Unlocking community energy in Australia

Australia's energy system is undergoing a significant shift. In the aftermath of World War II, Australia built a network of massive coal-fired power stations to fuel our booming economy. This supply of bountiful and cheap energy underpinned a period of huge prosperity. But this network is reaching the end of its natural life as those coal stations break down and retire. Over the coming years, they will need to be replaced. As Matthew Warren wrote in his book  Blackout , Australia is "gradually running out of electricity".

At the same time, we know that we need to reduce greenhouse gas emissions to keep our climate in a safe zone. The science tells us that if we are to hold global warming to less than 2 degrees - which is critical for the future of our agriculture, our health, and our economy - the world needs to significantly reduce greenhouse gas emissions. Yet  Australia's emissions  have declined just 1% since 2000 and are now plateauing at a stubbornly high level.

We are shifting inexorably towards a new, clean energy system. Where the 20th century electricity system was built around large, centralised power stations in fossil-fuel rich locations, the electricity system of the 21st century will be decentralised, with thousands of small- and medium-scale power stations dotted across our sun-drenched regions.

In the 19th century, it was regional Australia that led the transition from gas to electric street lighting. Towns like Tamworth (1888), Penrith (1890) and Broken Hill (1891) transitioned to electricity well before Sydney (1904). In the 21st century, regional Australia will again lead the nation in our transition from the old energy world to the new one.

If we get this right, it has the potential to revitalise regional Australia, by bringing new jobs, new sources of income, cheaper electricity and greater energy security, especially in times of natural disaster. As John Howard  said  in 2006, and Ross Garnaut  wrote  in 2019, Australia has the potential to become an "energy superpower".

Community energy offers a model for how this might be done. Community energy is where a community develops, delivers and benefits from an energy project such as a solar installation or wind farm, a battery or an energy efficiency upgrade. Already there are around 101 community energy projects across the country, where everyday Australians are coming together to take control of their own energy future.

We have ten community energy groups in our electorate alone, one in every major town. Groups like  Totally Renewable Yackandandah  have pioneered community energy models, Euroa is developing its own  micro-grid , and a local start-up -  Indigo Power  - is one of Australia’s first community-owned electricity retailers. 

But this industry has the potential to achieve so much more. I want Indi’s community energy groups to be empowered to reach their potential and I want every electorate in the country to be given the same opportunity for local innovation to build new industries in the regions.

Australia could have 10,000 locally-owned renewable power stations across this sunlit country. We could be generating electricity in the best locations in the grid, bringing income to those towns, jobs to those people. We could have hundreds of pumped hydro plants, thousands of community-owned batteries, and millions of people benefitting from new income streams and jobs.

• Section 1 outlines the potential of community energy in Australia. It assesses projections for deployment of renewables and grid infrastructure upgrades, and analyses what that investment could mean for regional communities.

• Section 2 details the benefits of community energy. It looks at the economic benefits in terms of income, jobs, skills and training and funding community projects and local councils, and it looks at the social benefits to communities and the technical benefits to the grid of community-owned renewables.

• Section 3 identifies the barriers to community energy. Greater deployment is being held back by financial, technical and regulatory challenges that are preventing communities from accessing the benefits of community energy.

• Section 4 outlines options to address those barriers. It considers policy measures put forward by community energy groups in Australia, as well as examining models overseas to identify policy options the Commonwealth Government could implement.

This discussion paper is designed to facilitate a community co-design process, soliciting community and expert input on where next for this sector that holds so much promise for regional Australia. My aim is to work hand in glove with communities both in Indi and around Australia to identify the policies we need to forge ahead in seizing this opportunity.

Australia’s  National Electricity Market  (NEM) is the world’s largest machine. Its 40,000 km of wires stretch across the Eastern half of the country, connecting 9 million customers, trading $16.6 billion of electricity every year from 54 GW worth of power station capacity.

This massive system is at the beginning of a significant shift. Whilst currently, almost three quarters of electricity in the NEM is generated from burning coal, over the next 20 years, Australia’s coal fleet is largely  set to retire , with many already past their scheduled retirement dates.

Already, since 2016, 2.8 GW of coal capacity has retired and  another 15 GW  of coal power (63% of Australia’s coal fleet) will reach end-of-life by over the next 20 years. The plants scheduled for retirement, currently generate around a third of the total electricity in the NEM, and are dotted up the East coast from Yallourn in Victoria to Liddell in NSW and Gladstone in Queensland.

The scheduled exit of coal generation will occur in conjunction with an unprecedented renewables build. In 2019 alone, 6.3 GW of renewables were installed in Australia and  2020 is expected  to deliver a similar result. That transformation will continue.

The Australian Energy Market Operator  projects  that solar rooftop, even in a middle scenario, will triple from around 13 Terawatt-hours of generation in 2020 to 47 Terawatt-hours in 2050. If we are serious about it though, it could quintuple to 67 Terawatt-Hours. That would equate to around a quarter of Australia's  current electricity generation , from rooftop solar alone.

