Clean Energy from the Ground Up: Energy Communities in the European Union

In Naples, Italy, energy communities are about more than just increasing renewable energy sources – they help promote local development, increase grid resilience, and alleviate energy poverty. Energy communities, also referred to as publicly owned energy projects, can be instrumental tools for engaging citizens directly in renewable projects and promoting energy justice. One energy community in Naples, a 166-panel photovoltaic (PV) solar roof system in the low-income San Giovanni neighbourhood built using grant money, has been delivering electricity to 20 families for 25% of the cost of utility-supplied energy since 2021. Energy community members can also sell excess energy produced to the local utility.¹ Lower energy costs, expanded knowledge of renewables, and other benefits from direct involvement in energy production all contribute to increased community acceptance of clean energy projects.²  

Energy communities like San Giovanni have been growing all over the country, providing “prosumers” with lower energy bills, increasing the nation’s green jobs by 38% in 2021 alone, and democratising Italy’s energy transition.³ Energy communities are similarly proliferating across the European Union (EU). 

Prosumers: Prosumers can be individuals or members of a community like energy communities, self-sufficiently producing energy to meet their electricity needs, often through a decentralised grid powered by renewable sources. In other words, prosumers are both producers and consumers.⁴

While citizen-owned energy models have been steadily growing over the past two decades under various names within the EU and in countries around the globe, the EU officially introduced the concept of energy communities with the adoption of the Clean Energy for all Europeans Package (CEP) in 2019. The Directive on the Internal Energy Market (IEMD) introduced the concept of Citizen Energy Communities (CECs), and the recast of the Renewable Energy Directive (RED II)⁵ introduced the so-called Renewable Energy Communities (RECs).⁶ Legal recognition of this concept illustrates the increased importance of community-owned projects in the decentralisation and democratisation of energy in the EU.⁷ 

Though CECs and RECs have different legal definitions (see Table 1), they are not mutually exclusive and represent forms of community ownership models and collective financing schemes for energy projects.⁸ The two models share the same primary purpose, as outlined in their respective directives, of providing “environmental, economic or social community benefits for its shareholders or members or for the local areas where it operates” rather than financial profits.⁹  

While RECs and CECs can include a wide range of renewable technology, with solar, biomass, and wind being the most common project types, energy communities can also include electric vehicle charging ports and sustainable building renovation projects. Energy community structures may include a range of legal entities, including cooperatives, community interest companies, private and public limited liability companies, limited partnerships, non-profits, or small-medium enterprises. Each of these legal structures involves different governance and financing schemes. Effective energy communities determine their business and financing schemes based on local energy needs, geography, and community and regional resources. National policies promoting energy community development also consider these factors. 

Table 1: Defining CECs and RECs

	CEP Section	Type of Energy Applicable	Membership
Citizen Energy Communities (CEC)	Internal Electricity Market Directive	No restrictions on energy technology:    CECs can “engage in generation, including from renewable sources, distribution, supply, consumption, aggregation, energy storage, energy efficiency services or charging services for electric vehicles” [IEMD, Article 2, para 11]	No restriction on membership based on location.     Participation must be voluntary.
Renewable Energy Communities (REC)	Renewable Energy Directive	Only renewable energy sources and services:    RECs can “produce, consume, store, and sell renewable energy.” RECs also include electric vehicle charging stations.    RECs can engage in renewable power purchase agreements. [RED III, Article 22, para 2(a)]	Voluntary membership and shareholding are open to those located in proximity to the developed project.    Participation must be voluntary.10

Different energy community initiatives backed by EU legislation are:  

1. Energy Communities Repository (ECR): Designed to help citizens interested in founding energy communities in urban locations, the ECR collects data and provides impact assessments, frameworks, best practices, and technical and administrative advice. The Repository also assists local governments, businesses, and public authorities in the creation of energy communities. 

2. Rural Energy Community Advisory Hub: The Advisory Hub, seen as an extension of the Repository, performs similar functions and assists in setting up energy communities in rural areas.

3. Citizen-Led Renovation: Through selected pilot projects, this initiative provides financial and technical assistance to help reduce barriers in renovating buildings for energy efficiency upgrades, including improving insulation and technical systems in addition to installing renewables.

How Common are Energy Communities?

As of 2022, there were more than 9,000 energy communities operating in the EU.¹¹ However, complete data collection around energy communities is still in its early stages. A mapping effort aggregated nearly 3,500 energy communities across 19 EU Member States and the United Kingdom (UK).¹² A more recent study examined all citizen-led initiatives, estimating about 10,500 initiatives in place in 30 European countries from 2000-2021 (with approximately 2 million citizens involved, €6.2-11.3 billion of investment, and 7.2-9.9 gigawatts of installed renewable energy). The study also concluded solar photovoltaic (PV) energy communities make up most of their dataset (over 80%), with biomass and hydropower as the second and third most common technologies found in these communities.¹³ More data collection efforts are needed to understand the full breadth of energy communities across European Member States, but it is clear they are quickly proliferating across the continent. 

