The rise of local energy communities
Across Europe and beyond, local energy communities are emerging as a powerful driver of the energy transition. These citizen‑led or community‑based initiatives are reshaping how electricity is produced, shared and governed at the local level. By combining renewable energy technologies, digital tools and innovative business models, local energy communities are challenging the traditional, highly centralised structure of the energy system.
At their core, local energy communities are about collective ownership and democratic governance of energy resources. They enable residents, municipalities, small businesses and local stakeholders to cooperate in producing, consuming, storing and selling renewable energy. This shift is not only technical; it is political and social, as it opens the door to a new form of citizen energy governance rooted in participation, transparency and shared benefits.
As energy prices, climate concerns and energy security issues gain prominence, these initiatives attract growing attention from policymakers, regulators and market players. The development of smart grids, rooftop solar photovoltaics, battery storage and digital platforms facilitates this movement and allows local actors to assume a more active role in the energy system.
What is a local energy community?
Although definitions vary between regions and regulatory frameworks, local energy communities generally share several common characteristics. They bring together a group of participants in a defined geographic area, with the aim of managing energy collectively and achieving environmental, social and economic benefits.
Key features usually include:
- Local scope: Members are typically located within the same municipality, neighbourhood or distribution grid area. This proximity enables the direct exchange of electricity and shared investments in renewable energy assets.
- Renewable energy focus: Most local energy communities are based on renewable sources such as solar photovoltaic, wind, small hydro or biomass, combined with storage or demand‑side management solutions.
- Collective governance: Decision‑making is often democratic, based on cooperative principles or participatory models where each member has a say in how the community is managed.
- Shared benefits: Economic gains, such as reduced energy bills or revenues from surplus generation, are shared among members or reinvested locally.
- Social and environmental objectives: Beyond cost savings, local energy communities seek to reduce greenhouse gas emissions, fight energy poverty and strengthen social cohesion.
In the European Union, the Clean Energy Package has introduced specific legal categories such as “renewable energy communities” and “citizen energy communities”. These frameworks provide rights and obligations, allowing communities to generate, consume, share and sell electricity, participate in energy markets and access grid services.
A new citizen‑centric energy governance
The momentum behind local energy communities reflects a broader shift in the governance of energy systems. For decades, energy infrastructures were planned, financed and operated primarily by large utilities and central authorities. Citizens were mostly passive consumers, with limited influence over energy choices.
Local energy communities invert this logic. They place citizens and local stakeholders at the centre of decision‑making and turn them into active participants. This citizen‑centric governance of energy is based on several core principles:
- Democratic participation: Members are generally involved in key decisions, from investment choices to tariff structures and reinvestment of profits. This participation can take the form of annual general meetings, elected boards, working groups or digital voting tools.
- Transparency and accountability: Financial flows, contractual arrangements and operational data are often shared openly among members, which builds trust and legitimacy.
- Local autonomy: Communities can decide how to prioritise investments (for example, solar panels on public buildings, community batteries, or energy efficiency programmes) according to local needs and values.
- Fair distribution of benefits: Governance structures frequently incorporate mechanisms to ensure that vulnerable households or low‑income residents benefit from the project, for instance through special tariffs or dedicated funds.
This new governance model aligns with broader debates on energy democracy, which call for a more equitable distribution of power, ownership and influence in the energy sector. By anchoring decisions in local realities, communities can respond more effectively to social and environmental challenges than large, centralised actors.
Technological enablers and digital innovation
The rise of local energy communities has been enabled by rapid technological advances. The cost of key technologies has declined significantly, particularly solar photovoltaics and battery storage, making small‑scale, distributed generation economically viable. At the same time, digitalisation is transforming how local energy systems are designed and operated.
Several technological trends are particularly relevant:
- Distributed renewable energy systems: Rooftop solar, small wind turbines and micro‑hydro plants allow communities to produce electricity near where it is consumed, reducing transmission losses and dependence on distant power plants.
- Energy storage: Batteries, whether at household or community scale, enable better integration of intermittent renewables. Storage smooths peaks, supports self‑consumption and facilitates local energy sharing.
- Smart meters and data analytics: Real‑time consumption and generation data help optimise local balancing and adapt consumption behaviour. Data also supports transparent governance and innovative tariff structures.
- Peer‑to‑peer energy trading platforms: Digital platforms make it possible for members to exchange electricity directly within the community, based on predefined rules or dynamic pricing mechanisms.
- Microgrids and smart grids: Local low‑voltage networks can operate semi‑autonomously, improving resilience and offering services such as flexibility, demand response and ancillary services to the wider grid.
Together, these tools provide the technical foundation for a decentralised energy system where communities can coordinate generation, consumption and storage in a flexible and efficient way.
