Key definitions: Shared prosperity

Through our shared prosperity hub, the Business and Human Rights Centre (BHRC) will highlight news and case studies related to projects that have full consent of the communities where they operate and respect the rights of communities to directly benefit from resource development (with a focus on, but not limited to, financial benefits), participate in decision-making, and determine priorities in development planning that directly affect them.

Communities living in the vicinity of RE operations have a right to directly benefit from resource development, participate in decision-making, and determine priorities in development planning that directly affect them. This encompasses direct financial benefits including among others, national and local taxation and distribution of collected amounts, negotiated agreements, and community development programs.

Co-ownership is one of several benefit-sharing approaches available. Benefit sharing should not be confused with corporate social responsibility (CSR) projects or responsible investment initiatives.

Examples of CSR projects and responsible investment initiatives that cannot be considered benefit-sharing are included in the non-exhaustive list below, which aims to draw attention to certain corporate practices that have been observed to have been used to justify investment in and project development on community lands but frequently do not provide sustainable benefits to those communities:

One-off; ad hoc benefits
Corporate social responsibility (CSR) projects, led by companies, with the primary objective of gaining a social licence to operate, and not seen as providing a sustainable benefit by local communities
Projects, led by the state, with no involvement from the local community
Projects developed on community land/with community resources, with completely external workforces
Projects lacking local capacitation and skills development relevant to the project
Projects that exploit the vulnerability of communities, and obtain social licences to operate through fulfilment of basic economic, social, and cultural rights of the people, fulfilment of which is the responsibility of the state

Renewable energy companies hold the responsibility of respecting human rights and to meaningfully engage communities. Based on this, benefit sharing goes hand-in-hand with a clear commitment, genuine efforts to reduce information asymmetries, and closely partnering with communities (building relationships, trust), ultimately easing the barriers that limit community participation, and decision making.

Community ownership models are implemented via legal and organisational models, and can be channelled as economic and social benefits:

Full community ownership of assets: Communities own the totality of a business project. Community-ownership models usually involve full ownership by the community, although in such cases, other stakeholders, such as conventional energy companies (utilities, retailers, etc.), non-profit organisations, and (local) authorities, can participate as individual members of the community. Here, we consider both situations where communities own a project through a specific unique legal entity (e.g. community trusts) and situations where community members, as individual owners, directly own a project.

In the case of community renewable energy projects, this often means community-owned electricity generation plants, such as solar PV plants, wind power plants, run-of-the-river hydro plants, and biomass plants, which can be developed to fulfil the electricity needs of the community. Electricity grids may also be included. Consumers, bundled in communities, self-consume the electricity produced and thereby become collective “prosumers”. Any additional electricity generated from such plants can be exported to the main grid, sold to third parties and businesses, or supplied back to the members of the community if storage is available.

Co-ownership of assets: In many cases, business projects are developer-led, and communities are given the option of partial ownership of the project. This often means community involvement in a commercial developer’s renewable energy project. Depending on whether the investment is structured through equity shares or debt instruments, this can imply shares in project assets and the dividend stream, as well as a potential shared role in governance and decision making. This can also mean shared business ownership in a majority community-led project; in such cases, the local community may own a majority stake, while other stakeholders can be part of the ownership arrangement as partners.

Types of shared ownership:

Documented cases and the existing literature provide a categorisation of community co-ownership models in renewable energy projects. These models may fit into one of the following categories:

General partnership: cooperatives or “community benefits societies”

Project is owned by the community energy cooperative or society
100% community owned
Typically small-medium scale

Ownership and benefits are distributed among partners. Co-operatives mostly centre equality between members, democratic decision making and fair distribution of benefits. Benefits may be dividends, reduced energy bills, and/or community-based projects and initiatives which are usually supported by NGOs and/or philanthropic donations and are particularly common for project-displaced communities. Examples include local energy efficiency initiatives, educational programs, and environmental conservation efforts (Sustainability Directory).

General partnership: Community-commercial developer

Project is owned by the community and a commercial developer
50% community owned; 50% business owned

Ownership is shared equally between the community and a renewable energy developer with shared decision-making and equally distributed earnings.

Limited partnership

Project is owned by community and a commercial developer
25% to 50% community owned; 50% to 75% business owned.

Ownership is split between the energy developer and the community. These are highly flexible models that can distribute liabilities and risks.

Minority equity ownership

Community own equity in the project
25% or less community-ownership; 75% or more business owned

Communities acquire equity in a project and act as shareholders and may not actively participate in the project's planning or administration1 2.

Non-profit organisations

A non-profit organisation formed by investments from its members, who do not take any profits. Instead, profits are reinvested into projects focused on community development. Housing associations may be included.

Community trusts

Established to manage community benefits. Trusts use the returns from investments in community projects for specific local purposes. These benefits are also shared with people who cannot invest directly in projects3.

Benefit sharing: approaches other than co-ownership

In addition to the above co-ownership frameworks, communities have engaged in other renewable energy project arrangements and energy grids that may or may not involve private project developers.

These benefit-sharing approaches include community payments, local employment and procurement, and alternative skills and livelihoods development, related to renewable energy deployment, which are important for many communities in relation to large-scale wind and solar, and other renewable energy projects4. In the context of these projects, the term “local” usually refers to host communities, Indigenous and other previously disadvantaged groups, and regional and national suppliers. Some common approaches are as follows:

Land-lease rentals

Communities, as landowners, lease their land to project developers to set up the project. The project is fully owned by the developer, and the community, as the landowner, receives lease payments.

Revenue sharing through community payments

Required negotiated payments to the community of a percentage of revenues or profits generated by the project, for example, into a community development fund or bank account controlled by community members. These funds can be used for local development projects that benefit the communities. Payments for land are not included in this category as they are considered compensatory mechanisms.

Preferential electricity rates and discounts

Preferential rates or discounts are applied to existing electricity services for certain consumer groups such as local communities or businesses. Vertically integrated developers and developer/retailer partnerships can use this approach.

Alternative skills and livelihoods

Support for alternative skills development and income generation, such as microcredits for small and medium enterprise (SMEs) development and skills audits in areas unrelated to local procurement for wind or solar projects. Livelihood restoration activities to mitigate the project’s impact on livelihoods are not included in this category5.

Another form of revenue sharing, more common in the extractives industries, is through 'subnational revenue sharing', where subnational governments receive public funds through a combination of direct tax collection and transfers from the national government;

see: https://resourcegovernance.org/sites/default/files/documents/nrgi_undp_exec-summary.pdf