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Episode 59: Farm Energy Management with Eric Romich

May 20, 2024

Small Changes Reduce Energy Costs

Eric Romich travels the state of Ohio to educate farmers about how they can save money through energy efficiency and renewable energy practices. He focuses on helping them understand and manage their farm’s energy consumption to make their operations more profitable.

While solar investments are popular due to prevalent media coverage and financial incentives, Romich says the most cost-effective strategy is reducing energy usage altogether.

“The cheapest energy is the energy we don’t use,” he explains.

Understanding how your operation uses energy is the first step. For a dairy or hog operation, for example, this might look like monitoring all the critical motor loads to determine what’s triggering peak energy demands.

“It’s important to start thinking about what are your largest motors,” Romich says. “When are they running? Why are they running? Are they essential or non-essential operations?”

Romich also encourages farmers to understand their rate structure. Or in other words, how you are charged for energy.

For dairy and hog farms operating under commercial rate structures, their electricity bills are influenced not only by the kilowatt-hours consumed but also by peak demand charges. In an analysis of their rate structure and energy use, Romich reveals that up to 50% or even 60% of their electricity bills can result from brief 15 to 30-minute peak demand spikes.

Other energy efficiency changes farmers can make include lighting, high-efficiency ventilation, motor upgrades, cooler compressors, and grain dryers.

While these are typically the fastest and cheapest way to reduce farm energy costs, many farmers are also considering on-farm renewable energy generation systems.

On-Farm Renewable Energy

On-farm solar, wind, biomass, geothermal, hydropower, and hydrogen are all examples of on-farm renewable energy opportunities.

Romich highlights three core incentive programs for on-farm renewable energy investments, a 30% investment tax credit, advanced depreciation, and the Rural Energy for America Program (REAP) grant.

“The 30% investment tax credit is, to me, really the cornerstone of any project,” Romich says. “It’s a dollar-for-dollar tax credit on your federal income tax liability.”

Advanced depreciation is another tool for farms interested in renewable energy. “It allows you to depreciate the project over a five-year schedule and then offers bonus depreciation in year one,” Romich explains.

The third opportunity is the REAP grant program. “You have to work through USDA Rural Development and apply. And then if your project is selected, it’s a reimbursement grant program that would reimburse you for those funds.”

Two types of borrowers can qualify for the REAP grant. “Qualified projects can be either agricultural producers or what’s defined as rural small businesses,” Romich explains.

Before investing in a renewable energy project, Romich advises farmers to do their homework, get multiple quotes, and consider the financial implications and potential returns on investment.

“Understand your energy consumption,” Romich states. “Then the next step is to understand your rate structure.”

Knowing your historical energy usage and how you are being charged for energy allows for an energy simulation model to be created. This takes into consideration how you are going to be compensated for the energy that you generate.

“These are big dollars that farms are considering to invest in these projects,” Romich shares. “I mean, if you’re going to put six figures in a solar project, you need to make sure it is the best return on your investment.”

Each farm's energy needs and circumstances are unique. Farmers can find more information about educational programs and resources from Ohio State University Extension at go.osu.edu/farmenergy.

Here’s a glance at this episode:

[01:10] Eric Romich introduces himself and his role in on-farm renewable energy.
[03:58] Romich shares how farmers can reduce energy costs before investing in large-scale renewable energy projects.
[10:13] Romich highlights the opportunities available for farmers to take advantage of renewable energy.
[17:58] Romich introduces the three core incentive programs for on-farm renewable energy, which include a 30% investment tax credit, advanced depreciation, and the REAP grant program.
[21:14] Romich encourages farmers to first consult with USDA Rural Development for guidance on renewable energy projects.
[27:12] Romich explains what producers and businesses are eligible to receive REAP grants.
[31:48] Before considering a renewable energy project, Romich explains what the best steps are to get started and key things to understand about your energy usage.
[43:36] Romich concludes by providing information on where farmers can find educational programs and resources from Ohio State University Extension.

Resources mentioned in this episode:

Farm Energy Management Resources from Ohio State University Extension - http://go.osu.edu/farmenergy
Connect with Eric Romich - romich.2@osu.edu

Connect with AgCredit on Facebook, Twitter and Instagram

Share questions and topic ideas with us:
Email podcast@agcredit.net

Transcription

Voiceover (00:08):Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must-have information on all things from farming to finances and everything in between.

