The institutional economics of renewable energy communities: Local vs national models and their policy implications in the EU

Renewable Energy Communities (RECs) are increasingly promoted in European energy policy as instruments to advance decarbonisation while improving affordability, participation and local resilience. However, a central controversary in policy debates concerns the desirability of smaller-scale, proximity-based initiatives with a strong sense of identity, as opposed to much larger, supra-local organisations led by intermediaries. This raises questions about the governance, scale, and efficiency conditions under which RECs remain viable, equitable and focused on the objectives for which they were designed. This paper develops a micro-founded analytical framework to assess participation incentives and feasibility in two stylised configurations: Local RECs, grounded in territorial proximity and local reinvestment, and “National” RECs, characterised by supra-local aggregation and professional coordination. The model shows that REC formation requires a feasible surplus-allocation interval jointly acceptable to prosumers and consumers. This interval narrows as coordination costs increase and as the share of energy eligible for community incentives declines. Results indicate that Local RECs enjoy a structural advantage due to full eligibility of shared energy and the presence of local co-benefits, whereas supra-local configurations face scale-related governance frictions and weaker distributive incentives. The analysis identifies three main regulatory levers: expanding eligibility rules for shared energy, reducing administrative and coordination costs through standardised and digital procedures, and strengthening visible local reinvestment mechanisms. These findings provide policy-relevant conditions for designing REC frameworks that balance efficiency, scalability and distributive fairness in the energy transition.