Community Owned Independent Power Production: Challenges and Opportunities

In many regions of North America rural communities are struggling to survive. Global economic trends have resulted in community-level impacts such as out-migration and changing community demographics. Many communities are struggling to find ways to reinvent themselves and are increasingly reliant on higher levels of government for support. Most recently, escalating energy costs have presented another challenge to community survival. However, energy also presents significant opportunities in the form of community-owned generation, offering a source of revenue, employment, energy security and the basis for community development.

While potential exists for rural communities to become independent power producers (IPPs), to date independent power production has been dominated by the private sector. The number of private IPPs is increasing steadily due to renewable energy incentive programs, making this an ever more attractive investment opportunity. Often these private IPPs establish themselves in the same rural areas that are in economic downturn. From a community standpoint, allowing private IPPs to develop local generation may be an opportunity lost. Revenue from power sales, employment and green power credits are among the economic benefits lost to communities when local resources are developed privately. There are additional social benefits of strengthening community pride and increased self-reliance. 

Given the potential benefits of community-owned power production the question then is why is there so little community involvement in the production of certain types of renewable energy? What are the challenges to communities establishing themselves as IPPs? What opportunities are, or could be, available that are currently being missed?

This article, the second of two parts, focuses on small hydropower generation, drawing primarily from the experiences of four community case studies in the United States and Canada, examining the key challenges to community involvement and benefits to the community. Part I, published in the September/October issue, examined why there is so little community involvement. Part II offers some strategies for overcoming barriers and identifies benefits that communities can realize from renewable energy projects. 

In terms of addressing barriers, respondents from each case study community (Almonte, Ont.; Bracebridge, Ont.; Boulder, Colo.; and Swanton Village, Vt.) offered their own strategies as to how barriers could be addressed. Interviewees were clear there was no “simple solution” to overcoming the various barriers to development. Strategies include developing a community vision; placing emphasis on organization, communication and building working relationships; and sheer perseverance on the part of project managers. The importance of having a community vision or set of goals to initiate a project was emphasized by interviewees. While that vision inevitably shifted, having common and specific objectives and goals gave decision makers a strong project foundation.

To implement a community vision, good local organization was required. A common message was that an emphasis on organization was a key factor in overcoming site-specific barriers, most notably those barriers associated with navigating complex permitting processes. Prioritizing issues was essential, ensuring that those that could potentially halt the project were addressed first. Interviewees emphasized following the logical development order, ensuring that approvals were finalized prior to setting a construction schedule. In one case this resulted in increased development costs as bureaucratic delays resulted in changes to the construction schedule.

Together with good organization, developing working relationships was arguably the most important tactic for addressing barriers. Interviewees indicated that relationship development should focus on those agencies that would support the project and that would lobby on its behalf, including local government, corporate partners and local provincial or state representatives. If used well this tool increased project credibility and reduced other barriers. Developing good relationships with project engineers and contractors was also key. Given the complexity of the process, it was often stated that it would be impossible to get through the process without experienced guidance.

Open, Transparent Communication

Good communication was cited as a critical part of developing effective working relationships, especially those relationships involving project delays, NIMBYism and misperception issues. Within a community, especially a small community, an open, transparent communication process was essential. Local, grassroots communication forums (for example, community meetings) were seen as essential to provide the open setting necessary to overcome many barriers. 

Implementing these and other strategies required considerable perseverance on the part of community small hydro promoters. While it may sound simple, many interviewees drew attention to how such perseverance was necessary to help maintain the community vision, understand the constraints placed on project management by the development process and work through challenges as they arose.

In addition to these strategies, many interviewees proposed new strategies and suggestions as to how barriers could be removed. One suggestion was to promote the benefits of local ownership to decrease local opposition and further incorporate the project into the community. Many interviewees noted that while projects were locally owned, this was recognized by few members of the general public.

The majority of interviewee suggestions pertaining to improvements to the development process involved changes in government policy and incentives. The need to create incentive programs, such as standard offer contracts or power purchase agreements, in areas where there are none was highlighted. Interviewees felt it would have been impossible to develop a small hydro facility without a guaranteed power purchase agreement. There were also many suggestions as to how to clarify and streamline the permitting and approval processes.

Community Small Hydro Benefits

The point of community IPPs is that the benefits generated remain within the community and benefit the community as a whole. Five general categories of benefits came out of the interviews: financial, environmental, community development, community pride and future development opportunities (see Figure 1).

The primary benefit to the community was financial. In each case study community, a power purchase agreement ensured a predictable source of revenue, which was then funnelled into infrastructure upgrade programs, funding town projects, lowering or stabilizing local taxes or lowering energy and water rates. Such benefits remain local, as opposed to those generated by private companies where profits typically leave the community and, in some cases, the province/state as well.

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Community development was also highlighted as a benefit, including building community capacity, community equity, education, service provision, tourism and infrastructure improvements. The case study where this was most evident was Almonte, Ont., where the small hydro board of directors were local citizens who came together to plan the project and built their skill set as they worked. Upgrades to the facility have created valuable community equity. The small hydro development plans were working in conjunction with municipal plans for downtown revitalization. Plans included creating a new downtown park area surrounding the small hydro, developing an onsite educational facility, expanding the recreational trail network and various other aesthetic and recreational improvements. This additional development was planned to ensure that, in addition to being a source of revenue for the community, the site became a unique educational and tourism draw, helping to bring people downtown as well as preserving local green space.