Libby Wixtead (00:28):Welcome back to AgCredit Said It. I'm Libby Wixtead. And today we have Eric Romich with us, and we're going to be talking about REAP grants, solar on the farm, and energy education. Eric is an Ohio State University Extension field specialist for energy development. His background is in renewable energy, which began during his former assignment as an OSU Extension educator in Wyandot County. His expertise is in solar development, lease agreements, peak demand energy management in agriculture, and renewable energy policy. So welcome, Eric. We're happy to have you today.

Eric Romich (01:09):Yes, thank you. Happy to be here.

Libby Wixtead (01:10):Yeah. So why don't you start off and tell us a little bit about your background and then how you got into your role?

Eric Romich (01:18):Sure. As you mentioned, my background in energy education started in Wyandot County. I was working as a county extension educator focused on community development. And in Wyandot County, we had an 85-acre solar field that was in development. And working through the Wyandot County Office of Regional Planning, Wyandot County Office of Economic Development, and with OSU Extension, I was pretty heavily involved in that project. And as a result, started to get a lot of questions throughout the state tied to energy policy, solar energy development. And so as I started to get pulled into other parts of the state on this topic, transitioned into a role from a county-based educator in Wyandot to more of a statewide educator focused on energy education.

(02:11)So that's since branched off. That role was initiated through work in solar energy development. Since then, that was in 2012, really get pulled into a lot more topics related to energy on the farm. So we have a lot of research projects throughout the state that have involved anything from peak demand management in hog operations, dairy farms, advanced ventilation systems, and confined animal housing. We look at power factor correction on grain dryer facilities.

(02:52)And then, again, still working a lot with on-farm renewable energy education. So I do a lot of financial modeling for farms that are interested in putting a system in to power their farms, not necessarily to sell that system, but to go through the modeling process to help the farmer understand the variables and let them determine what assumptions do we want to make. The challenge is, with any model, which all of the solar developers that are going to present that farm with a proposal, all of these models are based on assumptions. I've heard it put before, very simply, garbage in, garbage out. So using those assumptions that farms are comfortable with, we will do those financial projections and then they can determine if they want to install that system or not.

Libby Wixtead (03:41):In your role, you're a real resource for farmers. Okay, so let's get started here. What are small changes that farmers can make on their farms to make differences in their bottom line?

Eric Romich (03:58):So everyone's first instinct is to look at investments in solar, because either that's what they're reading in the newspaper headlines or that's where a lot of financial incentives are targeting. And then also some developers are really trying to sell projects, and so they're out working this industry to try and see if they can't get some solar projects off the ground. And so that seems to be where farmers start the discussion around energy management on the farm. But I really think that it's important to understand that the cheapest energy is energy we don't use. And so understanding how that operation works.

(04:47)A good example would be one of the research farms we had. We put some advanced metering equipment in, and then we monitored the peak demand profile for all the critical motor loads on a dairy farm. And when you look at a commercial rate structure for a dairy farm or most of our hog operations, they're on-demand rates now. These are commercial rates where you're not just paying for energy in terms of what that cost per kilowatt-hour is or unit of energy that you're using, you're also paying for the peak demand. So what is the largest spike that you'll have over an interval of time? Most often 15 to 30 minutes here in Ohio. And over the course of that billing period.

(05:29)And so while I had farms reach out to me interested in solar, we would start to look at their rate structure, start to look at their energy usage and say, "Look, 50% of your bills... and sometimes as high as 60% of the bill was just based on a 15-minute peak demand spike.” And so the question that I had for them... You think about a hog operation in the summer. Everything's running. It's hot, right? And so solar is offsetting or removing that peak demand when the sun's shining, but the challenge is what happens at 8:30, 9:00 pm when the sun goes down? All stages of the ventilation fans are still running. And you didn't remove that peak demand, you simply moved it to later in the day, and you're still paying for that high-demand spike.

(06:16)So I guess back to that dairy example, one of the things that we found by monitoring... So let me back up. The challenge with this is we can see 60% of the bill or 50% of the bill is based on a 15-minute demand spike. The challenge is understanding what's triggering it. And so that's where we did these research projects where we installed advanced meters on some hog and dairy operations to better understand, well, what pieces of the operation are really triggering that demand?

