Communities should be paid for allowing wind turbines and solar panels on public buildings, according to MPs.
The Energy and Climate Change Committee said local residents should be offered a cut in electricty bills or a stake in the ownership of renewable energy developments in their area.
The cross party group also said Government needs to do more to encourage local authorities to identify suitable areas for wind farms or solar arrays.
The report comes as solar companies warn that solar panels must go on more schools and other buildings since there are not enough brownfield sites around the UK.
Although large-scale projects will still supply the majority of power for the country, the MPs said local renewable energy projects will become increasingly important.
But while households which install small-scale systems, such as solar panels, and major renewables projects both receive financial support, medium-sized schemes, between 10 and 50 megawatts, fall through the gap and receive no cash.
The Government must bring forward proposals to support such schemes to incentivise people to install them, alongside a package of measures addressing finance, planning, grid access and advice, he committee urged.
The Government-backed Green Investment Bank (GIB) could provide seed funding and project development cash for feasibility studies, permits for the grid and other elements to reduce the risk in getting schemes off the ground.
Speaking for the committee, Dr Alan Whitehead said the Government should encourage businesses to offer local people a stake in all new energy developments, or even make it mandatory to offer community ownership.
“Encouraging schools, businesses and local authorities to generate some of their electricity locally can bring big benefits to communities and the UK as a whole.
“Businesses can reduce their energy overheads, locals can potentially benefit from cheaper electricity or heat, and councils can use projects to tackle fuel poverty, cut costs and reduce carbon emissions.
“Medium-scale power plants could also help to boost energy security. Local heating schemes in particular could be helpful in balancing out peaks and troughs in the electricity supply and demand by storing energy as hot water when there is a surplus of electricity being generated.”
The report also urged the Government to do more to encourage local authorities to identify suitable areas for renewable energy development in their areas.
It said councils should set out clear guidance about what is expected from local energy projects to reduce risk in the planning process and prevent bad projects from coming forward.
The Government has admitted they want to increase the number of solar panels covering the countryside by up to 14 times over the next 7 years.
About 1.4GW of solar power is generated on buildings and in fields of Britain at present. By 2020, the Department of Energy and Climate Change wants this to rise to between seven and 20GW.
But a survey by Kronos Solar, shows that out of the 23,000-plus brownfield sites listed in the UK, just 128 have theoretical potential to host solar farms.
This will mean building on greenfield or finding more roof space to host solar panels.