Local Energy Communities: Key findings from mPOWER Exchange
Successful energy transitions need to be empowered and resourced to be led locally, to be ambitious and smart. It needs to target results but to engage with the complexity of the challenge and potential benefits of action (rather than multiple siloed approaches looking at specific sectors).
―Anonymous participant mPower Exchange
In 2019/20, 20 cities from across Europe took part in the peer-peer learning programme mPower Exchange. Structured around city visits, mPOWER Exchange enabled local authorities to spend face-to-face time exploring, understanding and developing new and existing energy projects. With five themed learning sets based on geographical location and energy system focus, this highly participatory learning programme was focused on exchanging practical knowledge and expertise.
It included online expert witness accounts from practitioners in the field, study visits, peer group learning sessions and individual and collective action research supported by the group facilitators. At the end of the programme each city developed a replication project inspired by best practice from within their groups and beyond. In November last year the groups came together to share challenges and learnings across the groups.
The focus themes were domestic retrofit, local energy communities and renewables expansion. Some additional themes crystalised in the process, namely stakeholder engagement and decarbonising heat. We will publish some of the key findings from each theme in a series of blog posts.
FOCUS TOPIC 2: Local Energy Communities
Throughout 2019 two mPower Exchange peer groups explored the topic of local energy communities, starting simply from the questions: What exactly are energy communities? And what added value might they bring to the local energy transition and the work being done by public authorities? Following that we explored how municipalities can enable the development of energy communities and what forms partnerships can take. In both groups this included a special exploration into how local authorities might be able to initiate an energy community for the cities where these would be the first.
Our key findings
1. History – Energy communities are not a new concept. Examples of people self-organising generation and distribution of energy in cooperative models can be found historically in Europe from as early as 1900s, especially in remote places where electrification would not reach. Some of these companies still operate successfully today. One such example is E-werk Prad in Tirol, Italy. A second wave of energy communities started during the oil crisis and in response to the first public understanding of climate change in the early 70s.
We identified that there are different motivations for communities to self-organise and community energy organisations to establish, including: a lack of local provision, to invest in clean energy and speed up energy transition, to tackle fuel poverty in their communities, to regain direct control over infrastructure from private providers in order to offer better service, to strengthen and democratise local economy and provide local jobs, to democratise the energy system.
2. Form – Energy communities can take a variety of legal and organisational forms, depending on the local context and regulation. They tend to be owned by their members, with a one-member one-vote policy and a democratic process of defining leadership, vision and direction. They are mission and value, rather than profit-driven and profits are often re-invested for social or environmental benefit and/or benefit the members. Most energy communities are organised as cooperatives, but by no means all.
3. Size and activity – Energy communities can range from small volunteer run organisations that own a couple of small assets to large profit generating and highly professional businesses. For example Som Energia operating in the whole of Spain has nearly 68.000 members with a total of €15,000,000 citizen investment in renewable energy projects. Most energy communities are engaged in renewable energy generation and supply, but other activities increasingly include: energy efficiency and saving services, flexibility and storage, heating and transport.
4. Prevalence – There are currently about 3500 energy communities across Europe, mainly in North West Europe. However energy communities can be found increasingly in the South and East of Europe. We found that the example of one successful pilot initiative in a national context can make a large impact in terms of replicability of legal form and business model and public understanding and decision maker buy-in. In some contexts other culturally embedded cooperative or mutual support initiatives in housing, farming or care can be helpful precedents to build on. 1500 energy communities are organised in the European network REScoop EU.
5. Benefits – We found that as energy communities and local authorities are both mission-driven rather than profit-oriented, often operating at the same geographic scale and being accountable to the same communities, they tend to share the same long-term objectives. These are some of the benefits we identified for municipalities cooperating with or participating in energy communities:
- Leverage of citizen investment
- Revenues from local renewables meet local needs
- Increased citizen engagement and buy-in – avoiding NIMBY effect, creating more direct links to and trust from citizens for local authorities
- Added social value
- Activation of local economy and supply chain, money staying local with multiplier effect benefits and creation of new future-appropriate local jobs
- More motivated citizens to advocate for and deliver the change and innovation necessary to achieve net zero
- Reinvestment of profits in locally specific demand reduction, energy efficiency and fuel poverty work which brings carbon, well-being, health and cost saving benefits.
- Energy communities can push energy transition faster, especially when working with municipalities and citizens, creating a sandbox for policy and economic innovation.
6. Finance – The main financial tool for energy communities is citizen finance. The different forms to distinguish between here are donation (no ownership in the organisation, no payback), loans or bonds (no ownership, payback, low risk, low return), equity (Ownership, no pay back – or bound for long-term, high risk, high return). In an energy cooperative as an equity shareholder you are also a member and as such have one democratic vote irrespective of how many shares you own. In most energy communities you have to buy a minimum of one share to become a member, shares can start at €1, but are often pegged higher, usually between €100 to €250. Share offers can be project specific and time bound or they are rolling offers, so people can invest into the company. The company sets the dividend. Some companies pay out yearly dividends to shareholders, in others dividends might take the form of lower energy prices (when combining generation and supply) or even a free season ticket to the local football club you invested into. Finally, in many companies the members decide to wave the dividend and instead invest profits into new projects.
