Types of ownership

The energy community provisions are requiring the creation of a legal form to facilitate the equal ownership of all the participants of the collective action scheme. A legal form is an investment that you are making to formalize your initiative, and it will be a continual cost to your initiative, therefore it is especially important to make sure that this investment will pay off.

Many citizen-led initiatives do not necessarily need a legal form. Collective purchasing, crowdfunding and collective self-consumption are activities that you can perform without necessarily a legal form. However, when looking to develop production/supply/infrastructure related projects, a legal form is mandatory.

The Energy Community definitions are also making a clear distinction regarding the ownership of projects financed by the energy community organisations. Energy communities must retain control over the projects financed. Depending on your Member State, this control can be limited to a veto participation or a full ownership of projects.

Why do I need a legal form?

A legal form will provide several advantages:

• Protection: a legal form is allowing for the group to be protected to the level of its investment. This allows for the investors to be responsible for costs to the organisation up to the level of their investments. Caution: this is not necessarily true for all legal forms. Try to choose a legal form that will afford you this protection.
• Investment facilitation and access to financing: a legal form provides for a vehicle to have multiple investments join as the project grows. This streamlines the financing process and supports your access to debt financing.
• Market participation: In many activities, the existence of a legal form is mandatory to participate in the market and provide services to your members. The creation of a legal form should be seeing as an investment in this perspective.
• Governance facilitation: a legal form is at its heart a contract between a group of people. The creation of the legal form, therefore, allows you to discuss all the aspect of collective governance which will impact your development and maturation as an energy community.

In general we recommend that communities create a legal form in order to protect the members from the risk of the failing project. A legal form is a small investment that will allow also to proceed in the development of a collective governance scheme that will serve as the community grows. We recommend to transcribed the 7 cooperative principles in the statutes of the legal form.

which legal form do I choose?

Each member state has the choice of the legal form corresponding to the European energy community definitions (REC/CEC). We recommend that you consult the work that has been done in other reports of the COMPILE project, reviewing the state of the transposition in your country. We also have conducted an analysis on legal forms that were created by our pilot citizen groups, discussing barriers and advantages of the various legal forms. When choosing a legal form for your energy community, you should consider the following questions:

• Foundation requirements: what is the minimum amount of members/founders you need for legal form ? Do you need to register your legal form? What is the registration process? What type of documentation you will need and what is timeline you will have to follow?
• Administrative burden: What declarations and audits are mandatory for this legal form? Which administration is responsible for your legal form and how can it impact your activities? How much time and skills will you need to maintain this legal form?
• Liability: How protected are you (the members) by this legal form ? How liable is your legal form for project-related risk? Is your legal form compatible with the type of activities you are looking to develop?
• Minimum Capital: What is the minimum amount of capital that founders will need to raise and mobilise to create the legal form ? How can this capital be used in the daily operations of the legal form?
• Governance: Which flexibilities do you have in your governance? What are the minimum requirements in your governance system?

Most member states will have the following provision for legal forms in their corporate law:

• Free association, Clubs, Not for profit entities: free associations and NGO statutes exist to provide an opportunity for citizens to join and realize collective actions. Those forms usually enjoy light administrative and management procedures. But they often do not allow you to make a profit from your activities. Depending on the country you are in, this format can be great for energy communities if you are allowed to perform commercial activities. But most of the time those activities are limited in number, and share of staff time.
• Limited Liability Companies: company legal forms are usually simple collective contracts. Those formats are usually the most flexible ones adapted to the activities that you are pursuing. Their flexibility can become a risk to also consider regarding democratic governance practices.
• Foundation and Trusts: Foundations are usually a step between non-profit and for-profit organizations, usually serving a purpose alternative to economic gain they will allow you to manage cash flows more easily. The governance structure is usually more restricted, and most foundations have to follow the non-profit statutes. Trust is a similar form serving a specific purpose of community service (“aim to regenerate the community sustainably, or address a range of economic, social, environmental and cultural issues within a community”).
• Cooperatives: the cooperative legal form is currently most often used by Energy Communities across Europe, for its strong governance and flexible capital structure. The cooperative legal form can be stringent however and often will be an additional administrative burden.
• Individual and personal companies: individuals or personal company forms are legal forms directly engaging the private liability of the owner. Those forms are not suitable to energy communities, since they are focused on single ownership and do not protect the shareholder.

There are many available legal forms for energy communities, but the most important factor to consider is the governance model. Indeed many legal forms can be made to fit the purpose of the initiative, but in order to be fitting the criteria of the CEC or REC, a number of basic principles must be applied. More on this can be found in the Stakeholder engagement Guide of this toolkit.

One legal entity covering several projects

When developing projects, the cooperative has the option to hold direct ownership of the project. This means that the assets of the project are directly contributed to the balance sheet of the cooperative. In exchange, the cooperative is also carrying alone the dept linked to the asset, as well as its financing. This model was chosen by Ecopower, a large cooperative from Belgium. The cooperative is holding direct ownership of several wind projects developed internally. Therefore, we have one legal form for several projects.

There is one major financial benefit of holding those assets all-in-one: the strength of the balance sheet. Holding diverse assets on your balance sheet will hanker the balance sheet and facilitate the financing of future projects. This also allows the cooperative to hold all the cards both in terms of the ownership and the exploitation of their assets. It is also a more efficient way to develop projects, allowing you to avoid creating a new legal form for every single project. Finally, this is a direct benefit to members as it improves the transparency of the investments made by the cooperative.

There are two major disadvantages of this method, the protection of the cooperative and the access to financing for the first project. By holding the assets directly, you bear the entire risk of this investment failing beyond your investment only. The second disadvantage is the fact that you cannot easily open the ownership of the project if you wish to carry all your projects under one legal entity. This could prevent you from developing larger projects, as bank financing is harder to access without a diversified portfolio.

