A new OECD report shows that producing renewable energy can stimulate rural economies when linked to local industries that already exist.

Using case studies assessing 16 regions in Europe, Canada and United States, the OECD report - Linking Renewable Energy to Rural Development - found that renewable energy (RE) deployment can provide hosting communities with some benefits, including:

New revenue sources: Increasing the tax base for improving service provision in rural communities, RE investments can also generate extra income for land owners and land-based activities, such as farmers and forest owners who integrate renewable energy production into their activities greatly diversifying their income sources.

New job and business opportunities: especially when a large number of actors is involved and when the RE activity is embedded in the local economy. Although RE tends to have a limited impact on local labour markets, it can create some valuable job opportunities for people in regions where there are otherwise limited employment opportunities.

Innovations in products, practices and policies in rural areas: In hosting RE, rural areas are the places where new technologies are tested, challenges first appear, and new policy approaches are trialed. Small and medium-sized enterprises are active in finding business niches as well as clients and valuable suppliers. Even when the basic technology is imported from outside the region, local actors often adapt it to local needs and potentials.

Capacity building and community empowerment: As actors become more specialised and accumulate skills in the new industry, their capacity to learn and innovate is enhanced. This dynamic has been observed both in regions where local communities fully support RE and in regions where the population is against potentially harmful developments.

Affordable energy: RE provides remote rural regions with the opportunity to produce their own energy (electricity and heat in particular), rather than importing conventional energy from outside. Being able to generate reliable and cheap energy can trigger economic development.

The OECD report cautions that producing wind, sun and biomass energy does increase rural tax bases and services, encourages local skills and innovation, and creates cheap energy, but regions should not neglect their traditional sources of jobs and growth.

For example, as most long-term employment related to renewable energy goes to international researchers and manufacturers, regions should ensure that renewable energy production does not have a negative impact on their more lucrative, and job-rich, sectors such as tourism.

Similarly, farmers and forest owners should see green energy as a way to diversify and augment their incomes, but not the sole source.

The OECD research also warns against high, long-term, renewable energy subsidies which drive up the cost of energy, encourage unnecessary destruction of farms and forests, and attract investors who will abandon their projects as soon as the levels come down.

Key challenges:

The report stresses that renewable energy policy is expected to deliver in three areas: energy security, climate change mitigation, and economic development (job creation). However, this is not always the case and there can be significant trade-offs among them.

For instance, large biomass heat and power plants can generate new employment opportunities in rural communities, but may have a negative CO2 balance due to land-use change and transportation of feedstock over relatively long distances.

Similarly RE is in most instances a capital-intensive activity, and energy as a whole represents a small share of employment in regional economies. Small-scale installations typically source labour and equipment from international suppliers, so the impact at the community level in terms of job creation is rather limited.

The OECD case studies are: Puglia and Abruzzo in Italy; Extremadura in Spain; Tromso in Sweden; Regions Sjaelland in Denmark; North Karelia in Finland; Mellestra Norland in Sweden; Scotland; Fryslân in the Netherlands; Québec and Prince Edward Island in Canada; Iowa, Oregon, Maine, Vermont and Tennessee in the United States.