Public Disclosure Authorized IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY Public Disclosure Authorized Through Benefit Sharing, Risk Management and Local Community Engagement Public Disclosure Authorized Public Disclosure Authorized ACKNOWLEDGMENTS This report is a product of the World Bank’s Social, Urban, Rural and Resilience Global Practice and the International Finance Corporation (IFC). The report was developed by Carlos Pérez-Brito (Senior Social Development Specialist), Dorothee Georg (Social Development Specialist), and Elizabeth Kim (Social Development Consultant) from the World Bank; and by Fernando Ruiz-Mier (Senior Operations Officer) and Maria Arsenova (Operations Officer) from the IFC. The report was edited by Michael Alwan. The team thanks peer reviewer Kennan Rapp, Senior Social Development Specialist from the World Bank, for his valuable comments and suggestions. The report has benefited from input by Miguel Székely, Ivonne Acevedo, and Iván Flores from the Center for Education and Social Studies (CEES), who provided qualitative and quantitative research and analysis; Prizma LLC (Mehrdad Nazari, Luisa Montes, Esteban Jacques, Melissa Cuevas, and Mario Vega Frola), who contributed private sector research; and Sergio Vargas Tellez, who conducted an extensive literature review on benefit sharing. The team especially thanks Maria Gonzalez de Asis (Social Development Practice Manager from the World Bank’s Social, Urban, Rural and Resilience Global Practice); Jutta Kern (Operations Manager), Gregor Wolf (Program Leader), and Guillermo Hernandez Gonzalez (Energy Specialist)—all from the World Bank’s Mexico Country Management Unit; Alexandra Ortiz (Lead Urban Development Specialist and former Program Leader in the Mexico Country Office); Veronica R.E. Nyhan Jones (Head of IFC’s Global Infrastructure & Natural Resources, Infrastructure Advisory); and Ary Naim (IFC’s Country Manager in Mexico) for their guidance and support. The team also thanks Efrain Villanueva Arcos (Clean Energy General Director from the Secretary of Energy of Mexico—SENER) and Rolando Ocampo Alcantar (Vice-President of Geographic Information from the National Institute of Statistics and Geography of Mexico—INEGI) for orienting and providing information for this report. The team also extends acknowledgments to the people interviewed for this report. Interviews and field research were undertaken between January and May 2018, in Mexico City and Oaxaca, and involved over 56 interview sessions with 70 people. The team thanks the comuneros from the treatment and comparison municipalities in Oaxaca; Prof. Shalanda Baker from Northeastern University; Roberto Salazar Gil from the General Directorate of Social Impact and Surface Occupation of SENER; Reina Velazquez from the government of Oaxaca; Salomon Nahmed from the Centro de Investigaciones y Estudios Superiores en Antropología Social; Donald McCubbin from the U.S. Agency for International Development (USAID); Carlos Tornel, Jorge Villareal, and Nain Martinez from the Iniciativa Climática de México; and the 15 private sector representatives interviewed for this report. Cover Photo Image Source: “renewable energies, wind energy” taken on April 30, 2007, by Velaia (ParisPeking) via Flickr CC BY-NC-ND 2.0. Contents Acknowledgments.................................................................................................. inside front cover Main Messages................................................................................................................................. 4 Report Summary.............................................................................................................................. 8 Benefit Sharing and Local Community Participation: Factors Enabling 1.  Social Acceptance for Wind Power Projects............................................................................ 16 1.1.  Introduction to Benefit Sharing............................................................................................. 16 1.2.  Benefit Sharing Definitions and Forms.................................................................................. 19 1.3.  Mechanisms and Typologies of Benefit Sharing and Community Participation....................... 21 The Trajectory Toward Benefit Sharing and Risk Management for Maximizing 2.  Finance for Development......................................................................................................... 28 2.1.  Quantitative Analysis of Benefit Sharing Mechanisms in Oaxaca, Mexico............................... 28 2.2.  Good Practices of Local Community Participation for Enabling Social Acceptance................. 38 2.3.  Key Instruments and Challenges for Benefit Sharing and Local Participation.......................... 43 3. Recommendations..................................................................................................................... 50 Bibliography...................................................................................................................................... 56 IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 1 Abbreviations CCC Community consultative committee CEES Center for Education and Social Studies CFE Comisión Federal de Electricidad (Mexican Federal Electricity Commission) CSR Corporate social responsibility DAF Development adjustment factor DECC Department of Energy and Climate Change EIA Environmental impact assessment ESF Environmental and Social Framework FDI Foreign direct investment FPIC Free, prior, and informed consent GW/GWh Gigawatt/gigawatt hour (1 GW = 1,000 MW = 1,000,000 KW) IBA Indigenous Business Australia IFC International Finance Corporation ILO International Labour Organization IPMG Indigenous Peoples Major Group KW/KWh Kilowatt/kilowatt hour LCOE Levelized cost of energy MW/MWh Megawatt/megawatt hour MX Mexico NGO Nongovernmental organization NREL National Renewable Energy Laboratory NSW New South Wales OECD Organization for Economic Co-operation and Development REN21 Renewable Energy Policy Network for the 21st Century REZ Renewable energy zone SENER Secretaría de Energía (Mexican Ministry of Energy) SESA Strategic environmental and social assessment SIA Social impact assessment SLO Social license to operate U.K. United Kingdom UN United Nations UNEP United Nations Environment Program USAID United States Agency for International Development 2 THE WORLD BANK GROUP Main Messages 1. Around the world countries are stepping up their efforts to combat climate change. In the wake of the Paris Agreement and United Nation’s Sustainable Development Goals (SDGs), new actions to address climate change have accelerated, including the adoption of national determined contributions (NDCs)1 and climate invest­ ments for renewable energy.2 2. Worldwide investments in clean energy have increased significantly since 2004, reach­ ing a total in 2017 of US$2.9 trillion. Moreover, annual investment in renewable energy reached US$280 billion in 2017, including US$107 billion in new wind energy infrastructure and US$161 billion in solar energy. Compared to 2004, this is a 550 per­ cent increase for wind energy and 1,400 percent increase for solar energy. 3. There are cases of considerable resistance against renewable energy investments around the world. Reasons for the opposition vary, but commonly include legacy issues, lack of participation in decision making around wind projects siting and development, or lack of expected socioeconomic benefits from developments. 4. There are significant risks of social conflicts around infrastructure. For the public sector, conflicts can disrupt efforts to meet national renewable energy targets and inter­ national green growth commitments. For the private sector, conflicts can have direct cost implications because of delays or increased costs of project operations. For com­ munities, the perceptions of unfairly distributed benefits, lack of consultation, and missing transparency can lead to a continued sense of discrimination and inequality, especially if benefit sharing through investments is not seen as equitable. 5. This report aims to understand how countries can both maximize financing for devel­ opment and create an enabling environment for renewable energy investments while generally supporting socioeconomic development, including the local popula­ tion, and more equitably sharing benefits. To this end, the report completed a com­ parative analysis of relevant laws and policies in six countries and reviewed literature of over 150 publications. Furthermore, the team undertook a quantitative analysis of wind developments in Southern Mexico, analyzing their socioeconomic development impacts on the local population. Moreover, the authors did field research in Mexico and conducted over 56 interviews with 70 people from the private, public, and inter­ national sectors. See the general SDG website or especially Goal 13 (https://www.un.org/sustainabledevelopment/climate-change-2/); 1 and UNFCCC (2019), Nationally Determined Contributions (https://unfccc.int/process/the-paris-agreement/nationally- determined-contributions/ndc-registry). Climate Action Tracker (2018), “Some Progress since Paris” (https://climateactiontracker.org/publications/warming- 2 projections-global-update-dec-2018/). 4 THE WORLD BANK GROUP Main Messages 6. This report provides recommendations on how to improve the investment climate for renewable energy and wind energy, in particular, through benefit sharing3 and local community engagement. Integrating communities through free, prior, and informed consent (FPIC) or benefit sharing mechanisms is costly—but the cost of not integrating communities and of failed projects is even higher. 7. The following recommendations were identified in this report: • Foster close engagement with the broadest range of stakeholders—including government, private sector, and communities—early on, at best even before the auction phase. Community opposition is not entirely directed toward the wind power developments themselves but rather is tied to broader structural factors. These factors include the perception that benefits from investments (such as rent) go to only a few (a neighbor or local politician); a lack of local participation when deciding where to make investments and how to share benefits; historical strug­ gles over poverty and inequality; and mistrust of public and private institutions. Involving communities in the early stages of project development and providing transparent and targeted consultation and benefit sharing schemes are therefore crucial to ensuring a more secure investment climate for both national and inter­ national companies. • Create locally legitimate and cross sector understanding of when a consultation is undertaken “prior” to an investment and what such consultations entails. This should be defined together with industry and community stakeholders to enable efficient project development timelines and respect community learning and de­ cision-making processes. The different states of an investment, starting before the auction processes for renewable energy investments, also would have to be taken into consideration. • Design legal frameworks (or at least guidelines) for benefit sharing and local community participation for investment projects, in line with International La- bour Organization (ILO) 169 and FPIC. The comparative analysis of benefit-shar­ ing mechanisms, rules, and regulations in six countries has shown that there is a correlation between the existence of even only voluntary guidelines and im­ proved benefit sharing with communities. It is thus recommended that countries establish guidelines for benefit sharing in renewable energy investments and inclusive and prior consultations. • Support policy coherence, build capacity, and increase funding for staff leading con- sultations, evaluating assessments, and monitoring benefit-sharing schemes. This recommendation involves raising awareness among relevant staff of how to con­ duct consultations that meet ILO 169 criteria, as well as enhancing the environmen­ tal impact assessment (EIA) and social impact assessment (SIA) approval processes. Institutional coordination and administrative efficiency improvements, as well as streamlined processes through policy coherence, can shorten timelines and enhance 3 Based on the literature reviewed, a good-practice definition of “benefit sharing” is the proactive, systematic effort to identify, maximize, and equitably distribute benefits to directly or indirectly affected communities. The goal of benefit sharing is to increase and share the wide-ranging benefits of investments with local communities and ensure socially inclusive and sustainable development. IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 5 Main Messages coordination with communities; facilitate close follow-up of investment projects; support assessments in line with regional development objectives; and improve co­ ordination among governments, communities, and the private sector overall. • Develop a territorial development database for renewable energy investments. Research has shown the value of a territorial development database containing information on the presence of vulnerable individuals in renewable energy-rich regions, comprehensive socioeconomic indicators, information on development needs, and marginalization rates disaggregated by gender. Such a database can help stakeholders understand local economic conditions and develop informed benefit-sharing mechanisms for their projects. At the same time, a territorial de­ velopment database would allow governments to better develop and assess EIAs and SIAs before investments start and guide the consultation processes. • Consider ways to increase community participation in completion of studies, for example, in the form of feedback on social and environmental assessments. Stakeholders should also agree on a shared definition and acceptable forms of benefit sharing (such as shared revenue, tax relief and subsidies, reduced electric­ ity rates, and so forth). Stakeholder discussions should be led by the government as a guiding interlocutor. • Enable clear and transparent mechanisms for communities to trigger FPIC processes. This should go hand in hand with making information on the project accessible to all community members in local languages and with sufficient time to process and deliberate information (accessibility issues could be handled by government agencies, local authorities, international organizations, nongovernmental orga­ nizations, or academia). • Establish monitoring and evaluation mechanisms (track data on benefit sharing– related investments). Comparative studies have shown that systematic evalua­ tions on the implementation and success of benefit-sharing and investment im­ pacts can guide policy making and the design of benefit-sharing mechanisms, and support sustainable development efforts in the medium term. • Under certain circumstances, facilitate a separate auction process for community- driven wind power projects and reform regulations to enable community-driven models to feasibly compete for grid access. Community-owned power parks have been shown to foster prosperity among owners and acceptance of renewable energy installations in general. However, initial efforts to start community wind parks in Chile, Denmark, and Mexico have been unsuccessful because of a lack of political frameworks. Therefore, it is recommended that regulations be designed for community-driven models to compete for grid access. Objective of the Report This report, a collaborative effort between the World Bank and the International Finance Corporation (IFC), addresses risk management in renewable energy development with the ultimate objective to improve the investment climate for renewable energy through bene­ fit sharing and local community engagement. This report is based on a knowledge product 6 THE WORLD BANK GROUP Main Messages developed in 2018, titled “Sharing the Wind: Promoting Social Acceptance for Wind Power Development in Mexico through Benefit Sharing and Local Participation” (P161977), which was drafted with financial support of the World Bank Mexico Country Office, the IFC, and the Social Global Practice of the World Bank. This report provides recommendations for establishing benefit-sharing mechanisms and local participation for wind energy development and renewable energy investments. The report analyzed in depth the legal framework of six countries and drew on research and best exam­ ples worldwide, including case studies of Australia, the United States, Canada, Denmark, Germany, Mexico, South Africa, and the United Kingdom and Scotland. The authors reviewed the literature of over 150 publications, undertook field research in Mexico, and conducted over 56 interviews with 70 people from the private, public, and international sectors. Further­ more, the team undertook a quantitative analysis of wind developments in Southern Mexico, analyzing their socioeconomic development impacts on the local population. This report provides recommendations on how to improve the investment climate for renewable energy and wind energy, in particular, through benefit sharing and local com­ munity engagement. Integrating communities through free, prior, and informed consent (FPIC) or benefit-sharing mechanisms is costly—but the cost of not integrating communities and of failed projects is even higher. The recommendations are focused on wind energy developments but can be applied to other renewable energy investments, such as solar. Report Structure This report is structured as follows: The first chapter presents the results of a literature review of benefit sharing and local community participation. The chapter provides a comparison of diverse benefit-sharing definitions, typologies, mechanisms, and forms. The second chapter discusses good practices and tools for better risk management and benefit sharing. It also includes a quantitative analysis of wind developments in Southern Mexico, analyzing their socioeconomic development impacts on the local population. The third chapter presents the main findings and recommendations. IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 7 Report Summary This report provides recommendations for creating an enabling environment for renewable energy investments to continue to foster a transition to a green economy while supporting development and sharing benefits more equitably with the population. It seeks to provide recommendations on how to manage social risks and ultimately contribute to more inclu- sive green growth investments and maximize finance for development. Around the world, countries are stepping up their efforts to combat climate change. In the wake of the Paris Agreement and the United Nation’s (UN’s) Sustainable Development Goals (SDGs), new actions to address climate change have accelerated around the world, including the adoption of national determined contributions (NDCs).4 At the 24th annual UN Climate Change Conference of Parties (COP24), the World Bank Group committed to doubling its current financial support to US$200 billion. This commitment includes a strong focus on increasing adaptation, leveraging private sector finance, and supporting increased systemic climate action at the country level between 2020 and 2025.5 Worldwide investments in clean energy have increased significantly since 2004, reaching a total of US$2.9 trillion by 2017.6 Although most countries are still off target in achieving their goals, many have been fostering climate investments for renewable energy.7 In 2017, annual investment in renewable energy reached US$280 billion, including US$107 billion invested in new wind energy infrastructure and US$161 billion in solar energy.8 Compared with 2004, this is a 550 percent increase for wind energy and a 1,400 percent increase for solar energy.9 There are cases of considerable resistance against renewable energy investments around the world. Reasons for the opposition vary, but commonly include legacy issues, lack of participation in decision making around wind projects siting and development, or lack of expected socioeconomic benefits from developments. 