One legal entity per projects

In many cases, cooperatives will create a single legal entity for a separate project. Those a usually called Special Purpose Vehicle or SPV. The goal of an SPV is double. First, it protects the investor from risk in case the project fails. Second, it facilitates co-development by offering shared ownership of several organisations.

Single ownership

The special purpose vehicle is often used by cooperative to protect themselves from the project risks. This model is creating a separate legal entity that is owning the project. The cooperative is owning directly the entity at 100%.

The other interesting part of this mechanism is that share offering can be directly done for each legal entity. Therefore, members can invest directly into the project entity which gives them direct ownership of the project (rather than an ownership through the cooperative). Many cooperative can through this model involve people that are not necessarily members but are interested in the project. This is useful for rooting the project in the local community.

Joint ownership

The Joint Ownership is a model where the energy community is going to collaborate with one or more other actors to financing and develop the energy service desired by the community of members. In general, we see different 4 types of joint ownership:

• Joint ownership between two energy communities,
• Joint ownership between an energy community and a public entity,
• Joint ownership between an energy community and a private entity,
• Joint ownership tri-party with a public entity and a private entity.

The complexity while co-developing a project in joint ownership is coming from the number of actors and the diversity of actors. Indeed most cooperatives have experienced difficulty working with actors that are not sharing the same values and objectives. The CIT ENR project has developed criteria de evaluate your partnership during the co-development phase:

The research project is grading those indicators from 1 to 5 (1 being a non-collaboration/5 being a perfect collaboration).

In all those projects, it is important to keep two main points in mind:

• All partners need to share the profit in a balanced way,
• The Energy Community must remain autonomous and independent.

A good example of a joint ownership development is the wind project od Amel & Bülingen. Amel & Bülingen (Belgium) are two municipalities in the German-speaking region of Belgium that decided to initiate and participate in a large wind farm on municipal property. 50% of the project will be public and owned by the municipalities (25% Amel and 25% Bülingen). The remaining 50% will be privately owned by two local energy cooperatives. 25% will be owned by Courant d’Air, 25% by Ecopower. A Special Purpose Vehicle (SPV) will be put in place to accommodate the Public Private Partnership. The specific parts of this project is the fact that Amel & Bülingen following by the Belgian public procurement rules, had to tender out the project development. The municipalities decided to include in their tender document evaluation criteria on the participation of local citizens and municipalities which had the results to support the development of a community energy initiative on their territory. This was the result of a political process ending with a recommendation of the municipal council encouraging the development of a community-led initiative on the municipal territory. The second important factor is the partnership between Ecopower, a cooperative from Flanders with a lot of development experience, and Courant d’Air, a smaller local cooperative. This partnership allowed to have at the same time local ownership and citizen involvement while benefiting from professional development capabilities.

Municipalisation

The integration of municipalities in energy communities will be discussed further in detail in our “Allies Guide”, specifically targeting municipalities. However several resources can be noted to understanding the role that municipalities can play to support the financing of energy communities:

• The Energy Cities Guide de Energy Communities,
• The REScoop.eu Municipality Approach,
• The Practical Guide to Community Energy,
• The Rough Guide to Community Energy.

The essence of local financing support to energy communities revolves around two main pillars: encouraging public procurement procedure and direct public participation. The first one can be implemented by adding criteria to the municipal procurement procedure, facilitating the participation of local community-based initiatives in the tendering process. The best example is the municipality of Eeklo in Belgium.

In 1999, the municipality of Eeklo was tendering out the development rights for two municipal grounds in order to allow for the implantation of 3 wind turbines. The city council explicitly requested in their tender procedure that local citizens should get the chance to participate and co-own the installations. Together they informed and evolved a wide range of local stakeholders (citizens, environmental organisations, advisory committees, the municipality council, etc.) which resulted in a sustainable energy and climate action plan “avant -la-lettre” that was highly supported within the community. Cooperative wind turbines were part of that plan and generated revenues that could then be used to finance the wage of a part-time energy expert.

This successful example was then repeated across the Flemish region allowing for other community-based initiatives to take part in wind development in Belgium. The second mechanism is the direct participation of the municipality through taking a piece of the ownership of the energy community. This type of participation should be done with care, in order to preserve two key principles of the energy community: autonomy and democratic governance. This conflicts in certain member states with the restrictions on public ownership.

The financing goes of course both ways. The municipality can offer preferential financing to the energy community, but the energy community can also provide a platform for the municipality to raise local capital for municipal projects. This is the case for Pajopower, a cooperative from the Flemish Brabant region, which organised a campaign to finance the transformation of public lighting for the city of Halle. The cooperative invested in the change to LED lighting, and raised the money through a campaign calling local citizens to “adopt a street light”. This successful campaign allowed the municipality to lower its energy bill significantly, without upfront capital. The municipality then pays back the cooperative through savings realised on the city’s energy bill.

Equity capital

Equity capital (Share offers – Self-financing)

In cooperatives, members are invited to purchase shares. All the shares together represent the equity capital of the cooperative. This equity capital is a long-term debt that the cooperative owns to its members, and can be reimbursed at fixed points. The cooperative can “buy-back” it shares from the members at the same price as they purchased them. In general, shares cannot be sold to another person other than the cooperative. Share provide a governance right to the members, meaning the right to vote on the decision relating to the management of the cooperative. In the cooperative model, the voting right is unrelated to the number of shares owned by a member. This is the “one member – one vote” principle.

For share offers, we recommend the handbook “Community Shares Handbook” created by Cooperatives UK and Localities. The handbook is specific to the English system, but the basic principles are applied widely.

Share offer

Share offers are essential to the creation of a cooperative. It is quite literally the offering by the cooperative society of share of its capital to members. In order to become a member, one must own a share of the cooperative. The share provides the governance right attached to it. A share offer can also encourage potential members to make a contribution beyond the purchasing of the share, to set up the cooperative or continue growing the collective project.

