Both the federal government and Michigan are currently implementing policies to dramatically increase the production of renewable energy—including policies specifically aimed at farms. For example, Congress passed the Farm Security and Rural Investment Act of 2002 that established a grant and loan program to support investments in renewable energy systems by farms. Also, in 2006, the Michigan legislature enacted a bipartisan package of bills that authorized additional renaissance zones for renewable energy facilities and created the Renewable Fuels Commission within the Department of Agriculture that will recommend strategies to promote the use of alternative fuels such as biodiesel and ethanol.
In addition, Michigan's 21st Century Electric Energy Plan proposes that 10% of Michigan's energy generation be fueled by renewables by the end of 2015 and proposes a further goal of 20% by the end of 2025. Currently, about 3% of Michigan's electricity is generated by renewable energy sources.
Considering the escalating focus on global warming, Congress and the Michigan legislature will undoubtedly pass more initiatives in the future that support increased renewable energy production and provide financial incentives for this production. Farmers have a unique opportunity to profit from these initiatives by directly and indirectly contributing to renewable energy generation.
Although there are many sources of renewable energy—including thermal solar, photovoltaic, wave, and geothermal—two sources are particularly relevant to farms: wind and biomass. Wind energy is simply a form of solar energy that is created when air circulation driven by the sun's heat spins turbines. Biomass can mean either the direct combustion of biological materials (e.g., burning switchgrass and cornstalks in a biomass generator) or the indirect combustion of biological materials (i.e., burning ethanol produced from corn).
1. Wind Energy
a. Distributed Generation
A Michigan farm can install and operate a wind turbine to generate electricity. A typical wind turbine designed for farm use has a 10-25-foot rotor and generates less than 30 kilowatts. Farmers need to be mindful of legal issues associated with constructing turbines, including zoning laws that might restrict the height and location of wind turbine installations, existing agreements that may prohibit wind turbines on the property, and contracts with companies to construct the turbines.
After installing a turbine, a farmer must interconnect with the grid. Interconnection is a relatively simple process handled by the turbine owner's electric utility according to the utility's established procedures. The process is regulated by the Federal Energy Regulatory Commission and the Michigan Public Service Commission. The electric utility may charge the turbine owner a fee and, in some circumstances, other charges for the interconnection.
In Michigan, the FERC regulations require utilities to pay generators with a capacity less than 30 kilowatts the "full avoided cost" for the power they produce. This is accomplished through net metering—a process whereby the utility charges a generator only for its net energy consumption. In addition, when generation exceeds the owner's electricity demand, the owner can receive a credit (or possibly cash) for the net excess generation. Net metering can pay for the upfront purchase and installation costs of a wind turbine over time. And once the turbine is paid for, the continued operation of the turbine is pure profit for the owner.
b. Wind-Farm Generation
A Michigan farm can also expand its involvement with wind power by leasing a portion of its land for use as a wind farm to a utility or private generation company. A farm should analyze the legal issues involved with this type of arrangement, including the terms of the lease and any existing agreements that may prohibit the farm from leasing the property for this purpose. The terms of wind-farm leases vary, but a reasonable estimate for a 250-acre farm is $14,000 per year, with only 2 to 3 acres of land removed from farm production. The farmer would still be free to grow crops and raise cattle on the 247 acres untouched by the turbines' small footprint.
In addition to wind energy, farmers in Michigan may participate in biomass-fired electricity generation in at least two ways. First, the farmer can harvest and sell energy crops that are sources of biomass fuel. Second, a farm can harvest and burn the methane produced by animal waste to generate electricity.
a. Biomass Fuel Production: Energy Crops
Energy crops include corn, rice, switchgrass, and crop residue (stalks and leaves). A farm can sell these crops to a utility that can use them as fuel—primarily by co-firing the crops with coal in coal-fired power plants. A farm can also sell the crops to an entity that converts them into fuel sources like ethanol. In some situations, energy crops can produce similar or better profits for a farmer than food crops, and selling crop residue can commoditize an otherwise wasted resource. Transportation costs ultimately determine biomass production profitability in any given case. Therefore, proximity to a biomass-fired generation plant or ethanol distillery is essential for a profitable arrangement.
b. Biogas Production
Biogas is methane (natural gas) produced from the anaerobic digestion of animal waste. A farm can trap the biogas produced by a manure pit in a sealed digester. The farm can then transport the biogas to a turbine, where it is burned to generate electricity. The legal issues and interconnection standards applicable to biogas generators are similar to those applicable to wind turbine generators. Unlike the wind turbine scenario, however, many farms have the biogas capacity to produce more than 30 kilowatts. The Michigan regulations requiring net metering apply only to generators with a capacity less than 30 kilowatts. Therefore, the sales arrangements between these larger generators and utilities are much more open to negotiation.
Both Congress and the Michigan legislature are demanding increased renewable energy production and are providing financial incentives and support for this production. Farmers are well situated to capitalize on the growth of renewable energy in Michigan. But before deciding to become involved with renewable energy, a farm should investigate the possible financial incentives and analyze the many economic and legal ramifications involved with the particular type of renewable energy activity.