4 See the general SDG website or especially Goal 13: https://www.un.org/sustainabledevelopment/climate- change-2/; UNFCCC (2019): Nationally Determined Contributions: URL: https://unfccc.int/process/the-paris- agreement/nationally-determined-contributions/ndc-registry 5 World Bank (2018), “2015 Targets to Step Up Climate Action.” URL: http://pubdocs.worldbank.org/ en/368601543772742074/2025-Targets-to-Step-Up-Climate-Action.pdf 6 IRENA (2018) “Global Trends in Renewable Energy Investment.” URL: http://resourceirena.irena.org/gateway/ dashboard/?topic=6&subTopic=11 7 Climate Action Tracker (2018), “Some Progress since Paris.” URL: https://climateactiontracker.org/publications/ warming-projections-global-update-dec-2018/ 8 IRENA (2018), “Global Trends in Renewable Energy Investment.” URL: http://resourceirena.irena.org/gateway/ dashboard/?topic=6&subTopic=11 9 IRENA (2018), “Global Trends in Renewable Energy Investment.” URL: http://resourceirena.irena.org/gateway/ dashboard/?topic=6&subTopic=11 8 THE WORLD BANK GROUP R e p o rt S u m m ary A literature review and interviews conducted for this report show that some community members believe that wind energy development has benefited only a few families in the direct area of influence of the projects. They believe that developments have created marginal employment benefits, disrupted agriculture and livestock, and failed to include communities through participatory processes.10 In fact, a quantitative analysis done for this report, focusing on the Isthmus de Tehuantepec in Oaxaca, Mexico, shows that company efforts for benefit sharing have had limited impact, particularly because most of them are decoupled from the government. For the report, the researchers identified 78 localities with investments in five municipalities in the Isthmus region, which were called “treatment” localities, and analyzed the socio­economic impacts of wind park investments in the Isthmus regions between 1990 and 2015. The comparison group (“controls”) included 388 localities in 11 municipalities that are geographically close to the treatment localities. The panel data estimation and comparison of groups allowed—with certain limitations11—an analy- sis of the socioeconomic impacts of wind park investments in the Isthmus regions between 1990 and 2015. Results show a positive association between wind power investments and an increase in the percentage of house ownership (a statistically significant increase in the percentage of house ownership in treatment localities of 1.64 percent relative to compar- ison localities). Results also show a decrease in the percentage of houses with walls made of makeshift materials (a reduction of 14.7 percent in the percentage of houses with walls made of makeshift materials in treatment localities). However, measurements for other socioeconomic indicators did not show statistically significant differences between treat- ment and control localities. The limited positive socioeconomic impacts of wind power developments in the Mexican Isthmus affirm the need for a systematic benefit-sharing and community-engagement strategy. Such a strategy should be led by the public sector through accompanying policies and resources. Such engagement—in Mexico and beyond—can enable sustainable local development in the indirect and direct project areas by taking advantage of the presence of private investments. There are significant risks to continued social conflicts around infrastructure. For the public sector, conflicts can disrupt efforts to meet national renewable energy targets and World Bank. 2011. Greening the Wind: Environmental and Social Considerations for Wind Power Development. 10 Washington, DC: World Bank. http://documents.worldbank.org/curated/en/239851468089382658/Greening-the- wind-environmental-and-social-considerations-for-wind-power-development. 11 There are some considerations regarding the panel data estimation and difference-in-difference methods. First, both empirical strategies measure ex post effects of wind power investments in the region. In this regard, the treatment and comparison groups were not randomly assigned, as would be done in a random- ized controlled trial. Second, there might be some concerns related to pre-existent differences between municipalities with wind farms and those without that could have influenced the investment decision, such as the average years of schooling of the population. Third, the assumptions may not hold if there are unobservable characteristics that are unique across municipalities but are varying over time. For example, the effect of wind power investment might differ from municipality to municipality depending on the local capacity of government officials. This study posits that positive or negative correlations can be made from measurement outcomes, but causal inferences cannot be made with certainty. When a coefficient is positive and statistically significant, the inference can be made that treatment localities are better off than the comparison control group, but the difference cannot be causally attributed to wind power investments alone. Therefore, our estimates measure the association between wind farm investment projects and socioeconomic outcomes in the region. IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 9 R e p o rt S u m m ary international green growth commitments. For the private sector, conflicts can have direct cost implications caused by delays or increased costs of project operations. For commu- nities, the perceptions of unfairly distributed benefits, lack of consultation, and missing transparency can lead to a continued sense of discrimination and inequality, especially if benefit sharing through investments is not equitable. This resistance to infrastructure projects and especially renewable energy investments translates to high-risk context for developers which calls for a more systemic analysis of the social dimensions of wind energy development and renewable energy growth. This is especially important given the climate change goals that countries set forth and the need to maximize financing for development to meet pressing development challenges. Thus, the creation of an enabling environment for private sector investments is recommended through policy reforms of the auction systems; a legal framework for community inclusion, especially in the renewable energy sector; and the design of a risk-management strategy for the government to better manage both community and private sector requests. These approaches can support countries to fully leverage energy resources and maximize financ- ing for both development and private sector investments. This report analyzed the potential of benefit sharing and local participation for better risk management and more inclusive development from three perspectives: • Governmental perspective—the actor able to legally provide the framework for an enabling environment to wind energy; • Community perspective—relevant actors for wind energy investments and for FPIC, local participation, recipients of benefit sharing, and potential actors in the elabora- tion of impact assessments; and • Private sector perspective—partner in implementing benefit sharing and local partici- pation and driver of foreign direct investment (FDI). The primary findings and recommendations of this report are as follows: 1) Investment Climate and Guidelines for Benefit Sharing Key Findings • Social acceptance for wind power developments is complex and dynamic and should be fostered early on in the process. Community engagement and benefit sharing are essential for fostering, though not guaranteeing, social acceptance of wind power projects. Community engagement usually relies on various engagement methods and tools from dissemination of information and community townhalls to more active forms of engagement such as face to face meetings, community focus groups, participa- tory planning and monitoring. Benefit sharing can take many forms including revenue sharing, public services and infrastructure, local skills and livelihoods, and environmen- tal initiatives. Many communities do not necessarily oppose wind power projects in and of themselves. Instead, much community opposition seems to be directed towards the lack of positive development outcomes (equitably distributed benefits) and the lack 10 THE WORLD BANK GROUP R e p o rt S u m m ary of appropriate consultations and local participation mechanisms. Early and sustained reciprocal engagements among wind power developers, government, and commu- nities have been shown to foster increased levels of trust, help reduce the possibility of wind farm developments being rejected, and facilitate the acceptance of wind farm developments.12 • In some cases, company efforts for benefit sharing have shown limited impact, par- ticularly if decoupled from the government. A quantitative analysis done for this report, focusing on the Isthmus de Tehuantepec in Oaxaca, shows that company efforts for benefit sharing have had limited impact on socioeconomic development indicators, particularly as most of them have been decoupled from governments’ development plans to foster development in the area. In general, benefit-sharing practices are most effective when they include structured monitoring and evaluation of the efforts and are implemented in a strong partnership with governments and local development strategies, which maximize efforts. It is increasingly evident that company efforts alone, even if improved, are unlikely to satisfy the needs of under- served local populations. A government initiative for the sector, in line with its broader development plans is necessary, in addition to the work of companies, for significant and sustainable benefit-sharing results to be observed. • Social risks peak during project development and construction phases. Interviewees for this study from the private sector noted that special interest groups can leverage their demands by challenging permits and FPIC in courts and generate potentially costly delay risks during the development and construction stages. Community oppo- sition is greatest during those phases, which shows that an engagement with com- munities and a resolution of complex issues is important early on. • Wind power developers may be discouraged by investment uncertainties caused by social conflicts. Fostering social acceptance of investments is key to continuing to receive investments needed for a country’s transition to a greener economy. Improv- ing community engagement and benefit sharing practices can help foster social acceptance and leverage the wind industry’s developmental impacts. However, it also must be acknowledged that community engagement and benefit sharing would likely not address all of the root causes of social conflicts or uncertainties facing the industry. Sources of social conflict can include poverty, complexity of land tenure structures, corruption, decreasing security, and failure to secure indigenous peo- ples’ consent. It is therefore crucial to undertake a holistic approach to improve investment climates for renewable energy. • There are diverse legal and policy options for community engagement and benefit sharing and a correlation between even voluntary guidelines for benefit sharing and their success. Some countries, such as Denmark and Germany, have embedded benefit-sharing targets in relevant electricity, planning, and/or renewable energy 12 REN21 (2017: 19). Danish Ministry of Energy (1981). Anker and Jørgensen (2015: 28). Ernst & Young Australia (2014). See also Ellis and Ferraro (2016: 42); Rand and Hoen (2017). IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 11 R e p o rt S u m m ary laws. Chile recently transformed its Energy 2050 policies to incorporate community participation and benefit-sharing aims into the nation’s energy strategy. Other coun- tries, such as South Africa, include local economic development requirements in bid applications for wind power auctions. The United Kingdom emphasizes voluntary good practice guidance. The presence of even voluntary guidelines can pave the way for improved industry practices regarding benefit sharing and community engagement. Recommendations for developing benefit sharing, risk management, investment climate, and the social license to operate: • Foster close engagement with the broadest range of stakeholders—including gov- ernment, private sector, and communities—early on, at best even before the auc- tion phase. This helps to establish a comprehensive and inclusive strategic framework for benefit sharing and local community participation. Consultative committees composed of community representatives (such as the consultative committees in Australia and Chile) could engage stakeholders in processes such as FPIC, impact assessments, and benefit sharing in the medium and long term and on both policy and project levels. At the same time, communities should be provided accurate and comprehensive information on the details of wind power projects, potential nega- tive externalities, and potential benefits. • Create locally legitimate and cross sector understanding of when a consultation is undertaken before an investment. This should be done together with industry and community stakeholders to both enable efficient project development timelines and respect community learning and decision-making processes. It would involve a clear definition and agreement of what is expected for prior consultations and how the rules apply, including compliance mechanisms. The different states of an invest- ment, starting before the auction processes for renewable energy investments, would have to be taken inconsideration, too. • Design legal frameworks (or at least guidelines) for benefit sharing and community participation for investment projects, in line with International Labour Organization (ILO) 169 and FPIC. This will guide the private sector to implement benefit-sharing schemes. It is recommended that stakeholders learn from the good practices of coun- tries such as Chile, Denmark, and South Africa, which take diverse approaches to benefit sharing and local community engagement in renewable sectors. 2) Institutional Capacity and Policy Coherence Key Findings • Barriers to the development of sustainable energy infrastructure or benefit-sharing mechanisms can include limited institutional capacity to efficiently oversee social and environmental impacts or monitor results. Complex administrative processes and responsibilities spread over multiple institutions, which oftentimes work in an 12 THE WORLD BANK GROUP R e p o rt S u m m ary uncoordinated manner, and can create bottlenecks for the approval of impact assess- ments for renewable energy projects and subsequent monitoring. Strengthening the capacity for government agencies to develop and enforce regulatory frameworks that protect communities and the environment is crucial to sustainable renewable energy investment growth. • There may be limited horizontal coordination between ministries or vertical coordi- nation among federal, state, and municipal government entities. In some countries, ministries do not coordinate on social and environmental impact assessments for wind power projects, and governmental capacity to execute responsibilities and ensure effective benefit sharing and community participation is limited. At times, there is no dedicated window for coordination of stakeholder engagement, which renders the engagement and benefit-sharing process more difficult. Recommendations for improving institutional capacity and policy coherence: • Support policy coherence, build capacity, and increase funding for staff leading con- sultations, evaluating assessments, and monitoring benefit-sharing schemes. This will create awareness of how to conduct consultations that meet ILO 169 criteria and enhance the efficiency and effectiveness of the environmental impact assessment (EIA) and social impact assessment (SIA) approval processes; these actions will also improve coordination with communities, support closer monitoring of impacts of investment projects, facilitate assessments in line with regional development objectives, and improve coordination among government, communities, and the private sector. • Develop a territorial development database for renewable energy investments—at best provided publicly and free of cost—to support the EIA and SIA processes. The database should indicate the presence of vulnerable individuals (including indige- nous peoples) in renewable energy/wind-rich regions, record comprehensive socio- economic indicators, assess development needs, and record marginalization rates disaggregated by gender. This database will enable stakeholders to understand the local economic conditions and support the design of benefit-sharing schemes for renewable energy projects. The database will also provide relevant information on relevant actors for the organization of prior consultations. 