There are many ways to perform share offers throughout the life of your cooperative. Those will depend on your need and the national regulatory environment. We recommend that you get information regarding share offers at your national financial regulation agency before moving forward with the actual share offer process.

Pioneer share offer (initial share offer)

The pioneer share offer is a specific share offer dedicated to young community projects. The pioneer share offer should highlight the higher risk linked to the starting nature of the cooperative project. This type of share offer might allow for your group to gather more community support by providing more enticing conditions for the share offer, representative of the higher risk. Consideration should be given to establishing a separate class of “pioneer shares” with different terms and conditions, such as a higher rate of financial return, or a preferential right to withdrawal ahead of other classes of share.

We however recommend that a time limit be put on those additional benefits, or that a mandatory exchange rule be put in place. Just the same, governance rights should not be different for pioneer shares than for regular shares.

Project specific share offer

The project specific share offer consists to allow members to buy shares when you start a new project. The positive point of this type of share offer is the fact that you match better your equity resources with the investment, and therefore avoid too much cash sitting in the bank which is costing money to the cooperative overall. The downside of this type of share offer is the effort necessary to gather the number of members to buy the shares available. This type of share offer does not provide for a steady stream of equity, but rather a one-shot type of fundraising.

Open share offer

Any many cases, however, cooperatives have an open share offer, meaning that it is possible to buy shares of the cooperative and any moment. This allows for a steady stream of equity to come into the cooperative. This steady stream will require less effort and afford more flexibility to the cooperative. But in return, new projects need to be developed regularly to continue making use of this equity.

Profit

Another option for self-financing is the use of the products of the activity of the cooperative to continue growing and financing new projects. If you are a starting group, this might seems far away, but it is important to discuss and hopefully agree on how those profits will be distributed in advance. Indeed, members will always have a lot of ideas once the income starts entering your balance sheet, but this re-investment is intimately linked to the societal role of the cooperative. Here are below a couple of ideas of how some cooperatives used, invested or distributed those profits:

Dividend: The first way to distribute your profit is simply to distribute dividends. Beware of the amount and the form of this distribution. In some European countries, a cooperative is only allowed to distribute a limited about of divided. Also, those dividends can be heavily taxed. It is important to inform your members properly and to weigh the benefits of distributing those dividends.

Rebate: The historical benefits of the cooperatives are the rebate offered to members on the price of the services delivered to members. If your activity allows it, this is the original redistribution method implemented by the Rochdale pioneers. This allows for a direct benefit to the members but also weakens the cooperative, as it does not allow to use the profit for further growth. The rebate can also be conditional to certain categories of members, like low income households. This type of “social tariff” is often deployed in the European cooperative movement.

Sausage: The profits of the cooperative can also be used in many unconventional ways. The best historical example is to Oberdardorf cooperative (DE), created by the fans of the club of the same name. The fan created a cooperative in order to invest in a solar installation on the roof of the stands of their stadium. The goal was to allow for the grounds renovations to be financed through this long-term investment. In return for their investments, members were offered an annual membership to the stadium and the option of a dividend or a free sausage at every game they attended. This is a great example of a creative way to use a cooperative investment to support a local societal benefit.

Community benefit fund (UK) and community social fund (FR)

A popular scheme that has been implemented in the UK is the community benefit fund. This fund is constituted on the reserves of the cooperative, or group of cooperatives, running it is offering specific grant support to local causes and organisations. This has a direct benefit for the cooperative by strengthening the civil society make up of the territory, which in turn supports member recruitment. But it also allows for the cooperative to play its role to support the local energy transition. Those community funds also allow for the pooling of resources on community building, which is at the base of the cooperative movement: cooperation rather than competition. This helps to densify the network of community-based organisations which, in turn, will provide for a robust support system to the funding cooperatives.

Another form of the social fund has been created in France, in the Energie Solidaire fund. We describe this type of alternative funding in Section 18.2.6.

Community concert hall

Some cooperatives also take their societal role to another level. The Odenwald Energy Cooperative (EGO) from Odenwald in Germany create an “Energy House” where the citizen of the region could find training on energy topics, cultural events and communal infrastructure. The cooperative financed the transformation of this old brewery in a passive building to create a renovation service building where a citizen can find supporting to renovate their homes and buildings. The building also welcomes public administrations from the Odenwald municipality. This is an example of profit being directly used to support the local energy transition.

Grants and prizes

Grants are support financing that is offered by governmental and charity organizations with a specific impact goal in mind. There is a very wide range of grants and donations that can be mobilized while building a community-led project. It is important to not “leave money in the cards”, and explore those sources as well.

The main advantage of grants is that your project will be judged on its impacts on the community which is inherent to the nature of energy communities. The main pitfall is reporting and requests that will be made by the granting institution(s), which can prevent you from actually delivering your project, rather than only a community support program. Therefore, a best practice to follow while reaching for grants is to map the project, map the available grants, and be sure to use grants in last resort if a piece of the project cannot be financed otherwise.

The list below is not meant to be exhaustive, there are too many programs across Europe then could be counted. Therefore, it is important to realize a mapping of the various opportunities for each project.

International grants and prizes

There are several organizations that will provide grants to organizations for the development of local projects, however, those grants and prices are mostly targeted at already long-standing organizations and personalities.

UNDP

The United Nations Development Program is a program supporting climate mitigation actions. The support provided is less likely to be in funding, but many offices and teams of UNDP will provide support to organisations contributing to the Sustainable Development Goals.

UNFCCC Funds

The United Nations Framework Convention on Climate Change is an international organisation aggregating efforts at the supranational level to restrain and alleviate climate change. This international organisation also benefits from significant funds directed toward climate mitigation actions and alleviation. Those funds are only accessible through national organisations. The list of those organisations is noted above.

