Community energy projects (CEPs) are locally owned generation, storage and demand-side energy assets that can strengthen system resilience and deliver economic and social benefits to communities. However, there are a range of barriers impeding CEP growth in Australia.
Without targeted reform, Australia risks missing the economic and social value that flows from community-led infrastructure and reduces pressures on the rapid rollout of large-scale renewable energy required to meet Australia’s emission reduction targets. The opportunity now is to design a framework that enables CEPs to scale alongside the broader energy transition.
Appreciating that the nature and extent of these barriers will differ depending on the specific local context (for example, retrofitting existing communities as opposed to greenfield land development), in this article we focus on the regulatory context in New South Wales (NSW). Many of these barriers are common across all states and territories in Australia, given that Australia’s energy infrastructure and market has been built for large-scale generation from key market participants.
Key takeaways
Regulatory reform is essential to unlock scale: current licensing, planning and grid-connection requirements are disproportionate to the size and risk profile of most CEPs.
Formal legal recognition would transform accessibility: creating a legislated concept of “energy communities” would provide legal clarity promote participation and deliver increased investor confidence.
Public capital and local government should play a catalytic role: early-stage risk capital from governments and clearer pathways for local councils to partner with communities is critical to crowd in private finance.
Aligning CEPs with system planning and the ISP: AEMO’s Draft 2026 Integrated System Plan highlights the growing importance of coordinated consumer energy resources and distributed assets that can interact dynamically with the broader market. CEPs that are visible, dispatchable and digitally integrated will be central to system reliability and least-cost planning.
Lessons from Europe: the European Union has confronted barriers to the development of CEPs by formally recognising “citizen energy communities” and “renewable energy communities” in legislation.
Australia’s energy regulatory framework is highly complex and designed for large, centralised market participants. Small-scale CEPs must navigate complex retail, network and generation licensing regimes, with limited exemptions and onerous Australian Energy Market Operator (AEMO) processes. There are limited pathways or exemptions for CEPs.
The result is high establishment costs, ongoing compliance burdens and reliance on specialist expertise that many community groups cannot afford. Where exemptions do exist, such as for projects under five megawatts, they do not remove the broader structural friction.
If NSW wants community-scale assets to contribute meaningfully to reliability and decarbonisation, regulatory proportionality must become a design principle.
There is no consistent planning route for CEPs in NSW. Navigating the planning and assessment framework under the Environmental Planning and Assessment Act 1979 (NSW) – which may require compliance with Local Environmental Plans, State Environmental Planning Policies and varying technical standards – adds time, cost and uncertainty.
For smaller and often volunteer-led entities, these hurdles are prohibitive.
Councils are natural convenors and trusted intermediaries. Yet the Local Government Act 1993 (NSW) constrains a local council’s ability to take equity stakes or contract with communities to develop CEPs. A ready-made legal and financing framework that councils could use to support community energy upgrades – ‘environmental upgrade agreements’ – are also expressly limited to non-residential buildings.
These constraints limit councils’ ability to act as anchor tenants or co-investors, despite strong community alignment.
CEPs in Australia face acute challenges in accessing finance, particularly in the early stages of project development. Commercial lenders are typically unwilling to fund early-stage CEP development due to perceived risk, lack of collateral and unfamiliar governance models. Meanwhile grant programs are often fragmented or insufficient to cover feasibility, legal and grid-connection costs.
Without fit-for-purpose capital, many viable concepts never reach financial close.
Learning from Europe: from aspiration to institution
The European Union has confronted similar barriers by formally recognising ‘citizen energy communities’ and ‘renewable energy communities’ in legislation.
This legal recognition:
establishes clear eligibility and governance requirements
enables simplified registration and reduced fees
obliges member states to create enabling frameworks in national laws.
Public Commons Partnerships between municipalities (local governments) and communities in relation to local energy assets are also gaining traction across the EU. These models combine public ownership with community governance, formalising participation while preserving oversight.
The lesson is clear. Scale follows structure.
Aligning CEPs with system planning and the ISP
AEMO’s Draft 2026 Integrated System Plan (ISP) suggests that Australia’s future grid will rely on coordinated distributed energy resources, storage and flexible demand operating as part of a two-way system.
For CEPs to play a pivotal role in the ISP forecasts, this means:
CEPs must be capable of market participation, aggregation and digital visibility.
Integration within Renewable Energy Zones (REZ), including emerging urban REZs, will shape locational value.
In this context, CEPs are not peripheral. Properly designed, they can provide local system strength, peak support and community resilience while interacting with wholesale and ancillary markets.
The policy challenge is to ensure that community participation and ownership does not come at the cost of system integration. Accreditation, streamlined AEMO pathways and aggregation models will be essential.
A reform agenda to unlock scale
Community energy projects will only scale if regulation, system planning and capital settings move together. The opportunity is to embed community participation and ownership within a modern two-way grid, align CEP accreditation with ISP priorities, and mobilise concessional and institutional capital to deliver bankable local platforms.
Drawing on international precedent and local constraints, NSW can move from aspiration to implementation through coordinated reforms, including:
Enshrining a legal concept of “energy communities” within legislation with clear eligible and government requirements, as well as providing for tailored exemptions and simplified market registration pathways.
Creating a statutory register of accredited energy communities to provide transparency and eligibility confirmation.
Expand a local council’s ability to enter joint ventures for CEPs and streamline procurement thresholds where defined public benefit criteria are met.
Integrating CEPs within REZ frameworks under the NSW Electricity Infrastructure Roadmap.
Providing dedicated early-stage capital (such as adapting the Capacity Investment Scheme where appropriate) and mobilise sovereign vehicles (such as the CEFC) to de-risk development.
For policymakers, this is the moment to design frameworks that are proportionate, investable and integrated with market operations. For developers, councils and investors, it is time to position projects so they can participate in the broader energy market from day one.
If you are exploring community energy models, urban REZ participation, funding structures or legislative reform pathways, our team can help you shape a strategy that is commercially robust and system-aligned.
Please reach out to discuss how we can support your next step.