When farmers have a profitable year, their go-to investment tends to be the purchase of new farm machinery.
This is for a good reason. New machinery is reliable, fast, and efficient. It gets the job done without you having to worry about costly repairs or downtime because it’s rare for a new machine to break down.
However, as soon as you drive that new tractor or combine harvester out onto your land, it depreciates in value. You may have a machine that works perfectly, but will that be the case several years down the line? And what if you decide to sell it?
One thing is certain: you won’t get anywhere near the original amount of money you invested in it back.
This is why investing in solar energy instead of new machinery is such an attractive proposition for farmers. You can easily get back more than 100% return on investment (ROI) in the first year alone, and that’s on top of the potential 96% savings off the cost of your energy bills.
Sounds too good to be true? Let’s take a deeper dive into the two types of investments to see how they stack up.
The Cost and ROI of New Farm Machinery
Tractors and other farm vehicles are not cheap. The largest, most advanced tractors cost over half a million dollars, and the cost of a decent combine harvest will also be in the same ballpark.
Let’s say you needed both and were prepared to spend $1 million on the new machinery:
| Machinery total cost | $1,000,000 |
| Expense off income (33%) | $330,000 |
| 1st-year depreciation | $100,000 |
| Cost of machinery after tax incentives | $570,000 |
| ROI | 57% |
The figures do look quite appealing. An ROI of 57% isn’t too bad, right? But let’s not forget one very important thing. Farm machinery is a depreciating asset.
This means the more you use it, the less value it retains. And let’s face it, farm vehicles receive some hard use over their time.
According to a 2020 analysis report conducted by IronSolutions, a tractor made by the popular John Deere brand depreciates in value by as much as 46% in a mere five years. That means a $500,000 tractor will only be worth around $270,000 after a five-year period.
The Cost and ROI of a Solar Installation
Now, let’s look at the figures for a new solar installation.
Solar arrays can vary greatly in price; A ballpark figure is around $400,000 – $500,000 for an acre’s worth of solar panels, but this cost also varies depending on the type of panels, how many you have, and where you place them.
As an example, let’s say you go for a fairly large installation at the cost of $1,250,000:
| Solar installation total cost | $1,250,000 |
| ITC tax credit of 30% | $375,000 |
| Colorado Enterprise Zone tax credit of 3% | $37,500 |
| 1st-year depreciation of 33% | $350,625 |
| USDA REAP grant of 50% | $625,000 |
| Total amount of incentives | $1,388,125 |
| Money gained | $138,125 |
| ROI | 111% |
An ROI of 111% is pretty incredible and a more attractive proposition than the 57% you get for farm machinery. With the money you gain back, you can even buy a new tractor!
But how did we arrive at this figure? And what are the incentives outlined above?
Well, the US government is currently working in our favor and is providing some generous ways for US farmers to get a faster return on their solar investment. In a nutshell, here’s what is on offer:
- The Federal Solar Tax Credit: A 30% investment tax credit (ITC) for businesses that purchase and install solar.
- The Colorado Enterprise Zone Program: A 3% tax credit for solar installations in 16 predetermined enterprise zones in Colorado.
- USDA Rural Energy for America Program (REAP) grant: Up to 50% of the cost of their solar installation is offered to farmers and agricultural businesses (available until 2024), capped at $1 million.
Like farm machinery, solar installations also qualify for a 1st-year depreciation percentage off your taxes. This can range between 28% – 33%.
It’s also worth noting that the REAP grant amount you receive is determined by a scoring system. So, while you can receive up to 50% of the solar installation cost, it doesn’t mean you’ll actually receive that much. Let’s run those figures again, but this time, let’s assume you only qualified for a 40% REAP grant rather than 50%:
| Solar installation total cost | $1,250,000 |
| ITC tax credit of 30% | $330,000 |
| Colorado Enterprise Zone tax credit of 3% | $100,000 |
| 1st-year depreciation of 33% | $350,625 |
| USDA REAP grant of 40% | $500,000 |
| Total amount of incentives | $1,263,125 |
| Money gained | $13,125 |
| ROI | 101% |
Even with the reduced grant amount, you can still achieve over 100% ROI!
If you’re interested in finding out more, take a look at our in-depth guide for a more detailed look at all the tax credits and incentives available for going solar.
The Ongoing ROI of Solar Energy
The benefits of going solar don’t just stop at the first year’s ROI, either. We like to think of it as the gift that keeps on giving.
Unlike farm machinery, solar installations are maintaining or appreciating assets. Thanks to the fixed energy costs they provide, solar panels can add value to the land or buildings upon which they are placed.
If you plan to sell the land or property containing the solar panels at any point, you can be reassured that the panels will increase the resale value. For example, properties with solar panels on the roof enjoy an average 4.1% increase in value.
And let’s not forget the money you save on your energy bills, either. Depending on the size of your installation, solar panels have the ability to lower your electricity bill by as much as 96%.
Ready to Save Money?
If you’re ready to invest in the future success of your farm, then it’s time to consider solar energy. With such a huge ROI and ongoing energy bill savings, can you afford not to have it?
We don’t know how long the government will back up the cost of solar installations. Therefore, strike while the iron is hot so you can get your money back within the first year, then relax and enjoy the ongoing benefits.
At 8760 Solar, we can help you navigate the REAP grant application process and make the best of the incentives available. We will also conduct a complete analysis of your farm to bring you bespoke solar solutions that work for you and your business.
If you’re excited to know more, text “READY” to 719 470-0254 or get in touch via email: sales@8760solar.com. We’re looking forward to hearing from you.