Keeling Curve Prize

The Keeling Curve Prize is an example of a prize that could be reachable for mature community energy projects. This prize rewards outstanding projects in the energy sector looking promote low-cost and reliable energy as a strategy to replace and discourage the development of continued fossil fuel use.

European grants and prizes

The European Commission is running several funding and granting schemes across Europe. Those funding schemes have different targets, objectives and procedures for applications. The complete list can be found here.

European funds are not always suited to small (under 2 million euros) and local projects. But they can be very interesting funding partners in case of an aggregation of project or a particularly innovative approach is taken. The complete list of funding opportunities and the call for proposal can be found here.

In general European funding is organized around the following axis:

Horizon Europe

The Horizon Europe program is a program of the European Commission centered around research. Energy Communities are welcome to participate in innovative projects and technologies. In order to present a project for Horizon Europe, you will need at least three partner organization from three EU countries. In general, the application process is rather long and arduous, therefore we recommend working in groups to reach for this type of funding. The co-funding rate is high.

LIFE Program

The LIFE program is looking to build capacity and demonstration in various environment and climate topics. LIFE is also taking a strong place for the development of citizen-based and territory projects. In general, the application process is as heavy as Horizon Europe, but the outcome can be broader in terms of community projects. The co-funding rate is rather low.

INTERREG Programs

INTERREG is a European program managed in regions of Europe. INTERREG was organised along two programs: a European program and regional programs (north-west Europe, south-east Europe – also called Interreg Danube, Baltic Sea region, central Europe and Mediterranean) INTERREG is a general focus on local authorities and regions. It supports the development of a local project that will have a strong impact on municipalities and territorial cohesion. This makes this program very suitable for energy communities. The application process is a little lighter and better supported by regional secretariats, but the co-funding rate is lower than LIFE.

ERASMUS+

The Erasmus Plus program focuses on the training and development of individuals and organizations. This program is well known for funding academic exchanges for students and universities. Erasmus plus is also funding a whole range of capacity-building activities, including initiatives related to climate and environment training. Those smaller funding opportunities can be very useful to support the development of a community-building strategy. This can be useful for energy communities. In general, the application process is made simpler for a smaller organization by the national secretariat that supports the development of the proposal.

Climate KIC

Climate KIC is a support organization and funding program centered around the support of business-friendly climate initiatives. The Knowledge and Innovation Community (KIC) is spawning from the EIT (European Institute of Technology) to support innovation, create capacities and invest into impactful business initiatives. The grants of Climate KIC are smaller than the traditional innovation funding programs, but provide a great deal of support and coaching throughout the development of the project. The funding programs of the Climate KIC secretariat range from R&I grants to large demonstration grants. Climate KIC also has a capital investment program. Energy communities can benefits greatly from this program has it focus on impact rather than return, yet reward a stable business model. The national secretariats are supporting organization to make proposals, and the program has a good co-funding rate.

Innovation Fund

The Innovation Fund is a funding mechanism centered around providing grant funding for a specific demonstration project, looking to implement innovative technology in a market setting. The program will be organizing two types of calls for projects: large-scale projects and small scale projects. For each of those calls, the goal will be to support the deployment and installation of renewable technologies. The small-scale call might be suitable for energy communities. The co-funding is very interesting, although the application process might be challenging. The projects can be carried by one single partner.

Invest EU

Invest EU is the final tool of the European government to support projects looking for seed funds. This program is providing seed funding to the large project providing a concrete impact on the European market. This mechanism might not be the best suited for the energy community due to the size of the minimum investment. This program is mostly targeting infrastructure development.

COSME

COSME is the European program for Small and Medium-sized Enterprises. This program is supporting innovative starting SMEs with capital risk and guarantee loans. This last tool can be suitable for your cooperative if you are looking into an innovative technology or service. COSME also can provide business coaching through Europe for Young Entrepreneur’s network.

InnovFin Energy Demo Projects

In case you are looking for a loan to kick start an innovative project: take a look at the InnovFin funding supported by the European Investment Bank (EIB). This program allows for loans from 7.5 million euros to 75 million euros, to finance energy projects around innovative technologies. The interesting part of this financing is mostly the support attached to it, including advisory services from the team of the EIB.

European City Facility/European Island Facility

The EUCF (European City Facility) is a facility supported under the Horizon 2020 framework, which supports cities to finance projects to reach their climate goals: from renewable integration to efficiency and community building. This European funding project will support municipalities to fund local initiatives and renewable development. Community energy projects will be a part of the initiatives funded by this institutional project.

The NESOI (European Island Facility) is a facility supported by the directorate of the Energy of the European Commission. This European consortium is opening calls to support 60 European islands, over a series of an open call for projects. Island communities will benefit from technical training and financing support.

ELENA – European Local Energy Assistance

This technical assistance program ELENA financed by the EIB (European Investment Bank) is offering project development assistance grants for organizations looking to develop energy efficiency and transport projects. The threshold for this grant is 30 million euros, meaning the size of your project pipeline should be above this amount. The leverage factor is 10, therefore through those projects, you should aiming to trigger 10 euros of private investment for each euro provided by the EIB.

National/Regional/Municipal grants

Most Member States have grants dedicated to the development of renewable energy projects. You can often find out a lot of information by consulting your national development agency, your ministry of energy or your national energy agency.

Municipal grants are the best and most simple way to get a community project started. The local municipality is the best and first partner of a citizen group looking to launch a new renewable energy project. In many Member States, many support schemes are relying on municipalities to be delivered. A more specific list of supports to municipalities is described in the next section.

Another form of local support can be found in local energy agencies that might have available resources for project development. This often includes specialty counselling and technical support.

