Powering up communities

The Blended Finance Energy Project (“BFEP”) was born from an intriguing question: Could a group of mission-aligned investors work together to design a new blended finance vehicle able to unlock additional capital for community-led renewable energy projects in the UK?

The idea originally emerged through discussions within the Blended Finance Collective, a community of investment practitioners interested in mixing concessional and non-concessional capital for better impact outcomes. In late 2025, this developed into a formal co-design project, with the primary objective to design an investment opportunity that could deliver measurable social and environmental impact, while also meeting the requirements of institutional and impact investors.

The project brought together impact investors, charitable foundations and energy specialists for the co-design process. Participants included Access – The Foundation for Social Investment, Better Society Capital, Church of England, GB Energy, Joseph Rowntree Foundation and others. Further insights were gathered from a wider “Investor Consultation Group”, featuring banks, charities, industry experts and pension funds.

Over several months the group, supported by BSC Advisory, mapped the existing funding market, identified gaps and barriers, analysed the potential of different investment models to overcome financing challenges, and came together for two workshops to refine their ideas.

BFEP generated two early-stage investment facility concepts for further co-development. In parallel, the project has also produced a practical example of how engaged investors can collaborate around a specific social challenge where blended finance is well suited, jointly designing an investment vehicle that aligns with shared objectives and constraints.

Community energy is all about empowering local communities to develop, construct, operate and benefit from renewable energy. Think solar panels on school roofs or wind turbines managed by neighbourhood groups. These projects don’t just cut carbon, they keep money in the local economy, create jobs, and help tackle fuel poverty.

The UK’s community energy sector has expanded significantly, with over 600 organisations delivering renewable energy capacity nationwide[i]. However, getting these projects off the ground is tough. The sector faces persistent challenges, including the removal of subsidies, high upfront costs, and limited access to appropriate or mission-aligned funding. The Local Power Plan is a joint DESNZ-GBE publication setting out the UK'S largest ever public investment in Community Energy, but more immediate solutions are needed to bridge current financing gaps.

Blended finance mixes different types of funding (such as grants, impact investment, and commercial capital) to make projects possible that wouldn’t otherwise get off the ground. In the context of community energy, blended finance was identified as a potentially useful mechanism to help de-risk early-stage projects and create pathways for larger pools of capital to engage.

The project’s main goal was to design an investment opportunity that could deliver measurable social and environmental impact, while also meeting the requirements of institutional and impact investors. The process was structured and iterative, involving:

• A comprehensive analysis of the UK’s community energy landscape, identifying market needs, investible areas, and viable business models.
• Workshops and consultations held to gather feedback, refine objectives, and ensure investment models’ alignment with both investor priorities and community needs.
• Feedback from stakeholders incorporated throughout, resulting in a final set of recommendations and draft programme documentation.

Following extensive analysis, two facility models emerged as the most viable:

1. A CITR-Eligible CDFI Facility:
   A model that would provide small loans for solar and retrofit projects in schools, community buildings, and social housing. Structuring a finance vehicle as a Community Development Finance Institution (CDFI) means investments can benefit from Community Investment Tax Relief (CITR), and potentially also a CDFI guarantee scheme that reduces risks for investors. This could help reduce energy bills for the occupants or users of these buildings, and generate incomes for community groups to use to deliver more local energy solutions
2. A Generalist Community Energy Renewables Facility:
   A flexible fund combining catalytic and commercial capital to support a wide range of community energy projects. This facility would be designed to enable scale and co-investment alongside existing initiatives, such as the Community Energy Catalyst. From an impact standpoint, it would enable reduced bills for the local community, as well as potentially creating additional community benefit funds to be dispersed to local impact projects.

Both models were assessed for their ability to deliver high impact, address financing gaps, and align with investor requirements. At this stage, both options remain at an early design phase.

Beyond the specific concepts developed, the Blended Finance Energy Project highlights the value of investors working collaboratively to explore complex social and environmental challenges. By creating space for open discussion, shared analysis, and iterative design, the project enabled participants with different mandates and risk appetites to identify areas of common ground. This kind of collaborative approach can help move conversations beyond high-level ambition toward more practical, investable ideas.

Ultimately, by developing these collaborative structures, the aim is to pool resources to fund more impactful projects, contributing to accelerating the transition to more sustainable energy sources, while ensuring that local communities retain their fair share of the benefits of the transition.

[1] Community Energy State of the Sector Report 2025