What next for community energy businesses? Exploring next generation business models

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Our Next Generation innovation programme has been supporting trials of alternative business models for community energy. Several models are now identified as near viable, generating considerable learnings for community businesses and wider stakeholders.  
7 Feb, 2023
Will Walker

Will Walker

Climate Action Manager

Community-led initiatives to tackle the climate crisis can take shape in various ways. In our latest Community Business Market Report, we found that almost three quarters (72%) of community businesses are making a positive contribution to improving the environment or tackling climate change. We know that resilient community businesses are vital to a fairer, greener future. That’s why we are backing the sector to build capacity and to harness the huge opportunities that exist for community businesses in this economic shift. 

‘Community energy’ refers to different forms of collective action taken by local people with the primary aim to reduce carbon emissions and fuel poverty through the reduction, purchasing, management and generation of energy. Solar panel and wind turbine investments have been the bread and butter of community energy businesses for many years, but the end of the Feed-in-Tariff in 2019 reduced the viability of new schemes and slimmed down the surplus available for community benefit.   

Our Next Generation innovation programme has been supporting trials of alternative business models for community energy. It’s been a tough ride! The programme has yet to identify a neat replacement for the relatively straight forward model of renewable energy investments. However, it has identified several models that are ‘near viable’ or that justify further investigation, while generating considerable learning for community energy businesses, as well as wider stakeholders.   

Our newly published final programme report presents findings on ‘near viable’ business models that could be taken further. For example, 

  • Helping houses and organisations to install heat pumps or energy efficiency measures by providing advice and coordination services 
  • Running ‘Pay as you save’ schemes for LEDs and other energy efficiency measures in community buildings 
  • Adding Electric Vehicle (EV) chargepoints to commercial-scale solar PV installations. 
  • Developing energy data apps on a cooperative basis   

In rural areas poorly served by transport and by existing EV chargepoint providers, the evaluation found that EV car clubs may also be viable, and that zero carbon work with schools may also be viable in certain circumstances.  Within the community energy sector, the evaluation found considerable interest in community-led flexibility services and community-led heating systems for new homes, as well as in no-upfront-cost residential solar schemes, but these require further development to reach viability.  

The evaluation found that the less innovative projects in the programme had more potential to generate social impacts in the near term than the more innovative projects. Whilst these models appear unlikely to generate surplus for the community energy sector on the same scale as renewable electricity investments, they involve more direct service delivery to local communities (e.g. on local transport, energy efficiency, retrofit etc) and can enable community energy businesses to contribute more fully to the energy transition and to meeting local community needs.  

Key learning points for policy makers, local authorities and energy stakeholders:

  • Community energy businesses can be valuable partners for local authorities and private companies, helping them to progress their strategic objectives on net zero and the climate emergency and generate social value.  
  • In response to the cost-of-living crisis, funders could usefully support community businesses take action on energy efficiency, low carbon heat and retrofitting. 
  • Community energy businesses can potentially contribute added value through their ‘trusted intermediary’ role with the local community and their willingness to run services for social objectives rather than profit.  Support for further demonstrations and capacity/skills building within the sector would be needed to support roll-out of these business models. 
  • The more innovative projects in the Next Generation innovation programme (e.g. community-led flexibility and community-led energy in new housing) are still some way from viability. Given their potential contribution to the energy transition, and the potential added value from community energy involvement in these projects, further policy support and innovation funding for these initiatives appears justified. 
  • The mentoring work undertaken by the Next Generation programme, detailed in the mentoring report, provides insights into how funders could support peer mentoring to build skills and confidence within community energy businesses. 

These findings are set out in more detail in the Next Generation Year 3 Final Evaluation report and accompanying Peer Mentoring report

For further information, please contact Will Walker