The massive deployment of new infrastructure means a multi-billion dollar investment boom; a boom that will be concentrated in regions with good renewable resources and strong grid infrastructure.

The energy market operator has mapped out 33 such regions across the NEM, designating these  Renewable Energy Zones  (REZ) as places where future renewables development should be clustered.

Due to our existing strong transmission infrastructure and abundant renewable resource, the  Ovens-Murray  region, covering most of Indi, is one of these designated REZs.

This period of unprecedented energy infrastructure development will see hundreds of billions of dollars invested in Australia’s electricity system. That much is clear. What is less clear is whether and how this infrastructure transformation will benefit the communities in which it is built.

The Energy Market Commission, the rule-maker of our energy system, argues that if all customers are to benefit from renewables, we need the  right regulation :

Distributed energy resources (DER) will be a key part of the future Australian electricity system – it needs to be integrated efficiently for the benefit for all electricity customers, regardless of whether they have access to DER or not. The potential benefits of efficient integration of DER for all customers are substantial and the timely development of a supportive regulatory framework is essential.

The CSIRO, in its  roadmap  for transformation of the electricity grid, puts a figure on it, saying there is a $1 trillion opportunity here that will only be captured with the right planning:

Almost $1,000 billion could be spent by all parties in Australia’s electricity system by 2050, however, the benefits achieved will depend greatly on decisions made early in our energy transition. Without a well-planned approach to navigate this transformation, Australia’s energy system will be unable to efficiently and securely integrate the diverse technologies, large scale variable renewable energy sources and customer owned distributed energy resources.

Finally, the  Finkel Review  into the future security of the grid argued that unlocking the benefits of a zero-carbon transition requires immediate action:

We are at a critical turning point. Managed well, Australia will benefit from a secure and reliable energy future. Managed poorly, our energy future will be less secure, more unreliable and potentially very costly. Governments have made commitments to a lower emissions future but the pathway is blocked by uncertainty about how to get there. If we don’t take immediate action, or even if we continue as we have been, Australia risks being left behind.

In sum, Australia’s transition to renewable energy could either deliver immense economic value to people and communities, or end up as yet another missed opportunity. The difference between these two pathways is whether local communities are supported to drive the change themselves, and to convert an investment boom into a jobs boom, a skills boom, and an income stream for decades to come.

Community energy is where a community develops, delivers and benefits from an energy project such as a solar installation or wind farm, a battery or an energy efficiency upgrade. It can be contrasted with purely commercial energy projects whereby a private operator initiates, develops and operates a project by itself with minimal input from community and minimal benefits flowing back to communities.

Australia has never had a comprehensive policy to support community energy. Various states have at times offered specific policies aimed at supporting community energy groups, but these have never formed a cohesive approach, and at the Commonwealth level, community renewables have no specific support or funding mechanism.

Despite the lack of sustained support from Government, there are currently around  101 community energy groups in Australia . The majority are in states where State-based policy support has driven uptake, notably in Victoria. There are also examples of community-ownership in renewable energy projects in  Indigenous communities .

While there is no universal definition of community energy, we define a community energy project as having at least two of the following three elements:

1. Owned by local people
2. Developed by local people
3. Benefits local people

In essence, community energy is about building renewables, and making sure everyday people benefit, either through part ownership, or enjoying the benefits of cheap, green electricity.

Community groups around Australia have developed a huge range of projects that fit into this definition. These many existing models can serve as templates for other groups to develop their own projects.

In a useful guidebook on the topic, the Victorian Government has outlined a set of  six key structures  that community groups have employed for energy projects.

Let's take a quick tour:

Community energy has the potential to leverage the organisational resources – time, money, land, expertise, support, rooftops – of thousands of people to accelerate the deployment of renewable energy across the grid, to increase reliability and lower prices.

The income from community energy projects benefits the local community because money is retained within a community rather than being directed to energy wholesalers, distributors and retailers. By securing ownership of an energy asset, a community derives an income stream from the sale of electricity either within the region or back to the grid.

The  Bendigo Sustainability Group  notes that:

Currently $80M to $100M leaves the Bendigo region annually in payment of electricity bills to retailers and energy companies located outside of our region, many with overseas head offices. A principal role of having community ownership of local energy systems is to retain revenue within the local area. The flow on effects will potentially lead to revenue redistribution 7 or 8 times locally before leaving the region as opposed to 1 or 2 times for electricity bills paid directly to a distant retailer.

All regions experience a similar net outflow of money. It is  estimated  that for every 1000 households, a community will spend $2 million on electricity per year. In a traditional, centralised electricity grid, the bulk of that flows to commercial energy operators. In a decentralised grid, where communities own their own generation assets, that money stays in community.

