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Maximising local benefit potential in
South Africa’s Renewable Energy
Independent Power Producer
Procurement Programme (RE IPPPP)
ISBN: 978-1-84369-950-7
newbooks@iied.org
www.iied.org/pubs
Making communities
count
Maximising local benefit potential in
South Africa’s Renewable Energy
Independent Power Producer
Procurement Programme (RE IPPPP)
Table of Contents
Executive summary 4
Chapter 1: Introduction 7
Chapter 2: Community benefit requirements in the South African Renewable Energy
Procurement Programme 10
Chapter 3: Discussion and recommendations 20
References 25
1
Acknowledgements
The authors would like to thank all the
stakeholders who agreed to be interviewed, and
to those that took part in the workshop in Cape
Town for their time and willingness to
participate.
Acronyms
BBBEE Broad-Based Black Economic Empowerment
ED enterprise development
IPPs independent power producers
RE renewable energy
RE IPPPP Renewable Energy Independent Power Producer Procurement Programme
SED socio-economic development
2
About the authors
Louise Tait is a researcher with the Energy solar photovoltaics and solar water heating
Poverty and Development group at the Energy projects and policies targeted at low-income
Research Centre (ERC) at University of Cape households. Holle is also part of the Mitigation
Town (UCT). Her research interests lie primarily Action Plans and Scenarios (MAPS)
in issues related to energy access by poor programme, in which she focuses on integrating
households as well as broader poverty in energy poverty and development within climate change
policy and climate change discourses. She has mitigation planning in five collaborating Latin
been involved in researching the regulatory American countries. She has a Masters in
incentives for community benefit schemes in the Political Science from the Free University in
RE IPPPP for several years. Her other key Berlin. She has worked for a variety of
research interests are in public policy organisations in South Africa in the field of
approaches towards energy service delivery energy and poverty with a focus on household
and access for poor households. This has energy, carbon projects and poverty alleviation.
included work investigating paraffin usage She can be reached at holle.wlokas@uct.ac.za.
among low-income households in South Africa
Ben Garside is a Researcher in IIED’s
and looking at the challenges of electrification in
Sustainable Markets Group where he is playing
urban low-income settlements. Louise has a
a key role in decentralised energy projects. This
Masters in Energy and Development Studies
includes analytical work on pro-poor energy
from the Energy Research Centre, UCT. She
models and building partner capacity on
has worked for several years for consultancies
advocacy and ‘new communication tools’ to get
in both South Africa and England in the fields of
research evidence into practice. His key areas
economic development and environmental
of interest are: energy delivery and local
policy. She can be reached at
involvement in decision-making; information and
louise.tait@uct.ac.za.
communications technologies for sustainable
Holle Linnea Wlokas is a researcher with the development; pro-poor business models;
Energy Poverty and Development group at the monitoring and evaluation and better measuring
ERC at UCT. Holle’s research is currently impact. Ben comes from an engineering
focussing on local community development background with extensive experience in ICT
within the RE IPPPP. In collaboration with consultancy and telecoms. He has over seven
commercial renewable energy project years of experience in the development sector
developers in South Africa, capacity and a Master’s degree in Development
development and research around this topic are Management from the London School of
ongoing. She also has conducted research Economics. He can be reached at
looking at access to renewables by low-income ben.garside@iied.org.
households, which included reviewing off-grid,
3
Executive summary
This report investigates the community benefit • Defining and selecting local
requirements under South Africa’s Renewable communities
Energy Independent Power Producer
The RE IPPPP stipulates that communities in a
Procurement Programme (RE IPPPP). This
50-kilometre radius of the project must benefit.
government-led procurement programme aims
However, this leads to overlapping beneficiary
to increase the share of renewable energy in the
areas; the bidding stage is therefore dominated
national grid by procuring energy from private
by defining which areas should benefit, and
independent power producers (IPPs). Moreover,
uncertainty about who is developing projects
in line with national economic transformation
where. Communication with local communities
agendas, the government has aimed to design
and management of their expectations also
this programme to maximise the economic
require great sensitivity.
development potential for the country. The
procurement programme requires independent • Alignment of the community
power producers (IPPs) to contribute to various engagement process with the project
economic development criteria, including four development cycle
criteria focussing on the local communities in
The requirement to submit a socio-economic
which renewable energy projects are located.
development plan with the bid submission
These four criteria are local job creation, local
makes it difficult to carry out participatory
ownership, economic development and
community needs assessments and
socio-economic development.
development planning. The realities of
This model will target development spending procurement mean that many proposed projects
into impoverished communities near the are left without approval; and depending on the
renewable energy projects. However, the nature projects’ financial set up, monetary benefits for
of these requirements, and the ‘newness’ of this communities might only occur years after project
model – being implemented at scale over a short installation. This hinders community
period of time – has also presented private development planning.