(06:45)On the dairy site that we monitored... And again, every farm's different. So it's important to start thinking about what are your largest motors. When are they running? Why are they running? Are they essential, non-essential operations? We found some non-essential operations on this dairy. The largest was a 30 horsepower manure pump that they were paying $325 to $365 a month just in demand cost for that motor to kick on and run. So the challenge was they were operating that manually. So when they're kicking it on was typically when they were doing morning milking operations. So vacuum pump motors are running, cooler compressor motors are running. If it's hot out, the ventilation fan, stir fans are running.

(07:34)And what we were asking is, "Why can't we move that manure pump? We need to move it. We need to move that material. But why not move it from 2:00 to 4:00 AM when we're not milking? That's the coolest part of the day." And the answer was, "Well, do you want to come in here at 2:00 am and turn the pumps on?" I said, "Well, what if I said that it would save you $4,000 a year?" And that's kind of what it worked out for. You can actually use more energy. You could use more kilowatt-hours and still reduce the cost by eliminating that peak demand. And so they ended up putting a timer in on that motor, and it automatically kicked on during certain sequences.

(08:16)So those are the types of things that I really encourage farms to start with, is just really trying to understand how the farm's operating. And I think the easiest way to do it... You really don't need to have a formal energy audit, because in many cases those that understand that operation the best are the farmers. Target your largest motors, largest energy consumers. So what are the largest motors on the farm? When do they run? Why do they run? Are they essential loads, or are they non-essential loads that we could move to different times?

(08:50)And then with that, I guess I would say you really have to understand your rate structure. So how are you charged for energy? Do you have a demand rate? I mean, there are still some farms that are on residential rates, where this type of stuff doesn't matter. That's less common than what it used to be. But that's really where I encourage people to start.

(09:11)And we'll get to the REAP grant here a little later as we work through some renewable energy stuff on the farm, but just to throw it out there... And we'll tie it back to this discussion I think, the REAP grant does support not just renewable energy projects, but energy efficiency investments as well. So whether we're talking about lighting, high-efficiency ventilation, upgrading motors, cooler compressors, those types of things, grain dryers. I mean, obviously the REAP grant's been used for decades for grain dryer upgrades. So it's important to remember that we don't need to jump right into renewable energy investments on the farm. We need to first start with those efficiency upgrades.

Libby Wixtead (09:51):Yeah. That's great tips there, just for some smaller things that you can do. And I'm sure every farm can find something that they can do differently if they're looking to lower that energy cost. Can you now share with us what current renewable energy opportunities are out there for farmers to take advantage of?

Eric Romich (10:13):Yeah. So starting to get a renewed interest in some on-farm wind, I shouldn't say wind – on-farm solar development. So I really saw a lot of farms that were reaching out. They had questions about investments in on-farm solar. And when I say on-farm, I mean behind-the-meter. So the farmer invests in the project, they own the solar project, it's installed on their farm, it's installed on their side of the electric meter. So it's basically offsetting energy they would otherwise purchase from that utility. And then through a net metering agreement, they're compensated at a certain rate if there's any net excess generation.

(10:55)And that's important for people to recognize, is every net metering agreement is a little bit different based on the utility that you're with. And it's really important to understand how you're compensated for that net excess generation. A lot of times, it's maybe suggested that it's a kilowatt-hour credit. So if you over-generate, well, you just carry that over-generation, those kilowatt-hours over to the next billing period.

(11:27)In most, if not all, cases in Ohio, that's not the case. You're compensated for that net excess generation from a monetary sense. And so they're either going to compensate you at the retail rate for your generation, for the generation component of that unit of energy, which is going to exclude any of your fixed cost or the economic development riders or the energy riders that are on the bill, and of course your transmission delivery costs. That's kind of excluding those. You're just getting compensated for the generation component of that bill in regards to that net excess generation carried forward to the next billing period.

Libby Wixtead (12:07):Can I stop you there?

Eric Romich (12:08):Sure.

Libby Wixtead (12:08):Is that you're actually getting a check, or that is a credit on your account? How do they see that coming through on their bill or see them being paid for it?

