BIDENOMICS
Climate Funding Helps U.S. Farmers Slash Their Energy Bills


Tsvetana Paraskova - May 21, 2024

America’s family farms had just recovered from the diesel and other energy price shocks of 2022 when rising interest rates started to increase their cost of credit.


Incentives and subsidies from the Agriculture Department and the federal tax credits in the IRA can add up to paying in full for the renewable energy that agricultural companies and farms in the U.S. use.

For farms in rural areas like Mr Howle’s, 70% of the costs for the solar project are covered by tax credits and 50% by Agriculture Department grants.

After reeling from soaring energy costs in 2022, when diesel prices in the U.S. hit a record high, American farmers are taking advantage of provisions in the Inflation Reduction Act from the same year that help small farms install solar power at virtually no cost.

Demand for the Rural Energy for America Program of the U.S. Agriculture Department is overwhelming as farmers seek to slash their energy bills by having solar power installed at their farms.

For rural America, incentives and subsidies from the Agriculture Department and the federal tax credits in the IRA can add up to paying in full for their renewable energy, especially if the farms are in low-income areas.

Following a major squeeze on farm and ranch profits during the soaring energy prices in 2022, the installation of solar panels in disadvantaged communities which are in former fossil fuel producing areas can be fully covered by federal tax credits and incentives programs. And farmers are taking notice and applying to have renewable energy power as part of their operations.

“The demand has just been skyrocketing and there’s a lot of excitement,” Basil Gooden, the Agriculture Department’s undersecretary for rural development, told The Wall Street Journal.



Small Farm Hardships

America’s family farms had just recovered from the diesel and other energy price shocks of 2022 when rising interest rates started to increase their cost of credit and limited farmers’ ability to use it.

“Operating loans and other forms of financing cost farmers a whopping 43% more in 2023 than in 2022 and are forecast to remain elevated for much of 2024, causing working capital (cash) stocks to decline faster and forcing farmers to lean on expensive credit to provide liquidity,” Bernt Nelson, an economist at the American Farm Bureau Federation (AFBF), wrote earlier this year.

“The amount of income being used to pay interest on farm debt in the U.S. has increased at a rate not seen since the 1980s.”

In the high interest-rate environment, any reduction in other costs is a welcome relief.

Therefore, lower energy bills are incentive enough for small farm owners to seek the federal tax credits under the IRA.

Rich Federal Incentives

Jerry Howle, profiled in the Journal’s feature article on farmers installing solar panels, is set to see his annual $10,000 utility bill on his chicken farm eliminated after accessing the rich federal incentives.

For farms in rural areas like Mr Howle’s, 70% of the costs for the solar project are covered by tax credits and 50% by Agriculture Department grants.

This means that small farm owners can now afford to install renewable energy generation sources on their premises and land.

But the upfront costs are high while the credits and grants don’t start flowing until a full month of operations of the project. So, farmers still need investors and renewable energy developers to help them with the initial costs. But after the project is up and running, it is expected that not only will farmers have zero energy bills, but will be able to sell excess energy to their local utilities, making additional income.

According to USDA Census of Agriculture from 2022, a total of 1.9 million farms dot America’s rural landscape, and 95% are operated by families – individuals, family partnerships, or family corporations.

Farmers are also embracing and growing renewable energy. In 2022, a total of 153,101 farms and ranches used renewable energy producing systems compared to 57,299 in 2012, a 167% increase over 10 years, per AFBF data. On-farm renewable energy systems include geothermal, solar panels, windmills, hydro systems, and methane digesters.

USDA is granting millions of U.S. dollars in funding for loan and grant awards through the Rural Energy for America Program (REAP). The program, which can cover up to 50% of a renewable energy installation, is designed to help agricultural producers and rural small business owners make energy efficiency improvements and renewable energy investments to lower energy costs and generate new income by selling energy to utilities.

Earlier this year, USDA and the U.S. Department of Energy (DOE) launched a new initiative to help farmers cut costs and increase income using underutilized renewable technologies. USDA has an initial goal of helping 400 individual farmers deploy smaller-scale wind projects.

Federal funding is also supporting research and development in agrivoltaics – the combination of solar panels and agricultural production at the same location.

In April this year, the U.S. Environmental Protection Agency (EPA) announced its selections for $20 billion in grant awards under two competitions funded by the Inflation Reduction Act. The grants will create a national clean financing network for clean energy and climate solutions across sectors, ensuring communities have access to the capital they need.

One of the selected applicants is Climate United Fund, whose program “will focus on investing in harder-to-reach market segments like consumers, small businesses, small farms, community facilities, and schools—with at least 60% of its investments in low-income and disadvantaged communities, 20% in rural communities, and 10% in Tribal communities,” EPA said.

By Tsvetana Paraskova for Oilprice.com