Economic Implications of Agricultural Land Conversion to Solar Power Production

Yanay Farja and Mariusz Maciejczak
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Yanay Farja: Department of Economics and Management, Tel-Hai College, Tel Hai 1220800, Israel
Mariusz Maciejczak: Institute of Economics and Finance, Warsaw University of Life Sciences—SGGW, 02-787 Warsaw, Poland

Energies, 2021, vol. 14, issue 19, 1-15

Abstract: Meeting greenhouse gas (GHG) reduction targets will require a significant increase in electricity production from sustainable and renewable sources such as solar energy. Farmers have recognized this need as a chance to increase the profitability of their farms by allocating farmland to solar power production. However, the shift from agriculture to power production has many tradeoffs, arising primarily from alternative land uses and other means of production. This paper models the farmers’ decision as a constrained profit maximization problem, subject to the amount of land owned by the farmers, who have to allocate it between agriculture and solar power fields, while considering factors affecting production costs. The farmers’ problem is nested in the social welfare maximization problem, which includes additional factors such as ecological and aesthetical values of the competing land uses. Empirical analysis using data from a solar field operating in Israel shows that landowners will choose to have solar power production on their land unless agricultural production generates an unusually high net income. Adding the values of non-market services provided by agricultural land does not change this result. The consideration of the reduction in GHG emissions further increases the social welfare from solar fields.

Keywords: renewable energy production; agricultural land; profit maximization; social welfare; greenhouse gas emissions; landscape; biodiversity (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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