Eric Romich (12:19):So that's a credit to the energy bill. And again, that's where I think sometimes I'll see proposals where it's assumed. They'll look at the bill and say, "Well, your total bill was X amount and you used so many kilowatt-hours, so you're paying 11 cents a kilowatt-hour, or 13 cents a kilowatt-hour." And they'll use that as the value of a unit of energy that you're generating. And in some cases, that may be true. So if you're offsetting a unit... The best way to maximize the value of a unit of energy you generate is to use it.

(13:00)And so when I do financial modeling for farms, looking at these types of projects, I'll do a parametric analysis on the back end of that model that does a whole bunch of different simulations. And what I'll ask it to do is simulate different system sizes as the input, and I want the output to be the net present value. And so what I'll look for is how do we maximize net present value for this project. And then that's the size of a system that you would recommend to install, right? If we're talking about really looking at this from an economic standpoint and maximizing the return on your investment.

(13:40)But what that's actually doing, if you think about what's happening behind the scenes, is it's identifying what size system is maximizing the value of a unit of energy. And typically, you're minimizing that net excess generation. So it's a long way for me to say don't oversize a system. Sometimes I feel like the natural instinct is to say, "Well, we want to offset 100% percent of our bill." Okay, but the project's going to take a lot longer to return, and probably not be the best return on your investment.

(14:14)There are a lot of opportunities right now that, again... I saw a spike early on. I would say 2012 to 2016. There was a lot of interest in farms installing these types of projects. A big part of the reason was the 30% investment tax credit program. The REAP grant, and then also at the time we had solar renewable energy credits, which were trading really high. $350 to $400 a credit in some cases, which is based off of... We don't want to get into that too much. For every megawatt hour of energy that your system generates, you're assigned this renewable energy credit or solar renewable energy credit for that generation. And so certain entities that are driven by policy to have renewable energy, they buy these credits through these various markets. And so there was a big incentive there. Now, since, renewable energy credits in Ohio, last I looked, were trading at $3 per credit. That's less of a driver than what it was at one point.

(15:18)But what we've seen is through the Inflation Reduction Act, there's been a lot of money dumped back into the investment tax credit program and the REAP grant. There are a couple of reasons I think that we started to see, at least I started to see a reduction in the number of farmers that were calling me interested in this type of project. One of the reasons was I think just they hit the low-hanging fruit. I think the farms that were really positioned well to have a quick return on that project had already considered and made their decision, but also there was a reduction of that 30% investment tax credit that was taking place. And so the 30% investment tax credit is, to me, really the cornerstone of any of these projects, or historically has been. And that's a dollar-for-dollar tax credit on your federal income tax liability for these projects.

(16:14)And so that was slowly stair-stepping down from 30% to 26 to 24 to 22. So it was kind of on this time sequence, where it was going to slowly step down and then ultimately take a big jump down to 10%. But through the Inflation Reduction Act, they dumped a lot of additional money into these programs. And so it reinstated that investment tax credit program at 30%. And there are also some additional opportunities to increase it above 30% based on domestic components. So I think it's 100% steel and iron. If 100% steel and iron is used, and then 40%, I think, of the overall components are sourced domestically, you can get an additional 10% bump to that.

(17:08)And then part of it's just based geographically on where the project's located. And I think a big part of that geographical formula is areas that are within a certain proximity to coal closure communities. And then also some of it's based off of unemployment rates and fossil fuel-based unemployment, or employment formulas. So there's a map on the Department of Energy site that kind of calls out each county in Ohio and which ones qualify and don't. But you could get additional credits based on that program as well. So the injection of money back into that program has certainly got people's attention in terms of on-farm renewable energy projects.

(17:58)So to me, at a high level, there are really three programs. And not to say that there's not more, because I get people calling all the time, "Hey, have you heard about this program?" Some of them have a lot more strings attached and maybe not as common. But to me, the three core incentive programs related to on-farm renewable energy investments would be your 30% investment tax credit, advanced depreciation, and the REAP grant.

(18:24)And so advanced depreciation, again, is another tool for farms that are interested in making these investments. That allows you to depreciate the project over a five-year schedule and then offers bonus depreciation in year one. So currently in 2024, I believe bonus depreciation is set at 60%. And I think that drops 20% next year, down to where you can get bonus depreciation in year one at 40% of the project. So those are two of the main tools.

