Lessons from Germany: Solar Energy Opportunities for Farmers

With the recent public discussion over The Federal Agriculture Reform and Risk Management (FARRM) Act, the national spotlight has been directed once again to the farmers of the U.S., seeking to protect and empower this critical segment of the economy.

A huge opportunity exists for landowners, especially farm owners, to band together and not only offset their own energy usage (to generate savings) but also to earn additional revenue in the long-run from the adoption of solar PV. There is enormous potential for farmers to harvest solar and other renewables to generate local, clean, renewable energy. 

Cost Savings and Empowerment: Opportunities for Farmers?

In 2000, U.S. farms numbered around 2.18 Million. Assuming that one farm building (with at least 800 square feet ready for solar) exists per farm, and one 8-kW system is installed on each building, solar energy produced on U.S. farms would amount to 23.98 billion kWh per year.

To put this in context, this is enough solar electricity to power all of the homes in Wyoming, Alaska, North Dakota, South Dakota, and Montana combined. 

With the right policy environment, farmers could seize this opportunity to increase the amount of cash remaining in their wallet at the end of each month/year and also gain greater control over the cost of energy on the farm. Farmers tend to be price-takers for energy — with little ability (under current policies) to influence the cost of energy on the farm. Because the fuel for solar is free, solar energy provides valuable price “hedge” benefits, enabling farmers and rural communities to lock in the long-term cost of power production and exercise greater control over energy costs. Altogether, this provides farmers and local communities with much needed energy independence.

What’s the Catch?

American farmers are searching for new, reliable and profitable revenue streams from farm buildings and land that is unusable due to weather phenomena (flood-prone or drought) or overuse. Further, the operating costs of farms are increasing as the markets for their products are becoming ever more competitive, driving down annual returns for farmers. 

With costs for solar PV falling and new financing options becoming increasingly available, farm-based renewable energy development — especially in places as non-intrusive as the rooftops of barns — should be a no-brainer. 

However, inconsistent regulations, or lack thereof, across states and local governments can create roadblocks for renewable energy development. Consistency and standardization of permitting along with other cost reduction strategies across the 18,000 plus jurisdictional authorities within the U.S. is needed in order to bring down soft costs and encourage greater adoption of solar PV technologies. Additionally, there is a continued need to increase access to solar financing options for farmers across the country.

Lessons from Germany 

Germany is the world’s largest solar PV market, which in one year installed more PV than has ever been installed in the U.S. 85 percent of that PV is on rooftops. German farmers have benefited greatly, receiving up to 25 percent of their income from generating and selling renewable energy to the grid. This has all been made possible because the German national government created a policy environment that enabled local renewable energy producers to flourish.

So how did they do it?

In Germany, energy co-ops play a leading role in renewable energy development, with local producers driving community energy independence at a grassroots level. That is to say, the motivation to take energy matters (electricity generation, transmission and distribution) into their own hands flowed from individuals to the government and the big utility companies.

German farmers participate because solar PV and other alternative energy production technologies increase their annual income, both off-setting electricity costs as well as providing a new revenue stream. Roof-top solar PV installations provide new income to farmers without consuming farm land. There are also opportunities for farmers to convert unusable land, whether it is flood-prone or over-utilized, into a long-term profit-generating piece of their operations via renewable energy.

What did the government do? 

Germany created a policy environment to transition the country away from nuclear- (and fossil fuel-) dependent consumers into a world leader in renewable energy generation. Their new policy environment fostered small-scale renewable energy projects, which were able to feed back into the national electricity grid. These changes included everything from simplifying the registration and permit process, to deregulating the utilities, and establishing incentives like feed-in tariffs (also known as CLEAN contracts or guaranteed purchase agreements).

Lesson One: Creating the Right Policy and Reducing Soft Costs

The success of Germany’s adoption of renewable power, solar included, can be traced back to the CLEAN contracts (feed-in tariffs) offered in Germany. CLEAN contracts are long-term energy contracts that provide payments to energy producers based on the cost of generation. This enables energy producers to earn a reasonable rate of return on their investment. In Germany, CLEAN contract rates are currently below residential rates — and, in some cases, below commercial and industrial rates as well. 

CLEAN contracts (feed-in tariffs) are a central pillar of Germany’s renewable energy policy. They provide “both small and large renewable energy developers investment transparency, longevity, and certainty,” according to Neil Veilleux in “Harvesting Renewable Energy: German-American Lessons Learned on Rural Development.”

Additionally, the management and reduction of soft costs is a critical element to encourage local (small-scale) adoption of solar PV. According to the NREL’s 2012 study on soft costs, “Permitting, inspection, and interconnection (PII) costs account for an estimated 25%–35% of the price difference between U.S. and German residential PV prices.”

The PII costs are heavily influenced by the regulatory environment in which the farmer operates; standardizing these regulations across jurisdictions in the US would contribute to lowering these costs at the government level, a cost-savings that can be passed along to the farmer, or end customer.

Lesson Two: Empowerment Critical at Local Level

Known as the “Energiewende” (or “energy transition”), Germanyhas embarked on an aggressive initiative to transform energy production from fossil fuel and nuclear sources and toward renewables. Reflecting the national attitude, Germany’s renewable energy co-op pioneer Eva Stegen notes, “The solution to our energy problems, from nuclear to climate change, can’t be a centralized one.”

“In the beginning, [Germany’s energy transition] was driven almost entirely by individuals. Over half of our renewable power is still produced by small operations,” reports Rainer Baake, an economist for Agora Energiewende. Farmers have been a key constituency in Germany’s energy transition, realizing the economic, environmental, and social benefits that solar and other renewables can achieve for their local communities.

In Germany, as mentioned earlier, a typical energy farmer can earn up to a quarter of his or her annual income from farm-based biogas or solar PV facilities, which may be retained by the farm owner in positive cash flows depending upon the financing options pursued. Most of this money flows back into the local community, providing significant economic development benefits as well. 

In the U.S., Rural Electric Coops (more than 900 today) provide a promising pathway for farmers interested in taking advantage of lower soft costs and additionally gain access to special tax credits. This could allow farmers to create new streams of revenue without massive upfront investments by developing renewables as part of a co-op.

For example, according to the NREL, the “IRS has approved $900 million in Clean Renewable Energy Bonds (CREB) allocations for cooperative renewable energy development.” These CREBs could be issued to farmers by their coop to help finance the cost of solar projects, making the installations more affordable and increasing the net cash held by the farmer as a result of the installation.

If you are a farmer seeking to adopt solar, check the member directory of the National Rural Electric Cooperative Association or with your municipal/local government to support the interconnection of farm-based PV systems. You may also consider working with local or state authorities to implement a CLEAN contract (feed-in tariff). 

As policymakers and stakeholders across the country discuss tools for aiding American farmers, we should stop to consider the ways the farmer can contribute to greater energy security. This can be done by aligning government regulations and incentives to create an even playing field and entice the development of solar communities across the country. Only by creating a transparent and balanced regulatory environment will American farmers gain access to solar PV as an attractive new revenue stream.

This article was originally posted on SolarOutreach.org.

Lead image: Farmland via Shutterstock

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