Resfarm survey results

resfarmproject.eu

RESFARM Report on analysis on survey data

Julio Pombo Romero Rosa María Regueiro Ferreira

2016

Universidade da Coruña, A Coruña, May 2016 Publications available from www.resfarmproject.eu

© Copyright, Universidade da Coruña, A Coruña

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Preface There are a variety of reasons that are deterring most farmers from introducing renewable energy and efficiency systems (RES) in their holdings, as this report shows, but none of them are fundamentally unsolvable. With this idea in mind, a group of institutions and companies in Spain, Italy, Greece and the Netherlands established the project RESFARM. The activities of the consortium are supported by the European Commission through the program Horizon 2020, which has financed the present report. RESFARM is developing and promoting business models for installing on-farm RES that can attract funding from capital market investors. The objective is to allow access to a broader base of investors, to reduce the cost of financing the systems and to initiate a virtuous circle by increasing the confidence of both investors and farmers in working together to change the energy model of the European agrarian sector. The intention of the authors of this report has been to present in a comprehensive and as user-friendly as possible the hundreds of thousands of pieces of information obtained during a survey carried in Spain, Italy and Greece between the months of November 2015 and March 2016. The information presented here is the result of the efforts of dozens of professionals from five different countries that have dedicated thousands of hours to obtain key information that can be decisive to promote a change in the energy model of the farming sector. The results presented in this report include previously unavailable insights into how farmers are expected to deal with those business models that have proven to have the most potential to attract capital market investments. This report is part of a series of documents that are being produced by the consortium RESFARM. The design, analysis and content of this document have to be contextualized in the series as a whole, especially in the report “Report on technical, financial and legal alternatives”. Nevertheless, the aim of this report is not only to serve as a fundamental input within the project RESFARM, but to serve as a valuable source of information for any person, group or institution interested in the fields of farming, renewable energy or finance.

Santiago de Compostela, May 2016

RESFARM Financial instrument

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Summary This document presents the main results of a survey conducted with 1,363 farmers in Spain, Greece and Italy between November 2015 and February 2016. The objective of the survey was to provide relevant information in order to determine tailored business models for onfarm renewable energy production and efficiency projects suitable for institutional investors. The business models that have been taken into consideration are designed to promote onfarm RES oriented both to self-consumption and to produce electricity to be commercialized through the public grid. The most suitable technologies that were found for this purpose include photovoltaic and biomass. Other options have been dismissed for technical, economic and/or legal and administrative incompatibilities either with farmers´ preferences and needs or capital market requirements. The survey has been designed to answer three questions that arise as key to develop the mentioned business models in the originally targeted countries: Spain, Italy and Greece. The first question is to determine whether or not a market exists and, if so, what is its size and main characteristics. This information is essential to present to a number of stakeholders in order to engage them in further action to get involved in RESFARM, especially capital market investors and promoters. The second question is to establish the profile of those farmers that are more likely to get involved and benefit from the type of schemes that can be developed for installing on-farm RES while allowing capital market investors to fund the projects. The information obtained in this regard is useful in order to develop tailored business models and solutions to the needs and preferences of as many farmers as possible. Finally, the survey provides information on the specialized communication channels that should be used in order to communicate the farmers the opportunity, benefits and obligations of promoting RES with capital market suitable models. The results show the positive attitude of the farmers both towards renewable and energy efficiency technologies and to capital-market suitable business models. Indeed, a majority of farmers are already considering the installation of RES, but most of them had been deterred so far by the high up-front cost and the lack of tailored and sound business models available to them. The potential market estimated on the basis of this survey and other sources like Eurostat is in the order of the € 20 billion, an investment that can hardly be obtained without the participation of capital market investors. The characteristics of the farmers interested in the presented business models vary in relation to the country of origin, the type of production and the size of the holding. In the case of self-consumption, Greek farmers are more interested in schemes that allow them to access the ownership of the systems, like loans or leasing, while Italian and Spanish ones are especially interested in third-party ownership models (TPO), where they pay a fee for accessing the energy produced by the systems without being responsible for the installation and operation. TPO models are preferred the larger and the more intensive in energy consumption the farmer is, implying that larger systems are probably more suitable to generate “collateral” for capital market investors instruments (like asset backed securities) in first place. Nevertheless, as this report shows, there are several potential “sub-markets” that will probably need specific solutions to be fully developed. Regarding the sources of information and advice considered trustworthy by the farmers in matters related with eventual on-farm RES business models suitable for capital market


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resfarmproject.eu investors, the survey shows a number of important facts that must be taken into account to develop a successful communication action. In general, farmers especially rely on their own associative institutions, such as cooperatives and unions, to obtain most of their information and advice. This is especially remarkable in Greece, and somehow less in Spain and Italy. Important differences appear in specific issues. For example, Greek farmers when requiring financial advice rely very little in banks and accountant advisors while Spanish farmers are much more confident in their information and advice. In the case of legal and administrative issues, the Spanish and Greeks are especially confident in their associations, while Italians are not and prefer to deal directly with public institutions and agrarian extension services. These insights will be helpful to develop accordingly the communication strategy of RESFARM. The survey has also investigated the potential and preferences of the farmers to be involved in the production of renewable energy electricity for commercialization. The complexities and capital requirements of this activity far exceed the resources of an average farmer, but the possibility of participating in it through collective initiatives is of interest to many farmers. In this regard farmers are more interested in non-equity forms of participation, like leasing lands, than in obtaining equity or semi-equity in exchange of providing land, or any other resource, to energy producing companies or entities. These and other relevant findings are further explained in this report. This report will serve as a reference to immediately develop, communicate and promote business models for onfarm RES that are, at the same time, tailored to the farmers’ preferences and needs and able to attract funding on the scale and conditions that only capital market investment institutions are able to provide.


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CONTENTS Preface .................................................................................................................................................. 2 Summary.............................................................................................................................................. 4 Abbreviations...................................................................................................................................11 1. Introduction .................................................................................................................................12 2. Methodology ................................................................................................................................ 14 2.1 Questionnaire ................................................................................................................................................ 14 2.2 Data collection .............................................................................................................................................. 18 2.3 Analysis of the results ................................................................................................................................ 19 3. Sample description ................................................................................................................... 20 3.1 Farm size and production........................................................................................................................ 20 3.2 Geographic distribution ........................................................................................................................... 23 3.3. Farmers´ characteristics ......................................................................................................................... 24 Management ............................................................................................................................................24 Expected continuity of the activity ...................................................................................................24 Economic situation .................................................................................................................................25 4. Attitude towards renewable energy systems ...................................................................27 4.1. Early adopters .............................................................................................................................................. 28 4.2. Barriers to the introduction of RES.................................................................................................... 29 5. Attitude towards business models suitable for institutional investors ................. 31 5.1. Financial literacy ........................................................................................................................................ 32 5.2. Financial preferences ............................................................................................................................... 37 5.3. System accessing and conflict resolution ........................................................................................ 37 System accessing .....................................................................................................................................38 Conflict resolution ..................................................................................................................................38 6. Return expectations .................................................................................................................. 40 6.1. Self-consumption ........................................................................................................................................ 40 Irrigation .....................................................................................................................................................44 Acclimatization.........................................................................................................................................45 Heating ........................................................................................................................................................45 6.2. Commercialization..................................................................................................................................... 46 All categories ............................................................................................................................................46 Interested in leases.................................................................................................................................47 Interested in equity ................................................................................................................................47 7. Discussions and implications ................................................................................................ 47 7.1 Characteristics of the suitable farmers ............................................................................................. 47 7.2 Market size ..................................................................................................................................................... 49 7.3 Communication channels......................................................................................................................... 52 Introduction of new technologies .....................................................................................................53 Financial advice........................................................................................................................................55 Legal advice ...............................................................................................................................................56 Implications of the results ...................................................................................................................57


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resfarmproject.eu 8. Conclusions ..................................................................................................................................59 Annex: Questionnaire ................................................................................................................... 62 References .........................................................................................................................................70


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LIST OF TABLES 

Table 1: Average size of the farms of the sample ........................................ 20

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Table 2: Composition and distribution of the sample ................................... 21

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Table 3: Composition of the sample by type of production ........................... 22

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Table 4: Composition of the population of the targeted countries by size and

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Table 5: Number of farms of the sample considered suitable for on-farm RES . 22

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Table 6:Legal status of the farms of the sample ......................................... 24

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Table 7:Proportion of personal income produced by the farm ....................... 24

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Table 8: Proportion of farmers that affirm to have a successor for the farm .... 24

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Table 9:Expected evolution of the level of production of the farm .................. 25

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Table 10: Estimated number of on-farm RES already installed in the targeted

type of production................................................................................. 22

countries ............................................................................................. 28 

Table 11: Proportion of farmers that consider that their farms are suitable for

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Table 12: Estimation of total number of farmers that considers that their farms

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Table 13:Proportion of farmers in contract farming by type of production and

installing a RES .................................................................................... 30 are suitable for installing a RES............................................................... 30 size of the holding ................................................................................ 34 

Table 14: Estimated number of farmers in contract farming in the targeted

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Table 15: Attitude of farmers towards contract farming by type of production . 36

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Table 16: Main reasons for not being involved in contract farming ................. 36

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Table 17: Average financial preferences of the farmers by country ................ 37

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Table 18: Estimated number of farmers interested in CM-suitable on-farm BM

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Table 19: Interest in TPO and DO business models for self-consumption by

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Table 20: Interest in TPO business models for self-consumption by type of

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Table 21: Interest in TPO and DO models for self-consumption by type of

countries ............................................................................................. 34

for self-consumption by type of production ............................................... 42 country (1) .......................................................................................... 42 production and size of the farm............................................................... 43 production ........................................................................................... 44 

Table 22: Interest in models for irrigation by country and size of the farm ..... 44

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Table 23: Interest in models for acclimatization by country and size of the farm .......................................................................................................... 45

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Table 24: Interest in producing electricity for commercialization by country and size of the farm .................................................................................... 47

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Table 25:Interest in leasing land to promoters of RES by country and size of the

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Table 26:Interest in participating in equity or semi-equity schemes to

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Table 27: Estimated number of farmer suitable for RES ............................... 50

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Table 28:Estimated market of CM business model by application .................. 50

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Table 29: Estimated potential market for CM business models for self-

land .................................................................................................... 47 commercialize electricity ........................................................................ 47

consumption in Spain, Greece and Italy (€) .............................................. 51


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LIST OF FIGURES 

Figure 1: Questionnaire framework .......................................................... 16

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Figure 2: Level of understanding of the contents of the survey by the farmers (evaluated by the survey taker) .............................................................. 19

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Figure 3: Level of collaboration of the farmers during the completing of the questionnaires (evaluated by the survey taker) ......................................... 19

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Figure 4: Distribution of farms by size and country in the sample (left) and in

