Managing Energy Costs in Agriculture


Energy usage in field crop–based agriculture has declined by about 28 percent since its peak in 1978, when the energy crisis and skyrocketing oil prices forced farms to begin to use energy more efficiently. Direct energy usage—a measure of annual on-farm consumption of gasoline, fuel, and oil, as well as utility charges for electricity, water, telephone, and Internet services—declined 26 percent, and the embodied energy in fertilizers and pesticides, known as indirect energy, has seen a slightly larger decline of 31 percent. Figure 1 shows a breakdown, by energy source, for all farms.

Average energy use data

Figure 1: Total energy consumed by U.S. farms in 2002
Diesel fuel was the largest direct consumer of energy on farms, and fertilizers were the largest indirect energy user.
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Direct energy accounts for 5 to 7 percent of farm expenditures; indirect energy accounts for 9 to 10 percent. Because small farms, especially, operate on profit margins well under 10 percent, efficiency measures that reduce energy costs can make a real impact.

In order to better manage your energy costs, it helps to understand how you are charged for those costs. Larger farms are typically billed as commercial customers by the utility, while many small farms are billed as residential customers. Most utilities charge their commercial customers for natural gas based on the amount of energy delivered, in therms. Electricity, on the other hand, is usually charged based on two measures—consumption and demand. In addition, many irrigation bills contain an additional base rate charge.

Base rate (or meter) charge. This is a monthly fixed fee that covers the cost of having metered access to an electric supply. It is similar to a telephone line charge that is separate from the number of minutes that you use. This fee may also be rolled into the consumption charge.

Consumption charge. Utilities measure electricity consumption in kilowatt-hours (kWh)—the number of kilowatts (kW) used in a one-hour period. A kilowatt-hour equals 1,000 watt-hours and can be thought of as ten 100-watt light bulbs burning for one hour. Consumption is measured using a kWh meter.

Demand charge. Utilities incur costs to have enough generation capacity (in kW) available to meet the needs of their larger customers during peak-use periods. During non-peak periods, this capacity sits idle but the utility still incurs maintenance, repair, and debt-repayment costs. These costs are assessed against commercial customers in addition to consumption charges. On the customer side, demand represents the size of the connected load rather than how many hours the system is operated. Utilities typically base the demand charge on either:

  • Fixed rate. In this method, the nameplate horsepower (hp) ratings of all system components are added up and multiplied by a fixed dollar amount. This charge is added to the monthly consumption bill.
  • Maximum wattage. This method measures the wattage used in 15-minute increments over the entire monthly billing period. The charge is based on the highest recorded wattage used during the month—that number is multiplied by a fixed dollar amount and added to the consumption bill. It is important to note that a monthly demand charge is incurred even if the system only runs for one 15-minute interval during the entire month.

There are many ways to cut demand, including installing more-efficient, lower-power equipment; staggering the start-up times of various pieces of equipment; and participating in utility demand-response programs.

Direct energy costs on crop farms typically represent up to 7 percent of the farm production costs. As you read the following energy cost management recommendations, keep in mind how each one will affect both your consumption and your demand. The conservation measures discussed for the short and longer terms represent good investments. Not only will they help you to save money on your energy bills, but they can also increase your competitiveness by cutting your costs.

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