The United States Department of Agriculture (USDA) announced on May 5 it has earmarked up to $12.3 million in grants and $57.8 million in loan guarantees for the Rural Energy for America Program (REAP). This followed a Dec. 2013 statement that the USDA will distribute $250 million to rural electric cooperatives through the Energy Efficiency Conservation Loan Program (EECLP).

This funding will support local renewable energy and energy efficiency projects and will facilitate the growth of distributed generation. Distributed generation involves building local renewable energy installations that can replace or complement utility-provided electricity.

Lower Costs

According to a Nov. 2013 white paper from the National Agricultural and Rural Development Policy Center (NARDeP), “Wind and Solar Energy in the U.S.: Policy Recommendations for Rural Development,” low-interest loan programs such as REAP play a key role in giving rural communities access to solar and wind power.

“The high initial cost of a residential-scale solar or wind system prevents many would-be buyers from installing renewable energy,” the NARDeP white paper said. “Although banking practices are changing, traditionally banks have not offered favorable loans for renewable energy projects even if they can be shown to offer consistent returns of reduced energy costs.”

To improve the affordability of energy efficiency and renewable energy in rural areas, NARDeP strongly recommended the continuation of programs like REAP that offer clean energy loans. NARDeP also recommended the expansion of property-assessed clean energy (PACE) financing in rural communities.

Distributed Generation

As renewable energy becomes increasingly common in the United States, distributed generation will play a growing role, especially in rural areas, according to NARDeP.

The NARDeP white paper said distributed generation has fewer disruptive visual and environmental impacts than utility-scale rural renewable energy installations do. Distributed generation is also less likely to become a lightning rod for local controversy than large-scale rural renewable energy installations are.

Versatile Technologies

Wind and solar power can provide unique advantages and convenience in rural areas. According to the Union of Concerned Scientists’ fact sheet “Renewable Energy and Agriculture: A Natural Fit,” “Some of the best wind resources are found on agricultural lands. Each turbine uses less than half an acre, so farmers can plant crops and graze livestock right to the turbine’s base.”

Many uses for solar power exist on farms, the fact sheet said. “Solar heat collectors can be used to dry crops and warm homes, livestock buildings, and greenhouses. Solar water heaters can provide hot water for dairy operations, pen cleaning, and homes. Photovoltaics can power farm operations and remote water pumps, lights, and electric fences.”

Program Structure

The REAP program targets farmers, ranchers and small business owners. It offers grants and loan guarantees covering up to 25 percent of project costs. Agricultural producers may be located in non-rural areas, but small businesses must be in rural areas.

According to the USDA’s May press release, the program is intended to support “a thriving middle class.”

“Ultimately, reducing energy use helps pump capital back into rural communities,” said Secretary of Agriculture Tom Vilsack in the USDA’s December press release.

The loan guarantees are used to provide credit enhancement to “expand the available credit structure” for financing, according to the program description on the USDA website.

The USDA website said lenders participating in REAP must be federal- and state-chartered banks, Farm Credit System banks, savings and loan associations, or other organizations qualified by the USDA.

Businesses and agricultural producers may use the funds for retrofits, purchases and installation of equipment, energy-efficient facilities, business plans, energy audits, working capital, technical reports, land acquisition, feasibility studies, and some types of fees.

The USDA expects many of the EECLP loans will be repaid via utility bills, according to a new report from the State and Local Energy Efficiency Action Network, “Financing Energy Improvements on Utility Bills: Market Updates and Key Program Design Considerations for Policymakers and Administrators.” These loans may be secured or unsecured and can be issued to any consumer class. The interest must be less than or equal to 1.5 percent above the utility’s cost of capital. Most of the loans will be limited to 15-year terms.

Growing Opportunities

According to the USDA’s May press release, REAP has supported more than 8,200 renewable energy and energy efficiency projects for agricultural producers and rural small businesses since it was created by the 2008 Farm Bill. This funding has included over $264 million in grants and $212 million in loan guarantees.

The USDA said the number of farms with renewable energy technology onsite has doubled in recent years. The total increased from 23,451 in 2007 to over 57,000 in 2012, according to the Census of Agriculture. 63 percent of these systems were solar installations.

This article was originally published by the Clean Energy Finance Forum at the Yale Center for Business and the Environment. You can subscribe to our newsletter or email the authors of our articles by visiting our website.

Lead image: Farm solar via Shutterstock