(18:58)And then again, the third one is the REAP grant program. And we've seen some significant changes in the REAP grant, or I guess Rural Energy for America Program, that has really increased the grant component of that program. So historically, REAP would cover, from a grant component, 25% of a project, whereas with the Inflation Reduction Act dollars that have been added in there, it now can go up to 50% of the project can be covered through the REAP grant. So certainly, when you start to add up the investment tax credit and depreciation, and now if you're fortunate enough to have 50% of that REAP grant, it can really make a project look pretty good from a payback period.

(19:49)The one thing to keep in mind with the REAP grant is it is a competitive grant program. So it's not like you automatically get those funds. There's a process. You have to work through USDA Rural Development and apply. And then if your project is selected, then it's a reimbursement grant program that would reimburse you for those funds. So it's important to make sure that you understand the financials of these projects, in my opinion, with or without the REAP grant because historically, Ohio has done a really good job of utilizing all of our funding allocation. And so any funds that are not used, USDA takes back from states that don't use theirs and reallocates them. So normally, historically, Ohio uses all of ours, and then we'll get a second round of dollars that other states didn't use, and we'll use those as well.

(20:49)So it's sometimes, I think, sold as, “Oh, well, the REAP grant's always funded, but at the end of the day, it's a competitive program.” So I really encourage people to reach out to USDA Rural Development. Randy Monhemius is a really good contact down at USDA. And Randy and his staff do a really good job of working with farmers to help walk them through that process.

Libby Wixtead (21:14):What if, on the REAP grant, we've had from some of our customers that have been going through the program and the process. They've had grant writers that they've used. Now, is that something that you necessarily have to use, or how can people find that resource of the grant writers?

Eric Romich (21:35):Yeah. So you don't have to. Certainly, there's nothing wrong with it if you do use that, but most of the time it seems like the installers either have grant writers that they will put you in contact with or they'll have someone on staff that does that grant writing component for the project.

(21:57)And so I guess a couple of things there. Number one, I caution farmers against getting wrapped up to where they're spending a bunch of money upfront to have that grant written for them. I mean, certainly there's value in time. So if you don't have the time, and I mean, it seems fair, that's fine. But USDA is purposely going through that application process, trying to simplify it and streamline it so that it's something that is not too burdensome to complete. And again, if you reach out to USDA Rural Development, they have staff on hand that can really help walk you through that process. So I would encourage you before you make any decisions on signing on with a grant writer to make sure that you reach out to USDA Rural Development first and have that initial conversation.

(22:53)The one thing I caution people a little bit is to make sure that you don't get in a situation where you're committed. So if you really do the evaluation of a project with and without the REAP grant, many times that REAP grant can be the difference between a payback period that is...

(23:20)So a lot of times I'll model projects. I use the System Advisor Model tool from the US Department of Energy. And we can set the project period. Typically, we'll match the warranty on the modules that they're using. So 25 to 30 years. And I really like this modeling tool because it allows us to put all of the assumptions in the hands of the farmer. So we mentioned earlier, garbage in, garbage out. If we work with the farmers and explain to them, "Here are the different inputs. Are you paying cash or are you borrowing money? If you're borrowing money, what are the terms? What are you comfortable with in terms of the inflation rate? What are you comfortable with in terms of a discount rate?" Explaining to them the impacts of energy escalation.

(24:10)A lot of times when we see modeling, energy escalation is added in there at 3 or 4% based off of a data set. Well, that data set has inflation built into it, and you've added inflation into the model. So now we've double dipped, and we're assuming energy rates are going to escalate at 6 or 7% annually. And so when you start to do that, then you get some real gaudy return on investment projections. But I think that walking through those models with farmers, it puts the decision-making in their hands in terms of what those variables are and what they're comfortable with.

(24:50)But back to the point in terms of as we think about the importance of a REAP grant, I just recently last month modeled a farm that was considering a solar project on a hog barn. And looking at it without the REAP grant, so just assuming a 40% investment tax credit because they were located in a county that showed up on DOE as that energy community is what they're referring to it. And so they were listed as a qualifying energy community. And so modeling it with just the investment tax credit depreciation. And then I did assign, even though it's low, I assigned a value at the current market for the solar renewable energy credit. So those were the only incentives that we used. The payback period was longer than the project analysis period. So longer than the 25-year project period. When we added the REAP grant into the mix and said, "Let's assume that we get the 50% REAP grant funding," all of a sudden it's under five years.

