With a mission to put ‘people over profit’ by supplying low-cost services to households in vulnerability, many energy communities (ECs) operate with very low profit margins. Financing energy solidarity measures may be a new challenge.
ECs are engaged in delivering an increasingly wide array of products and services, ranging from generating electricity, operating local distribution grids and supplying electricity to end-users to energy efficiency renovations, energy storage, electro-mobility and other emerging options. Such activities are not profit-driven, but rather have the purpose to enhance social justice, boost the local economy and strengthen ecological resilience. Any revenue resulting from delivering such energy services is therefore structured to cover operations and maintenance of technical assets, pay staff costs, and to disburse interest to investors and ultimately repay their capital, with low overall profits.
In turn, most have an upfront agreement to reinvest any excess revenues in developing new projects. This creates the opportunity to self-finance energy solidarity measures to boost social impacts in the EC’s local area, which can enhance its credibility among citizens and other actors. Eventually, being able to demonstrate the value of such social impacts can trigger greater involvement and collaboration – and attract investors.
Building energy solidarity into EC business models
The CEES pilots demonstrate that while some energy solidarity measures have low material costs, almost all require substantial effort by staff and/or volunteers (who need direction and support from staff). As such, a decision to implement energy solidarity measures is likely to mean that ECs need to revisit their business models to consider how to generate additional revenues from different products or services. In line with democratic principles of ECs, any proposal to change the business model must be approved by a majority of voices.
Could, for example, electricity tariffs be somewhat higher for businesses and some residential customers, ensuring transparency about the differences in rates and explaining how the higher rates enable solidarity. For ECs that provide consulting services, another option could be to incorporate an ‘energy solidarity surcharge’ in fees (again, in a transparent way). CEES highly recommends, as some ECs already do, building a ‘community fund for energy solidarity’ into the lifetime costs for given projects.
Proposal and budgeting considerations
Ultimately, ECs need to balance income and expenses to continue providing their primary products and services to their client base and to satisfy investors. When considering integrating energy solidarity measures, it is critical to factor in a third element: what need(s) of vulnerable households can the EC meet with the resources available. To build trust, ECs must avoid putting money and effort into projects that target groups find to be of little value or, indeed, wasteful. Either way, ECs must be prepared with a proper proposal and detailed budget to ensure voting members and investors can make informed decisions. The budget will determine whether the EC can launch some type of measure on its own or if it will need to seek additional funding from outside sources.
Market research and life-cycle budgeting are critical in the case that an EC wants to consider a new project – e.g. a new PV installation – that involves capital costs. The proposal should also include details on how potential investors can be involved in the project in the short term and over the long term. In the case of consideringa surcharge for businesses or a sub-segment of consumers, ECs should test the idea with representatives of groups that would be affected as part of market research.
Click through to learn more about ‘financing’: