Achieving Year Round Sustainable Agriculture Slow Money Maine

March 19, 2014

Penny Jordan Tony Kieffer MESAS MaineAsia, LLC

1

Challenges and Opportunities for Growth

Grower Challenges Potential Solutions

Up to 10 times the revenue opportunities for growers vs. open field agriculture

Year round, stable local production, steady cash flow, consistent work force

Food stability, healthy, safe produce

Low water, sustainable farming, low carbon

Opportunities of Covered Agriculture

Controlled environments optimized for energy efficiency & growing practices

Imagine Possibilities

3

What if:

– Energy costs could be fixed to 2% inflation

– Yields could be increased by 5 X

– Heating costs lowered by 70%

– Capital was available to invest

– Greenhouses were available as a service

– You could own it after 10 years

It is happening….Elsewhere

4

• Europe, Asia, Canada … covered production tomatoes, basil, green beans, peppers, tea, strawberries, lettuces, fish, etc

• Solar technology continues to advance while cost come down

• LED lighting - trending down to < $1.00/watt

• Intensive controlled-climate - greatest potential payoff – yield & profitability.

• Heat pumps as a viable heating alternative

• Large scale Geothermal

Technologies can enhance the feasibility of year round production especially if implemented in a synergistic fashion

Integrating Solar and Advanced Building Materials

Composite Arch System

• Using Building Integrated Photovoltaics as the “skin” of the building

• Semi-transparent PV for greenhouse applications= 7 watt /s.f

• High density solar for opaque application up to 20 w/s.f.

• Ability to Plug and Play with any frameless PV module

• UMO developed Bridge in a Backpack™ technology

• Cost effective structure for PV to span large areas

• 100 year life span

• Can meet heaviest snow loads

• Agriculture Buildings

• Greenhouse Industry

• Traditional Farms/ Barn Buildings

Photo Voltaic Integrated Solar Structures

5

• Other Pre-engineered Buildings

• Processing and manufacturing

• “Butler “ Steel Buildings

• Storage

Structure Increase energy efficiency, useful life strength and meet snow/wind

loads & PV requirements Energy curtains

PV Glazing Consistent electricity source

& price

Cluster Initiative Focus

Heating Decrease in heat loss by 70%

Insulation & Curtains

Alternatives to fossil fuels Root zone/ Bed level

Solar Heating Electric Heat Pumps

Geothermal/Biomass

Lighting 60% savings in electricity increase yield, quality, etc

LED Lighting Plasma

Production Increase of > 5 x over field grown Multi-cropping/ Vertical growing

Hydroponics Aquaponics

CO2 Enhancement

Opportunity to increase production significantly, decrease energy inputs by up to 70% and to reach new markets

Tight envelop Heat recovery exchange

LED lights Renewable electricity/heat

efficient production

Markets Retail

CSAs

Farmers Markets

Direct Wholesale Government

Institutions

Wholesale Whole Foods

Hannaford

Rosemont

Distribution Local/Regional

National

Key Ingredients of Year Round Agriculture

7

Outcomes

Local affordable Healthy Food

Healthier Communities

Clean, Sustainable Production

Economic Development

Stronger Farms

Year Round Cash Flow and Staff

Grower

Land

Staff

Expertise

Customers

Catalysts

Capital/ Financing

Technical Expertise

Technology

Need for demonstrations to attract capital

Adoption in Maine--Potential effects of adopting year round agriculture in Maine

Greenhouse Type High Tunnel Heated Dual Poly

Greenhouse High Tech

Greenhouse Total # of Acres 200 100 75 375 Output per s.f. 3 lbs 6 lbs 15 lbs Total Cost $34,880,000 $56,680,000 $81,750,000 $173,310,000 Profit $9,166,500 $7,071,300 $14,731,875 $30,969,675 Payback Period (0% interest)

3.81 years 8.02 years 5.55 years 5.60 years

Without Multipliers

Total Revenue $26,190,000 $26,190,000 $49,106,250 $101,486,250 # of Direct Jobs 624 698 375 1697 Employment Income

$15,589,286 $17,460,000 $9,375,000 $42,424,286

With IMPLAN Multipliers

Revenue $47,142,000 $46,356,300 $91,828,688 $185,326,988 Jobs 1,085 943 825 2,853 Income $25,410,536 $45,396,000 $22,125,000 $92,931,536

Sources: Gabe, McConnon, and Kersbergen (2011), Maine IMPLAN Study: Economic Contribution of Maine's Food Industry; and authors’ calculations

8

Candidate Demonstration Projects

9

Our feasibility identified four candidates looking to expand current operations and interested in piloting new technologies:

