Background: Two decades after the launch of Local Agenda 21 in Rio de Janeiro, we have witnessed the emergence and development of local initiatives in sustainable development. Local energy communities are a clear manifestation of this development. The questions the paper raises are as follows: can local energy initiatives be considered seedbeds of innovation? If so, how can such initiatives lead to innovations in the energy supply? Methods: We applied desk research and reviewed secondary literature. Results: The questions are answered empirically and theoretically. Empirically, the paper analyses the causes and manifestations of local community initiatives throughout Europe and especially in the Netherlands, to discover the drivers and foci of the initiatives. Theoretically, the paper provides an institutionally oriented classification of local electricity initiatives, based on coordination, technology and performance. In a final step, the paper analyses the innovative capacity of the local energy initiatives. Conclusions: The conclusion is that local electricity initiatives can be considered a seedbed of innovation but with no potential to develop dominance in the electricity supply. The local initiatives will develop as niches inside the dominant central generating station electricity system and will add to the hybridisation of its products and services.