3) Improve Involvement of and Benefits for Local Communities Key Findings • Socioeconomic indicators should be monitored for evidence that local communi- ties benefit from wind power investments. For example, fieldwork in Latin Amer- ica highlighted the perception that benefits have accrued primarily to landowners leasing land to companies and to local authorities who may misuse funds intended for communities. Investments were therefore perceived as reinforcing economic inequalities within and among communities. IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 13 R e p o rt S u m m ary • A quantitative analysis done for this report, focusing on the Isthmus de Tehuante- pec in Oaxaca, Mexico, showed that company efforts for benefit sharing have had limited socioeconomic development impact. For the report, the researchers ana- lyzed the socioeconomic impacts of wind park investments in the Isthmus regions between 1990 and 2015 and found that there is a positive association only between wind power investments and an increase in the percentage of house ownership and a decrease in the percentage of houses with walls made of makeshift materials but no statistically significant differences between treatment and control localities. The limited positive socioeconomic impacts of wind power developments in the Mexican Isthmus affirm the need for a systematic benefit-sharing and community- engagement strategy. It should be led by the public sector through accompany- ing policies and resources. Such engagement—in Mexico and beyond—can enable sustainable local development in the indirect and direct project areas by taking advantage of the presence of private investments. • Communities should have easy access to accurate information on the positive and negative environmental, social, and cultural consequences of installing wind turbines. Lack of information hinders communities’ abilities to assess the opportunity costs of wind turbine installations and negotiate more equitable payments and benefits. More- over, opposition to wind power projects is associated with a lack of participation mech- anisms, such as involvement in FPIC, social and environmental impact assessments, and community-driven wind power projects. A coherent, coordinated negotiation guided by an interlocutor—such as the government or a trusted entity—could mitigate these issues and generate more sustainable, long-term development benefits. Recommendations for improving involvement of and benefits for communities: • Consider ways to increase community participation in the completion of studies, for example, in the form of feedback on social and environmental assessments. • Agree on a shared definition and acceptable forms of benefit sharing (such as shared revenue, tax relief and subsidies, reduced electricity rates, and so forth). Stakeholder discussions should be led by the government as a guiding interlocutor. • Enable clear and transparent mechanisms for communities to trigger FPIC processes and protocols and ensure consultations. This should go hand in hand with making information on the project accessible to all community members in local languages and with sufficient time to process and deliberate information (accessibility issues could be handled by government agencies, local authorities, international organizations, NGOs, or academia). The Windpark Druiberg in Dardesheim, Germany, consists of 31 wind turbines (66 MW), which were installed 13 in the early 1990s. Only local residents can own wind park shares, and as of 2014, approximately 90 percent of Dardesheim residents are involved in Windpark Druiberg. The project has increased regional economic growth and strengthened local self-sufficiency in energy production. Profits from the project have been used to support local infrastructure development and other projects and to finance other renewable energy projects. Overall financing was achieved through shareholder capital investment and commercial credit as a cofunding mechanism. (For more information about Windpark Druiberg, see the European Union-funded Climate Policy Info Hub at http://climatepolicyinfohub.eu/community-energy-projects-europes-pioneering-task.). 14 THE WORLD BANK GROUP R e p o rt S u m m ary • Establish monitoring and evaluation mechanisms (track data on benefit-sharing– related investments into communities) to evaluate implementation and success of benefit sharing, and to potentially amend or adapt during project development. • Under certain circumstances, facilitate separate auction processes for communi- ty-driven wind power projects and reform regulations to enable community-driven models to feasibly compete for grid access. In countries such as Denmark or Germany, partially or wholly community-owned wind power projects have been shown to yield greater employment and income benefits to communities than do noncommunity- driven projects and strengthen local self-sufficiency, bargaining power, and symmetry of information.13 IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 15 Benefit Sharing and Local Community 1.  Participation: Factors Enabling Social Acceptance for Wind Power Projects This chapter presents the results of an extensive literature and country review of benefit sharing and local community participation in the global wind power sector. The chapter discusses and compares a variety of definitions, typologies, mechanisms, and forms related to benefit sharing. Examples of definitions discussed in this chapter include “benefit shar- ing” and “intended beneficiaries”; typologies discussed include top-down corporate social responsibility (CSR) or community empowerment models; mechanisms include legal, auc- tion bidding requirements, and/or voluntary protocols and good practice guidelines; forms of benefit sharing discussed include payments to landowners, payments to the wider com- munity, and reduced electricity rates. 1.1.  Introduction to Benefit Sharing The hydroelectric and mining industries have shown the importance of benefit sharing and community participation mechanisms for the social sustainability of energy projects. Before the 1970s, many project developers assumed benefits would “trickle down” to com- munities via market mechanisms. Over time, studies revealed inequities and injustices in project compensation and benefits to local communities, as well as growing conflict. Local stakeholders protest when they perceive the distribution of rents by a firm to be unfair or illegitimate, when agreements are reached in individual negotiations at different times and with limited transparency, or when there are differences in rent levels. One reason is that the expected socioeconomic benefits from wind power developments did not materialize, and this reputation and legacy issues contribute to the stalling of the different infrastruc- ture investments or planning. In the 1980s, development practitioners concerned with sustainable outcomes and impact assessments promoted a “sustainable development approach” to benefit sharing. This involved not only monetary benefits14 to communities but also nonmonetary mechanisms.15 In the 1990s, hydro industry actors realized that there was an additional need to communicate Monetary benefits, as defined by the United Nations Environment Programme (UNEP) Dams and Development 14 Project (DDP), include revenue sharing, development funds, equity sharing or full ownership, preferential electricity rates, and/or taxes paid to regional or local authorities. 15 According to DDP, nonmonetary benefits include livelihood restoration and enhancement strategies, infrastructure development, including roads and schools, and health services (MacDonald 2009: 8, 14). 16 THE WORLD BANK GROUP B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N and equitably distribute a broad range of products evidence that failure to gain and maintain social and services across communities and sectors.16 In license can potentially lead to conflict, delays, or many countries, the mining industry has found that stoppages, which can translate into costs for a pro- a variety of benefits lead to positive local economic posed project or an ongoing operation. In extreme impacts, including negotiated revenue sharing cases, it can lead to project termination. A compa- agreements; the creation of foundations, trusts, ny’s ability to secure and maintain social license is and funds; local employment opportunities; and essential for its operations and ultimately for its business development programs. These varieties of profitability. benefit sharing can help address community con- cerns and boost efforts to gain social acceptance.17 Social license is created and maintained slowly over time as the actions of a company build trust The practice of benefit sharing and community with the communities in the area it operates in participation in energy projects has since been and with other stakeholders. The type of relation championed in several national and international the company manages to establish with communi- initiatives, and global dialogue and interest in ties depends, to a great extent, on how the com- effective mechanisms for community benefits and pany conducts business and carries itself in relation participation continues to grow. Relevant initiatives to what matters most to communities. Experience have been catalyzed at the international, national, has shown that communities are quite consistent and local levels, including the United Nations (UN) when it comes to defining what matters most to Global Compact, the UN Sustainable Develop- them in terms of company–community relations. A ment Goals, the Indigenous Peoples Major Group company’s policies and practices in the following (IPMG), company-led corporate social responsibil- three areas determine whether the relationship ity programs, and government initiatives in Chile, will be a positive or negative one: (i) local benefits Mexico, South Africa, and the United Kingdom. and their distribution, (ii) responsibility taken over The International Finance Corporation (IFC) and project impacts, and (iii) company behavior. Table 1 the World Bank have also commissioned studies presents some key considerations of company– regarding wind power development, in particu- community relations. lar how resource investments distribute costs and benefits.18 In European countries, for example, ben- Social license does not depend exclusively on a efit sharing is now a widely accepted and expected company’s actions. To the extent that communi- element of wind power developments. ties’ expectations and perceptions come into play, social license also depends on factors that help The social license to operate (SLO), or “social shape them. For example, if expectations are not license” for short, refers to the ongoing acceptance in line with what can be reasonably delivered, they of a company’s presence, operations, and impacts by are likely to remain unfulfilled and generate ten- stakeholders, primarily local community members. sion or conflict. Similarly, if benefit distribution is Companies increasingly face the need to gain and relatively equitable and impacts are handled well, maintain such acceptance from the people who live but the community perception differs from that real- in the area of influence of a given project. At the ity, the relationship with the community can deterio- level of individual projects, this acceptance is nei- rate. Oftentimes third parties have a vested interest ther automatic nor unconditional. There is ample and can influence expectations and perceptions MacDonald (2009: 8, 2). 16 O’Faircheallaigh (2017: 2). 17 World Bank (2011). See also Lohde et al. (2015). 18 IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 17 B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N TABLE 1. Key Considerations for Company–Community Relations LOCAL BENEFITS AND THEIR RESPONSIBILITY TAKEN OVER DISTRIBUTION PROJECT IMPACTS COMPANY BEHAVIOR • Does the project generate tangible • Does the company take broad • Does the company engage with local economic and social benefits for local responsibility for the range of impacts communities in a manner perceived communities? (both direct and indirect) that affect as open, transparent, and honest? people’s lives, or does it take narrow responsibility? • Is the way in which the company • Are company actions in this area • Do company actions and the behavior distributes these benefits perceived perceived as fair, transparent, and of its staff convey respect, caring, and as fair, transparent, and equitable? accountable? trustworthiness? Or does the com- pany’s behavior convey arrogance, disrespect, and lack of caring? •  Are there clear criteria and does the company apply them consistently? Source: Based on IFC (2010). framing the discussion by establishing high and key to continuing to receive investments. Enhanc- unrealistic expectations or misleading perceptions ing community engagement or benefit-sharing can in pursuit of an agenda. It is important for com- help foster the social acceptance and leverage of panies to not only do the right thing but also to the wind industry’s developmental impacts. How- communicate effectively. The government also has ever, it must be acknowledged that community a role when it comes to shaping expectations so engagement and benefit sharing would likely not that they are in line with what can be reasonably address all of the root causes of social conflicts or delivered and informing perceptions so that they uncertainties facing the industry. Sources of social are close to reality. conflict can include poverty, complexity of land tenure structures, increasing corruption, decreas- Social risks peak during the project development ing security, and failure to secure indigenous con- and construction phases. Interviewees for this sent. It is therefore crucial to undertake a holistic study from the private sector noted that special approach. interest groups can leverage their demands by challenging permits and free, prior, and informed By improving a country’s legal and regulatory consent (FPIC) in courts and generate potentially environment regarding benefit sharing and local costly delay risks during the development and con- community participation, governments can lay the struction stages. Community opposition is greatest foundations for wind power growth that is more during those phases, which provides an interesting sustainable and inclusive—and thereby increase timeline for recommendations of this report. social acceptance, manage risks, and foster green growth. Studies show the importance of institu- Wind power developers may be discouraged by tionalized guidelines or rules in creating a more investment uncertainties caused by social conflicts. enabling environment for communities and proj- Fostering social acceptance of investments is thus ect developers to engage in benefit sharing and 18 THE WORLD BANK GROUP B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N participatory mechanisms. With regulation, com- tainable wind power development.21 This report munity members can be better protected, receive recognizes “benefits” as distinct from and in addi- more benefits, and be more willing to participate tion to “compensation”22 for negative impacts and in discussions about the design and management externalities from wind projects.23 of wind project benefits.19 Institutionalized guide- lines provide developers with greater legal assur- Definitions of “intended beneficiaries” of large- ance, as well as frameworks for engaging with scale wind power projects are also diverse. communities, discussing how benefits can best Various governments have determined the scope advance community development goals, and plan- of intended beneficiaries through the use of differ- ning and executing mitigation tasks.20 ent parameters, including the following:24 • Directly and indirectly affected people con- sidered positively or negatively affected Benefit Sharing Definitions 1.2.  by social, environmental, and/or economic and Forms impacts, with a special focus on indigenous peoples or other historically disadvantaged Definitions regarding “benefit sharing” vary glob- populations;25 ally. For the purposes of this report, a good-practice • People in a defined proximity to the invest- definition of benefit sharing is a proactive, system- ment area;26 and/or atic effort to identify, maximize, and equitably • People with land ownership status, including distribute benefits to communities directly or indi- landowners and landholders hosting wind rectly affected by wind power developments. The turbines or related infrastructure, landown- goal of benefit sharing is to increase and share ers and landholders of land required for the wide-ranging benefits of investments with local access during construction and/or opera- communities and ensure a socially inclusive and sus- tions, and the wider community. 19 Aitken, M. (2010). 20 Cowell, Bristow, and Munday (2012). 21 This definition draws upon global literature and World Bank sources. World Bank sources include Wang (2012) and World Bank (2011). 22 Compensation refers to “remuneration paid to affected community members for an asset, according to the replacement or equivalent costs. . . . Compensation, as a mitigation measure, is usually financed by the project investment budget, while benefit sharing programs in many cases are financed by the operating income of a project” (World Bank (2011)). 23 Wang (2012: 4–5). 24 The comprehensive definition is derived from Wang (2012). For example, black South Africans are as intended beneficiaries through South Africa’s Local Economic Development and Broad- 25 Based Black Economic Empowerment requirements in the Renewable Energy Independent Power Producers Program. 26 In Denmark, for example, according to the Purchase Right Regulations, citizens living within 4.5 km of new wind turbines taller than 25 m are eligible to buy shares in a project (Sperling et al. 2008). IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 19 B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N BOX 1. Germany, the United Kingdom, and South Africa: Inclusive Definitions of “Intended Beneficiaries” Germany, the United Kingdom, and South Africa show how some governments recognize the importance of including indirectly affected people and stakeholders in benefit-sharing schemes—not just the landowners entering into agreements with project developers or people directly affected by wind turbine installations. In Germany, for example, the Federal Ministry for Economic Affairs and Energy defines bene- ficiaries as: (1) Involved community members: Individuals who are “directly involved in the project, e.g. hold voting, profit participation right, or receive payments for land rented out for the construction of the plant;” and (2) Wider community members: Individuals who are “outside of the project but local and can be negatively (e.g. visually) or positively (e.g. through incomes or improved public services) affected by the project.”27 The United Kingdom’s Department of Energy and Climate Change (DECC) similarly recognizes the potentially broad scope and complexity of determining “intended beneficiaries” and com- munities of concern. According to DECC, it is important to recognize the different forms of community belonging. These forms include “communities of place and communities of inter- est (a shared outlook to faith, politics, social interaction, ethnicity or common interests)—both of which may be relevant in the context of community benefits around onshore wind energy projects.” Therefore, DECC recommends an industry good practice of in-depth community con- sultations to define the intended beneficiaries. DECC provides voluntary guidance through its “Community Engagement Best Practice Guidance” and “Community Benefits Best Practice Guidance” reports. These resources help project developers obtain “an in-depth understand- ing of the community or communities who are hosting the wind farm, how they interact with each other, how the wider geography impacts the area, and proposing a solution that suits these circumstances. As part of their community engagement plan, a developer will undertake activities in the area to understand this and should then consult on their definition.”28 Box 1 continues next page German Federal Ministry for Economic Affairs and Energy (2016: 11). 27 DECC (2014: 9). 