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Controlled Environment Agriculture: the Inside Scoop on Indoor Ag

Written August 19, 2021 by Olivia Glunz

Raging wildfires. Extreme droughts. Violent hurricanes. Rogue tornadoes… Nature is unpredictable.

2020 was a record-setting year for natural disasters, and 2021 has already witnessed numerous extreme weather events. Meanwhile, experts predict that the frequency and severity of storms is only rising.

California’s Dixie Wildfire, August 2021.

Nature is unpredictable, yet her whims govern our most fundamental need: food. Worldwide, droughts, flooding, and famine are an all too familiar story. One in every nine people is hungry, while one in three is malnourished.

As our global population nears 8 billion, it is imperative that we create a reliable, resilient agriculture system, one insulated from nature’s caprices. A solution may lie in CEA.

What is CEA?

CEA, or Controlled Environment Agriculture, wields cutting-edge horticultural, engineering, and computer technologies to produce high-quality crops in efficient, indoor environments. Bringing crops indoors shields them from pests, disease, and extreme weather, permits year-round growth, and facilitates cultivation of plants in any climate zone.

A rapidly evolving field, CEA nevertheless started simply: beginning in the first century A.D., the Romans used rudimentary greenhouses to protect crops during the winter. Over time, greenhouses became more sophisticated: their walls were built of glass, warm water heated them in winter, and electric light bulbs provided supplemental lighting. Today, advanced greenhouses optimize plant growth conditions: computer systems control brightness, temperature, humidity, and even carbon dioxide levels.

Vertical Farming: the Up- and Downsides

Traditional greenhouses, however, are only the beginning of CEA’s many techniques. Global population projections—over 10 billion people (80% of whom will live in cities) by 2050—encourage scientists to develop new, compact farming methods like vertical farming. Vertical farms turn traditional farms sideways. In vertical farming, plants are stacked one atop another as they grow. The resulting farm is both space efficient—vertical farms can be placed in basements or old shipping containers—and water efficient—vertical farming’s water use is 5% that of standard agriculture.

Nevertheless, vertical farming has downsides. One major challenge is lighting. Each plant contained in a vertical stack requires adequate light to grow. Because the uppermost plants shield lower plants from overhead light, each individual layer of a vertical farm must also be lit. The resultant need for numerous LED lamps increases input costs (and, in turn, crop prices) and lowers vertical farming’s energy efficiency. Additionally, vertical farms pose challenges to workers, who often spend their days ascending and descending costly, cumbersome scissor lifts to complete tasks like planting and harvesting on each layer.

A vertical farm.

The benefits of indoor horizontal farms, therefore, should not be underestimated. One innovative horizontal farming operation is Pure Green Farms. Located in South Bend, Indiana, Pure Green Farms’ horizontal greenhouse relies on natural light and uses minimal artificial lighting to increase energy efficiency. Additionally, the entire planting and harvesting process is automated, creating a more uniform product and labor savings compared to traditional production.

Horizontal farms also offer opportunities to combat microclimates, unintentional byproducts of CEA. One greenhouse contains numerous microclimates—slight shifts in location can significantly alter plants’ growing conditions. For instance, a plant directly beneath a growth lamp may be subjected to higher temperatures and brighter light than the plant beside it. Such inconsistent growing conditions in turn produce inconsistent crops.

Purdue University researchers recently constructed an automated horizontal greenhouse to address this problem: plants constantly circulate around the greenhouse on conveyor belts. Consequently, no plant remains in one microclimate for too long, and all plants are exposed to nearly uniform conditions. This innovation allows horizontal farms to produce more consistent crops.

Hydroponics

In both vertical and horizontal CEA agriculture, farmers are looking beyond soil. For instance, many CEA farms are hydroponic: plant roots are submerged in regulated, nutrient-rich water solutions rather than soil. Hydroponics not only allows detailed regulation of nutrient and pH levels but also minimizes water usage by recirculating water. Further, hydroponics allows plants to grow more quickly and closer together.

A hydroponic greenhouse.

One variation on hydroponics is aeroponics: plant roots are placed not in soil but simply in the air. Surrounded by oxygen, vital for cellular respiration, plants are frequently sprayed with mist containing water and dissolved nutrients. This process not only reduces water usage by up to 98% but also increases plant nutrient levels, offering potential health benefits for consumers.

Another twist on hydroponics is aquaponics, in which a plant growth environment is coupled with a fish tank. Fish provide nutrients for the plants, which in turn clean the water for the fish. Nevertheless, the aquaponic system is not perfectly self-sufficient: aquaponics requires significant electricity to heat and circulate water and often utilizes supplemental water filtration systems.

Cost-Benefit Analysis

The benefits of CEA are numerous. By growing plants inside, CEA minimizes or even eliminates the need for pesticides, which are not only potentially detrimental to human health but are highly water-intensive to produce. Additionally, grown in optimal conditions, plants mature faster and more consistently. With CEA, crops can be grown in population-dense urban areas; thus, fresh, nutritious, locally grown crops can be delivered at reduced transportation costs.

CEA’s advantages, however, come at a high monetary cost. CEA technology is expensive. Simply building a modern greenhouse equipped with LED lights, O2 and CO2 monitors, and ventilation systems is a costly enterprise. Additionally, CEA requires a constant supply of electricity, which is both expensive and poses environmental risks. Even greenhouses powered solely by renewable energy create challenges: solar panels, for instance, are expensive. Further, using solar energy to simulate sunlight for indoor crops seems convoluted, especially considering that outdoor crops simply use free, natural sunlight. CEA also requires space. In urban areas, where CEA offers great potential, real estate is especially expensive.