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Figure 5: Average number of plots per holding in the sample ....................... 21

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Figure 6: Proportion of farms that are collecting residues ............................ 23

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Figure 7: Structure of the sample by country and by size of the farm ............ 23

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Figure 8: Geographical distribution of the sample ....................................... 23

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Figure 9:Perception of the economic performance of the farm by country....... 25

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Figure 10: Average perception of the economic performance of the farm by type

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Figure 11: Perception of the indebtedness of the farm by country ................. 26

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Figure 12: Overall economic perception of the farmers by country ................ 26

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Figure 13: Average economic mood of the farmers by country ..................... 27

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Figure 14: Proportion of farms in the survey that have already installed a

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Figure 15: Main reasons mentioned by the farmers who already have a RES .. 28

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Figure 16: Sources of information and advice used by farmers that already have

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Figure 17: Proportion of farmers that consider that their farms are suitable for

the population (right) ............................................................................ 21

of production ....................................................................................... 25

renewable or efficiency energy system ..................................................... 27

RES .................................................................................................... 29 installing a RES (by country) .................................................................. 30 

Figure 18: Main reasons given for not having installed a RES in the farm ....... 31

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Figure 19: Degree of knowledge of key legal and financial concepts .............. 33

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Figure 20: Proportion of farmers in contract farming by country ................... 33

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Figure 21:Level of satisfaction of farmers in contract farming ....................... 35

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Figure 22: Average perception of contract farming by country ...................... 35

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Figure 23: Average perception of contract farming by size of the farm ........... 35

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Figure 24: Main reason for not being involved in contract farming by country . 36

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Figure 25: Financial preferences of the farmers regarding payment structures 37

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Figure 26: Willingness to allow access to the holding for O&M activities (1) .... 38

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Figure 27: Willingness to allow access to the holding for O&M activities (2) .... 38

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Figure 28:Preference of arbitration over litigation for settling disputes by

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Figure 29: Main concerns of farmers related to conflict resolution processes

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Figure 30: Main concerns of farmers related to conflict resolution processes by

country ............................................................................................... 39 (overall) .............................................................................................. 39 country ............................................................................................... 40 

Figure 31: Proportion of farmers interested in CM-suitable on-farm BM for selfconsumption by country......................................................................... 41


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Figure 32: Proportion of farmers interested in CM-suitable on-farm BM for self-

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Figure 33: Proportion of farmers interested in CM-suitable on-farm BM for self-

consumption by size of the farm ............................................................. 41 consumption by type of production .......................................................... 41 

Figure 34: Interest in TPO and DO business models for self-consumption by

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Figure 35: Interest in TPO and DO models for self-consumption by size of the

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Figure 36:Farmers interested in self-consumption by country ....................... 48

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Figure 37:Individual characteristics of the farmers suitable for CM Business

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Figure 38:Estimated number of farmers interested in CM business models by

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Figure 39: Proportion of farmers interested in CM business models for self-

country ............................................................................................... 43 farm ................................................................................................... 43

models ................................................................................................ 49 application and size of the farm .............................................................. 50 consumption by countries ...................................................................... 51 

Figure 40: Estimated market for CM business models by size of the farm (in € bn.) .................................................................................................... 51

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Figure 41:Sources of information used by those farmers who already have

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Figure 42: Trustworthy sources of information for farmers regarding technical

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Figure 43: Trustworthy sources of information of farmers in financial issues ... 56

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Figure 44: Trustworthy sources of information for farmers in legal and

installed RES ........................................................................................ 53 issues ................................................................................................. 54

administrative issues ............................................................................. 57


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resfarmproject.eu

Abbreviations ABS

Asset Backed Security

BM

Business Model

DO

Direct Ownership

EPC

Engineer, Procure and Construct

ESCO

Energy Service Company

FiT

Feed-in Tariff

LCOE

Leverage Cost of Energy

NPV

Net Present Value

O&M

Operation and Maintenance

PPA

Power Purchase Agreement

PV

Photovoltaic

RE

Renewable Energy

RES

Renewable Energy and/or Efficiency System

TPO

Third Party Ownership


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1. Introduction Farming is an increasingly energy consuming activity so the social, environmental and economic well-being of millions of families in Europe depends directly in the development of sustainable and inclusive energy producing and consuming models (Lagenveld & Pedrolli, 2011). Despite this evident relationship, the introduction of new technologies based on the production of energy from locally available renewable sources and on introducing energy efficient processes is moving too slowly in many European countries. As shown in this report, the main reasons are related with the high up-front cost required to install a RES and with the lack of tailored business models for farmers. Both problems are closely related, as a tailored business model for farmers should mitigate or eliminate up-front costs and use long-term, steady energy savings as a mean to payback the systems. These models have been extensively used in United States where more than two thirds of the newly installed capacity in household and commercial photovoltaic has be developed without demanding up-front payments from consumers (Feldman & Lowder, 2014). But the real game-changer in renewables is obtaining a leverage cost of energy (LCOE) lower than that fossil alternatives, and business models are critical to achieve it. In recent years, the reduction of the price of certain renewable technologies, especially photovoltaic (PV), has played a major role in reducing LCOE of renewables making it competitive in many applications. The room for LCOE reductions based on the cost of the hardware is quite limited at this moment, so the main factor that is being used to keep reducing LCOE is the cost of financing. The cost of financing is especially relevant in RES, due to the fact that it requires relatively high payments at the beginning of the life of the project, and the payback time is normally in the range of 10 to 20 years. The simplest economic analysis tells us that a project that requires an upfront cost of, for example, € 100,000 and takes 20 years to be repaid, increases its total cost from €140,000 to € 240,000 if financed at 7% instead that at 2%. But these reductions of LCOE are possible only by creating predictable, reliable and low-risk business models with the capacity to attract capital market investors, and that is precisely the main objective of the project RESFARM. The introduction of standardized, sound business models for on-farm RES will not just reduce LCOE by reducing financing costs, there are more benefits that can generate a virtuous circle, as happened in other asset categories like cars or consumer finance. Investors and consumers benefit from best practises, accountability, economies of scale and specialized advice and assessment. But consumers, in this case, farmers interested in RES, are not always involved in the process of defining those standardized business models, meaning that they are not necessarily defined in order to maximize the benefits for the farmers. That is usually the case when new markets are developed with a top-down approach, determining initially the best interest of the promoters/offer side and then adapting it to the needs of the market/demand side. In this project, the members of the Consortium have decided to instead adopt a bottom-up approach, studying the needs and potential of the farmers and developing business models in order to serve those needs. This does not mean that the requirements and needs of the rest of the agents involved in a capital market-financed project are not taken into account, on the contrary; we are taking as a given the needs and demands of those agents and the


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resfarmproject.eu business models are developed within those boundaries but in the best interest of the farmers. This questionnaire was developed on the basis of previous research in order to determine the key pieces of information required from the farmers in order to further develop the RESFARM project. As a result of that effort, carried out during the months of March to September of 2015, the type of technologies, applications and capital market instruments that are available to introduce on-farm RES and to attract capital market investors were clearly identified. The type of systems currently suitable are designed both for selfconsumption and for producing electricity to be distributed and commercialized through the public grid. Meanwhile, the type of financial instruments that are being used to attract mainstream capital market investors to RES includes securitization, bonding and yieldcos (Pombo & Regueiro, 2016). The limited combination of technologies/applications and capital market financial instruments determines a set of business models that can link both aspects. In turn, those suitable business models present a specific value offer for the farmers and a given set of contractual obligations. The objective of this survey has been to obtain a clear picture of the interest of the farmers in those value propositions and their willingness to accept the required obligations to allow the participation of institutional investors in their on-farm RES projects. The technologies and applications that were of the interest to the consortium when designing this survey included photovoltaic systems for irrigation and acclimatization, biomass for heating and solar and wind energy for producing electricity for commercialization through the public grid. The business models considered potentially suitable included third party ownership (TPO) promotions for self-consumption, financial facilities to finance direct ownership (DO) of self-consumption systems by the farmers, the participation in collective promotions via equity or semi-equity instruments and the lease of the land to promoters. While designing the survey, it was clear that the information obtained had to be useful to engage the key stakeholders needed to promote on-farm RES at the required scale and time path. The survey had to provide a clear idea of the needs and preferences of the farmers but also had to allow the estimation of the size of the potential market and the sources of information and advice that farmers are expected to use when presented with innovative, unfamiliar business models as those suitable to attract capital market investors. So, the information obtained is primarily useful for the specific objectives of RESFARM, but it is also relevant for any actor interested in promoting new technologies in the agro-sector of the targeted countries. The collective of farmers in Italy, Spain and Greece includes more than 2.5 million holdings and an enormous variety of different production processes, sizes, management styles and economic capacity, but they share a common set of values, that are in part revealed in this report. These values include long-term planning, emotional links with the land, continuity of the activity through next generations and conservative economic management of the business. Even so, different profiles arise related with the type of farm and the country of origin, suggesting the need to tailor make business models to that profile. This report is organized as follows. Chapter 2 presents the rationality and methodology that guided the design and execution of the survey, including the production of the questionnaire, the collection of data and the analysis of the results. In Chapter 3 the sample


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resfarmproject.eu is described, including the size, the production structure and the geographical distribution of the surveyed farmers. Chapter 4 presents the results related with the attitude of farmers towards renewable energy. This includes the barriers that are preventing farmers to install RES, the motivations of the early adopters, the interest in the technology and other important information. Chapter 5 presents previously unavailable insights about the attitude of farmers towards capital market suitable business models, including their financial preferences, their willingness to allow access to their holdings to promoters and their concerns relating to conflict resolution processes. Chapter 6 shows the interest of farmers in a number of mock business models for installing on-farm RES resembling those that would eventually be presented to them. The business models included two alternatives for selfconsumption and two alternatives oriented to energy production for commercialization. Chapter 7 includes the discussion of the results and the implications for the development of RESFARM. The conclusions are supported by a statistical model that relates individual characteristics of the farmer with his suitability for the considered business models. In this chapter an estimation of the market size and structure is also presented, as well as optimal communication strategies based on the sources found trustworthy by the farmers when needing information and advice about technical, financial and legal and administrative issues.

2. Methodology 2.1 Questionnaire The aim of this survey is to support the development of capital-market suitable business models for on-farm RES in the framework of the RESFARM project. The business models selected as references have been chosen in order to maximize the benefits for the farmers while ensuring sufficient attractiveness for the investors. The selected business models (BM) are very specific in the type of technologies and applications possible and the type of legal and financial bindings that are required from the farmers. Thus, the essential questions that needed to be answered were the following ones: 1. In the targeted countries, does a market exist with the characteristics and the size to develop capital-market suitable business models for on-farm RES? 2. What are the characteristics of the farms and which farmers are the most suitable for these types of business models? 3. What should be the communication strategy be in order to promote a flagship of the business models in the short to medium term? The rationality of question 1 is related with the fact that capital market suitable business models for on-farm RES are very specific in terms of minimum market size and in the type of contractual and financial structures to be offered to borrowers or consumers. It was then necessary to present the basics of these requirements and mock deals to a sample of farmers in order to determine the proportion of them willing to accept the conditions in exchange for the expected benefits. The resulting estimation of the market size and its characteristics is a key element to attract the interest of investors and other stakeholders that was not determined until now.


