The profit margins of utility-scale solar farms continue to shrink, putting financial pressure on an industry that has a critical role to play in the race to net-zero. To alleviate this financial pressure, it is important for developers of solar farms to access new revenue streams. Solar farm developers should consider implementing carbon farming projects that utilise the land under and between solar PV panels to generate Australian Carbon Credit Units (ACCUs) under the Emissions Reduction Fund (ERF). These ACCUs could then be sold to generate additional revenue for solar farm projects.
What is carbon farming and soil carbon?
Carbon farming is an approach to optimising carbon capture on working landscapes by implementing farming practices that are known to improve the rate at which CO2 is removed from the atmosphere and stored in plant material and/or soil organic matter. In short, carbon farming is farming in a way that reduces GHG emissions or captures and holds carbon in vegetation and soils.
Soil carbon projects remove carbon from the atmosphere by storing it in soil. The soil carbon method is one of the many accredited methods under the ERF that can be implemented to offset or remove CO2 from the atmosphere. This can be achieved by increasing the amount of decomposing plant material and microbes in the soil. A soil carbon project will involve the establishment of specific project management activities and management actions that change agricultural soil conditions to improve crop and pasture growth.1
The below diagram sets out how plants and soil sequester carbon from the atmosphere:
Can solar farm projects participate in soil carbon projects that generate ACCUs?
Whether project land may qualify to be an “eligible offsets project” and be entitled to generate ACCUs is governed by the following Federal legislation:
- Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (the Act);
- Carbon Credits (Carbon Farming Initiative) Regulations 2011 (Cth) (the Regulation)
- Carbon Credits (Carbon Farming Initiative) Rule 2015 (the Rule); and
- Carbon Credits (Carbon Farm Initiative – Estimation of Soil Organic Carbon Sequestration Using Measurement and Models) Methodology Determination 2021 (the Methodology).
The Act, the Regulation, the Rule and the Methodology all set out a number of eligibility criteria and processes that must be followed by a soil carbon project. First, to be entitled to ACCUs, the project proponent must apply to the Clean Energy Regulator (the Regulator) for a declaration that the soil carbon project is an “eligible offsets project”. The Act sets out a number of criteria that must be satisfied before the Regulator can declare that a soil carbon project is an “eligible offsets project”. Careful consideration of these criteria must be had to ensure that any potential soil carbon project that proposes to use the land between and under solar PV panels is declared an “eligible offsets project”.
One of these criteria is that a soil carbon project satisfies the requirements of the Methodology. The Methodology sets out a number of threshold criteria that a project must meet to be an “eligible offsets project”.
The Methodology sets out what is “eligible land”. To be eligible land the project area must satisfy the following criteria:
- the land must have been used for pasture, cropping or bare fallow during the whole baseline period;
- there must be no dwellings or structures on the land;
- as at the end of the baseline period, it was reasonable to expect that carrying out eligible management activities proposed by the relevant land management strategies will increase the carbon sequestered in the land; and
- it is possible to sample the soil on the land consistent with the requirements of the Methodology.
It is possible that the land between and under solar PV panels would be considered to have been used for pasture, cropping or bare fallow during the whole baseline period. The baseline period is defined as the 5 year period immediately before the application to be an eligible offsets project is made.
The Methodology defines “structure” as an object that is made of several parts, that prevents pasture or cropping from occurring underneath more than 5% of the ground area of the object. The Explanatory Memorandum for the Methodology makes it clear that the term “structures” in limb (b) is not intended to include “fences, solar panels or other structures under which agricultural activities may still occur and soil sampling can take place.”
Status of ACCU market
It is estimated that the total value of the secondary market grew to $150 million during 2021 which was a 170% increase on 2020 and a 120% increase on 2019.2 This is a positive signal for solar developers as the Regulator has historically been the largest purchaser of ACCUs, under ERF contracts.
It is important that solar farm project developers do not “self-select” themselves out of being an “eligible offsets project”. Therefore, we strongly recommend solar farm project developers seek out professional advisors to help assess their carbon farming project’s suitability under Federal legislation. We at Hamilton Locke are already engaging with our clients in relation to co-locating carbon farming and solar farm projects. Please get in touch with our New Energy lead, Matt Baumgurtel, should you wish to discuss.
The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.