** Investment level as for the pilot is part of a larger expansion project involving 3 bays at a total of $354,920.

Metric

Olivia's Garden

Aquaponics

KVCC PC

Greenhouse

Classroom

** Little River

Flower Farm

UMO

Climate Change

Building

Project

Description

5,600 s.f. Aquaponics

Greenhouse

3,000 s.f. composite

PV Greenhouse

4,560 s.f. SW facing

PV Greenhouse

3,200 s.f. staging

controlled climate

storage structure

Total Investment $274,113 $76,500 $350,000

$400,000

Payback Period

2.6 years 3.4 years 2.7 years

NA

Avoids $7500 n

Electricity

Costs/year

IRR 38% 29% 36% NA

25 Year NPV $626,307 $391,193 $247,043 NA

In-ground Organic Gutter Connected Solar GH:

Little River Flower Farm, Buxton, ME

• Certified organic in ground growers that sell via Whole Foods, CSA’s and direct to Portland area restaurants.

• As part of their 10 year plan they plan to expand their greenhouses by ~10,000 s.f. in 2014 and again in 2015.

Greenhouse Design • 3 x30 X 130 foot bays=

9460 Total Sized Project • Biomass primary fuel for

heating peak loads • Heat scrubbing/storage

system for capturing daytime heat and reticulating heat to beds

Planned Production • Raised heated beds to grow:

• Lisianthus, Dahlia, other flowers

• In ground organic Kale, Bok Choy, Lettuce, Other Greens

Solar • 1 Bay partially covered in

PV Panels to test growth • 3 Watts/s.f, 9.3 kwp for

each bay • 13,485 Kwh per bay/ year • Enough to cover electricity

requirements of the greenhouse for supplemental lighting and circulation pumps and fans for heat and hot water

UMO Climate Change Institute

Expedition Storage Facility

• The UMO Climate Change Institute needs a storage building for storing its Polar expeditionary gear

• Designed by the Advanced Structures and Composites Center as a 40 X 80 foot print, fully engineered building, 80 lb psf snow load 110 mph wind load

• 41.25 kWp capacity producing 58,616 kwh/year

• Value of Annual Electricity $5,862 per year at $.10/kwh

• Additional RECs valued at $.04=$2345

Financing Needs

• University to pay for cost of the structure

• Seeking a Tax Equity Investor to monetize solar incentives

• $ 125 K Tax Equity Investor/Financing Sought

11

Solar Greenhouse vs. Open Field vs. Ground Mount Solar

Investments in Production Revenue per square foot Profit/ S.f.

Ground Mount Solar Farm (assuming 7 watts per s.f or 4 acres/ MW) assuming $.16 kwh including incentives $ 1.28 $ 1.20

Open Field Agriculture $ 1.00 $ .25

Controlled Environment Growing $30.00 $ 6.00 Controlled Environment Growing and Solar $ 31.87 $ 7.20

12

• Ground mounted solar project yields between $1.20-$1.50 per s.f. on an investment of ~$2.70 per watt (large project scale)

• For >$4.50 per watt investment yields $7.00/ s.f. profit

• 50% additional investment over solar provides 5 times the profit

PV greenhouse or multiuse structure is the best investment route

Solar Greenhouse - Business Scenario Example of Organic Greens

13

Size of GH in s.f. Gross sales

$/s.f/yr. Gross

Revenue Net

Margin Ag. Profit Ag. Profit

$/ s.f. Watt/

s.f Total Watts

kwh/kwp

$ KW H

$ Electricity

/ yr

15,000 $30

$450,000 20% $ 90,000 $ 6.00 4

60,000 1400 $ .10 $ 8,400

Economics

– Typical small project deployment: 15,000 s.f.

– Mix of organic greens, grown year round wholesale at $ 1 bunch/head

– Investment Size: $420,000

– IRR: 24% Unlevered

– Payback period ~ 3 years

Solar Project Economics are greatly enhanced with an

“agriculture kicker”

Economics of Pre-Engineered Buildings

System Description: 3200 Storage Building with 41 KWp of solar power installed Steel Building in ME ArchSolar

Building in ME

ArchSolar

Building in NJ

Installed Cost of Building $ 320,000 $ 290,000 $ 290,000

Cost per watt NA $ 3 $ 3

Cost of Solar - $ 123,750 $ 123,750

Less First Year Tax Credit $ - $ (37,125) $ (37,125)

Total Project Cost less ITC tax credit* $ 376,625 $ 376,625

% Debt 80% 80% 80%

Financed Amount $ 256,000 $ 301,300 $ 301,300

80% financed at 25 Year Term @ rate

of

6.25% 6.25% 6.25%

Annual Interest and Principal Pmt $ (22,774) $ (26,804) $ (26,804)

