The Theory of Creating an Energy Community Step by Step
As the global pendulum of the energy transition swings more and more from centralized giant providers toward decentralized energy communities (ECs), the role of the individual also increases in this transformation process. By establishing ECs, local communities finally have the opportunity to rely on the energy they produce themselves, and turn to energy providers only if absolutely necessary. This way, they can significantly reduce system-level dependence, price uncertainty, and harmful environmental impacts, while improving energy security.
However, creating an energy community is not simply a “plug n’ play” task. It requires experience, careful planning, and technical expertise. In this article, we explore the theoretical process of implementing an EC.
Laying the Foundations
ECs are legal entities whose members cooperate to produce, consume, share, and manage energy locally. These are non-profit communities whose main goal is to provide economic, social, and environmental benefits for their members.
The European Union’s (EU) “Clean Energy for All Europeans” legislative package, and therefore domestic regulations as well, distinguishes between two main types of ECs: the Citizen Energy Community (CEC) and the Renewable Energy Community (REC). While both types support bottom-up organization and decentralized operation, there are important differences between them. In theory, the CEC allows for energy production not exclusively from renewable sources, and its framework includes aggregation. In contrast, the REC operates under stricter regulations and focuses specifically on the local production and use of renewable energy.
A fundamental question, then, is which path our future EC will choose. The following table shows the key differences between the two types of ECs in detail.
| Citizen Energy Community (CEC) | Renewable Energy Community (REC) | |
|---|---|---|
| Main Goal | Active participation in the energy system: generation, consumption, distribution, storage, and sale of energy | Local generation and use of energy from renewable sources |
| Community Goals | Social, economic, and environmental objectives | Mainly local economic and environmental objectives |
| Energy Sources | Not limited - both fossil and renewable sources are allowed | Exclusively renewable energy sources |
| Geographical Scope | Not limited - can operate regionally or nationwide | Limited - production and consumption must be within the same grid transformer area |
| Eligible Participants | Individuals, small businesses, and municipalities | Individuals, small businesses, and municipalities |
| Governance | Democratic: one member - one vote | Democratic: one member - one vote |
| Legal Forms | Ltd. (limited liability company), non-profit foundation, association, cooperative, or other community-based form | Ltd., non-profit foundation, association, cooperative, or other community-based form |
| Profit and Benefits | Non-profit, with a focus on community benefits | Non-profit, with a focus on community benefits |
| Energy Sales | Possible to sell to members and external partners | Yes, but the primary goal is energy sharing among members |
Establishing the “Core Team”
Every successful EC is built on a committed and motivated group. This so-called “core team” can include local residents and entrepreneurs, and even the municipality can join the initiative. For the long-term, stable operation of the future EC, it is a great advantage if its members have different skills and viewpoints, come from various professional backgrounds, and bring their own networks with them. The task of this core team is to reach consensus on the goals and operating principles of the future EC, and to take the first legal and technical steps.
Defining the Goals
Once the core team is formed, the next step is to outline the EC’s goals. Although these goals are more or less achieved automatically by founding an EC, prioritizing them can help to refine the focus.
Such goals may include:
- Cost Reduction: EC members jointly produce electricity, which they then use for their own needs. Since this energy does not need to be purchased from a utility provider, this can result in significant savings in both the short and medium term, for the community as well as individuals
- Broad Access to Renewable Energy: ECs offer the chance for members to benefit from cheap energy produced from renewable sources, even if they cannot install such production systems themselves
- Long-term Financial Benefits: In addition to the fact that the directly consumed energy is practically “free,” the EC may also gain additional income by selling excess energy not used or stored to the utility provider. This income can be used to maintain or further develop the EC
- Predictability: Electricity produced by ECs reduces, or in some cases completely eliminates, the financial exposure caused by market price fluctuations. Members become much less dependent on large energy providers, which allows for more predictable long-term financial planning
- Social Impact: ECs stimulate the local economy by involving local businesses and workers in the investments and system maintenance. This strengthens the sense of community and increases the community’s self-sufficiency
- Environmental Protection: ECs usually generate energy almost exclusively from renewable sources, reducing pollution caused by fossil fuels and lowering the carbon footprint of the communities. This way, they contribute in practice to the fight against global climate change.
Choosing the Legal Form of Operation
Once the principles and goals of the EC have been set, it is time to choose the legal form of operation. This fundamentally determines the operational framework, access to financing, and long-term sustainability.
