Endogenous formation of Renewable Energy Communities

This paper explores what drives households to join a Renewable Energy Community (REC) and how these drivers jointly determine the community’s endogenous participation. We present a model in which each household decides whether to join the REC or to continue buying energy on the market. REC members receive a share of the clean energy generated collectively by the REC at no direct charge. In return, they incur installation and coordination costs that rise with membership, while benefiting from government incentives. We find that households belonging to a REC draw less energy from the conventional market and are therefore less dependent on it. Participation in the REC increases when average market prices rise, market price volatility increases, or funds devoted to incentives become more generous. Our results highlight the REC’s role as a risk-hedging mechanism against fluctuations in energy prices.