renewable energy businesses with the
• Realising community benefits in the
significant challenge of engaging with
context of RE IPPPP
community development processes, an area
typically outside their expertise. This report Developers lack feedback on their submitted
explores the experiences and challenges of the socio-economic development plans. Feedback
renewable energy sector to date, both in could improve the quality of the plans and raise
meeting the RE IPPPP requirements, and developmental ambitions – for instance, projects
planning for their longer-term implementation. under development on community-owned land
have not received any special recognition so far
Key challenges faced by renewable energy
in the procurement programme. The competitive
project developers include:
nature of the procurement process also deters
4
Executive Summary
5
Executive Summary
6
1
Introduction
This report, funded by UK Aid, investigates the IPPPP, with a strong government lead, aims to
community benefit requirements under South help increase the share of renewable energy in
Africa’s Renewable Energy Independent Power the electricity system – currently dominated by
Producer Procurement Programme (RE IPPPP). coal – while also maximising the economic
As a collaboration between the Energy development potential for the country. The
Research Centre (ERC) at the University of procurement programme requires independent
Cape Town and the International Institute for power producers (IPPs) to contribute to various
Environment and Development (IIED) this work economic development criteria, including for the
supports mutual interests in exploring local communities in which renewable energy
opportunities to deliver benefits to communities, projects are located.
particularly the most marginalised, through
The model presents an important opportunity to
energy service delivery. The ERC’s research
attract investment into impoverished
aims to support the successful design,
communities living near the renewable energy
implementation, and monitoring of energy
infrastructure. However, the nature of these
policies, and the RE IPPPP is a current focus of
requirements, and the newness of this model
their work in South Africa. For IIED, this research
– being implemented at scale over a short
helps to build a portfolio of international
period of time – has also presented private
examples of energy service delivery that directly
renewable energy businesses with the
or indirectly impacts the most vulnerable, and
significant challenge of engaging with
works to improve those impacts. IIED also see
community development processes, an area
this report as supporting IIED and partner work
typically outside their expertise.
on the CHOICES-SA project in South Africa1,
which aims to build platforms for communities to This research investigates the experiences and
make more informed choices on local energy challenges of the renewable energy sector to
services and associated job creation potential. date both in meeting these requirements, and
planning for their longer-term implementation.
Access to affordable and clean energy services,
We aim to better understand emerging
particularly electricity, is a key concern globally
successful models of engaging with
and increasingly high on the political agenda, as
communities, as well as the key challenges the
shown by the 2012 launch of the UN
sector is facing in addressing these
Sustainable Energy for All initiative. The RE
1 The Community and Household Options in Choosing Energy Services (CHOICES) project is a collaboration between
IIED (London), OneWorld (Cape Town), and the Energy and Resources Institute (TERI, India). Working in the Eastern
Cape, the aim is to build community platforms for more informed choices on local energy services, and associated job
creation potential - including linking community priorities on energy with potential sources of investment. More information
is available at http://www.oneworldgroup.co.za/index.php?option=com_content&view=article&id=1258:access-to-clean-
energy-for-improved-rural-livelihoods&catid=207:low-carbon-development
7
1 Introduction
requirements. This is crucial to understanding community benefit requirements. The scope and
how best to unlock the opportunities presented limitations of this research led the authors to
by development funding, enabling learning for focus on the challenges faced by project
the sector as a whole, and identifying key ways developers. Developers are the most powerful
in which challenges could be overcome. and active stakeholders in this current context,
so it was considered a priority to engage and
This research was essentially explorative in
empower them; future research efforts should
nature, attempting to understand the issues and
incorporate the views and challenges of local
experiences the renewable energy sector is
communities. The researchers also identified
facing in meeting the community benefit
‘key principles’ of effective community
requirements under the RE IPPPP. The authors
development, to give a context for understanding
sought to establish an evidence base of recent
the RE IPPPP’s proposed model of benefits.
experience, drawing on perspectives from a
These principles are described below.
range of different stakeholders including
government, the private sector and development Key principles in community development
practitioners. This was undertaken with a view to processes
not only evaluate overall programme
The authors considered the following principles
requirements and understand the challenges,
in community development processes, drawn
but also to identify how best to unlock the
from development literature, as relevant to the
development potential of this funding and
challenges facing RE IPPPP:
promote successful developmental outcomes.