28 20 THE WORLD BANK GROUP B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N Box 1 continued South Africa requires project developers to determine “intended beneficiaries” by a prescribed geographic distance. As part of the Renewable Energy Independent Power Producer Procure- ment auction for bid proposals in South Africa, project developers are required to assess the socioeconomic needs of communities within a 50-km radius of the project site and develop a local economic development plan. However, reports by various stakeholders, including the South African government, academics, and the World Bank, show challenges with this system. Challenges include the perceived arbitrariness of the 50-km radius requirement, lack of community involvement in determining beneficiaries and risk of dividing communities into beneficiaries and nonbeneficiaries, weak alignment of project developers’ economic develop- ment plans with local government development plans, and lack of guaranteed benefits to all individuals within the 50-km radius.29 Mechanisms and Typologies of 1.3.  information is gathered from a literature review on Benefit Sharing and Community benefit sharing in the wind industry globally; anal- ysis of laws, policies, and guidelines for benefit- Participation sharing arrangements by the public or the pri- vate sector in Australia, Denmark, Germany, South A mapping of benefit-sharing forms that can be reg- Africa, and the United Kingdom; and an ongoing ulated or promoted and are applicable to wind (or IFC study mapping applicable benefit-sharing other) investments is provided (see Table 2).30 This models in wind and solar projects globally. 29 Halsey (2017: 13); Eberhard et al. (2014). 30 Sources include International Finance Corporation. Forthcoming. “Benefit Sharing in the Wind and Solar Industry,” slides 16–20, and World Bank (2011). 31 World Bank (2011: 84). IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 21 B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N Table 2. Description of Benefit-Sharing Forms in Renewable Energies FORM DEFINITION Payment of rents or royalties to affected Financial flow transferred to the local level. Payments of rents or royalties to landholders and neighbors affected landholders are usually for: Landowners who rent their land or part of their land in exchange for housing 1)  turbines on their property, and Landowners whose lands are used for project-related infrastructure develop- 2)  ment (for example, roads, electrical instruments) Payments are made either in lump sum or periodically during the life of the project. Periodic payments examples include: 1) a fixed fee per hectare, 2) fixed fee per turbine, 3) royalties (the method for determining amount may vary but often is based on an agreed percentage of a wind project’s anticipated gross revenues), or 4) royalties with guaranteed minimum payment. Payments may vary31 based on power sales prices and project capacity factors. • For example, in the United States, the payment of royalties ranges between 1 and 4 percent of gross income. In Latin America, the range is between 2 and 3 percent. For both fixed fee and royalty payments, the average annual pay- ment was US$2,200/MW (from US$1,200/MW to US$3,800/MW.)32 Co-investment or co-ownership structures Shareholding in the project (company) by individuals, groups of a community, or entities representing the community (for example, community trust, local govern- ment). Three prevalent models exist: a) Subscription: In this type of structure, the developer operating the wind power project offers a portion of the project’s equity to select landowners in the form of individual share subscriptions. The energy projects are estab- lished by actors such as energy utilities, and communities’ main form of participation is by purchasing shares. Communities have less power in deci- sion-making processes concerning the project. For example, in Uruguay, the public utility UTE established successive funds to finance the Arias (70 MW), Pampa (147.5 MW), and Valentines (70 MW) wind power projects. Small and institutional investors could purchase publicly tradable shares ranging from US$100 to US$2,000—in sum, making up 80 percent of the equity.33 Table 2 continues next page World Bank (2011: 85). In terms of remuneration, according to the Commission for Dialogue with Indigenous Peoples of the 32 Ministry of the Interior of Mexico, “International experience shows that the remuneration paid by the company of a wind farm for the concept of land leasing (land cost) ranges between 1.0 and 5.0 percent of gross revenues from the sale of energy from a wind farm . . . [In Mexico, percentages range] from 0.025 to 1.53 percent” (Ministry of the Interior 2013: 16–17.). REN21 (2017: 20). 33 22 THE WORLD BANK GROUP B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N Table 2 continued FORM DEFINITION b) Equity Partnership: A model by which communities co-invest in collabora- tion with a developer. An entire community or groups within the community buy a part of the project and own a certain percentage of generated income. A common variety of equity partnership is for the community to own a certain number of turbines within a wind farm. The equity partnership model and the subscription and community-owned models described here have become common practices in the European Union. This model can be consid- ered in cases in which communal land is involved.34 Equity partnership or community-owned models can create cobenefits or spill- over benefits. For example, participating community members can leverage local resources, build social capital, and increase employment opportunities at the local and regional level. New workers in an area means there may be increased local spending. These activities can then increase public awareness and knowledge of the project and decrease local opposition.35 Total benefits delivered may be a combination of different forms of benefits. c) Community Owned: Wind farms are owned entirely by a community. The community is responsible for planning, constructing, and operating the wind power project. Community-owned projects pose a greater financial risk to communities, but this scheme has also been shown to generate high returns. • For example, the Hepburn Wind Community Energy in Australia has more than 2,000 cooperative members who own the wind farm. Each member has one vote in the cooperative structure and receives a dividend propor- tional to investments made.36 • In Denmark and Germany, most wind turbines are owned by cooperatives or individuals in the community. In Denmark, over 80 percent of all wind turbines were owned by over 175,000 individuals and cooperatives by 2000. By 2002, 15 percent of Denmark’s electricity was generated by wind power. In 2015, small private wind energy operators, including house- hold-owned and share-equity projects, made up 50 percent of the electricity market share. Germany’s approach to ensuring benefits for local citizens and to the national energy transition is one that also elevates citizen autonomy, nonhierarchical and democratic decision-making processes, and “bottom-up” renewable energy initiatives.37 Table 2 continues next page REN21 (2017: 20). 34 REN21 (2017: 20). 35 “Hepburn Wind Community energy Ltd.,” www.hepburnwind.com.au/wind-farm/. 36 Bolinger (2001: 47); Schreuer (2015). 37 IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 23 B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N Table 2 continued FORM DEFINITION Tax relief or subsidies Diverting part of project’s revenue into local-level public spending.38 • Germany has provided tax deductions for wind farm share purchases.39 In Denmark, municipalities can apply for subsidies to support activities aimed at strengthening public acceptance of new wind power projects. Specifically, the subsidies (referred to as the Green Scheme) should cover expenses for local projects that 1) enhance the landscape or recreational values, or 2) promote informational or cultural activities through local associations to garner accep- tance in the municipality for renewable energy technology.40 Preferential electricity rates Preferential/discounted electricity rates for already existing electricity services for a specific customer group. • According to the New South Wales (NSW) state government in Australia, electricity rates are reduced as a benefit in NSW, but this practice is limited. For communities in NSW to receive discounted electricity, a developer must use project profits to purchase the electricity on behalf of the community.41 Employment Employment through the project company and/or subcontractors throughout project life cycle—development, construction, operations and maintenance, and decommissioning. This includes local workforce development and training (including skills development for project employment). Local employment opportunities are available in the areas of manufacturing, construction, and operation and mainte- nance, with construction typically serving as the phase of greatest employment.42 In the construction phase, jobs are available particularly for activities regarding trans- port, cleaning, construction of access roads, excavation, and construction of turbine bases. During the operations phase, job creation is mostly related to provision of services, such as technical operations, and many skilled foreigner workers are likely hired.43 Construction-related jobs are temporary employment. Data on the volume of jobs created by wind power projects vary, depending on calculation assumptions and methods.44 Table 2 continues next page REN21 (2017: 19). 38 Danish Ministry of Energy (1981). 39 Anker and Jørgensen (2015: 28). 40 Ernst & Young Australia (2014: 14–16). 41 Nahmad et al. (2014: 82). 42 World Bank (2011: 86). 43 During the construction phase, an average of 2.5 jobs are created for each megawatt generated, compared with 0.27 jobs for 44 each megawatt generated during the operation phase (Wei et al. 2010). A 2013 report by the Swedish Environmental Protec- tion Agency estimates the creation of one job for each megawatt generated in a community wind farm and financed locally (Henningsson et al. 2013). A World Bank report states that in the United States, a 50-MW wind farm could generate up to 40 jobs during the construction phase, and 10 jobs in the operation and maintenance phase (World Bank 2011). 24 THE WORLD BANK GROUP B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N Table 2 continued FORM DEFINITION Local or preferential procurement Preferential procurement of local goods and services, and the creation of value chains such as the manufacture of wind turbine components (including blades and electric parts). • Brazil has developed equipment supply chains to serve the national wind market with turbine factories, towers, rotors, and blades.45 In South Africa, preferential procurement focuses on subcontracting to empowered enterprises and enterprises owned by women. Local infrastructure Local infrastructure development (such as substations, roads, and fences). This ben- efit is linked to infrastructure created by and for the project. However, project infra- structure sometimes can be modified to maximize benefits for the local community in the long run, beyond the wind investment. An example would be construction of scenic overlooks on the road to promote tourism. Payments, donations, and/or social Payments to broader communities (for example, in the form of community ini- benefits to broader communities tiatives and amenities). These payments can either be connected directly to the revenue stream or made through dedicated funds or charities distinct from the project revenue stream (as part of company’s CSR or philanthropy strategy). The payments can be used for community initiatives or amenities such as improving local infrastructure, constructing community centers, or providing other scholarship funds and grants. Public services Supporting the public provision of water, sanitation, health, and education, for example. Alternative skills and livelihoods Provision of non-project-related skills training and livelihood strategy support (such as microcredit for small and medium enterprise development, or ecotourism) benefiting communities living in direct or indirect project areas. Local institutional capacity building Establishment or enhancement of the effectiveness of community-based organiza- tions or public institutions (for example, community development trusts). Environmental enhancements (beyond Low-carbon community development efforts addressing climate change mitigation compensation) or adaptation objectives (such as home improvement). • In Germany, one category of benefits is “environmental benefits,” which enables improvements to the local environment or funding for local environ- mental projects.46 Global Wind Energy Council et al. (2011). 45 German Federal Ministry for Economic Affairs and Energy (2016: 23). 46 IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 25 B E N E F I T S H A R I N G A N D L O C A L C O M M U N I T Y PA R T I C I PAT I O N There are diverse legal and policy options for com- • Community decision making, which allows munity engagement and benefit sharing. Some communities to participate in determining countries, such as Denmark and Germany, have what benefits are shared with them and embedded benefit-sharing targets in relevant elec- how that sharing is administered. Accord- tricity, planning, and/or renewable energy laws. ing to the 2011 World Bank report “Green- Chile recently transformed its Energy 2050 pol- ing the Wind,” when local residents “have icies to incorporate community participation and a direct economic stake in the develop- benefit-sharing aims into the nation’s energy ment and operation of a wind project, the strategy. Other countries such as South Africa project’s local image can seem even more include local economic development require- enhanced.”48 ments in bid applications for wind power auc- • Community ownership, either from tions. The United Kingdom emphasizes voluntary community-owned wind projects or impacts good practice guidance. The presence of even vol- shared with the communities, which culti- untary guidelines can pave the way for improved vates social capital and/or a communal sense industry practices regarding benefit sharing and of ownership of the project. According to the community engagement. Renewable Energy Policy Network for the 21st Century (REN21), which co-hosted the 7th There is a growing international interest in explor- International Renewable Energy Conference ing community participation mechanisms. Commu- with the Government of Mexico in Septem- nity participation can take many forms, including ber 2017, especially in regions with indige- the following:47 nous populations, community-driven wind power projects are an opportunity to “pro- • Community involvement in wind power proj- mote local development, self-determination ect development procedures, such as project and identity, while ensuring communities’ site identification, FPIC, and social and envi- control over the mitigation and manage- ronmental impact assessments. ment of local environmental impacts.”49 International Finance Corporation. Forthcoming. Benefit Sharing in the Wind and Solar Industry. 47 World Bank (2011: 91). Additionally, the 2015 World Bank study titled “Indigenous Latin America in the Twenty-First Century” 48 states: “Experience of recent decades shows that, no matter how imperfect, the only way to advance development projects successfully within indigenous territories is through indigenous peoples’ involvement in the design, implementation, and mon- itoring of development programs. By de facto rule or by law, the question in Latin America is no longer whether indigenous peoples should be involved in decision making, but how and when” (World Bank 2015). REN21 (2017: 21). 49 26 THE WORLD BANK GROUP The Trajectory Toward Benefit 2.  Sharing and Risk Management for Maximizing Finance for Development Quantitative Analysis of Benefit-Sharing Mechanisms 2.1.  in Oaxaca, Mexico For various reasons, communities and civil society organizations in Oaxaca have organized considerable resistance against renewable energy investments within their territories. Com- munity opposition is not entirely directed toward the developments themselves but rather is tied to broader structural factors. These factors include the perception that benefits from investments (such as rent) go to only a few (a neighbor or local politician); lack of local par- ticipation when deciding where to make investments and how to share benefits; historical struggles over poverty and inequality; and mistrust of public and private institutions. A liter- ature review and research conducted for this report show that some factions of communities believe that wind energy development has benefited only a few families in the direct area of influence of the projects, created marginal employment benefits, disrupted agriculture and livestock, and failed to include communities through participatory processes.50 In Mexico, for instance, conflicts over wind power projects became highly visible in pub- lic discourse through the Piedra Larga project in 2011 and Mareña Renovables project in 2012, both in Oaxaca. In the case of Mareña Renovables (also known as Energía Eólica del Sur), opposing communities criticized a lack of appropriate consultations and development activities (including inequitably distributed benefits and a lack of local participation mecha- nisms) and a failure to account for the communal land tenure, social structure and customs, and legal rights of local indigenous communities. These events are especially important given that the Mexican state with the biggest potential for wind energy development and supporting the Mexican green growth agenda is Oaxaca. The state of Oaxaca is considered by diverse stakeholders as the “wind powerhouse” of Mexico, with “good to excellent” wind resources (wind power classes 4 to 7, with 7 being the highest)51 and a total of 44,000 MW wind potential.52 The best wind resources are concentrated in the southeastern region of the state, primarily in the southern part of the Isthmus of Tehuantepec (here referred to as “the Isthmus”). As a result, of 31 large-scale wind power projects that have operated in the country, 27 have been located in the Isthmus and operated by firms, including World Bank (2011). 50 NREL (2013). 51 NREL (2013). 