59]. Additionally, there could be sub-forms of clustering that could provide relevant outcomes for devising typologies. For example, the ambitions variable could be divided in a material and idealistic aspect and the collaboration in institutionalised and ad hoc aspect. However, based on the data provided by the conducted survey no such conclusions can be drawn and the usefulness of this typology will have to be determined by future studies.

depth with a focus on their governance roles.

**5. Towards a Typology of LREC Governance**

guiding principle for selecting the two analytical dimensions.

The conceptual framework served as a visual tool initially with the purpose to assist in the

Based on the data collected from the surveys, we attempted to develop a typology of

The two groups with the widest difference in responses were the categories "collaboration" and

"ambition" and therefore served as the central axes for the typology development. Any other combination of two variables would have resulted in a less clear delineation between the cooperatives of this dataset. "Collaboration" reflects the degree to which cooperatives wish to collaborate with other cooperatives and government institutes. "Ambition" reflects the difference between cooperatives preferring small scale projects with a local impact and those which would like to have a larger scale impact. When these two variables are plotted against each other (see Figure 3), the following observations can be made. Almost all cooperatives are located in the *important/important* quadrant of this figure. Only one cooperative is located in the *not important/important* quadrant. However, this cooperative is still located rather close to the median of the collaboration axis, indicating that cooperation is still somewhat important. Therefore, based on this figure no clear typologies can be developed as that would require the cooperatives being spread out more across the

differentiation. In order to determine the two key characteristics to be used for typology development, the variables with the biggest range amongst respondent answers are of importance. If the range is rather large, this means that respondents have given vastly different answers within this group. If the cooperatives provide different answers, this is interesting for typology development as it indicates that the cooperatives differ on this area. Hence, this approach employs diversity as the

design of the interview grid, which covered all these different dimensions of interactions. During the interview phase, these interactions where the main thread that guided the semi-structured interviews, thereby ensuring that the cooperatives could discuss all the three interactions in more

**Figure 3.** Scatterplot of cooperatives by collaboration and ambition characteristics. **Figure 3.** Scatterplot of cooperatives by collaboration and ambition characteristics.

#### **6. The Five Governance Roles of LRECs**

Therefore, based on the available data no sufficient evidence for the creation of different governance typologies can be identified. Fortunately, the survey data revealed several other interesting issues, which helped to guide the further research on LRECs governance roles. It is however recognized that a sample of 11 cooperatives is rather small and therefore there is a large chance of making a Type II Error where the cooperatives were actually different but it is concluded that they are not [59]. Additionally, there could be sub-forms of clustering that could provide relevant In this section the results of the empirical research are synthesized. First, we discuss the five key governance roles of the researched cooperatives: they facilitate the energy transition by (1) mobilizing the public, (2) brokering between government and citizens, (3) providing context-specific knowledge and expertise, (4) initiating change and (5) proffering the integration of sustainability. Second, comparisons will be drawn based on differences in approaches amongst the cooperatives. Third, the results of the study will be used to identify several good practices for the governance of the energy transition through local renewable energy cooperatives.

outcomes for devising typologies. For example, the ambitions variable could be divided in a material and idealistic aspect and the collaboration in institutionalised and ad hoc aspect. However, based on The role of local renewable energy cooperatives for the facilitation of the energy transition can be distilled to five different key roles that these cooperatives provide based on their interactions with the public and members, the government, other cooperatives and the established energy sector. These activities are as follows: mobilizing the public, brokering between government and citizens, providing context-specific knowledge and expertise, initiating change and proffering the integration of sustainability. These roles reflect several key interactions of the governance dimensions represented in the conceptual framework. In the following section the specific roles will be explained in more detail.

#### *6.1. Mobilizing the Public*

The first governance role of cooperatives aligns with the interaction between the cooperative and its members which here reflects a wider scope based on the cooperatives' experiences extending further to the general public and prospective members as well. This role is the mobilizing of the public.

LRECs play a critical role in mobilizing citizens for the energy transition. Through various activities these cooperatives raise awareness and build support for the energy transition. Where a government tries to steer for a more renewable energy system through policies which often do not directly speak to citizens on an individual level, cooperatives attempt to mobilize people directly. Through personal advice, information days and public events at the local level, cooperatives promote the energy transition at a level that speaks directly to citizens.

A major asset for LRECs is that they provide the opportunity to participate on a voluntary basis. Whereas regulations will often require people to adopt sustainable practices because they have to, cooperatives offer this opportunity for people that want to become more sustainable. The key here is that people can choose for themselves if they want to participate and in how far they wish to participate. Both interviewed cooperatives believe that this voluntary approach is more effective at having people actively engage with sustainability than a commanding approach which often goes paired with a lot of citizen push-back.

Despite the potential for citizen mobilization, many cooperatives admit that it is only a small group of citizens that are actively involved within the cooperative while other members are only interested and do not actively participate. As a result, many of these cooperatives struggle with mobilizing these citizens and having them play an active role. On the other hand, there are plenty of examples where even a small number of active participants in a cooperative managed to mobilize vast amounts of resources and funding through a large group of members, according to the interviewed cooperatives. One such example is the success of *Leudal Energie* who gathered large amounts of funding for a wind turbine initiative [60]. While not all these members might be active participants, the cooperatives report that even association with renewable energy projects positively effects the member's attitude towards sustainability.

Therefore, it can be concluded that LRECs play a role in mobilizing citizens for the facilitation of the energy transition. While this role might seem trivial, it is not to be underestimated. Governments and private sector operators have attempted to mobilize citizens in an effort to promote renewable energy specifically and sustainability more generally. Successful mobilization is key for ensuring the energy transition, conventional efforts so far have only had limited success according to the cooperatives and scholars [61,62].

#### *6.2. Brokering between Government and Citizens*

The second governance role for cooperatives reflects both the interactions that the cooperative has with the government as well as with its members. This role is that of broker between the government and citizen.

LRECs build bridges between citizens and the local government. The cooperatives indicated that they have a direct connection to their respective municipalities. There are regularly planned meetings between the members of the cooperative board and dedicated civil servants, the municipal council or the aldermen. Through these meetings the cooperative board can voice their opinion, plans and current activities but most importantly, represent the voice of their members who in turn represent the local community. This is especially effective if the cooperative is situated in small municipalities in rural areas where the cooperative members form a relatively larger portion of the population and the electorate and are therefore considered a serious voice and potential partner by the local government.

The cooperatives also function as broker by providing support for navigating government regulations and bureaucracies. While many citizens might want to conduct their own renewable energy projects (e.g., the instalment of a solar tracker or a small-scale solar farm on their property), they are often daunted by the associated regulatory requirements and the navigation off bureaucracies. This could hinder them in doing the project or even make them lose heart completely. In these specific cases, the cooperative can provide advice and help these initiators to realize their projects through its experiences as well as closer collaboration with municipal or regional government officials.