1. Beneficiary definition needs careful
The guiding question for this study was:
consideration. Communities can be most
• What has renewable energy project easily defined along the lines of geography.
developers’ experience in South Africa been However, this can be problematic when
to date, and what key challenges do they face assumptions of homogeneity are made, and
in their community engagements? artificial barriers across ‘functional’ or
‘common interest’ groups can be created
We took a qualitative approach, using interviews
(De Beer and Swanepoel 1998). Areas in
and a multi-stakeholder workshop to gain
South Africa are likely to incorporate several
deeper insight into the issues. It was vital to hear
social groupings, often also in separate
multiple perspectives in order to address the
locales with different languages, and there
central research questions. These perspectives
may be little overall cohesive unity or
include government, who set the requirements
common identity between them.
and who are involved in financing community
Participatory ‘stakeholder mapping’2 is one
trusts and monitoring their implementation.
process that can help define different
Another key perspective is the private sector,
‘communities of interest’ and select the most
including IPPs and other renewable energy (RE)
appropriate ‘granularity’ (or breakdown) of
industry stakeholders, who are ultimately
beneficiary groups.
responsible for owning and implementing
2 Stakeholder mapping is the process of identifying stakeholders and analysing their attitudes towards something
(usually a project, but also applicable to broader issues). One project management oriented definition of stakeholder
analysis is documented by Babou (2008) and is available at www.pmhut.com/what-is-stakeholder-analysis.
8
1 Introduction
9
2
Community benefit
requirements in the South
African Renewable Energy
Procurement Programme
2.1 Introduction These requirements originate from South
Africa’s Broad-Based Black Economic
The South African Renewable Energy
Empowerment (BBBEE) legislation. In South
Independent Power Producer Procurement
Africa the post-apartheid public discourse on
Programme (RE IPPPP) issued by the
national development and transformation
Department of Energy in 2011 aims to increase
envisages a key role for the private sector. This is
the share of renewable energy in the national
given effect through various pieces of
electricity grid by procuring energy from private
legislation, but most notably through BBBEE.
independent power producers (IPPs). This
This places obligations on the private sector to
programme developed over several years,
actively contribute to economic and social
proposed in its original form as a renewable
transformation in the country and to enhance
energy feed-in tariff (REFIT) programme. REFITs
opportunities for people previously
guarantee a fixed price paid to renewable energy
disadvantaged under apartheid to gain access
generators for a specified time period.
to the formal economy (Tait 2012).
However, concerns over the legality of the
Reference to race in the legislation stems from
REFIT3 (Tait 2012) saw the programme
apartheid’s policies of racial exclusion against
eventually evolve into a competitive bidding
non-white citizens. BBBEE policy therefore
process. Renewable energy projects submitted
focuses on improving economic opportunities
to the programme are assessed on the tariff they
for non-white citizens, to address ongoing
offer (70 per cent of the assessment score) as
disadvantages and racial socio-economic
well as their contribution to the defined
disparities. The term ‘black’ in the context of
economic development criteria (30 per cent).
BBBEE refers to black, coloured, Indian, Asian
Economic development has been stated as one
and second generation Chinese citizens.
of the key objectives of the procurement
Although the apartheid regime ended in 1994,
programme (DoE 2011a) and criteria include job
and with it the legislated differentiation of people
creation, local content, ownership, management
according to skin colour (DTI 2004), legislation
control, preferential procurement, enterprise
4
like BBBEE continues to refer to these
development and socio-economic development.
categories for the purposes of statistics and
These are briefly described in Table 1.
economic empowerment.
3 The REFIT programme was challenged in two important ways. Firstly the National Energy Regulator of South Africa,
who was running the process, was found not to have the mandate to run a procurement programme according to the
terms of the Electricity Regulation Act. Secondly the procurement programme, with its emphasis on selection of IPPs on
the basis of non-price criteria, was found not to be compliant with legislation requiring that the bulk of any procurement
decisions by organs of state need to be based on price (Tait 2012).
4 This is a South African policy in which tenders are awarded ‘on a prescribed point system where preference is given
to Historical Disadvantaged Individuals (HDI’s) South African citizens’ meaning people of ‘colour’, women, and those with
disabilities. See more at www.westerncape.gov.za/eng/pubs/public_info/P/189909.
10
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
Table 1: Overview of the RE IPPPP economic development requirements (first bidding round)
* Independent power producers can choose to assign this full black ownership requirement to the local community
Source: DoE, 2011b
11
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
5 A scorecard is a way of assessing a company’s contribution to BBBEE by assigning points against their contribution
to the different elements of BBBEE. Various sectors may adapt what is known as the ‘generic scorecard’ to suit their
own circumstances, as the Department of Energy has done for the renewable energy sector in the scorecard shown in
Table 1.
12
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
projects for energy services could be • South African Solar Photovoltaic Industry
implemented at the local level, using funds in the Association
community trust and from the SED. However,
• and development practitioners from the
the allocation of these funds would depend on
Community Development Resource
local priorities and the community decision-
Association, University of Cape Town, South
making process. In the CHOICES-SA6 project
African National Biodiversity Institute and
area in the Blue Crane Route Municipality of the
Conservation International.