The Benefits of Energy Communities

Energy communities offer a range of climate, economic, and social benefits. In addition to strengthening community acceptance of renewable energy projects, energy communities can lower utility bills and bring economic development opportunities to both rural and urban areas. National and municipal governments can maximize these benefits, helping Member States reach their 2030 and 2050 climate goals. 

Dekarbonisierung  

• Increased clean electricity production and decreased electricity demand: Participating in energy communities can deploy more renewable resources while making members more conscious of energy consumption.¹⁴
• Greater community acceptance of clean energy technologies: Energy communities and other models that involve democratic participation can increase deployment of energy technologies in local communities.¹⁵
• Improvements to national grids: By using locally produced energy, energy communities reduce the need for transporting electricity over long distances. This helps balance the local electricity grid and alleviate bottlenecks. Having diverse electricity sources and distributed systems, along with regional and local backups, can enhance reliability and improve grid security.¹⁶ 

Economic benefits 

• Lowered individual utility bills and addressing energy poverty: Energy communities sell energy directly to consumers and receive direct payments, functioning much like a utility. In many cases, members who use energy from their community pay less on their utility bills. According to the Mapping of Energy Communities in Europe study, energy communities can “tackle structural and behavioural drivers of energy poverty” by influencing consumption habits.¹⁷ Through the democratisation of energy, energy communities can alleviate energy poverty and protect vulnerable citizens.¹⁸
• Local economic development: Energy communities ensure that profits from energy production stay local to communities rather than going to private corporations. These profits are usually shared among community members, who can then invest them in local projects. While energy communities often rely on volunteers, some business models involve hiring locals for different tasks, including designing and installing infrastructure.

Social benefits 

• Community-building: Energy communities and other collective ownership models for energy production can boost community communication, collaboration, and unity. 
• Increased civic engagement: The varying democratic and innovative engagement models of energy communities increase civil participation in local issues.
• Facilitation of energy justice: Energy communities can help facilitate a just energy transition by prioritising the needs and inclusion of historically marginalised groups in the energy transition, considering power distributions in governance and decision-making processes, incorporating broad public participation, and ensuring equitable distributions of costs and benefits from energy projects.¹⁹  

Energy security 

• Greater reliance on local energy sources: The ongoing war in Ukraine has illustrated the geopolitical risks of relying on foreign energy sources and the variability of imported fossil fuel pricing. Locally produced energy offers price stability and predictability while ensuring domestic economic and social benefits.
• Resilient grids: Decentralised energy systems can prevent and mitigate the effects of cyber-attacks and disruptions from natural disasters and extreme weather events.²⁰

The Policy Environment for Energy Communities in the EU

The Directive on Common Rules for the Internal Electricity Market²¹ includes measures for supporting the expansion of citizen participation in all levels of clean energy generation, consumption, and storage.²² Directives need to be transposed into national law, leaving flexibility to Member States on the means to achieve the binding goals. CEP and the Directive on Common Rules for the Internal Electricity Market Progress also require action from national governments.  

Below is a non-comprehensive list of required or supplemental legislation Member States can pass to support local energy community growth. 

Legislation transposing European law around energy communities into national law  

The Renewable Energy Directive requires Member States to create legal frameworks to introduce energy communities in their Member States.²³ These frameworks should account for identified financial, informational, and logistical barriers that communities might face in establishing energy communities and include an assessment of the distributed energy landscape. While these frameworks will look different in every country,²⁴ national governments can (1) develop transposing legislation or legal definitions for CEC and RECs to support publicly owned energy production models and (2) properly account for population density, urban and rural contexts, and the possibility of “clustering” when determining membership or shareholder criteria for energy communities.²⁵ 

Support schemes: Legislation supporting energy community development and financing 

The Renewable Energy Directive also requires Member States to consider support schemes, calling on them to account for specific regional contexts. For example, Member States can reduce market discrimination against renewable energy by passing policies making it easier to negotiate and approve remuneration and smart contracts for energy saving. Member States can also formulate provisions for energy service regulations, for example, by including low carbon self-consumption, retrofitting buildings, and energy efficiency measures promoting co-generation units.²⁶  

Europe-level policymaking is important, but Member State policy specific to national context is critical to adoption 

So far, progress by Member States transposing the EU Directives and other legislation around energy communities varies widely. And even where EU law has been transposed to the national level, the success of energy communities will depend on specific national contexts. 

