OPINION | Community Ownership – strengthening this cornerstone of SA’s Just Energy Transition
Real community ownership is a cornerstone in South Africa’s Just Energy Transition, enabling transformation of community empowerment and agency in the impoverished and oft-forgotten rural parts of our country.
If strategically leveraged, community trusts can promote the meaningful participation of communities in the transition to renewable energy. As an industry, we have our work cut out to realise this potential on the path towards justice, write Yumnaa Firfirey, Holle Wlokas, Masechaba Mabilu and Avela Pamla.
In the past three decades, community trusts in South Africa have been established to facilitate community ownership to realise more inclusive development in sectors such as mining, tourism, conservation, land reform, and renewable energy. If strategically leveraged, community trusts can promote the meaningful participation of communities in the transition to renewable energy while also driving further impact through investments into other local development priorities.
The government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) has mandated a minimum 2.5% shareholding in Bid Rounds 1 to 4 for communities within varying radii of power projects, depending on the bid window. The issue of community ownership is vital in the context of the Just Energy Transition, especially since many emerging economies, grappling with the energy transition, look to South Africa’s much-lauded REIPPPP model for solutions. A similar approach used by mining companies for Broad-Based Black Economic Empowerment transactions, reinforced by the 2018 revised Mining Charter – mandated a 5% equity equivalent benefit for communities. However, in the mining sector, community trusts are discussed as vulnerable structures with designs not well-suited to their purpose and have largely failed to deliver meaningful benefits to mine workers and surrounding communities.
Comparably, 10 years into the implementation of REIPPPP, the result is no different to mining – it is often expressed that these trusts are not delivering optimally. The 8% shareholding by community trust, on average, in REIPPPP power plants does not necessarily translate to effective host community ownership.
Ideal, effective community ownership, it can be argued, is not realised simply by a shareholding certificate. Rather true ownership flourishes when the community feel a genuine sense of belonging regarding the power plant.
Moreover, they should have involvement in and some form of say in how funds are managed and allocated. They might expect to have input on benefit sharing by the power plant – like potential jobs earmarked for local community members and access to procurement opportunities. Ultimately, they might envision that they will be better off by virtue of being the host community of the planned power plant and a shareholder, having some decision-making powers to determine their destiny, shape their socio-economic advancement and have the community trust dividend stream to support the co-creation of programmes and initiatives.
In reality, it is important to understand the mechanics of community trusts: these trusts, governed by trustees and a trust deed, serve as legal entities for holding part ownership of the power plant to the community; since, of course, it would be much more challenging – if not impossible – to give every community member a percentage share.
Also, part of the understanding of trusts is that in the majority of the cases, shares are not offered to the community based on free carry (shares being granted to the community for free). Instead these shares are made available through a loan. The repayment of this loan is repaid with a percentage of each dividend payment received. Many project companies have structured the finance for the community trust shareholding with a large percentage of dividends – typically 95% of the dividend paid – directed towards the repayment of this loan (known as percentage cash sweep). The result is that until the loan is paid off, there is, in most trusts, hardly sufficient dividends to be of benefit for the community or to invest impactfully in social development projects.
Even after the loan is repaid, the average energy tariffs in the later bid rounds of REIPPPP are much lower than earlier rounds, resulting in tight profit margins for those projects and, as a result, minimal dividend benefit flows to the community trust.
While this is the reality for all shareholders based on the percentage of shareholding, most investors have clearly defined investment objectives, apart from percentage returns – such as attracting better ESG ratings; or accepting lower yet more secure returns as part of a portfolio that makes other higher return, yet riskier investment options more feasible and so forth.
For most investors set shareholding agreements are made from a foundation of informed understanding regarding risk, liabilities and returns. For communities, however, this is very different. Communities seldom act as intentional investors, making informed decisions on the liability of the loan arranged on their behalf. In reality, communities are introduced to the concept of shareholding, expediently as part of the “stakeholder engagement” compliance requirement during the business development and feasibility stage of the project. At this stage, when the viability is being assessed, local stakeholders are engaged to explain what it would mean to be a host community in general and shareholders in the project, in particular.
Most of the decisions regarding the shareholder loan, cash sweep, dividend repayments, whether there will be community beneficiary trustees, how much of the dividends will be available to spend, when the loan will be repaid, and so forth are made for the community, in most instances, and not with them, as part of financial modelling discussions.
The brunt of this wide chasm between the excitement of what ownership might mean and what it means in practice fall on the shoulders of Social Performance practitioners. They find themselves in the spotlight, either at the start of construction or when the plant has reached commercial operation and communities start demanding financial benefits based on their understanding of ownership and shareholding.