Eastern Cape, there are particularly acute power
shortages and a significant number of 2.2 Experiences of the renewable
households (around 20 per cent) are not
connected to the national grid. In the CHOICES
energy sector in meeting the
community engagement process, communities community benefit requirements
have identified lack of adequate energy services This section documents some of the key
as a priority. This scenario has the potential to challenges that were raised by stakeholders in
create ill-feeling in the communities living next to consultations. Most stakeholders who were
large-scale energy generation projects. Options interviewed and present in the workshop felt that
for local energy services could be explored overall there is a lack of sufficient guidance for
through SED, community trusts, and other developers on the community benefit aspects of
investor mechanisms. the procurement programme. It is not clear to
Multiple perspectives and insights are needed them, for example, how much detail to engage in
to understand the experiences and challenges when submitting SED strategies; beneficiary
the industry is facing, and how best they can be definitions are overly simplistic; and there is little
supported in delivering community development indication from the policy requirements as to the
benefits. Stakeholders include, firstly, various roles that various local stakeholders should have
government institutions, who set the in the process, for example local municipalities.
requirements and who are involved in financing There is no reference to community engagement
community trusts and monitoring their or participatory approaches to development,
implementation. There is also the private sector, appropriate governance structures or alignment
including IPPs and other RE industry with local municipal Integrated Development
stakeholders who are ultimately responsible for Planning objectives. This results in considerable
owning and implementing community benefit variations in interpretation. This section gives a
requirements. The multi-stakeholder workshop brief overview of some of the main challenges
was intended to provide a space to with meeting the policy requirements for
collaboratively explore some of the issues and developers, and the impacts on achieving good
challenges this sector is facing. The workshop developmental outcomes.
was held in Cape Town and included 2.2.1 Beneficiary definition and selection
representatives from: A development process, particularly for the
• Industrial Development Corporation purposes of BBBEE ownership transactions
and empowerment, must generally start with
• Development Bank Southern Africa defining the beneficiary community. In the RE
• GIZ (German Society for International IPPPP this is described as any community within
Cooperation) a 50-kilometre radius, or if there is none, then
the nearest. The definition of communities on a
• independent power producers geographical basis has raised a number of
6 Project partners for CHOICES-SA are IIED (London), OneWorld (Cape Town), and the Energy and Resources
Institute (TERI, India).
13
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
Figure 1: Map of approved renewable energy projects – first and second bidding round
Source: www.energy.org.za
issues. Figure 1 indicates the location of different IPPs and share project information
approved projects in the first and second prior to project selection. This is made more
bidding rounds thus far. It indicates that there difficult by the fact that there are successive
are already several areas where beneficiary bidding rounds at different times, meaning
areas overlap. As the RE IPPPP continues with different projects in the same area may be at
further bidding rounds, such areas of overlap are different stages of development. And before bid
likely to increase. This raises further challenges selection there is no certainty that a project will
for development initiatives. The design and get selected. Overlapping boundary areas
implementation of development initiatives therefore means that there would be multiple
concerning the same beneficiaries requires IPPs all individually communicating different
careful planning and collaboration between all information, different timelines of projects and
stakeholders. following different approaches. This situation
opens up the potential both for
However, in a competitive bidding environment, miscommunication and discontent among
it is difficult to foster collaboration amongst beneficiary communities. This is also not the
14
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
best way to organise resources; it presupposes at bid submission stage and financial close of
doubling up administrative procedures as each projects. For example, the scope of
project undertakes its own development developmental activities needs to be clearly
strategy and establishes its own trust structure. defined when the project is submitted for tender,
but it is potentially problematic to start engaging
As mentioned in the key principles outlined in
with communities about development projects
the introduction, the definition of community on
and financial benefits before a renewable energy
a geographical basis can be overly simplistic
project has been successful in its bid
and is not necessarily reflective of the complex
application. This could lead to expectations
socio-spatial realities on the ground. In trying to
which could damage future working
work with this definition in the RE IPPPP, project
relationships if not carefully managed.
developers have interpreted the definition in
different ways. For example, where more than At the same time, undertaking a community
one community falls within the 50-kilometre needs assessment and planning process
radius, some IPPs have chosen to include all of without undertaking broader participatory
them, while others have selected only one. The processes with communities is not an effective
implication of differing approaches to selecting form of long-term development. The community
beneficiary communities is not yet clear, and development processes are also subject to the
may indeed not be significant; however, one conventional engineering project cycle stages of
developer questioned whether there was any feasibility and planning, construction, operation
legal recourse to communities living within the and eventual revenue generation and dividend
stipulated 50-kilometre boundary who are pay-outs (depending on project financing and so
excluded from the beneficiaries as defined by on). So a development process cannot really
the project. The definition also raises challenges begin until the project begins generating
where the 50-kilometre radius interacts with a revenue to earn SED and ED contributions,
larger metropolitan area (for example Port which might be several years after initial
Elizabeth, or Jeffreys Bay in the Eastern Cape) engagement began for the purposes of the
making it even more difficult to delineate procurement process. Furthermore, the
beneficiaries. One stakeholder observed that development process might have to wait even
the complexities involved with defining longer before ownership dividends are earned,
beneficiaries in larger towns and metropolitan depending on how the project is financed.