52 28 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T Iberdrola, Enel Energy, Acciona, Desarrollos Eoli- to the treatment localities. Figure 153 shows the cos Mexicanos, Penoles, Gas Natural Fenosa, Eolica geographical distribution of the treatment and de Francia, and Gamesa. However, despite having comparison groups. The researchers relied on an the greatest potential for wind power in Mexico ex post econometric estimation to identify the and attracting the largest share of wind energy potential association between wind energy invest- investments, the Isthmus has high rates of poverty ments and local development and used two mea- and seems to have scarcely benefited economically surement methodologies: panel data estimation from wind power developments and the influx and a difference-in-difference design.54 The panel of investments. Wind power projects in Oaxaca data estimation and difference-in-difference are in six remote and marginalized municipalities design are characterized by comparing observed with high economic development needs: Asunción changes in the treatment localities to similar local- Ixtaltepec, El Espinal, Juchitán de Zaragoza, San ities that did not benefit from the wind power Dionisio del Mar, Santo Domingo Ingenio, and investments. For both estimations, the treatment Unión Hidalgo. group remained the same, but the comparison groups varied to account for pre-existent differ- A quantitative analysis done for this report, focus- ences between localities with wind farms and ing on the Isthmus de Tehuantepec in Oaxaca, those without. In this sense, when estimating the Mexico, shows that company efforts in benefit effects on different outcomes, group localities sharing had a limited socioeconomic development among the 11 municipalities that are, on average, impact between 1990 and 2015. The researchers more similar to the treatment localities were com- identified 78 localities with wind energy invest- pared. The panel data estimation and comparison ments in five municipalities in the Isthmus region, of groups allowed—with certain limitations55—an which are called “treatment” localities. The com- analysis of the socioeconomic impacts of wind parison group (“controls”) includes 388 localities park investments in the Isthmus region between in 11 municipalities that are geographically close 1990 and 2015. 53 Treatment Municipalities: Asunción Ixtaltepec, El Espinal, Juchitán de Zaragoza, Santo Domingo Ingenio, and Unión Hidalgo. Comparison municipalities: El Barrio de la Soledad, Ixtepec, Santiago Niltepec, San Blas Atempa, San Dionisio del Mar, San Francisco del Mar, San Mateo del Mar, San Miguel Chimalapa, San Pedro Huilotepec, Santa María Xadani, and Santo Domingo Chihuitán. 54 Different methodologies can be used to measure how wind power projects affect local development of a region, and using different methods to account for potential effects is desirable. For example, INEGI apply an exploratory approach consisting of comparing the socioeconomic outcomes of the localities with wind farms before and after installing the wind power projects. However, under this approach, it is not possible to verify whether the socioeconomic outcomes would have been any different without the wind farm projects. As a result, this design could not be inferred as a causal effect (that is, attributable to the investments in wind power) because there is no counterfactual to make the comparison. Moreover, as of 2016, there are more than 298 active social programs in the State of Oaxaca that could also have an impact on the local development of the region (Székely, Rodríguez-Castelán, Flores, Leyson, & Mendoza, 2017). Thus, comparing outcomes for the same localities in two periods of times does not allow associating the observed changes to a particular event. There are some considerations regarding the panel data estimation and difference-in-difference methods. First, both empirical 55 strategies measure ex post effects of wind power investments in the region. In this regard, the treatment and comparison groups were not randomly assigned, as would be done in a randomized controlled trial. Second, there might be some concerns related to the pre-existent differences between municipalities with wind farms and those without that could have influenced the investment decision, such as the average years of schooling of the population. Third, the assumptions may not hold if there are unobservable characteristics that are unique across municipalities but are varying over time. For example, the effect of wind power investment might differ from municipality to municipality depending on the local capacity of government officials. This study posits that positive or negative correlations can be made from measurement outcomes, but causal infer- ences cannot be made with certainty. When a coefficient is positive and statistically significant, the inference can be made that treatment localities are better off than the comparison control group, but the difference cannot be causally attributed to wind power investments alone. Therefore, our estimates measure the association between wind farm investment projects and socioeconomic outcomes in the region. IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 29 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T FIGURE 1. Comparison and Treatment Municipalities Comparison Group Treatment Group Muicipalities out of the sample Source: Author’s data collection and map design. DATA SOURCES censuses available for the period 1990–2015).57 In particular, the Population and Housing Census for The quantitative analysis conducted for this 1990, 1995, 2000, 2005, and 2010 were used for report focused on a broad set of development and information on household assets, employment, socioeconomic outcomes:56 housing conditions, food security, education, migration, health care education, health, labor, financial inclusion, and use, birth histories, and so forth. The 2015 Inter- poverty. The study uses official government data censal Survey complemented the data, collecting from the National Institute of Statistics and Geog- sociodemographic information comparable to the raphy (INEGI) (public data from a set of national census data. The Economic Census for 1998, 2003, Housing: Percentage of households with drainage, electrical energy, and a decrease in the percentage of households with dirt 56 floor. Education: Illiteracy rate, educational lag, and the percentage of people with incomplete primary education. Health: Mortality rates, number of physicians per medical unit, birth rate. Employment: Percentage of workers employed in the primary (agriculture, extraction of raw materials), secondary (manufacturing), and tertiary (commerce and services) sectors, self-employed individuals. Financial inclusion: Financial institutions per 10,000 adults, ATMs per 10,000 adults, point of sale (TPV or terminal de punto de venta, a system that manages a transaction, including credit and debit card processing, in retail and service establishments); Income: Percentage of workers earning up to two minimum wages (if hourly wage is equivalent to two minimum wages), between five and 10 minimum wages, and more than 10 minimum wages; Economic activity: Statistical units on which the information is collected. The economic unit engages, under single ownership or control, in one or pre- dominantly one kind of economic activity at a single physical location (that is, business, shop, firm) from which information is collected. Poverty: Percentage of population living in overcrowded homes, with food insecurity, in moderate poverty, without access to health services. Social expenditure: Household beneficiaries of Prospera (a Mexican conditional cash transfer program coordinated by Secretariat of Social Development), household beneficiaries of LICONSA (Leche Industrializada Conasupo; a social and nutritional program that distributes high-quality milk at subsidized prices for vulnerable families), total expenditure on social infrastructure. For some outcome variables, the data are available until 2010 or 2013. 57 30 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T 2008, and 2013, containing information on all result, controlling for fixed effects improves the economic activities in the country, was also drawn precision of the model (Wooldridge, 2010). upon. These censuses collect data from manu- facturing, commerce, and services establishments. The information is desegregated by geography DIFFERENCE-IN-DIFFERENCE ESTIMATION and economic activity. Finally, the Municipal and State Data System (Sistema Estatal y Municipal The second model is a difference-in-difference de Bases de Datos, SIMBAD) from INEGI offered (DiD) estimator, which is a quasi-experimental additional information at the municipal and state design that makes use of panel data, allowing the levels. Complementary indicators are obtained proper construction of a counterfactual for esti- from the National Institute for Federalism and mating a causal effect. Thus, this technique com- Municipal Development (INAFED), National Coun- pares the changes in the set of outcomes over time cil for the Evaluation of Social Development Policy between the treatment and comparison localities. (CONEVAL), and the national Banking and Securi- The advantage of the DiD estimator is that it not ties Commission (CNBV). only accounts for fixed effects but also includes the time trend. The specification for this model is PANEL DATA ESTIMATION as follows: The first model is a panel data estimation that yit = β0 + β1Di + β2POST1990 + β3Di × POST1990 + dm + eit , explains the changes in the set of outcome vari- (2) ables over time as a function of the wind power projects in the municipality, and time and munici- where yit is the outcome variable for locality i in pal fixed effects. The model specification is shown time t. Di is the treatment variable that takes the in equation 1: value of 1 if the locality is situated in a municipal- ity with wind farms, and 0 otherwise. POST1990 is yit = β0 + β1Di + β2 yi,t=1990 + dm + α t + eit , (1) an indicator variable that is equal to 1 from 1991 and onward and 0 otherwise. dm are municipal where yit is the outcome variable for locality i in fixed effects. eit is the error term. In equation 2, time t (excluding the year 1990). Di is the treat- β2 is the time trend for treatment and compari- ment variable that takes the value of 1 if the local- son localities, and the coefficient β3 is the DiD ity is situated in a municipality with wind farms, estimator that measures the effect of wind power and 0 otherwise. yi,1990 is the value of the outcome investments on the outcome variable. As men- variable for locality i in 1990. dm and αt are munic- tioned, this quasi-experimental design has been ipal and time fixed effects, respectively. eit is the widely used in the empirical literature to mea- error term. In equation 1, the coefficient β1 mea- sure potential effects of resource-based projects sures the effect of wind power investments on the (Black, McKinnish, & Sanders, 2005; Costa & Veiga, outcome variable. 2016; Aragón & Rud, 2013). One important assumption for the panel data The main assumption for the DiD estimator is the estimation is that after controlling for municipal parallel trend. Basically, this assumption requires and time fixed effects, the model is accounting for that the observed trend in the outcome of the the time-invariant components in the error term. comparison group is the same as the counterfac- Certainly, one concern for this specification is that tual trend of the treatment group. This assump- the fixed effects are correlated with the treatment tion cannot be directly tested, but usually a visual variable Di, which could bias the estimates. As a inspection of the data can support that it holds. IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 31 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T The following section presents the descriptive ison municipalities. The data show an increasing statistics, including a trend analysis for the set of trend for the cohort ages 25 to 59 years, but the outcome variables for treatment and comparison difference is not statistically significant. Treatment groups, and a mean tests analysis (Figures 2–11).58 municipalities exhibited a statistically significant increase in people aged 60 and older relative to Results show a positive association between comparison municipalities. There is a statistically wind power investments and an increase in the significant decreasing trend in treatment munic- percentage of house ownership (a statistically ipalities of population speaking an indigenous significant increase in the percentage of house language. Although an important finding, this is a ownership in treatment localities of 1.64 percent trend found throughout Mexico and thus not nec- relative to comparison localities). Results also essarily related to wind farm investments.59 show a decrease in the percentage of houses with walls made of makeshift materials (a reduction (2) Housing Outcomes of 14.7 percent in the percentage of houses with Data on housing outcomes for both treatment and walls made of makeshift materials in treatment comparison municipalities show a similar average localities). These results can be explained by land- increase in the percentage of households with owners who receive a steady income stream from drainage, electrical energy, and a decrease in the lands leased to project developers being able to percentage of households with a dirt floor. How- improve their living conditions. Therefore, land- ever, these outcomes are not statistically signifi- owners receiving direct payments from developers cant and thus do not reveal a difference between are more likely to experience positive impacts from treatment and comparison groups. wind energy investments. At same time, measure- ments for other socioeconomic indicators did not (3) Educational Outcomes show statistically significant differences between treatment and control localities. The data show a decrease in the illiteracy rate, edu- cational gap, and percentage of people with incom- plete primary education for both treatment and FINDINGS OF STATISTICAL RESULTS comparison municipalities. Treatment municipal- ities show a greater increase in the percentage of (1) Trends in Population Structure people with postsecondary and tertiary education Trends in the population structure for different age than does the comparison group. Although this cohorts for the treatment and comparison munici- increase is statistically significant when analyzing palities show that the treatment municipalities, on the mean difference, it is not possible to determine average, have a larger population than do compar- which programs or initiatives led to the differences 58 Both empirical strategies are measuring ex post effects of wind power investments in the region. In this regard, the treatment and comparison groups were not randomly assigned, as would be done in a randomized controlled trial. Second, there might be some concerns because of pre-existent differences between municipalities with wind farms and those without that could have influenced the investment decision, such as the average years of schooling of the population. Third, the assumptions might not hold if there are unobservable characteristics that are unique across municipalities but are varying over time, for example, the effect of wind power investment might differ from municipality to municipality depending on the local capacity of government officials. Taking into account these limitations, the authors are cautious about interpreting the results as a causal effect. In this sense, the coefficients do measure the differences between treatment and comparison localities. As a result, when a coefficient is positive and statistically significant, we can infer that the treatment localities are better off than the comparison group, but we cannot be certain that the difference is entirely due to wind power investments. Consequently, our estimates are measuring the association between wind farm investment projects and socioeconomic outcomes in the region. Nevertheless, both empirical strategies provide more robust and compelling evidence than the before/after design discussed. According to a 2013 report by the Oaxaca State Government, the decrease in the percentage of people speaking an indigenous 59 language could be explained by the increasing migration patterns in the region. 32 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T FIGURE 2. Mean Test for the Population Outcomes60 FIGURE 3. Mean Test for Housing Outcomes61 Change 1990-2000 Change 2000-2015 Change 2010-2015 FIGURE 4. Mean Test for Educational Outcomes62 Note: Includes the 11 municipalities in the comparison group. C: Comparison group; T: Treatment group. Mean test for C and T: 60 *** p < 0.01, **p < 0.05, *p < 0.1. (Source: Authors’ calculations; data from SIMBAD and INEGI.) Includes four of 11 municipalities in the comparison group: Santiago Níltepec, El Espinal, El Barrio de la Soledad, and Ciudad 61 Ixtepec. (Source: Authors’ calculations, Population and Housing Census for 1990–2010, and Intercensal Survey, 2015.) Includes the 11 municipalities in the comparison group. C: Comparison group; T: Treatment group. Mean test for C and T: 62 *** p < 0.01, **p < 0.05, *p < 0.1. (Source: Authors’ calculations, data from INEGI.) IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 33 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T FIGURE 5. Mean Test for Health Outcomes63 because 43 percent of the active governmental medical unit. Birth rates have decreased more in the programs in the region target the improvement of treatment group than in the comparison municipal- basic needs, including access and quality of edu- ities. However, the mean differences in the health cation. The authors cannot deduce whether the outcomes are not statistically significant. improvement in education is attributable to gov- ernmental programs, the investments of wind park (5) Employment Outcomes developers (for example, in educational facilities), The percentage of employed workers in primary or the attraction of externally procured workers and secondary sectors64 has decreased over the increasing levels of education. measurement period for both groups, which is consistent with an observed increase in tertiary (4) Health Outcomes employment, similar for both groups. As pictured In both the treatment and comparison municipal- in Figure 6, only the increase in self-employment ities, the data show a decrease in mortality rates shows a statistically significant difference, which is and an increase in the number of physicians per in favor of the treatment group. FIGURE 6. Mean Test for Employment Outcomes65 Change 1990-2000 Change 2000-2010 Includes the 11 municipalities in the comparison group. C: Comparison group; T: Treatment group. Mean test for C and T: 63 The mean differences are not statistically significant. (Source: Authors’ calculations, data from INEGI.) Employment sectors: Primary (agriculture, extraction of raw materials), secondary (manufacturing), and tertiary (commerce 64 and services) 65 Includes four of 11 municipalities in the comparison group: El Barrio de la Soledad, Ixtepec, San Blas Atempa, and San Pedro Huilotepec. Mean test for C and T: ***p < 0.01, **p < 0.05, *p < 0.1 (Source: Authors’ calculations, data from INEGI.) 