Community-led Heating and Cooling (CH&C)

Access to capital throughout your project:

One thing remains a universal truth: financial capital is needed for every CH&C project, and this does not only refer to bank loans. There needs to be a national and regional financial framework that creates access to capital for every step of the project. This is not a “plus”, but an EU legal obligation, as every Member State should take into account the specificities of energy communities when designing financial schemes for renewable installations.

To move beyond this barrier, energy communities, governments, and financial institutions will need to work together. For example in the Netherlands these organisations created the “Coalition for Cooperative Heat”, where a federation of sustainable municipalities, the cooperative Rabobank, and the regional DSO Alliander worked together to make a plan to build up the country’s cooperative capacity. This coalition specifically focused on creating new financing options. Don’t hesitate to look for allies to develop financing plans fit for energy communities.

Make sure to actively involve your fellow citizens every step of the way: A poorly done community-building could have the opposite effect and push citizens against renewables. Do not make citizen participation a box-ticking exercise, instead put resources and effort into citizen ownership, as it will pay off in the medium to long-term.

Initiation and Development phases:

The first two phases carry the biggest risk. In these stages you will need to develop the business and technical plans (including information on cost and technical feasibility of the H&C infrastructure).

In the development phase, where the costs go up, there are often no structural financial support frameworks. This means that energy communities must invest considerable time and energy to solve this barrier, slowing down the process of their development. Do not be discouraged, this is not unusual. To overcome this, energy communities need to work together to create access to capital for energy communities on a national level and with European support. There needs to be a financial framework that: (1) Supports through subsidies the development of capacity building and early stage plans, (2) offers development capital either through guaranteed loans, or revolving funds, and (3) facilitates easier access to bank capital through standardisation and government guarantees. Going to cooperative banks, or doing cooperative crowd-funding campaigns can also become very successful options, but keep in mind that this cannot be done on a constant basis, and you will need to find a stable source of funding (e.g. energy bills).

Construction phase:

Once an energy community has gone through the most risk-intensive stages of the H&C project, they reach financial close. This is the moment when banks believe the project is developed enough that the risks are acceptable for them.

In countries like Italy and Denmark there is a longstanding relationship between energy communities and the regional cooperative bank.

Operation phase:

If the financial institutions cannot definitively determine the risk, they will require guarantees or insurances. In some cases, municipalities provide the guarantee for the loans. In other cases, parts of the installations are insured by a service contract provided by the supplier or a general insurance. In addition to this, the cash flow of a Community-led Heating and Cooling (CH&C) project is very stable. Once your cost is clear, you recalculate this in the tariffs. Therefore, there is a very low risk of bankruptcy.[1]

[1] During our research, REScoop.eu did not find any cases of bankruptcy among CH&C projects.

Municipal capacity:

The success of Community-led Heating and Cooling (CH&C) is dependent on the capacity of your local municipality. In other words, there need to be enough civil servants with the knowledge and expertise to support their citizens in the development of a Community Heating and Cooling project. Thus, forming a partnership with your municipality is of paramount importance in project development. This is however not an obligation, and some CH&C by energy communities do not have the municipality as a member.

It’s wise to invest time initially in arranging agreements with the municipality, defining shared project objectives, their roles, and the required capabilities from both sides (citizens and municipality). Some cooperatives address this by initiating a Memorandum of Understanding with the municipality. Others, like the cooperative in Monastier-sur-Gazeille (France), included the municipality as a member.