(26:10)So back to the point of grant writing, which got me off in this wormhole here, I think it's important to make sure that you understand what you're signing on for. So if you have a grant writer or grant writing services through this developer that may offer that, it's important to make sure that you're not committing yourself to doing a project before you understand whether you have or haven't received the REAP grant funds, because again, that can really impact the financial success of the overall project. And so that's the one thing that I caution people a little bit when we think about grant writing. Not that they're bad, it's just important to understand what you're signing on for. And I would certainly encourage you to reach out to USDA before you make a decision on hiring a grant writer, just to get a sense of what all is involved in the process.

Libby Wixtead (27:05):Now, Eric, who and what qualifies for the REAP grant? Can we just clarify that?

Eric Romich (27:12):Yeah. So there are two different types of borrowers that can qualify for the REAP grant. And this is a question I get a lot. Instead of who does, who doesn't? A lot of times, I'll get homes that ... They want to put it on their home. And it's important to recognize that the REAP grant program doesn't qualify for residential projects. And so even if you're a farm and you have two separate meters, your house meter's separate from the farm meter. We have to separate those two out.

(27:41)So qualified projects can be either agricultural producers or what's defined as rural small businesses. And so USDA defines that as businesses that are located in rural areas with populations of 50,000 or fewer. And so they have a website you can go to. You could just do a Google search or a web-based search. And USDA has a website that shows by county who qualifies as a rural small business.

(28:15)In terms of how the funds can be used, and that's something that, again, we touched on earlier, but I think it's important to kind of restate. So at one point, I feel like REAP was referred to by a lot of people as the grain dryer program. And I think that more recently, it's been referred to as the solar energy program, but it can do a lot more than that. So the REAP grant program's not just for on-farm solar, but it can do on-farm wind, biomass, geothermal, hydropower, hydrogen, and then of course all of the energy efficiency investments that we talked about earlier. And again, lighting is the most obvious one. If you haven't done lighting upgrades yet, that's something we need to look into. But lighting, insulation, high-efficiency ventilation systems, refrigeration. So doors, windows, all of your energy efficiency upgrades, those can also be funded through the REAP grant. So it's not just solar. It's a multitude of renewable energy technologies. And also a wide range of energy efficiency investments.

(29:29)And they actually have a category for REAP that is the replacement of energy-inefficient equipment, which pretty much leaves the door open to interpretation. So basically, what they're looking at is are you reducing your kilowatt-hour consumption from a baseline? And so it's important to recognize that, yeah, this program can do a lot in terms of energy efficiency, not just on-farm renewable energy.

(29:54)The other thing that I wanted to mention before we move on from the REAP grant is the types of funding. So I mentioned the grant component of that, which that's the one everyone's always the most interested in. And as we discussed, it's through the additional funding, through the Inflation Reduction Act, it's moved from a 25% grant to a 50% grant. They also have loan guarantees that can do up to 75% of a project. And so if you went that route, and you can combine the two, but it can't exceed 75% of the total project cost. So if you combine the grant with the loan guarantee, the farm still has to have a 25% stake in the project. So that's something else to keep in mind as you're evaluating projects, is in terms of the financing, they do the loan guarantee, they do the grant, or you can combine them.

Libby Wixtead (30:49):Yeah, there are a lot of options. And you can see why the REAP grant is an attractive tool in farmers' toolboxes to use when they're looking at upgrading equipment.

Eric Romich (30:59):Right, absolutely. And again, it's a competitive program, not just farm to farm, but state to state. The dollars are going to be used by somebody. And so I really try and help spread the word on the program because if they're going to be used by somebody, I prefer that they're used by farms here in Ohio.

Libby Wixtead (31:21):Absolutely. And I think farmers are pretty competitive in nature, so I'm sure that they like that competitive feature of it. So let's talk about, my husband and I, we have a hog barn. We're thinking about putting solar panels up on our roof. What do we need to do homework-wise before meeting with somebody like you to help us make that decision for our farm?