34 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T (6) Financial Inclusion Outcomes indicator of income, have resulted in an increase in sales because of an increase in income in treat- Both treatment and comparison group outcomes ment localities and thus an improvement in pur- experienced an increase in financial inclusion out- chasing power and financial inclusion. comes, although the treatment group showed more pronounced changes than did the compar- (7) Income Outcomes ison group. When analyzing the mean changes, only the increase in the treatment group in the The percentage of workers earning only up to two number of establishments with TPV66 is statistically minimum wages showed a statistically significant significant (Figure 7). This could, coupled with the decrease in treatment municipalities. These changes FIGURE 7. Mean Test for Financial Inclusion Outcomes67 FIGURE 8. Mean Test for Income Outcomes68 Change 1990-2000 Change 2000-2015 Change 2010-2015 TPV or terminal de punto de venta, a system that manages a transaction, including credit and debit card processing, in retail 66 and service establishments. Includes the 11 municipalities in the comparison group. C: Comparison group; T: Treatment group; Mean test for C and T: 67 *** p < 0.01, **p < 0.05, *p < 0.1. (Source: Authors’ calculations, data from CNBV.) Includes eight of 11 municipalities in the comparison group. The excluded municipalities are: El Barrio de la Soledad, 68 San Miguel Chimalpa, and Santo Domingo Chihuitán. Mean test for C and T: ***p < 0.01, **p < 0.05, *p < 0.1. (Source: Authors’ calculations, data from INEGI.) IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 35 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T are consistent with a statistically significant increase ment municipalities. Only the increase in the in the percentage of workers earning between five economic units is statistically significant for the and 10, and more than 10 minimum wages in the treatment group (Figure 9).69 From this indicator, treatment municipalities (that is, the areas with an increase in economic activity—which also influ- wind parks). However, the income increases are not ences financial inclusion and the rise in wages accompanied by a similar decrease in inequality, as discussed—can be explained. measured by the Gini coefficient. The orange bars (Figure 8) show that inequality is decreasing in both (9) Poverty Outcomes treatment and comparison localities (and even more rapidly decreasing in comparison localities). How- There are no significant differences in poverty ever, there is no statistically significant difference outcomes when comparing treatment and com- in inequality changes between treatment and com- parison municipalities (Figure 10). This is an inter- parison municipalities (Figure 8, likely because only esting and complex finding, especially in regard a small percentage of the local population (people to the rise in economic activity, financial inclu- leasing land or through another ownership mecha- sion, and higher wages found in the treatment nism) benefit from wind power projects. locality. (8) Economic Activity Outcomes (10) Social Expenditure Outcomes As for economic activity outcomes, the data show Expenditures for social programs, such as PROSPERA an increasing trend for all indicators in the treat- and LICONSA, increased for both groups but with FIGURE 9. Mean Test for Economic Activity Outcomes70 300 200 100 0 Economic units are the statistical units on which information is collected. The economic unit engages, under single ownership 69 or control, in one or predominantly one kind of economic activity at a single physical location (for example, a business, shop, or firm). Includes the 11 municipalities in the comparison group. C: Comparison group; T: Treatment group. Mean test for C and T: The 70 mean differences are not statistically significant. (Sources: Authors’ calculations, data from SIMBAD and INEGI.) 36 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T FIGURE 10. Mean Test for Poverty Outcomes71 Change 1990-2000 Change 2000-2010 no significant differences.72 As for social infrastruc- the need for a systematic benefit sharing and com- ture expenditures,73 the treatment group displays a munity engagement strategy, led by the public sec- statistically significant increase relative to the com- tor through accompanying policies and resources. parison municipalities (Figure 11). Such engagement—in Mexico and beyond—can enable sustainable local development in the indi- The limited positive socioeconomic impacts of wind rect and direct project areas by taking advantage power developments in the Mexican Isthmus affirm of the presence of private investments. FIGURE 11. Mean Test for Social Expenditure Outcomes74 71 Includes six of 11 municipalities in the comparison group. Includes El Barrio de la Soledad, Ixtepec, San Blas Atempa, San Francisco del Mar, Santa María Xadani, and Santo Domingo Chihuitán. C: Comparison group; T: Treatment group. Mean test for C and T: The mean differences are not statistically significant. (Sources: Authors’ calculations, data from CONEVAL.) PROSPERA is a Mexican conditional cash transfer program, coordinated by Secretariat of Social Development. Leche Indus- 72 trializada CONASUPO (LICONSA) is a social and nutritional program that distributes high-quality milk at subsidized prices for vulnerable families. The social infrastructure expenditure comes from the budget of the Program Ramo 33 for social infrastructure. Ramo 33 is a 73 budgetary mechanism for transferring funds to municipalities and states. The social infrastructure budget funds public goods, such as drainage, urban infrastructure, piped water, basic infrastructure for education and health, roads, and so forth. IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 37 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T The considerable resistance against infrastructure tributed benefits, lack of consultation, and miss- projects and especially renewable energy invest- ing transparency can lead to a continued sense of ments and high-risk context for developers calls discrimination and inequality, especially if benefit for a more systemic analysis of the social dimen- sharing through investments is not equitable. sions of wind energy development and renewable energy growth. This is especially important given A variety of mechanisms exist to integrate local the climate change goals that countries set forth communities in wind power development pro- and the need to maximize financing for develop- cesses and enable social acceptance, including local ment to meet pressing development challenges. community participation. Early and sustained recip- The creation of an enabling environment for rocal engagement between wind power develop- private sector investments is thus recommended ers, government, and communities—and allowing through policy reforms of the auction systems; a for different forms of community participation— legal framework for community inclusion, espe- has been shown to foster greater levels of trust, cially in the renewable energy sector; and the help reduce the possibility of wind farm devel- design of a risk-management strategy for the opments being rejected, and facilitate the accep- government to better manage both community tance of wind farm developments.75 For example, and private sector requests. These approaches can a survey of 1,800 respondents (total) in Poland and support countries to fully leverage their energy Germany shows that people in both countries are resources and maximize financing for both devel- willing to accept wind power projects in their com- opment and private sector investments. munities if they can participate in decision-making processes, turbines are owned by citizens, and elec- tricity is locally distributed rather than exported.76 When wind farms were introduced in Nova Scotia, Good Practices of Local 2.2.  Canada, communities were highly involved in the Community Participation for project, which opened space toward greater social Enabling Social Acceptance acceptance and a reduction in conflict.77 The same evidence is observed in Australia78 and the United There are significant risks to continued social Kingdom.79 Dissatisfaction with decision-making conflicts around infrastructure. For the public sec- processes can be the prime reason for community tor, conflicts can disrupt efforts to meet national opposition to a wind energy project. Conversely, a renewable energy targets and international green project can gain acceptance when decision-making growth commitments. For the private sector, con- processes are perceived as being fair and transpar- flicts can have direct cost implications because of ent.80 Recognizing the importance of participatory delays or increased costs of project operations. decision-making processes in fostering trust, some For communities, the perceptions of unfairly dis- developers seek the use of intermediaries because 74 Includes the 11 municipalities in the comparison group. C: Comparison group; T: Treatment group. Mean test for C and T: *** p < 0.01, **p < 0.05, *p < 0.1. (Sources: Authors’ calculations, data from SEDESOL and INAFED.) 75 Wolsink (2012); See also Warren and McFadyen (2010); Rogers et al. (2008); Musall and Kuik (2011). 76 Liebe et al. (2017). See also Ellis and Ferraro (2016: 53). 77 Corscadden et al. (2012). 78 Gross (2007). 79 Breukers and Maarteen Wolsink (2007). 80 Gross (2007). 38 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T local communities may distrust wind power devel- estimated to create (during construction and the opers’ motives.81 manufacturing and installation phases) between 0.43 and 2.51 jobs per megawatt and 0.27 jobs per In some cases, partially or wholly community-owned megawatt during operation.87 Although these jobs wind power projects have been shown to yield generate additional sources of economic income for greater returns and benefits to communities, as well local communities, civil works related to the project as to strengthen local self-sufficiency.82 Community represent only about 1 to 6 percent of total invest- members who have a voice in project decision- ments, whereas the wind turbines account for 74 to making processes can make more complete evalua- 82 percent of this amount. Thus, there are certain tions of the positive and negative impacts of wind limitations to the direct benefits that wind energy power projects and obtain higher levels of bene- can bring to local the community, particularly the fits compared with compensation schemes without wider community.88 A study on the potential eco- community involvement.83 Locally owned and con- nomic impacts of a wind power project in the Shet- trolled wind power projects can also broaden the land Islands, Scotland, shows that local ownership local income tax base, again benefiting the broader schemes generate greater economic impacts for community.84 In a 2009 study of community wind local communities compared with benefit schemes projects in the United States, researchers analyzed for which project developers make voluntary mon- the economic impacts from three types of projects: a etary contributions to communities.89 Community- project owned by a local municipal utility, a project owned projects may also be smaller in scale, affect- owned by local investors, and a set of community ing smaller land areas. A relevant example from projects.85 The authors concluded that community the solar industry in Australia illustrates this case wind projects can use higher levels of local inputs, (Box 2). such as labor and materials, than can other proj- ects. Their estimates suggest an increase in employ- Community-owned parks, if considered, need to ment of four to six jobs per megawatt during the be accompanied by adequate legal frameworks. construction phase and 0.3–0.6 long-term jobs Legal and regulatory complexities around wind per megawatt during wind power project opera- power development processes made it difficult for tions.86 Traditional wind farms, on the contrary, are alternative models of wind power projects to launch 81 Devine-Wright (2013). 82 The Windpark Druiberg in Dardesheim, Germany consists of 31 wind turbines (66 MW), which were installed in the early 1990s. Only local residents can own wind park shares, and as of 2014, approximately 90 percent of Dardesheim residents are involved in Windpark Druiberg. The project has increased regional economic growth and strengthened local self-sufficiency in energy production. Profits from the project have been used to support local infrastructure development and other projects, while also financing other renewable energy projects. Overall financing was achieved through shareholder capital investment and com- mercial credit as a co-funding mechanism. (For more information about Windpark Druiberg, see the European Union-funded Climate Policy Info Hub at http://climatepolicyinfohub.eu/community-energy-projects-europes-pioneering-task.) 82 German Federal Ministry for Economic Affairs and Energy (2016: 23). 83 Cowell et al. (2012). 84 World Bank (2011: 88). 85 Combines corporate investors with local investors. 86 Lantz and Tegen (2009). 87 Huesca-Perez et al. (2016). Wider communities are those individuals that are outside of the direct project area but can be negatively (for example, visually) 88 or positively (for example, through income or improved public services) affected by the project. 89 Allan et al. (2011). IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 39 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T BOX 2. Australia: Community-Based Solar Project by the Manungurra Aboriginal Corporation The Manungurra Aboriginal Corporation, in partnership with Australian government’s Indigenous Business Australia (IBA), established a community-based solar project in Australia’s Northern Territory in 2018. The IBA contributed US$240,000 in funding, 36 kW of solar panels, and 67 kWh of gel battery storage. This project allowed indigenous community members to return to their lands, where they benefited from lower electric costs, became more self-sufficient, and protected their indigenous culture while developing a sustainable new source of energy.90 in Mexico. For example, in 2008 the Yansa Ixtepec associated funding problems, have prevented the Community Interest Company tried to establish a launch of the wind farm (Box 3).91 community-owned wind farm that would enable renewable energy generation; community empow- Participatory mechanisms regarding wind power erment; continued ownership of lands with deep projects should be adapted to specific local con- cultural and livelihood significance; and equitable texts to be implemented successfully in developing benefit sharing to the Ixtepec community mem- countries. Although some participatory mechanisms bers. However, legal and regulatory problems, and may work in developed countries, in developing BOX 3. Mexico: Yansa Ixtepec Community Interest Company In 2008, community members in Ixtepec, a municipality in the Juchitán district of the Isthmus, partnered with the Mexico-based NGO Yansa to develop a community-owned wind farm proj- ect that would enable renewable energy generation, community empowerment, continued ownership of lands with deep cultural and livelihood significance, and equitable benefit sharing to Ixtepec community members. The Yansa Ixtepec Community Interest Company (comprised of Yansa and the locals of Ixtepec) requested to participate in the bidding process for a public tender on 200 MW of access to the Federal Commission for Electricity (CFE) substation in the town of Ixtepec, Oaxaca. The estimated cost was US$200 million, and the project was to have 34 turbines and a capacity of 3 MW. Yansa amassed financial backing from Mexican and inter- national impact investors, private foundations, and development banks. The total estimated annual surplus from the wind farm (after servicing debts and interest payments to investors Box 3 continues next page Indigenous Peoples Major Group (2018: 10). 90 Interviews for this report. See also Howe and Boyer (2015, 2016). 91 40 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T Box 3 continued and banks) was expected to be Mex$50 million (US$3.81 million) annually. In terms of benefit sharing: • 50 percent of this surplus would be returned to the community in the form of pay- ments to community members, funding for social projects, and a pension fund for aging farmers; • 12.5 percent would be allocated to a Yansa Ixtepec project-specific guarantee trust; • 12.5 percent would be allocated to a mutual guarantee fund for all wind farm projects supported by Yansa; and • The remaining 25 percent would be allocated to Yansa for investing in other community wind farms around the world. Despite the Yansa Ixtepec wind farm project’s planning and financial backing, in 2012, the CFE dismissed the project’s bid for grid access by claiming that the community project could not provide proof of sufficient capital or letters of credit, or proof that investors had a 20 percent equity ownership. This provided problems insofar as Yansa’s investors would only guarantee the credit if Yansa first won the bid and contracted with CFE for access to the grid. The Yansa Ixtepec project has not been able to successfully launch.92 country contexts, stakeholders can face particular ing information accessible and understandable, and institutional and governance challenges. For exam- engaging historically or traditionally disadvantaged ple, a 2011 World Bank report posits that in Mexico, groups, including women and minorities. for a cooperative model to work effectively, “a con- certed effort would have to be made to adapt Euro- Developer-led engagement should happen early on pean cooperative ownership models to developing and in culturally appropriate timelines. Failure to country circumstances—unless it is possible that engage could lead to frustration on the part of many home-grown local ownership models could emerge communities and generate distrust of the motives on their own, or otherwise be cultivated.”93 At the for participatory mechanisms.94 Case studies of wind same time, it is crucial to take into consideration the power projects in Finland, Norway, and Sweden, for development needs, forms, and time needed for example, show that an emphasis on speeding up community decision making, and specific uses and decision-making processes in a way that suppresses customs, among others. Additional challenges to conflict can contribute to community resentment.95 more-effective public participation include overcom- It is therefore important to consider ways to increase ing consultation fatigue, generating trust, ensuring community participation in completion of studies, continued engagement and feedback loops, mak- for example, in the form of feedback on assessments. Interviews for this report. See also Howe and Boyer (2015, 2016). 92 World Bank (2011: 93). 93 Ellis and Ferraro (2016). 94 Ellis and Ferraro (2016). 