The Clean energy Council and Farmers for Climate Action recent released a joint paper entitled “Billions in the Bush: Regional energy for regional prosperity“. It’s a good document, and ably argues that there will be significant benefits (literally billions of dollars worth) paid to landholders and communities as part of the roll-out of grid-scale renewables across the National Electricity Market (which does not include the islanded grids of my home state of Western Australia – or the Northern Territory). Despite the slight, the reality is that if you were to model and include WEM figures, those numbers go even higher – which is great.
It also features a few useful benchmark figures around the quantum of funds being paid per hectare or megawatt to landowners and communities through these arrangements, and discusses some of the factors which affect those values (something that landholders, local governments and communities are increasingly interested in. The “but” is coming though.
BUT the other element that the report highlights – intentionally or not – and doesn’t address is the large disparity between what individual landowners will earn versus what will come back to communities. The ratio, at lumpy aggregate level across their 2024-2050 estimates, is ~4-5:1. That is, for every dollar going to some form of community benefits, an estimated 4 to 5 dollars will go to the landholders hosting the generation infrastructure.
To be clear, I am not say that this is inherently bad. I firmly believe that landowners have a right to be reasonably compensated for the various impacts that come with hosting these projects. As I argue in my Churchill Fellowship Report, this is an economic transition, and if there’s no economic incentive, for landholders and other affected parties, they simply won’t support it and projects will not go ahead.
As I get to the point: I had a delightful dinner last week with a friend working in the wind power industry. He observed, through his work engaging with regional landholders, that the benefits from wind farms tend to go to the districts’ biggest landholders. The more land you have, the more turbines you can potentially host, the greater your economic return. He commented that the people he was dealing with are often savvy businesspeople, and people who had been willing to take some risks, borrow money, and expand their holdings when interest rates were relatively high. They are now reaping the rewards of that approach by taking a disproportionate share of the future lease payments available in their respective districts.
Again, I’m not here to make a value judgement on this – we live in a capitalist society and there are a bunch of sociocultural reasons to say “Well done, you took the risk, put yourself on the line and it’s fair and reasonable to enjoy the payoff.” I can assure you that I don’t have the risk appetite to go farming and put my future at the whim of the weather, as so many do.
Even if we all agree that this is reasonable though, it’s the potential for unintended consequences here that I think are worth considering.
1. Just Transition
While on the one hand, there needs to be financial incentives for landholders to host the infrastructure to support the (critically needed) transition to renewable energy, this approach also has the very real potential to increase wealth inequality in our communities. There are some obvious opportunities for tension here as we strive for a just and equitable transition.
2. Financial Power Imbalance
Another possible consequence is one that I observed in Noordoostpolder earlier this year. Along the banks of the IJsselmeer, Windpark Noordoostpolder put a turbine on roughly every second plot of farmland. The practical outcome of this was that the landowners with turbines suddenly gained a competitive advantage over their neighbours. They were better positioned to grow their operations and – on a long enough timeline – you can see a possible future where the wealthier landowners (and those whose operations are more resilient to the vagaries of the weather) are able to consolidate and squeeze out their neighbours.
In regional Australia, there has been (justified) concern that large corporates have engaged in this type of behaviour, buying out their smaller family farm neighbours. This consolidation is, in part, blamed for population decline in many small regional farming towns. While some have noted that the additional financial strength from hosting renewables makes farms more resistant to corporate takeover, it also creates opportunities for some of the larger family farms to engage in the same behaviour. This is not to say that they will – but the lived reality in many broadacre farming regions is that farms are getting bigger, and the number of people farming is declining.
3. Food and fibre farming to energy farming
The other possible future is the situation where the payments from renewable energy projects are attractive enough to reduce the incentive to stay in the community and farm at all. Perhaps a greater potential threat from solar than wind development (given the relatively greater ease to co-locate wind power generation and farming operations). In Extremadura, Spain I came across several examples of farmers who – due to the income from leasing land to solar projects – had simply packed up and moved to the city.
In these cases, the payments from the energy companies were comparable or higher than what they could make from farming. Once again, due to the relative difference in the operational workforce for a solar farm, versus that of an agricultural operation, this saw a hollowing out of some small regional communities.
This isn’t to say that we are currently on a path where farming may be disincentivised by the value of landholder payments, simply that this has happened elsewhere in the world, and we need to be alive to the possibility.
Now, all this isn’t to say that there aren’t also ways to deal with these potential challenges:
1. Neighbour payments
Simply paying neighboring properties who aren’t hosting infrastructure is one way to reduce the income disparity that can emerge. It is increasingly becoming a common practice. That said, neighbour payments are (understandably) often only a fraction of what a landholder might receive. Given the desire for low op-ex projects, the goal is usually to pay out the minimum amount required to gain acceptance – unless there are agreed guidelines directing otherwise.
2. Project design
There are also emerging examples of project developers who are actively working with neighbouring properties to provide them with some infrastructure, and therefore some of the financial benefits as well. This broader spreading of the infrastructure, and therefore the financial benefits, both helps improve social acceptance among neighbouring properties, and potentially reduces the income disparity between neighbours. It’s worth noting that neither this strategy, nor the one above, does much to address the disparity between what a large landholder might receive versus the benefit a community member living in a nearby town might experience.
3. Benefit distribution
The other obvious, if more challenging, option is to think about how benefits are distributed. If project developers are providing $X in overall benefits and payments, does the 4:1 ratio represent a reasonable outcome? This could be addressed through reducing the quantum of landowner payments (which might make it harder to get project land secured) or increase $X (the overall value of benefits) in order to allow for greater payments to community – which might threaten project viability. Neither option is necessarily simple.
Failing either of those, the other key consideration is to ensure that the portion being paid to community is delivering maximum benefit back. This will look different for every community, as their needs, context and capacity will all vary. It’s not just about the value, but also how that contribution is planned and delivered. I’ve got some thoughts on this, which will go up in a separate blog post.
None of this is a call to put a brake on project development. The billions of dollars that will flow into regional communities through the energy transition are both necessary and welcome – but as we think about this potential influx of funds, let’s also give some thought to whether those funds are going, and what the (positive and negative) impacts of that might be – and how we maximise the positive end of the spectrum.