areas are resulting in many IPPs ignoring such
Trying to establish what a ‘typical’ development
‘communities’ in favour of smaller, more easily
funding stream will look like is very difficult given
defined settlements. It was suggested that this
that these vary widely from project to project,
definition needs to allow for greater flexibility,
depending on such factors as the size of project,
depending on local circumstances.
the percentage ownership share decided by the
2.2.2 Time lags in the development developer, and the way in which projects are
process financed. There are three revenue streams for
There are significant challenges in aligning the communities: ownership revenues, SED
community benefit process with the concurrent revenue and ED revenue. The ownership
overall procurement process and engineering revenues will typically form the greatest share of
project cycle (Wlokas et al. 2012). Both of these development funding going to communities.
other processes impose certain constraints on Since the communities in question are
when actions can be taken in the community impoverished and do not have money to invest in
benefit process. The overarching procurement these projects, there are two main ways in which
process has rigid stipulations for what steps in the ownership element can be financed.
the development process need to be undertaken
15
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
One option is to give the shareholding as a ‘free consultation and research with relevant
carry’ to communities, in other words, a gift. A stakeholders including policymakers, financiers
developer may choose this option if they feel the and project developers.
project can ‘afford it’ and still earn an acceptable
The implementation of the community benefit
rate of return. Alternatively, the ownership share
process is therefore currently very disjointed,
may be financed through a ‘soft loan’ by a
with time lags of up to several years between
Development Finance Institution, such as the
development strategy formulation, engagement
South African Industrial Development
and trust registration, and when monetary
Corporation (IDC). Where community
benefits will be generated from revenues and
ownership shares are funded through loans by
dividends. This is not desirable from a
the Industrial Development Corporation, the
developmental perspective, as it creates false
dividend pay-outs to communities will not be
expectations, and risks miscommunication.
seen for the first few years of the project’s life
Furthermore, even if projects are successful, this
while the loans to purchase the equity
preparatory work may have no relevance for
investment are repaid to the funders. The stream
several years before revenue starts to be
of development funding for many projects may
generated. This time lag can indeed create
therefore be very low in the first ten years (the
conditions for conflict.
time period depending on financing
arrangements) and then see a huge step jump to 2.2.3 Creating the right incentives through
several million South African rand per year. the procurement policy
Representatives of IPPs unanimously reported
The considerable delay, and then massive step
that there has been no government feedback yet
jump when ownership dividends to communities
on the community benefit aspects of their RE
are realised, are problematic. All stakeholders
projects, such as on SED plans, how
interviewed and in workshop discussions felt
implementation will be monitored, whether those
that this can be destabilising and difficult to
projects with more ambitious development
manage in terms of project development and
aspects (such as higher community ownership
management (especially when revenues have to
shares or on community owned land) are
be spent quarterly). A community development
evaluated more favourably, and so on. Many
practitioner commented that this pattern of
IPPs are interpreting this silence to mean that
financing does not match developmental
SED plans are simply a ‘box-ticking’ exercise. No
principles of incremental and steady growth over
feedback on whether more ambitious
time matched with building of local capacity.
approaches are rewarded results in a
There was general agreement in workshop
disincentive in future procurement rounds to
discussions that the issue of financing trust
take on more developmentally ambitious
structures needed to be addressed. Participants
projects, and to instead adopt a minimum
thought there might be more innovative ways for
compliance approach. This calls into question
early realisation of benefits to overcome the
the value of doing SED strategy development at
considerable time lag between when a project is
bid preparation stage, considering its potential
selected and when it starts to generate revenue
to complicate relationships further on, if these
and dividends. For example, investigating the
are not being evaluated in any meaningful way in
feasibility of making a ‘free carry’, or some
the selection process.
combination of the two financing arrangements,
could be a mandatory requirement. If the Some stakeholders in the workshop suggested
requirement were placed on all projects, it would that the procurement process could create
not unduly prejudice particular projects and better incentives for more ambitious approaches
would help to address time lags in financing through the scorecard and points system. It was
streams. This would require extensive noted that the current approach encouraged a
16
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
compliance approach – or a typical business- There was widespread agreement from many
oriented approach – to fulfilling the stakeholders that many of the challenges would
requirements. However, when it comes to benefit from a collaborative approach between
developmental processes, outcomes can be different IPPs. The competitive nature of the
enhanced by rewarding businesses to do more procurement process however hinders the
than the minimum. This observation has found its potential for collaboration, especially prior to bid
way into the procurement rules: the economic selection. It is not feasible, for example, to
development criteria have been adjusted for the effectively collaborate or share information in
third procurement window, in August 2013. overlapping beneficiary areas, due to this
Projects’ local ownership, SED and ED competition. Challenges in such areas will also
quantitative monetary commitments will be prove increasingly difficult with additional
assessed competitively, with the highest offer projects being selected in successive rounds.
