Renewable energy production is about to become considerably more attractive to farmers
Renewable energy production is about to become considerably more attractive to farmers, with the advent of new tariff supports. Mark Neath, Associate Director at Old Mill Rural Services, explains.
Renewable energy has long been touted as an environmentally friendly way to boost farm incomes, but often fails to deliver in terms of profitability. Fortunately, with the launch of new Feed-in Tariffs from April 2010, that picture may finally be changing.
In order to meet targets on reducing Carbon emissions, politicians are backing renewable energy sources like never before. Historically, anyone investing in renewable energy projects had to do so for ‘green’ motives, as the finances simply did not stack up. Hopefully, the advent of Feed-in Tariffs (FITs) will mean such propositions will become financially attractive as well as environmentally sound.
From April, FITs will pay producers for every unit of electricity generated, on top of the revenue raised by selling the power, or using it on the farm. The scheme is similar to those used in Germany and Spain, which have seen an explosion in micro-generating capacity in recent years.
Farm resources
Farmers are uniquely placed to benefit from FITs, having the natural resources available in abundance. Many have already capitalised on the green revolution, most visibly in the growth of the onshore wind industry. However, wind power is unpopular and planning applications can become mired in public opposition.
Fortunately, other technologies are coming to the fore, which are less controversial.
Solar photovoltaic (PV) panels are now more efficient, and attract the highest FIT payments, at up to 41.3p/kWh. Panels can be fitted on the roofs of farm buildings, and may be eligible for grants under the Low Carbon Buildings Programme if installed on a residential dwelling. Alternatively, free-standing installations on farmland can benefit from the latest solar-tracking technology, angling the solar panels towards the sun during the day for improved performance.
Another option is the generation of biogas from farm waste via an anaerobic digester (AD). These use bacteria to break down organic compounds, producing methane, which can be used as a fuel, and digestate, which is an effective fertiliser. This technology is often of particular interest to dairy farmers; who need to manage cattle slurry, and food producers; who have a waste stream with a disposal cost. In both cases, AD can generate an income, minimise waste and reduce costs – a win-win situation.
High capital costs and poor reliability have plagued the AD industry in the UK, but improvements in technology mean it is now becoming increasingly attractive to smaller scale producers.
Other renewable resources include rivers and streams, which may be suitable for small-scale hydro-electric generation, and energy crops for use in AD plants. Biomass projects do not qualify for FITs, although they will continue to be supported under the Government’s Renewables Obligation Certificates.
Anyone considering investing in renewable energy must weigh up their options carefully. Ask yourself:
- Do you want to be self-sufficient in energy or a power station operator?
- Is the project in keeping with the setting and landscape?
- Can the project be matched to the natural resources on-farm or will you become dependent on others for supply of feedstock?
- Do you have a suitable grid connection? If not, there is no point in producing far more power than you need, unless you are willing to bear the cost of upgrading the connection.
- Could the project also help to manage your waste or meet Nitrate Vulnerable Zone regulations? This is a particular benefit of AD over other technologies.
- Investing in renewable technology may require significant capital investment and exposure to a new set of risks. Are you willing to take this on and divert cash and time away from the core business?
Feed-in Tariffs
FITs are set for 20 years (25 years for solar photovoltaic) and will be index linked to account for inflation. There are two components – an export tariff, which is a fixed sales price to remove volatility in wholesale power markets – and a generation tariff, paid for each unit produced, whether used on-site or sold to the national grid.
The generation tariff varies by technology and size of installation:
The broad spread reflects the relative cost of capacity of each technology and is intended to enable a return of 5-8% per annum, or payback within 12.5 to 20 years.
Whether or not the returns are attractive enough to encourage the sort of growth the government is hoping for remains open for debate, and indeed commentators are already complaining that the FITs are too little, too late. However, the cost of FITs will be borne by the consumer through higher energy prices, so there is clearly a need to strike the right balance.
Ultimately, anyone investing in renewable technology must be sure it is right for them and their farming business. Having worked with a number of renewable technology companies, Old Mill is ideally placed to support you through the process. With a detailed understanding of both the technology and its financial implications, we can assist with feasibility studies, budgeting and grant applications. For more information, contact Mark Neath on 01392 214 641.