Beyond selling electricity itself, community-owned assets have the potential to sell energy balancing services to grid, like frequency and voltage control, and system inertia. The Hornsdale Power Reserve (HPR) in South Australia, for instance,  saved consumers $116 million in 2019  and earned $50 million within two years for its owners. The HPR is owned by Neoen Australia, but community-based models of battery ownership could deliver a slice of those benefits direct to communities.

With deployment of community-owned batteries, as well as smart grid technology, community-owned energy projects could sell network services to the grid, which the  CSIRO estimates  could generate $2.5 billion in annual income by 2050. The business models for community-owned renewables have now been widely demonstrated.

Many solar PV installations in Australia have a payback period of 3-4 years, and a lifespan of up to 30 years, and many community renewables projects net returns of between 5-8%, making them attractive investment opportunities. Recent  figures  indicate that payback periods for 5kW solar PV installations are around 3 years or less in Melbourne, Sydney, Adelaide, Brisbane and Perth.

Community energy projects generate employment directly through construction, administration and maintenance and indirectly through jobs along the supply chain.

The 6 GW of wind farm capacity already built in Australia has generated  $5.1 billion for regional communities  and wind farms currently under development will contribute a further $4.8 billion in the construction phase alone. Across their lifetime, this figure could reach  $18 billion injected into regional Australia .

This investment translates into job opportunities. Wind farms currently under construction have created an estimated  5,700 direct local jobs  and a further 13,000 indirect jobs in local businesses that supply the projects and will create 1200 ongoing jobs. A  literature review  of community wind projects found that employment in community-owned projects is 1.5-3.4 times higher than for absentee-owned projects.

Community renewables projects inject money into local economies by sourcing components and services. A collective  impact assessment report  found that community renewables projects source 12% of components and 92% of services locally.

By generating electricity themselves, communities can not only access low-cost electricity, but reduce the quantity of electricity purchased through the grid, thereby driving down their electricity costs.  One study  found that 82% of local governments were motivated to engage in renewable energy developments to reduce their energy costs.

The benefits of higher renewables penetration could also reduce network costs for everybody. The  CSIRO estimates  that by 2050, proper integration of distributed renewables could reduce network charges for all customers by 30% from 2016 levels, meaning a $414 annual saving compared to a business as usual scenario. By intelligently planning the integration of renewables, Australia could avoid unnecessary expenditure on the network by a cumulative $101 billion by 2050.

Community renewables present a huge income diversification opportunity for landowners. The Clean Energy Council  argues  that:

Generally the landholders, who are private landholders, site bits of renewable energy project infrastructure, whether that be a substation, a transmission line or the actual solar panels or wind turbines. They are paid. When they are paid they can reinvest into their land, they can hire more people to work the farm, they can do whatever they want—it is their money.

In the wind industry alone, currently operating wind farms will pay an estimated  $27 million  to several hundred host landowners each year across Australia through lease payments, and with wind farms currently under construction, that figure could rise to  $56 million  each year.

Community energy provides opportunities for technicians to upskill, providing practical training for a wide variety of trades and professional personnel. The  CSIRO indicates  that with sufficient support from Government to adapt the education and training sector, the energy system of the future could create significant opportunities for skilled employment:

There are a number of training packages (VET) and university courses which are focused on core skill areas that will need to be adjusted to enable the delivery of the Roadmap. These are electrical, engineering, and ICT skills. The VET system will need to be responsive and flexible enough to keep up with emergent technology. The university sector will also need to adapt, working with industry experts to redesign curriculum to address future skills needs. For example, there is no specific ICT degree that specialises in energy. The power systems engineer of the future will also require new skill sets not currently being widely taught in Australia. 

Community energy projects create new income streams for local councils. Since 2000, Victoria has required all electricity generators to pay an annual payment to the relevant council. The Payment-in-Lieu-of-Rate (PiLoR) scheme sets a flag-fall of $40,000 and an additional $900 per megawatt of capacity adjusted for inflation.

Community-owned energy projects are offered discounted rates through the PiLoR scheme, incentivising commercial developers to achieve minimum level of community ownership and attracting new renewable projects to regional areas. This translates into an increased rate base for regional councils.

Right now, around  16 Victorian rural council s receive these payments from wind farms. These include Ararat Rural City Council, which receives an estimated $375,000 annually from hosting three wind farms, and Golden Plains Shire will receive around $800,000 annually from the Golden Plains Wind Farm.

Many community energy projects allocate a portion of revenues to a community development fund (sometimes called community enhancement fund) to finance local projects like facility upgrades and events. There are  51 such funds  in the wind industry alone across Australia, which have delivered $9.1 million into communities. Those numbers are growing fast, and by 2021, $5 million will flow into community funds each year from wind farms alone.

One of the earliest funds of this type was the  Hepburn Wind Community Fund , which has contributed over $90,000 to 43 local community projects and delivered an electric vehicle charging station in the main street of Daylesford. The new Neoen  solar farm in Goorambat  has signed an agreement with Benalla Council to provide $75,000 each year into local projects.

