The Energy Community Dilemma: Navigating Purpose, Profit, and People in the Green Transition

The Competitive Reality

Renewable energy communities must operate within highly competitive and liberalized markets, where offering genuine value for money is paramount. Research we conducted at Orklys found that while citizens overwhelmingly support the green transition, few are willing to pay a premium for clean energy. All else being equal, people will certainly opt for green energy over fossil fuels, demonstrating a desire for positive environmental impact. However, this preference rarely extends to paying more. For the majority, especially those in the lower income quintiles, every euro or dollar saved or spent directly impacts essential needs like food or clothing, these are tough choices. This reality dictates that energy communities must be able to compete on price. Therefore, for energy communities to achieve meaningful scale and impact, their chosen legal and financial structure must enable fierce competition. This foundational decision influences everything from governance to long-term financial viability.

The Cooperative Model

A common choice is the cooperative route, while often associated with socialist ideologies, it's crucial to recall its pragmatic origins. Early farming cooperatives in the UK, and notably dairy cooperatives in Denmark, were formed not as much for fair treatment or improved working conditions, but as powerful competitive forces. Smallholders, tired of being exploited by monopolistic or colluding traders, processors, and wholesalers, banded together to bargain for better prices. This was so effective that Danish dairy cooperatives eventually became global competitors. This historical parallel resonates strongly today: the challenges faced by 19th-century smallholders against monopolies echo the contemporary sentiment towards entrenched electricity grid operators and dominant utility companies across the EU and UK. Unfortunately, registering simply as a cooperative doesn't solve all your problems, and in some countries it can create more – like strict (and low) profit caps. But there are many ways to address these dilemmas legally and financially, but first you have to be clear on what it is you want to achieve, and what you stand for.

Setting Goals

Before any legal form is chosen, communities must define their ambition. I've spoken with energy communities that just wanted to do something good with a few neighbours, that grew to 100 by word of mouth, almost by accident, and others that have set out with a goal of powering tens of thousands of homes. I've come across a number of different models: from those that act as electricity companies selling energy to members, to others where members are capital providers for investment into large energy assets (solar parks or wind farms) but are not the end users of the energy. Some groups have simply come together to secure better deals on rooftop solar through economies of scale in procurement. Others have taken the opportunity of turning their housing association into an energy community for their building alone, but not limited themselves to energy production but also tackled building insulation.

The goal you set and the size of your community is important in terms of shaping your legal structure, attracting the right kind of funding, and ensuring long-term engagement. Are you creating a small, self-sufficient local group, or do you envision scaling across the region or even across countries? Are you seeking to maximise member benefit through lower energy bills, or are you enabling broader impact through collective ownership and reinvestment? Setting clear and intentional goals from the outset helps determine what kind of organisation you need to become, what financial model you will need to adopt, what type of governance is required, and what kind of people (and partners) you'll need to bring along for the journey.

People vs. Profit

For emerging energy communities, the journey begins with a fundamental question: is the primary driver community purpose, or financial returns? True, scalable success likely demands both. An over-reliance on one while neglecting the other can lead to failure for an energy community. Community purpose offers a unique edge and huge motivator versus your average energy company – a genuine commitment to local well-being that most commercial entities, despite their advertising, cannot replicate. This authentic care fosters trust and engagement. However, neglecting financial returns in favor of ideals alone is a precarious path; such communities risk becoming financially unsustainable. Robust financial returns not only incentivize participation from prospective members but are essential for expanding membership, broadening impact, and building the capital reserves necessary to withstand future economic shocks. Relying solely on grant funding is equally unsustainable; as policy winds shift (a phenomenon seen in various regions, including the US), the business model must be robust enough to stand on its own economic feet. Fortunately, based on pure economics renewables can win. But this doesn't mean an energy community will win if they set up incorrectly.

Capital vs. Control Conundrum

Securing the significant investment required for ambitious energy projects often steers communities towards traditional corporate structures. A Public Limited Company, for instance, is designed to raise substantial capital from public markets but entails high administrative costs and complex governance. A Private Limited Company offers greater flexibility and lower overheads but might be perceived as less substantial by large institutional investors. Conversely, the cooperative model is frequently the ideological favorite. Its democratic 'one member, one vote' principle perfectly aligns with the community ethos and ensures control remains localized. However, its fundamental non-profit (or rather, 'profit for members, not shareholders') focus can pose challenges in attracting the large-scale external capital often needed for ambitious renewable energy developments, as traditional investors seek pure financial return on risk equity (and to be fair, the risk being taken is not insignificant).

The Critical Question of Liability

Protecting members from undue financial risk is non-negotiable. This immediately renders structures with unlimited personal liability entirely unsuitable for community projects. The gold standard is a limited liability structure, where members are financially responsible only up to the amount of their initial investment. This crucial protection is a core feature of cooperatives and limited companies. Even for partnership models that inherently carry some level of risk, such as a Limited Partnerships, clever structural strategies, like appointing a limited company as the general partner can become essential to shield individual investors from personal financial exposure depending on your jurisdiction.

Tax, Governance, and Future-Proofing

Finally, the long-term tax implications and governance framework are foundational to success and in a low margin model, making mistakes here can end your efforts prematurely. Some legal structures are 'tax-transparent,' meaning profits bypass corporate-level taxation and are passed directly to members to be taxed individually. Others are taxed first at the corporate level, and then again when distributed to shareholders (effectively double taxation). Critically, cooperatives often enjoy favorable tax treatment on transactions and distributions involving their members, avoiding this double taxation on member-related profits. Ultimately, there is no single 'best' choice for every energy community. The optimal structure is highly dependent on the community's unique goals, local context, and risk appetite. By meticulously weighing the trade-offs between democratic control, the scale of investment needed, and inherent financial risks from the outset, an energy community can establish a resilient and future-proof foundation for its long-term success in the green transition.

In summary, to thrive in the green transition as they should, energy communities must be built with the same care, strategy, and ambition as any energy company. The good news is that the legal frameworks, financial models, and historical precedents already exist. And you don't have to choose between purpose, profit, and people - you can design for all three. The question is whether energy communities can use these tools wisely and early enough to really fulfill their massive potential at the very heart of the green transition.

Feel free to reach out to us at james@orklys.com if you'd like to pilot our decision-assist tools that can help you solve such dilemmas.