being the benchmark, rather than a government There were many questions about how IPPs can
prescribed target. However, the quality of work together to optimise economic
socio-economic development plans remains development outcomes within the current policy
undervalued. framework. It was agreed that there is, at least,
much potential to explore greater collaboration
A stakeholder in the workshop mentioned after the preferred bidder stage, and this needs
contracting with communities on community- to be actively encouraged and facilitated.
owned land as an example of how projects’
developmental ambitions can be raised. In such Alignment and collaboration within overlapping
projects, communities would be able to boundary areas can enhance the impact of
negotiate land leasing agreements with spending, reduce unnecessary duplication of
developers, which could create an additional administrative structures, and mitigate against
source of income. There are very few projects potential confusion and conflict situations that
on community-owned land to date. Such could arise when multiple players engage within
projects require more extensive engagement a single area. While industry stakeholders
upfront with communities, negotiating complex themselves suggested opportunities for
terms and contracts, obtaining title deeds and self-organising and collaborating, it was felt that
so on. It is inherently more complex and policy requirements need to facilitate this. For
time-consuming, and therefore costlier, than example, under the current framework it is still
contracting with a farmer who owns commercial seen as necessary to establish individual
farmland. And these costs are incurred at community trusts per project, and it is unclear
project development stage, when the project is how different projects could be independently
being developed at the developer’s risk. IPPs evaluated where there are collaborative
interviewed were nonetheless very supportive approaches or joint implementation.
of engaging in more community-owned land 2.2.4 Managing community relations and
projects, although they stressed that the long-term governance
additional risk and cost involved would need to Managing community relations was seen as one
be offset by some incentive, such as a greater of the biggest ongoing challenges developers
points allocation in the procurement scorecard, will have to face over the longer term.
for example. In the current procurement Relationship management is made difficult by
scorecard, an IPP who has established a several aspects of the policy requirements,
project on community-owned land would not including the time lags already discussed,
get any more points than another IPP overlapping beneficiary areas with multiple
contracting with a commercial farmer, despite developers in one area, selecting community
the potentially greater developmental benefits. representatives and managing the inputs and
17
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
expectations of all local stakeholders. It may also effective partnerships. The provincial
be helpful to consider tensions that could arise representative also remarked that excluding
in local areas where neighbouring communities these stakeholders could result in them being
may not be receiving the same level of benefits. uncooperative and making development
processes in their jurisdictions more difficult for
Stakeholders gave diverging interpretations of
projects. He stressed the importance of
certain definitions and requirements,
managing these relationships too.
of ‘what needs to be done when’, which benefits
go to whom and the roles of different local Community development practitioners agreed
stakeholders. Some developers said they have that as soon as monetary resources are
difficulties dealing with the negotiation introduced into a local impoverished area it
procedures with different stakeholders and the raises significant potential for tensions, mistrust
complex interplay of benefits arising from land and corruption. It was noted that the disjointed
leasing, dividend benefits, project revenue process and considerable time delays between
benefits and jobs. It is unclear what roles initiating a process and implementing
different stakeholders should play and how they development projects increases the potential for
could or should be included in the various difficulties to arise. All stakeholders at a local
benefit streams. There is potential for confusion level have their own expectations about where
and discontent if stakeholders feel they have and how monies should be spent, and managing
been unfairly excluded. these relationships is difficult. Various anecdotal
examples are emerging even at this early stage
A key stakeholder in local development
of the process, and one community
processes are local municipalities; however
development practitioner shared his ‘sobering’
stakeholders commented that it was unclear
experience of violent exchanges between
what role they should play or how they should be
stakeholders in a community trust he is working
included. For example it was questioned
with in another sector. Many stakeholders
whether they should be included in the formation
observed that IPPs may not necessarily have the
of trust structures or what the appropriate level
expertise to manage complex community
of alignment with Integrated Development Plans
interactions and relations.
(IDPs) and Local Economic Development (LED)
strategies were. These roles and relationships Community trusts are currently the predominant
with municipalities also become more governance structure being used to manage
complicated when beneficiary areas cover more funds in the RE IPPPP. A community trust is an
than one municipal area and multiple entity which governs assets on behalf of a
stakeholders must be coordinated. As one defined beneficiary group, and is a common
provincial municipal representative noted, a choice of legal vehicle for community
more collaborative approach to building on a development in South Africa. There were
municipality’s existing development projects however many criticisms by government, IPPs
could create synergies and better outcomes and development practitioners about these
than many individual processes. However, one structures as a governance mechanism to
stakeholder expressed concern about the guarantee successful community development.
appropriateness of channelling funds into They are seen as being exclusive rather than
institutions with no mechanism for ring-fencing inclusive, difficult to manage operationally and
that funding. introducing many challenges to representing
communities and local politics.
