In the five years since the introduction of Feed-in Tariffs and subsequent launch of support for renewable heat, green energy generation has quickly become an established diversification for many farmers.
But ongoing changes to support, including a review of the entire FiT scheme this year, tighter planning rules and lack of spare grid capacity, means more thought has to be given to the feasibility of new projects and how they affect the farm business, with a clear warning to farmers not to rush into any decision.
Focus on core strengths first
“Farmers should treat renewable energy in the same way as any other diversification or capital investment,” says Andersons consultant Graham Redman. “That means you have to get the core farming business right before you even consider diversifying.
Tips for evaluating renewable options
- Assess the strength of the core business and identify areas for improvement – address these first.
- Identify resources available – includes physical assets such as land, solar levels, wind and water, plus available labour, skills, management time, capital and machinery.
- Consider on-site demand for energy (electricity and/or heat) now and in the future.
- Identify all possible investment opportunities available, not just renewables.
- Decide if there is anything that can be captured or to which value can be added.
- Be realistic about true costs and benefits of any planned diversification investment.
- Seek expert advice and visit existing projects.
- Carry out due diligence on technology providers by considering its track record (reliability, number of installations, guarantees/warranties offered, customer satisfaction), ask for references and examine the company profile, for example history, profitability, where they do business and who with.
“Renewables are often seen as an attractive option and a way of turning around poor profitability, but if there is a problem with the core business, investing in solar panels or a wind turbine is not going to change that.”
Consider alternative demands on capital
Mr Redman acknowledges many energy projects can still be very profitable, but warns the demands on capital and management time should not be underestimated and farmers need to make sure any investment does not jeopardise future expansion or improvements on farm.
John Allen of Kite Consulting agrees. “Don’t let capital get sucked out of the business when it might be needed to invest in new kit, buy more stock or other investments. You have to appraise the business and weigh up what will be the best use of the capital available.
“There are a lot of plusses to diversifying into renewable energy, including decent returns, predictable revenue and relatively low effort required in many cases. But don’t be overoptimistic and think it can solve the ills of your business.”
Prepare for longer paybacks
Much is made of the need to maximise on-site energy use to improve project feasibility, but Yeovil-based consultant Claire Kingston of Laurence Gould says cuts to support mean it is difficult to make many new installations pay on the basis of energy savings, unless there is a particularly high on-site demand.
“The biggest opportunities are probably still on broiler farms, where there can be big savings from cheaper forms of electricity and heat. But until effective ways of storing energy are commercially available, new projects can be quite hard to justify on livestock farms – even dairy, where there is often a mismatch between energy generation and peak demand.”
Payback has increased from the days of the highest support payments just a few years ago, she adds. “For biomass, you were probably looking at a five- to six-year payback in the heyday, whereas realistically it is nearer eight to 11 years now, while [smaller-scale] solar is close to 15 years in a lot of cases. Returns aren’t as great as some make out, especially if you have to borrow money at 5-6% interest.”
Do your homework
Barclays national head of agriculture Mark Suthern urges farmers to make full use of professional advice and to engage with local communities about proposed schemes from the outset.
“We approach any renewable energy project in the same way. We want to see full due diligence has been carried out on the technology provider or developer, and the whole project has been well researched with accurate estimates of grid availability, costs, returns, energy savings and payback. It has to be a financially sensible investment that is right for your business.”
Well-planned projects can improve the resilience of businesses to increasingly volatile fluctuations in livestock markets, he adds.