Eric Romich (31:48):So a couple of things. So the most important goes back to where we started, really understanding your energy consumption. So understand your energy usage. And then the next step to that is understanding your rate structure. And I guess there's one more piece. So the third piece would be either pulling that information off of a web page from your utility or reaching out to your utility and getting the terms for a net metering agreement.

(32:24)So we talked a little bit earlier about net metering. And those net metering rules can be different from utility to utility, especially as you start differentiating from our investor-owned utilities to our rural electric cooperatives. There's some difference in how those net metering agreements are set up. And so that's the information that's the most critical to understand. So we need to understand your historical usage. We need to understand how are you being charged for energy, and then we need to understand how are they going to compensate you for the energy that you're going to generate. With those pieces of information, we can start to build a simulation model.

(33:14)The one thing that I also think is helpful is, if you are really interested in this, to get a couple of different quotes. And I always encourage people to recognize that not all solar projects are built the same. Just because you have a quote for a 50 kW system from one developer and another one that's a 50 kW system, they're still very different systems in terms of how they're constructed potentially. So what components are being used, what modules are being used, and what are the warranties of those modules? What types of racking systems are being used? Inverters is another big one. Is it a centralized string inverter? Are they DC optimizers? Are they microinverters? These are all things that have very different price points based on what type of technology is being used.

(34:16)And so I think that it's important to get two or three quotes because number one, it helps give you a sense of, at the end of the day, the most important thing that you need to look at as you're looking at these proposals is what am I paying for? What's the amount of money I got to write on the check? And what's the size of the system? And so from that, you can look at what your DC cost per installed watt, and you can kind of compare one project to the other.

(34:43)And then as you start to dive into not only the cost aspects, but okay, so if there's a difference, why? Maybe it's worth paying a little bit more for one over the other. I know I've seen some proposals from installers that were doing rooftop systems on a hog barn as an example, and they were using all stainless steel fasteners. Obviously, that's going to cost more. So it's diving in to look at that a little bit closer and trying to understand what are you paying for? And then breaking it down on that common unit of measurement that we can evaluate one to the other in terms of cost per DC watt.

(35:23)And so those help in terms of if you and your husband, as you're looking at this for your hog farm, would have that type of information, we can use that to kind of plug into the model here as a starting point to see… I always try to initially replicate what they've done. So if they're suggesting a certain payback period, when we build the model, do we get that same payback period? And if not, what are the missing pieces? If we have all of that information, I'll build one as kind of a base model that we can replicate what they've been presented with, and then we'll duplicate that. And then I'll walk through with the farm and we'll look at each input and say, "What do you think about this? Here's an input into the model. What are your thoughts?" And we'll plug in the data points that they're comfortable with. And then that allows us to get, again, a good counter to what they're being presented with.

(36:25)And again, the thing that is most easily misunderstood in this is energy escalation rates. So thinking about how energy escalation rates will basically artificially accelerate the payback of a project, because if you have inflation in there and then you put a specific energy escalation in there and we're multiplying that cost of energy annually. And then you're assuming that every unit of energy that you generate is based off of that cost instead of just the wholesale component. That's where things can kind of get a little bit misleading at times. And so this model allows us to actually construct a rate structure that again, it's not always perfect, but we can get really close in terms of a rate structure that replicates, are they paying for energy per kilowatt-hour? Is it a tiered system? Do you have different rates based on different consumption levels? Do you have demand charges or not? Are there different tiers to that demand level? We can really customize your electric rates in this modeling tool.

(37:48)And then also, finally, I guess the last and probably most important, we can customize the net metering structure within that electric rate. So that will help us get as close as we can. And again, in any model, it's still a projection when you're trying to do this. But we want to get as close as possible because in some cases, I mean, these are big dollars that farms are considering to invest in these projects. I mean, if you're going to put six figures in a solar project, you need to make sure it is the best return on your investment. And I also, as a final, even after we do the modeling on this stuff, remind them. So you need to also compare this to your other opportunity costs. So what else could you invest in on your farm with those dollars, and are you getting a greater return versus investing in this? And that's, again, important to consider that as well.

(38:44)Those are the main things in terms of what you would need to do. I think it's important. If you're really interested in this, you got to understand your usage. You got to understand the details of how your electric rates are calculated. You got to understand the net metering rules and how the utility's going to compensate you for net excess generation. Get a couple of quotes, understand the difference between those quotes. Then at that point, if you're really interested in a third-party evaluation, I'll sit down with farms, sometimes face-to-face, sometimes virtually. And we can walk through and try and construct a model to give you just yet another perspective to see is it a good investment or not.

