Community Benefit Funds

The topic of community benefit funds, particularly for large-scale renewable projects is one that has garnered significant attention across the development of the sector. (I should note that these funds are separate from the payment that landowners receive for hosting projects.) In Australia, some jurisdictions – New South Wales in particular – has set a range of guidelines around payments for hosting energy generation and transmission infrastructure, but the expectations aren’t consistent across state or the nation.

The same, it appears, is true for the other jurisdictions that I’ve visited to date (US and UK). The UK has long-standing guidance material, but nothing mandated. The guidance material helps to set expectations for communities, but cannot be considered as part of any statutory planning decision-making process. In general though, a 5,000 pound/megawatt/year payment into a community benefit fund was generally viewed as the ‘standard’. That said, there is no standard process for managing and distributing those funds or determining what they can (and can’t) be used for.

In the US, the examples I found tended to be even less consistent. There was a general view from industry that they needed to be contributing to the communities that hosted their projects. There was not, however, any real guidance material or set process around how this happened. As such, much of it that I saw was reasonably ad hoc in nature. This isn’t to say it wasn’t effective or appreciated, just unstructured in its approach.

In talking with government, industry and community, a few things have crystallised for me on this topic:

Clarity:

  • There needs to be agreement on who should be paying such funds. Some in the wind industry pointed out that the oil and gas sector don’t have the same expectations placed upon them. It’s not clear if or how the emerging battery sector will be expected to contribute.
  • Ideally, there should be certainty around how much is being paid – or at least, putting floors/ceilings in place so that industry can budget and community expectations can be appropriately set.
  • Clarity here also reduces the ability for either communities or industry to ‘shop around’ or play organisations off against each other.

Governance:

  • Every community is different, and their ability to manage funds will differ.
    • Small communities with limited existing social infrastructure will struggle to both manage funds and apply for funding through externally held schemes.
    • In visiting Rigside, south of Glasgow, there was an already disadvantaged community that perhaps lost out even further to its larger nearby counterparts because of limited capacity to apply for the (significant, and very rarely withheld) community funding opportunities that the wind farms offered.
  • Industry want good governance so they know the funds they put up is being spent appropriately, and so that they can report on its use with confidence.
  • There may be a role for Local Government in managing these funds. South Lanarkshire’s Renewable Energy Fund is one such model. Local government will often have better governance resourcing to help to manage funds than small community and volunteer groups.
    • This doesn’t mean this is an optimal solution either though – and I’ll talk more about that below.
  • Not-for-profit organisations like Foundation Scotland exist and can manage funds on communities’ behalf; essentially providing the governance framework to administer the funds.
    • This may, however, be at the cost of local representation in the funding allocation phase.

Representation and Transparency:

  • It matters who sits at the table; especially if the goal is to support a just transition. This is easier said than done.
    • There are few existing organisations that provide true representation of their communities, especially the marginalised, minority or disadvantaged.
    • Establishing a new organisation is challenging, as someone needs to decide who should be at the table (and who shouldn’t). This process in itself should be transparent, defensible and ultimately broadly supported by the community.
    • Some funds are sizeable (in the hundreds of thousands to millions), and require certain skill sets which may not always be readily available.
    • It’s likely that those sitting on such groups won’t be well paid – which further limits the selection pool.
  • There needs to be some kind of line drawn to determine who the community is that is entitled to benefit. In some cases, this results in a series of concentric circles being drawn out from the site of a project. As projects develop, these circles can also then overlap.
    • Communities can be quite parochial in terms of how benefits are spread; those who feel they are directly affected might not support those who they believe are not impacted receiving any benefit.
    • These circles can cut across multiple other administrative (e.g. Local Government) boundaries, which adds to the complexity of managing them at a Local Government level.
  • Is the group administering the funding trusted?
    • Another risk that some local governments run is the fact that – even if they are genuinely working hard to be transparent and equitable – there is a level of community distrust in their processes.
    • The same can apply to industry bodies or external groups that lack local legitimacy and representation.

Eligibility for Funding:

  • How will the money be spent? As someone said ‘You can only buy so many football uniforms’ – but things like that are easy to agree on and simple to purchase and acquit.
    • An argument can be made that these funds will deliver a better long-term benefit if they are spent in accordance with some kind of strategy. For example: Rather than purchasing a series of small things, pool the funds to purchase a more valuable asset for the community that can provide a long-term return. Whilst this might seem logical, for small community groups hoping for a more immediate benefit – or for those in the community that don’t benefit from the larger project – this isn’t always fully supported.
    • One purportedly popular measure from a small wind farm near a small town was simply a payment which reduced the towns’ residents’ monthly power bills. It’s not much more than a targeted cash payment, and certainly not all that strategic in nature, but provides a clear and tangible benefit to everyone.
  • To what degree is the project proponent providing the funds able to direct what kind of things they want the funds spent on? Each community is different, and their needs will vary. As such, getting too proscriptive in this space can be limiting.
  • If local government in administering the funds, to what degree can things that might be considered local government responsibilities be funded?
    • I had an interesting conversation around this one, and whilst the lines weren’t black and white, the view was that smaller capital items specifically requested by the community (e.g. some traffic calming measures on a village street) were acceptable, whilst big things that are clearly local government BAU (e.g. bridge repairs) were not.
    • This conversation is particularly salient in the UK, where funding reductions have led to many local government cutting services

It’s a bit of a rabbit-hole to go down, but given the potential value of the funds – especially where small communities with relatively limited resources are concerned – getting things set up well can not only ensure that the benefits of the project are spread locally, but in doing so give social licence and legitimacy to both individual projects and the industry more broadly.

Scotland has had an interesting time of it, due to the number of projects and the evolution of the sector. It’s difficult to impose a system on something that’s been up and running for some time. The slight advantage we have in Australia is that it’s all relatively new – acknowledging that some mining and energy companies already have programs in this space in some communities.

Of all the things that I’ve looked at to date as part of the central thesis of large-scale renewables in regional communities, I feel this is one area where we are early enough in the piece to still have a meaningful impact in getting things set up right and delivering long-term benefit for communities.

1 thought on “Community Benefit Funds”

  1. Hey Nils,
    thanks so much for this post. As you know, we are right at the start of the renewable energy transition here in WA and it is so important that we act now to ensure community benefit is conferred to our RRR communities as we welcome new industries to our regions.

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