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Renewable Energy Projects: Productivity impacts

Renewable Energy Projects: Impacts on productivity

Rebecca Jeffriess

In our previous article we discussed the importance of taking your time to consider how a proposed renewable energy project on your property would impact the agricultural productivity of your business.

It is critical to consider these impacts throughout all the phases such as feasibility, construction, ongoing energy generation and decommission.  What will this do to your profitability and cashflow? In this article we expand on this concept.
 
Agricultural Productivity
Some of the key considerations when deciding on whether to lease to an energy developer for a renewable project are:
  • How much of your land do they require?
  • What type of access do the developers need and for how long is the access required during each phase of the project?
  • This may go beyond restriction of land space as well, are there any easements, or other powerlines?
  • Does your business require the use of aerial spraying, helicopter mustering or drone use?
Whilst feasibility studies may be relatively unintrusive to your agricultural productivity, should you sign on for the initial option period, this may then lead to development phase where your productivity may be impacted.
 
Profitability
Understanding the potential impacts to profitability is about looking at your property overall and knowing where you can produce different levels of income and whether costs for each area are fixed or variable.

There may be a situation where the development of a renewable energy project doesn’t impact the profitability of the business at all, and in this case any income received from an option or lease would be on top of regular trading. However, on the other hand, there may be a situation where there is a loss of income but no reduction in expenses. In this case, has the compensation from the energy project offset the loss?

There are many factors to consider in how the project may impact profitability and this will change through the different phases of the project as well.
 
Cashflow
Closely related to profitability but a potentially more harmful issue, are the impacts to your cashflow due to lost agricultural productivity. If you were relying on cash coming in from the use of land which now has restricted access for the project development, how is this cash going to be replaced? Does the compensation for access cover the lost income and is the timing of receipt of this income aligned to the lost agricultural income?

Considering the above points further, it is important to consider how these may cause operational impacts even further. Are short term cashflow hiccups manageable for you, but do they affect your suppliers and risk damaging relationships? Is your bank manager aware of your plans to take on a project and how this may impact on your numbers for the duration? What could happen to the overall value of your property once this infrastructure is installed?

There may be positive profitability and cashflow benefits to signing on to a renewable energy project. However, there are cases where it may be detrimental to your business, property and livelihood.

Our agribusiness team can help you to walk through the potential challenges of a renewable project before you sign on to a project to enhance your planning and optimise your experience and benefit on all of the above aspects.
agribusinessagricultureequipmentfarming operationsprimary productionrenewable energystrategic planning

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