Indigenous Partnerships Can Bring Progress in LAC Energy Projects
By Juan Dumas
Representatives of the Millaqueo Mapuche Community and Meliquina discuss the key points of an MoU (2018) to jointly develop ANTU 1, our renewable energy project. Meeting is held at community’s meeting room. Discussions take place while drinking “mate”, a traditional kind of tea in Argentina, that is shared around the room.
Latin American and Caribbean (LAC) countries have committed to transitioning to a net zero economy by 2050. Will they be able to do so without leaving anyone behind? It is unlikely, if business models don’t change.
An annual investment of $700 billion will be needed to curb emissions from the energy sector and its end uses, as well as from agriculture, forestry and other land use. In the clean energy sector alone, investment must increase nearly fivefold from its 2022 level.
My own experience working in Latin America (and growing efforts elsewhere in the world) suggest that a substantial portion of these resources will be targeted toward Indigenous and peasant lands—which are home to some of the world’s best renewable energy resources. Winds sweeping across the territories of Wayuu communities in Colombia’s La Guajira department could supply the country’s entire national power demand. (The area’s solar energy potential is also significant.) And the Isthmus of Tehuantepec in Mexico, primarily inhabited by Zapoteca communities, boasts world-class wind resources attracting interest from the world’s largest energy companies in the globe.
These communities face a unique opportunity to actively participate in the energy transition by spearheading and owning renewable energy projects on their lands. These projects would unlock a vital source of income to transform their economies.
Successful Models to Follow
It may seem daunting for communities with a history of distrust and negative balance sheets to embark on large, capital-intensive projects. But this model has already proven successful elsewhere in the world.
Since 2012, in Canada, First Nations and Métis communities have acquired and negotiated options for almost 10 billion Canadian dollars in equity in energy and resource projects. In the clean energy space, indigenous participation—including sole ownership, co-ownership or direct financial benefits—has been documented in 204 projects exceeding 1 MW. Such ownership averages 32% in 2022 and continues to increase.
This new paradigm of collaboration began with visionary agreements signed between some First Nations and companies in the 1990s and early 2000s to construct new hydroelectric projects, such as Wawatay (1991), Twin Falls (2001), and Wuskwatim Hydro (2006). It gained momentum as provincial governments introduced policies to incentivize indigenous participation in the late 2000s. Ontario established an aboriginal loan guarantee program and a price adder, while British Columbia set up project development funds for First Nations.
These communities have incorporated economic development corporations (EDCs) to help pave the way to participate. The Canadian Council for Aboriginal Business estimates there are at least 294 EDCs across Canada. In 2022, the Six Nations of the Grand River Development Corporation produced 42 million Canadian dollars in revenue from its equity participation in energy generation and transmission projects, as well as other business ventures. Henvey Inlet First Nation’s 50-50 partnership with Pattern Energy to build, own, and operate a 300 MW wind project with a 100 km long transmission line now yields an estimated annual revenue of 10 million Canadian dollars.
In Asia, Nepal is pioneering a different approach. This small Himalayan country has invested heavily in hydropower to overcome rolling blackouts. It now exports surplus electricity to India and expects to cover a foreign demand of over 10,000 MW in the next decade. To enhance community buy-in, local public shares are offered to the resident living near publicly owned hydroelectric projects.
Nepal’s Energy Authority (NEA) first experimented with this approach in its 22 MW Chilime project, initially offering shares to workers in 2005. Its impressive performance led local communities to demand access to the same opportunity. This mobilization and a subsequent court case compelled the company to offer shares to the local population that totalled 10% of project capital. New shareholders received dividends the following year.
This success led Nepal to amend its constitution to enshrine communities’ right to invest in government-owned resource management projects. New regulations capped the amount at 10% for hydroelectric projects. By 2018, thirteen new projects had issued local public shares, raising $10 million. And while privately owned projects are not required to offer local shares, agreements between NEA and proponents of Nepal’s largest hydro projects –Upper Karnali (900 MW), Arun 3 (900 MW), and Upper Trishuli (216 MW)—include commitments to do so.
Patricio Zapata and some family members enjoying a few laughs in his backyard. Patricio served as Lonko (leader) of the Millaqueo Mapuche Community for several years and stepped down in December 2023 to become President of CLA NEHUEN ANTU S.A., the special-purpose vehicle set up to develop ANTU 1.