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resfarmproject.eu The object of question 2 is to establish the profile of the potential beneficiary/consumer in order to develop tailored promotion schemes during the following stage of Resfarm. To establish this profile a statistical model has been developed showing the characteristics of the most suitable farmers that are statistically significantly different from the average farmer. Furthermore, by determining the barriers that have prevented suitable farmers from introducing RES and by analysing early adopter motivation and behaviour, it is possible to develop tailored versions of the business models and efficient communication strategies. Finally, a special characteristic of business models for on-farm RES suitable for attracting capital market funds is the fact that the type of contracts that are needed are relatively complex and essentially unknown in the farming sector. This means that, in order to prepare the field for the introduction of the business models, it is necessary to ensure that the reference sources of specialized information in technological, financial and legal fields are sufficiently informed themselves in order to provide adequate advice to the farmers. Otherwise, if there is not proper information provided by the sources considered trustworthy by the farmers, the default option will be to not sign the contracts. Thus, it is important to identify the sources and to implement specific communication activities in order to allow them to advise and assess the farmers in relation to the proposed technologies and business models.

Following the aforementioned logic, the questionnaire is structured in the following manner: Part 1. Description of the farm and the farmer. Part 2. Farmer´s attitude towards renewable energy systems Part 3. Farmer´s attitude towards suitable business models and sources of information Part 4. Return expectations The internal logic of the presented structure in order to answer the central questions is presented in Figure 1. Thus, the suitable business models are already determined and it is necessary to establish what farms are technically suitable, what farmers are willing to accept the contractual terms of the business models and what farmers have return expectations within the economically viable range. As a result of these inputs, it is possible to identify the main characteristics of the suitable farmers. From that point, and by analysing and modelling these characteristics, it is possible to establish quantitative and qualitative estimations for the market size and for the optimal communication strategies to the farmers themselves and, indirectly, through the sources of trustworthy information about those key aspects of the business models. Finally, by capturing and analysing the attitude of the farmers towards renewable energy, and the characteristics of the early adopters, it is possible to tailor the business models to overcome the perceived barriers that are deterring most farmers from introducing renewable energy systems on their farms.


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Farm Characteristics Size Production Location Contract farming …

Farmer characteristics Dedication Expectations Economic situation Financial literacy …

Attitude towards RES Early adopters Barriers Willingness to install …

Technically suitable Suitable business models for RESFARM

Characteristics of the suitable farmers

Market size and characteristics

Contractually suitable Attitude towards business models Financial preferences System access Conflict resolution …

Return expectations Self-consumption Commercialization …

Sources of information Technical issues Financial issues Legal issues … Communication strategy for RESFARM

 Figure 1: Questionnaire framework

The first part of the questionnaire provided information relevant for the objectives of the survey regarding characteristics of both the farmer and of the farm. This information is especially useful in order to estimate the potential market for on-farm RE in general and the characteristics of the potential consumers. The second part of the survey was designed in order to obtain information regarding the factors that could affect the decision of the farmer in adopting an innovative technology and business model such as those considered in RESFARM on his farm and the trustworthy sources of information that eventually would be sought for advice. The characteristics captured included the economic status of the farm and the expectations for the future, the manner the farmer interacts with aspects related to the diffusion of innovations and investment priorities, among others. In this part, farmers were also asked what are the most useful and trustworthy sources within their environment in the case that advice is required regarding technological, financial and legal and administrative issues. The analysis of the answers has been valuable in order to estimate the market, the characteristics of the potential consumers and the optimal strategy for RESFARM to communicate with the farmers and with their trustworthy sources of information. In the third part of the questionnaire farmers were asked about several aspects directly related with their willingness to sign the type of contracts that are suitable for attracting capital market funding. These contracts are standardized in order to allow the creation of pools of sufficient size as to justify the inherent transaction cost. The contracts are also very detailed in order to anticipate any possible contingency affecting the performance of the related cash flows and to establish the different protocols to follow in case of conflict. In the specific case of business models for on-farm RES, the basic elements that we consider must be present in any contract that can be eventually used as collateral for a capital market oriented investment product are the following ones: A) The farmer must guarantee the promoter complete access to the installations


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resfarmproject.eu B) The consumers (farmer and or other consumers) must sign contracts with a duration matching the financial amortization of the systems C) The mechanism to solve disputes between sponsors and farmers must be clear and efficient (arbitrage) The information obtained is essential to estimate the size of the potential market for capital market suitable business models for on-farm RES, the characterization of the most suitable farmers and the development of adequate contracts for binding farmers and investors. In part four of the survey the farmers were presented with mock versions of the offers that will result from the analysed business models. The main economic and legal implications of four types of different (not necessarily incompatible) business models were estimated based on the legal and economic framework of November 2015. The business models corresponded to two alternatives for self-consumption and another two to participate in electricity production for commercialization through the public grid. The first option corresponded to a financing scheme designed to allow the access to the direct ownership of the RES by the farmer. This option is related with the “solar loans” and other specialized versions of conventional credit products that allow the construction of warehouse facilities that can be used to create financial instruments for capital markets (Sanders, 2015). The other option presented was a power purchase agreement where the farmer will pay a utility bill-style periodic fee to the owner of the system (usually an energy service company). The ownership of the system remains with the ESCO (or other third party investor) which is responsible for operating and maintaining the system. The resultant PPA can be included in a pool in order to be securitized creating collateral for issuing an asset backed security, a mainstream financial instrument for institutional investors. Farmers were also presented with two options for participating in the production of energy for commercialization through the public grid. Due to the complex legal, financial and administrative requirements that a utility-oriented electricity producer faces in the targeted countries, the options considered included the participation of the farmers in a special purposed entity created to plan, operate and manage renewable energy projects remunerated by power purchase agreement schemes (Pombo & Regueiro, 2016). These entities, called yieldcos (National Institute of Building Sciences, 2015) are being increasingly used to obtain long-term, low yield funding from capital market investors. As the Resfarm consortium is not considering options for commercialization that could eventually result in financial losses for the farmers, the options presented were designed to determine the form of remuneration for the use of their lands for RES production. The possible options were an “equity” option, were the farmer was offered a deferred payment in function of the results of the promoting entity. Farmers were also offered a “rent” option, economically inferior but more immediate and secure, consisting of being paid rent for the use of the land. The information obtained in this part of the survey has allowed the estimation of the size and composition of the potential market of the analysed business models, as presented in the Chapter 7 of this report. It also allowed the identification of the groups of farmers more suitable for each of the options facilitating the design of an efficient communication strategy for RESFARM and for other initiatives of any entity interested in promoting on-farm RES. In a final part of the questionnaire, the survey takers were asked two control questions and their evaluation of the interest and suitability that the surveyed farmer could have for participating in the type of business models that are to be promoted by RESFARM in the


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resfarmproject.eu second part of the project. This information has been especially valuable to determine the correct development of the survey and the size and characteristics of the suitable farmers for RESFARM.

2.2 Data collection A first version of the questionnaire was passed to a number of farmers in a controlled environment in order to identify flaws in the design or inadequate understanding of the questions. After a number of iterations, a final version of the questionnaire was produced. It took around half an hour for a trained survey taker to complete the entire questionnaire, so in most occasions scheduling appointments with farmers was needed in order not to disrupt their activities. The questionnaire was passed to 1,352 farmers in Spain, Greece and Italy between the months of November 2015 to March 2016. Survey takers were trained staff of the agrarian associations of the RESFARM consortium with broad experience in working with farmers. Previously to working with the questionnaires the survey takers had been trained and informed about the aims of the survey and the possible questions/misunderstandings that could arise from the farmers. All the surveys were directly filled by the survey takers, most of them telephonically and some in person. The fact that the questionnaires has been filled by qualified professionals with a strong connection and trust with the farmers has been a key element to ensure the quality and validity of the survey. To obtain a representative sample of the different regions of the targeted countries, questionnaires were distributed to local offices of the associations in order to present the questionnaire to farmers in the area. Each questionnaire was filled in a physical format in the language of the farmer to be later loaded onto a web-based application specially created for the task. In order to centralize the information contained in the surveys and to allow statistical analysis, A MySQL database system was used. Each country had a compatible but separate database with specific database users. During all the process the ethical and legal requirements of handling personal data have been strictly followed including providing information to the farmers of the aims and use that the data would have and implementation of measures to ensure that any personal data could not be misused. After completing each questionnaire survey takers had to evaluate to what extent the surveyed farmers understood the meaning of the questions and responded accordingly. Survey takers also had to evaluate the level of collaboration that the farmer showed during the interview. The results are shown in Figure 2 and Figure 3. Considering the complexity of the questionnaire and the relatively long time needed to complete it, the degree of understanding and collaboration has been remarkably high in the three countries.


p. 18

resfarmproject.eu 60% 55% 50% 45% 40% 35%

Greece

30%

Italy

25%

Spain

20%

Total

15% 10% 5% 0% Strongly disagree

Disagree

Somehow agree

Agree

Strongly agree

Source: Prepared by the authors with data from RESFARM survey

 Figure 2: Level of understanding of the contents of the survey by the farmers (evaluated by the survey taker) 60% 55% 50% 45% 40% 35%

Greece

30%

Italy

25%

Spain

20%

Total

15% 10% 5% 0% Strongly disagree

Disagree

Somehow agree

Agree

Strongly agree


 Figure 3: Level of collaboration of the farmers during the completing of the questionnaires (evaluated by the survey taker)

2.3 Analysis of the results The results contained in the database were analysed jointly by a specialized research group in the University of A Coruña and the company Biomass Research of the Netherlands. The initial version of the database was checked and complementary data was requested in a reduced number of cases. Once a final version was available, data was analysed using specific tools including Excel and SPSS. Among the statistical techniques of analysis applied, a logistic model had been determined to identify the individual characteristics of the farmer that are related with his suitability for business models such as those considered by RESFARM. The results of the survey have been extrapolated to the population of farmers in Spain, Italy and Greece using data from Eurostat, from the 2007 census. The estimation of the market in economic terms has been calculated using the cost of installations at May 2016 prices in Spain.


p. 19

resfarmproject.eu

3. Sample description The valid sample of this survey is composed of 1,218 farms in Spain, Greece and Italy. The sample is bigger in Spain than in Greece and Italy, and is biased towards mid and large-sized farms. In general, the main statistics are quite coherent between farms of the same size and production of the different countries, with some notable national particularities, especially in the case of Greece. These differences are less important in the key statistics of the survey, like the perceived barriers the introduction of renewable energy systems, the interest of the farmers in these technologies and their willingness to use capital market suitable business models to introduce the systems.