Economic and social impacts at the local level
Local energy communities can generate multiple benefits for territories and residents. From an economic perspective, they often create local value chains, retain part of the energy expenditure within the community and stimulate green jobs in installation, maintenance and services.
The ability to generate and consume local renewable electricity may also offer a hedge against volatile wholesale prices and fossil fuel imports. By diversifying supply sources and reinforcing local control over energy, communities can contribute to energy security and resilience.
Social impacts are equally significant:
- Fighting energy poverty: By offering lower tariffs, targeted support schemes or energy efficiency measures, communities can alleviate the burden of energy costs for vulnerable households.
- Strengthening social cohesion: Collective projects encourage collaboration, trust and mutual support among residents, associations and local authorities.
- Raising awareness: Participation in an energy community often increases understanding of climate issues, renewable energy and responsible consumption patterns.
- Empowerment of municipalities: When local authorities are involved, they gain new tools to implement their climate and energy strategies and to align energy investments with urban planning, mobility and housing policies.
However, these benefits are not automatic. They depend on how projects are designed, who participates and how decisions about costs and benefits are made.
Regulatory frameworks and policy support
The success and scalability of local energy communities are closely linked to regulatory conditions. Many national energy systems were originally configured for centralised generation, with rules and tariffs that did not foresee decentralised, citizen‑led actors.
In recent years, several jurisdictions have begun to adapt their legal frameworks to integrate community energy. Key regulatory issues include:
- Right to self‑consumption and energy sharing: Clear definitions are needed to allow collective self‑consumption, virtual metering and local trading across the distribution grid.
- Grid tariffs and access rules: Tariff structures must reflect the value that local communities provide in terms of flexibility, grid support and reduced congestion, while ensuring a fair contribution to network costs.
- Licensing and market participation: Simplified procedures can make it easier for small actors to obtain necessary permits and participate in wholesale markets or flexibility platforms.
- Financial incentives: Grants, soft loans, tax incentives or feed‑in premiums may be required in the early stages to make projects bankable and to attract community investment.
- Consumer and data protection: As new digital and contractual arrangements emerge, safeguards are necessary to protect members’ rights, privacy and security.
Policy frameworks that explicitly recognise local energy communities and citizen energy governance can create a more level playing field with traditional market players. At the same time, regulators must manage the integration of these new actors into the wider energy system, ensuring system reliability and cost‑effectiveness.
Challenges and risks on the path forward
Despite their promise, local energy communities face a number of obstacles. Setting up a community project requires time, expertise and financial resources. Many groups struggle with complex administrative procedures, technical design questions and the need to engage a critical mass of participants.
Governance can also be demanding. Maintaining active participation, ensuring representation of diverse social groups and managing conflicts of interest are constant challenges. There is a risk that well‑organised, higher‑income citizens may dominate the process, limiting access for disadvantaged households or tenants and potentially reinforcing existing inequalities.
From a technical standpoint, integrating numerous small‑scale installations into distribution networks raises questions about grid planning, congestion management and system balancing. Distribution system operators need visibility on local projects and appropriate tools to coordinate them.
Financing is another sensitive issue. Although community ownership is a strength, it can also limit access to capital for large‑scale investments. Partnerships with municipalities, ethical banks or impact investors are often needed, but they must preserve the autonomy and objectives of the community.
Finally, the rapid evolution of regulation and support schemes creates uncertainty. Changing tariffs, incentives or market rules can destabilise business models and undermine the confidence of citizens who have invested their savings in local energy projects.
Perspectives for scaling up community energy
As the energy transition accelerates, local energy communities are poised to play a growing role in national and regional energy systems. Their capacity to mobilise citizens, integrate distributed renewables and innovate in governance makes them an essential component of a climate‑neutral, resilient energy future.
To fully realise this potential, several avenues can be explored:
- Replication and standardisation: Developing replicable models, toolkits and standard contracts can reduce transaction costs and help new communities launch projects more easily.
- Capacity building and education: Training programmes, advisory services and knowledge‑sharing platforms can equip local actors with the skills needed for project development, technical design and financial management.
- Alliances with municipalities and regions: Collaboration between local authorities and citizen energy initiatives can align community projects with wider regional strategies and infrastructure planning.
- Integration into energy markets: Enabling communities to provide flexibility, balancing and ancillary services can open new revenue streams and reinforce their contribution to system stability.
- Inclusive design: Proactive strategies to involve low‑income households, renters and marginalised groups can ensure that community energy supports social justice and broad public acceptance of the energy transition.
The rise of local energy communities signals a transformation of the energy sector, from a top‑down model to a more distributed, participatory and locally grounded system. As citizen energy governance gains ground, it has the potential to reshape how societies think about energy — not just as a commodity, but as a common good managed collectively for the benefit of present and future generations.