95 IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 41 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T BOX 4. Consultative Committees In Chile, a Consultative Committee was created in 2014 for the development of Chile’s new long-term National Energy Policy to 2050 (Energy 2050). The Committee, housed under the National Corporation for Indigenous Development, included representatives from the public and private sectors, civil society, and academia. The Committee’s objective was to incorporate indigenous perspectives into Energy 2050. In the New South Wales state of Australia, the Department of Planning and Environment requires developers to create community consultative committees (CCC)—nonregulatory, adviso- ry committees that facilitate open discussions among communities, developers, local government councils, and other stakeholders on wind farm development assessments. If the Department of Planning and Environment determines that the developer’s community engagement strategy is localized and aligns with the Department’s best practice standards, a CCC is not required.96 Stakeholders should also agree on a shared defini- the private sector has to deliver benefits, as well as tion and acceptable forms of benefit sharing (such private sector and public sector initiatives seeking as shared revenue, tax relief and subsidies, reduced to foster community engagement and benefits. electricity rates, and so forth). Stakeholder discus- Regulatory reforms in the energy sector in many sions should be led by the government as a guiding countries have enabled favorable conditions for interlocutor. Engagements can also happen through significant private sector participation in renew- consultative committees made up of community able energies. Mexico, for instance, since 2016, has representatives (for example, consultative commit- completed three successful power auctions and tees in Australia and Chile) to meaningfully engage has seen significantly declining costs. Average ten- stakeholders in processes such as FPIC, impact assess- der costs per megawatt hour for wind dropped by ments, and benefit sharing in the medium and long more than half, from US$53.39 in the first auction term, and on both policy and project levels (see in 2016 to US$18.68 in the third auction in 2017 Box 4). At the same time, communities should be (Figure 12).97 At the same time, however, this auc- provided accurate and comprehensive information tion system favors the most competitive companies on the details of wind power projects, potential neg- and prices, adding pressure on voluntary benefit- ative externalities, and potential benefits. sharing budgets, capital and operating costs, as well as profit margins, affecting the will to It is important to align expectations of benefits develop and implement voluntary benefit-sharing with sector policies, which determine the room budgets. Department of Planning & Environment, New South Wales Government (2016). 96 Viscidi (2018). 97 42 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T FIGURE 12.Declining Average Awarded Levelized Cost of Energy (LCOE) for Solar Photovoltaic and Wind in Mexico for 2016 and 2017 Long-term Auctions (US$/MWh) 36% reduction 30% reduction 47% 34% reduction reduction Source: Mexican Wind Energy Association (2018). Key Instruments and Challenges 2.3.  International conventions and best practices for Benefit Sharing and Local uphold FPIC as a way to protect and involve local communities in wind power development. FPIC has Participation particular relevance for consultation with indig- enous communities, which often face historical Four key instruments supporting wind power proj- and socioeconomic vulnerabilities. Several human ects were identified by the report as relevant to rights-related international treaties98 provide the local community engagement and participation in legal basis for FPIC,99 as well as national laws. Evi- wind power development processes, based on the dence has shown how community participation comparative analysis and literature review. These can enable greater trust between communities are: (1) free, prior, and informed consent (FPIC); and wind power developers, strengthen percep- (2) impact assessments (social impact assessments tions of fairness and transparency, and increase [SIAs], environmental impact assessments [EIAs], self-sufficiency. FPIC, as a consultation mechanism, or strategic, environmental, and social assess- can therefore be an effective vehicle for promot- ments [SESAs]); (3) policy coherence for sustainable ing social acceptance. development and institutional coordination; and (4) promoting standardization and guidelines The World Bank’s new Environmental and Social for community engagement and benefit sharing Framework (ESF)100 recognizes that indigenous good practice. peoples/sub-Saharan African historically under- served traditional local communities may be par- (1)  Free, prior, and informed consent ticularly vulnerable to the loss of, alienation from, These include: The United Nations Declaration on the Rights of Indigenous Peoples; Agreement 169 of the International 98 Labour Organization on Indigenous and Tribal Peoples in Independent Countries; and The World Bank and IFC‘s performance and safeguards standards when implementing projects financed by the World Bank Group. 99 The most recent incarnation of this policy requires “free, prior, informed consultation,” rather than “free prior informed consent” (World Bank 2011: 107). 100 World Bank (2016b). IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 43 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T or exploitation of their land and access to natural benefit sharing and local community engagement and cultural resources. In recognition of this vul- in renewable sectors. Furthermore, it is important to nerability, in addition to the general requirements create locally legitimate and cross sector understand- of ESF, FPIC of the affected indigenous peoples/ ing of when a consultation is undertaken “prior” to sub-Saharan African historically underserved tradi- an investment. This should be done together with tional local communities can be required in circum- industry and community stakeholders to both enable stances in which the project will (a) have adverse efficient project development timelines and respect impacts on land and natural resources subject to community learning and decision-making processes. traditional ownership or under customary use or occupation; (b) cause relocation of these popula- Early engagement through FPIC—in a culturally tions from land and natural resources subject to appropriate manner and timeline—can help to traditional ownership or under customary use or establish a comprehensive and inclusive strategic occupation; or (c) have significant impacts on the framework for benefit sharing and local community cultural heritage of these populations that is mate- participation with diverse stakeholders, including rial to the identity and/or cultural, ceremonial, or government, private sector, and communities. This spiritual aspects of their lives. Additionally, con- could be done via consultative committees made sultations, through the ESF Standard 10, play an up of community representatives (for example, important part of project preparation and imple- consultative committees in Australia and Chile) to mentation, to ensure that communities’ voices are meaningfully engage stakeholders in processes such heard and integrated into project design. as FPIC, impact assessments, and benefit sharing in the medium and long term, and on both the Administering FPIC is challenging when financial policy and project levels (see Box 4). At the same incentives encourage rapid community consent for time, communities should be provided accurate and project developments. Government staffing capac- comprehensive information on the details of wind ity and budgetary resources to conduct FPIC are power projects, potential negative externalities, and sometimes limited, which can impede (a) gaining a potential benefits translated into local languages. deep understanding of a community’s customs and traditions, interests, and concerns; (b) building trust Social impact assessments, environmental (2)  with local communities and gaining local insight impact assessments, and strategic and knowledge to administer informed, culturally environmental and social assessments sensitive consultation processes; and (c) following up on agreements as needed to reach a long-term Wind power developers that want to follow best agreement sufficient to communities. practices should submit assessments that consist of the identification, characterization, prediction, and It is recommended to design voluntary guidelines assessment of social and environmental impacts, or, at best, legal frameworks for benefit sharing as well as the corresponding mitigation measures. and community participation that are in line with Moreover, the assessments should identify indige- ILO 169 and FPIC. One can derive good practice nous peoples and communities within the area of learnings from countries such as Chile, Denmark, and direct and indirect influence of a project. Both the South Africa, which exhibit diverse approaches for EIA and the SIA are recommended at best in a joint For an example of an EIA, see the assessment for Yucatan, Mexico: https://mayaenergia.files.wordpress.com/2017/03/eolico- 101 sinanche_31yu2016e0013.pdf. Sperling et al. (2008). 102 Sperling et al. (2008). 103 44 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T document. They should also be disclosed on a gov- vices infrastructure.105 As with EIAs or SIAs, SESAs ernment web portal, and the public should have also serve as another mechanism for assessing the adequate time to respond with feedback.101 cumulative environmental impacts of multiple wind farms within a wind resource area; as a mech- Studies have shown that incorporating public partic- anism for information exchange between differ- ipation can generate more legitimacy for projects102 ent wind farm operators; for analyzing alternative and lead to improved impact assessment-related power generation options (in addition to wind) decision-making.103 Similarly, the public consultation within a planning area; and for providing a plat- and disclosure for assessments could be another form for involving different stakeholders, includ- mechanism for greater community involvement and ing the most vulnerable, in the decision-making social acceptance. For best outreach, assessments process regarding wind development. 106 should be published in an accessible language and provide culturally sensitive feedback mecha- SESAs can produce overlay maps showing zones of nisms, among other things. Effective dissemination high wind power potential in relation to environ- should go hand in hand with collaborating with mentally and socially sensitive areas. They can also stakeholders on a shared understanding of bene- contribute to zoning maps indicating, for example, fit sharing and acceptable forms of benefit sharing (1) “red” zones, from which wind farms and trans- (including shared revenue, tax relief and subsidies, mission lines should be prohibited; (2) “yellow” reduced electricity rates, and so forth). zones, signifying the need for wind farms to follow particular precautions regarding environmental and Strategic environmental assessments take into cultural resources; and (3) “green” zones, which can account multiple interacting factors, including be screened for wind farm development approval or wind resource potential, environmental and cul- wind farm development can actively be promoted. tural precautions, and socially sensitive areas. As SESAs can integrate constraints, risks, and opportu- such, SESAs can provide information normally not nities into cumulative impact determinations. Box 5 available through traditional assessments.104 This describes a potential application and use of SEASs includes comprehensive, aggregated information to define renewable energy zones (REZs). on the demographic, socioeconomic, and socio­ cultural qualities of communities, disaggregated It is therefore recommended that countries develop by gender; vulnerable individuals and groups; and a database indicating the presence of vulnerable statistical data on existing social development pro- individuals in wind-rich regions, comprehensive grams. Such information can equip developers and socioeconomic indicators, development needs, local authorities with a deeper understanding of marginalization rates, as well as existing local devel- potential project sites, including the population’s opment efforts disaggregated by gender. This needs, living conditions and concerns, and oppor- database—at best publicly available and free of cost—will enable stakeholders to understand the tunities for sustainable renewable energy growth local economic conditions and the population’s given the existing local planning and social ser- needs, and support the design of benefit-sharing World Bank (2011: 40). Environmentally or socially sensitive areas are likely to include, among other features: (i) protected 104 areas and other sites of concern from a biodiversity standpoint, (ii) areas important for tourism where visual impacts would be of concern, (iii) areas with uncertain or disputed land ownership, (iv) areas with indigenous or other traditional rural popula- tions where greater-than-usual efforts might be needed to design culturally appropriate benefit-sharing measures and obtain broad community acceptance, (v) radar and telecommunications facilities where turbines could cause interference, and (vi) areas close to airports. 105 USAID (2017). 106 World Bank (2011). IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 45 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T BOX 5. Learning from Renewable Energy Zones Renewable energy zones (REZs), which are created in diverse regions including the United States and parts of Africa, provide an example of how SESAs can be successfully implemented to provide comprehensive information on a potential project site, involve local communities in the assessment process, and yield significant benefits for local communities. REZs are designated geographic areas that are characterized by features that enable cost-effective wind power development, such as a high-capacity fac- tor for wind production, strong investor interest, and suitable topography. In REZs, new transmission FIGURE B5.1. Process of Screening lines are directly built in the regions with the best Resource Potential to Calculate the Technical Potential of areas for wind generation. Study Areas REZs are a solution to regions that have experienced wind power project setbacks given that they allow Resource Potential several layers of assessment in evaluating potential REZs. For example, Figure B5.1 depicts screening criteria from a USAID best practice guide.107 Steps in screening the resource potential process for Excluded areas REZs include (1) evaluating resource potential for (e.g., protected areas, urban areas, high-quality wind power; (2) identifying excluded water bodies, terrain areas;108 and (3) identifying priority economic features, and other relevant features) development areas (anticipate economic growth and increased demand for electricity, considering Priority areas costs and benefits and economic considerations). (e.g., economic development areas) A development adjustment factor (DAF) is also calculated as an “estimated percentage of total potential capacity likely to be developed after Technical potential accounting for the potential reasons that invest- of study areas ment might not occur on a specific site (e.g., lim- ited capital) despite technical feasibility.” The DAF is calculated in collaboration with local community Source: USAID/NREL (2017). stakeholders who can provide “often subjective” reasons for why an investment might not occur.109 Box 5 continues next page USAID/NREL (2017). 107 Constraints to project development can pertain to land, such as water features and urban areas; topography, such as slope of 108 the land; protected areas, including government-protected or critical environmental areas (such as bird migratory pathways) and areas important for social or cultural reasons; and other state/local issues that restrict development. USAID/NREL (2017: 6). 109 46 THE WORLD BANK GROUP T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T Box 5 continued Renewable energy zones have also created significant spillover benefits to some customers and communities. Because new transmission lines are directly built in the regions with the best areas for wind generation, the electricity produced per unit of capital invested yields high returns and potentially large benefits to customers and broader communities. The International Renewable Energy Agency found that REZ creation in parts of Africa could not only maximize transmission capacity utility but also minimize land use and increase returns on investment for wind power projects.110 schemes when planning renewable energy projects. initiative involving government action in addition The database will also provide relevant information to the work of companies can result in significant for the organization of prior consultations. and sustainable benefit-sharing alternatives. This is likely to require that the government incorporates Policy coherence for sustainable (3)  revenue-sharing considerations in its policy, as it development and institutional does in the mining and oil and gas sectors, as part coordination to help create a of a clear and stable legal framework for the sector. supportive regulatory environment for effective benefit sharing Countries have set ambitious climate change and Individual company efforts to share benefits, clean energy targets and introduced key policy together with trickle-down effects, are likely to and procurement measures to deliver on commit- have limited impact. This reflects in the structure ments. However, critical barriers to the develop- of the industry, which is highly capital intensive ment of sustainable energy infrastructure involve with equipment produced elsewhere (thus provid- limited institutional capacity to efficiently over- ing limited local employment) and uses technology see social and environment impacts, monitor that requires relatively low operation costs. More- benefit-sharing mechanisms, and develop and over, the existing pricing schemes—associated with enforce regulatory frameworks that protect com- an auction model that tends to decrease margins— munities and the environment. do not leave room for significant company-driven, Research for this report has shown that in many benefit-sharing schemes. Company efforts, even if countries, there is limited horizontal coordination improved, are unlikely to satisfy expectations of among ministries and vertical coordination among addressing needs of the local population. Although federal, state, and municipal government entities. the sector can have an impact, benefits cannot Ministries do not coordinate on social and environ- depend only on what companies do. mental impact assessments for wind power projects, The presence of investment and growth in the sec- and governmental capacity to execute responsi- tor represent an opportunity. However, only a sector bilities and ensure effective benefit sharing and Green Tech Media (2015). 110 El Siglo de Torreón (2017). 