3.1 Farm size and production As shown in Table 1 the average size of the farms in the sample is 44.8 Ha of land, ranging from 61.7 in Spain to 37.68 in Greece. Those farms with cattle have on average 200.9 animal equivalent units ranging from 246.3 in Spain to 37.68 in Greece. In order to proceed with the analysis three categories of farms have been established following the standard output of the farm: small (less than 24,999€), medium (30,000 € to 249,000 €) and large (more than 300,000 €). 27.26% of the farms have been classified as “small”, 45.8% as “medium”, and 26.93% as “large”. The sample is biased in relation to the population towards large farms reflecting the need to obtain information from the type of farms that are more likely to be suitable for the type of business models available. Table 2 presents the composition of the sample regarding the size of the farms while Figure 4 shows the composition of the sample and of the actual population.

Country Greece Italy Total area of the farm (Ha) 18.5 40.3 Livestock units (LSU) 37.68 57.04 Source: Prepared by the authors with data from RESFARM survey

Spain 61.7 246.31

Total 44.8 200.94

 Table 1: Average size of the farms of the sample

Country Total Greece Italy Spain Size of holding (UAA) N %N N %N N %N N %N Small 286 65.0% 5 10.9% 41 5.6% 332 27.26% Medium 133 30.2% 30 65.2% 395 54.0% 558 45.81% Large 21 4.8% 11 23.9% 296 40.4% 328 26.93% Total 440 100% 46 100% 732 100% 1,218 100% Source: Prepared by the authors with data from RESFARM survey


p. 20

resfarmproject.eu  Table 2: Composition and distribution of the sample

Source: Prepared by the authors with data from RESFARM survey and Eurostat

 Figure 4: Distribution of farms by size and country in the sample (left) and in the population (right)

The average number of plots of land of the farms (34.5) differs widely between countries, even after taking into account the size of the farms. Greek farms are composed of a smaller number of plots than similar sized farms in Spain and Italy, as shown in Figure 5. The average distance between the centre of the farm and the plots (3.8 kM) is smaller in Italy (2.2 kM) and bigger in Spain (4.9 kM). 131.3

90.9

86.4

67.4 57.3

56.8 35.4 14.2

Greece

Italy

Spain

Total

Large

Small

Total

Large

7.2 Medium

Total

Large

Medium

Small

Total

Large

8.9

Small

13.0

Medium

5.6

34.5

28.3

Medium

37.0 28.6

Small

140 130 120 110 100 90 80 70 60 50 40 30 20 10 0

Total


 Figure 5: Average number of plots per holding in the sample

The sample includes farms of all the main types of production of the targeted countries, including crops and cattle. The sample is biased towards cattle farms, reflecting the need to obtain sufficient subsamples of the different categories of exploitations. Table 3 shows the structure of the sample by country and the type of production. Table 4 shows the actual structure of the population that is used to estimate the extrapolations.


p. 21

resfarmproject.eu Country Greece Italy Bovine 3.2% 17.4% Cereal 0.9% 39.1% Fruit 21.6% 0.0% Grassland 0.2% 2.2% Greenhouse 0.0% 2.2% Olive 46.1% 6.5% Poultry 0.0% 0.0% Sheep 18.4% 10.9% Swine 0.0% 0.0% Vegetable 6.1% 21.7% Vineyard 3.4% 0.0% Source: Prepared by the authors with data from RESFARM survey Type of production

Spain 31.8% 4.8% 4.0% 2.6% 10.4% 2.3% 7.5% 9.4% 9.2% 5.6% 11.9%

Total 20.9% 4.7% 10.2% 1.7% 6.3% 18.3% 4.5% 12.7% 5.5% 6.4% 8.4%

 Table 3: Composition of the sample by type of production Type of production Small Medium Large Bovine 59.260 72.190 9.600 Cereal 320.990 60.500 50.630 Fruit 230.690 59.450 3.930 Grassland 492.740 99.440 2.560 Greenhouse 8.430 28.980 5.040 Olive 627.030 20.360 2.590 Poultry 3.490 2.510 9.600 Sheep 82.700 69.450 330 Swine 3.450 6.060 1.660 Vegetable 21.110 14.910 4.440 Vineyard 130.990 71.640 1.560 Total 1.980.880 505.490 91.940 Source: Prepared by the authors with data from Eurostat

 Table 4: Composition of the population of the targeted countries by size and type of production

The survey has been designed to obtain information related to specific technologies and applications that, due to their characteristics, have been considered more suitable to develop capital market suitable business models (Pombo & Regueiro, 2016). These technologies are photovoltaic systems for irrigation and general purposes, and biomass for heating. Table 5 shows the details of the distribution of the technically suitable farms for RES systems (some farms are counted twice as they are suitable both for biomass and PV). Suitable farms for each type of RES Country Irrigation Heating Ventilation Greece 344 14 Italy 32 1 8 Spain 285 207 367 Total 661 208 389 Source: Prepared by the authors with data from RESFARM survey

 Table 5: Distribution of farms of the sample considered suitable for on-farm RES

An important resource with potential for producing renewable energy, and widely available on farms, are vegetable residues and manure from cattle. Most of the farms surveyed are collecting residues or manure, especially in Spain and Italy as can be seen in Figure 6. The much lower level of residue collection in Greece persists even after adjusting for the smaller average size of the farms in the sample.


p. 22

resfarmproject.eu

Spain

77.0%

Italy

63.1%

Greece

Yes No

23.4%

Total

56.7% 0%

5%

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 6: Proportion of farms that are collecting residues

3.2 Geographic distribution A special effort has been made in order to cover all the different regions of the targeted countries. Nevertheless, there is a bias towards the Spanish northwest region of Galicia, where a special study regarding the production of biogas has been carried out. Another over represented region corresponds to south-east Spain (the regions of Murcia and Almeria). These regions have a highly productive agro-sector, with producers exporting fruit and vegetables to most European countries, and at the same time, the solar resource is especially abundant. For this reason, it is planned to make a special effort in order to promote Resfarm in this area, so the survey has consequently been more exhaustive there. Country Small Medium Large Greece 65.0% 30.2% 4.8% Italy 10.9% 65.2% 23.9% Spain 5.6% 54.0% 40.4% Total 27.3% 45.8% 26.9% Source: Prepared by the authors with data from RESFARM survey

 Figure 7: Structure of the sample by country and by size of the farm

The geographic distribution of the sample can be seen in the map of Figure 8, that shows that all the different regions of Spain, Greece and Italy have been covered, a fact that reinforces the validity of the results presented in this report.


 Figure 8: Geographical distribution of the sample


p. 23

resfarmproject.eu

3.3. Farmers´ characteristics Management The questionnaire was passed to farmers or cooperative managers with decision capacity regarding investments on the farm. Most farms are registered as personal enterprises (96.1%) while 67.1% of the surveyed farmers obtain all their income from farming. The differences between countries shown in Table 6 are mainly due to the overrepresentation of small farms in Greece. % Country Total Business entity type Greece Italy Spain Personal 100.0% 80.0% 94.8% 96.1% Limited partnership 0.0% 18.3% 4.0% 3.2% Cooperative 0.0% 1.7% 1.2% 0.8% Source: Prepared by the authors with data from RESFARM survey

 Table 6:Legal status of the farms of the sample % Country Proportion of income Greece Italy Spain 100% 48.0% 80.0% 78.0% More than 50% 43.4% 16.9% 2.1% Less than 50% 8.6% 3.1% 19.8% Source: Prepared by the authors with data from RESFARM survey

Total 67.1% 18.0% 14.9%

 Table 7:Proportion of personal income produced by the farm

Expected continuity of the activity Considering that most RES systems have a payback of ten years or more, it is important to assess to what extent a farmer plans to maintain the activity in the long term and the expected evolution of the production. As shown in Table 8 most of the farmers have already identified a successor to continue the activity of the farm after the retirement of the current manager/owner. There are differences between countries, but the expected high degree of the long-term continuation of the activities will facilitate the implementation of capital market suitable business models. % Country Total Successor Greece Italy Spain No 19.4% 58.5% 32.5% 28.9% Yes 80.6% 41.5% 67.5% 71.1% Source: Prepared by the authors with data from RESFARM survey

 Table 8: Proportion of farmers that affirm to have a successor for the farm

Another important question is whether or not a farmer is planning to increase his activities in the near future, providing that a positive outlook will facilitate the introduction of new technologies such as a RES to support that increase. The overall outcome, shown in Table 9 is moderately positive, especially in Spain and Italy, providing that almost half of the surveyed farmers are planning to expand their production. This result is coherent with other studies (Lefebvre, De Cuyper, Loix, Viaggi, & Gomez-y-Paloma, 2014).


p. 24

resfarmproject.eu % Country Total Increase planned production Greece Italy Spain Important decrease 0.2% 12.7% 1.7% 1.6% Decrease 5.6% 1.6% 4.1% 4.5% Same level 62.9% 12.7% 41.6% 48.1% Moderate increase 27.9% 47.6% 46.9% 39.9% Important increase 3.4% 25.4% 5.8% 5.9% Source: Prepared by the authors with data from RESFARM survey

 Table 9:Expected evolution of the level of production of the farm

Economic situation Farmers have been asked about their self-perception of the economic status of their business. Results are similar in the three countries, with a neutral to positive perception in general, that somehow less positive in Greece. Details are shown in Figure 9. The perception varies significantly depending on the type of production, with the worst perception being that of bovine farmers (2.76), affected by low milk prices during the time of the study and those who have vineyards being the most satisfied with the result of their activity (3.5). Details are shown in Figure 10. 100%

0,6%

90%

13.4%

1.5% 5.2%

8.4% 20.0%

80%

20.4%

24.8%

70% 60%

44.6%

64.2%

50%

51.2%

43.7%

40% 30%

12.3%

20% 21.6%

10%

15.7%

21.5%

17.7%

7.4%

0%

0.2% Greece Strongly disagree

Disagree

Italy Spain Neither agree nor disagree

5.4% Total Strongly agree

Agree


 Figure 9:Perception of the economic performance of the farm by country 5,0 4,5 4,0 3,5 3,0

3.09

3.05

2.76

3.29

3.27

3.21 2.94

3.32 2.97

3.51 3.22

3.05

2,5 2,0 1,5 1,0


 Figure 10: Average perception of the economic performance of the farm by type of production

Another important piece of information to establish the economic health of a farm is the degree of indebtedness. Surveyed farmers are in general not especially worried by the issue, taking into consideration that less than a quarter of them consider that their farm is too


p. 25

resfarmproject.eu indebted. The detailed results by countries can be seen in Figure 11. The most indebted type of farms coincides with those that are most profitable (vineyard and greenhouse) indicating a positive correlation between those variables. That correlation is statistically significant with a Pearson value of 0.15, suggesting that the leveraged farms are more profitable. 0.0% 6.4%

