Dairy Today: Fiscal Fitness
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Solar Offers Stability for Dairy Operations
Jun 24, 2012
Recognizing its popularity and economic sense, many banks now offer easy financing for operations interested in installing solar.
By Greg Aguilar, VP of Renewable Energy Finance & Leasing – Rabobank, N.A.
As any dairy owner knows, milk prices aren’t the only unstable financial factor for their business. Fluctuating feed costs, fuel prices and a host of other items all play a role in how the end of the month will pencil out on the accounting books.
Among these variable costs is electricity, an integral part of any dairy operation -- from powering the milk parlor all the way to the last barn fan. Such power usage is vital, but as some dairy owners are discovering, electricity offers a benefit beyond keeping the lights on and the machines running. The true value of solar power may very well lie within its ability to make a traditionally variable cost one that is relatively fixed.
As recent as a decade ago, harnessing the power of the sun through solar panels was an expensive undertaking, one that often did not provide a strong return on investment. Today, however, solar technologies have come a long way, and those advances, coupled with rising grid electricity costs, have made the move to solar much more attractive.
Make no mistake, though -– the initial investment for a solar power system installation is one that requires a hefty amount of capital. Recognizing the popularity and economic sense solar provides, many banks and lending institutions, including Rabobank, now offer easy financing for operations interested in installing solar but just don’t have the cash on hand.
With loan terms up to 10 years and historically low interest rates, many business owners, including dairy farmers, are finding that a fixed loan cost on a solar setup combined with the dramatic utility cost decrease helps them to plan accordingly from month to month. A qualified lending professional will be able to determine what kind of loan is best for a particular operation, given a variety of factors that include the size of the project.
With a solar system that’s powering part or all of a dairy business, there’s less guesswork about what the end-of-the-month bill electricity bill will look like, especially in the summer months when energy demand is at its peak. Essentially, the more fixed costs a dairy can have, the better it can plan its finances accordingly. That kind of long-term hedging is also looked upon favorably by banks that are establishing or renewing lines of credit or other financing for a dairy operation.
While leasing options for solar systems are available, ownership may be the best route for dairies. Such ownership offers the ability to depreciate the investment for tax purposes and take advantage of a 30 percent investment tax credit from the U.S. government.
Most importantly, owning a solar power system should be looked at as a long-term investment – no different than building a new free stall barn. Today’s systems have life expectancies that well exceed 25 years, offering more than two decades of not having to be at the mercy of rising electricity costs. However, if a dairy operation finds itself not able to take on the debt of solar ownership and/or has no ability to monetize the investment tax credit because of losses, then leasing could be a viable option that allows more flexibility.
Many different solar energy companies exist, and banks/lending institutions may have a list of preferred vendors they work with, making the installation and financing of a system a smooth process. If you're a dairy owner and are seriously considering installing a solar system, be sure to reach out to your banker to find out if they finance solar projects. They may or may not have a solution. Either way, don't be afraid to venture out and consider all of your options.
Rabobank, N.A. is a California community bank and a leading provider of agricultural financing and full-service banking products to California consumers, businesses and the agriculture industry. To learn more visit: www.rabobankamerica.com. Contact Greg Aguilar at Greg.Aguilar@rabobank.com.