“Community renewable energy” earned its own featured chapter in the REN21 Renewables 2016 Global Status Report. In the United States, at least 14 states have enacted legislation to support some form of shared renewable energy. The benefits of community energy are manifold and have been well-outlined elsewhere, including in this report from the Institute for Local Self-Reliance (ILSR).
Here, the purpose is to compare terminology and explore unique models. Many US-based sources on community energy reference community energy in Germany, particularly following the release of a well-circulated graph displaying that “50% of Germany’s renewable energy is ‘people-powered.’” But terminology varies between and within German and English. Models (particularly models of shared ownership) included in each definition diverge, partly driven by differing policy frameworks. As the conversation changes on policies in the energy sector in both Germany and the United States, a look across the Atlantic serves as a reminder of how different this conversation could be.
“Community Energy” and “Bürgerenergie”
In the US, the term “community energy” emphasizes shared ownership. One prominent source, ILSR, defines it as:
“Community-scale or distributed power generation with a collective action to own, develop, or share output”
In German, a comparable term for community energy is “Bürgerenergie,” which roughly translates to “citizen’s energy.” Most broadly, “Bürgerenergie” stands for “a regenerative and decentralized energy transition that represents democratic, social, and environmental values” (Bündnis Bürgerenergie e.V.” [Community Energy Alliance]). More specifically, one frequently cited study (in German) defines “Bürgerenergie” as:
“Renewable energy projects in which local stakeholders have ownership and maintain at least a 50% voting power”
The report then divides “Bürgerenergie in the narrow sense” into two categories, 1) individually-owned and 2) jointly-owned.
1. “Bürgerenergie” – “Individually-owned”
The terms “Bürgerenergie” and “community energy” already diverge in this first category. The “individually-owned” category of “Bürgerenergie” refers to projects owned by households, individuals, and farmers (or small agricultural enterprises). Without shared ownership, this less closely aligns with the term “community energy”, but rather is more comparable with “residential” renewable energy.
The United States and Germany differ less in shares of “residential” or “individually-owned” renewable energy than is commonly portrayed. For solar power specifically, the residential sector made up 44% of the cumulative installed solar capacity in the US between 2000 and 2012, compared to 48% of net solar capacity through 2012 in Germany categorized as “individually-owned.”
2. “Bürgerenergie” – Shared ownership
A starker contrast arises in this second category of “Bürgerenergie”: “Bürgerenergiegesellschaften.” This broad term includes a variety of models, all of which entail both local and shared ownership; in other words, community energy.
The most prevalent model under this category is the “Bürgerenergiegenossenschaft” (citizen energy cooperative). In this model, citizens form a cooperative for the purpose of jointly investing in, owning, sharing voting rights, and benefiting from local renewable energy projects (not to be confused with rural electric utility cooperatives, highlighted below).
This second category also includes “Gemeinschaftsanlagen” (jointly owned by a circle of local investors), joint investments from local citizens and the municipality, as well as “Publikumsfonds” (closed funds available to local citizens), as long as the criterion is met that 50% remains within control of local citizens.
Combined, “Bürgerenergiegesellschaften” made up 9.2% of cumulative renewable energy capacity in Germany through 2012 (0.8% of solar capacity and 20% onshore wind capacity). Comparatively, only 0.002% of net solar capacity in the US could be considered “community solar” (70MW of 25GW), and only 3% of wind capacity added since 2010 has been “community-owned” (ILSR, p. 7).
Limitations for Cooperatives in the United States
Although all of the above-listed forms of shared ownership in Germany would meet the criteria of community energy in the United States, the US policy framework has steered citizens to different, in part both creative and less intuitive, forms of shared ownership in renewable energy.
(Dis)incentives for Citizen Energy Cooperatives
The “citizen energy cooperative” is the most prominent model of shared ownership in Germany, yet in the United States, this model is nearly non-existent. There are only a handful of examples, alongside cooperatives set up to purchase in bulk, as well as a few worker-owned cooperatives operating as solar installers or energy service providers, none of which involve shared ownership (ILSR, p.31).
Why the discrepancy? The structure of renewable energy incentives in the United States plays a role. Many federal and state renewable energy incentives are based on tax credits and tax deductions. Given that a cooperative as a legal form is tax-exempt, it is excluded from accessing these incentives. This significantly sways the economics of a given project and dis-incentivizes cooperatively-owned renewable energy.
Rural Electric Utility Cooperatives
Considered separately here are rural electric utility cooperatives, utilities owned cooperatively by the members (often the consumers) in their service territory, which have a long history both in Germany and the United States.
Utility cooperatives are rarely included when referring to community energy or “Bürgerenergie,” typically citing the fact that most utility cooperatives rely on conventional energy sources and remain relatively inactive in transitioning to cleaner sources of energy.
