The rise in renewable energy in Australia has brought about a significant shift in the way the sector engages with affected communities. Historically, developers constructing a project on native title land simply distributed benefits to the affected communities, rather than genuinely involving those communities. Typically, developers would obtain development permission from native title holders by paying royalties, often at the project’s conclusion. In recent years, the sector has come to view this approach as insufficient. Instead, we are now seeing a transition away from passive community involvement to active and thoughtful participation of affected communities by way of equity ownership in projects. This transition is not only reshaping the relationship between communities and the energy sector, but also establishing novel – and inclusive – ownership models.
The advent of active, thoughtful participation
Recent developments, such as the Yindjibarndi Project and the East Kimberley Clean Energy Project in Western Australia, are examples of this shift from passive to active community engagement. Unlike the previous norm of annual royalties, these projects have adopted new models which promise substantial, long-term revenue and community benefits.
The Yindjibarndi Project
The Yindjibarndi Aboriginal Corporation (YAC) and seasoned international renewables developer, Acen Corporation, have partnered to form the Yindjibarndi Energy Corporation (YEC) to develop up to 3GW of wind, solar and renewable energy storage projects on Yindjibarndi Ngurra (country), in Western Australia’s Pilbara region.
The YEC partnership entails:
- ensuring the YAC has a 25% to 50% ownership stake in all projects;
- granting approval rights to the Yindjibarndi people over site selection of proposed projects;
- prioritizing Yindjibarndi-owned businesses as contractors; and
- providing training and employment opportunities for the Yindjibarndi community.
This partnership’s benefits include:
- establishing enduring economic advantages for the community;
- safeguarding and preserving culturally, spiritually, and environmentally significant areas within Yindjibarndi Ngurra;
- creating sustainable, long-term training and employment prospects for the Yindjibarndi people; and
- supporting the return-to-country movement, alongside bolstering education, health, and housing initiatives within the community.
The East Kimberley Clean Energy Project
Similarly, the East Kimberley Clean Energy Project, set to be Australia’s first 100% green energy, hydrogen and ammonia export project, involves three indigenous groups: MG Corporation, the Kimberley Land Council and Balangarra Aboriginal Corporation. Each group holds a 25% share in the project-developing company, Aboriginal Clean Energy Pty Ltd (ACE), alongside Pollination (a climate change advisory and investment firm). The venture marks Pollination’s first direct investment into decarbonisation projects.
This form of community equity participation has the potential to simplify land use agreements and approvals, consequentially reducing uncertainty for investors and shortening development timelines as considerations such as heritage, native title and environmental matters are integrated into the development itself. However, it is possible that the shareholders’ individual interests may dilute as further agreements are made with investors, financiers and industrial partners.
Ownership and Community Participation: Striking the Balance
The renewable energy sector is witnessing a growing number of projects that involve communities at the equity level. While empowering communities is significant, it poses considerable challenges concerning community equity and control of the project.
Economic Interest vs Control
In a broader sense, questions arise about the nature and extent of community participation. Where is the community situated in the equity stack? Are they exposed to risks, or is their engagement limited to the economic upside? Is each partner required to contribute in the same way (financially or otherwise)? Such questions are vital from both investor and bank perspectives. Investors might find it acceptable to sacrifice certain economic benefits in favour of community involvement as long as the developer maintains control over project execution.
Engaging Neighbours, not just Landowners
Engaging neighbours, distinct from landowners, introduces unique complexities. Neighbours often bear most of the project’s drawbacks, such as increased traffic and reduced amenity, without enjoying the financial benefits. A significant consideration is how to strike the right balance that allows the project sponsor to retain control while incorporating community equity. One option is structuring the community fund as passive or shadow equity, granting neither voting rights nor active control. Alternatively, a potential solution may involve establishing a community trust with neighbours included as beneficiaries of the project.
Ownership Structures: Company vs Trust
Given the above considerations, the optimal ownership structure varies with the desired level of community involvement.
In the context of traditional owners and native title holder groups, a company structure may be preferable as traditional owner groups may retain a significant level of control and involvement through voting rights. For instance, in the East Kimberley Clean Energy Project discussed above, three indigenous groups hold a 75% share, meaning the group has significant rights and ongoing control. All issued capital in ACE is ordinary shares (i.e. not preferential shares), which suggests that there is likely a shareholders agreement in place setting out decision-making mechanisms and powers of each party. The shareholders agreement also likely address matters such as potential dilution of shareholdings, which often requires shareholder approval. The company structure aligns well with the preferences of indigenous groups, allowing them to maintain a level of control and involvement in the project.
Conversely, in the context of community groups, a trust structure may be preferable, particularly if the group prioritises monetary benefits over control. For instance, in the case of a group of neighbours to a project, their emphasis may be on financial gains rather than decision making authority. In a trust structure, the trustee controls the project and the beneficiaries (in this case, the community group) benefit. Similar to a shareholders’ agreement, a trust deed will set out parameters around dilution and may stipulate that beneficiaries’ equitable interest cannot be reduced below a certain threshold. However, the beneficiaries cannot directly instruct the trustee. Accordingly, for communities primarily interested in economic benefits and less concerned with direct control, a trust structure may be a more suitable option.
Towards a Balanced Future
The evolving landscape of renewable energy projects underscores the need for innovative structures that embed community interests while customising community engagement to meet the unique needs and preferences of different groups. Achieving this balance demands creative solutions and a re-evaluation of conventional project ownership models.
For more information, please contact Matt Baumgurtel and Adam Jeffrey.