#### *6.3. Providing Context-Specific Knowledge and Expertise*

The third governance role of the cooperative spans all three interactions and constitutes the provision of context specific knowledge and expertise.

The LRECs play a key role in adapting the overall energy transition plan to a tangible and on local level. They do this not by stamping one blueprinted idea on every situation they find but by looking at the specific context of the situation, providing a targeted advice. As an example given by one of the interviewees: 'Some installers of solar panels attempt to convince people to invest in a set solar PV panels for their roof without first analysing the roof itself. This has resulted into new panels being installed on a roof that required extensive maintenance within the next two year period. This maintenance required the solar panels to be removed from the roof again, costing the homeowner

a lot of money. This homeowner now has a negative view of solar panels and therefore sceptical of the renewable energy transition.' The cooperatives attempt to prevent these situations by looking at these specific circumstances such as the condition of the roof, before the advice of installing solar panels.

By providing this context specific knowledge and expertise, the cooperatives are able to provide better customized solutions. In general, this results in better attitudes of citizens towards sustainable technologies, a better strategy for achieving the sustainability goals and a more cost-effective method of facilitating the energy transition.

#### *6.4. Initiating Socially Accepted Change*

The fourth governance role for LRECs also works across all three interactions. This role is the initiation of accepted changes which cooperatives do through working with governments, other cooperatives as well as members and the public. Initiating socially accepted change differentiate LRECs from conventional command-and-control approaches towards the energy transition as it has a higher degree of social acceptance and perceived legitimacy. These conventional approaches are often only accepted on a limited basis by the public, however, LRECs often initiate projects for the energy transition that are accepted by the local population. As a cooperative member of *Duurzaam Maasgouw* stated 'if you tell people they have to do something they will often resist, however if you involve them and allow them to do things voluntarily, you get much more support and cooperation.' This involvement allows the cooperatives to initiate change that is socially accepted by local communities.

First, LRECs initiate change by kick-starting projects. The interviewed cooperatives noted that they create momentum for the energy transition by starting projects. The cooperatives look for and create opportunities within their local area for renewable energy projects. For example, by securing public rooftops for collective solar installations or by looking for suitable land for other renewable energy projects such as solar or wind farms. Even though some cooperatives indicated that they do not wish to exploit the projects themselves, they do provide concrete plans for local entrepreneurs, governments and project developers. The cooperatives have noted that if they provide plans that have been fully developed and researched in detail there is a big change these plans will become realized, 'if we go to the municipality with a fully developed plan they don't have to do much work themselves, thus, they will often continue with these sort of plans.' (Interviewee cooperative *Duurzaam Roerdalen*).

Second, LRECs work together in larger regional and national networks. Within these networks the cooperatives share knowledge, projects, successes and obstacles that they might be facing. This is not only relevant for the cooperatives themselves but it also allows the larger scale network organizations to represent a collective lobby of these energy cooperatives to push for change. For example, several cooperatives noted that they often run into bureaucratic rules which do not seem to fulfil any sort of function but hinder their ability to operate. Together with other cooperatives this issue was discussed during network meetings which resulted in the network pushing for changes in regulation. If this is successful the process for conducting the energy transition will be streamlined. Therefore, LRECs besides kick-starting energy projects also initiate policy change.

This initiating role where cooperatives provide fully developed plans for renewable energy projects are especially valuable if there is a lack of knowledge or incentive within the local area. In such a case the cooperative could present their plans to for example the municipality which may not have had the resources or dedicated civil servants to go through the development of such a plan. The cooperatives indicate that as long as the plans they provide are sound and developed in detail, municipalities are much more likely to follow-through and realize renewable energy projects that otherwise would have never been developed.

Third, LRECs foster local acceptance. This through offering people a voice in the development and running of renewable energy projects–as well as potential financial opportunities. LRECs are much more likely to generate local support than other parties. For example, large scale energy businesses might face a lot of resistance when attempting to create a new renewable energy project due to a lack of involvement and mutual mistrust [44]. The cooperatives believe that this resistance is mainly occurring because people only experience the negative externalities of these projects and cash flowing away from the region to large corporations. LRECs on the other hand strive to keep cash flows within the local community. When conducted in this way, the local population does not only suffer the negative effects of these projects but also get to share it is benefits. This inclusion of local citizens in energy projects leads to vastly different attitudes towards energy projects within one's vicinity, as noted by the cooperatives. They state that people could protest against the construction of a wind turbine while at the same time being extremely positive of the exact same turbine built in the exact same spot but (partially) funded by the citizens themselves. This suggests that cooperative initiatives are an effective tool against the dreaded 'Not in My Back Yard' NIMBY effects as discussed in Olsen [17].

#### *6.5. Pro*ff*ering the Integration of Sustainability*

The fifth governance role of the energy cooperatives is the integration of broad perspective on sustainability going beyond the installation of more renewable energy capacity. This role reflects the interaction that the cooperatives have with both the government and their members.

Many of the cooperatives prefer to categorize themselves as a sustainability cooperative rather than just an energy cooperative. The idea of a sustainability cooperative is preferred as it represents a much broader view of what the cooperative considers the challenges ahead are and the potential solutions that it can employ to address those challenges. An interviewee stated that 'We prefer to think of ourselves as sustainability cooperatives as we want to do much more than just energy. It is true that energy is currently the most popular topic which attracts people but in the future we want to expand our focus.' (Interviewee cooperative *Duurzaam Maasgouw*). Where the main focus of the energy transition approach currently lies on a shift to renewables and direct energy saving measures, the cooperatives attempt to reflect a more integrated view on sustainability.

The cooperatives state that taking this more integrated view is a much better approach for ensuring sustainability and reaching the Sustainable Development Goals. According to the interviewed cooperatives, the idea that making the energy system sustainable is only about installing more renewable electricity generation capacity is a mistaken one. The cooperatives believe that it is not a realistic goal to build large amounts of renewable energy projects such as wind turbines and solar farms to provide electricity to only one municipality. Therefore, they pursue a more integrated form of sustainability in the hopes off achieving better results than those of the approach focused on by the established energy transition approach. They state that just because you can claim a certain amount of carbon credits for an energy initiative, does not mean that the project was sustainable and an effective contribution towards the 2050 goals.