100%

6.5%

90%

7.3%

11.6%

13.0%

14.3%

80%

19.0%

70% 60%

63.6%

40.1%

25.0% 58.7%

50% 40%

21.7%

30% 20% 10% 0%

18.6%

20.0%

4.3% 22.7%

17.4%

11.4% Greece Strongly disagree

Italy Disagree

Spain Neither agree nor disagree

18.4%

Agree

Total Strongly agree


 Figure 11: Perception of the indebtedness of the farm by country

The following Figures 12 and 13 show the economic sentiment of the surveyed farmers. As mentioned, the overall picture is somewhat positive in Spain and Italy and somewhat negative in Greece. In the three countries surveyed, the sector as a whole is planning to increase their production. Profitability of the farm

70% 60% 50% 40% 30% 20% 10% 0% Strongly disagree

Greece

Disagree

Italy

Neither agree nor disagree

Agree

Spain

Indebtedness of the farm

70% 60% 50% 40% 30% 20% 10% 0% Strongly agree

Strongly disagree

Total

Disagree

Neither Agree agree nor disagree Italy Spain

Greece

Planned increase in production

70% 60% 50% 40% 30% 20% 10% 0% Strongly disagree

Greece

Disagree


Italy

Agree

Spain

Strongly agree

Total


 Figure 12: Overall economic perception of the farmers by country


p. 26

Strongly agree Total

resfarmproject.eu

5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 My farm is a profitable business

Greece

My farm is too indebted

Italy

Spain

My farm's planned evolution

Total


 Figure 13: Average economic mood of the farmers by country

4. Attitude towards renewable energy systems The path of the introduction of sustainable energy technologies in the agrarian sector is not as fast as desirable, especially considering the level of maturity and cost-efficiency that many technologies have achieved. Indeed, only 5.9% of the surveyed farmers have already installed a RES. The observed level of adoption of these systems is bigger in Italy and smaller in Greece as can be seen in Figure 14. The extrapolation of this result to the population of farms in the targeted countries is presented in Table 10 and indicates than less than 2% of the farms have already installed RES. It is important to establish a clear picture of the attitude of farmers towards these technologies and to understand the reasons that are deterring most of the farmers to act. At the same time, by knowing the reasons that led to the minority already installing the systems, it can be possible to develop efficient promotion schemes for the future. In this chapter, we present the main results in relation with the attitude of farmers towards onfarm RES. Italy

18.5%

Spain

6.4% Yes No

Greece 3.6% Total

5.9% 0%

5%

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 14: Proportion of farms in the survey that have already installed a renewable or efficiency energy system

Type of production Bovine Cereal Fruit Greenhouse Olive

Small 0 0 4.844 0 19.438


Size of holding (UAA) Medium 5.414 2.723 0 0 855

p. 27

Large 1.075 3.190 0 358 824

Total 6.489 5.912 4.844 358 21.117

resfarmproject.eu Poultry 0 Sheep 2.977 Swine 0 Vegetable 2.005 Vineyard 0 Total 29.265 Source: Prepared by the authors with data from Eurostat

419 3.403 758 581 931 15.084

403 58 169 741 164 6.982

822 6.438 927 3.328 1.095 51.332

 Table 10: Estimated number of on-farm RES already installed in the targeted countries

4.1. Early adopters The analysis of the early adopters of on-farm RES provides useful information in order to develop tailor made business models and successful communication campaigns. Early adopters were specifically asked about their motivations and the sources of information and advice that they used during the process. In a related but separated task of RESFARM, a number of early adopters have been interviewed in depth in order to obtain more detailed information.

Availability of grants / Savings in subsidies energy expenses

Greece

Improving production methods

Greece

Environmental concerns

Farmers were asked to select two out of four possible motivations that moved them to install on-farm RES. Among those that had already installed RES, the principal reason for investing was generating economic savings (86.4%), with other reasons being much less significant, with the exception of the availability of grants in Italy (58.3%). Figure 15 shows the results of the survey regarding this issue. 72.2%

Italy

75.0%

Spain

94.1%

Total

86.4%

Greece

33.3%

Italy

58.3%

Spain

15.7%

Total Italy

No

25.0%

Spain

21.6%

Total

22.2%

Greece

44.4%

Italy Spain

Yes

25.9% 22.2%

16.7% 2.0%

Total

13.6% 0%

5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 15: Main reasons mentioned by the farmers who already have a RES

The early-adopter farmers relied on other farmers´ experience and knowledge as the prime source of information, especially in Greece, and on the agrarian cooperatives and associations. Considering that economic savings had been the fundamental reason to install, it is notable that only 6% of them were advised by independent institutions like banks or economic assessors. The Public Administration has a reduced score of 7.2%, indicating that it is not considered a especially valuable source of information. The results, detailed in Figure


p. 28

resfarmproject.eu 16, suggest that information regarding on-farm RES is flowing bottom-up, with mouth to mouth information being the fundamental tool.

Other farmers Coop. / Associations

Greece

Greece

Salesman

Greece

Ind. Experts

Another interesting result is that salesmen are a relative secondary source of information (22.2%), especially in Spain and Greece, suggesting that technology providers have not developed a comprehensive strategy to introduce RES in the agrarian sector. 83,3%

Italy

41,7%

Spain

35,3%

Total

46,9% 88,9%

Italy

25,0%

Spain

29,4%

Total

42,0% 5,6%

Italy

16,7%

Spain

41,2%

Total Greece

29,6% 5,6%

Italy

41,7%

Spain

23,5% 22,2% 44,4%

Italy Spain

25,0%

Total

No

Self-assessed

17,3%

Greece0,0%

Greece

Production buyer

Yes

5,9%

Ind. Institutions Pub. Entities

Pub. Events

Total Greece

Italy

41,7%

Spain

7,8%

Total

11,1% 5,6%

Italy

8,3%

Spain

7,8%

Total

7,4%

Greece

16,7%

Italy

16,7%

Spain0,0% Total

6,2%

Greece

5,6%

Italy0,0% Spain 3,9% Total 3,7% 0%

5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 16: Sources of information and advice used by farmers that already have RES

4.2. Barriers to the introduction of RES Of those surveyed farmers that have not installed a RES, 67.1% consider that such systems would benefit their activity, especially in Italy and Spain as shown in Figure 17. The smaller proportion in Greece may be due to the smaller size of the farms of the sample. The interest also differs regarding the type of production and, in general, increases with the size of the


p. 29

resfarmproject.eu farm, as shown in Table 11. Poultry farmers (92.3%) and swine farmers (88.33%) are especially interested in RES, a fact probably related with the intensive consumption of energy of their production process and the availability of effective renewable alternatives. The extrapolation of these results to the entire population of farms in the targeted countries allows the estimation of a market for on-farm RES to exceed 1.8 million consumers, as shown in Table 12. Italy

90.6%

Spain

78.7%

Greece

Yes

46.6%

Total

67.1% 0%

5%

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 17: Proportion of farmers that consider that their farms are suitable for installing a RES (by country) Type of production

Small Bovine 66.7% Cereal 66.7% Fruit 54.8% Grassland 100.0% Greenhouse 77.7% Olive 49.6% Poultry 100.0% Sheep 55.6% Swine 0.00% Vegetable 57.8% Vineyard 50.0% Source: Prepared by the authors with data from RESFARM survey

Size of holding (UAA) Medium 77.0% 85.7% 61.9% 66.7% 79.6% 42.0% 100.0% 70.5% 71.4% 38.8% 90.5%

Large 83.5% 73.3% 75.0% 50.0% 61.5% 60.0% 91.3% 85.7% 90.6% 80.0% 94.1%

 Table 11: Proportion of farmers that consider that their farms are suitable for installing a RES Size of holding (UAA) Type of production Small Medium Bovine 39.526 55.586 Cereal 320.990 51.849 Fruit 126.418 36.800 Grassland 492.740 66.326 Greenhouse 6.559 23.068 Olive 311.007 8.551 Poultry 3.490 2.510 Sheep 45.981 48.962 Swine 0 4.327 Vegetable 12.223 5.785 Vineyard 65.495 64.834 Total 1.424.429 368.598 Source: Prepared by the authors with data from Eurostat

Large 8.016 37.112 2.948 1.280 3.100 1.554 8.765 283 1.504 3.552 1.468 69.580

Total 103.129 409.950 166.165 560.346 32.726 321.112 14.765 95.226 5.831 21.560 131.797 1.862.608

 Table 12: Estimation of total number of farmers that considers that their farms are suitable for installing a RES

In order to develop the market, it is important to provide information regarding the barriers that have deterred most farmers from installing RES, even when they consider that the technology would benefit their farms. With this aim, surveyed farmers have been asked to choose the two top barriers from six possible alternatives. The most mentioned barrier has been the upfront cost of the systems (79.7%) followed at a distance by the lack of


p. 30

resfarmproject.eu information or offers of systems and business models adapted to their needs. In third position is the uncertainty over the results, a problem that can be related with the bottomup diffusion of information system that apparently characterises the analysed issue.

Greece

85.7%

Italy

70.8%

Spain

78.1%

Total

79.7%

Greece

45.1%

Italy

22.9%

Spain

37.2%

Uncertainty over results

Greece

Greece

O&M complexities

Total

Legal / administrative coplexities

Lack of information / offers

Upfront cost

In the case of Italy, there is a special concern over the legal and administrative complexities related with the installation of on-farm RES, a problem that is also present in Spain and that, far from being addressed, is likely to worsen due to the new regulation regarding selfconsumption. The results of this part of the survey can be seen in Figure 18.

Greece

38.5% 22.3%

Italy

43.8%

Spain

42.9%

Total

No

15.2%

Italy

58.3%

Spain

30.4%

Total

28.0% 11.2%

Italy

18.8%

Spain

22.3%

Total

19.2%

Greece Negative references

Yes

37.6%

15.2%

Italy 4.2% Spain

8.5%

Total

10.0% 0%

5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

Source: Prepared by the authors with data from RESFARM survey  Figure 18: Main reasons given for not having installed a RES in the farm

5. Attitude towards business models suitable for institutional investors This survey has been carried out in order to obtain relevant information in order to develop and promote business models for on-farm RES with the capacity to attract financing from capital markets in general and from mainstream institutional investors like pension funds and insurance companies in particular. There are a number of reasons to pursue this objective, including access to a virtually limitless source of funding, reducing the cost of capital and matching the technical and financial amortization of the systems. An efficient


p. 31

resfarmproject.eu financial design can drastically reduce the leverage cost of energy of a RES (SE4ALL Finance Committee Report, 2015) making it viable in many more applications and circumstances. Nevertheless, institutional investors use a limited array of financial instruments to invest their funds, including debt and equity securities. In order to obtain low-yield long-term financing, issuers must demonstrate that the underlying sources of cash flows (or collateral), are resilient and predictable enough. Generally, this means that a specialized agency has to assign an investment degree rate to the securities, which in turn, means a high degree of standardization and legal security for the underlying contracts, including those signed by the farmers. Thus, in order to assess to what extent farmers are willing to accept the non-negotiable part of these types of contracts that can eventually be positively rated, a number of related questions have been included in the questionnaire. The objective has been to determine the characteristics of the suitable farmers, to estimate the size and properties of the market and to improve the design of the business models.