Some companies operate solemnly with equity capital investment, others work with blended finance, accessing grants and loans. We found that increasingly large cooperatives like Ecopower or Somenergia offer seed capital in the form of a loan for new European projects. Equally for example Ecopower supported the start-up of French energy cooperative Enercoop with a financial guarantee in order to enter the French supply market.
We found this to be a comprehensive introduction to various forms of citizen finance.
7. Barriers to participation and community benefits – We identified several barriers to participation in energy communities:
- For many communities, a financial investment into a share is not feasible.
- Democratic participation and especially the initial effort to form an energy community is time intensive and often not possible, especially for people who are in poverty or have additional caring responsibilities.
Some energy communities are addressing these barriers by for example having the lowest share offer at £1 for membership or allowing members to pay off their shares over time, by investing profits in energy efficiency and saving schemes or start-up support for initiative in more deprived communities. For example Repowering London in Brixton installs citizen financed solar on social housing stock. Local people can become members for £1 to have democratic ownership. Investment starts at £50 for people locally on benefits or under the age of 25 (rather than £100 for other investors). Profits are reinvested in for example their flagship youth education programme.
In our research we identified different roles that municipalities can take in regards to growing citizen ownership, democratic participation and investment via energy communities. These are by no means mutually exclusive and can be combined as building blocks for a wider strategy. The financial resource available and political and regulatory control present at local authority level differs widely in the European context and between the cities participating in this group. It was therefore important for us to identify a variety of approaches.
8. Municipalities can act as enablers in creating the conditions for energy communities to establish themselves and the sector to grow and professionalise through following interventions:
- Targets: Municipalities can adopt concrete long-term objectives as part of their strategic frameworks and action plans, such as specific targets to quantify community-ownership in renewable production either in megawatts or as a percentage, within a certain timeframe.
- Incentives: Municipalities can for example offer business rate relief on the community percentage of shared ownership projects.
- Financial support: Some municipalities offer community energy grants for start-up or project feasibility. In some places they provide loan finance and some have for example established revolving loans for local energy projects. A municipality can also act as financial guarantor.
- In kind support: Municipalities can use core and project resources to offer free office or meeting space, business development support or planning and feasibility support.
- Networking: Municipalities can connect energy communities with possible partners and projects and facilitate conversation – this could be for example with anchor institutions (universities, hospitals), the local energy distributor, potential offtakers or landowners.
- Data: Municipalities can map the city in regards to opportunity and feasibility for renewable energy projects, including heating and provide open and easily accessible data (land ownership, energy demand, etc).
- Land: In some places municipalities can offer energy communities direct access to land either in the form of a long-term lease or a land transfer.
- Public tenders and concessions: Municipalities can create a level playing field for local energy communities to participate in public tenders or public concessions. This can be achieved by tailoring the bidding criteria to include local social value and direct citizen participation.
- For example the city of Eeklo issued a concession contract for the construction of a district heating network with ambitious criteria:
- Price of the renewable heat should not exceed that of individual heating with a gas boiler, including purchase, installation, consumption and maintenance
- At least 30% of the grid should be owned by local citizens
- The project developer must commit to take initiatives to tackle fuel poverty in the city
- The contract was awarded to the Belgian energy community Ecopower in partnership with the French transnational company Veolia.
- For example the city of Eeklo issued a concession contract for the construction of a district heating network with ambitious criteria:
- Energy procurement: Municipalities can arrange smart Power Purchase Agreements that allow them to buy locally produced renewable energy, whilst providing energy communities with a long term off-take guarantee and a guaranteed energy price. This is particularly poignant in countries where feed-in tariffs are being phased out. For example Devon Council is currently working with a collective of regional energy communities on a prototype contract.
9. In places where no existing energy communities are present, municipalities can be the initiator in establishing one. This has been the case in the example of Plymouth Energy Community. PEC was established by Plymouth City Council off the back of a manifesto pledge by a newly elected Labour Council to make Plymouth a Cooperative Council. The city council provided the start-up finance, signposted access to funding streams and sourced founder members and volunteer directors to help establish the organisation. The organisations collaborate closely on several energy projects and some members of staff work across both organisations.
In Odenwald, Germany the regional municipality supported the foundation of a local energy cooperative that has raised over 10 million euro from local citizens to finance projects within the community.
10. Municipalities can form strategic partnerships with existing energy communities for example for the development of local energy markets, the roll-out of energy efficiency programmes, or the financing of renewable energy projects on public buildings.
Quotes from participants
Keeping the good spirit is the glue – that’s what holds people together.”
―Lucija Gudić, Križevci
Investment in this area is not solely about financial return as it enhances citizen ownership, control and participation.