The energy cooperative therefore certainly play a role in providing a more integrated view on sustainability for the facilitation of the energy transition. They go beyond what is required by regulation and subsidy requirements in the hope of working towards a more effective energy transition approach. In total the five different cooperative roles are: mobilizing the public, brokering between government and citizens, providing context specific knowledge and expertise, initiating accepted change and proffering the integration of sustainability. These roles are displayed in Figure 4.

an effective contribution towards the 2050 goals.

energy transition approach currently lies on a shift to renewables and direct energy saving measures,

The cooperatives state that taking this more integrated view is a much better approach for ensuring sustainability and reaching the Sustainable Development Goals. According to the interviewed cooperatives, the idea that making the energy system sustainable is only about installing more renewable electricity generation capacity is a mistaken one. The cooperatives believe that it is not a realistic goal to build large amounts of renewable energy projects such as wind turbines and solar farms to provide electricity to only one municipality. Therefore, they pursue a more integrated form of sustainability in the hopes off achieving better results than those of the approach focused on by the established energy transition approach. They state that just because you can claim a certain amount of carbon credits for an energy initiative, does not mean that the project was sustainable and

The energy cooperative therefore certainly play a role in providing a more integrated view on sustainability for the facilitation of the energy transition. They go beyond what is required by regulation and subsidy requirements in the hope of working towards a more effective energy transition approach. In total the five different cooperative roles are: mobilizing the public, brokering between government

the cooperatives attempt to reflect a more integrated view on sustainability.

proffering the integration of sustainability. These roles are displayed in Figure 4.

**Figure 4.** The five governance roles of LRECs for facilitating the energy transition (authors' own). **Figure 4.** The five governance roles of LRECs for facilitating the energy transition (authors' own).

#### **7. Conclusions and Discussion**

**7. Conclusion and Discussion**  This paper set out to inquire in which ways LRECs contribute to the renewable energy transition from a governance perspective. A conceptual framework is developed for analysing the governance roles that cooperatives play in the renewable energy transition. The framework is built around three key interactions shaping these governance roles, between (1) LRECs and their (potential) members, (2) LRECs and the government and (3) LRECs with other LRECs. Based on the survey and in-depth, semistructured interviews in the province of Limburg, the Netherlands, five different roles for LRECs for facilitating the energy transition could be distilled. These indicated roles are: (1) mobilizing the public; (2) brokering between government and citizens; (3) providing context specific knowledge and expertise; (4) initiating accepted change; and (5) proffering the integration of sustainability. These five roles are a new addition to academic literature as the literature review did not reveal any peer-reviewed articles This paper set out to inquire in which ways LRECs contribute to the renewable energy transition from a governance perspective. A conceptual framework is developed for analysing the governance roles that cooperatives play in the renewable energy transition. The framework is built around three key interactions shaping these governance roles, between (1) LRECs and their (potential) members, (2) LRECs and the government and (3) LRECs with other LRECs. Based on the survey and in-depth, semi-structured interviews in the province of Limburg, the Netherlands, five different roles for LRECs for facilitating the energy transition could be distilled. These indicated roles are: (1) mobilizing the public; (2) brokering between government and citizens; (3) providing context specific knowledge and expertise; (4) initiating accepted change; and (5) proffering the integration of sustainability. These five roles are a new addition to academic literature as the literature review did not reveal any peer-reviewed articles that attempted to identify the governance roles that LRECs fulfil in the energy transition.

that attempted to identify the governance roles that LRECs fulfil in the energy transition. Mobilizing the public is the first role, where cooperatives play a role in actively involving citizens for the energy transition. The second role is brokering between government and citizens, here cooperatives play a role in translating government policy to the citizen level for implementation. Mobilizing the public is the first role, where cooperatives play a role in actively involving citizens for the energy transition. The second role is brokering between government and citizens, here cooperatives play a role in translating government policy to the citizen level for implementation. Simultaneously the cooperative acts as a representative of its members, voicing the citizens' opinions to the government. Third, providing context specific knowledge and expertise, here local energy cooperatives leverage their local embeddedness and personal approach towards facilitating the energy transition to provide context specific solutions. Fourth, initiating accepted change, here the energy cooperatives fulfil a role initiating projects within their communities. As the projects are initiated from the community and community members can have a say in how the project develops, there is a bigger chance that the project is accepted. This prevents any protest from within the community and builds support for a sustainable energy transition. And the last (fifth) role is proffering the integration of sustainability, here cooperatives take an active role is advocating for a more integrated sustainability approach towards the energy transition by focusing on factors beyond just energy generation.

Based on our empirical analysis, we distilled key factors for success for local energy cooperatives. First, they need to be locally embedded and try to be part of the community they are trying to serve. This provides the cooperative with unique knowledge, connections, as well as the goodwill of local citizens preventing potential NIMBY-effects [47]. A second success factor is that the cooperatives often have regular and direct communications with municipal or regional governments, this allows them to provide their insights and push for change at controlling government levels, this is especially important if the cooperatives manage to collaborate with the government to conduct sustainability projects. While regular collaboration with a municipality enables local small scale energy projects

such as improvements of home insulations or small arrays of solar panels, collaboration with regional governments have the potential for larger projects such as wind-turbines or solar farms. The third success factor is honesty and transparency where the openness and honest trustworthy advice that the cooperatives try to provide earns them respect and trust from local citizens. The final success factor is related to this as it is non-commercial interests, whereas many other energy initiatives have a direct incentive to sell a certain product, the cooperatives try to steer away from these biases, leading to more citizen acceptance. While many cooperatives are focusing on small-scale projects, a small number of cooperatives such as *Leudal Energie* are working on major projects such as a wind farm, indicating the potential of cooperatives for contributing significantly to the energy transition. This success will be largely dependent on the cooperative's ability to mobilize citizens, government actors and resources resulting from these success factors and handling the following barriers.

Next to success factors the cooperatives also face certain barriers. The first one is mobilizing people, here the cooperatives indicated that is difficult to interest people in taking an active role in the cooperative and working towards the energy transition. Many people are interested but cannot find the time to actively participate. Resulting in cooperatives which mostly consist off and are run by pensioners. Thereby, excluding large sections of the population. A second barrier specifically limiting cooperative community energy projects is the lack of a dense grid network throughout most of the province of Limburg. This means that if a cooperative for example would like to start a solar farm, they will have to pay for the connection of that farm to the grid. As the network is not very dense in Limburg, such a connection might have to be very long and thus expensive. The final barrier for energy cooperatives is certain inhibiting regulations. The cooperatives indicated that there are certain regulations which do not seem to have a clear purpose but limit their ability to operate. An example of this is that cooperatives have to jump through several regulatory hoops in order to provide volunteers with a small compensation for their time or costs. Fortunately, the cooperatives work together in networks such as *REScoop* in an effort to change these regulations. However, these regulations inhibit their ability to facilitate the energy transition by diverting their attention and resources.

These success factors and barriers are a direct result of the empirical research conducted in this study. Therefore, these success factors and barriers reflect the specific context of the cooperative movement in Limburg. Studies within other regions might find additional success factors or barriers that could either complement in contrast those found in this thesis. A study conducted in the communities of Zschadraß and Nossen, Germany, by Musall & Kuik [63] also concluded that the cooperative model indeed increases acceptance of renewable energy measures. This study however did not identify potential governance related barriers that could mitigate the success of cooperative energy initiatives.

Research conducted by Elzenga and Schwencke [38] did discuss the challenging relation between LRECs and local municipalities as both parties are still looking for their roles. However, their research did not consider this relation as part of the brokering process where the cooperatives represent the citizens in collective steering with municipalities. Our conclusion that this brokering roles takes place to the benefit of both parties aligns with the conclusions of Jonker et al. [45] who concluded that this collaboration affords municipalities and LRECs to take larger steps towards the energy transition.

