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Monica_55905 May 06

Social Impact Objectives in Renewable Energy Development: Doing Good for People Is Good for Business

Social Impact Objectives in Renewable Energy Development: Doing Good for People Is Good for Business image
Falling prices, intensified climate change mandates, and improved technologies have ignited tremendous growth in the renewable energy (RE) industry. More than ever, what’s good for the planet is also good for the bottom line.
But what about for people? RE projects work best when they are designed to produce not just power but empowerment: jobs, schools, bridges, gender equality, opportunities for youth. COP26 recognized the importance of social impact by underscoring the role of Indigenous communities in achieving climate change goals. It was no coincidence that civil society, Indigenous people, and human rights activists participated at COP26 with elevated status. Indeed, this year’s amendment to Article 6 of the Paris Agreement, which governs carbon markets, reflects the role of social impact in the fight against climate change.

Unfortunately, cases of social conflict during RE project planning, procurement, construction or operation have had negative social impacts on communities around the world. Poor community engagement can also derail development, trigger legal proceedings, and lead to bankruptcy. Stalled construction means that commissioned projects no longer reflect market prices.

While the consulting firm Control Risks writes that the “environmental and social impacts of projects on their local communities pose some of the most persistent and high-profile risks for investors—not just financial but reputational”— community engagement can ease the project development process and lead to power for all.


Addressing Social Impacts Is Relevant


Creates Community Acceptance

A few years ago, power project developers in Kenya experienced conflict with landowners and repeated delays over the acquisition of wayleaves to run new transmission lines—and the high costs of associated compensation. Recognizing a need for clear guidance, Power Africa published a Guide To Community Engagement for Power Projects In Kenya, developed by Tetra Tech experts in consultation with local leaders.

Although focused on Kenya, this guide’s premise—that “community engagement should be embraced as a means to help de-risk projects, keep transactions on track, and create shared value for companies and local stakeholders”—is not country-specific. Its global best practices should be woven into the core business activities of development projects. For KenGen, Kenya’s leading electric power generating company, community engagement is no longer seen "as a charitable practice or an exercise in corporate social responsibility," but as something that is "good for the utility's bottom line." The most economically successful RE developments are built on a foundation of early community engagement that leads to timely completion of the project and the opportunity for developers to contribute to the public good. The engagement informs tender preparation by the authorities and project due diligence by the bidders, illuminating measures that are necessary to address community issues and creating a collaborative relationship between developers and local stakeholders that serves as the foundation for sustainability.


Mobilizes Investment

Addressing the social impacts of development projects also helps win investor confidence. Some development financial institutions and investors with strict social impact requirements are unable to invest unless there is documented community buy-in. In Kenya, the Ministry of Energy and Petroleum and the Energy Regulatory Commission require developers to "obtain a record of 'no objection' from the community within which the project is located prior to issuance of approval to proceed with the project." Formalizing the process of achieving what some refer to as “social license” has paved the way to easier financing by alleviating financiers’ concerns about delays caused by community opposition and litigation.  

Some communities have even become investors themselves. Such innovative financing schemes can rise out of the community engagement process, taking the form of co-investment or co-ownership, with varying degrees of risk and profit potential for the community. For example, in a series about radical municipalism, Resilience.org described a “decentralised wind power revolution [that] is already happening in Denmark and Scotland, where community ownership is delivering power to the people.” Profits are returned to the community to subsidize elder care, local businesses and charity projects. This widespread community engagement offsets the “negative spin” on wind energy found in other places.
 
It doesn’t hurt that the government in Denmark supported green innovation with tax breaks that incentivized households to buy into wind cooperatives and a law in 2011 requiring that all new wind projects include 20% community ownership. Along the same lines, the BBC recently reported that a wind turbine owned by 907 people across the United Kingdom is being constructed in Wales. When national and local regulations ensure that proper compensation reaches the landowners and affected communities, renewable energy development becomes a win-win.

 
Taking Early Steps to Ensure Success


Stakeholder Identification

Community engagement can entail many activities, but first among them is identification of stakeholders and interest groups. This systematic process illuminates potential partners and conflicts and provides an opportunity for developers to understand where to focus engagement and identify gaps, such as lack of representation by women or marginalized groups. 

When the Noor 1 Ouarzazate Concentrated Solar Power Project in Morocco constructed its first power plant on communal land owned by the Ait Ougrour Toundout community, it offered cash compensation for the land. However, the local people preferred to receive compensation in the form of infrastructure investments. Cash would have benefitted only male landowners. In an impact statement, the World Bank’s Energy Sector Management Assistance Program (ESMAP) described the consultation process between the government and community stakeholders, which led to the development of “amenities and social services for all,” including drinking water facilities, community centers, and a dormitory for female students.
 
Canada’s wind energy industry has worked with over 35 Indigenous communities as a “Clean Energy Collaborator” with the innovative 20/20 Catalysts Program, which supports clean energy development in Indigenous communities. Many of these communities receive equity or rental payments for use of community-controlled lands.

In Colombia, Tetra Tech advisors are consulting with Indigenous leaders in Guajira province to bring this wind-rich, but historically energy-poor, region power and prosperity. The country’s renewable energy auctions in 2019, supported by Tetra Tech through the USAID Scaling Up Renewable Energy (SURE) project, awarded nine contracts that will provide nearly 1,400 MW from wind and solar sources at historic low prices. Following this success, Tetra Tech supported the Ministry of Mines to develop a private sector engagement strategy to help developers and other stakeholders minimize the delays, cost overruns, and even cancellations that can occur when local communities are not involved. According to USAID’s SURE project, the Guajira workforce plan will “construct and operate an expected first wave of about 2,531 MW of renewable energy between 2021 and 2024, consolidate a development engine for the region, and catalyze long-lasting economic benefits for the local population.”