Depending on the EC’s goals, several legal forms may be considered. In the following table, we list the most commonly chosen forms along with their main advantages and disadvantages from the perspective of energy communities.
| Advantages | Disadvantages | |
|---|---|---|
| Limited Liability Company (Ltd.) | Flexible legal structure Members have limited liability Suitable for economic/commercial activity Easy to involve external/business partners | Profit-oriented structure Not eligible for non-profit grants or subsidies Decision-making is based on the ownership share |
| Non-profit Foundation | Ideal for pursuing public interest goals Eligible for non-profit funding Easier to build trust with the public | No membership structure, so community involvement is limited Cannot engage in regular commercial activity Not based on member self-governance |
| Association | Community-cantered structure Non-profit status Well-suited for smaller energy communities | Economic activity is only allowed as a secondary activity Complex operations and accounting when involving business activities |
| Cooperative | Specifically designed for community-based economic cooperation Democratic governance Allows economic activity to serve community goals | More complex legal and administrative regulations It may be harder to attract external funding Some uncertainties still exist in Hungarian legal practice |
The legal form chosen for the EC must reflect its goals, decision-making preferences, and financial strategy. Before making a final decision, it is strongly recommended to consult with a lawyer specialized in energy or cooperative law. It can also be very useful to review case studies from other communities to understand what has worked in practice and what hasn’t.
Feasibility Study
Once the EC’s type, goals, and legal form have been defined, the next step is to assess whether the concept is viable in practice. For this, a comprehensive feasibility study must be developed, one that examines technical, economic, legal, and social aspects.
The study should answer questions such as:
- How much will the investment cost, and how long will it take to implement?
- How will it be financed?
- How many people can be involved, and how?
- What is the local energy demand, and what are the consumption patterns?
- Where and how many generation units should be installed to meet this demand?
- How will the generated energy be distributed and used?
- Will the energy be used only internally or sold as well?
- How can the EC connect to the distribution grid?
- What is the long-term sustainability plan?
- What return on investment can be expected?
This analysis forms the foundation for the project’s success and is also a key document for convincing investors, grant evaluators, or local decision-makers. As it is a complex task requiring expertise and experience, it is highly advisable to involve one or more expert consultants in the process.
Permits and Financing
Before any installations or construction can begin, the project must comply with various legal and technical requirements, which may include:
- Establishing the legal entity
- Registering the EC
- Obtaining a power production license
- Signing a grid connection agreement
- Acquiring a building permit
- Obtaining an environmental permit
- Securing an operating license
- Drafting a data protection policy
Since permitting requirements can vary by provider, region, and project, expert guidance is recommended here as well.
Ensuring a solid financial foundation is also crucial, as the project’s launch depends on it. To gather the required start-up capital, it is often necessary to combine multiple funding sources, such as:
- Member contributions
- Community investments
- National or EU grants
- Green loans
- Municipal support
Thanks to the ongoing energy transition, more and more domestic and EU funding programs are becoming available specifically for ECs. A well-developed business plan and feasibility study can significantly improve the chances of securing such financing.
Establishing the Energy Community
Once the preliminary requirements are met and the project is ready to launch, the EC can be formally established. This involves drafting and adopting the statutes or articles of association, and holding the founding general meeting. From this point on, the EC becomes a legal entity capable of signing contracts, applying for grants, and initiating infrastructure investments.
System Construction and Launch of Operations
After laying the organizational foundations and securing the financing, the construction of the community energy system can finally begin. This phase involves not only technical tasks but also requires serious coordination, foresight, and collaboration among the various stakeholders.
Choosing reliable and experienced implementation partners is especially important. These partners should have the necessary permits, references, and technical expertise for the chosen solutions. To keep deadlines and control costs, it is vital to follow the implementation documentation precisely, ensure continuous and comprehensive technical oversight, and maintain professional project management.
Once installation is complete, the system enters a trial operation phase. Here, all installed equipment is tested under a wide range of loads and operating conditions. This stage allows for error correction, system fine-tuning, and training of operations and maintenance personnel. If the trial run is successful, the system can officially be commissioned.
Community Building
Launching an EC is not only a technical project; it is also a social one. After the project goes live, it is essential to keep existing members informed and engaged, and if growth is part of the strategy, to actively recruit new members. Continuous and transparent communication strengthens community identity, builds trust, and sets an example for others to follow.