Research conducted by Olsen [17] investigated a novel community energy typology, through analysis of several technical and social dimensions in Scotland. The results show that whilst the Scottish community energy sector contains a diverse range of motivations, technologies and social practices, the sector is dominated by groups who utilize local energy generation to achieve local socio-economic development, aligning with our conclusions for LRECs. Olsen also attempted to devise a typology of community energy initiatives. Her research had a broader perspective however with a more general focus on laws and regulatory forms. It did not focus specifically on a governance which this study does.

We conclude that based on our conducted research LRECs fulfil the following five governance roles regarding the facilitation of the energy transition: mobilizing the public, brokering between government and citizens, providing context specific knowledge and expertise, initiating accepted change and proffering the integration of sustainability. These roles were distilled from mixed method research containing of literature research, a survey and in-depth interviews in the province of Limburg, the Netherlands. The identified roles are a new addition to the academic literature.

We recommend that future research expands the research scope to include more cooperatives beyond the borders of Limburg. Additional participants will be necessary to develop a robust typology which distinguishes the LRECs based on certain governance criteria. Furthermore, as this study only investigated the perspective of the LRECs themselves, future research should investigate whether the identified governance dimensions in this paper are also recognized by other parties such as government institutions and the cooperative members. Finally, the discovered governance interactions and governance roles should be tested in other studies and fields to investigate their robustness regarding these interactions.

**Author Contributions:** Conceptualization, D.W. and C.S.; methodology, D.W., C.S. and V.V.; validation, D.W.; formal analysis, D.W.; investigation, D.W.; resources, D.W.; data curation, D.W.; writing—original draft preparation, D.W.; writing—review and editing, C.S. and V.V.; visualization, D.W.; supervision, C.S. and V.V.

**Funding:** The research presented in this paper received funding from the European Union's H2020 Research and Innovation program under grant agreement number 727642 ("ENERGISE"). The sole responsibility for the content of this paper lies with the authors.

**Conflicts of Interest:** The authors declare no conflict of interest.

#### **References**

© 2019 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).

**Electricity Storage**

## *Concept Paper* **An Exploratory Agent-Based Modeling Analysis Approach to Test Business Models for**

## **Seyed Ahmad Reza Mir Mohammadi Kooshknow 1,\* , Rob den Exter <sup>2</sup> and Franco Ruzzenenti <sup>1</sup>**

Received: 14 February 2020; Accepted: 25 March 2020; Published: 2 April 2020

**Abstract:** Electricity storage systems (ESSs) are potential solutions to facilitate renewable energy transition. Lack of viable business models, as well as high levels of uncertainty in technology, economic, and institutional factors, form main barriers for wide implementation of ESSs worldwide and in the Netherlands. Therefore, the design of business models for an ESS is necessary for the development of ESSs. We elaborated on this problem before, and developed a design space for business models of ESSs in the context of the Netherlands. This conceptual paper provides a further view on barriers and uncertainties of ESS development in the Netherlands through the involvement of a business practitioner, elaboration of goals, objectives, and testing of ESS business model designs, suggests and provides a theoretical foundation for combining agent-based modeling and exploratory modeling analysis as a method to test and explore ESS business models, and provides an abstract conceptual agent-based model design thereof. This work can be used as a foundation of detailed design and implementation of models for testing ESS business models in the Netherlands and worldwide.

**Keywords:** electricity storage system; business model test; agent-based modeling; exploratory modeling analysis

#### **1. Introduction**

Electricity storage systems (ESSs) are among the suggested solutions to manage the variability of renewable energy productions and stability of grids. Despite the potential of ESS, the implementation of ESSs worldwide (except pumped-hydro storage) is still small in size due to technical, institutional, and economical challenges [1,2]. Power system flexibility can be defined as "the extent to which a power system can adapt electricity generation and consumption as needed to maintain system stability in a cost-effective manner" [3]. The stability of the system can be maintained if we guarantee that the volume of supply and demand is equal at all locations and at every moment in time. An ESS is capable of solving the problem of mismatches in time of generation and consumption section of the power system as it is capable of keeping already-generated electricity and re-generating it at better times. Therefore, on the generation side, an ESS can help to manage problems of variable generation such as wind generation by providing a firm output. Across the grids, an ESS enables peak shaving by discharging electricity near heavily loaded points. In addition, it enables the arbitrage of electricity among various markets for electricity and its services. Moreover, at the consumer side (behind the meters), an ESS helps to manage the time-of-use of electricity for cost reduction. We can find three general sets of global challenges for the development of ESSs. The first set of challenges are technical

challenges. The development of technologies suitable for desired applications is a challenge as no ES technologies are currently suitable for all applications. In addition, most current ES technologies are still under development and they are not matured yet. The second challenge is the low penetration of variable renewables in the electricity systems. In [1], we highlighted that with a low share of variable renewables, variations can be solved by the grid or cheaper flexibility solutions, and we explained that the current energy portfolio in the Netherlands, which consists of a high share of natural gas and coal, does not motivate solutions such as an ESS to offer flexibility to the market. The third set of challenges includes economic and business challenges. Here, the first challenge is the high costs of ESS, and in turn, the high levelized cost of energy (LCOE). The fact that most ES technologies are not matured yet partially justifies the high cost of ESS. The ability of an ESS for competing with other solutions of power system flexibility, such as cheap demand response, puts ESSs under question. In addition, a lack of viable business models, as well as uncertainty and unsupportiveness of regulatory frameworks, are barriers of development for ESSs [4–6]. Thus, developing business models for ESSs could improve the market penetration of incumbent ES technologies and increase their economic scaling up, with a positive feedback on both production costs and the marketability of renewable energy. Arguably, good business models (third challenge) could lead to a positive feedback loop on two fronts: increasing the economy of scale for ESSs (first challenge) and expanding market share of renewables (second challenge). This is why we deem it to be of paramount importance to effectively approach the lack of business models as a possible, viable solution to unlock the potential of ESSs and exit the current stalemate.

In previous work, institutional challenges and business model design alternatives for ESSs in the Netherlands have been examined [1]. A business model describes "the rationale of how an organization creates, delivers, and captures value" [7]. To design business models, it is necessary to define business goals, identify business model alternatives, develop tests, and select among the alternatives using tests. While in the previous work we developed a design space as a set of alternatives, the objective of this paper is to elaborate on the goals, objectives, and constraints and the involved uncertainties, as well as analysis and selection of testing methods for an ESS business model design, by means of a combination of agent-based modeling (ABM) and exploratory modeling analysis (EMA). In doing so, we benefited from the collaboration with a practitioner of the ESS business in the Netherlands who is also the co-author of this paper.

