Agricultural PV – where agriculture meets solar power generation – is gaining in importance due to changes in climatic conditions caused by the climate crisis and the increasingly difficult situation facing European agriculture. But getting projects like these off the ground is anything but straightforward and requires close collaboration between the many parties involved – from the farmers to the banks.
At the Agrivoltaics Industry Forum 2024 in Madrid, we spoke to Stephan Schindele, Head of Product Management Agri-PV at BayWa r.e., about the opportunities, planning and implementation of agricultural PV projects from a developer’s perspective.
When it comes to project business, it is vital that all stakeholders are on an equal footing, as every investment involves a certain degree of risk. And then there is the question of which stakeholder carries which risk in which part of the process’s value chain. At the start of the project, it is the project developers that bear the risk and responsibility. In an agricultural PV project, the first step in the project development process is to establish and agree on an agricultural concept. The second step involves the project developer, farmer and landowner reaching a land-use agreement. Ideally, the farmer is also the landowner.
The next step is to apply for a grid connection. We use planning tools to cover the area with an agricultural PV system and see how much electricity it could generate. Then we have to ask the grid operator for permission to feed this capacity and output into the grid. During the next step, we approach various authorities and public institutions to initiate the building application process. Once this step is complete, we have secured the construction permit, grid connection and area of land. What is still missing is an appropriate remuneration for the electricity produced. This can be in the form of a PPA contract or an EEG feed-in tariff, to ensure that we have a business case.
When all of those elements align, the project is considered viable. Now talks with banks can begin. Part of the project is leveraged. This involves banks that provide debt financing which carry the bulk of the risk at the beginning of the project, when they own 60 to 80 percent. The other 20 to 30 percent belong to the equity investor – an asset manager who sees it as a capital investment – or to an energy supply company. BayWa r.e. is also an Independent Power Producer (IPP). This means we develop the project and keep it in our portfolio. The debt is paid off over the years, and the farmer receives a land lease fee and acts as a service provider.
Every country has different requirements regarding agricultural activity in an agricultural PV project. That is why, here at BayWa r.e., we have developed and introduced the 7C agricultural PV process to support project developers when planning and designing agricultural PV projects. It focuses on identifying, analyzing and prioritizing the agricultural requirements and risks associated with the project, before evaluating and contractually stipulating mitigation strategies. The 7C process documentation is extremely important when it comes to drafting contracts, as that is the only way to determine the project’s financial viability and thereby secure financial support from banks or investors.
The first step is to analyze the agricultural areas under consideration, and examine the climatic conditions, soil quality, planned crop rotation and factors such as available machinery, to develop an initial agricultural PV plant concept. We then evaluate the farmer’s interests with regard to their plans to hand the farm down to the next generation and/or a switchover to, for example, organic or renewable agriculture. We discuss whether new machinery may need to be purchased during the project, to the benefit of both the farm and the agricultural PV plans. Once these steps have been completed, the agricultural PV project’s detailed planning phase gets underway. This is when we record details on row spacing, minimum heights, crop rotation, agricultural machinery and safety measures. Based on the technical planning details, we then draw up crop yield forecasts to evaluate whether the required minimum agricultural yields will be maintained once the plant is operational.
Depending on the location of the agricultural PV plant and the grid connection point, it could also be advantageous if a portion of the power generated is fed into the farmhouse, to a neighboring industrial company or used elsewhere on site before feeding it into the grid. We also examine that as part of the 7C agricultural PV process. We then carry out final checks to determine whether all regulatory requirements for the project implementation have been met, such as the farmers continuing to receive their agricultural subsidies, safety instructions, proof of insurance, tax legislation, etc.
Finally, all the results from the steps outlined above are stipulated by contract and documented.
