The market town of Wadebridge in northern Cornwall was once a centre of engineering and energy production. In the 1920s a single house, still standing today in Gonvena Hill, was generating most of the town's power.

Four decades later, the growth of the National Grid saw Wadebridge lose its energy independence. But Kevin Smith, who has lived in the town for over a year, said his community is now going "back to the future".

"If you go back 100 years the town was self-sufficient, generating energy from coal and gas. We want to take Wadebridge back to that, but using renewables rather than coal as the source of power," he said.

Smith is the communication director and a board member of the Wadebridge Renewable Energy Network (Wren), a not-for-profit co-operative run by volunteers, which works in the community to improve energy efficiency and help people install solar panels and renewable heating systems. Wren has set up shop on the high street offering advice to residents about how to keep their homes warmer and who to approach to get solar panels fitted.

Around 1,000 members have signed up, but there's work to be done to get the whole town of 8,300 people on board.

Community energy projects, where people get together to generate and save energy locally, are seen as a possible solution to creating a sustainable energy supply and reducing reliance on the 'big six' firms that now control 95% of the market: Scottish Power, British Gas, EON, Npower, Southern Electric and EDF.

Philip Wolfe, non-executive chair of Westmill Solar Co-operative in Oxfordshire, said it's important to diversify the country's energy supply: "If you are relying on one source and something goes wrong then you're stuffed, but many sources of supply means that there isn't a danger of the economy falling over if that one source has problems, for whatever reason."

While the aim is for Wadebridge to be entirely self-sufficient by 2020, just 3% of Wadebridge's energy comes from renewables today. Smith says if the town had a community-owned power source, such as a wind turbine, it could generate its own energy and influence the cost of energy bills.

So far 540kW of solar PV and over 750 kW of renewable heat have been installed in Wadebridge through the help of Wren. The people of the town can use any of the energy that they generate to reduce their electricity bills and sell any extra back to the grid through the government's feed-in tarriff.

Since 2008, 5,000 community energy groups like this have been active in the UK, according to the Department for Environment and Climate Change (DECC). However, Respublica research shows that community-energy could grow 89 times in its current size through partnerships between communities and private companies. In the UK 0.3% of community energy contributes to the grid compared to 46% in Germany.

The small number of households making energy-generating installations through the government's Green Deal has also been criticised. At the end of January, just 746 households had measures installed through the energy efficiency scheme.

Rachel Coxcoon, head of local and community empowerment at the Centre for Sustainable Energy, said the Green Deal is not attractive financially. "To date, there have only been around 1,600 Green Deal finance plans progressed, out of around 129,000 assessments that have been completed. But that doesn't mean that people aren't actually fitting the measures, and there's a lot of evidence to suggest people are simply finding other ways to pay for it."

Setting up energy co-operatives, where members come together locally to generate their own energy, also has its challenges because local authorities and elected members can be resistant if they don't feel involved, said Coxcoon. Oxford city council has partnered with the not-for-profit company the Low Carbon Hub, working on a range of micro-hydro and solar PV schemes throughout the county. But Jo Colwell, environmental sustainability manager at the council, believes that while community energy is a fantastic opportunity it is still "ferociously complex".

She said: "Community leaders need confidence and reassurance in approaching potential business partners and understanding the technical details. In Oxfordshire the low carbon hub fulfils this role in lending that support and expertise and empowering communities to take on community energy."

Colwell said enthusiasm for local schemes where energy is sold back to the national network is limited by budget pressures; expensive feasibility studies are required, along with legal and planning support.

The Roupell Park Estate in Brixton had 52 kWp of roof-top solar panels installed in 2012 as part of a community energy project. The panels were paid for by tenants living on the estate, each investing £50. Together the residents raised £60,000 and shareholders part-own the panels. Any revenue is invested back into the community.

Mary Simpson has lived on the estate for 28 years and is chair of the Roupell Park resident management committe. She has a simple message for government: "Give grants to local communities and let them run projects – that way you would get a better outcome if local people feel they are empowering themselves and it's not just bigwigs coming in."

Founder Agamemnon Otero plans to help other areas set up similar co-operatives through his not-for-profit organisation Repowering London. Though progress may seem slow, he said, change is happening. "Repowering London is focusing on London at the moment and we want that to go really well - but there are fantastic groups in Scotland, Cornwall, Bristol and Bath. It gives me hope for the future of community energy. It is very difficult given financial challenges, but people are fed up with the system and excited about working with these programmes to invest in local communities."

This feature is part of the Guardian's Big Energy Debate series. Click here to find out more about this project and our partners.