In Section 2, we will elaborate on ESS business challenges and uncertainties in the Netherlands. Identifying uncertainties is critical for the design and development of business models. In Section 3, we will have a generic view on a design process, and its meaning for designing business models. We will explain the goals, objectives, and constraints for designing business models, as well as considerations for testing business models. Then, in Section 4, we will outline how to combine ABM and EMA as a suitable approach for testing ESS business models. In addition, we will provide an abstract conceptual design for such a test. Finally, in Section 5, some conclusions will be drawn.

#### **2. ESSs in the Netherlands: Status Quo Analysis**

Organizations with an interest in energy storage technology tend to approach their investment decision from an operational point of view. Mainly, they are interested in how energy storage can lower their energy bill or solve operational constraints.

#### *2.1. Products, Services, and Value Propositions*

ESS offer organizations the opportunity to lower their energy bills. To some extent this is possible due to increased self-consumption of generated solar energy. Instead of feeding excess energy back into the grid for a low fee, the energy can be stored and used when necessary. However, due to the relatively low energy prices per kWh in the Netherlands compared to the high cost for the ESS, this is not yet a viable business model.

A second and more promising application is peak shaving. A behind-the-meter ESSs can act as a buffer and reduce peak demand at the connection point. This reduces charges from the grid operator. This application becomes more relevant with increased electrification of facilities, e.g., due to increased demand for EV-charging. Already, there are some viable business cases in certain demand ranges [8,9].

Third, an ESS can be used to benefit from the ancillary services and the associated balancing markets. Especially, the revenue that can be unlocked in the market for primary reserve (FCR) has been the most significant driver of the business case for most large scale (>1 MW) energy storage projects in the Netherlands. However, there is only a limited demand for these services from the TenneT transmission system operator (TSO), which has resulted in quite a decline in average weekly revenues over the last few years [10].

Fourth, ESSs are used as a source of emergency or mobile power. Increasingly, ESSs are suitable as a realistic replacement for conventional diesel-powered generators. More stringent norms and legislation for CO<sup>2</sup> and NOx emissions are driving companies to search for alternatives. Additional benefits are low noise and no fumes that are generated compared to diesel generators. Still, there are challenges from an operational point of view, since the energy capacity and power output per Euro invested in an ESS is quite high compared to diesel gen-sets.

Combining a few of the above-mentioned applications of ESSs is key for financial viability. Only then, an ESS is used to its full potential. Large projects at the Amsterdam Arena or Cars Jeans Stadion have both succeeded because of this so-called revenue stacking. Though, both projects have also been subsidized to some extent, to close the financial gap.

#### *2.2. State of the Art*

From a technology point of view, lithium-ion (LiNiMnCoO<sup>2</sup> and LiFePO4)- based systems have been dominant. The value chain is dominated by a relatively small amount of cell manufacturers, power conversion system manufacturers and system integrators. Lithium-ion based systems tend to offer the lowest LCOE in most use cases. Also, the technology offers attractive technical characteristics, such as energy density and rate of (dis)charge [11,12].

In the Netherlands, the market for energy storage is still in the introduction phase. No official data of ESS-installations are tracked by authorities. Estimates, however, based on the EnergystorageNL database [13], reveal that there have been less than 10 large-scale (>1 MW) ESS installations, and about 15 medium-scale (100 kW–1 MW) projects. Smaller-scale projects, amongst home batteries, are estimated at about 500 installations. In Germany, the market is more mature with every second residential PV-installation being complemented with a home battery. Estimates are that there are now more than 120,000 (home) batteries in Germany [14].

Most large- and medium-scale projects in the Netherlands have received some kind of subsidy (local, national or even European) [15]. Without these subsidies, most projects are not viable from a financial point of view.

#### *2.3. Technology Potentials*

Downsides of lithium-ion based ESSs are the dependency on (rare) earth materials, lack of a recycling industry, limited lifespan and limited potential for large scale seasonal energy storage. Other technologies are expected to complement lithium-ion based systems, resulting in various energy carriers that are co-existing.

Most promising as an energy carrier is hydrogen. The variety of applications, high energy density (when compressed or liquefied) and scalability makes it a key storage technology. Combined with a fuel cell and hydrogen storage tank, a hydrogen-based ESS has the potential to be a very relevant asset in future energy storage markets. As of now (early 2020), these systems tend to be far too expensive for commercial applications. In particular, the cost of electrolysers that are needed to convert electricity to hydrogen, as well as the cost of fuel cells, need to drop significantly [10].

Vanadium redox flow batteries are slowly entering the markets. They offer the opportunity of storing energy in non-toxic, non-hazardous fluids, and consist of widely available elements. A long lifespan is promised, as well as the opportunity to fully discharge the ESS (li-ion based systems can discharge up to 90%). As of early 2020, about 5–10 companies were ready to offer such systems in the Netherlands. The costs are still quite high compared to lithium-ion based systems, and performance characteristics such as c-rate and energy density cannot yet compete with lithium-ion ESSs.

Finally, quite a few other technologies are becoming commercially available. Amongst others, there are salt-water batteries and nickel-iron batteries that are showing promising value for money. In all cases, further scale-up and mass production will be necessary to fully benefit from these technologies.

#### *2.4. Barriers for ESS Development*

The main constraint in the Dutch market for energy storage is that there is no urgency for the implementation of the technology. The grid is very reliable, with power outages of less than 0.1% of the time per year. So far, the penetration of renewables in the energy mix is quite low, which makes it still relatively easy for grid operators to include renewable energy in the grid. Therefore, the value of the flexibility that can be provided by ESSs is not yet acknowledged by market mechanisms (for more details, see [1]).

Despite significant price drops for lithium-ion cells in the past 10 years, batteries are still quite expensive, especially when compared to the cost of solar panels or wind turbines that they are supposed to complement. Prices range from €500–€1.000 per kWh installed, with significant economies of scale being present. For example, a 500 kWh system requires a CAPEX of about €375,000. If an investor would put such an amount in a solar array, there is a predictable cash flow and payback period. Investing in ESSs is, from an investor's perspective, much riskier since the cash flow is very uncertain [6].

Subsidies helped to kick-start the market for ESSs. In order to receive some kind of subsidy, the innovative application of ESSs are required by most authorities. Thus, there is no consistent subsidy in place that can always be applied by investors in ESS equipment. This makes it harder for new projects to obtain subsidy since most demonstrations of ESS-applications have been subsidized already.

Finally, there are constraints from a legal point of view. Norms and standards are still under construction [16], resulting in unclear procedures on how to assess safety issues by, for instance, fire departments or insurance companies.

#### *2.5. Uncertainties*

The uncertainties concerning the ESS business can be classified into four groups. Legal uncertainties are the first group of uncertainties. The rules and regulations of ownership of ESSs, and the safety of some electricity storage technologies provide challenges for ESS business. The second group of uncertainties are the fiscal framework, as there is no clear view on the development of subsidies or tax schemes. Technical uncertainties form the third group of uncertainties. The development of new ES technologies and their technical characteristics such as lifetime and maintenance, as well as the integration of the ES technologies to the grid can influence the ESS business. Last but not least, market uncertainties are inherent uncertainties in most businesses as the supply, demand, and prices in ES market, electricity market and balancing market are uncertain.

