Is Agricultural Solar Financing Smart Business for Farmers?
Plus: See How to Gain Access to the Best Financing Terms in Agriculture
Whether you’re a poultry farmer, hog farmer, or grain farmer, you know how much money you spend each month on utility costs. Even if you use the same amount of power each month, your bills increase over time because of inflation.
The most viable long term escape from paying ever-increasing energy costs can be found in solar power. The problem is, for some farmers, the upfront costs to install solar keep this money-saving asset out of reach.
Agricultural solar financing allows small and mid-size farmers a way to access all the benefits of solar without the large up front expense.
But is an agriculture solar loan good business?
The short answer is, if solar power makes sense for your farm, agricultural solar financing most likely will too. Solar doesn’t make financial sense for some farms for various reasons, yet it’s quite rare for solar to make business sense, but not solar financing.
Suppose you install a $50,000 solar power system. With a 10-year, 5% loan, your total cost increases by about $13,000. In a situation where solar makes financial sense for your farm, you would be saving tens of thousands of dollars, if not hundreds of thousands or more over the life of the system, depending on its size. That extra $13k doesn’t make much of a dent, and makes it possible for you to start saving money immediately.
So again, the short answer is – if solar power makes sense, then solar financing likely will too.
Agricultural Solar Financing – The Numbers You Want to Know
To find out if an agricultural solar loan makes sense for your farm, one way to tackle this is to get at least six numbers:
- Interest rate
- Term length – 10, 15, and 20 years are most common
- Total interest to be paid over term of loan
- Monthly payment on loan
- Annual savings on your power bill through solar
- Total money saved through solar over term of loan
The last two items will require some math.
Calculating Your Annual Power Bill Savings
Before installing your farm’s solar energy system, you can only project the annual savings on your power bill. Your agricultural solar consultant will show you projections based on a variety of variables, the most important of which are your previous power bills.
If you invest in a solar array that projects to produce 80% of your power needs, simply add up your power bills from the last 12 months, multiply by 0.8, and that’s how much money you can expect to save each year – without inflation.
Because inflation is guaranteed, this number represents a minimum amount of money you can expect to save. You will save more than this. With this information in hand, you can now compare what you’ll be paying on your solar loan each year with what you’ll be saving on your annual utility bills.
Note: if your loan payments are greater than your annual electric bill savings, that doesn’t mean agricultural solar financing is a bad deal. It just means you won’t hit your break-even point until after the loan is paid off (again, assuming no inflation – you’ll break even sooner with inflation). However, Ag Solar has found this to be a rare situation, especially with all the incentives you may be able to take advantage of to lower your initial costs, such as federal tax credits and, for farms, the REAP grant.
The size of your solar system determines how much power it will produce. So that 80% figure can be adjusted up to 100% or down to a lower number, depending on how much solar you want to invest in.
Calculating Your Total Saved Over the Loan Term
Your Ag Solar consultant will be able to give you specific projections that incorporate estimated annual inflation. With this information, you’ll be able to estimate how much you can expect to spend on energy without solar power, and how much you will save with solar over the life of the loan and beyond.
Simplifying this, here’s the process:
1) Add up your estimated energy savings over the life of your solar loan (your Ag Solar consultant will give you this figure)
2) Add up all your loan payments over the life of the loan (For a ten year loan – it’s 120 x your monthly payment)
3) Subtract 2 from 1
If 2 is greater than 1 and you get a negative number, this just means you won’t break even on your solar investment until after the loan is paid off.
If 1 is greater than 2, this number is how much money you’ll save on your utility bills during the loan term.
And again, your savings don’t stop there. In fact, savings greatly increase once the solar loan is paid off.
Your savings keep accruing as long as your solar panels keep producing power, which will be at least 25 years under the warranty. If you get a 10-year agricultural solar loan, and you calculate that you will save more money on electricity than you’ll spend on the loan during that ten years, then solar offers you an outstanding opportunity to save a lot of money over the full 25 year period.
It’s the long term projections that matter most.
Over the next 25 years, how much will you save on your energy bills from solar, and how much does the loan cost?
If you get a $50,000 system, and your solar financing adds $13,000 to that, your total expenses from solar (unless you pay it off faster by paying additional principal) are $63,600.
Supposing your solar saves you $500 per month (these are made up numbers purely for demonstration purposes – please don’t consider this remotely close to what you should expect), that’s $6000 per year, without inflation. Over 10 years, you’ll have saved $60,000, essentially the cost of the system. And for the next 15, it’s pure profit.
Find Out Your Real Agricultural Solar Financing Numbers
Articles like this can only guess and speculate.
The only way to know what solar power and solar financing can accomplish on your specific farm is to have an Ag Solar consultant give you a free customized quote.
We work exclusively with farmers, and we understand your business and the unique nature of it. We also aren’t interested in selling you on a solar system that isn’t a good deal for you. You’ll get straight up honest numbers and be able to make an informed decision.
As for agricultural solar financing, Ag Solar has developed relationships with several lending institutions that offer specialized agricultural solar loans, and we have negotiated exclusive term and rate options that you can take advantage of.
You’ll get the best possible agricultural solar financing deal if you work with Ag Solar and benefit from these relationships.
USDA REAP Loans – Another Option for Farmers Who Want to Go Solar
In addition to lending institutions, the Department of Agriculture developed a program called the Renewable Energy for America Program – REAP.
You can get REAP loans and grants to help pay for and finance your farm’s solar array. These are guaranteed loans of up to $25 million. However, you must put up 25% of the cost of the system in order to access it.
Ag Solar has successfully applied for many REAP loans and grants for other farms, and if you want to pursue that option, we will help you with all the paperwork.
Our Ag Solar consultants can answer all your questions and give you customized quote options for various sizes of solar arrays on your farm.