Private foundations and organisations

European Climate Foundation

The European Climate Foundation is a European institution gathering funding to support European efforts to realise the energy transition. By mobilizing worldwide philanthropy, ECF is support projects and organization. The projects that are supported by the foundation are very diverse, but the impact criteria will be a big hurdle for start an energy community looking to build their first project.

Heinrich Böll Stiftung

The Heinrich Böll Foundation is a German funding and research institution which supports project mostly in the Eastern part of Europe. This foundation is supporting projects in the domain of sustainable development. Several cooperatives in Greece and Turkey have been supported by organisations related to development actions. Often, reaching out to the national contact is the best solution for starting energy communities.

Donation/Micro-donations

Another fundraising opportunity that can be used by Energy Communities to gain traction and start a first energy project might be to target donations from local citizens and local organizations. Many energy communities are looking to offer community value and carry a transformative political project. However, some organizations and people might not be able or have the capacity to participate in the collective project while having the wish to support its emergence.

A couple of points might be of concern while gathering donations:

• Make sure that donors understand the one-sided nature of their contribution: community projects typically do not raise money through donations, but investments. Therefore, it is important to ensure that boundaries are respected to preserve the donors and the energy community (principle of autonomy).
• Make sure that you are eligible to raise donations: some Member States have strict policies relating to the fundraising of donation, and a financial prospectus might be necessary to do so.

Energy poverty alleviation programs

Some Energy Community projects are using micro-donations to finance a part of their activities which is necessary to their community purpose, but not financially viable or stable. A micro-donation is a small donation, usually systematic or automatized, provided on top of the contribution or payment offered for a good or service. This micro-donation finds its purpose when it is applied to a large group and a large number of transactions.

One of the best examples of a micro-donation system is Energie Solidaire from France. Energie Solidaire is a fund aggregating donations to finance local energy poverty alleviating actions. One of the donation streams of the fund is set up to add micro-donation to the energy bill of  the cooperative supplier Enercoop. Enercoop offers its clients (100 000 as of 2020) to donate 1 euro cent per consumed KWh to Energie Solidaire. The fund then gathers those donations to then finance local associations and projects fighting Energy Poverty. This donation is added directly on the bill once the client signs up for this program. Since its launch in 2019, the fund has already funded local actions for more than 50 000 euros.

Leasing

Leasing is a financing scheme by which a firm or an individual can obtain the use of certain fixed assets for which it must pay a series of contractual, periodic, tax-deductible payments. At the end of the contract term, the user may be come owner of the good by paying a fixed quota settled before the signature of the contract. The leasing for large renewable plants is a sort of project financing realized through financial leasing that implies the presence of a plurality of actors: sponsor, Special Purpose Vehicle, banks or leasing company, developers, operating managers and finally the purchasers of the energy. Due to the complexity of the operation, the leasing company starts playing at the beginning of the project and it will finance only solid business plans up to 90% of the total investment. This means a project with the following features:

• one capitalized actor should hold the major part of the shares,
• high levels expected of productivity of the plant,
• public incentives and expected prices of energy,
• operating and managing costs.

In the renewable energy sector leasing contracts are also used for small operations, in particular for private PV installations. In this case the user pays a large fee at the signature, a periodical fee, and the end of the agreed period can decide to buy the PV panels paying the balance to the leasing company. Financial solutions are designed to meet the needs of clients, who receive full access to selected suppliers, personalized financial planning and support with insurance coverage. Leasing companies primarily finance:

• photovoltaic installations,
• wind power installations,
• hydroelectric plants,
• biomass and biogas plants with reliable supply concepts.

The companies generally offer:

• cash-flow-based leasing solutions tailored on each project (for financing amounts above € 2 million),
• client-based solutions for smaller projects,
• lean due diligence processes by leveraging on the in-depth expertise of dedicated teams.

The financial operation is supported by full-range technical and financial consultancy:

• preliminary assessment of client needs,
• context analysis for proposed business plans,
• identification of potential challenges,
• proposal of customized contract solutions,
• provision of technical and financial consulting during the construction phase,
• direct access to renowned suppliers,
• provision of financing products according to new developments during the project.

Bank loans

It is financing in debt that requires guarantees and the payment of interests. In comparison with an ethical bank, a traditional bank will:

• rarely accept small and medium loan (less than 500 k€/1M €) which are less profitable,
• can require further due diligences to the project leaders (to check the guarantees and the ability to lead the project) – which can cost 20 to 30 000 €,
• may be less willing to finance citizen projects whose governance is seen to be more complicated.

Nevertheless, the loan can be similar concerning the interest rates and the guarantees asked.

What are the characteristics of a traditional bank loan?

• Important amount: > 500 k€/1M €
• Interest rates: depending on the “market cost of money” – quite low in Europe at the moment – for example between 4 and 5 % on a length of 10/15 years
• Further due diligences can be required

Specific tools needed to set up a traditional bank loan / What do you need to set up a traditional bank loan?

In order to have access to a traditional bank loan, it is needed to be at least in the construction phase of a project and to require an amount of at least 500 k€/1M €. Generally, project owners also need to bring at least 20% of self-financing for 80% of the loan and to pay for a due diligence process that checks the technical and economic viability of the project as well as the guarantees. It is also necessary for the cooperative to bring several type of guarantees:

• Guarantees on the building (or on the long term mortgage lease if you rent the building),
• Pledge on the production tools,
• Sometimes a bank account with 6 months of loan reimbursements blocked.

What type of return?

Return is normally paid out as share interest at the end of the financial year, depending on how well the business has traded and after members have voted on how the profits are to be distributed at the General Assembly. Bondholders are paid out interest according to the value of their bond.

It is a bank whose mission is not to maximize the profit but to foster cultural, social and ecological projects: it does not invest in the financial markets and it makes loans exclusively to economically viable projects of the social economy: organic agriculture, social or cultural projects, energy saving, renewable energy production, etc.

