Community energy: The new frontier for economic opportunity and innovation

We’re living through an incredible transition. We’re moving away from the old energy system built for large, centralized power stations and a one-directional energy flow. We’re moving towards a new energy future, one where energy consumption patterns are more variable and where the energy supply is not just variable but dynamic, with energy flows happening in all directions. Community energy is emerging as a transformative force, not only as a just or environmental imperative but also as a powerful economic opportunity that promises a variety of options to invigorate local economies, foster innovation, and empower communities in the face of climate change and rising energy costs. The real question is how we can take advantage of the transition to build a better future for ourselves while maximizing the benefits for all.

The concept of community-led energy projects is not new. They can be found worldwide in Latin America, the Far East, and Europe, where community energy cooperatives play a vital role in the electrification of rural areas. Success stories in Europe, notably in Germany and Denmark, offer compelling examples of collective action driving the low carbon transition, culminating in involving 2 million people in energy projects across 30 European countries by 2021. As renewable energy projects continue to expand along with innovation and cost deflation in battery storage technology, communities can drive forward more investments in cheaper energy sources and reap the benefits through lower bills.

What are local community energy schemes, and what are their advantages?

Community energy schemes are about creating the possibilities of generating electricity through locally based, small-scale renewable energy projects owned and controlled by different communities, from neighborhoods and cooperatives to nonprofits and small businesses. In the UK, solar panels in schools and community centers started as early as 2013 as founder members wanted to help local people with the challenges of energy bills; citizens who were passionate about climate change came together to fund the deployment of solar assets on buildings, In Grimsby, for instance, CE generated 300,000 KWh saving £7000 on bills of six buildings, and 100 tons of CO2. Various energy generation programs delivered projects for community buildings, schools, churches, and NHS practices. Local hydro projects in Scotland by the coast generate energy and sell excess to the grid through the wholesale market, then to consumers. Community energy generation goes into the general pot as green energy to be distributed; the production powers, on average, 100 homes a year. The energy generated gets used by the site, and anything they don’t use gets exported to the grid. The site receives a payment per kWh for the energy exported to the grid.

Community energy projects are about a lot more than just profit. The current one-size-fits-all system cannot address people’s energy needs, so their involvement in energy will encourage the production of new knowledge that use people’s experiences and are more reflective of their needs. Some groups joined the movement to take action on climate change, others for social justice and tackling fuel poverty, education around energy, social inclusion, and community cohesion. Some groups are doing electricity generation, and others are doing heat projects; some are interested in electric vehicles, and many want to help people with energy efficiency, advice to reduce bills and raise awareness of net zero by redirecting money supporting the fossil fuel system. The income generated from these projects gets reinvested locally to benefit communities. In this diverse field, communities have different interests in technologies, outcomes, structures, goals, and motivations. The system is networked and vast; it engages with social realities, reflecting people’s needs.

Extreme weather is becoming increasingly common due to climate change, affecting millions worldwide. It is a significant threat to infrastructure, causing damage that requires costly repairs and upgrades. Global citizens, particularly vulnerable communities, have been experiencing the worst effects of the recurring hurricanes and natural disasters, causing power outages that lasted for months and whole neighborhoods living in the dark. The fragility of the current systems that rely on one centralized energy source increases the complexities governments face at times of crisis and the national grid’s failure to deal with the situation under ineffective policies. Many citizen-led energy projects operate on decentralized, local energy generation models that do not require vast transmission lines, allowing citizens to generate energy near the use site. An additional benefit of community energy generation is a safer and more reliable energy system that takes the pressure off electricity grids, helping to prevent power outages during wildfires and other challenges faced by overloaded grids.

Financing and challenges facing community energy in the UK

Community energy groups raised funding through networking with other groups and asking for help, like Community Energy Cooperative UK, which helped some groups register and raise money. Some people invested their money in a community share offer and were paid back a percentage. Every year, the cooperative pays an amount of capital; it is like a loan, and people will get their money back. Other groups partnered with local councils and charitable trusts. They accessed government community grants, and some groups get support from socially and environmentally motivated businesses interested in helping their communities. These avenues were crucial for getting projects off the ground. Community energy projects in the UK received good returns, between 6% and 10%, and could repay 5% of the capital invested annually. It is worth mentioning that the Financial Conduct Authority, FCA, regulates all these investment schemes.

Community energy projects continue to face barriers and challenges that hinder the widespread adoption and success of community energy initiatives in the UK. One of the most significant barriers is the financial challenge. Community energy projects often require substantial upfront investment, which can be difficult to secure. Traditional financing options like loans can be prohibitive due to the perceived risk and the long payback periods associated with renewable energy projects. Furthermore, the withdrawal of government subsidies and incentives, such as the Feed-in Tariff (FiT), has exacerbated the financial strain on these projects. Removing such financial support mechanisms reduces the attractiveness of community energy investments for individuals and institutions. 

Technical expertise is crucial for successfully implementing and managing community energy projects. Still, many communities lack access to such expertise, including knowledge of the renewable technologies themselves. Further deciding on projects, site selection, panel sizes, and other critical determinants of the projects’ feasibility remains challenging. Logistics and end-to-end project management require a skill set that may be beyond the capabilities of volunteer-based community groups. Additionally, integrating renewable energy into the existing grid infrastructure can pose technical challenges, especially in rural areas with weaker grid connections.

Among other significant barriers, the regulatory environment in the UK is still unfavorable for community energy projects. The planning process for renewable energy installations can be lengthy and complicated. Additionally, there is often a lack of clarity and consistency in policy, which creates uncertainty and can deter investment. The local electricity bill is still being debated in the parliament; citizens are still calling upon the government to develop routes to market for community energy since the current market structures blocked the growth of community energy projects, which can grow and scale beyond the current volumes with supportive policies.

Community energy projects often struggle to compete in a market dominated by large, established energy companies. The licensing cost of becoming a provider is geared towards massive companies and acts as a deterrent and a barrier to smaller projects. Regulations are not yet recognizing the various innovations in energy to meet the emerging supply and demand needs. Community projects may find it challenging to secure fair prices or negotiate favorable grid access terms, unlike large companies that benefit from economies of scale and resource efficiency to navigate market conditions. Community voices have demanded tailored market mechanisms that support smaller-scale, community-led projects to ensure the costs of the licenses are proportionate to their business model; similar to other market structures that are not in energy, like small bakery shops versus big supermarket chains, both can operate under customized rules to enable their business models. 

Community energy projects are fertile ground for stimulating innovation and creating new economic opportunities to revitalize local economies across the UK. By investing in renewable energy initiatives led by communities, we can produce clean energy to reduce energy costs for residents, creating savings that can be reinvested in other community projects. Engaging with renewable technologies and innovative business models can drive technological advancements and foster a culture of innovation, inspiring local entrepreneurs and startups to explore new ideas and ventures- that can extend beyond the energy- thereby diversifying the local economy and making it more resilient. Investing in community energy also means creating skilled, local jobs requiring a diverse range of expertise. This demand for skilled labor can spur training programs and educational initiatives, equipping local workers with valuable skills in renewable energy technologies, project management, and technical services. As a result, communities not only gain from the immediate economic benefits of these projects but also build a skilled workforce ready to lead in the green economy, ensuring long-term economic resilience and growth. 

While community energy can play a significant role in the UK’s transition to a low-carbon energy system, the barriers it faces must be addressed to unlock its potential. Overcoming these challenges requires a concerted effort from policymakers, financial institutions, technical experts, and the communities themselves to lead a just transition that puts people at the heart of the energy system.