The status quo analysis for ESS business in the Netherlands, indicates that not all possible applications of ESSs received attention due to economics, technical, or legal challenges. Business model innovation could be a key to overcome the current barriers and unlock the potentials of ESS. In the following sections, we will outline an approach for designing a business model under deep uncertainties.

#### **3. Design Process for Business Models of ESS**

Designing business models is required in order to overcome some ESS business challenges. Osterwalder & Pigneur identified four general goals for business model innovation [7]: (1) satisfying

existing but unanswered market needs; (2) bringing new technologies, products, or services to market; (3) improving, disrupting, or transforming an existing market with a better business model; (4) creating an entirely new market. For ESS, the main requirement can be considered as to enter and sustain in the market (goal 2) because an ESS is not part of the market yet. Transforming the current electricity market to a more flexible one (goal 3) could be the next goal of ESS business model innovation. (4) creating an entirely new market. For ESS, the main requirement can be considered as to enter and sustain in the market (goal 2) because an ESS is not part of the market yet. Transforming the current electricity market to a more flexible one (goal 3) could be the next goal of ESS business model innovation. Similar to any other design project, certain steps should be followed for designing business models. Figure 1 illustrates a generic conceptual framework for design. The framework includes five main steps: (1) determine goals, (2) determine objectives, (3) determine constraints, (4) develop design

Similar to any other design project, certain steps should be followed for designing business models. Figure 1 illustrates a generic conceptual framework for design. The framework includes five main steps: (1) determine goals, (2) determine objectives, (3) determine constraints, (4) develop design space, and (5) tests for goals. In this framework, objectives are goals that need to be optimized, constraints are the binary goals to be met, and the design space illustrates a set of variables and components. In this framework, test means to determine to what extent the objectives and constraints are met by a design [17]. space, and (5) tests for goals. In this framework, objectives are goals that need to be optimized, constraints are the binary goals to be met, and the design space illustrates a set of variables and components. In this framework, test means to determine to what extent the objectives and constraints are met by a design [17].

**Figure 1.** Generic design process reproduced from [17].

**Figure 1.** Generic design process reproduced from [17]. We previously covered some steps for designing business models for ESSs in the context of the Netherlands in [1] where we developed a design space (including a map of single-application business models for ESS) and we identified some constraints such as institutional, technical, and We previously covered some steps for designing business models for ESSs in the context of the Netherlands in [1] where we developed a design space (including a map of single-application business models for ESS) and we identified some constraints such as institutional, technical, and location constraints. In this paper, we follow up the design process by elaborating on goals, objectives, constraints, and the development of tests.

#### location constraints. In this paper, we follow up the design process by elaborating on goals, objectives, constraints, and the development of tests. *3.1. Goals, Objectives, and Constraints*

*3.1. Goals, Objectives, and Constraints*  Most successful designs, in various domains, share certain goals. A framework originally developed at IDEO, a global design company, indicates that successful designs provide balance among three generic goals of (1) feasibility, (2) viability, and (3) desirability [18]. For the process of business model design, feasibility indicates whether it is possible to provide a product or service, desirability indicates whether customers will value (or pay for) the products or services, and viability indicates whether a business is financially sound. In addition to these three criteria, it is necessary for Most successful designs, in various domains, share certain goals. A framework originally developed at IDEO, a global design company, indicates that successful designs provide balance among three generic goals of (1) feasibility, (2) viability, and (3) desirability [18]. For the process of business model design, feasibility indicates whether it is possible to provide a product or service, desirability indicates whether customers will value (or pay for) the products or services, and viability indicates whether a business is financially sound. In addition to these three criteria, it is necessary for business models to conform to external conditions in the environment such as legal conditions, macro-economic situations, etc. Therefore, another goal for a successful business model can be framed as "adaptability" [19].

business models to conform to external conditions in the environment such as legal conditions, macro-economic situations, etc. Therefore, another goal for a successful business model can be framed as "adaptability" [19]. The design goals need to be translated into measurable objectives and constraints to be optimized and met, respectively. In economic terms, the primary objective of a firm is maximizing its profit and other objectives finally serve this primary objective [20]. Profitability is a measure of the The design goals need to be translated into measurable objectives and constraints to be optimized and met, respectively. In economic terms, the primary objective of a firm is maximizing its profit and other objectives finally serve this primary objective [20]. Profitability is a measure of the economic viability of business models. In addition, feasibility of business models for ESSs mainly depends on the well-functioning of the ESS devices and technology for target products. In the business or

policy modeling, ESSs are considered as black boxes with aggregated parameters such as capacity, power rating that influence the transformations of inputs to outputs. Such parameters directly or indirectly influence or limit the operation, and in turn, the profitability of ESS. In analyzing the business model of ESSs, technical feasibility and its relevant considerations can be considered as assumptions or hypotheses of the business model. Furthermore, the desirability of business models depends on the number of customers who are willing to pay for a product or a service. Higher desirability in a business model design influences the profitability of the model. Therefore, similar to feasibility, desirability can be considered as an assumption that influences economic viability. Finally, the adaptability of business models influences all other goals. It may limit the desirability, feasibility, and viability of the business models. Figure 2 illustrates the causal/limiting relationships among the four aforementioned goals. the business model of ESSs, technical feasibility and its relevant considerations can be considered as assumptions or hypotheses of the business model. Furthermore, the desirability of business models depends on the number of customers who are willing to pay for a product or a service. Higher desirability in a business model design influences the profitability of the model. Therefore, similar to feasibility, desirability can be considered as an assumption that influences economic viability. Finally, the adaptability of business models influences all other goals. It may limit the desirability, feasibility, and viability of the business models. Figure 2 illustrates the causal/limiting relationships among the four aforementioned goals.

*Energies* **2020**, *12*, x FOR PEER REVIEW 6 of 14

depends on the well-functioning of the ESS devices and technology for target products. In the

directly or indirectly influence or limit the operation, and in turn, the profitability of ESS. In analyzing

**Figure 2.** Relationship among the goals of business model design.

#### **Figure 2.** Relationship among the goals of business model design. *3.2. Developing Tests for Business Models*

#### *3.2. Developing Tests for Business Models*  3.2.1. Meanings of Business Model Test

3.2.1. Meanings of Business Model Test Tests of business models have some differences with engineering tests. In a generic design process framework (see Figure 1), testing a design involves measuring to what extent the design meets the objectives and constraints of the design and it needs to be done before selecting the final design. The test is done either on a prototype (computer simulation or material artifact) or on a complete product, depending on the test expenses. The meaning of a test in engineering designs seems to be very straight forward, however in the business model innovation literature, testing is not only about checking whether a business idea works and meet the goals, but it is also about checking if the business hypotheses (things need to be true for an idea to work but have not been validated yet) are valid [21,22]. In engineering designs, assumptions about many physical forces and Tests of business models have some differences with engineering tests. In a generic design process framework (see Figure 1), testing a design involves measuring to what extent the design meets the objectives and constraints of the design and it needs to be done before selecting the final design. The test is done either on a prototype (computer simulation or material artifact) or on a complete product, depending on the test expenses. The meaning of a test in engineering designs seems to be very straight forward, however in the business model innovation literature, testing is not only about checking whether a business idea works and meet the goals, but it is also about checking if the business hypotheses (things need to be true for an idea to work but have not been validated yet) are valid [21,22]. In engineering designs, assumptions about many physical forces and characteristics are already validated in the natural sciences, but many assumptions in the business model designs still need to be validated. Therefore, testing business models are more or less about validating their assumptions.