South Africa’s energy policy reform and its flagship initiative—the Renewable Energy Independent Power Producer Procurement Program (REI4P)—has been praised internationally for attracting private investment and transitioning the country’s energy matrix away from coal. By March 2023, after six competitive bidding rounds, 97 renewable energy projects totalling 7GW of installed capacity had reached financial close, with an average community ownership percentage of 9% in total. The REI4P has a mandatory equity participation minimum of 2.5%, as well as a target of 5% for all communities within a 50 km project radius. Because most bidders set up trust funds and secured equity loans for community shares with little to no community involvement, this approach leans more towards benefit-sharing than genuine partnership.
Catching Up
Compared to Canada and Nepal, the LAC region lags behind by 15 to 25 years or so.
Most private and public developers in the region still follow patterns set by the extractive industry, treating communities as an external risk to be managed and a source of unproductive costs. Community engagement in LAC for most companies focuses primarily on compensation and benefit-sharing mechanisms aimed to secure a project’s “social license” to operate from communities.
This model places communities on the cost side of the equation, and thus fails to integrate them as partners. Some communities accept these benefits and support a project. Yet the incremental and temporary improvements in their livelihoods seldom result in the decisive push that communities need to sustainably transition out of subsistence economies.
Other communities no longer find this old model acceptable. As a result, many projects have been caught in cycles of social opposition, police intervention, escalating violence, and litigation. This friction has led to delays, cost over-runs, suspensions and even cancellations. Mexico’s Federal Electricity Commission cancelled Electricité de France’s power supply contract for their 252 MW Gunaa Sicurá wind project after a 2022 court ruling and the project’s failure to secure community support. In 2023, Enel Green Power abandoned construction of Windpeshi, their 205 MW wind project in La Guajira, due to persistent community opposition.
As community opposition intensifies, the deployment of financial resources needed to power the energy transition in the region is slowing down. It is a challenge that extends beyond energy generation and transmission. The LAC region holds vast reserves of critical minerals for the energy transition, particularly lithium and copper, many of which are located on indigenous lands.
Initiatives Into Action
To better align community need and investors interests, some incipient initiatives have followed in Canada’s footsteps and share wealth at the source. The Mapuche Indigenous community of Millaqueo in Argentina’s Patagonia has partnered with Meliquina and Sustentar Energía to develop ANTÚ 1, an 18 MW solar PV project, on their lands. Millaqueo owns an equity stake in Cla Nehuen Antu, the special-purpose vehicle established to develop, build and operate the project.
At first, the community was understandably skeptical. Their previous interactions with private companies had largely been problematic and unfair. Building mutual trust required courage and a clear will to work shoulder to shoulder to develop the project together from scratch. Since we first met, the community has been involved in every stage of the project, with full transparency regarding financials, legal matters, governance, and technical design. Today, the community holds the Presidency of Cla Nehuen Antu. They are an active co-developer of the project and lead the company’s efforts to secure all licenses for the project. Their share is calculated in market terms, and protections against significant financial risks and dilution have been established. Cla Nehuen Antu aims to build the project in Q4 of 2025.
Chile’s Ministry of Energy also is promoting partnerships between companies and communities to develop medium and large renewable energy projects. Through capacity building and technical support, the Ministry is empowering communities to make informed decisions about renewable energy ventures on their lands. The Ministry also serves as a liaison to facilitate connections between communities and potential business partners, off-takers and financiers.
While they are promising, these initiatives do not yet amount to a trend. If the LAC region is to transform its economy to reach net-zero emissions by 2050, it is imperative that communities and industry and governments adopt and adapt new business models that have been successfully tested in other regions. These efforts elsewhere demonstrate the potential to turn the energy transition into a real opportunity for the most vulnerable communities.
Juan Dumas is co-founder and partner at Meliquina.
Sources: Canadian Institute for Climate Choices; Center on Global Energy Policy at Columbia University; South Africa’s Independent Power Producers Procurement Programme (IPPPP); Indigenous Clean Energy; International Finance Corporation; MacDonald-Laurier Institute; McKinsey & Company; Meliquina; Smart Prosperity Institute.
This piece was originally published on March 19, 2024, by The New Security Beat, the blog of the Environmental Change and Security Program of the Woodrow Wilson Center.
https://www.newsecuritybeat.org/2024/03/indigenous-partnerships-can-bring-progress-in-lac-energy-projects/