Farmers and growers are under increasing pressure to cut energy use. Not only is energy the sector’s second-highest cost after labour, but also new climate change agreements coming into force in April set an energy-saving target of 14 per cent.

Climate change agreements give farmers the opportunity to get a discount equal to around three per cent of their energy bill by reducing the tax on business use of energy known as the climate change levy. But it could be a challenge for those who have already taken steps to reduce energy use – the sector as a whole achieved over 20 per cent energy savings between 2005 and 2010.

Chris Plackett, commercial director at the Farm Energy Centre, calls the new target “achievable but challenging”. “People won’t be able to sit back, they are going to have to continue to work hard both to keep their energy management practices in order and look at investing in new technologies,” he says. Farmers and growers looking to cut the cost of energy should first consider better management of energy use on site or energy efficiency upgrades, says Jonathan Scurlock, National Farmers’ Union (NFU) chief adviser on renewable energy and climate change.

“Energy efficiency is a kind of Cinderella – it’s overlooked. But for a large vegetable store, upgrading the insulation and avoiding too many draughts through the store should be your first port of call.”

Investment in energy efficiency often has a fast payback, with one to three years being typical, he says.

Installing microgeneration technologies such as solar photovoltaic (PV) panels, wind turbines or anaerobic digestion (AD) plants is the next step and is already proving popular with farmers, especially since the government introduced financial incentives for the production of renewable electricity known as Feed in Tariffs (FIT) for doing so.

The FIT pays a set amount per unit of electricity exported to the grid and the Renewable Heat Incentive (RHI), which came into effect at the end of 2011, gives a similar incentive for the production of renewable heat.

Almost one third of farmers are involved in some form of renewable energy production, use or supply, according to research published last May by the NFU and NatWest bank.

Solar PV has proved especially popular, with one in six farmers investing in the technology. Costs of panels have dropped significantly and returns on the investment have remained stable, despite government cuts to the FIT payable on solar projects. Scurlock predicts that solar PV is approaching a level of cost-effectiveness where it will no longer need any government support. But even now, it retains a strong business case.

“If you can produce around half the electricity you need you can get a six to seven per cent return on investment and then the government almost doubles that on top. This is a complete no-brainer for many kinds of agricultural operation,” he says.

Several companies are already reaping the benefits of these technologies and incentives, for example, root vegetable, brassica and salad grower and packer Huntapac. It installed a 50 kilowatt solar panel array on its packing plant in Tarleton, Lancashire, in December 2012.

The company reports that the array is performing in line with expectations in terms of both energy output and income generated through the FIT. It expects to make around £500,000 in energy savings and revenue over the 25-year lifespan of the system.

“It works on a number of levels for us – it demonstrates our energy efficiency to our customers, it ticks several boxes in terms of environmental responsibilities and it reduces our financial outgoings,” says Stephen Shields, technical director at Huntapac.

The firm’s next plan is to install energy monitoring software so it can keep track of how much energy it is both using and producing. It will then set targets for further reductions, Shields explains.

Despite the encouraging progress by the sector so far, challenges remain. Mixed messages coming from government have caused confusion, especially with cuts to the solar PV FIT.

“There are people out there who think they’ve missed the boat, but people should not be confused or hesitant about the business environment for making this investment, the question is only whether you are going to do it this year or are you going to hold off and make a bigger investment the next year,” says Scurlock. “This clearly needs to be part of current business planning.”

Another challenge for those considering microgeneration is grid access and capacity for exporting excess energy. Some large vegetable businesses with large packhouses and storage will already have substantial electricity connection because they have been using so much, and others will be able to add electricity to the grid without the need for upgrades. However, others may find the local grid will limit their ambitions.

“It’s important to discuss your business plan early with the local Distribution Network Operator to ensure that if you are exporting energy to the grid, the local grid can take it,” Scurlock says.

Ben Wielgus, head of sustainability strategy at consultants KPMG, notes that there are uncertainties over what impact the RHI will have. Many agricultural producers have excess heat from AD plants, but it might not be usable depending on the plant’s location, he fears. “If you have AD tanks making excess heat as well as gas, normally you’d use it for pasteurising milk or heating people’s homes, but you can’t do that if it involves laying four or five miles of pipe to the nearest big residential area.”

Planning permission presents another hurdle. Not all types of microgeneration require planning permission since a government rule change last year – many rooftop solar panels and on-farm anaerobic digestion plants are exempt.

Wind farms, however, do still require permission and this is getting harder, according to Stephen Locke, partner at chartered surveyors and planning consultants Berrys.

“There are a lot of objections from local people so the site has to be right. If it’s anywhere near a settlement, locals tend to band together to try to stop it and we’re finding that councillors often side with the locals,” he says.

Despite these challenges, the benefits of cutting energy use or self-generation are clear. It can give a company a competitive advantage, particularly when rivals are in other countries that are prioritising energy management or who simply do not need to use as much due to a warmer climate.

“Everyone is looking for that edge – if you’re spending 40 per cent of your variable costs on energy and you can be 10 per cent more efficient, it could put you ahead of the competition,” says Plackett. —

BIOFUELS

The NFU believes the biodiesel and bioethanol markets are crucial to meeting future UK energy needs and stresses the two must co-exist to drive improvements in yields, the environment and on-farm efficiencies.