Executive summary

Community energy represents a diverse category of energy assets relevant to local communities, ranging from small-scale purchases of energy efficient lighting to major infrastructure that unlocks local equity. There is currently significant interest in mid-scale assets serving small neighbourhoods. While community enthusiasm is high, the economic reality is complex. Energy projects interact with market fundamentals and are often interdependent with transmission and distribution systems. Connecting to the grid exposes projects to electricity price volatility, including negative market pricing. Successful projects typically aggregate more than one site, involve experienced actors, and participate in Frequency Control Ancillary Services (FCAS).

Background

Community energy in Australia was pioneered by projects such as the Denmark Community Windfarm and Hepburn Wind Farm. By 2023, the sector expanded to over 126 projects with more than 37,500 supporters. In 2023 alone, community groups raised $86.9 million, supporting 12 MW of new renewable generation and avoiding 13,947 tCO2-e in emissions. This achievement remains a small fraction of the 3,100 MW of rooftop solar installed in the same period and often reflects less efficient abatement per dollar spent.

A broad definition of community energy

This report applies an expansive definition of community energy, focusing on assets below 5 MW. These include behind-the-meter technologies, microgrids, or ‘community-scale’ assets connected to low-voltage distribution wires. The technology mix includes solar PV, batteries, energy efficiency, and electric vehicles. While utility-scale projects are generally excluded, those involving deep community co-design and equity, such as the Aboriginal Clean Energy Partnership, are noted for their high standard of leadership and impact.

Objectives and local outcomes

Proponents are driven by four primary motivations: accelerating climate action, securing energy access, building economic opportunity, and fostering social capital. Remote communities are 18% more likely to be underserved by energy service standards. Economic benefits are most evident in behind-the-meter assets, where households avoid grid electricity costs. Social capital is built through trusted peer-to-peer mentoring and increased literacy. Regarding climate action, 80% of respondents to the Victorian Neighbourhood Battery Initiative consultation identified carbon reductions as a primary expected benefit. Case studies including Totally Renewable Yackandandah and Allume demonstrate these localised benefits in practice.

Diseconomies and headwinds for community energy in Australia

Community projects face significant economic challenges. Wholesale market prices are volatile, varying between minus $1,000 and $17,500/MWh. Small projects suffer from scale diseconomies; community-scale solar faces an LCOE of USD 49-185/MWh, while utility-scale solar ranges from USD 24-96/MWh. Quantitative analysis indicates community batteries often yield negative internal rates of return (IRR) without FCAS revenue. Access to FCAS is restricted to assets over 1 MW or aggregated groups of 5 MW. Furthermore, projects rely heavily on unpaid labour, with nearly 20,000 volunteer hours valued at $900,000 contributed in a single year.

Enablers and success supports for community energy

Success is associated with technical leadership in the planning phase, specifically for project sizing and revenue modelling. Access to mentoring through community power hubs, such as those established by the Victorian Government, is vital. De-risking income through Power Purchase Agreements (PPAs) or commercial partnerships can improve feasibility. Projects using ‘off the shelf’ parts and focusing on behind-the-meter opportunities often achieve better economic outcomes and higher resilience to market pressures, as seen in the Denmark Community Windfarm case study.