It also organizes a transparent circulation of money; the list of the financed projects is published each year. Most of the time they are cooperative banks: savers and borrowers are also members of the cooperative and have a right to vote each year during the general assembly. More than the right to vote, ethical banks offer savers and borrowers the possibility to create links among them, which is a strong added value for cooperative project managers.

Ethical or “non-traditional” bank loans

The funding institutions can often represent a barrier to the development of your project. There is a number of institutions that have been long-term allies of the community energy development and can support your project more effectively. Those ethical banks will offer the same services than a traditional bank, but often also value to the social and ecological impact of your project as part of their review process. You will find a list of those companies on the website of FEBEA, the Ethical bank federation.

Another avenue to explore is the public lender such as development banks, municipal and regional funds and finally European investment funds. We highlight a couple of those specific lenders in Section 2.2 on grants and subsidies. The  European Commission (EC) specifically decided to support the start-up of social enterprises (the European definition. As part of this support, several micro credits and preferential lending tools have be implemented by the EC to support entrepreneurs. The European Social Fund is part of those instruments, triggering several funding sources at the national level.

Soft loan

A soft loan is a loan provided at a lower interest rate, or with more favourable conditions to the borrower. The Lender will provide capital to support the Borrower with favourable financing conditions usually with coaching and technical support attached.

Alternative Investment funds

Genervest

Genervest is an investment fund created with the support of Greenpeace Greece, in 2020. The main goal of this fund is to support local renewable energy production projects in Europe. This fund is abounded by private investments and climate NGOs. The fund launched its first crowdfunding campaign in March 2021. The goal of this campaign is to finance additional projects and to support community projects in Greece in their fundraising.

MECISE

MECISE or Mutual for Energy Community Investment Society is a mutual fund bringing together cooperatives and energy communities to support citizen transition projects. This fund is mutual and therefore will require the project to become a member of the mutual. The Mutual will take a participation in the project at the pre-construction phase to allow the project to realise, it will then exist as the funds raised from local sources can be mobilized.

Mezzanine finance

Mezzanine financing refers to quasi equity financing. It is a type of financing situated between debt and equity financing. It often takes the form of subordinated loans. Those loans can be turned into equity in the project in case of the project receiving the money failing to reimburse the debt. Because of the quasi equity nature of those loans, they are often given against low interest but do not yield any ownership right.

This type of financing is often used by Fincoop (Financial Cooperative – see Section 5). Fincoops are often set up to collect private investments to then be lend as subordinated loans to companies looking to develop projects. Because of the debt nature of the financing, the cooperative gets no ownership of the project, while at the same time providing low-interest financing to the developer. This is a type of financing that energy communities and energy cooperatives should be especially careful to avoid.

Crowdfunding and crowdlending

Another option to raise money is to use so-called crowdfunding. Crowdfunding is a way of raising money to finance projects and businesses. It enables fundraisers to collect money from a large number of people via online platforms. Overall there are three types of crowdfunding schemes returns: interest, equity and other rewards. There are several possibilities linked to the crowdfunding model:

• Peer-to-peer lending (crowdlending) – Multiple private investors lend money with the understanding that the money will be repaid with interest. It is very similar to traditional borrowing from a bank, except that you borrow from lots of investors.
• Rewards-based crowdfunding – Individuals donate to the project with the expectations of receiving in return a non-financial reward, such as goods or services, at a later stage in exchange for their contribution.
• Donation-based crowdfunding – Individuals donate small amounts to meet the larger funding aim while receiving no financial or material return.
• Profit-sharing/revenue-sharing – The community project can share future profits or revenues with the crowd in return for funding now.
• Hybrid models – Offer businesses the opportunity to combine elements of more than one crowdfunding type.

There are other forms of crowdfunding such as debt security and equity crowdfunding. Crowdfunding is relatively similar to share offering expect for a couple of important points: first, it is often a lighter process. The administrative requirements (such as prospectus publishing) are usually non existent or mutualised by the platform. The second point is that crowdfunding allows you to also collect debt financing from private persons. This is referred to more exactly as crowdlending. It is important therefore to highlight the difference between share offering, which provides your member with membership rights and control, and crowdlending, which focuses on financial returns. Crowdfunding funnels through an online platform in order to reach the maximum number of participants. There are multiple number of platform. In order to find suitable platform the criteria to consider are:

• Platform specificities – some platforms are specialized in types of projects.
• Popularity at the scale needed – it is important to find platforms that have the maximum number of users based on the geographical scope desired by the project (regional, national, European).
• Fees and remuneration schemes – always be aware and understanding of the fees of the platform (fixed or commission are the most common), and of the capital limits.
• National rules and regulations – be aware of the rules, many member states have implemented strict rules to protects private investors.
• Headquarter – is the money travelling and where is it stored by the platform are criteria to consider while choosing a safe platform.
• Features – consider the various features you will need to run a successful fundraising campaign.

Do not hesitate to interview a representative from several platforms in order to make sure that you have found the right partner, and that you have clearly identified the necessary steps to start your crowdfunding campaign (financial and legal documents, contacts and support teams of the platform).

Several cooperatives also created their own crowdfunding platforms. This is the case of Genervest in Greece, but also Coopernico (Portugal) and ZEZ (Croatia) from the COMPILE project. We present below some examples of practices of from those cooperatives.

Practices of crowdfunding and crowdlending

Coopernico is the first energy cooperative in Portugal. The cooperative was founded in 2013 by 16 members. In order to finance its renewable production projects, Coopernico created a crowdfunding platform. The platform is opened to members of the cooperative only. The members are lending funds to the cooperatives to develop and install solar production on large roofs. members are getting 3% interest rates on their investments through the platform. In order to become a member of the cooperative (and therefore have access to the platform), a private person must by a minimum 3 cooperative shares of 20 euros each (60 euros in total). In 2021, the cooperative has 2 091 members. Together those members have lent 1.75 million euros to the cooperative to develop 29 production projects.