KWH/Year 58,620 55,688

$/KWH $ 0.10 $ 0.10 $ 0.13

Annual Revenue/(Cost) of Electricity

@ $.10 kwh**

$ (5,862) $ 3,810 $ 4,706

Renewable Energy Credits** NA $ 0.07 $ 0.14

REC $/Year** $ 3,810 $ 7,796

Total Mortgage and Electricity and

RECs

$ (28,636) $ (19,184) $ (14,302)

Life of Ownership 25 25 25

Total 25 Year Cost $ (715,909) $ (479,593) $ (357,562)

* assumes tax appetite

**-= after tax savings added into cash flow assuming 35% tax rate

14

Long-term Lease-Utility Model

• Provides capital/ debt

• Partnership Flip Structure

• 12-15% return hurdle triggers flip

• Flip/buyout at year six or beyond once hurdle is met

Benefits

• Receives tax credits

– ITC, 5 Year MACRS

• Earns income from lease and electricity payments by grower, energy credits

15

• Provides land

• Leases greenhouse from NEWCO

• Operates greenhouse

• Purchases power from NEWCO

• Can buy out GH in later years 6 or later

Benefits

• Markets all produce

• Year round business

• Increased revenue

• Typical unlevered IRR of > ~25%

• Provides PV greenhouse

• Turn-key growing solution

• Engineering, Procurement

• Training/ Consulting

• Solar O&M

Benefits

• Income from project development and EPC phase

• Long term income from lease, electricity payments, and energy credits

Grower ArchSolar Project Investor

NEWCO, LLC

– Year round jobs , sector growth, remote area development

– Availability and stability of energy supply, predictable energy costs

– Branding and producer reputation, supporting price premium for products

– Renewable resource, carbon footprint

– Other pollution

– Balance of trade / money stays in Maine

– Energy security, Self reliance

– Sustainability and future generations

– Safe, local food supply

– Wellness, nutritional diet

16

Policy Benefits of SYRA

Economic

Environmental

Social

Health

Sustainable policies will require innovative financing to address up front costs

EXTRA SLIDES

17

Challenges and Opportunities for Growth

• Risk to crops of weather, pestilence

• High electricity costs

• High heating cost (oil, propane)

• Short growing season/Low winter light

• High snow loads

• Limited technical expertise

• Workforce turnover/training

• Limited capital for agriculture

Grower Challenges

• Subsidies are scheduled to be phased out

• Solar is becoming difficult to finance on its own

• Solar is expensive and cost prohibitive to many growers, despite wanting to be green

• Tax Equity investors are harder to secure

Solar Challenges Solution

• Market for local, pesticide free produce growing at 10% CAGR rapidly to $4 B by 2020

• Covered agriculture can lead to up 10 times the revenue opportunities for growers vs. open field agriculture

• Allows for year round, stable local production, steady cash flow, consistent work force

• Food stability, healthy, pesticide free produce

• Low water, sustainable farming, low carbon

Opportunities

• Photovoltaic, controlled environment growing structures optimized for energy efficiency

• Generate electricity for use in structures to run mechanical, heat and supplemental lighting

• Creative deal structure and financing required to optimize return on solar projects

• Tax Credits can be used offset taxes on profits

• Better than utility scale returns achieved on a distributed basis

Goals of Cluster Initiative

Strengthen the Year Round Agriculture Industry by demonstrating different technologies with high potential to increase the yield and profitability of farmers while creating a vibrant, vertically integrated economic cluster

supplying workforce, capital and supply chain

R&D/Innovation and Demonstration

• Provide expertise not readily available to growers today • Provide infrastructure for R &D and demonstration of high potential integrated

technologies in Maine

Training and Technical Assistance

• Speed up learning and transfer of knowledge • Prepare a capable work force of greenhouse operators, growers, experts controlled

climate management for jobs in and outside the cluster

Commercial Integration • Develop integrated supply chains for products, materials • Strengthen commercial connections to facilitate more efficient purchasing and

selling of agricultural products

Sustainable Financing • Develop concrete technical and economic data that can be used to help farmers to secure funding

• Identify and train project developers who can expedite projects, find funding such as USDA REAP program, equity, others

Collaboration • Ensure the coordination of research efforts that drive innovation • Develop a mechanism for collaboration and continual improvement

Sustainable Year Round Producers

Year Round Agriculture Industry Cluster

Renewable/ Energy Efficiency

• Solar: Developers and installers

• Energy Efficiency Experts

• Heating Experts: CCHT, Geothermal, Bio-fuels, Methane

• Participants included ReVision Energy, Revision Heating, Wood’s End Laboratories