#### characteristics are already validated in the natural sciences, but many assumptions in the business model designs still need to be validated. Therefore, testing business models are more or less about 3.2.2. Directions of Business Model Test

*Energies* **2019**, *12*, x; doi: FOR PEER REVIEW www.mdpi.com/journal/energies validating their assumptions. 3.2.2. Directions of Business Model Test Four design goals for business models provide directions for testing them as well. It is possible to relate elements of business models to each direction. In our previous work, we elaborated on some design variables for ESS business models in the context of the Netherlands in which those elements were mostly selected from Business Model Canvas (BMC) [1]. BMC is a popular framework for analysis, design, and communication of business models. BMC contains nine blocks to illustrate the elements of the business models and their relationships [7]. Figure 3 illustrates the relationship between business model elements and directions of business model tests. The goal, "desirability", Four design goals for business models provide directions for testing them as well. It is possible to relate elements of business models to each direction. In our previous work, we elaborated on some design variables for ESS business models in the context of the Netherlands in which those elements were mostly selected from Business Model Canvas (BMC) [1]. BMC is a popular framework for analysis, design, and communication of business models. BMC contains nine blocks to illustrate the elements of the business models and their relationships [7]. Figure 3 illustrates the relationship between business model elements and directions of business model tests. The goal, "desirability", can be explored through BMC blocks of "customer segments", "customer relationships", "channels" and "value proposition"; the goal "feasibility" can be explored through BMC blocks of "key resources", "key activities", and "key partners"; and the goal "viability" can be explored through BMC blocks "cost structure" and "revenue streams" [19,23]. Finally, the goal adaptability can be explored through the analysis of the business model environment [19].

can be explored through BMC blocks of "customer segments", "customer relationships", "channels" and "value proposition"; the goal "feasibility" can be explored through BMC blocks of "key resources", "key activities", and "key partners"; and the goal "viability" can be explored through

explored through the analysis of the business model environment [19].

**Figure 3.** Relationship between business model elements and directions of business model test [19,23]. **Figure 3.** Relationship between business model elements and directions of business model test [19,23].

#### 3.2.3. Yellow Hat before Black Hat 3.2.3. Yellow Hat before Black Hat

The directions of a test come with a question on their weight and priority. Engineers and product developers may tend to think about a business by looking first at its technical feasibility, whereas the most important direction for investors is viability and the economic calculations. On the other hand, businesspeople prioritize desirability and market considerations arguing that "for every one of our failures, we had spreadsheets that looked awesome" [22], and policymakers may focus only on the adaptability of a business as they usually have no direct interest in the business. The directions of a test come with a question on their weight and priority. Engineers and product developers may tend to think about a business by looking first at its technical feasibility, whereas the most important direction for investors is viability and the economic calculations. On the other hand, businesspeople prioritize desirability and market considerations arguing that "for every one of our failures, we had spreadsheets that looked awesome" [22], and policymakers may focus only on the adaptability of a business as they usually have no direct interest in the business.

It is wise to investigate the advantages of new ideas before analyzing their disadvantages. Edward de Bono in his book "six thinking hats", in which directions of effective thinking are represented by six colored hats, maintains that: It is wise to investigate the advantages of new ideas before analyzing their disadvantages. Edward de Bono in his book "six thinking hats", in which directions of effective thinking are represented by six colored hats, maintains that:

"In an assessment situation, it makes sense to put the yellow hat (hat of benefits and value) before the black hat (hat of caution and critics). If, under the yellow hat, you cannot find much value to the idea, there is no point in proceeding further. On the other hand, if you find much value under the yellow hat and then proceed to the black hat and find many obstacles and difficulties, you will be motivated to overcome the difficulties because you have seen the benefits. But if you start off by seeing all the difficulties, then your motivation is totally different [24]." "In an assessment situation, it makes sense to put the yellow hat (hat of benefits and value) before the black hat (hat of caution and critics). If, under the yellow hat, you cannot find much value to the idea, there is no point in proceeding further. On the other hand, if you find much value under the yellow hat and then proceed to the black hat and find many obstacles and difficulties, you will be motivated to overcome the difficulties because you have seen the benefits. But if you start off by seeing all the difficulties, then your motivation is totally different [24]."

The interdependence of business model design goals (see Figure 2) reveals the fact that the viability of a business model depends on the other goals. If we seek to identify the advantages of business models before disadvantages, we can explore the potential benefits on the viability side. If there are not attractive or no potential benefits, it will not make sense to continue testing the assumptions of the other test directions. The interdependence of business model design goals (see Figure 2) reveals the fact that the viability of a business model depends on the other goals. If we seek to identify the advantages of business models before disadvantages, we can explore the potential benefits on the viability side. If there are not attractive or no potential benefits, it will not make sense to continue testing the assumptions of the other test directions.

#### **4. Modeling for Testing ESS Business Models 4. Modeling for Testing ESS Business Models**

*Energies* **2019**, *12*, x; doi: FOR PEER REVIEW www.mdpi.com/journal/energies Models may help business designers to test several assumptions of viability for business models. If models illustrate that there will be "hopes" for sustainable profit, further tests on other directions can be conducted to reduce risks to the business. In addition, lessons of modeling activities may provide insights on weights, importance, and priority of tests on the other directions.

#### *4.1. Modeling Approach*

#### 4.1.1. Model Requirements

A model for exploring and testing ESS business models must meet several requirements. First of all, the model should represent the electricity and services markets in terms of complex socio-technical systems. Therefore, it needs to entail several and diverse social and technical components. Second, the model should be capable of demonstrating co-evolution of the markets and ESSs as they are expected to influence each other. Third, the model should enable the analyst for ex-ante analysis of the effects of scenarios and policies under deep uncertainty as there is little information on various aspects of ESSs as a new solution in the market.

#### 4.1.2. Exploratory Modeling Analysis (EMA)

Developed by Bankes in the RAND Corporation in 1990s, Exploratory Modeling and Analysis (EMA) is a research methodology that employs computational experiments to study systems by systematic exploration of the consequences of uncertainties, including uncertainties in parameters, structures, or methods [25–27]. EMA contrasts with "consolidative modeling" in which a model is built by consolidating known facts into a single best-estimate set and is used as a surrogate for the real system [25].

