Achieving a net-zero emissions energy system requires accelerating renewable electricity deployment while addressing associated infrastructural and governance challenges. This study explores how local energy communities (LECs) in sparsely populated mountains could contribute to this transition by establishing microgrids with renewable electricity generation, storage, and grid assets, as well as with increased electrification of heating and transport. Using the case of 719 municipalities in the Swiss Alps, we model at high spatial and temporal resolution optimal technology portfolios and grid reinforcements under eight scenarios of policy frameworks that vary in grid ownership, export penalties, and transformer capacity limits. We find that when LECs co-invest in renewable generation and grid infrastructure expansion—forming community-owned microgrids—total optimal installed capacity of renewable generation increases by up to 50% as compared to current policy frameworks, including more alpine and agri-PV in addition to building-mounted solar PV, wind power, and biomass. Priority for grid reinforcement shifts from more urban to remote regions in the Alps, reflecting the spatial distribution of most productive solar resources. Although storage deployment is higher with higher imbalance penalties, grid co-investment remains more cost-effective. Overall, grid ownership by LECs leads to higher cumulative revenues and consumer benefits, meaning public support yields net welfare gains. Carbon dioxide emissions savings are also the highest with grid ownership by LECs due to higher self-consumption of renewable generation. The results demonstrate that community co-investment in grid assets in mountainous regions can enhance renewable electricity integration, economic viability, and decarbonization.