A key attraction of community energy is the ability for a community to make decisions about their own development, give people control over their own energy use and costs, and to build social cohesion around shared goals. The  Goulburn Broken Greenhouse Alliance  has stated that:

Additional to direct renewable energy benefits, establishing and governing community renewable energy projects supports stronger communities, through relationship building, communication and cooperation. Ultimately these skills are transferable across a range of community activities and pursuits and contribute to increased community resilience. 

Community engagement is critical for any energy development, whether community- or commercially-driven. Community energy is therefore a model that can work in partnership with commercial developers, ensuring communities retain autonomy over their own direction, and ensuring commercial investments are aligned with community interests.

Locating energy generation and storage infrastructure close to or within communities improves the security of local energy supply by reducing the risk of disaster-related blackouts. In the Black Summer fires of 2019-20, towns such as Corryong, Cudgewa and Mallacoota were isolated from the grid for several days after fires burned through the transmission lines connecting them to the grid. As a result, some of these communities are now actively exploring local power generation and mini-grid technology as a plank of their future disaster resilience strategy.

In addition, islandable mini-grids can act to reduce the risk of bushfires by enabling the system operator to isolate edge-of-grid or mini-grid enabled communities on days with high bushfire risk. This isolation means transmission lines are not running live electricity, significantly reducing the risk of transmission lines themselves sparking a bushfire.

 Social licence  is where a project has ongoing approval and broad acceptance within the local community and other stakeholders. Securing the social licence of a community in which an energy project is being developed is critical to reducing costs and maximising benefits to all parties, and streamlining the development process.

Involving the community in the development and design of energy projects is crucial to securing this social licence. And so supporting community-based renewables can help accelerate renewables deployment to meet the technical needs of the grid and maximise returns for regional communities.

A  2012 study  of Australian wind farm developments found that local opposition to wind energy stymied the development of the Australian wind industry. The researchers found that energy projects were unlikely to proceed unless they won local trust, paid attention to distribution of benefits, had clear processes around approvals, and recognised people’s attachment to place. They found that:

Without addressing these factors through integration into policy development and engagement approaches, wind energy is unlikely to provide the early and majority of new renewable energy.

 Indigo Shire Council  has reported that compared to purely commercial projects, community energy projects tend to experience more support and less opposition from local community and planning authorities, both of which can streamline the development process for commercial partners.

Developing new points of community-owned, low-cost electricity generation can increase access to electricity for low-income households who would otherwise struggle to ensure electricity supply.  Deakin University  researchers have found that:

[Renewable energy] will be an important strategy for maintaining sufficient supply to cater for the growing energy demands associated with the significant population growth occurring and predicted for Victoria.

Community renewables, by lowering the cost of electricity and enabling low-income households to invest in cheap, clean power, can help reduce disconnection rates. Electricity disconnections occur when a household has been unable to afford to pay their electricity retail bills and a retailer intentionally cuts off supply.

A major  2019 study  of 395,000 electricity disconnections for non-payment across the NEM found that this problem disproportionately affects rural areas, people experiencing social disadvantage and areas with communities with large elderly populations. In Victoria, the most heavily affected regional communities included Mildura, Wodonga, Shepparton, Traralgon and Geelong. That same study recommended targeting these areas when rolling out distributed energy resources.

Increasing deployment of variable renewable energy (VRE) into the grid presents technical challenges to ensuring reliability of supply within the voltage, frequency and capacity requirements of the grid. The  Finkel Review  notes that:

Increased penetration of VRE [variable renewable energy] generators requires new means to be introduced to address the reduced availability of essential security services that historically have been provided by fossil fuel and other synchronous generators.

Electricity system security – in terms of inertia, frequency and voltage control – must be delivered differently in a  high renewable grid  than in a grid powered by large synchronous generators:

Because these services were historically plentiful, as essentially a by-product of power supply from synchronous generators, they were not explicitly valued in the NEM. With their growing scarcity, the hidden value of these services has emerged. New mechanisms will be needed to source these services, or appropriate alternatives, from synchronous machines and a range of other technologies.

However the Finkel Review goes on to note that even with existing, commercially demonstrated technology, there are  no technical barriers  to extremely high renewables penetration:

International experience suggests that delivering a secure power system with a high VRE penetration is technically and economically feasible, while a number of studies have found that there are no technical barriers to a high VRE penetration in the Australian context.

Similarly, the  Australian Energy Market Operator  points out that  distributed energy  itself can support higher integration of renewables with proper coordination:

Distributed energy resources [DER] can support both the development of a renewable energy powered electricity network by lowering network building costs and reducing the net present value of wholesale renewable energy resource costs by $4 billion. AEMO clearly states that the full benefit of DER, for consumers and the power system, will only be realised when it is properly coordinated.

