Farmland-renewable energy nexus: Why farmers should win

Welcome to the era of energy farming, where farming goes hand-in-hand with renewable energy initiatives like Photo Voltaic installations, bio-gas plants and wind energy installations.

Small-scale farmers like Tom, Dick and Harry can cultivate wheat, Barley or potatoes in their fields and can use energy from renewable installations to propel irrigation and earn some extra income by contributing additional power that they produce to national grid.

In fact, the UK banking major Barclays has set aside a 100 million pound fund to finance the needs of farmers seeking to cut energy bills and generate new income.

New figures released by the bank reveal that more than a third (37 per cent) of the UK’s 200,000 farmers are expecting to invest in renewable energy, with the majority doing so within the next year. Farmers are further expecting the investment to generate returns averaging £25,000 per year.

Developed with sector specialists including National Farmers Union (NFU), the fund is available for solar, wind, and hydro projects in the UK, with Barclays including projected feed-in-tariffs (FIT) when assessing each loan.( The goal of feed-in tariffs is ultimately to offer cost-based compensation to renewable energy producers, providing the price certainty and long-term contracts that help finance renewable energy investments.)

"For farmers investing makes sense - it's good for the environment, but for the majority it's about good business,” said Travers Clarke-Walker, Product and Marketing Director for Barclays Business. “Over the years farmers have struggled with low commodity prices and increasing costs, and Barclays has already supported many farmers as they seek new ways of making money. Renewable energy production offers farmers a further opportunity to develop their businesses and add to their traditionally vital roles of producing food and managing the countryside.

"What farmers see is a win-win – lower costs and increased income, and the majority expects the investment to pay for itself in less than 10 years. Meaning they are looking forward to many further years of lower energy costs and a potentially new income as they sell energy back to the grid.

"When looking at a new renewable project, reliable technology, competent maintenance and management are all important considerations, though of course farmers should also keep an eye on the current feed in tariff rates offered to ensure it works for their business.

"Four out of five (80 per cent) of the farmers questioned recognise that renewable energy can provide significant cost savings, with 60 per cent expecting it to generate additional income for their business. In the medium term, increased investment in renewable energy appears even more likely, with Barclays predicting the costs of wind and solar projects to fall by up to 50 per cent in the next three to five years.

The new fund will support the government’s recent commitment for the UK to generate 15 per cent of its energy from renewable sources by 2020. In establishing the fund Barclays has worked closely with a number of organisations to develop this new fund, including the NFU, Country, Land & Business Association; Royal Institution of Chartered Surveyors.

The organisations will continue to be involved with the fund in an advisory capacity, and their views will be fed in to consideration for loan applications.

Farmers or industry players?
In the life that is economics, people face trade-offs on a regular basis.

What the farmers have gained is what the industry has lost. Barclays coming out with a fund to finance the project is due to the policy level decisions from the government of UK to encourage renewable initiatives in farmer community. But this comes at a cost for the industry wherein they would stop getting government subsidies in this regard.

In fact as a result of effecting drastic cuts to large scale power installations industries that planned to set up huge projects would be affected.

The government nonetheless has firm logic on its side.

“According to government calculations, a field-size system of 5 MW would reap subsidies of £1.3m per year. Twenty such schemes would receive subsidies equivalent to that of about 25,000 households.” –reported The Guardian.

In other words, the government has, in this case preferred to side with communities and farmer small-holders rather than with the industry.

Howard Johns, chairman of the Solar Trade Association, said to The Guardian that the government move would cripple UK's fledgling solar panel industry. "Crushing solar makes zero economic sense for UK plc because it will lose us major manufacturing opportunities, jobs and global competitiveness," he said. "It also risks locking us in to more expensive energy options in future. It is inexplicable that the Treasury can be allowed to damage energy and industrial policy by taking decisions without taking into account the bigger picture."

The reforms which took some sweet time to take shape would help installations generating 50kw power (may be a few houses or two tennis courts), but not enough for some of the community-scale installations some developers had planned. This has been pointed out by several solar companies and certain renewable energy advocates.

So the moot point becomes this: In this era of economic uncertainty, who should benefit? Farmers and small-holders or industry players?

Comparing Germany and US
Thankfully, we have some lessons which are really current and relevant!

In US and Germany, the coupled system of renewable energy and farming is prevalent. But in the former, while tax codes [performance tax credit (PTC)] help the sector, in case of latter it is the feed-in tariffs (CLEAN contracts) that help farmers.

“Though the US wind market is about twice the size of Germany’s in terms of installed capacity, German farmers are more likely to receive economic development benefits than their US counterparts. For example, of the 22,000 MW of installed wind capacity in Germany in 2008, approximately half of it was owned by farmers or local cooperatives. This represents an investment of nearly $20 billion that is directly owned by, and provides accompanying economic benefits to, local farmers and rural communities.

In the US by contrast, only about 2% of the wind market is directly owned by community investors. The remaining 98% of the market is owned by corporate or utility investors, who are the major beneficiaries of federal incentives and project revenues.”—says a report from National Farmers Union titled “Harvesting Renewable Energy: German-American lessons learned on rural development."

A typical German farmer who is plugged to the system, earns about a quarter of his income from selling Electricity which they find to be incentivizing new farmer entries.

Given the tax incentives, it is often the big players who invest in US farmland-renewable energy nexus. In contrast, in Germany it is the other way around: small holders directly benefit.

The report says:

In a typical German biogas installation, for example, over 80% of the project value accrues to farmers and rural communities. To this end, Christine Woerlen, the former Head of Renewable Energy at the German Energy Agency, notes:…35% of the added value benefits [of a typical biogas plant] benefits the investor of the plant and the owner of the land on which the biogas plant is located. Typically, this is the farmer or the agricultural cooperative that has invested in the biogas plant. Some 28% of revenues go to the supplier of the feedstock – again, typically the farmer or his or her neighbors who provide the plant material, but who also use this opportunity to dispose of their animal waste.Approximately 14% go to local service providers. Finally, 7% of the revenues go to the local tax authorities, which use these to improve schools and infrastructure. Thus, if plant production was done locally, 100% would go to local communities and support economic and job growth.Nevertheless, even if the plant was produced elsewhere, an estimate 70% to 80% of added value remains in the local economic cycle.In the US, by contrast, banks, corporations, and utilities are the direct beneficiaries of the majority of federal energy incentives (primarily in the form of tax incentives). As a result, corporate entities typically own renewable projects and capture a much larger share of the project’s economic value.

With farmers in Germany getting guaranteed grid inter connection, stable cash payments and standard long-term energy purchase contract, the system ushers in transparency, longevity, and certainty (TLC) that gives the investors necessary courage to deploy capital.

Germany has produced over 370,000 jobs in the clean energy sector and more than 200,000 farmers are active in the renewable energy industry.Quite great in times of this slowdown and job losses! No wonder, UK has chosen to be German.

As published in: http://www.commodityonline.com/news/Farmland-renewable-energy-nexus-Why-farmers-should-win-42062-3-1.html