An initial point and a driver in the development of EMA was admitting that using models as surrogates of the real-world systems was not always possible [25,28,29]. In the presence of barriers to experimental validation, significant uncertainties, or strong non-linearity, outcomes of consolidative modeling are rather poor and unreliable [25,29,30].

EMA is a solution for coping with the significant uncertainties, which are presented in the literature under various names such as deep uncertainty or sever uncertainty [27]. Deep uncertainty can be described as a situation in which analysts or decision-makers do not know or cannot agree on the appropriate conceptual models, the probability distribution of uncertain variables and parameters, and valuation of alternative outcomes [31]. In another view, it can be described as a situation in which the researcher is "being able to enumerate multiple alternatives without being able to rank order the alternatives in terms of how likely or plausible they are judged to be" [32]. This definition of deep uncertainty applies to several aforementioned uncertainties in Section 2. EMA copes with such uncertainties by conducting extensive computational experiments and calculating the outcomes of a set of plausible models, which is formed by varying assumptions, parameters, and methods [25,28].

Contrary to consolidative modeling, EMA not only can be used to answer, "what if" questions, but it can also answer questions such as "under what conditions a behavior may occur?", and "what are the plausible future dynamics in a phenomenon?" [27].

The EMA process consists of the following steps [33]: (1) conceptualization of the decision problem and the associated uncertainties, (2) development of a set of simple models, (3) specification of the targeted uncertainties, (4) analysis of the behaviors and model outcomes, (5) identification of the combinations of uncertainties which results in interesting behaviors, (6) assessment of model quality under the combinations of uncertainties, and (7) qualitative or quantitative communication of the typical futures from the combinations of interest.

EMA can be applied to several modeling paradigms, such as systems dynamics, agent-based modeling, etc., [27]. In this work, we suggest agent-based modeling as an appropriate paradigm to explore and test business models.

#### 4.1.3.  In this paradigm, an agent is a "thing that interacts with other things" [35,36]. An agent-based model creates "an artificial world of heterogeneous agents and enables investigation into how interactions between these agents, and between agents and other factors such as time and space, add up to form the patterns seen in the real world" [37].

An agent-based model consists of agents, an environment, and interactions among agents or agents and the environment [34]. Agents are autonomous and encapsulated entities situated in a particular environment, they have goals and are capable of flexible actions. They have states (also called properties, attributes, etc.), internal rules for change of the states, and actions and behaviors. Agents can take actions that influence either themselves, other agents, or the environment. An environment is a place in which agents live, and it contains information, structure, and time (the latter can be either considered as part of the environment or an independent element of the whole model) [36].

Agent-based modeling is one of the best modeling approaches to model complex adaptive systems [36]. Among several modeling paradigms to study complex systems, ABM makes a better predictive approach as (1) it enables the capture of more complex structures and dynamics, (2) it makes the study possible even in absence of global interdependence data, and (3) it is easier to maintain and evolve [38]. Generally, ABM is applicable for studying systems if (1) the problem has a distributed character, (2) the sub-systems (can be elements, components, agents, etc.) in the study operate in a highly dynamic environment, and (3) the sub-systems have to interact in a flexible way [36,39].

Therefore, ABM is a powerful paradigm for the studying and the evaluation of electricity storage business models considering the distributed control across the electricity systems and markets, the inherent dynamics (in demand, supply, prices, weather, rules, and regulations, etc.), and the increasing importance of flexibility in current and future electricity systems.

#### 4.1.4. Exploratory Agent-Based Modeling Analysis

In this research, we suggest a combination of agent-based modeling and exploratory modeling analysis to address business model design for ESSs for a number of reasons. First of all, this combination provides the best fit to the model requirements that we elaborated on earlier in this section. Most current studies on the economics of an ESS talk about business cases and they adopt static models with several assumptions about external factors of a business (e.g., [40]). Using exploratory modeling analysis, we incorporate more external factors and their underlying (deep) uncertainties in our analysis.

Moreover, most current models cannot capture the dynamics, randomness, or even chaos in a variable, such as electricity market price, whereas agent-based models can easily capture such phenomena. In addition, the electricity market price is not only influenced by the existence and performance of ESSs on the market but also influences the economics and existence of ESSs. Many static models for evaluating the economics of projects cannot capture such a feedback loop, whereas this will be easily possible in the ABM.

Last but not least, despite the potential of EMA to provide researchers with insights on business model problems, to our knowledge this approach has not been adopted for such a purpose yet. Adoption of such an approach can not only lead to interesting results, but it can also come with surprises that pave a path for future research.

#### *4.2. Agent-Based Model Design to Test ESS Business Models*

To explore and test business model designs for ESSs, we consider the following organization for our research model.

#### 4.2.1. Agents

Agents can be classified into two groups of institutional agents and physical components. Institutional agents may make commercial decisions whereas physical components make no decision and they follow rules of physical operations. The decision-making agents in the model are energy companies, end consumers, markets and the transmission system operator (TSO). Physical components include power plants, loads, ESSs, transmission grid (T-Grid), and distribution grids (D-Grid).

#### 4.2.2. Interactions

Interactions within the model (in the form of agent–agent and agent–environment) include:

#### 4.2.3. Model Environment

The environment of the model has a network structure in which agents are nodes and interactions form links among the nodes. Modeler initializes the model by defining the number and type of agents and the interactions among them.

TSO is connected to T-Grids through links. Energy companies may be connected to power plants or ESSs through control links if they enact a power producer role, or they can control no physical component if they enact only a retailer role. Large consumers are connected to large loads via control links, while they may control ESSs as well. Power plants, ESSs, large loads, and D-Grids are connected to a T-Grid via wire links. In addition, small loads are connected to D-Grids via wire links. The market agent is connected to TSO, energy companies, and large consumers via information links. There are also payment links from the market to the energy companies and large consumers.

The spatial location of agents is not relevant to the present modeling approach (a further modeling requirement could include the physical sustainability of a grid's balance according to the geographical location of loads, distributed/centralized generations and transmission network, leading to a spatially embedded ABM). The model can run for years, where each year is represented by 288 time-steps to capture the dynamics over 24 h along 12 days (representing 12 months) and enable the modeler for inter-temporal analysis.

#### 4.2.4. Agent's Actions and Behaviors

The model environment publishes the weather forecasts and fuel price data.

Energy companies and large consumers make decisions and a plan of electricity generation or consumption (also charge and discharge of ESSs) and make offers or bids to the wholesale and balancing markets. The market agent collects all offers and bids through information links, it clears the wholesale market and specifies the market price and accepted volumes, and it communicates the market results to the market participants. The market also publishes CO<sup>2</sup> certificates and prices based on the collected bids. The agent market collects electricity payments from buyers and transfers electricity revenue to the seller via payment links. The agent market also sends a balancing bid ladder to TSO for later use.