Renewable energy PPAs: How to minimise social risks and maximise community benefits
More than 80 organisations have now signed power purchase agreements (RE PPAs) with solar and wind farms in Australia. Without a replacement mechanism following the achievement of national renewable energy target in 2020, RE PPAs are now likely to be the major source of new investment for renewable energy as retailer investment drops off.
The major drivers for organisations entering into a RE PPA are typically to reduce their greenhouse gas emissions, improve price certainty through a longer-term contract and/or to reduce electricity costs – but buyers should also be leveraging purchasing power to deliver social, environmental and community benefits to manage risks and get full value out of a PPA.
When you sign a PPA that supports the construction of a new solar or wind farm, you’re not just buying electrons.
Electricity procurement for most organisations is a routine exercise picking a retailer based on price and service, but solar and wind farms are large infrastructure projects. How they are managed affects local social, environmental, and community outcomes for better and worse.
The ‘social dimension’ can be overlooked by buyers and advisors seeking to minimise the PPA price. For buyers, though, a PPA is a long-term association with the solar or wind farm.
Good community engagement and benefit-sharing is important to minimise the risk of controversy that will reflect poorly on buyers and deliver on corporate social responsibility objectives that enhance the marketing value of the PPA. As one buyer put it: ‘you can’t just outsource risk to the EPC (engineering procurement contractor)’.
Some of the benefits that have been delivered through a well-negotiated PPAs include:
- Community development funds: local infrastructure, grants to clubs, services (e.g. community transport);
- Local employment: where some solar farms use a large fly-in, fly-out workforce, other projects pro-actively work to increase the size of the local workforce, upskill local communities, preference local suppliers and offer employment opportunities to disadvantaged groups (e.g. unemployed);
- Indigenous community benefits through jobs, cultural and landscape protections;
- Actively regenerating landscapes through tree-planting, invasive species removal;
- Land for multi-use purposes such as sheep grazing and beehives;
- Co-investment and co-ownership opportunities for local communities.
The Business Renewables Centre-Australia launched the Renewable Energy PPAs: Maximising Social Benefits and Minimising Social Risks guide at a webinar at the end of June, hearing from experienced buyers and developers on why and how they included social and community benefits in their PPAs.
Simon Corbell (Energy Estate) and Ceri Binding (Westpac) spoke about what had been achieved through the Bomen Solar Farm including:
- More than 75% of the construction team were local, 15% were of Indigenous heritage and over 50% unemployed;
- An industry-first ‘Women in Solar’ initiative resulted in women comprising 10% of the construction workforce;
- Biodiversity and vegetation regeneration initiatives, including over 5000 trees planted.
Rohan Rajput & Kunal Johri (City of Sydney) spoke about the inclusion of community renewable energy in their PPA which led to the inclusion of RePower Shoalhaven community solar farm in the winning bid. Andrew Dickson (CWP Renewables) spoke about the community co-investment they developed as part of the Sapphire Wind Farm which being deployed at other projects.
Some of the key learnings from the experience of PPA buyers are:
– Social benefits add value to PPAs – usually at little or no additional cost
Buyers can and should include social benefits in their PPA tenders and negotiations. A PPA is of enormous value to a project developer, which gives the buyer leverage and most types of social benefits add marginal cost to a project:
“If you’re putting that on the table (a long-term PPA), leverage that value for other outcomes that are important for you and the community,” said Corbell. “So long as you’re weighting your auction to still incentivise price, you’re going to reduce delivery risk which is going to increase your price and project certainty.
And as one RE PPA buyer put it: “If you’re underwriting a new facility don’t under-estimate your potential to influence positive outcomes. Invariably, the things we wanted to do were just a question of putting them on the table, discussing them and they haven’t cost anything extra …they (developer & EPC) haven’t done it because we threw a lot of money at them – it was just developed through the process.”
Of those who have made their tender criteria public, the balance has been struck by allocating from 20 and up to 40% to social, environmental and community criteria with price still the major criteria.
The benefits to the buyer extend beyond delivering on social responsibility goals to the ability to tell a strong story about how they are supporting positive change to their staff and customers.
“Contributing to the local community, contributing to local biodiversity, local jobs … it helps when we tell the story,” said Emma Bombonato, the environmental and sustainability manager at the Sydney Opera House.
“I think it’s a great story to be able to negotiate our own PPA. But our staff can struggle to relate to it. Those social and community aspects help us tell the story and connects well with our staff.”
– Buyers should be flexible and collaborative in their approach to achieve the best results
Including social criteria in tender criteria is important because they provide a clear signal but the clear message from buyers was a balanced and flexible approach needs to be taken.
Raise social and environmental benefits when you are doing market testing to prepare bidders and understand what can be achieved. Use open-ended criteria to set the goals and provide flexibility for the proponent to come up with solutions. Maintain a dialogue with tenderers through the tender process, contract negotiations, and beyond contracting, to present opportunities for identifying and delivering on social benefits thought the project.
There is a sweet spot between testing and improving the offer and adopting a rigid approach that becomes a barrier to the PPA (e.g. hard employment targets that may not be practical depending on local communities).
The focus on social and community benefits has been led by public sector buyers but there is now growing recognition of its importance by private sector buyers.
This is a trend that developers also need to respond to. Buyers we spoke to in preparing the guide noted they did not short-list or select developers who either did not respond to social criteria in their tender or did so half-heartedly.
In the context of Covid-19, social disadvantage and employment is an issue of particular importance to local communities and buyers. When we asked webinar participants to name the one benefit they would choose if they had to prioritise, there was a range of responses – but number one was jobs and opportunities for disadvantaged groups:
|Jobs and opportunities (e.g. scholarships) for disadvantaged groups||34%|
|Community energy ownership or investment||11.5%|
|Local environment and biodiversity||17%|
|Community development and infrastructure||17%|
|Indigenous community benefits||11.5%|
Ultimately, projects which deliver social, environmental and community benefits are in everyone’s interest to build community support for clean energy.
Chris Briggs is a Technical Director, Business Renewables Centre-Australia and Research Principal, Institute for Sustainable Futures, University of Technology.
The BRC-A is a collaboration between ISF, WWF-Australia and Climate-Kic Australia, an independent not-for-profit organisation funded by ARENA and the Victorian, NSW and Queensland Governments to provide advice and support on renewable energy PPAs.
For further information:
- the Renewable Energy Power Purchase Agreements: Maximising Social Benefits and Minimising Social Risks guide and other resources are available to members at www.businessrenewables.org.au. The guide contains tender criteria from other PPAs, templates for assessing community engagement and benefit sharing and tips from other PPA buyers. Membership is free for electricity buyers and at a fee for energy industry organisations.