Employment was not the primary benefit for any of the case study communities. While construction and operation of each facility required both skilled and unskilled workers, the overall employment benefits were small. There was some direct local employment and some indirect local employment through subcontracting, but not a great deal. Much of the employment was either short term or required specialized labor not available locally.

Certain benefits such as community pride, enhanced sense of community and improved self-sufficiency were not easily quantified and often were overlooked in favor of more tangible benefits. However, some interviewees from the three smaller case study communities (Almonte, Swanton and Bracebridge) all mentioned the role small hydro played in adding to the local sense of community. Many comments focused on the idea of having a local office where it was possible for community members to interact with staff and have their concerns responded to by a fellow community member. Community pride was seen as a key benefit by some interviewees who cited factors such as pride in local ownership, sense of community responsibility and self sufficiency as important benefits. Local ownership and responsibility brought increased local control, whether real or perceived, over the local power supply and the ability of the local IPP to deal with the larger utilities. This increased sense of control added greatly to the perception of self-sufficiency.

There was a wide range of perceived environmental benefits. The most common was the idea of renewable and green power, highlighted by interviewees from each of the case studies. Local, site-specific environmental benefits were also mentioned, such as using the small hydro as a starting point to create local green space or recreation areas. On a broader scale was the idea of non-consumptive resource use and generation of green power, which was important to interviewees. However, for three of the case studies the primary interest seemed to be portraying a green image through various certification processes.

The fifth and final benefit category is that of future or potential development opportunities associated with community small hydro. Several interviewees discussed opportunities which were not currently being taken advantage of within their communities. Financially, restructuring the energy rate system was suggested to channel benefits to lower-income families within the community. The sale of carbon offset credits from green power generation was suggested as another potential revenue source. In terms of community development, establishing recreational activities (for example, white-water kayaking) in conjunction with the small hydro was highlighted as a complementary industry that could further build tourism and employment. In some cases the black-start capability (for example, restarting a power generation station without the help of additional energy sources) provided by small hydro was considered important to help bring other generation stations such as coal plants online after a blackout.

Overcoming Barriers

The growing interest in renewable energy has generated significant interest in the independent development of renewable energy resources, including small hydro. However, despite the potential benefits of becoming an IPP, few communities have become involved compared to the number of private IPPs, especially in the development of small hydro. While each case study community discussed in this article was unique with different sites and bureaucratic setups, there was a common element between the four: each overcame significant barriers to establish projects for the betterment of the local community.

As exemplified by the barriers faced by the case study communities, local community IPPs face challenges that range from high costs to difficulties with the bureaucratic process. This is not to say that a private or joint venture IPP would not experience similar barriers. However, communities face these barriers from a disadvantaged position, having neither the experience, availability of skilled staff, nor the financial capital accumulated by private firms. This is most evident in the permitting and approvals process where communities relied on varied levels of external help from engineering and consulting firms, all at a cost.

The combination of development costs, delays and the other challenges associated with the small hydro development process created many barriers. While interviewees used various strategies to overcome these barriers, without a guaranteed power purchase agreement it would not have been possible. However, each additional cost and delay lengthened the project”s economic pay-back period and reduced local economic benefits. Comparatively, community IPPs have significantly fewer economic resources than private IPPs, as well as having a responsibility to community members. The disadvantages faced by community IPPs will not disappear without a serious and comprehensive evaluation of the bureaucracy surrounding IPP development, from the permitting process to the incentive structure, something that will occur only if governments recognize and become serious about the benefits of involving communities in power generation.

A strong argument can be made that private and joint-venture IPPs make the most sense given that the private partner and the utility usually are the ones with field experience, with established working relationships both within the utility and the political system and with their financial ability to navigate the development process. For more remote, uninhabited areas this is certainly the case. However, when potential small hydro sites located in, or in proximity to, communities in need of development opportunities, the benefits of community IPPs should not be ignored.

The primary benefits discussed focused on economic gain and community development. Private IPPs suggest they will bring benefits to the community in the form of employment and support of local businesses. However, the level of benefit from new employment actually brought to the community is typically small. The support of local businesses would be the same, if not greater, with a community IPP as opposed to a private one.

Benefits stemming from a stable revenue source for the community are something private IPPs cannot recreate. While in no way did the small hydro projects create a totally self-sufficient community, many interviewees drew attention to the feeling of increased economic self-sufficiency as a result of generating some of their own income, while at the same time reducing reliance on the state/provincial or federal government. Interviewees identified a sense of pride at being able to provide a degree of local self-sufficiency, something which helped to build still more social capital within the community. In areas where governments support development projects or contribute financial aid, significant incentive exists for the state, provincial or federal government to encourage community IPP development.

Generating energy, especially green energy, is a necessity. Therefore, the ability for a community to be even more self-reliant by developing a local resource to provide an essential service is beneficial not only to the community, but also to higher levels of government. 

Private IPPs have shown that investment in small hydro can be a profitable venture. Joint-venture projects such as those between private companies and First Nations communities clearly demonstrate that cooperative efforts can benefit both parties. It is not a big step to envisage the local benefits of community-owned small hydro. The four case studies used here indicate that not only is it possible, but it is also profitable and beneficial for communities to develop local small hydro resources.

That relatively few such projects exist reflects the fact that government policies and incentives associated with small IPP hydro development have not been designed to encourage community involvement. As a result, significant potential local economic and social benefits are being lost.

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