Business models and financial characteristics of community energy in the UK

Abstract

Community energy projects take a decentralized and participatory approach to low-carbon energy. Here we present a quantitative analysis of business models, financing mechanisms and financial performance of UK community energy projects, based on a new survey. We find that business models depend on technology, project size and the fine-tuning of operations to local contexts. Although larger projects rely more on loans, community shares are the most common and cheapest financial instrument in the sector. Community energy has pioneered low-cost citizen finance for renewables, but its future is threatened by reductions, and instability, in policy support. Over 90% of the projects in our sample make a financial surplus during our single-year snapshot, but this falls to just 20% if we remove income from price guarantee mechanisms, such as the Feed-in Tariff scheme. Renewed support and/or business model innovations are therefore needed for the sector to realize its potential contribution to the low-carbon energy transition. Community energy is a promising alternative to large-scale energy provision that could support decarbonization efforts. This study analyses business models, financing mechanisms and the financial performance of community energy projects in the UK to understand what is needed to better support the sector.