The solar production projects are financed through the investment of members. The cooperative is also remunerated by the project development. The usual payback time of those investments in 8 years. The electricity produced is sold to large consumers through a PPA (Power Purchase Agreement). In 2018, the cooperative could secure a supplier licence in order to realise those PPAs.

2020 is the first year where the cooperative has shown an operational profit, through project development. During the 2020 general assembly, the members of the cooperative have decided not to distribute this profit to members, but rather to invest it further in the cooperative and its employees. This will allow the cooperative to further improve the platform and continue expanding its activities.

ZEZ (Green Energy Cooperative) is a workers and energy cooperative in Croatia. ZEZ has 18 members. Because of the restrictive legislation in Croatia, it was not possible for ZEZ to raise capital for production projects through membership fees. Indeed, in Croatia a cooperative member loses automatically any employment-related benefits. So the cooperative decided to create a crowdfunding platform to finance solar production projects. This platform “Nasuncanojstrani.hr”, is allowing for any private person to invest in one of the 2 PV plants (30 KWpeak) that ZEZ has been developing in the city of Krizevci. These micro-loans are for 10 years with a return on investment from 3 to 4.5% depending on the investment size. The investors are not members of the cooperative, however, de facto preventing them from controlling the project. However, this is the only platform of it kind in Croatia, thus demonstrating the commitment of the cooperative to renewable development.

Guarantees

Another form of financing is the guarantee. The guarantee act as an insurance policy for the activity that you are looking to build for your cooperative. A guarantee is a commitment from the organisation support yours to cover your debt in case you are not able to. This is especially true if you are borrowing large amounts of currencies, or if you are performing negative cash balance activities (like the supply of electricity).

There are two types of guarantees: direct and indirect. A direct guarantee is when an organisation (usually it is a bank) provides your lender, or the requestor of the guarantee in general, with direct insurance for your debt. This entails that the lender trusts the provider of your guarantee. In the opposite case, it can be an indirect guarantee. An indirect guarantee is when the guarantee is provided to a trusted institution from the lenders’ point of view. This institution then in turn provides a guarantee to the lender.

A guarantee is usually done against a form of payment or deposit. In order to get a guarantee you will often have to provide collateral (meaning something a value that you will lose if you do not face your obligations).

Most guarantees are provided by financial institutions or governments, but sometimes a cooperative will guarantee the loan of another one. This was the case for Ecopower and Enercoop where an indirect guarantee from Ecopower, allowed Enercoop to participate in a public tender for Hydropower plants in France.

Fincoops vs Rescoops debate

Since 1844, and the birth of the cooperative model, this alternative organizational model has been offering a way to participate and organize our economic system centered around community value instead of financial profits. The ICA is defining cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise”. Since then, the cooperative model has been recognized by states and international institutions alike for its value-driven approach. With this recognition came specific incentives and treatments, supporting the development of those democratically governed organizations. And with those incentives came the efforts of traditional market actors to take advantage on the cooperative name and efforts without following the same principles. The discussions to decipher the “real” from the “fake” cooperatives is still ongoing today, and the line is often not easy to draw for policymakers. This paper will discuss the arguments in one such specific case in Belgium’s energy market.

As the energy community definitions spread across Europe, a similar debate is happening in many member states. Energy Communities, meant to be a citizen “an effective and cost-efficient way to meet citizens’ needs and expectations regarding energy sources, services and local participation”. This vision cannot be realized without building autonomous and democratic organizations, that will serve citizens’ needs and create community value. The current implementation of those definitions is showing similar deviations, and rent-seeking behaviors from market actors across Europe. However, as member states context is varied, the implementation of those concepts are bound to be different. The boundaries of which are similar to the boundaries of the REScoops versus FINcoops debate in Belgium.

The CNC (Belgian National Council of Cooperatives) defines the FINcoop as a financial cooperative, the members of which invest indirectly in renewable energy projects, without being an owner of the projects. This definition is in opposition with the REScoop, defined by the CNC as citizen cooperatives, the members of which invest directly in renewable energy and are owners of those projects. In a debate held in the 28th of February 2021, the two sides got to discuss the appellation of “cooperative” for each mechanism. This is especially important in Belgium, as specific incentives and a positive reputation is afforded to citizen energy cooperatives.

The key differences that are highlighted by those definitions are:

Finality: The REScoop has an objective to realise the transition to energy democracy. This transition stands for leveraging the energy transition to support local development and community ownership. FINcoops have financial gain as the main objective. This entails a maximization of profits out of the development of renewable energy projects.

Governance: The REScoops are offering a full governance right to their members against the purchasing of a cooperative share. This membership is also providing full rights to each member to be part of the governing institutions of the cooperative (board of directors). This governance right extends to the projects of the cooperatives, as they are fully controlled by the organization. The FINcoops are offering a participatory right to the members that are purchasing a share of the organization. The members have a consultative power over the projects of the cooperative.

Financing and ownership: REScoops and FINcoops both have similar sources of financing for their organisations. Members are proving equity capital to the structures that then re-invest into renewable energy projects (here those cover all types of activities in the energy market). However, the type of investment into project is a little different. REScoops tend to take equity participation, to control the outcome of the investment. FINcoops tend to provide subordinated loans. These investments mean very different types of outcome in the ownership part. FINcoops do not provide ownership to their members but prefers optimizing financial returns. REScoops provide ownership to their members both of the organization, and onto the projects developed.

Out of those differences comes a picture of two different roles of those organizations in the energy transition. The FINcoop are claiming more flexibility and simplicity, allowing for citizens to take part while not controlling. REScoops, on the other hand, promote a model of ownership and responsibility, reaching for the concepts of empowerment and democratization, traced back to the origins of the cooperative concepts. The definitions of energy communities (i.e. Renewable Energy Community), directly refer to the values of the community energy movement and community ownership, therefore inviting the Member States to develop REScoops, not FINcoops.

