Renewable energy cooperatives and crowdfunding – untapped potential?

Renewable energy cooperatives and crowdfunding – untapped potential?

Posted by Robertas Tumilo
2022-01-13

Ownership of large, looming wind farms or utility-scale solar parks in the past has looked unfeasible for individual consumers due to the high capital costs and know-how required to develop such projects. However, that is quickly changing with the possibilities for consumers to pool their resources together and use the expertise of utilities and developers in renewable energy cooperatives or renewable crowdfunding. These methods present an untapped opportunity to increase private individuals’ involvement in the renewable energy transformation.

Community solar

What are they?

Renewable energy cooperatives are usually local community-driven initiatives where their members actively work together to establish renewable energy production facilities. These facilities are typically located close to the community, so the energy is consumed where it is produced, easing the load of the electricity grid. Members of such cooperatives are prosumers as they both produce and consume their electricity. Besides supplying lower-cost electricity for their members, cooperatives can also sell excess energy to other users, share profits with their members and pursue other related projects to the benefit of the community.

Renewable energy crowdfunding, while it can be similar to cooperatives, has a much broader area of opportunities for private individuals. While cooperatives offer a much higher involvement and responsibility, crowdfunding is more hands-off and offers diversified benefits. Depending on the project, backers, in exchange for their funding, can receive not only energy but also compensation in the form of dividends, interest, or equity. Thus, crowdfunding can be seen more as an investment opportunity for citizens to support renewable energy projects all around the globe.

Development until today

While renewable energy cooperatives have been around for about two decades, they have mainly gained significant traction in only a few major countries – namely the United States, Canada, Germany, and Denmark, with a few other European countries also having smaller numbers of cooperatives. The slow adoption can be explained by the many challenges renewable energy cooperatives face, such as regulatory, financial, human resources barriers. Favorable legislative conditions for such cooperatives exist in only a few countries mentioned previously, with most not having the legal basis for such cooperatives or not offering sufficient incentives for their members. However, innovative companies are solving the financial and human resources barriers by offering services for communities or individuals to take care of the whole process of establishing and managing renewable energy cooperatives.

Renewable energy crowdfunding, on the other hand, does not face as many problems for adoption. Crowdfunding in other industries has been popular for quite some time and the concept of getting rewards in the form of products, dividends, or equity in exchange for financing is well understood. Thus, with more and more attention being placed on renewable energy and net-zero goals it is likely it will naturally reach a wider audience, as the necessary regulatory frameworks already exist in many countries and there are many crowdfunding platforms to choose from. The main bottleneck would be the number of high-quality projects available on such platforms, as in a low interest-rate business environment, renewable energy developers might not be inclined to choose crowdfunding as an alternative financing source as other alternatives offer lower borrowing costs.

Development in Lithuania

In Lithuania, the legal framework for renewable energy communities and crowdfunding platforms already exists. However, no communities have yet been established at the date of publication of this article. Mainly this can be explained by the lack of incentives to form such communities – to be an individual or virtual prosumer is financially more beneficial as they are exempt from certain energy price components and can accumulate unused energy to be used in a later period. Without substantial financial benefits in the long run renewable energy communities will not be a popular option. At Ignitis Group we look forward to further development of the Lithuanian renewable energy community framework as it certainly has a spot in the Lithuanian energy network.

While cooperatives and crowdfunding are not the only pieces of the net-zero puzzle, it is important to use all available tools to be able to reach the ambitious renewable energy production and prosumer goals national governments have set. These two tools provide the means to accelerate the growth of prosumers and the transformation to a decentralized and democratic energy system, but they need the support of government institutions to enable this potential.

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