This report introduces European legislation on energy communities and then analyzes Spain’s progress in implementing the legislation. Following the introduction, the report offers an economic framework for assessing the degree to which national legislation on energy communities aligns the incentives of the energy community with the interests of the electricity system and all consumers. In particular, it assesses concerns over raising the costs of the energy transition and of shifting costs to other consumers. Specifically, it discusses the risk of balkanization that could undermine the Single Market, the potential risk of members leaving the community due to poor performance and the problems posed by subsidies. It then analyzes Spanish legislation and plans within that framework and concludes by identifying the need for further reform.