5.1. Financial literacy In order to create business models and communication strategies for innovative technologies and financing schemes, it is important to establish the current level of financial literacy among farmers. In many cases, a deficient understanding of the key concepts involved end up creating a number of problems that affect the credibility and prospects of technologies and financing models. Among the building blocks of standardized contracts for renewable energy suitable for institutional investors are the surface rights, the leasing contracts and the arbitrage system for conflict resolution. The level of knowledge of the mentioned legal structures is reasonably high in the three countries, as shown in Figure 19. A relatively low knowledge of arbitration can be noted in Spain and also a low level of knowledge regarding leasing contracts in Greece. These elements must be taken into consideration when designing communication campaigns for each country.


p. 32

Leasing contracts

Surface rights

Difference between arbitrage and litigation

resfarmproject.eu

Greece

80.6%

Italy

84.6%

Spain

66.9%

Total

72.8%

Greece

67.4%

Italy

93.8%

Spain

Yes No

61.9%

Total

65.4%

Greece

54.6%

Italy

86.2%

Spain

70.4%

Total

65.3% 0%

5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 19: Degree of knowledge of key legal and financial concepts

Access to capital market funds is related to a branch of banking known as structured finance (Tavakoli, 2008). An important element for structured finance suitability is that the sector to be financed must clearly present defined and reliable value chains so credit analysis can be performed by considering the position of the borrower in that value chain instead than evaluating individual credit scoring. In the agro-sector, the most clearly defined value chains are based on contract farming, a type of relationship between producers and buyers that establishes long-term relationships. Contract farming facilitates predictability in prices, quantities and qualities and access to long-term financing. On the other hand, the long-term bindings between producers and buyers reduce the independence and the bargaining capacity of farmers, obliged by detailed, somewhat complex, contractual structures. The situation is similar to that related with business models for on-farm RES suitable to be financed by capital market investors. Using that analogy, identifying the attitude of farmers to certain aspects related with contract farming (which is widely known in the sector) allows for the estimation of the attitudes of farmers regarding the analysed business models (that are unknown in the sector). For this reason, surveyed farmers have been asked whether or not they are in contract farming and, if they are, how that model affects the running of the farm. The results show that 44.1% of the surveyed farmers are involved in contract farming, that statistic projected to the entire population give an estimation of 27.6% for the targeted countries. The degree of diffusion is bigger in Spain (57.3%) and on larger farms, as shown in Figure 20. Spain

57.3%

Italy

27.7% Yes

Greece

25.2%

Total

No 44.1%

0%

5%

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 20: Proportion of farmers in contract farming by country


p. 33

resfarmproject.eu The diffusion of contract farming varies significantly depending on the type of production, ranging from 84.3% in vineyards to 2.6% in greenhouses. The details of the results of the survey can be seen in Table 13 and the extrapolation to the population in Table 14. Type of production Small Bovine 33.3% Cereal 33.3% Fruit 14.7% Grassland 0.0% Greenhouse 0.0% Olive 27.1% Poultry 0.0% Sheep 26.8% Swine 0.0% Vegetable 0.0% Vineyard 50.0% Total general 21.4% Source: Prepared by the authors with data from RESFARM survey

Size of holding (UAA) Medium 76.3% 9.1% 33.3% 66.7% 1.9% 30.6% 33.3% 43.9% 25.0% 52.9% 88.0% 52.3%

Large 70.8% 34.4% 12.5% 28.6% 7.1% 45.5% 68.8% 64.7% 45.8% 16.7% 84.2% 54.3%

 Table 13:Proportion of farmers in contract farming by type of production and size of the holding Type of production Small Bovine 19,734 Cereal 106,890 Fruit 33,911 Grassland Greenhouse Olive 169,925 Poultry Sheep 22,164 Swine Vegetable Vineyard 65,495 Total 418,118 Source: Prepared by the authors with data from Eurostat

Size of holding (UAA) Medium 55,081 5,506 19,797 66,326 551 6,230 836 30,489 1,515 7,887 63,043 257,261

Large 6,797 17,417 491 732 358 1,178 6,605 214 760 741 1,314 36,607

Total 81,611 129,812 54,200 67,059 908 177,334 7,441 52,866 2,275 8,629 129,852 711,986

 Table 14: Estimated number of farmers in contract farming in the targeted countries

Those farmers in contract farming have different opinions depending on their nationality, it being somewhat less positive in Greece and more positive in Spain and especially in Italy, as can be seen in Figure 21. Overall, farmers in contract farming positively appreciate the security that it provides to their business (except in Greece) and the easing for financing new investments. The three countries are positive in considering that contract farming allows for opportunities to access new technologies and skills but are also affirming that it makes them too dependent on buyers. Figure 22 shows the results in detail. The results show a somewhat positive attitude towards contract farming, except in Greece. The attitude is more positive the bigger the farm is (see Figure 23) and is especially negative in bovine farms. Vineyards and poultry farmers are the more worried about the dependence on buyers but still consider the security that contract farming provides very positively. Detailed results by type of production can be seen in Table 15.


p. 34

resfarmproject.eu 45%

40.7%

40% 35% 30% 25% 20% 15% 10%

39.4%

Strongly disagree 33.3%

28.8%

27.7%

24.3% 26.2%

28.8%

26.6%

Disagree

18.8% 14.4%

14.1%

9.0%

8.2%

6.6%

14.9%

11.6% 7.5%

4.7%

5% 0% Contract farming increases the security of my business

Contract farming allows me to access new skills and technologies


14.4%

Agree

Contract farming Contract farming makes facilitates financing new me too dependent on my investmets in the farm buyer

Strongly agree


 Figure 21:Level of satisfaction of farmers in contract farming 5,0 4,5 4,0

3.72 3.64

3.88

3.83 3.49

3,5 2.96

3.02

3,0

3.16

3.07

3.15

3.66

3.70

3.67

3.34 3.30 3.00

Greece Italy

2,5

Spain

2,0

Total

1,5 1,0 Contract farming increases the Contract farming allows me to Contract farming facilitates security of my business access new skills and financing new investmets in technologies the farm

Contract farming makes me too dependent on my buyer


 Figure 22: Average perception of contract farming by country 5,0 4,5 4,0 3,5

3.50

3.68

3.71 3.81

3.50

3.04

3.04 3.04

3.25

3.11

3.35 3.27 3.18 3.25

3.46

3.69

3,0

Small Medium

2,5

Large

2,0

Total

1,5 1,0 Contract farming increases the security of my business

Contract farming allows me Contract farming facilitates Contract farming makes me to access new skills and financing new investmets in too dependent on my buyer technologies the farm


 Figure 23: Average perception of contract farming by size of the farm


p. 35

resfarmproject.eu Contract farming Contract farming allows Contract farming Contract farming makes Type of production increases the security of me to access new skills facilitates financing new me too dependent on my business and technologies investments in the farm my buyer Bovine 2.79 2.52 2.71 3.40 Cereal 4.36 4.00 4.25 3.54 Fruit 3.86 3.10 3.33 3.95 Grassland 4.60 4.20 3.80 4.00 Greenhouse 5.00 4.00 3.00 4.00 Olive 2.94 3.11 3.10 3.59 Poultry 3.87 3.30 3.33 4.20 Sheep 3.78 3.55 3.60 3.32 Swine 3.76 3.32 3.39 3.39 Vegetable 4.11 3.64 4.00 3.79 Vineyard 4.53 3.57 3.93 4.42 Total 3.50 3.10 3.27 3.68 Source: Prepared by the authors with data from Eurostat

 Table 15: Attitude of farmers towards contract farming by type of production

Overall, those farmers who are not in contract farming indicate the loss of control over the farm as the principal reason, except in Spain, where the lack of offers is the main reason given. Analysing the type of farmers that are more concerned with long-term obligations like those related with contract faming will facilitate the development of tailored business models for on-farm RES and communication strategies. Results are shown in Table 16 and Figure 24. Strongly disagree

Disagree

I am not in contract farming because 7.8% 14.9% no one offered it I am not in contract farming because 7.7% 11.5% it limits my control over the farm Source: Prepared by the authors with data from RESFARM survey


Agree

Strongly agree

Agree & Strongly agree

37.5%

30.5%

9.3%

39.8%

31.1%

32.4%

17.2%

49.6%

 Table 16: Main reasons for not being involved in contract farming 5,0 4,5 3.77

4,0 3,5

3.16

3.27

3.20

3.62

3.40

3.19 2.89

3,0 2,5 2,0 1,5 1,0

I am not in contract farming because I am not in contract farming because no one offered it it limits my control over the farm Greece

Italy

Spain

Total


 Figure 24: Main reason for not being involved in contract farming by country


p. 36

resfarmproject.eu

5.2. Financial preferences As this survey shows, the lack of tailored models for farmers for introducing on-farm RES is a major barrier. At the same time, in order to allow accessing to low-yield, long-term capital market financing, a high degree of standardization is necessary in the business models. Thus, only a reduced array of options can be eventually presented to the farmers so it is important to develop financial schemes matching as best as possible as many as possible farmers. In financial terms, this means that it is important to know the combinations of return, risks and tenure that best suit the farmers. With this purpose in mind, farmers have been asked for their preference regarding economic issues between long/short term (even if short term is quantitatively superior) and between fixed and variable payment structures (even if variable is quantitatively superior). The results show a clear preference for long-term, fixed payment structures, in the three countries and in all the different types of farms. This result is coherent with the long-term, financially conservative attitude traditionally assumed from the farmers (Syster & MaartNoelck, 2013). Details are presented in Figure 25 and Table 17. I prefer fixed payments to variable even if it is economically less favourable

I prefer long-term economic bindings even if it is economically less favourable 70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

0% Strongly disagree Greece

Disagree

Italy

Neither agree nor disagree Spain

Agree

Strongly agree

Strongly disagree Greece

Total

Disagree


Italy

Agree

Spain

Strongly agree Total


 Figure 25: Financial preferences of the farmers regarding payment structures I prefer long-term economic bindings even if it is economically less favourable Greece 3.42 Italy 3.64 Spain 3.47 Total 3.46 Source: Prepared by the authors with data from RESFARM survey Country