 
Resolve land and resource issues

Land-related issues are the most common source of community grievances against development projects. Addressing land and resource rights promotes community engagement and helps the developer get a head start on processes that may be required for auction participation or post-award acceptance. Some national authorities and international development finance institutions require developers to complete studies documenting the potential impacts of projects they finance and plan for their mitigation. This can include environmental and social impact assessments, environmental and social management plans, water use applications, civil aviation commissioner consent, heritage authority approval, and proof of applications for land use change, subdivision, and zoning, among others.


Measures to Achieve Specific Social Objectives

For best results, social impact considerations need to be woven into the development process—from concept creation through strategic planning, procurement, construction and operation. Measures that mitigate the risk of negative social impacts and/or encourage benefit-sharing and local value creation include the definition of social impact regulations and government-led measures that facilitate compliance with these regulations; voluntary or mandatory local value and benefit-sharing measures; and conditions for participation, bid award criteria, and bonuses, quotas and penalties built into procurement frameworks.


Mitigating the Risks of Negative Social Impacts

Mexico’s fourth RE auction round, scheduled for 2019 but canceled following the presidential election, made the social impact assessment a condition for participation instead of a post-award requirement. Tetra Tech supported this by developing an action plan to address the social aspects of renewable energy projects, within the framework of USAID technical assistance provided to Mexico’s Energy Secretariat. The plan’s recommendations were integrated into the Administrative Provisions on the Evaluation of Social Impacts and published in the Official Gazette of the Federation of the Government of Mexico.

Regardless of where requirements fall in the development process, they can be costly and time consuming. In the early years of the South African Renewable Energy Independent Power Producer Procurement Program (REIPPPP), well known for its success in achieving investment in the country, requirements were often onerous, with some cases requiring upward of 20 permissions and taking more than a year to process. The approval in 2016 of eight Renewable Energy Zones and five Power Corridors to guide the locational choice of investments has streamlined environmental impact assessments and is “expected to reduce environmental review and decision-making time from 300 days to 147,” according to an International Renewable Energy Agency report on auctions in sub-Saharan Africa. While these are environmental, not social, impacts, environmental degradation affects local communities in multiple ways.


Local value creation and community benefit-sharing

To obtain a generation license in Namibia’s world-class solar PV auction for a 37 MW project in 2016, developers had to show that disadvantaged groups, including women and people with disabilities, held 30% of the shares in the project. The project is 51% owned by Alten Africa, 19% owned by the utility NamPower, and 30% owned by local women-owned companies First Place, Mangrove, and Talyeni. In addition, the technical specifications required that 100% of the project’s unskilled labor be Namibian citizens.  

Namibia is building on this early auction success and maximizing the potential of its vast renewable energy resources—many parts of Namibia boast solar and onshore wind capacity factors in excess of 30% and 50%, respectively—with a pledge at this year’s COP26 to reduce carbon emissions by 91% over the next five years. To support this goal, the country recently proposed the Southern Corridor Development Initiative (SCDI), with a focus on developing local industry. National and local benefit criteria built into the procurement process included requirements that 30% of companies hired to conduct pre-feasibility studies be local; 93% of employees during feasibility and construction be Namibian; 20% of these employees be youth; and 2.5% of annual revenue be given to a newly established Sovereign Wealth Fund.

As part of this initiative, the Namibian government issued a global invitation for collaboration to build gigawatt-scale electrolyzer units in its Karas region. The invitation culminated in nine multi-billion-dollar proposals from six global, regional and local developers. Namibia’s Presidential Economic Advisor and Hydrogen Commissioner, James Mnyupe, announced at COP26 that Hyphen Hydrogen Energy had won the award, citing the strength of its prefeasibility studies of environmental and social impacts and its presentation of secured off-take agreements for phase 1 (2025).
Similar in scope to Morocco’s massive, three-plant Noor Solar complex (see below), the SCDI will include renewable energy plants, green hydrogen ammonia assets, rail and port concessions, nearby mining hubs and agricultural assets  that could completely transform Namibia’s economy. Tetra Tech, through SURE, is among the experts supporting Namibia’s ambitions.

Morocco’s Noor Solar complex used early assessments and studies by ESMAP to understand local needs and tailor project design to help meet those needs, namely development of local industry and improved infrastructure for local communities. Studies found that concentrated solar power (CSP) presented Morocco with an opportunity to generate local jobs and increase incomes, in addition to providing energy security and promoting renewable energy. Efforts resulted in the development of a local solar manufacturing industry to provide parts and services through all stages of development and a green energy market to export the energy to Europe. In addition to economic benefits from construction and civil works, manufacturers could reap benefits by exporting CSP components.
Conclusion

For many of us, the lure of RE is that it ticks all the boxes: It’s clean, it’s relatively quick, and it can light up lives in developing countries around the world. It’s a climate change solution that pays. What we must remember is that the social impact of RE starts long before the first megawatt flows. Engaging and including the people who will benefit from RE development is where good business begins.

Authors:
Carolina Barreto, D.Eng., Off-Grid Director, Tetra Tech
Elizabeth H. Oakes, Technical Writer/Editor, Tetra Tech