111 IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 47 T H E T R A J E C T O RY T O WA R D B E N E F I T S H A R I N G A N D R I S K M A N A G E M E N T community participation is limited. At the same Promoting standardization and (4)  time, staffing and financial resources are limited. guidelines for community engagement In 2017 in Mexico, for example, the Energy Minis- and benefit sharing good practice try (SENER) experienced a backlog of 563 project A selected review of the shareholding structure SIAs.111 SENER’s consultation staff, based in Mexico of wind farm developers and operators shows City, is often responsible for serving ethnically that, in general, they count development and diverse and geographically distributed regions. other financial institutions as shareholders or With limited timelines, staff face challenges in investors. Such lenders or investors require wind analyzing SIAs on time, coordinating with relevant developers to align their projects and operations secretaries and across horizontal and vertical lines, with the IFC performance standards, or similar and supervising consultations. standards. The Environmental and Social Frame- work (ESF) introduced by the World Bank in 2018 The public sector should take ownership for coordi- to lead safeguards and sustainability of its proj- nating different actors and monitoring impacts. The ects can also provide good guidance, especially 15 companies interviewed for this report noted that the private sector cannot take on the local develop- for the public sector, on consultations, commu- ment role of the government. Furthermore, private nity engagement, and land tenure structures, sector interviewees noted that numerous compa- among others. In practical terms, partnering with nies and contractors may be involved at different international development or financial insti- stages of a project and that ownership of the proj- tutions means the companies have developed ect may change numerous times during the project relevant policies, routinely conduct environ- life cycle and thereby change formal and informal mental and social impact assessments, plan and benefit-sharing commitments and implementation implement structured stakeholder engagement, plans. As a result, communities may feel deceived and systematically address their social risks and or discounted by companies. A strong interlocutor opportunities. from the public side, harnessing and coordinating the various actors, is crucial. Promoting standardization and guidelines for com- munity engagement and benefit sharing good It is recommended that renewable energy invest- practice can further improve and structure benefit- ment approval processes be coordinated through a sharing practices in line with good industry CSR dedicated working group with established commu- practices. A strong partnership with national and nication and transparency mechanisms. This should subnational governments is key. Even volun- go hand in hand with an increase in resources and tary guidelines on community engagement and personnel for assessment revisions, consultation benefit sharing has shown to yield important processes, and follow-up during implementation results in engaging with stakeholders. A sector ini- of renewable energy projects. This will also help to tiative involving government action in addition to support enhanced coordination with communities the work of companies can result in significant and and a close follow-up of investment projects. sustainable benefit-sharing alternatives. 48 THE WORLD BANK GROUP 3. Recommendations Key concerns underlying social conflicts on wind developments involve less of the “not in my backyard” phenomenon but instead are related to historical struggles over poverty and inequality, land ownership, and political elite capture of benefits. This history leads to mistrust in public and private institutions, including decision-making and implementation processes regarding benefit sharing and local community participation.112 Although benefit sharing does not guarantee social acceptance, a systematic benefit-sharing mechanism that responds to a local community’s needs and concerns and is led by the public sector through accompanying policies and resources can take advantage of the presence of private invest- ment. Benefit sharing can help give renewable energy projects a social license to operate and can support sustainable local development in indirect and direct project areas. Worldwide investments in clean energy have increased significantly. Over US$2.5 trillion has been invested worldwide in renewable energy since 2008. In 2016, total annual investment in renewable energy reached US$455 billion, including US$270 billion in developing countries (with US$56 billion coming from international investments). Solar energy annual investment increased over 260 percent and wind power investment increased by 43 percent from 2008 to 2017. However, this number falls well short of the most conservative estimates of what is needed to mitigate climate change entirely—around US$600 billion a year. Maximizing finance for development, fostering a positive investment climate for renewable energy projects, and at the same time sharing the benefits with the communities is thus all the more important. Local participation mechanisms (such as community participation in policy development, benefit-sharing decisions, or community-driven wind power projects) can enable greater trust, strengthen perceptions of procedural fairness, and generate more sustainable out- comes for wind power projects. Especially when socioeconomic conditions and cultural sen- sitivities inspire community resistance, the government and industry actors should pursue equitable benefit-sharing and meaningful community-participation mechanisms to man- age risks. Achieving these aims requires commitment, interest, and openness among stake- economic holders. It also requires data-driven analysis of relevant legal frameworks; socio­ context; and industry perceptions, norms, and practices. Finally, equitable benefit sharing and meaningful community participation require an enabling legal framework. This report analyzed the potential of benefit sharing and local participation from three perspectives: • Governmental perspective—the actor able to legally provide the framework for an enabling environment to wind energy; Davis and Franks (2014). 112 50 THE WORLD BANK GROUP R E C O M M E N D AT I O N S • Community perspective—relevant actors for • In some cases, company efforts for benefit wind energy investments and FPIC, local par- sharing have shown limited impact, partic- ticipation, recipients of benefit sharing, and ularly if decoupled from the government. potential actors in the elaboration of a SIA; A quantitative analysis done for this report, and focusing on the Isthmus de Tehuantepec • Private sector perspective—partner in in Oaxaca, shows that company efforts for imple­ menting benefit sharing and local benefit sharing have had limited impact parti­cipation. on socioeconomic development indicators, particularly as most of them have been The primary findings and recommendations of this decoupled from governments’ develop- report are as follows. ment plans. In general, benefit-sharing practices are most effective when they include structured monitoring and evalua- 1) Investment Climate and tion of their efforts and are implemented in Guidelines for Benefit Sharing a strong partnership with governments and local development strategies, which maxi- Key Findings mize efforts. It is increasingly evident that company efforts alone, even if improved, • Social acceptance for wind power develop- are unlikely to satisfy the needs of under- ments is complex and dynamic and should be served local populations. A sector initiative fostered early in the process. Benefit sharing in line with government development plans is essential for fostering (but does not guaran- in addition to the work of companies is tee) social acceptance of wind power projects. needed if significant and sustainable bene- Benefit sharing can take many forms, includ- fit-sharing results. ing revenue sharing, reduced electricity rates, • Social risks peak during project develop- and funding for community initiatives and ment and construction phases. Interview- programs. Many communities do not neces- ees for this study from the private sector sarily oppose wind power projects in and of noted that special interest groups can lever- themselves. Instead, much community oppo- age their demands by challenging permits sition seems to be directed toward the lack and FPICs in courts and generate potentially of positive development outcomes (equitably costly delay risks during development and distributed benefits) and appropriate consul- construction stages. Community opposi- tations and local participation mechanisms. tion is greatest during those phases, which Early and sustained reciprocal engagements shows that an early engagement with com- among wind power developers, govern- munities and a resolution of complex issues ment, and communities have been shown is important. to foster increased levels of trust, help reduce • Wind power developers may be discour- the possibility of wind farm developments aged by investment uncertainties caused being rejected, and facilitate the acceptance by social conflicts. Fostering social accep- of wind farm developments.113 tance of investments is key to continuing to 113 REN21 (2017: 19). Danish Ministry of Energy (1981). Anker and Jørgensen (2015: 28). Ernst & Young Australia (2014). See also Ellis and Ferraro (2016: 42). IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 51 R E C O M M E N D AT I O N S receive investments needed for a country’s early on, at best even before the auction transition to a greener economy. Enhancing phase. This helps to establish a comprehen- or increasing benefit-sharing practices would sive and inclusive strategic framework for improve social acceptance and leverage the benefit sharing and local community par- wind industry’s developmental impacts. ticipation. The framework should help align However, benefit sharing would not address expectations to what can be effectively all of the root causes of social conflicts or delivered given the existing sector policies. uncertainties facing the industry. Sources Consultative committees composed of com- of social conflict can include poverty, com- munity representatives (such as the consul- plexity of land tenure structures, corruption, tative committees in Australia and Chile) decreasing security, and failure to secure could engage stakeholders in processes indigenous consent. It is therefore crucial such as FPIC, impact assessments, and ben- to undertake a holistic approach to improve efit sharing in the medium and long term investment climates for renewable energy, and on both the policy and project levels. At which include clear policies to address needs the same time, communities should be pro- on the part of governments. vided accurate and comprehensive informa- • There are diverse legal and policy options for tion on the details of wind power projects, benefit sharing and a correlation between potential negative externalities, and poten- even voluntary guidelines for benefit shar- tial benefits. ing and their success. Some countries, such • Create locally legitimate and cross sector as Denmark and Germany, have embedded understanding of when a consultation is benefit-sharing targets in relevant electric- undertaken “prior” to an investment. This ity, planning, and/or renewable energy laws. should be done together with industry and Chile recently transformed its Energy 2050 community stakeholders to both enable policies to incorporate community partic- efficient project development timelines and ipation and benefit-sharing aims into the respect community learning and decision- nation’s energy strategy. Other countries, making processes. It would involve both a such as South Africa, include local economic clear definition and agreement of what is development requirements in bid applica- expected for prior consultations and also tions for wind power auctions. The United how the rules apply, including compliance Kingdom emphasizes voluntary good prac- mechanisms. The different states of an tice guidance. The presence of even voluntary investment, starting before the auction pro- guidelines can pave the way for improved cesses for renewable energy investments, industry practices regarding benefit sharing would have to be taken inconsideration, too. and community engagement. • Design legal frameworks (or at least guide­ lines) for benefit sharing and community participation for investment projects, in Recommendations for developing benefit line with ILO 169 and FPIC. This will guide sharing and improving risk management, the the private sector to implement benefit- investment climate, and the social license to sharing schemes. It is recommended that operate: stakeholders learn from the good practices of countries such as Chile, Denmark, and • Foster close engagement with the broadest South Africa, which take diverse approaches range of stakeholders—including govern- for benefit sharing and local community ment, private sector, and communities— engagement in renewable sectors. 52 THE WORLD BANK GROUP R E C O M M E N D AT I O N S 2) Institutional Capacity and Policy efficiency and effectiveness of the environ- Coherence: mental impact assessment (EIA) and social impact assessment (SIA) approval process; these actions will also improve coordination Key Findings with communities, support closer monitoring of impacts of investment projects, facilitate • Barriers to the development of sustainable assessments in line with regional develop- energy infrastructure or benefit-sharing mechanisms can include limited institutional ment objectives, and improve coordination capacity to efficiently oversee social and among government, communities, and the environmental impacts or monitor results. private sector. Complex administrative processes and multi- • Develop a territorial development database ple responsible, but at times uncoordinated, for renewable energy investments—at best institutions can create bottlenecks for the provided publicly and free of cost—to sup- approval of impact assessments for renewable port the EIA and SIA processes. The database energy projects and subsequent monitoring. should indicate the presence of vulnerable Strengthening the capacity for government individuals (including indigenous peoples) in agencies to develop and enforce regulatory renewable energy/wind-rich regions, record frameworks that protect communities and comprehensive socioeconomic indicators, the environment is crucial to sustainable assess development needs, and record mar- renewable energy investment growth. ginalization rates disaggregated by gender. • There may be limited horizontal coordina- This database will enable stakeholders to tion among ministries or vertical coordina- understand the local economic conditions tion among federal, state, and municipal and support the design of benefit-sharing government entities. In some countries, schemes for renewable energy projects. The ministries do not coordinate on social and database will also provide relevant informa- environmental impact assessments for wind tion on relevant actors for the organization power projects, and governmental capacity of prior consultations. to execute responsibilities and ensure effec- tive benefit sharing and community partici- pation is limited. In addition, at times there 3) Improve Involvement of and is no dedicated window for coordination Benefits for Local Communities of stakeholder engagement, which renders the engagement and benefit-sharing pro- Key Findings cess more difficult. • Socioeconomic indicators should be mon- itored for evidence that local communities Recommendations for improving institutional benefit from wind power investments. For capacity and policy coherence: example, fieldwork in Latin America high- lighted the perception that benefits have • Support policy coherence, build capacity, and accrued primarily to landowners leasing increase funding for staff leading consulta- land to companies and to local authorities tions, evaluating assessments, and monitor- who may misuse funds intended for commu- ing benefit-sharing schemes. This will create nities. Investments were therefore perceived awareness on how to conduct consultations as reinforcing economic inequalities within that meet ILO 169 criteria, enhance the and among communities. IMPROVING THE INVESTMENT CLIMATE FOR RENEWABLE ENERGY 53 R E C O M M E N D AT I O N S • A quantitative analysis done for this report, Recommendations for improving involvement focusing on the Isthmus de Tehuantepec of and benefits for communities: in Oaxaca, Mexico, showed that company efforts for benefit sharing have had limited • Consider ways to increase community par- socioeconomic development impact. For the ticipation in the completion of studies, for report, the researchers analyzed the socio- example, in the form of feedback on social economic impacts of wind park investments and environmental assessments. in the Isthmus regions between 1990 and • Agree on a shared definition and accept- 2015 and found that there is a positive asso- able forms of benefit sharing (such as shared ciation only between wind power invest- revenue, tax relief and subsidies, reduced ments and an increase in the percentage of electricity rates, and so forth). Stakeholder house ownership and a decrease in the per- discussions should be led by the government centage of houses with walls made of make- as a guiding interlocutor. shift materials but no statistically significant • Enable clear and transparent mechanisms differences between treatment and control for communities to trigger FPIC processes localities. The limited positive socioeco- and protocols and ensure consultations. nomic impacts of wind power developments This should go hand in hand with making in the Mexican Isthmus affirm the need for information on the project accessible to a systematic benefit-sharing and commu- all community members in local languages nity engagement strategy. It should be led and with sufficient time to process and by the public sector through accompanying deliberate information (accessibility issues policies and resources. Such engagement— could be handled by government agencies, in Mexico and beyond—can enable sustain- local authorities, international organiza- able local development in the indirect and tions, NGOs, or academia). direct project areas by taking advantage of • Establish monitoring and evaluation mecha- the presence of private investments. nisms (track data on benefit sharing-related • Communities should have easy access to investments into communities) to evaluate accurate information on the positive and negative environmental, social, and cultural the implementation and success of bene- consequences of installing wind turbines. fit sharing and potentially amend or adapt Lack of information hinders communities’ during project development. abilities to assess the opportunity costs of • Under certain circumstances, facilitate sep- wind turbine installations and negotiate arate auction processes for community- more equitable payments and benefits. driven wind power projects and reform Moreover, opposition to wind power proj- regulations to enable community-driven ects is associated with a lack of participation models to feasibly compete for grid access. mechanisms, such as involvement in FPIC, In countries such as Denmark or Germany, social and environmental impact assess- partially or wholly community-owned wind ments, and community-driven wind power power projects have been shown to yield projects. 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