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Renewable Energy Provisions in the Farm Bill

Farmers and rural communities have a great opportunity to receive financial support for purchasing renewable energy systems and making energy efficiency improvements thanks to a program created by the Farm Security and Rural Investment Act of 2002 (Farm Bill). Since its inception, the Renewable Energy Systems and Energy Efficiency Improvements Program has distributed almost $23 million a year in grants for renewable energy and energy efficiency improvements to farms and rural businesses. By successfully fostering the development of hundreds of renewable energy projects, the program has helped to revitalize rural economies while also benefiting the environment.

The Creation of Section 9006
The Energy Title of the 2002 Farm Bill included Section 9006, which directed the Secretary of Agriculture to create a program to help farmers, ranchers and rural small businesses pay for renewable energy and energy efficiency projects. As a result, responsibility for this program was delegated to the Business and Cooperative Programs division within the Rural Development Mission area of the U.S. Department of Agriculture (USDA).

From the beginning, the goal of Section 9006 has been to bring the economic benefits of clean energy development to rural areas. As the Department of Agriculture explains on its website: "The USDA anticipates that this program will help farmers, ranchers and rural small businesses reduce energy costs and consumption and help the nation meet its energy needs. The program will also help support and stimulate rural economic development by helping agricultural producers and rural small businesses create new sources of income, to create new jobs, and to create new uses for agricultural products and wastes."

Wind turbine on a farm in Minnesota.
Photo: Warren Gretz, NREL

According to the USDA's initial rules, the energy sources that qualify for grant support are solar, wind, hydrogen fuel cells,  geothermal, anaerobic digesters, and bioenergy. These rules also stipulate that the grants can be used to cover up to 25 percent of eligible project costs. Grants for renewable energy systems range from $2,500 to $500,000, while grants for energy efficiency improvements range from $1,500 to $250,000. While Section 9006 called for the program to use grants, direct loans, and loan guarantees to encourage renewable energy and energy efficiency projects, only grants were included in the program under the USDA's initial rules.  

Funding Struggles
The 2002 Farm Bill authorized $23 million in annual mandatory funding for Section 9006 for fiscal years 2003 through 2007, when the Farm Bill will expire. Yet, the Administration proposed cutting all funding for the program in its first year. Congress responded by restoring full funding for fiscal year 2003, although they also changed the status of this funding from mandatory to discretionary. In 2004 and 2005 this pattern continued, with the Administration proposing a budget that would cut funding for Section 9006 by more than half and Congress responding by appropriating the full $23 million.

Despite the difficulty of securing funding for Section 9006, the program has been quite successful at achieving its primary goal of fostering the rural development of renewable energy and energy efficiency projects. The USDA funded 113 projects from the 148 applications that it received in 2003. In 2004, these numbers increased to 165 projects funded from a pool of 249 applications. In the first two years of the program, the combined $43 million in distributed grants have been leveraged to generate more than $300 million in investment for clean energy projects.

Though the majority of funding has gone to wind and bioenergy projects, Section 9006 grants have also been used to develop geothermal, solar, and energy efficiency projects. For years 2003 and 2004, 52 percent of the $43 million in grants went toward the construction of bioenergy projects, while 35 percent was used for wind projects. Energy efficiency projects accounted for just 8 percent of the total dollars distributed, but because these grants are typically for smaller amounts, they comprised more than one-third of all funded projects.

Rule Changes

In 2005, several changes were made to the rules governing the program. Half of the funding for the program ($11.4 million) was set aside to provide guaranteed loans to eligible projects. Up to 50 percent of the cost of a project can be covered by these loans, or by a combination of loans and grants. Any of the $11.4 million that is

Solar-powered water pump on a farm.
 Photo: Jerry Anderson, NRPPD, NREL

In addition, changes were made to make the program more accessible to farmers, businesses, and communities interested in small-scale renewable energy projects, such as solar photovoltaics. Application requirements for small projects were reduced, and the scoring criteria was also changed to benefit these smaller projects as well as applicants that have not yet received a grant.

In September 2005, the first class of grant and loan recipients under the new rules was announced. Two projects with a total cost of $20.2 million will be the first to take advantage of the new loan guarantees, receiving guarantees for half of the total cost of the projects. An additional $21.9 million in grants were allocated to 150 projects, with slightly more than half of the grant money going to large wind energy projects and bioenergy's share of the total funding declining. Overall, the program has continued to grow in popularity, with grant requests exceeding available funds by a factor of three.

Looking Ahead

Given the success of the Section 9006 program, the Union of Concerned Scientists (UCS) will work to ensure that Congress fully funds the program in 2006. In the first three years of the program, support from our members and activists was crucial to restoring full funding after the Administration proposed slashing the program's budget. UCS will also continue working to expand funding for the program so that more communities can benefit from its success.

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