Municipalities often also suffer from critical skills
shortages and a lack of human capacity, which Questions were also raised during the workshop
can act as a significant barrier to fostering about how to avoid local politics and how to
18
2 Community benefit requirements in the South African Renewable Energy Procurement Programme
select appropriate trustees. One developer oversight, monitoring, evaluation and reporting
noted they are already encountering issues of and stakeholder consultation require
mistrust by communities of the ‘representatives’ dedicated and skilled personnel.
they have put forward. No suggestion for the Administration of trusts requires dedicated,
process to select trustees is put forward in the paid employees;
RE IPPPP. The most transparent and
• the intrusion of local politics in governance
accountable manner would be to get
and relationships, and the ‘inevitable contest
beneficiaries to elect representatives. However
over resources’ (Tshikululu 2010: 47).
one developer described the infeasibility of
Introducing significant resources into a
holding electoral processes in their area,
community can impact existing social
considering the number of people across
arrangements and provoke contention in often
multiple communities and the cost that would be
unanticipated ways;
involved. This results in developers appointing
representatives, rather than conducting an • low levels of skills and capacity in
election process. While being aware that local communities, which are difficult to address in
politics are a real threat to governance, it is often the frequently noted reality of high staff
difficult to practically avoid such elements in turnover;
community negotiations. One community
• there is frequently inadequate monitoring and
development practitioner remarked that, at the
evaluation. This should be an embedded
local level, communities are often organised
procedure in trusts and be undertaken by a
along political lines thus making it difficult to
third party, to be seen as independent.
avoid; often the only representatives suggested
are ward councillors, who are political However, despite their concerns, stakeholders
appointees. were unable at this stage to identify better
alternative governance structures. There is a
As an illustration of this point, an evaluation of
clear need to both better understand some of
BBBEE community trusts (Tshikulu 2010) in
the common failings of trusts and how to plan for
South Africa found that they were plagued with
these; but also to explore suitable alternative
many operational challenges. These included:
governance structures.
• ensuring adequate representivity of the
There were concerns that monitoring and
beneficiary community on trust boards. Even
evaluating these requirements on the basis of
with the best of intentions, it is difficult to
expenditure alone is inadequate. One
ensure that representatives will always
stakeholder questioned the feasibility of meeting
consistently and effectively communicate, and
the quarterly and annual expenditure targets,
represent community interests, in an impartial
especially for larger projects with significant
manner;
ownership dividends. This revenue would be
• poor communication with stakeholders; paid from the RE company to the community
• challenges in delineating community trust whose board would then have power over
boundaries and working in communities with decisions regarding its spending, but the RE
no common identity or mobilisation to take project company would still face penalties if the
advantage of; money was not spent within the correct
timeframe. It was suggested that an
• the fragility of community institutions, which independent watchdog may be needed to
rely on people’s voluntary commitment, often oversee implementation and governance, to
results in high turnover rates. Operational guard against corruption and mismanagement
challenges included project management, of funds.
sub-contracting consultants, financial
19
3
Discussion and
recommendations
This section discusses the key challenges the On a regional basis, the bulk of the projects (and
current development model proposes for the therefore the bulk of development spending) are
stakeholders involved and makes currently in the Northern Cape, a province with a
recommendations towards a more inclusive, population of just over one million people
more coordinated and collaborative solution. (Statistics South Africa 2013). In contrast, the
eastern provinces of the country have very few
3.1 Distribution of benefits projects so far. There may be longer-term
It is often assumed that local economic unintended impacts of this inequality, such as
development projects, such as a new power migration and conflict between different
generation project, will be regionally inclusive communities within beneficiary areas. This
and bring actual tangible benefits to the local picture of clustering and unequal distribution
areas where the investment is made. However, repeats itself down even to a very localised level.
all too often, the benefits from construction or There are already cases of overlapping
other inward investment has very limited local beneficiary areas, for example in the town of De
‘multipliers’ (knock-on economic effects) Aar in the Karoo.
(Walker 2008; Munday et al. 2011; Pike et al. There is a strong potential for problems to arise
2007). This has been a key concern with over the longer term from spending significant
renewable energy development, particularly sums of money on an annual basis in very
from wind, in many other countries with more specific localised communities. Over a 20 year
established sectors (Walker 2008; Munday et period, larger projects may result in tens of
al. 2011). A focus, therefore, on enhancing real millions of rand being directed at specific
tangible benefits to local areas where projects communities; it should be considered now how
are located, such as the RE IPPPP aims to do, is feasible it will be to develop projects on a big
an important recognition of the need to make enough scale to match the required spend.
economic development more locally inclusive.
