Tim Braunholtz-Speight, Maria Sharmina and Jeff Hardy
23rd June 2023
Smart local energy systems (SLES) and citizen finance – e.g. crowdfunding or community shares – share an emphasis on decentralisation and public participation. Could they be used together? We interviewed energy finance professionals, and analysed a Coops UK survey of community shareholders, to better understand what part, if any, citizen finance could play in funding SLES; and what impact it might have on the distribution of financial benefits from the energy transition.
We found that citizen finance is well suited to funding less risky elements of SLES, typically renewable electricity generation projects costing less than £5m. Citizen investors may tolerate slower returns than commercial finance, enabling more projects to go ahead. However, more novel and complex projects are less suitable for citizen investors: yet as the financial profiles of SLES projects become better understood, the scope for citizen finance may grow. Notably, one citizen-funded 20MW battery project is already in development.
Citizen finance can engage local investors, but is likely to also rely on investors from further afield. People on low incomes have bought community energy shares, but most investment is from those in the middle to upper income bands. Therefore, we suggest that citizen finance has the potential to spread the financial benefits of SLES more widely than commercial finance, but it is not a panacea.