TSO activities to raise public awareness and trust

FSR Topic of the Month: 

Raising public awareness and trust in electricity transmission infrastructure development

Written by Pradyumna Bhagwat

TSO activities to raise public awareness and trust

Project developers  are increasingly engaging in innovative stakeholder activities to raise public awareness and trust in their infrastructure development. This research proposes a categorisation based on the nature of the activities and related costs. TSOs, like any other business organisation, can gain support for their core business by engaging in three types of activities namely; corporate level stakeholder engagement, project-level stakeholder engagement and compensation. It should be noted that in practice, TSOs utilise a combination of one or more of the activities mentioned above.

1  Corporate level stakeholder engagement

Corporate level stakeholder engagement activities are defined as the interactions with stakeholders that are not related to a specific project investment but are conducted with the public at large. The goal of such engagement is to create goodwill regarding the TSOs as a corporate entity and for all of its business activities. Through building name recognition, a strong reputation and positive image with the public, the TSO expects to reap the rewards, indirectly, by experiencing larger levels of public support in general and during the execution of specific projects.

The most common examples of corporate level stakeholder engagement are corporate social activities, educational campaigns, advertisement, and sponsoring. The costs entailed for these kinds of stakeholder engagement can be classified as corporate level costs.

1.1  Example from the practice of corporate level stakeholder engagement

According to the Renewables Grid Initiative (RGI) database, educational events are organised annually at primary schools by 50Hertz in collaboration with the Independent Institute for Environmental Issues. The goal is to engage school students in learning about the energy transition using information and learning exhibitions. At such events, the students may interact with politicians, industry and other authorities on this topic.

1.2  A higher level of controversy over corporate level stakeholder engagement costs

Corporate level stakeholder engagement costs raise significantly more controversy than project-level stakeholder costs. The root of the controversy lies in the debate over whether a natural monopoly, such as a TSO, with a regulated income stream should be spending money on activities to build name recognition and corporate reputation, which are generally part of the corporate level stakeholder engagement strategy – especially since the benefits of these activities not always immediately quantifiable.

On the one hand, it can be argued that such activities do not add any value in terms of increase in quantifiable benefit. On the other hand, a positive image may be useful for improving public support during the execution of new transmission expansion projects. Furthermore, the regulatory frameworks governing such activities are sometimes unclear. The following hypothetical example was provided during our interaction with an expert. It may be that a TSO is not allowed to spend money on sponsoring a community by paying for the naming rights of the football stadium, but it may be allowed to pay for the construction of a new stadium for the community as part of a compensation package. Considering the ambiguity in regulatory practice, corporate level stakeholder engagement costs are subject to a significant level of controversy.  

2  Project-level stakeholder engagement

Project-level stakeholder engagement is defined here as the interactions with stakeholders involved in specific investment projects with the goal of creating goodwill for the project in the short term. In many countries, including the stakeholder perspective in infrastructure development decision-making (such as permitting) is considered so important that project-level activities are made mandatory for the project developer. Examples of such stakeholders are project affected parties such as the neighbours of the project corridor or the mayors of towns in the project corridor, but also stakeholders who have an indirect interest at stake such as environmental groups. Furthermore, the costs entailed in executing such activities can be defined as project-level costs of stakeholder engagement.

Examples of project-level stakeholder engagement activities include local dialogue forums, stakeholder workshops, information campaigns, information stands and fairs, project branding, educational campaigns, a public consultation of network planning, and project advisory boards. The best practice examples, as collected by the RGI, show that effective project-level stakeholder engagement requires a combination of these activities.

2.1  Example from the practice of project-level stakeholder engagement

In partnership with the Lithuanian Fund of Nature, LitGrid carried out environmental surveillance at the construction site for the LitPol link. This was done in addition to the Environmental impact assessment (EIA) carried out in 2010. Between April – August 2014, monitoring was undertaken for identifying protected species and habitats. A rare early-marsh orchid was identified and relocated. The results of the monitoring process were made available to all stakeholders.