The proposed model of development spending
However, as the sector develops in South Africa, controlled at a localised level may not therefore
it is becoming apparent that targeting spending be the most efficient way to strategically plan or
at extremely localised levels (i.e. a 50-kilometre administer this development funding. There will
radius around projects) may not be either be significant duplication of many administrative
efficient or appropriate. The current model of procedures by different projects in accounting,
distribution of development spending cannot be the legal establishment of trusts, and multiple
aligned to target the most needy areas, or on an monitoring and evaluation processes. An
equitable basis nationally or even regionally. alternative consideration might be, for example,
Projects will tend to cluster around optimal to have higher regional oversight of planning and
resources (such as wind, solar, hydro or administering development funding.
biomass) and wherever land is available. These
areas might not necessarily represent an
equitable per capita allocation of funding.
20
3 Discussion and recommendations
3.2 Integrated planning with all with easy and ‘high visibility’ impacts. Such
stakeholders and maximising projects may or may not align with priority needs
that other stakeholders have identified. Policy
benefits requirements do not include stipulations to align
Although there are in theory good opportunities with other processes, or to use participatory
to align development efforts between projects in planning processes. Definitions, terms and roles
the same local area, the procurement process of stakeholders associated with the
requirements make collaboration between procurement programme, and subsequent
different projects difficult. Before bid selection, implementation of projects, need to be clarified.
IPPs are operating in a competitive environment, Many stakeholders commented that
which does not enable collaboration or communities’ voices are not well represented in
information sharing. After projects have been policy formulation and other processes and
approved, although IPPs expressed their negotiations. Structures could be established to
support for working collaboratively, there are still enable better community representation at
difficulties in doing so, especially on monitoring different stages in the process. For instance,
and evaluating the expenditure of different one IPP is spearheading an initiative called
renewable energy projects that might have ‘Communities for Wind’. Its mandate, activities
collaborated on a development project. and financial operations are not yet finalised, but
Another issue with the policy requirements as it aims as an organisation to represent
they stand is that developers are not required to communities’ interests in their local renewable
align with local and national development goals energy projects. It might also offer skills and
and priorities. It is questionable whether capacity building to support the activities of the
substantial development related processes and initiative. Any community structure should be
decisions are best run without context or independent of renewable energy companies
reference to nationally defined processes and and should not necessarily be technology
goals. Although in reality most developers do specific. They must be truly representative of
appear to be consulting with local municipal communities and address any needs they might
development processes (such as Integrated have – for example, in skills and capacity
Development Plans (IDPs) and Local Economic building; sharing their own experience; and
Development (LED) strategies) the private horizontal engagement.
sector still retain overall control over deciding As well as the moral case for optimising the
how SED and ED revenues are spent. inclusion of local communities, and evidence for
The project identification and selection process community buy-in through local inclusion in
may look different from a business perspective decision-making, there is a strong business
than it does from a purely developmental case to be made too. Discontented communities
perspective; it is important to be aware of are a risk for projects, and business has a clear
diverging motivations. One participant, a interest in minimising such risks. This business
development practitioner who has conducted case can be strengthened through government
SED strategy development for an independent offering the right incentives. Participants felt that
power producer, noted that this particular IPP this should not just be about ‘ticking boxes’, but
decided to focus on smaller, high profile projects that clear incentives need to be offered for more
in its early years to build its ‘brand’ in the local ambitious approaches to development.
area, and hence improve its image and
acceptance. This approach risks neglecting
strategies to unlock the longer-term economic
potential of local areas, by focussing on projects
21
3 Discussion and recommendations
22
3 Discussion and recommendations
23
3 Discussion and recommendations
24
References
25
In South Africa, independent producers of
renewable energy are invited to bid to take part
in a large-scale, innovative, government-led
scheme which aims to not only increase the
share of renewable energy in the national grid,
but also to benefit impoverished communities. The International Institute for Environment and
The Renewable Energy Independent Power Development is an independent policy research
Producers Procurement Programme (RE organisation. IIED works with partners in
IPPPP) requires independent power producers middle- and low-income countries to tackle key
to contribute to various economic development global issues – climate change, urbanisation,
criteria, including in the communities where their the pressures on natural resources and the
projects are located. forces shaping markets. IIED’s work on energy
However, the nature of these requirements, and aims to address poverty and energy security
the ‘newness’ of this model – being issues by supporting access to sustainable,
implemented at scale over a short period of time affordable energy services for the poorest, as
– has also presented private renewable energy well as promoting responsible practice in
businesses with the significant challenge of larger-scale energy sector development,
engaging with community development including biofuels, oil and gas, and stimulating
processes, an area typically outside their debate around energy policy reform.
expertise.
This report explores the experiences and
challenges of the renewable energy sector to
date, both in meeting the RE IPPPP
requirements, and planning for their longer-term
implementation.
ISBN 978-1-84369-950-7