Greenhouse Suppliers

• Greenhouse Suppliers

• Growing System Suppliers

• Lighting Suppliers

Participants: Greenhouse Supply

Composites Industry

• UMO Advanced Structures and Composites Center

• Participants Advanced Infrastructures , A&P

Academic Organizations

• UME, KVCC Sustainable Agriculture program

• NE Extension programs (NH, MA, CT)

• Participants Include: John Bartok UConn School of Agriculture

• Nursery Industry, Vegetable Farmers, Potato Farmers, Meat Producers, Poultry/Egg, Aquaculture

Markets

• Wholesale, Restaurants, Retail

• CSAs, buying clubs

• Farmer’s markets

Industry Organizations

• Trade Groups: MESAS, OHC, MOFGA, Maine small fruit and vegetable organization, others

Government

• USDA

• Maine Department of Agriculture

Finance

• CEI

• FAME

• MTI

20

Steering Committee

Member AREA

Nanne Kennedy MESAS, Fiber & Meat Production

John Harker Maine Department of Agriculture

Mark Hutton Cooperative Extension: Vegetable & Fruit Horticulture, Greenhouse Growing and Season Extension

Jeff O’Donal Ornamental Horticulture

Ralph Turner Year Round Producer, Heating

Kathy Englehart KVCC, Demonstration Site & Workforce Training

John Stadler TAO, Aquaponoics

Brit Svoboda Composite - Structures

Steve Hinchman ReVision – Solar Technologies

21

Expert Resources

RESOURCE AREA

John Bartok Greenhouse Efficiency, Production technologies

Ellis Sprague Greenhouse Structures

Mark Hutton Vegetable & Fruit Horticulture, Greenhouse Growing and Season Extension

Ralph Turner Vegetable Horticulture, Heating and Year Round Growing

Dick Brzozowski Poultry

Gary Anderson Dairy & Beef

22

Project Team

RESOURCES ROLE

Tony Kieffer Cross Sector, Technologies, Structure, Business Case Models, Final Recommendation, Deliverable Definition

Penelope Jordan Sector Research, Market Research, Project Reporting & Administration

Fred Horch Technologies, Final Report, Business Case Models & Financial Models

Marie Mager-Prager Ornamental Horticulture Cut Flowers

Samantha Curraro Vegetable & Fruit Horticulture Market Research

Sheri Nielson Cut Flowers – Overview Other areas as assigned

Jamien Richardson & Lisa Cooper, CYON Business Solutions

Animal Housing Aquaculture Aquaponics

23

• Demand for local food continues to increase

• Consumers are willing to pay a small premium for safe, locally grown foods—increased support for organic, pesticide free

• Number of farms growing year round, large number of small local producers and farms are becoming diversified (meat, eggs, veggies)

• Key to expanded success is ability to access to wholesale channels

• Cover required for year-round production in Maine’s climate

• Wide range of covered agriculture production strategies can be positively impacted by technology application

• Simple season extension (Eliot Coleman approach)

• High tech greenhouse (e.g. Backyard Farms)

• Adding heat and light increases production 4 months out of the year

• Need more widespread sharing of technical information and more opportunities for hands on demonstrations of high tech options

Feasibility Findings

24

Market

Covered Agriculture

Expanded year round production is appealing to many growers

Energy, heating and electricity costs are the biggest barrier to entry into year round agriculture in Maine

Wholesalers and Institutional buyers are interested in partnering with producers if they can provide consistent quality and quantities at prices within 20% of wholesale prices

Growers would welcome participation in a cluster initiative to help pilot advanced/innovative techniques

Energy efficiency and technology driven growing solutions were well received

Upfront Capital is an impediment to adoption and opportunities to help jumpstart

Additional Findings

25

Potential Applications for Multi-use Structures

Aviation

• Aircraft Deicing Shelter

• Full size Hanger

• Helicopter Hanger

• Inside of Hanger

• Aircraft Shade Shelter

Warehouse & Maintenance

• Warehouse

• Maintenance Facility

• Small Warehouse

Auditoriums & Exhibitions

• SpecialEven Center

• Trade Show Exhibit

• Touring Theme Park

Sports & Recreation

• Basketball Court

• Pool Cover

• Ice Rink

• Indoor Playing Field

Oil and Mining

• Remote buildings

• Harsh environments

Agriculture

• Barns

• Livestock shelters

• Grain and hay storage

• Greenhouses

• Riding Stables

Results from Italy

• 150,000 s.f. installation

• 1.5 gigawatt hours

• Strawberries, Basil, Mint, Green beans, chili peppers, flowers

• Polysilicon: 8 w/s.f.

27

28

China

A RCH S OLAR

29

Tree cultivation and Chinese Medicines

30

Shandong Province