Yet, utility cooperatives in Germany and the United States hold a unique position to advance community energy projects (with shared ownership already in place). In the United States, however, utility cooperatives face the same barriers as any other US cooperative or tax-exempt entity – no direct access to tax-based renewable energy incentives.
Alternative Models for Shared Ownership in the USA
With barriers to cooperatively-owned renewable energy, US-citizens have instead sought out other ways to combine resources, own, and/or benefit from renewable energy:
Special Purpose Entity
The so-called “special purpose entity (SPE)” model, where “individuals join in a business enterprise to develop a community shared solar project,” is one of the most commonly cited models of community energy in the United States. The for-profit status of SPEs allows multiple community members to collectively own, make use of tax incentives (at least in part), and benefit from a renewable energy project.
On the other hand, an LLC as a legal form is not designed for and not conducive to participation from a wider number of community members. Furthermore, US securities regulations severely restrict companies from soliciting investment from a large number of local community members (ILSR, p. 13).
(“Shared”) Net Metering
Net metering in itself is not a form of shared ownership. However, a number of state-level policies have emerged in the US that allow for community members to share in the benefits of net-metering. These models include aggregated net metering, virtual net metering, and community net metering. If local and shared ownership and benefits are the goal, each of these models side-step policy hurdles in this direction, but at the same time face restrictions and barriers (ILSR, p. 22).
In Germany, with the German feed-in tariff and the option of cooperatives, amongst others, there has been neither the need nor the policy framework for such models.
Municipality as Community?
The role of the municipality in community energy varies in and between the United States and in Germany.
In one source, projects pioneered by municipalities and municipal electric utilities are given an entire section in a report (ILSR, p. 37). In German, the above-cited report on “Bürgerenergie” does not include municipally-owned projects in its definition, arguing that it is not direct citizen ownership. At the same time, there are a number of examples in Germany of municipalities or municipal utilities working closely with local residents to meet local demands, share in benefits and/or offer direct ownership opportunities, challenging Germany that challenge the significance of this distinction; one prominent such example is a municipal utility which is 75% owned by the municipality and 25% owned by a cooperative made up of local members.
Again, as non-taxable entities, municipalities and municipal utilities in the United States do not have direct access to tax-based incentives. In Germany, however, such actors have equal or similar access to the feed-in tariff as any other entity.
“Flip” Model as Community Energy?
For every instance in which tax-exempt entities in the United States cannot directly access renewable energy incentives (cooperatives, utility cooperatives, municipal utilities, as well as non-profits), the “flip” model attempts to reduce this financing barrier. In this model, tax-exempt entities form an agreement (PPA) with private investors (or SPE) to own the renewable energy project until tax incentives are exhausted, then return ownership to the tax-exempt entity.
Given that such tax-based incentives do not exist in Germany, it is unsurprising that this model is non-existent in Germany.
Critique of this model cite its cost and complexity and raise questions on what financial benefits (if any) return to the original tax-exempt entity. This places the model in a grey area on supporting the key criteria of community energy.
Summary and Future Prospects
Germany and the United States differ less drastically in the share of “individually-owned” or “residential” renewable energy (at least in the solar sector), but do differ significantly in the prevalence of shared ownership models. US tax incentive structures have contributed to this discrepancy by excluding direct access to incentives from tax-exempt entities. Even for-profit entities face hurdles (i.e. restrictive securities regulations) in making community energy more widely accessible.
On both sides of the Atlantic, the conversation in the energy sector is changing. Energy cooperatives in Germany are no longer growing at the previous rates: only 40 new “citizen energy cooperatives” were founded in 2015, down 25% from the previous year, and far below the average of 150 per year from 2009 to 2013. Some conclude that changes to the feed-in tariff play a role here. If so, more change is on the horizon; this month, Germany’s parliament has confirmed that the feed-in tariff in Germany is ending. With such changes, community energy advocates may search for alternative means to ensure “Bürgerenergie” maintains a foothold in the “Energiewende”, for which the variety of models in the United States could serve as case studies.
In the United States, the grid-lock debate around net-metering is slowly loosening. Congress has extended tax incentives (2015). Legislation at the federal and state level from the past 2-3 years has loosened restrictions on crowdfunding and could support community crowdfunding for renewable energy projects. The pioneering reforms included in New York State’s “Reforming the Energy Vision” are shifting the conversation around the country towards grid resiliency, distributed energy sources, and empowering local governments to adopt sustainable energy systems.
As such major overhauls of the energy sector are underway, policy-makers and utility regulators in the United States will have ample room to (re)structure incentives. This restructuring could continue to be exclusive, but it could also be an opportunity to facilitate a transition to an energy system that is based on renewables, equitable, resilient, widely accessible, and ultimately beneficial to the local economies and communities in which they are developed.