Libby Wixtead (39:29):And I think it comes back to just farmers, we're not experts in this. And I think it's reaching out and hiring and using the resources that we have so we can make good decisions and the best decisions on our farm to make sure we are being profitable and making good decisions for our farm moving forward.

Eric Romich (39:54):That's absolutely true. And the other thing I think I want to throw out there as we were working through this discussion, not all farms are the same.

Libby Wixtead (40:06):Absolutely.

Eric Romich (40:06):That's the one thing that is... Sometimes it spreads through word of mouth. And I've seen it both ways. I've seen farms that have installed projects, and super happy with them. Working out really well. The tax credits, the REAP grant, and the financials are doing what they thought they would do. I've also seen some examples where it went the other way, and they installed it and the net metering is not working out like they wanted, and it was just a hassle.

(40:41)And so it goes back to not all farms the same. And just because you might be able to see a neighboring farm, but they might be on a different utility line. And so all of a sudden, the rate structures are set up differently, whether it's demand or not on demand, or the net metering structures are different. And those play major roles in how the financials of these things work out. And so just because it works on one farm and makes sense doesn't mean it does on the other. And then consumption patterns also make a difference, in terms of what type of farm it is and how much energy you're using and when. And so those are all things that you really need to keep in mind.

(41:25)The other thing that is important to recognize is even the best modeling in the world, there's going to be an element of risk in these types of projects, and that is that policy changes. And so the trends have been that policy tends to support these projects more than it's taking money away from them. But nonetheless, there's always going to be some element of uncertainty that lies with energy policy and net metering rules. And so it's important to keep that in mind as well.

Libby Wixtead (42:06):I think it's just a good point to ... You said that not all farms are the same, but it goes back to, I think, our first question of, okay, what are the small things that you can do that you can change? Instead of having that manure pump going during the day when you're doing everything else, do it at night. And just keeping that in the back of your head of, okay, well maybe this doesn't work for me, but what else can I do? Since our farm isn't operating like the farm down the road that we're competing against.

Eric Romich (42:36):Right. And I think it's important to do it in the proper order. So the first thing you want to do is eliminate consumption that's just a waste. And then target in on energy efficiency upgrades. And then once you feel that your operations are running lean, then at that point you can look at alternative generation. But it's tough to get people to slow down and take that perspective because like you said, that's not what they do. You're running a farm. You got all kinds of stuff going on. So if someone stops by and gives you a proposal, you kind of look at it and-

Libby Wixtead (43:21):Right. Well, there's an opportunity here.

Eric Romich (43:24):Yeah, that's where you start.

Libby Wixtead (43:28):So I guess with that, where can farmers find educational programs from OSU?

Eric Romich (43:36):Yeah. So again, I do a lot of outreach and education on various topics. I mean, I've pulled into everything from oil and gas development in eastern Ohio to solar energy development, behind-the-meter solar, a lot of on-farm energy efficiency, power factor, peak demand. So we do a lot of outreach and education programs. I work, as mentioned, statewide as a statewide field specialist for energy education. So a lot of times when I do programming, it's driven by local demands. So I'll have a local county extension educator that'll reach out to me and say, "Hey, we have interest in our county on this topic. Can you come give a talk?" And so we'll do that.

(44:24):I also have a lot of technical reports and bulletins and fact sheets based on the various research projects that I'm involved with throughout the state. You can find that information, we have a shortened URL, it's go.osu.edu/farmenergy. And that takes you to one landing page that you'll have some different options to try and get where you want to go. And of course, I do travel around the state quite a bit, so email is the easiest way to get ahold of me. And then typically I'll do a return phone call on my cell phone when I'm driving from one edge of the state to the other.

Libby Wixtead (45:03):The best time to make phone calls, on the road. We will make sure that we have Eric's contact information for his email, and then the website that he gave us in the show notes. And Eric, man, I've learned a lot today about energy, and we really appreciate you being with us. So thank you. And that'll do it for another episode of AgCredit Said It. Be sure to subscribe so you get notifications when a new episode comes out. And we'll talk to you guys next time.

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