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Anywhere there are large-scale renewable and low-carbon energy projects, there is a discussion about community benefits. Because every community is different, there is no single correct approach to providing benefits back to communities, and there has not always been the same level of pressure on both industry and government to ensure that benefits flow.
The reality for many regional communities hosting these projects is that they have the resources and host the infrastructure, but the energy produced or the decarbonisation benefits typically flow to a larger, distant urban centre. Employment-based population growth is not a guaranteed outcome from these projects, so alternative means of providing benefits to communities are necessary.
When money is involved, it also can bring out some of the less desirable human emotions like selfishness, parochialism, greed and jealousy. Achieving perfect equity through a benefit arrangement is impossible, but making genuine effort to have distribution which can be considered equitable is important.
The narrative varies across the jurisdictions I visited as part of my Churchill Fellowship. In the UK, government guidelines have resulted in quite a robust community benefit funding landscape. In the Netherlands, community ownership is a stronger component of project development, whilst in the US and Spain, processes are more ad-hoc.
When in Aragon, I was lucky enough to have morning tea with Professor Sabina Scarpellini from the University of Zaragoza. She commented that much of the benefit has been very indirect, as the focus has been on environmental outcomes, not social outcomes. Consequently, there may be some health benefits from reduced pollution and improved air quality, but the direct financial benefits to the community or consumer (due to regulated power prices) have been relatively limited.
Here in Australia, different states have taken different approaches to the matter. In NSW, for example, proponent access fees are funding a range of community and employment benefits. In my home state of Western Australia, local governments are lobbying the State Government for guidelines regarding benefits.
Who Is Eligible?
It is important to be clear on who receives project benefits. For example, five of the ten villages closest to the Noordoostpodler Wind Park were eligible for annual community payments. As a result, the local government was forced to step in to make a payment to those who missed out, because there were local issues raised around the equity of this arrangement.
Outcomes like this are not uncommon, as there are not always clear rules regarding who should benefit. In some cases, project proponents will establish grant programs and determine internally who is eligible or, as has been the case for some of the proponents in Kern County, CA: They approach local community groups seeking advice or potential projects or causes they can support. In other cases, community groups may self-select by approaching project proponents seeking funds for projects.
The Scottish Government’s Good Practice Principles for Community Benefits from Onshore Renewable Energy Developments suggests the approach below to identify the ‘area of benefit’.
Historically, the ‘area of benefit’ was often just the neighbouring community, but as the scale of projects, and associated benefit packages, have grown so too has the area. Regional funds are increasingly common in Scotland as a result of this, but it may be the case that either benefits are tiered based on proximity to the project, or a certain portion of the fund is ringfenced for certain localities. The Whitelee Wind Farm Community Benefit Fund Eligibility Map is a good example of this.
How Far Do You Go?
One of the biggest challenges in determining eligibility hinges on how you consider impact: Both of the project and potential impact of the benefits. It’s relatively easy to justify compensating those close to projects, they may be directly affected by visual or auditory impacts. It may also be the case that the amount of benefits available is influenced by proximity to the project (e.g. 75% of benefits must go to projects with 10km of a project, the remaining 25% can go to those 10-30km distant.) This results in benefit maps made up of a bunch of concentric circles centred around project locations. Does the calculus change though when you start thinking about the intent and impact of the benefits?
If the intent is designed to help make affected communities more liveable, or more attractive to future residents, should the area of benefit consider things like local school or healthcare catchments? What about sub-regional or regional public transportation services?
This then becomes critical to the question of how the funds are allocated. Should there be regional or sub-regional representation on panels considering how any funds are disbursed? Should some funds be earmarked for neighbouring towns or regional centres? What happens when those services exist outside the community or local government area where the project is located?
A few things I discovered, which probably speak a little to human nature when cash is on the table:
- Those closest to the project are generally not hugely supportive of funds being spread all that widely. As the group most impacted, they generally believe they should be the ones benefiting. Ringfencing funds for specific communities can help address this matter.
- It’s very difficult for community groups or local governments to seek to fund projects outside their boundaries (without at least encountering some local opposition).
- There are now small villages in Scotland emerging who have exceptional local infrastructure, by virtue of many thousands of pounds of community benefits from wind projects, but they still languish in relative deserts for regional services.
- You can always introduce a regional fund, in addition to the more local fund – but this both adds to administrative complexity as well as potentially being an additional project cost which will be reflected in future power prices.
- What happens when you have multiple projects with overlapping concentric circles? Management can get complex, that’s what.
- None of the approaches I’ve mentioned consider a true ‘just transition’ approach, which might actually seek to put the most amount of resources to those most in need, rather than simply those closest. (I’ll likely have a post on funding allocation in the future to discuss this further).
Compensatory Payments Rather Than Benefits
In addition to the benefits, there may also be compensation to impacted groups. Whilst there is generally a payment made to the landholder where the project is built, and sometimes impacted neighbours, there are other forms of compensation made to groups, like fishermen, who might be excluded temporarily from fishing grounds while an offshore wind farm is built.
These arrangements, although integral to the project development process, are not without issue. Neighbours to renewable projects can be a significant source of opposition. In some cases because the project is not on their land and there is a sense that they ‘missed out’. In other cases, it is because they are affected by visual impacts or noise, and they are not compensated; this appears more common for wind projects. There are examples of the practice of providing neighbour payments emerging in Australia, as neighbourly opposition to projects seems to be ramping up.
Whilst this compensation is becoming more common, it is not a standard fixture. In the case of Windpark Noordoostpolder, the turbines are spaced 500m apart, but the standard farm blocks are 300m wide. Because of the value of having a turbine, it has made some landholders wealthier than their neighbours, and these wealthier landowners have been able to buy up more land, at higher prices. In some cases, this has been stretching the economic viability of certain types of agriculture, which is even more problematic for the farmers who do not have the turbine payments than those who do.
Likewise, with some stakeholders in Kern County, there was concern that neighbour payments could threaten project viability, particularly with solar energy projects, where proponents felt that margins were already thin. The reality, across many projects, is that the proponent will be willing enough to consider community benefits and other related payments, where those costs can be recouped from the energy end user. From a regulator’s perspective, this is where it’s important to strike the balance between reasonable benefits and reasonable flow-on effects on power prices.
In Summary
- It is critical to give consideration to the area of benefit from a community benefit fund or program. This process has to include consultation with impacted communities.
- As the size of projects and value of benefits grows, eligible areas are expanding, often leading to the need for regional funds or tiered benefits based on proximity.
- Regional and tiered funds create additional complexity, but have the potential to be more strategic in their impact.
- Compensatory payments are typically made to landholders where projects are built, and sometimes to impacted neighbours.
- Opposition from neighbours is more likely where there is no compensation paid.
- Compensatory payments are typically made to landholders where projects are built, and sometimes to impacted neighbours.
- Compensation arrangements can lead to economic disparities among landholders, resulting in local conflict within communities or adverse local economic outcomes.
- Having a good understanding of the community when designing compensation packages can significantly assist to reduce these risks.
Did you enjoy this? You can find Part 3 here, and Part 4 here.