Plans for Bendigo's abandoned mineshafts have exposed red tape for community groups hoping to harness water for green power.
There are "simply too many" different legal regimes for other projects it inspires to navigate en masse, a University of Melbourne study of energy regulation has found.
Bendigo's proposal - which would use historic shafts to pump and store hydro energy - could be the blueprint for other communities if government departments can keep pace, researcher Elliot Provis said.
"One of the big problems that you have is that there are these big government departments that don't really interact in a way that is collaborative and can push forward projects that are worthwhile," he said.
Mr Provis would like to see planning procedures streamlined so that projects like Bendigo's can compliment mooted electricity network upgrades.
"There's (also) a lack of planning long term around where energy generation plants could be," he said.
"That's led to this bizarre situation where we have all of these wind and solar plants popping up in western Victoria but we don't have any of the infrastructure to be efficiently transmitting much of it."
Smaller scale wind and solar projects are filling a vacuum as investors shy away from bigger proposals - scared off by political uncertainty over clean energy industries and the lack of a clear policy to reduce Australia's greenhouse gas emissions, Mr Provis said.
"In some ways it's going back to what we originally had, because technology now permits us to have smaller, almost separate 'mini-grids' that end up supplying electricity and power to communities," he said.
"When people began designing electricity networks this is how they started out. They were municipal electricity grids."
More on Bendigo's hydro plan:
Despite the challenges Bendigo's pumped hydro scheme could face, it would likely succeed with strong community interest, Mr Provis said.
"That 'not in my backyard' animosity is not something you necessarily see in community-led projects because they are started from the grass roots. There is a sense of ownership and democracy," he said.
"One of the really important things is that people feel like the money made from these types of projects can be reinvested in their community, because everyone has part-ownership."
The state government is currently considering whether it will fund a feasibility study into the project with the City of Greater Bendigo.
That study could address some of the projects unknowns, including technological and regulatory challenges, Bendigo Sustainability Group president Trevor Smith said.
He said the BSG would love to see the study funded.
"If someone went for it, that would be absolutely fantastic," he said.
Bendigo's council wants 100 per cent renewable energy from local and regional sources by 2036.
Yet the bulk of that is unlikely to be provided by community-led initiatives.
"We aren't going out there doing mainstream commercial projects. That would be silly, there's hundreds of people doing that," Mr Smith said.
"We are looking at niche markets and trying to prove concepts."
The community needs to own much of a "decentralised" future energy system, the BSG's Chris Corr told a Victorian parliamentary inquiry into climate change.
"Much more needs to be done to make the most of the once-in-a-multi-generational-opportunity as we transition our power generation away from fossil fuels to renewables" he wrote in a submission to the inquiry.
Mr Corr supported calls from the Coalition for Community Energy for a 100 megawatt renewable energy target by 2025, a new feed-in tariff and extra funding for community power projects.
He would also like to see renewed funding for Bendigo's Community Power Hub pilot program, which has financed solar panels on roofs and is planning a community owned solar farm on the outskirts of Bendigo.
"A formal review of the pilot program is presently being finalised and indications are that for every $1 invested by government there have been in excess of $6.50 in benefits generated including money staying locally within communities and local jobs being created," Mr Corr said.
The study by Mr Provis has been published by The Electricity Journal.
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