A  major 2017 study  of 100% renewable electricity scenario for Australia notes that a fully renewable grid based on highly distributed and interconnected generators is more reliable than a grid based on large, aged synchronous generators:

Hundreds of wind and PV farms are statistically more reliable than several large fossil fuel power stations because breakdowns of individual generators have only a small effect on overall output. Wide distribution of wind, PV and PHES means that collapse of major transmission lines need not bring down local supply.

Similar research conducted on the South-West Interconnected System in Western Australia came to a similar conclusion that the proper development of already commercial renewable technologies could achieve 90-100% penetration of renewables without compromising system security.

Real-life experience backs this up. The Hornsdale Power Reserve in South Australia, the world’s largest lithium battery, has demonstrated a  successful business model  based on providing frequency control and ancillary services (FCAS) to the NEM. The HPR captured around 15% of the FCAS market across the NEM in 2019, particularly supporting South Australia’s grid to remain within safe limits when the Heywood interconnector to Victoria unexpectedly failed on 16 November 2019.

There are many barriers to further deployment of community renewables. These barriers sit right along the project development process, from initiation of a project through the operation. This project development process involves  7 key steps :

1. Initiation: a community energy group forms, undertakes research to understand their context and options, creates a vision, defines motivations and objectives;
2. Social feasibility: group gauges community support, performs pre-feasibility studies to scope what is feasible, viable ad desirable; defines project technology, scale and site; develops initial business case; creates engagement strategy and tools; build support; scope sites;
3. Technical feasibility: Negotiate with host site, undertake full technical studies to design project, establish organisational structure, investigate required approvals, initiate conversations with local distribution network and power purchasers, refine business case;
4. Planning: Check planning zone conditions, find project development funding, hire project officer, secure planning approval, negotiate grid connection and power purchase agreement;
5. Capital raising: Raise sufficient capital to proceed with construction phase, if appropriate, sign a connection agreement and power purchase agreement;
6. Construction: Order equipment; contract works; undertake civil works; install equipment and connect the project to electricity grid;
7. Operation: Generate and sell electricity; undertake technical monitoring, maintenance and financial administration; decommission, refurbish or recycle technology at end of life.

The specific barriers that projects face will depend significantly on the size, type, location and context of the project. A large, grid-connected wind farm in a region with low renewable penetration, strong grid infrastructure and low community engagement, will face very different barriers to a small, behind-the-meter solar installation in a region with high renewable penetration and weak grid infrastructure. Further, energy generation projects differ systematically from battery and storage, and energy efficiency projects.

Moreover, many groups are able to overcome these barriers, either by sharing best-practice or through outsourcing. For instance, if a community raises funds to co-invest in a commercial solar farm, many of the barriers around grid connection, technical expertise and capital raising fall onto the commercial partner, not the community.

In this final section, we outline possible measures that would address the barriers to community renewables and drive their uptake in Australia. Given this discussion paper is aimed at the Commonwealth Government we discuss only measures able to be driven by the Commonwealth.

Direct Grants

Direct grants to community energy groups would provide non-repayable, conditional funding to support project development. One proposal from the  Coalition for Community Energy  called on the Victorian Government to provide $13m over 4 years to finance two types of direct grants:

• $30k start-up grants for small-scale and replicable projects
• $150k for mid-scale community renewables for development phase projects

Grants can be administratively simple to manage and can reduce the compliance burden on recipients compared to more complex support schemes. However, various community energy groups  have argued  that the sector should not be completely reliant on grants, but rather targeted support should encourage financial viability.

Moreover, competitive grant schemes tend to favour larger and more established community groups and energy companies, at the expense of grassroots communities and younger groups. Finally, many grant schemes and Government programs require community groups to change their plans to fit with program guidelines, rather than pursuing projects which make the most sense for their communities.

The  Community Power Agency  has argued that grant programs must be tailored to different circumstances and models. While funding for feasibility studies is needed by all groups, innovative technology or business models may require capital grants as well. The design of grant schemes is also critical, with milestone-based funding, paired with other forms of technical support, likely to be the most effective.

The scale of project is also critical in determining the size of grants. The size of a solar installation, for instance, directly determines its regulatory requirements and technical complexity. Small-scale projects of around 5MW have significantly different requirements than mid-scale projects of between 10-25 MW.

Forgivable loans

Forgivable loans are loans made to groups which are only repayable if a group successfully develops an energy project that generates profit. In that sense, a forgivable loan operates similarly to a direct grant up until a project is developed. If a project does not successfully generate a profit, the loan is forgiven. An analogous policy is the HECS system which functions type of forgivable loan for university fees, whereby an individual only begins to repay the loan once they earn income above a set threshold.

Two key advantages of forgivable loans are that they reduce expenditure on behalf of the loan fund, and they encourage self-sufficiency on the part of community groups. The key drawbacks are that they reduce net inflow of income to community groups from their energy projects, and are administratively more complex to manage than direct grants.