I prefer fixed payment to variable even if it is economically less favourable 3.35 3.67 3.42 3.41

 Table 17: Average financial preferences of the farmers by country

5.3. System accessing and conflict resolution A common element in business models for RES suitable for capital market investors is that contracts guarantee ready access to the installations (i.e. to the properties of the farmers) and quick conflict resolution processes based on arbitration. In order to identify the characteristics of the suitable farmers and the market size, farmers have been asked about these issues.


p. 37

resfarmproject.eu System accessing The question regarding access the properties to operate, maintain and manage the systems has been divided into three parts corresponding to: the house itself, the rooftops of barns/stables and the land. As expected, the farmers are less willing to allow access to their houses than to other parts of their lands, but in general the accessibility to the sites is not an issue, with the exception of Greek farmers who are somewhat reluctant to allow access to their houses (2.72). 5,0 4,5 4,0 3,5

3.54

3.56

Access to stables rooftop

Access to ground

3.05

3,0 2,5 2,0 1,5 1,0 Access to house rooftop


 Figure 26: Willingness to allow access to the holding for O&M activities (1)

35%

31.0%

30%

26.7%

25.2% 17.9%

27.7% 23.7%

25% 20%

28.3%

20.1%

25.4%

20.8%

15.9% 12.4%

15%

12.3% 7.6%

10% 4.8% 5% 0%

Strongly Disagree Neither Agree Strongly Strongly Disagree Neither Agree Strongly Strongly Disagree Neither Agree Strongly disagree agree agree disagree agree agree disagree agree agree nor nor nor disagree disagree disagree Access to house rooftop

Access to stables rooftop

Access to ground


 Figure 27: Willingness to allow access to the holding for O&M activities (2)

Conflict resolution Investors are especially wary of expensive and time-consuming conflict resolution processes like litigation. Courts of the targeted countries are perceived as particularly tricky and slow (Wolf, 2003), so it is expected that in order to mitigate this issue, business models will include clauses for conflict resolution and for settling disputes based on mediation or arbitration. These clauses should eventually be accepted by the farmers, so it is important to know their attitude towards them.


p. 38

resfarmproject.eu The results show that 72.8% of the farmers know the difference between arbitration and litigation. Of those who know the difference, an overwhelming 96.4% prefer arbitration, with similar results in all the countries and categories as shown in Figure 28. Spain

96.8%

Italy

96.4%

Greece

95.8%

Total

96.4%

Yes

0%

5%

No

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 28:Preference of arbitration over litigation for settling disputes by country

Farmers were asked to select two out of five considerations that they perceived to be more important when settling disputes. This information will facilitate the development of tailored business models and contractual schemes. Restricting the analysis to those farmers suitable for the introduction of on-farm RES, the results show that cost and time are the most important elements, as can be seen in Figure 29. Interestingly there are important differences between countries, so time is viewed as being as important as cost in Italy suggesting an especially slow litigation system while the Greeks are especially interested in the potential support that they can obtain from cooperatives and associations. The detailed results by country are shown in Figure 30. Cost of the process

74.3%

Time to resolve

51.6%

Enforcement certainty

Yes

31.4%

No Potential support from institutions / unions / associations Knowledge on the matter of the decission maker

22.0%

18.5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 29: Main concerns of farmers related to conflict resolution processes (overall)


p. 39

resfarmproject.eu

Cost of the process

Greece

69.8%

Italy

63.1%

Spain

75.5%

Potential support Knowledge on from institutions / unions / the matter of the decission maker associations

Enforcement certainty

Time to resolve

Total

72.8%

Greece

42.2%

Italy

63.1%

Spain

54.0%

Total

50.1%

Greece

24.4%

Italy

52.3%

Spain

Yes

31.0%

Total

No

29.6%

Greece

34.6%

Italy

10.8%

Spain

16.3%

Total

22.8%

Greece

24.2%

Italy

21.5%

Spain

19.6%

Total

21.4% 0%

5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 30: Main concerns of farmers related to conflict resolution processes by country

6. Return expectations A key objective of this survey is to determine the attractiveness for farmers of capital market suitable business models. The business models considered included two for selfconsumption and two for commercialization oriented RES. Each of these models has been presented to farmers showing a hypothetical offer for them. Economic and time conditions similar to those present in a real business model were offered. The business models considered are oriented towards self-consumption and for producing electricity. In the case of self-consumption, the models presented to the farmers were a power purchase agreement (PPA) with a specialized company, meaning that the farmer pays for the energy consumed by the RES, and a model oriented to finance the purchasing of the system by the farmer. In the case of the business models to install on-farm RES oriented to produce electricity for commercialization through the public grid, the models presented included the obtaining of equity in the company controlling the assets in exchange for surface rights or a fixed rent in exchange for a long-term lease of the land. The exact conditions of the mock deals presented to the farmers are in Annex 1.

6.1. Self-consumption In order to determine the suitability of self-consumption oriented business models, farmers have been presented with a PPA-based business model where the RES is owned by a third party (TPO) normally an energy services company (ESCO), and a business model designed to allow the ownership of the RES by the farmer (DO), essentially, a financial institution offering


p. 40

resfarmproject.eu a loan or a leasing. Each of these models corresponds to specific configurations of the installation, operation, customer acquisition and servicing and requires different financial technologies in order to attract capital market investors. 72% of the participants in the survey were quite interested or very interested in at least one of the presented business models. The interest is higher in Italy and Greece than in Spain, probably as a result of the newly introduced taxation on self-consumption. 27.9% of the farmers indicated 5 out of 5 as their interest degree in some of the business models presented. This can be seen in Figure 31. Italy

86.7%

Greece

84.7%

Spain

Yes No

62.7%

Total

72.0% 0%

5%

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 31: Proportion of farmers interested in CM-suitable on-farm BM for self-consumption by country

The results of the survey showed a special interest in smaller farms and in those whose production requires irrigation like fruit and olive production. The appropriate on-farm RES for these type of consumers are PV systems with a power capacity of around 10 kW and a price of approximately € 20,000. Nevertheless, most farmers are interested or very interested in every category of farms by production orientation, size of the farm and country, as shown in Figures 32 and 33. Small

88.0%

Medium

67.5%

Large

Yes No

69.5% 0%

5%

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 32: Proportion of farmers interested in CM-suitable on-farm BM for self-consumption by size of the farm Vegetable

88.3%

Fruit

87.9%

Olive

85.6%

Sheep

82.2%

Poultry

80.7%

Cereal

Yes

74.5%

Swine

No

65.7%

Vineyard

65.7%

Bovine

58.3%

Grassland

57.1%

Greenhouse

50.0% 0%

5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 33: Proportion of farmers interested in CM-suitable on-farm BM for self-consumption by type of production


p. 41

resfarmproject.eu Based on the results of the survey, the estimated number of farms in Spain, Italy and Greece that are interested or very interested in installing on-farm RES for self-consumption using business models that can be financed by capital market institutional investors is the following: Type of main production Total number of farms Bovine 66.843 Cereal 402.946 Fruit 255.152 Grassland 568.457 Greenhouse 22.395 Olive 590.827 Poultry 13.402 Sheep 128.453 Swine 3.370 Vegetable 34.398 Vineyard 127.098 Total farms 2.213.340 Source: Prepared by the authors with data from Eurostat

 Table 18: Estimated number of farmers interested in CM-suitable on-farm BM for self-consumption by type of production

The third party owned model for self-consumption has been especially successful in the United States, allowing the attraction of capital market investors to this segment of the market. If properly standardized and managed, it is especially appropriate to develop liquid financial instruments for the preference of institutional investors (Joshi, 2013). The survey show that TPO models are preferred to direct ownership in Spain and Italy and direct ownership is strongly preferred in Greece, as shown in Table 19 and Figure 34. The biggest bias towards TPO is in large farms in contract farming (3.56 vs 3.08) while the biggest bias towards DO is in small farms without contract farming (3.69 vs 2.31). Country Self-consumption TPO Greece 2.44 Italy 3.94 Spain 3.26 Total 2.98 Source: Prepared by the authors with data from RESFARM survey

Self-consumption direct ownership 3.87 2.43 2.86 3.22

 Table 19: Interest in TPO and DO business models for self-consumption by country (1) 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

71.3% 65.1%

46.8% 41.7% 32.2%

31.1%

35.4%

21.9%

TPO

DO Greece

TPO

DO

TPO

Italy

Spain



DO

p. 42

TPO

DO Total

resfarmproject.eu  Figure 34: Interest in TPO and DO business models for self-consumption by country

Cereal farmers are the most interested in TPO closely followed by vegetable and poultry farms. Large cattle farms are also especially interested in these types of business models which match better with industrial production and management. Results are shown in Table 20. Size of holding (UAA) Medium Large Bovine 3.01 3.40 Cereal 4.09 3.53 Fruit 3.00 3.50 Grassland 3.50 3.20 Greenhouse 2.69 2.50 Olive 2.50 3.00 Poultry 3.50 3.56 Sheep 3.01 3.47 Swine 2.63 3.61 Vegetable 2.71 3.88 3.67 Vineyard 2.88 3.37 3.53 Total 2.49 3.09 3.42 Source: Prepared by the authors with data from RESFARM survey Type of production

Small 2.33 5.00 2.97 4.00 2.56 1.96 2.00 2.67

Total 3.13 3.78 3.01 3.33 2.64 2.23 3.53 2.94 3.49 3.55 3.36 3.01

 Table 20: Interest in TPO business models for self-consumption by type of production and size of the farm

The comparison between TPO and DO shows an overall preference for DO. This preference is very remarkable on small farms, while medium and large farms instead prefer the TPO model, as shown in Figure 35. Analysed by type of production, in 7 out of 11 categories TPO is preferred over DO. Table 21 contains detailed information about the issue. These results suggest the existence of several different sub-markets, that should be accordingly addressed. 5,0 4,5 3.83

4,0

3.42

3,5

3.09

3.03

2.97

3.01

3.22

3,0 2.49 2,5 2,0 1,5 1,0 Small

Medium

Large

TPO

Total DO


 Figure 35: Interest in TPO and DO models for self-consumption by size of the farm

Type of production


TPO

p. 43

Type of self-consumption Direct ownership (DO)

resfarmproject.eu Bovine Cereal Fruit Grassland Greenhouse Olive Poultry Sheep Swine Vegetable Vineyard Total

3.13 3.78 3.01 3.33 2.64 2.23 3.51 2.94 3.51 3.55 3.36 3.02

2.77 2.51 3.60 3.00 3.01 3.91 3.04 3.61 2.79 2.57 3.35 3.22


 Table 21: Interest in TPO and DO models for self-consumption by type of production

