How crowdfunding can support Collective Action Initiatives
- May 29, 2022 at 11:10 pm #16654Joan SeguraKeymaster
The path to a carbon neutral energy transition goes a long with large knowledge gaps around the governance of energy. So called Collective Action Initiatives (CAIs), aim to mobilize people in a smooth and participative way, to ensure that citizens are at the centre of the required fundamental transformation and actively participate in the necessary transition process.
Energy communities are part of Collective Action Initiatives, which play a fundamental role in the energy transition, as they enable changing the traditional structure of energy generation, which is fundamental to achieve both the economic and environmental sustainability of our system.
Energy communities are associations of people who join forces to generate their own energy. According to Directive (EU) 2019/944 they are “a legal entity which is based on voluntary and open participation, and whose effective control is exercised by partners or members who are individuals, local authorities, including municipalities, or small enterprises; whose main objective is to provide environmental, economic or social benefits to its members or partners or to the locality in which it operates…” (EC 2019/944).
Currently, the energy system is highly centralized in most European countries, with a very strong power of large energy oligopolies. Energy communities can reverse this problem, by mobilizing individuals to generate their own energy.
For example, production far from the point of consumption leads to a great loss of efficiency – which energy communities may overcome through local consumption. Such decentralization of energy production could also contribute to overcome the problem of depopulation in rural areas, as it can attract investments and generate employment.
An advantage energy communities provide is that individuals aiming to switch to a cleaner and greener energy generation, do not necessarily need to make a direct intervention on their home. For instance, people who live in rented accommodation or in the city center without sufficient space for solar panel installations can consume 100% renewable energy produced locally by energy communities. This energy is created by Installations that have been installed through partnerships with other individuals, and which lead to a reduction of individual costs, as with lower individual investment, larger benefits can be obtained for the community.
Crowdfunding can be an interesting instrument to finance this type of initiatives. Crowdfunding, known as raising funds from a large number of small investors through digital platforms, allows reaching large groups of people and enables financing community energy. Thanks to its unique ability to mobilize citizens and leverage private capital from non-traditional investors it is particularly well suited to tackle those challenges and bridge the gap between the strategic and technical level of the energy transition and its implementation and transfer into local realities. For example, individual local energy community projects can collect funds in a very simple way through a crowdfunding platform. Crowdfunding also allows to attract people who have no direct involvement in the project, but support the project either for monetary advantages, personal reasons or social motivations, for example, to allocate part of the energy production in order to help families suffering from energy poverty.
Crowdfunding democratizes finance and allows also people with less resources to actively engage in the energy transition. Depending on the crowdfunding model and platforms, contributions can already start with a few euros.
The following figure illustrates the different types of crowdfunding:
Figure 1. Models of crowdfunding (Source: Own illustration based on De Buysere et al. 2012)
Depending on the characteristics and size of the energy community project, different crowdfunding models can be chosen, in order to reach the target audience in the most effective way.
Crowdfunding is a growing market with untapped potential, able to engage on all aspects of the energy transition: from supporting the ongoing effort to increase Renewable Energy Sources (RES), to assist in the reduction of energy consumption through Energy Efficiency (EE), facilitate and promote energy access (energy poverty) as well as democratizing energy investments.
Interesting synergies can be achieved by combining public and private interests. For example, local authorities can leverage public funds by involving the citizens or co-finance civic projects. These co-financing schemes of public and private entities using crowdfunding mechanisms are denoted as “match-funding” (cf. EIB 2020). There are different forms of match-funding mechanisms, e.g. the public entity provides a fund to complement the amount raised from the citizens themselves through the crowdfunding campaign or invites the citizens to leverage the funding for a certain project. The principal aim is a combination of mixed funding, bringing together the interests and needs of citizens with the strategic objectives of the institutions. In this way, authorities can encourage the development of energy communities in their municipalities. This can help to generate sustainable employment, fight climate change and also help to prevent energy poverty that may be suffered by their citizens.
One of the main benefits of crowdfunding for energy communities is that this financial instrument leaves a high level of autonomy for the investment, compared to other investment practices. Ideally, investors can obtain information about the achievements of the projects, making investments and achievements transparent.
Crowdfunding facilitates citizen participation, which can materialize through energy communities. Such citizen engagement is crucial to accelerate climate transition. In the end, the accumulation of decisions of single individuals, creates an impact on the importance and recognition of sustainable energy communities leading to significant positive changes to society, both in terms of policies and businesses.
European Commission (2019): Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (Text with EEA relevance.). https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32019L0944 (05/2021)
(De Buysere et al 2012)
De Buysere, K., Gajda, O., Kleverlaan, R. & Marom, D. (2012): A framework for European Crowdfunding. http://eurocrowd.winball2.de/wp-content/blogs.dir/sites/85/2013/06/FRAMEWORK_EU_CROWDFUNDING.pdf
European Investment Bank (2020): Crowdfunding and ESF opportunities: future perspectives for managing authorities. A fi-compass manual. https://www.fi-compass.eu/publication/manuals/crowdfunding-and-esf-opportunities-future-perspectives-managing-authorities
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