Bridging the chasm between the community ownership ideal and the reality
The reality on the other side of the chasm to the ideal spirit of community ownership is that the legal vehicle of the trust is managed by well-selected, experienced, independent trustees -from outside the community- who make decisions on behalf of the community on how the dividend funds are spent, primarily to optimise benefit to the trustees. In most cases, there are community trustees who are also elected as community representatives, however, sometimes, this is not the case.
While this does not appear too far from ideal, the current focus tends towards expediency, compliance, and decision-making for the community rather than with community voices in the room.
By taking this expedient approach, we miss the opportunities for community empowerment that is developed throughout the journey, not only when we arrive at the destination.
Community voices not only need a seat at the table; they also need to be respectfully heard as they give input in the decision-making, planning, co-creating and implementation of socio-economic development. This would honour the spirit of local ownership.
We acknowledge, though, that this chasm is not due to deliberate underperformance by trustees, trust administrators or their founders. Instead, it is a result of working within a rather challenging set-up of legal and financial arrangements, which are less than ideal for enabling or driving community development impact. Additionally, the community trust support system is under-resourced in some cases and under-capacitated in others to fulfil the ideal role that that has been envisioned in the spirit of community ownership.
Fortunately, the Industrial Development Corporation (IDC) – which has provided equity finance for a significant number of community trusts – has supported the Trust Matters project. This initiative has explored possibilities over the past 18 months for how trusts can be capacitated to realise the ambitious expectations related to the spirit of community ownership. Trust Matters has been conceptualised and implemented by INSPIRE, an NPC established to focus on improving social performance in the renewable energy industry through enhanced learning, leadership, innovation and partnership.
In addition to the capacity building of trustees, INSPIRE’s Trust Matters project has created platforms where community trusts can connect, learn, and collaborate to maximise the benefits of renewable energy projects for their communities – all in support of mobilising community leadership and driving developmental impact.
The Trust Maturity Framework
Thanks to the insights gained through several engagements that INSPIRE hosted for this project, The Trust Maturity Framework has been developed. This framework serves as a tool for understanding the various dimensions of trust support.
The model (illustrated below) is a matrix of:
- Role players in and recipients of trust support
- Factors affecting the efficacy of trusts
We have found that while regulatory factors and governance, operations and processes are critically important – this would not shift the needle on host community prosperity unless more serious capacity and empowerment issues are addressed. Primarily this means capacity of the sector, and then, as result of that, an appreciation of the importance of enhanced participation at community level.
Elevating the importance of community members as a group and providing support to them is critical to unblocking a foundational constraint that shackles the ability of trusts to ensure community empowerment and development.
This focus on community engagement, rather than regulatory dotting I’s and crossing T’s, is a prerequisite to moving closer to the spirit intended in the initial conceptualisation of community trusts as an entity of transforming our nation.
While INSPIRE continues to facilitate sharing best practices and capacity-building workshops through initiatives like Trust Connect, policymakers need to take note of the on-going realities and adjust frameworks to create more enabling conditions for community trusts.
INSPIRE’s INSPIREd Community Trusts Learning Event in February 2025 presents a key opportunity to bring together policymakers, trustees, community voices, and other stakeholders active in the trust eco-system to address these maturation challenges. With projects like Trust Matters, INSPIRE is already spearheading efforts to guide trusts through their maturation journey. Still, systemic recalibration and increased policy focus are essential for fostering deeper and more holistic responsiveness to strive for the ambitious yet achievable community ownership ideal.
Just Energy Transition
Achieving the ideal spirit of community ownership is a vital component of the Just Energy Transition, especially in the context of South Africa’s much-lauded REIPPPP model that has many emerging economies, grappling with the energy transition, looking to it for solutions. A successful Just Energy Transition in South Africa would see a shift to cleaner forms of energy in a manner that is socially equitable and economically inclusive. Conversely, a less than successful transition in South Africa would see us missing this lucrative opportunity of substantial capital investment to address the social ills through more robust and meaningful economic participation.
For the Just Energy Transition to truly live up to its name, the maturity of community trusts is paramount. These trusts must evolve from compliance-driven entities to dynamic vehicles of community empowerment. As the energy transition progresses, community ownership should not remain a peripheral issue—it must be placed at the heart of just energy policies.
Yumnaa Firfirey is Managing Director at Towards Uhuru; Masechaba Mabilu is Co-founder and partner at Forethought Africa. They are both contributors to INSPIRE; Holle Wlokas is Managing Director and Avela Pamla Project Officer at INSPIRE. INSPIRE is an non-profit established specifically to drive the full potential of social performance in REIPPPP. INSPIRE has been supported by the IDC to capacitate community trusts in REIPPPP by mobilising community leadership to drive developmental impact.