This paper was informed by interviews with Mr. Jan de Paw, chairman of REScoop Flanders.

Argument of finality

The key part of the discussion takes place around the finality of the cooperative organization. For REScoops, finality refers to the deep organizational purpose of the creation of a cooperative organization. Beyond its activities, the cooperative is first and foremost an empowerment mechanisms looking to create an energy democracy. The primary goal of the cooperative is always to serve a common need amongst members. For FINcoops, the purpose of the cooperative organization is bound to the market service provided by the organization. The finality of the mechanism is to finance profitable projects, which will produce a return on investment. Of course, those two ideas are not mutually exclusive, but the discussion revolves around the prioritization of those goals. The REScoops are usually offering to their members a small return on investment, it is simply not usually the priority of the cooperative organization. The focus lies on service to the members and added value for the community. The key differentiation can be found in the amount of participation, and therefore “empowerment” of citizens. In Flanders, there are currently 573 “cooperative” wind turbine projects, 4% of which are owned by REScoop. On average, each project developed by REScoops involves 3000 private people (members) investments. Projects developed by FINcoops involve on average 30 private persons (members) investments. FINcoop tends to limit the amount of participation in order to allow for the corporate partner financing in the majority the project to extract larger financial returns. Those figures point toward the inability of the FINcoop model to deliver community benefits expected out of cooperative organisations.

This argument around energy democracy however questions the role that cooperative play on the market, and the higher standard to which they hold themselves to realize this mission. Indeed, if the goal of the energy cooperative endeavor is to create a democratic space for participation of citizens in the energy market, this space must provide an equal opportunity for participation and thrive to correct the imbalance of such a market. This higher standard is producing a series of benefits to the energy system. There is a demonstrable impact between one’s involvement in an REScoop and their energy consumption. This link is highlighted in the study of the REScoop PLUS project. This study carried out using data from cooperative suppliers in five European member states, revealed that the reduction of energy consumption of energy cooperative members could be up to 20% compared to a non-member with the same consumer profile. In order to serve the needs of the broader community, REScoop often cumulate several coherent activities (for example production and supply, energy efficiency and supply). This universal approach to the energy topic is not present in FINcoop. Policy maker should encourage and reward multi-services approaches in energy communities.

Governance model and decision making

Democratic decision-making is at the heart of a cooperative. FINcoop is often demonstrating a lack of transparency and access to the governance of members. Cooperatives, regardless of being considered REScoop or FINcoops, must be directed by their board of directors and controlled by the General Assemblies (GA). A first way to identify a “fake” cooperative is the lack of ultimate control of members in the board of directors of the corporation. The role of all members in the GA is signified by the “cooperative share”, which is the base investment realized by the member. The “one member -one vote” principle, which is the most common in cooperative in Belgium is allowing for each member (share-holder) to have the same voting right regardless of the number of the share she/he/it owns. The purpose of this mechanism is to remove the imbalance linked to the economic conditions of cooperative members. The direct consequence of this implies that there can be only one type of share. In order to realize this separation between governance and financial involvement, at the heart of the cooperative model. This is a sign of cooperative trying to correct an inherent imbalance in the market model.

However, the practicalities of democracy make it so the decision power is held in the elected representative of the cooperative: the board of directors. Formats of boards are quite different depending on the organization. Boards members must be volunteers, elected, and representatives of the GA of members. This role implies that board seats should be accessible to all members that are willing to offer their candidacy. Some cooperatives will have seats reserved for certain types of actors, in order to ensure that whole value chain of the cooperative is represented in the board at all time (i.e. Clients/beneficiaries, suppliers, staff members). That is where the major difference appears with FINcoops. FINcoops will have board seats “reserved” for specific corporate partners or originators of the project. Those board seats will allow a specific organization or person to control the outcome of the cooperative. This pose a fundamental question of the representativity of the board. Principle 4 of the ICA is counter indicating this type of mechanism. The implementation of this principle makes it so the board of the cooperative cannot be controlled, or over-represent a specific member (or category of member) of the cooperative. This excludes mechanisms like “reserved seats” for founders or corporate partners.

The argument of representation can also be extended to another part of the mission of the energy cooperative movement: empowerment of the broader community. Principle 5 of the International Cooperative Alliance ICA  centers on “Concern for the Community”. This poses the question of diversity and community representation in the cooperative movement. This diversity aspect has been poorly tackled by energy communities overall as stated by the H2020 project ENGAGE. However, REScoops are starting to take on this challenge and solidarity mechanisms are appearing across Europe.

A change in the system

In this paper, we certainly present a very clear-cut situation, which is often far from reality. The goal of energy cooperatives has been to offer an alternative to the traditional profit-based approaches of corporations. Cooperatives are offering a completely different model to govern the energy sector, based on the commons. FINcoops will often refer to the limitations of the local models to take on larger, system-relevant projects. This narrative being targeted at the need to justify the sacrifice of strong governance principles, to mobilize higher investment volumes. However, the cooperative principles through federations have created a powerful tool for REScoops to take on those large projects, making this argument of the FINcoop irrelevant. The MECISE fund, for instance, has placed several bids for various tendering procedures like the sale of Eneco or the participation in the Krammer wind park. This was made possible by the collaboration between a large number of European cooperatives, driven by a group of leading organizations. Participation is opened to all cooperatives across Europe to participate, reducing the risk but also the profits of those leading organizations. This collaboration-based approach is also repeated in the development of projects in Flanders, where cooperatives collaborate to support starting initiatives. This approach is representing a valid alternative to the traditional competition-based model implemented in a majority of European Member States.