The Victorian 2017 inquiry into community energy  recommended  that compared to grants, “a loan fund model can be a more prudent financial support mechanism for community energy”.

Scotland’s policy framework to support community energy group is based around a system of forgivable loans.  Local Energy Scotland , a consortium of community energy enterprises, administers the Scottish Government’s  Community and Renewables Energy Scheme (CARES)  which provides planning and development loans of up to £150,000, which are written off if projects fail to proceed. Around 40% of loans are written off.

Revolving Loan Fund

An RLF is a system loans whereby repayments are directed back to the original fund in order to be loaned out again to finance further projects. The key advantage of an RLF is that it maximises the number of groups able to access start-up capital, and, compared to a system of direct grants, minimises net expenditure from the fund. The  US Department of Energy  notes that:

Assuming that defaults remain low, RLFs can be "evergreen" sources of capital that are recycled over and over again to fund projects well into the future. State and local governments can establish RLFs to support both their own energy upgrades (i.e., internal), and those in private sector (i.e., external).

However, RLFs have several disadvantages. RLFs tend to revolve quite slowly. A community energy project with a payback period of 4 years, plus 2 years of project development and construction before revenue starts to flow – would take 6 years to repay its loan meaning funds available for other groups are limited for that period. Moreover, ensuring high rates of repayment requires credit risk assessments, meaning RLFs face a trade-off between establishing burdensome credit analysis processes versus accepting a high default rate.

Two local examples of RLFs are Yackandandah's  Perpetual Energy Fund  and the  Citizens Own Renewable Energy Network Australia  (CORENA) Fund in Adelaide. CORENA offers interest-free loans to groups to install solar PV systems, which community groups then repay into the original fund. For instance, in 2017, they installed a 4.2kW rooftop PV installation on a bicycle education centre in Melbourne’s West with a loan of $11,000, to be repaid over 5 year with quarterly instalments of $550.

Internationally, RLFs have been proposed in  Canada , and trialled in the  UK  and the  USA .

Local knowledge hubs

Many community energy groups support the establishment of local hubs that can deliver specialised support to community energy groups in their regions. Sometimes called Community Power Hubs (CPH), many community groups have called for local organisations to be resourced to provide coaching and expertise to support groups to initiate projects, secure funding, develop business cases, connect them to capital and improve energy literacy in the community to generate buy-in.

The Victorian Government piloted a similar approach in their  Community Power Hubs program , funding three hubs in Latrobe Valley, Bendigo and Ballarat for 2 years ending mid-2019. The CPHs were charged with helping communities to access skills and expertise needed to develop and deliver community-based renewables, deliver bankable projects and secure capital.

The three pilot CPHs  successfully delivered  15 local community renewable energy projects, with an installed capacity of 1.35MW, valued $2.2 million and which will deliver annual savings of $364,000 to host organisations. They also developed a pipeline of projects worth 9.7MW of installed capacity that would generate $14.7 million of investment into the host communities. Notably, a  review  found the model provided "excellent leverage" of Government investment and 83% of people in the host communities considered the model a success.

Internationally, Local Energy Scotland employs this approach with a network of  local development officers  throughout the country who provide support to local groups in terms of assessing the viability of projects, identifying and overcoming challenges and connecting groups to specialised services like legal and accounting.

The  Coalition for Community Energy  has called for a network of 50 CPHs to be established across Australia. At the 2019 election, the  Labor Party  committed to establishing 10 CPHs based on this model.

National capacity-building network

In addition to sources of local-knowledge, many groups have called for a national capacity-building network to be established to provide greater specialised support to local groups and regional hubs, and to enable knowledge sharing across groups and regions. For instance, the legal expertise required to develop electricity contracts for community energy groups often has to span cooperative business models, the national electricity law, corporations law and the regulatory frameworks of network companies.

This capacity-building network could also facilitate relationships between community energy groups and distribution network network service providers (DNSPs). Engagement with DNSPs is critical to the success of community energy projects, yet often there is little appetite to engage. Local councils, too, are critical partners in projects, and a national capacity-building network could be a mechanism to facilitate that community-council engagement.

A nationally consistent approach to community energy could also provide direction to community groups about the technical needs of the grid and identified renewable opportunities by region. For instance, the  Hume Renewable Energy Roadmap  has been critical in informing the projects of many community groups around Indi, all around a cohesive strategy. Similar roadmaps across Australia would help groups identify priority projects.

The sector has argued that developing a capacity-building network to provide that specialised expertise to groups across the country is critical additional support to local groups, and critical to enabling the dissemination of community energy to regions where it is not yet well established such as Western Australia, South Australia and Queensland. The  Community Power Agency  has called for $2m funding over 4 years to establish such a network at the Victorian level.