While the European Commission reported 9,000 operational energy communities across the EU in 2022, the distribution across countries is uneven.²⁷ A 2023 report, Mapping of Energy Communities in Europe: Status Quo and Review of Existing Classifications, studied nearly 4,000 energy communities across the UK²⁸ and 20 EU countries, finding the largest proportion of energy communities are in Germany, the Netherlands, and Denmark, which all fostered domestic development of publicly owned energy models before the EU introduced legislation around energy communities.²⁹ Though the study identified solar energy sources as the most common across all countries included, in Denmark and the Netherlands, the authors found a high proportion of biomass energy communities, a result of national initiatives supporting non-commercial district heating systems.³⁰ While differences in permitting processes, grid access, natural environment, funding availability, energy markets, and cultural attitudes towards collective management models influence the number, size, and success of energy communities across the EU, national policy also plays a significant role. Member States have considerable autonomy in creating supporting frameworks for energy communities and incentivising grid decentralisation.³¹ 

Financial costs, including initial capital and operational expenses, present challenges to energy communities. Regardless of the array of financing methods available to groups looking to start energy communities, one of the most effective ways Member States can aid energy community development is by offering financial assistance or incentives. Governments can do this by providing more grants and making them more accessible, amending national tax laws to make it easier for communities to raise funds, and passing national plans providing stability to small banks that can aid in financing local energy communities (e.g., guaranteeing a fixed minimum price per kWh).³²  

In the Netherlands, for example, a new subsidy scheme prevents energy prices from fluctuating outside a set range in energy communities, ensuring some financial stability.³³ Member States can also support energy communities by granting tax reliefs (or VATs) on energy bills for community members. Lastly, by increasing available funds to support research and educational campaigns, governments can facilitate information sharing around starting and joining energy communities. 

National governments can support municipalities in developing energy communities 

Member States can adopt policies and programs to help municipalities develop energy communities. SCCALE 203050, an initiative under the EU-funded organisation REScoop, offers a comprehensive list of ways municipalities can support energy communities in its Community Energy Municipal Guide. Examples include financing European Community projects, developing supporting tools, facilitating dialogues between local stakeholders, providing access to public sites, creating resource hubs to deliver information, participating in jointly-owned projects or acting as an energy community member.³⁴ National governments can equip municipalities with the knowledge and legal tools to financially support the growth of energy communities, including authorising low-interest loans and granting special tax treatment for individuals who invest in community enterprises.  

Case Studies: Support for Energy Communities Across EU Member States

The following case studies demonstrate how Member States have facilitated the growth and creation of energy communities in their jurisdictions.  

Lessons Learned and Potential for “Energy Communities” Outside the EU 

The EU aims to achieve carbon neutrality and net-zero emissions by 2050 and reduce its net greenhouse gas emissions by at least 55% compared to 1990 levels by 2030.⁶⁶ However, according to the EU’s 2023 Climate Action Progress Report and recent CATF work assessing National Energy and Climate Plans (NECPs),⁶⁷ Member States are currently not on track to reach these ambitious climate goals and must accelerate clean energy deployment and implementation processes. Citizen engagement is driving communities to embrace clean energy technology across EU countries, generating enthusiasm for the clean energy transition. Despite financial and market challenges that could hinder contributions of citizen-led clean energy projects to Europe’s energy transition, Member States have been undertaking supportive policies enabling energy communities to secure funding and grow their operations.  

The policy landscape for community-owned energy production continues to evolve. As demonstrated by cases like Latvia, where citizens are rapidly launching urban solar CECs with incentivised financing policies, and Germany, which is empowering rural RECs, Member States have a crucial role to play. Recent legislation in Denmark underscores the impact of national legislation, and its capacity to both help and hurt energy communities. To support the growth of energy communities, Member States should continue prioritising policies that favour community energy models. Additionally, EU countries that have not already transposed EU legislation into national law should do so to officially recognise energy communities. 

Energy communities can offer several economic, social, and energy security benefits, in addition to accelerating countries’ progress toward net-zero climate goals. Although community ownership and nuanced business models for renewable energy production are not exclusive to the EU, EU national governments are leading in efforts to support local energy cooperatives. 

Europe is drawing global attention as communities successfully establish community-owned wind farms in rural Sweden and non-profit solar energy rooftops in urban Latvia. These initiatives are rapidly expanding, delivering affordable clean energy to rural and urban households alike. While countries such as Denmark and Germany have a long history of shared energy models, Baltic countries such as Latvia demonstrate that with the right policies and local support, rapid adoption of community-based energy models is possible. This approach is already accelerating decarbonisation efforts and reducing energy costs for consumers. Energy communities in Europe are becoming a model for the world to follow.  

Success stories of community-owned renewable energy projects, using a variety of business and financing models, are increasing worldwide, including in the U.S., Canada, and South Africa. Non-EU nations should consider legally recognising civilian-owned energy cooperatives and similar models to streamline financing and energy market legislation at the national level.  Countries, localities, and advocacy groups should also make information on starting citizen-owned energy models more accessible. Strong, publicly owned renewable infrastructure can help countries reach their ambitious climate goals while ensuring social benefits, grid resilience, economic development opportunities, and energy justice. Democratising energy can help secure a just transition in the EU and around the world.