Irrigation In order to determine the potential market for capital-market suitable business models for on-farm RES, four main applications have been identified as especially viable in technical, economic and social terms. Three of these applications are oriented to self-consumption, including photovoltaic for irrigation, photovoltaic for acclimatization and biomass for heating. Complementarily, business models for photovoltaic systems for producing electricity for commercialization have also been analysed. Southern European farming is very dependent on irrigation, and a significant part of the costs of these farms is directly related with the energy demand for water pumping. The increasingly economically efficient possibility of replacing fuel-powered system or expensive utility bills by introducing photovoltaic system is attracting many farmers. For the purpose of this analysis, farmers have been assumed as “technically viable” in the case that their production orientation was considered compatible with a PV system for irrigation and that they responded positively when asked if they consider that an on-farm RES was suitable for their land. At this moment, only 4.2% of those farmers have already installed a RES while 59.2% consider that their farms are suitable for it, especially in Italy (78.1%) and Spain (71.2%). Of these potential consumers 78.7% showed interested or very interested (4 or 5 out of 5) in at least one of the presented business models and 68.7% were considered as suitable for the business models by the interviewer. Direct ownership models were preferred over TPO (3.76 vs 3.04) with important differences associated with countries and sizes of the farm, as shown in Table 22. Size of the farm (UAA)

Country Greece

Italy

TPO DO TPO Small 2.34 4.17 3.00 Medium 2.39 4.36 4.65 Large 2.60 4.40 4.33 Total 2.36 4.22 4.48 Source: Prepared by the authors with data from RESFARM survey

Spain DO 3.00 1.35 1.67 1.52

TPO 3.62 3.47 3.68 3.54

Total DO 3.54 3.80 3.41 3.66

TPO 2.49 3.36 3.60 3.04

DO 4.08 3.59 3.40 3.76

 Table 22: Interest in models for irrigation by country and size of the farm

According to the results of the survey, TPO models for irrigation are especially suitable for Spanish and Italian mid to large sized farms and DO is more suitable for Greek farms. The upfront cost is the main barrier that this group of farmers mentioned in the three countries


p. 44

resfarmproject.eu (82.5%). In Italy, legal and administrative barriers are perceived as almost an important a problem (76%) as costs, implying a preference for TPO models. In Greece and Spain, the survey shows a lack of available information and tailored offers that must be addressed.

Acclimatization Modern farms require optimal maintenance of conditions of temperature and humidity to optimize production. In Southern Europe ventilation is especially required in poultry, swine and bovine farms during warmer seasons. This application is very demanding in terms of electricity consumption, significantly increasing the operating cost of the farms. By introducing photovoltaic systems to power acclimatization systems farmers can save money from utility bills while reducing the carbon footprint of their production. Only 8.2% of the farmers surveyed with acclimatization needs have already installed a RES while 75.1% of them consider that their farm is suitable for this type of installation, with similar results in the three countries. After being presented with the business models suitable for Resfarm, 63.1% showed interested or very interested (4 or 5 out of 5) and 44.5% were identified by the survey takers as suitable for the business models. The interest is especially high in large farms in Spain (68.9%) and medium farms in Greece (85.7%) and Italy (100%). TPO models are generally preferred over DO (3.25 vs 2.8) and the difference is bigger among those that are interested in capital market suitable business models (3.47 vs 2.88). As in the case of irrigation, the figures differ in the case of Greece where DO models are strongly preferred to TPO.

Size of the farm (UAA)

Country Greece TPO

Italy DO

TPO

Spain DO

Small Medium 1.29 4.29 4.00 2.50 Large 3.14 4.00 3.60 2.80 Total 2.21 4.14 3.71 2.71 Source: Prepared by the authors with data from RESFARM survey

TPO 2.29 3.07 3.51 3.28

Total DO 2.57 2.63 2.86 2.75

TPO 2.29 3.01 3.50 3.25

DO 2.57 2.69 2.90 2.80

 Table 23: Interest in models for acclimatization by country and size of the farm

In the group of farmers suitable for this type of on-farm RES, upfront cost is the main barrier but at a relatively low level (69.7%). Apart from limiting up-front payments, successful business models must address a high level of uncertainty over results (41.6%) and lack of tailored information/offers (31.1%). In Italy, there is also a special concern over legal and administrative complexities (37.5%) while in Greece up-front costs are viewed as especially problematic (92.9%).

Heating The use of biomass to produce heat is among the applications that can be seen to match both farmers´ and institutional investors’ requirements. These widely available renewable resources can substitute fossil fuels at a competitive price improving the productivity of a wide range of farms like greenhouses, poultry and swine farms. It is also, apart from photovoltaic, the only technology that has already being successfully introduced by a capital


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resfarmproject.eu market suitable business model. Due to the insufficient size of farms suitable for heating in the samples of Italy and Greece, in this version of the report, only Spanish farms are considered for analysis The penetration of this technology according the sample is still marginal and just 5.3% of the suitable farms have already introduced it. Of those farmers with potential heating needs, 80.3% consider that they will benefit of installing a RES. After being presented with CMcompatible business models, 66.7% of the farmers indicated that they were interested or very interested in the offer. TPO models are slightly preferred over DO (3.63 vs 3.45), larger farms being more interested in TPO (3.88 vs 3.12) and smaller farms opting for DO (4.09 vs 3.15). An important factor in this preference is whether the farm is involved in contract farming or not, the latter being much more interested in TPO (4.03 vs 2.89) showing the potential for combining TPO and contract farming to introduce heat producing on-farm RES suitable to attract capital market investors. The main barrier identified so far to introduce heat-producing on-farm RES among those farms suitable and willing to do it is the up-front cost (78.6%). The other relevant identified barriers are the lack of tailored offers (56.1%) and the uncertainty over the results (54.1%). This indicates the need to develop and disseminate credible business models for this application.

6.2. Commercialization The possibility of producing energy on the farms for commercialization is limited by the complex legal and administrative framework of the electricity markets of the targeted countries. In this report we consider the attractiveness for famers of participating in special legal entities operating on-farm RES on behalf of the farmers or using their lands to install utility scale RES with the potential to attract low-yield, long-term capital market funding (yieldcos). The proposed participation of farmers in these companies can be through equity or equity-like participations or by establishing long-term leases in exchange for using their lands to install the systems. The surveyed farmers were presented with two alternative options similar to those that could eventually allow then to participate in a yieldco-like structure in order to establish the attractiveness of the model. Of the surveyed farmers, 71.7% are interested in participating in these structures, involving leases and/or surface right cessions of 20 years or more. The interest is especially intense in Greece (83.6%) but is the majority choice in all the categories of the farms. Farmers are more interested in lease-like returns (even if the expected economic value of equity-like is superior) 54.4% of the surveyed being interested in participating in exchange for a fixed lease and only 28.6% interested in doing so in exchange for equity or equity-like structures. This preference is especially remarkable in Greece and Italy and in small farms. Tables 24, 25 and 26 present the results in detail.

All categories Size of the farm (UAA) Small Medium Large Total

Country Italy

Greece Yes 83,2% 84,2% 95,2% 84,1%

No 16,8% 15,8% 4,8% 15,9%


Yes 80,0% 83,3% 54,5% 76,1%

No 20,0% 16,7% 45,5% 23,9%

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Total

Spain Yes 58,5% 59,0% 71,3% 63,9%

No 41,5% 41,0% 28,7% 36,1%

Yes 80,1% 66,3% 72,3% 71,7%

No 19,9% 33,7% 27,7% 28,3%

resfarmproject.eu Country Greece Italy Size of the farm (UAA) Yes No Yes No Small 83,2% 16,8% 80,0% 20,0% Medium 84,2% 15,8% 83,3% 16,7% Large 95,2% 4,8% 54,5% 45,5% Source: Prepared by the authors with data from RESFARM survey

Total

Spain Yes 58,5% 59,0% 71,3%

No 41,5% 41,0% 28,7%

Yes 80,1% 66,3% 72,3%

No 19,9% 33,7% 27,7%

 Table 24: Interest in producing electricity for commercialization by country and size of the farm

Interested in leases Country Greece Italy Size of the farm (UAA) Yes No Yes No Small 69.6% 30.4% 80.0% 20.0% Medium 78.9% 21.1% 80.0% 20.0% Large 71.4% 28.6% 45.5% 54.5% Total 72.5% 27.5% 71.7% 28.3% Source: Prepared by the authors with data from RESFARM survey

Total

Spain Yes 41.5% 37.0% 50.0% 42.5%

No 58.5% 63.0% 50.0% 57.5%

Yes 66.3% 49.3% 51.2% 54.4%

No 33.7% 50.7% 48.8% 45.6%

 Table 25:Interest in leasing land to promoters of RES by country and size of the land

Interested in equity Country Greece Italy Size of the farm (UAA) Yes No Yes No Small 24.1% 75.9% 0.0% 100.0% Medium 15.8% 84.2% 6.7% 93.3% Large 71.4% 28.6% 27.3% 72.7% Total 23.9% 76.1% 10.9% 89.1% Source: Prepared by the authors with data from RESFARM survey

Total

Spain Yes 24.4% 30.6% 36.1% 32.5%

No 75.6% 69.4% 63.9% 67.5%

Yes 23.8% 25.8% 38.1% 28.6%

No 76.2% 74.2% 61.9% 71.4%

 Table 26:Interest in participating in equity or semi-equity schemes to commercialize electricity

7. Discussions and implications 7.1 Characteristics of the suitable farmers An important issue in order to develop a market for on-farm RES business models suitable for capital market investors is to identify the characteristics of the farmers that are more likely to accept and to stick to the long-term bindings that are required. This is especially relevant in the case of business models based on power purchase agreements, where credit scores are not the best predictor of their long term performance in the contract. In this situation, the commitment of the customer to the activity where the RES is integrated is even more relevant. So it is key to establish the contribution of the RES to the efficiency of the production system and the resilience of the value chain where the farm is included. Other relevant factors are the farmers´ willingness to accept special conditions such as allowing access to their lands to service the RES and extra-judiciary conflict solution proceedings. Based on this profile, survey takers scored each farmer surveyed in a 1 to 5 Liker style scale to establish the likelihood of the farmer being a “good” candidate for the analysed business model in order to create sound collateral for capital market investors. Farmers have been assigned to two categories: “suitable” and “not suitable”. Those in the first category were those scoring 4 or 5 and in the second those scoring 1 to 3. The results of this classification included 1,359 farmers of the targeted countries are shown in Figure 36.


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resfarmproject.eu

Greece

82.4%

Italy

69.4% Yes

Spain

No

43.8%

Total

59.2% 0%

5%

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%


 Figure 36:Farmers interested in self-consumption by country

To establish the characteristics associated with the suitability of the farmers, a statistical model has been developed. The chosen model has been a logit regression where the dependant variable is whether the farmer is suitable or not for Resfarm, as classified by the survey takers. The model has been estimated independently by several groups of characteristics. The analysis presented is restricted to those characteristics found to be statistically significant (p