2.2   Low level of controversy of project-level stakeholder engagement costs

Transmission system operators widely adopt Project-level stakeholder engagement activities, and their costs are not controversial in regulatory terms as they are seen as project development costs, consent costs or alike. Some project-level stakeholder activities are even mandatory by law, for instance, the organisation of one or more public consultations as part of the permitting process. Note that NRAs decide mandatory activities at national level.

2.3  Compensation activities

The mere engagement of stakeholders to generate public support may not be sufficient in the case that some stakeholders suffer negative externalities of a project. In welfare economics, compensation is a way to mitigate those negative effects[1]. The beneficiaries of a project could share back some of the project’s benefits as damages to those affected to make them better off. The outcome of the project and compensation would thus leave everyone better off than a situation without the project.

Compensation can be of a financial nature, involving payments to affected stakeholders, or it could involve compensation in kind by adjusting the project to create fewer externalities (typically at the expense of a higher project construction cost). The most common examples are direct monetary compensation to project affected persons such as landowners and farmers, community monetary compensation such as building of community centres, hospitals and sports facilities, or building sound screens on highways in the vicinity of the overhead transmission line. Non-monetary compensation may consist of changing the project design by undergrounding or modifying the route, use of compact pylon designs, etc.

Many countries have compensation schemes for objectively negatively affected stakeholders such as landowners who suffer a reduction in the value of their land; these countries include, e.g. Belgium, UK, France, Slovenia, Spain and Sweden. Several countries have schemes to compensate by means of funding community projects; these countries include, e.g. France, Germany, Ireland, Italy, Slovenia and Spain. Non-monetary compensations have been provided by TSOs in, e.g., Belgium, Germany, France, Italy

[1] Hicks, J.R., 1939. The Foundations of Welfare Economics. Econ. J. 49, 696. doi:10.2307/2225023

3  Example from the practice of compensation activities

Eirgrid, the TSO from the Republic of Ireland provides community-level compensations in specific geographic locations surrounding a new infrastructure, called ‘proximity pay’. The compensation is provided in the form of grants from a ‘Community Fund’ set up by EirGrid. This concept of Community Fund is part of EirGrid’s company policy and will be utilised for any new transmission infrastructure project.  An example of such compensation is the 110kV Mullingar-Kinnegad line. A total fund of €360,000 was made available to organisations of communities situated 2 kilometres on either side of the line. According to the RGI database, in 2016, 37 community groups received funding from the ‘Mullingar-Kinnegad Fund’ for various activities such as music, athletics, sports, childcare services and senior citizen support.

3.1   A higher level of controversy over compensation costs

Compensation costs can be considered to have a significantly high level of controversy and are the most controversial among the three approaches discussed in this topic. The reasons that the provision of compensation can be controversial are the following. Firstly, not all TSOs have a mandate to make decisions regarding payments of compensation. For some TSOs, the quantity of money that can be spent on compensation is strictly regulated. Furthermore, all consumers eventually pay the cost of compensation. Therefore, such compensations entail a significant reallocation of welfare from society as a whole, towards a set of selected parties. These beneficiaries may be individuals or a community. A degree of subjectivity is involved in perceiving or assessing the transparency behind the purpose of such transfer of wealth even when it is done within the necessary and required legal boundaries. The views on the legitimacy and purpose of compensation may vary from the above-described definition to the other extreme that would perceive it as ‘bribing’ these parties to ensure the implementation of the project, even if this is a subjective and mistaken perception. Compensation activities also open the possibility of strategic games by vested interests to make monetary or political gains, e.g. holding out to get the maximum amount of compensation.

To summarise, three levels of stakeholder engagement activities are discussed. The next instalment will discuss quantification of the impact of such activities.

Just published!

Enlarging incentive regulation to improve public awareness and trust in electricity transmission infrastructure development 

Authors: Pradyumna Bhagwat, Nico Keyaerts, Leonardo Meeus

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