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This paper investigates how the European electricity and heating system is impacted when medium-scale energy communities (ECs) are developed widely across Europe. We study the response on the capacity expansion of the cross-border transmission and national generation and storage within the European electricity and heating system with and without ECs in selected European countries. The representation of ECs has a special focus on flexibility, and we analyze the difference between flexibility responses by ECs towards local versus global cost minimization. Results show that EC development decreases total electricity and heating system costs on the transition towards a decarbonized European system in line with the 1.5 °C target, and less generation and storage capacity expansion is needed on a national scale to achieve climate targets. We also identify a conflict of interest between optimizing EC flexibility towards local cost minimization versus European cost minimization. • We study investments in the European energy market with energy community roll-out. • We compare flexibility responses with local versus European perspective. • Energy communities partly replace centralized generation and storage capacity. • Energy community roll-out shifts investments from onshore to offshore wind. • There is conflicting interest between local and European flexibility utilization. [ABSTRACT FROM AUTHOR]

• Net-zero emissions are modelled for electricity, heating and cooling in Europe. • System cost decreases thanks to heat savings, but not for climate change scenarios. • Lower heat demand disfavours heat pumps as surplus electricity is used by resistors. • Cheaper heat pumps impact resistive heaters substantially, but not the opposite. To limit the global temperature increase to 1.5 °C, fossil-free energy systems will be required eventually. To understand how such systems can be designed, the current state-of-the-art is to apply techno-economical optimisation modelling with high spatial and temporal resolution. This approach relies on a number of climatic, technical and economic predictions that reach multiple decades into the future. In this paper, we investigate how the design of a fossil-free energy system for Europe is affected by changes in these assumptions. In particular, the synergy among renewable generators, power-to-heat converters, storage units, synthetic gas and transmission manage to deliver an affordable net-zero emissions system. We find that levelised cost of energy decreases due to heat savings, but not for global temperature increases. In both cases, heat pumps become less favourable as surplus electricity is more abundant for heating. Demand-side management through buildings' thermal inertia could shape the heating demand, yet has modest impact on the system configuration. Cost reductions of heat pumps impact resistive heaters substantially, but not the opposite. Cheaper power-to-gas could lower the need for thermal energy storage. [ABSTRACT FROM AUTHOR]