The first segment is plants under or up to 1 megawatt (MW). These can be implemented on areas spanning up to around two-and-a-half hectares, making them privileged under planning and building laws and regulations. Farmers may directly submit a one-off planning application. This generally takes between three and six months, assuming the area is not subject to many restrictions. So you will know relatively quickly whether you will obtain a construction permit for your 1-MW project, provided the area is connected to the farm in spatial and functional terms. The grid connection process takes up to eight weeks. So, on the whole, a project like this can be implemented quickly. You need to budget around one million euros for a 1-megawatt PV installation, including grid connection. That means the farmer must put down 10 percent, or 100,000 euros, out of their own capital, leaving 90 percent, or 900,000 euros, that need to be borrowed. They can set up a project company and get the project up and running relatively quickly. They are both investor and operator. Local installers can make an offer for the turnkey installation of the plant. In this market segment, the project is driven by the farmer. They are the owner, investor and operator of the plant.
When making a grid request, checks are always carried out to determine whether there is enough capacity in the grid to implement another PV installation on site. That is often the case. There is grid congestion everywhere and it is difficult, but usually it is still possible for relatively small plants. It could be that you have to invest in a transformer transfer station. The issue is more that some farmers live in a farmhouse located in a built-up area, but the land they cultivate is outside of that area. Each case is examined on an individual basis and we have gained experience from the biogas plant sector, where we already had privileged status in terms of building regulations. So we can assume that it is possible to implement projects like these in areas that lie within around 700 to 800 meters from the farmer’s base.
It is also important to note that, in accordance with Section 24 of the German Renewable Energy Sources Act, the PV installation may not be located within 2 km of another ground-mounted system commissioned within the last 24 months. As a result, 1-MWp projects sometimes end up blocking themselves, which, of course, does nothing to further the actual goal of driving forward PV expansion. This regulatory restriction should definitely be addressed.
The second market segment, which we project developers focus on, involves areas spanning between 10 and 100 hectares. The business model is as follows: We pay a lease fee, we let the farmer work the land through a service contract, and if they are interested, they can become financially involved in the project. We can facilitate additional installations for their own power supply, such as charging stations or battery storage systems. The project can take on investments in new machinery while serving as a switchover to renewable agriculture.
In Germany, agricultural PV plants have a major advantage if the project conforms to the DIN SPEC standard, as this retains access to tax benefits and agricultural subsidies. The service contract allows the farmer to increase their resilient financial income while continuing to grow crops on the land. That is also important for soil regeneration, because someone is looking after the soil. PV installations are good for the microclimate, offer wind protection, provide shade and decrease evapotranspiration.
If the farmer switches their farm to renewable agriculture, they can reduce so-called Scope 3 emissions. In the value chain of the agricultural sector, they are the manufacturer who supplies to agricultural distributors or directly to supermarkets. Food companies, on the other hand, have to implement ESG (Environmental Social Governance) criteria, strive for climate-neutrality and minimize carbon emissions. This means that these companies and the government are trying to push farmers toward more sustainable production.
Several EU member states, including France, Germany, Italy, Croatia, the Czech Republic and Austria, have opted to use energy law to promote agricultural PV. But many other EU member states have not yet aligned agricultural and tax laws with energy funding programs, which is hindering farmers’ participation in agricultural PV projects. Germany has an expedited the building application process for 2.5-hectare agricultural PV projects, which is helpful. Successfully rolling out agricultural PV is only possible if national strategy roadmaps for both energy and agriculture align, and if draft legislation is coordinated and agreed across government departments.
With renewable agriculture, improving soil quality and value is always front of mind. Good soil leads to good agricultural yields and other co-benefits. In the event of heavy rain, for example, water can better penetrate the ground because the soil is of better quality. Renewable agriculture means land is, almost without exception, no longer plowed, ensuring it always remains green. There are no more brownfield sites where the land is completely exposed. It is good if the soil remains as stable as possible, as that benefits bionics, soil mechanics and soil chemistry. At the same time, the use of chemicals is no longer permitted, with the exception of herbicides.
This extensification fits very well with agricultural PV, because there are fewer passes. It also minimizes the risk of collisions. Farmers often struggle with the cost of switching over operations, as they need new machinery, new skills and new knowledge. But this is where the secure income generated by the PV system comes in. Making a connection between the agricultural transition and the energy transition also leads to greater public acceptance – although people are affected by changes to the landscape, they appreciate the use of fewer chemicals.