Ensuring a capacity-building body like this is publicly funded has the advantage of ensuring that advice is impartial and objective. A market-based solution would likely involve consultants who may not give the most objective technical, financial, legal and engineering advise.

In Scotland, in addition to regional development officers, Local Energy Scotland plays the role of a  national capacity-building network , offering free specialised legal, technical and financial services. This model could be developed in Australia through a standalone Australian Local Power Agency or delivered through modifications to existing clean energy agencies like the  Clean Energy Regulator ,  ARENA , or the  CEFC .

Ultimately community energy projects will be developed if there is a positive business case, that is, the projected value of electricity sold is greater than the cost to develop the project. However, the price that energy projects can secure for their electricity is highly uncertain, adding risk to projects. There are multiple policy options that would de-risk the financial case for community energy projects.

Community energy feed-in tariff

A feed-in tariff (FiT) is a payment made to an electricity generator for the electricity they produce. FiTs have been widely used around the world to accelerate the deployment of renewable energy. Their key advantage is to de-risk projects by providing a guaranteed rate of return over the lifetime of a project.  Coalition for Community Energy  has argued for a Feed-in-Tariff (FiT) for mid-scale community energy projects of 6-7c premium above wholesale rates for 15 years.

In Australia, state-based FiTs have been largely responsible for our world-leading rate of rooftop solar penetration. However, FiTs have been  criticised  as being regressive, shifting costs from households that installed solar PV to take advantage of generous tariffs (disproportionately higher income households) to households that did not install solar PV (disproportionately lower income households).

Government underwriting

Underwriting an investment involves one party accepting liability for losses, meaning the other party has a guaranteed income. In the context of renewable energy, government underwriting refers to a range of mechanisms through which governments can de-risk new projects by assuming liability for losses and guaranteeing returns to new projects.

In December 2018, the Commonwealth Government announced its  Underwriting New Generation Investments  (UNGI) scheme which would provide support for new energy generation through underwriting. The precise mechanism of underwriting was not announced and still has not been announced, however several options exist:

• A floor price agreement would involve setting a minimum price a generator will receive for its electricity, set at a level sufficient to cover the cost of its debt servicing obligations. Under a floor price, the Government would make payments to a generator when the average price is receives over a period of time falls below the floor price. The floor price is set deliberately low as it is not designed as a return on equity.

• A contract-for-difference (CfD) is slightly different to a floor price. Under a CfD, the Government agrees a strike price with an electricity generator. When the spot price for electricity is below the strike price, the Government pays the difference to the generator. When the spot price exceeds the strike price, the generator pays the Government the difference.

• A collar contract involves both a price floor and a price cap. Similar to a floor price agreement, when the spot price is below the floor price, the Government pays the difference to the generator. However, if the spot price exceeds the cap price, the generator pays the difference between the spot and cap price to the Government. Unlike a CfD, a collar contract involves a range of prices in which no payments are made in either direction

Adapting the UNGI scheme for community energy could involve adding eligibility criteria to subsequent rounds to require that projects receiving underwriting must involve significant community ownership, direction or flow of benefits, and be based on renewable electricity generation.

Commonwealth community energy target

Various groups have argued for policy-based renewable energy targets to be adapted to specifically incentivise community energy. At the Commonwealth level, this would involve adaptations to the renewable energy target (RET) which itself consists of two sister schemes: the  Large-Scale Renewable Energy Target  (L-RET) and  Small-Scale Renewable Energy Scheme  (SRES).

The L-RET was for 33,000GWh of electricity to be generated from large-scale renewable sources by 2020. The L-RET created a financial incentive for the development of renewable energy by awarding certificates to generators who produce electricity and requiring energy retailers to purchase a certain quantity of certificates each year. The sale of the certificates acted as a subsidy to renewable energy projects.

However, the LRET target  was met  in September 2019. Retailers will be required to purchase certificates under the L-RET  until 2030 , but as more renewable electricity is generated in addition to the 33,000 GWh target, the value of certificates will decline, thereby drastically reducing the financial incentive for renewable energy.

Under the SRES electricity retailers are required to buy a certain amount of  certificates  each year based on their total electricity consumption. The target for the SRES is not fixed. Small-scale generators such as small solar, wind and hydro projects are awarded one certificate for every megawatt-hour of electricity they are forecast to produce over the lifetime of the project until 2030. The sale of certificates thereby acts as a subsidy to the project cost. However, as we approach 2030, the number of certificates awarded to projects will naturally decline meaning the size of the incentive will decline.

At the Commonwealth level, both the L-RET and SRES could be used to incentivise community energy projects, depending on the nature and scale of the project (however, the value of certificates, and therefore the financial incentive, under both schemes, is set to decline materially). For instance, under the L-RET, a specific quantity of certificates could be quarantined for renewable energy generated from community-owned projects, creating a new incentive.

