Is there a future for community energy in Australia?

The recent collapse of Byron Bay retailer Enova has put community energy projects in the spotlight.

There are currently more than 130 community energy projects happening around Australia – either under construction or at completion. From community solar gardens to small hydro, members of these projects stand to benefit through greater access to renewable energy, cheaper prices, energy security and potential return on investment.

While the gains can be substantial if projects are successful, what happened to Enova Community Energy highlights that there are barriers to overcome. So what is required if community energy is to become a stable part of the energy retailing sector, offering a viable long-term alternative to for-profit competitors?

The challenges community energy projects face

Regulatory and systemic barriers can make it challenging to build viable community energy projects. For example, renewable energy policy certainty and regulatory structures for microgrids have been inadequate (The AEMC’s February rule update only applies to distributor-led SAPS). Government support for renewable energy has mainly been extended to individual households and commercial projects, rather than communally-owned schemes.

Community energy projects can struggle for financial viability, due to a lack of upfront capital, the cost of compliance and grid connection, and difficulties securing a fair price for energy generation.

Factors that have more recently come into play are the soaring cost of wholesale energy, and the effect of regulatory changes. Enova went into voluntary administration after six years in operation due to these pressures, before being thrown a lifeline from renewables-based retailer Energy Locals.

The massive hikes in wholesale energy costs, and the cap on retail prices through the federal government’s Default Market Offer (DMO) scheme made Enova's continuing operations unviable. Enova's agreement with Diamond Energy (from whom it bought about half its supply) also came to an end, exposing the company to variable spot prices, meaning it was unable to secure new fixed pricing for customers.

And of course, these regulatory and financial pressures have not only affected Enova, but other smaller retailers as well.

What is needed for these projects to succeed?

Regulation reform specifically for community energy is needed ifprojects are to thrive. This may require examining the approaches of countries that are leaders in community energy. Examples include Germany and Denmark – where the institutional support for community energy projects is considerably more stable than in Australia.

Felicity Stening, Managing Director of Enova, describes community-owned energy projects as having “a lot of moving parts”.

She believes a key to overcoming the financial and regulatory challenges lies in more support for smaller retailers and greater communication between community groups and government.

"More dialogue with government is crucial for understanding the challenges and influencing change," she says. Stening also cited knowledge-sharing between community organisations as an important factor for assisting groups to start up and get projects off the ground.

Smaller energy retailers losing out

David Prins, Director of energy consultancy Etrog Consulting, says Enova did not fail because it was a community energy company, but because it was a small energy retailer in a market geared towards larger gentailers.

“Other small retailers have also not been able to continue in the current market conditions,” he points out.

Prins also says that while the regulations are complex and often fall behind market realities, this happens with other industries as well – not only the energy sector.

He is concerned that changing the regulations tends to make the rules more complex. Highly technical frameworks favour larger experienced practitioners over small start-ups, which makes things difficult for new players in general, not just community energy.

“While it’s true that a community organisation may have difficulty getting funding, other non-community organisations could also have the same trouble.”

Different models to be explored

Different models may also have a place in the energy mix. Another player in the community energy sphere is Local Volts, a private licensed peer-to-peer electricity marketplace that began operating in March 2022. Local Volts enables domestic electricity generators to sell electricity directly to consumers – whether that’s neighbours, family members, organisations or individuals.

The company aims to simplify the process for participants by taking care of the legalities and complexities and offering retail and trading services.

Founder and manager Jitendra Tomar says through the Local Volts platform "you get to decide what you want to do – like who you want to buy electricity from or sell it to and for how much. Meanwhile, as a retail licensed company, we take care of all the legal matters."

So is there a future for community energy?

Gavin Dufty, Policy and Research Manager at St Vincent De Paul in Victoria, believes community energy has a very strong future in Australia.

“There are lots of opportunities for community-based models to support local energy needs,” he says.

Dufty says there is no reason microgrids cannot be picked up or developed by third-parties – such as NGOs, not-for-profits, or even unions. And these set-ups will differ from Enova in that they are not solely reliant on the wholesale market – and so will not be facing the same issues.

While regulatory frameworks might create barriers, Dufty does not think this is unsurmountable.

“It’s true the markets are growing quicker than the regulations. But that doesn’t mean that groups could not get exemptions if they need them."

There is certainly no lack of organisations determined to make community energy work! However, to avoid another Enova, what is required is greater support for start-ups, policy certainty from government, exploration of different kinds of models and regulatory changes.