Business Models and Financial Characteristics of Community Energy in the UK

Where energy systems are dominated by large-scale actors, community energy represents an alternative model: a decentralised and participatory approach to delivering low-carbon energy projects. This paper presents the first UK-wide quantitative analysis of business models, financing mechanisms and financial performance of community energy projects, using data from a new survey of the sector. We find that business models depend partly on the energy technology used and on project size, in addition to fine-tuning of operations to local contexts. While larger projects rely more heavily on loan financing, community shares are the most commonly used and cheapest financial instrument in the sector. Community energy has thus pioneered low cost citizen finance for renewables, but its potential to grow is threatened by reductions, and instability, in policy support. Over 90% of the projects in our sample made a financial surplus in our single year snapshot, but if we remove income from price guarantee mechanisms, such as the Feed-in Tariff scheme, we find that the number of projects in surplus falls to just 20%. Renewed support and/or business model innovations are therefore needed for the sector to realise its potential contribution to the low-carbon energy transition.