In 2011, Scotland  introduced a target  of 500 MW of community and locally-owned renewable energy by 2020, which they have now met, and replaced with a 2GW target by 2030. The  Coalition for Community Energy  has called for a dedicated community energy carve-out of the Victorian RET (VRET).

Reverse auctions

A reverse auction is a common policy mechanism used around the world to incentivise renewable energy deployment. In a reverse auction, the roles of buyer and seller are reversed - there is one buyer (the Government) and many possible sellers (energy developers). The Government issues a tender for a certain amount of renewable energy to be deployed, and different developers bid to be awarded the contract. The Government outlines criteria in terms of size, community involvement and cost, and selects the developer that can best deliver zero-emissions electricity at lowest cost.

The Victorian Government uses a reverse auction mechanism to achieve its own Victorian Renewable Energy Target (VRET). Under the VRET, the Victorian Government has set a target of 50% renewable electricity by 2030. It runs reverse auctions to procure sufficient renewable capacity and then enters into 15-year contracts with those developers.

The VRET's reverse auctions have resulted in six renewable energy projects being developed in regional Victoria:  Berrybank ,  Carwarp ,  Cohuna ,  Dundonnell ,  Mortlake South  and  Winton . Together, this scheme has  delivered  900 jobs, $1.6 billion in investment and installing 673,000 solar panels and 158 wind turbines.

Under the VRET reverse auctions, one of the criteria used to select successful projects is community involvement, successful bidders must demonstrate flow of benefits to the local community. However this provision could be bolstered to increase community ownership and participation.

The  Coalition for Community Energy , as noted above, has called for specific reverse auctions to be held for community-owned energy. In other states, similar policy mechanisms could be established to create Government-backed demand for community energy.

At the national level, the  Emissions Reduction Fund  holds reverse auctions to purchase emissions reduction to achieve Australia's emissions reduction targets. This ERF process could similarly be  adapted  to enable community energy projects to bid in.

In this paper, we've established a couple of things:

• Australia is inevitably shifting from fossil-fuels to renewables, but the benefits of this shift will depend on whether we involve everyday Australians;
• Community-ownership is an effective way to bring the many benefits of renewables - new jobs and income, and cheap, reliable electricity - straight into regional communities;
• There are many barriers to community renewables in Australia - regulatory, technical and financial ones - that are holding the sector back;
• However, there are also many possible solutions - providing direct financial support, providing technical expertise on the ground, and creating new financial incentives.

I think we need a plan to capture the benefits of renewables for regional Australia, and I think that plan should come from regional Australia.

Over the last decade, our political system has failed to deliver a coherent energy policy that actually benefits everyday people. So let's see what can happen when everyday people are asked to shape that policy themselves.

We'd love to hear your thoughts on what the Government could be doing to support community-owned renewables in this country. Have your say by sending in a submission to hamish.mckenzie@aph.gov.au.

All submissions will be published on my website at the end of the co-design period.

Submissions should address any of the following questions:

Your experience

1) What role do you see renewable energy playing in the future of your community?

2) What do people in your community think about renewable energy?

3) What message about renewable energy is most important for regional Australia?

Benefits

4) In your view, what are the most important benefits of community energy?

5) Can you outline how community energy has benefitted your community?

6) Are there other benefits of community energy not outlined in this paper?

Barriers

7) In your view, what are the most important barriers to community energy?

8) Can you outline any barriers to community energy you have experienced?

9) Are there other important barriers to community energy not outlined in this paper?

Acceleration

10) In your view, what are the most effective measures to support community energy?

11) Have you received any support from Government before? How has it helped you?

12) Are there other policies not outlined in this paper to support community energy?

We're also holding two Australia-wide Zoom workshops so we can hear directly from you. These workshops are open to anybody who is keen to hear more about community energy, or share ideas about how to accelerate renewables in regional Australia.

• Workshop 1: Friday 22nd May, 12pm Indi Time (AEST)

• Workshop 2: Wednesday 3rd June, 7pm Indi Time (AEST)

Please register here: https://zoom.us/webinar/register/WN_E2FGSpfkT6yXtuUr5Pp7sQ

Members of the Expert Panel:

• Ben McGowan - Indigo Power
• Bobbi McKibben - Renewable Albury Wodonga
• Cam Klose - Indigo Power
• Geoff Lodge - GV Community Energy
• Dennis Lambert - Sustainable Upper Ovens
• Elaine Furniss - 2030 Yea: Community Energy
• John Lloyd - Benalla Renewable Energy
• Juliette Milbank - Totally Renewable Yackandandah
• Kate Auty - Euroa Environment Group
• Marnie Shaw - Australian National University
• Matt Charles-Jones - Totally Renewably Yackandandah
• Matt Grogan - Totally Renewable Yackandandah
• Michelle Kent - Sustainable Upper Ovens
• Rose Young - Euroa Environment Group
• Shirley Saywell - Euroa Environment Group
• Sue Gold - Totally Renewable Beechworth