The many costs of CEA often translate to higher prices for consumers, especially for commodity crops. For instance, producing a loaf of bread with CEA-grown wheat costs roughly $11. Currently, CEA is most economically viable for expensive, highly perishable specialty crops, such as tomatoes and lettuce, grown on a large scale.

Investment Opportunities

Although CEA is not set to replace traditional agriculture in the near future, investors are nevertheless exploring CEA’s potential for feeding our growing population sustainably. There exist several private fund investments in the space. Ceres Partners, for instance, is investing in greenhouses, aquaculture, and specialty crops as well as CEA artificial intelligence systems. Equilibrium Capital, a sustainability-focused investment company, manages an extensive CEA private equity fund platform.

An exciting new investment opportunity in this area is Global X AgTech & Food Innovation ETF – KROP, first listed on Nasdaq in July of 2021. KROP identifies and invests in trailblazing companies in the food and agriculture sectors. The focus of these companies ranges from food waste minimization to agricultural robots to dairy alternatives to CEA. KROP has only $2.3 million under management today, but we will continue to monitor its development as a potential purposeful investment in the essential food and agriculture sector.

As the global population continues to grow, nature’s unpredictability poses a hazard to the traditional agricultural system. Boasting efficiency and reliability, CEA offers a promising niche complement to traditional outdoor agriculture and an exciting opportunity for sustainable innovation for the benefit of humanity and the planet. To learn more about sustainable, ethical investing, contact Servant Financial today.

Investing with Purpose: Mid-Year Reflections and Resolutions

Written July 20, 2021March 27, 2024 by Olivia Glunz

Investing with Purpose isn’t an oxymoron. At Servant Financial, we believe that profit and principles go hand-in-hand. In early 2021, we identified five purposeful investing opportunities for this year and beyond. In light of the COVID pandemic, turbulent economic conditions, and the accelerating sustainability movement, we predicted growth in ESG investments, alternative investments, essential businesses, inflation hedges, and education.

As we pass the halfway point of 2021, we take the opportunity to reflect: were our predictions directionally accurate? Simultaneously, we look forward: what developments do we expect over the remainder of the year and beyond?

1. ESG Investments

ESG, or environmental, social, governance, refers to a company’s attitude and behavior toward its employees and community. ESG investing prioritizes the wellbeing of employees, society, and the earth. This trend is especially appealing to millennials and women, who continue to demonstrate their support for ESG investments in 2021.

In the first quarter of 2021, US sustainable funds set a new net inflow record of $21.5 billion. One analysis of 27 ESG funds from December 31, 2020 to May 17, 2021, found that 16 of the funds outperformed the S&P 500. ESG has become a momentum factor, as ESG funds and their underlying equities attract more fund flows which beget more fund flows. Experts predict that the sustainability market will only continue its tremendous growth—by 2030, the ESG market could reach $1 trillion.

Servant Financial’s ESG research continued in 2021. In recent articles, we explored markets and trends in energy storage, organics, and carbon credits. At Servant Financial, we are committed to learning and innovation to help you invest in a sustainable future.

2. Alternative Investments

Alternative, or nontraditional, investments not only diversify your investment portfolio but have tremendous potential to benefit communities in unique ways. Alternative investments look beyond traditional stocks and bonds: real estate, infrastructure, gold, and bitcoin are just a few of the myriad alternative investing possibilities.

Servant Financial has identified farmland as a meaningful and profitable alternative investment. Traditionally, the farmland market has boasted high returns and low volatility; furthermore, investors profit not only from land value appreciation but also regular rent collection.

Farmland, however, is more than a vehicle for profit—it provides a means for doing good. In January 2021, Servant Financial partnered with Farmland Partners (NYSE: FPI), the farmland industry’s leading REIT, to launch the Promised Land Opportunity Zone Fund. Promised Land purchases farmland in Qualified Opportunity Zones, economically-challenged areas designated by the IRS for preferential tax treatment. After acquiring the properties, Promised Land improves the farmland, perhaps by upgrading irrigation and drainage systems, increasing grain storage, or installing solar panels or wind turbines. In turn, land improvements benefit investors and farmers and revitalize rural communities.

Since its launch, Promised Land has acquired over 3,700 acres of farmland in three states, and the fund continues to grow. Witnessing our Promised Land vision materialize encourages us to continue to invest with purpose.

3. Essential Businesses

Over the past 16 months, the tumultuous events of the COVID pandemic have underscored the necessity of essential businesses. Crisis forced reconsideration of priorities, needs, and wants: ultimately, humans need food, shelter, healthcare, and energy. Over the past months, essential industries have demonstrated substantial growth, with impressive performances from the energy, real estate, and healthcare sectors.

Investing in these essentials, however, is not only financially savvy but socially impactful. In a recent article on the food industry, we highlighted the prevalence of food insecurity in America. Tragically, over 10% of American households experienced food insecurity in 2019. Further, about 19 million Americans live in food deserts, areas with limited access to food. Especially vulnerable to food insecurity are rural counties: 87% of the least food-secure counties are rural.

US food desert map.

These surprising, grievous statistics motivated us to take action. Why not augment Promised Land’s strategy—investing in and actively improving farmland in rural Opportunity Zones—to combat food insecurity in these communities? Currently, we are mapping the overlap between food deserts and Opportunity Zones. After identifying target counties, we plan to evaluate strategies and partnerships to invest in and improve food access in these vulnerable regions. Our two-pronged approach—improving both farmland and food access—will address food insecurity on both the production and distribution levels.

4. Inflation Hedges

Groceries, gas, hotels, hospitals: as any post-COVID consumer can attest, prices are on the rise. In the past year, prices have increased by 5.5%, the highest rate of inflation since 2008. While economists foresaw price jumps in the wake of the economic emergence from the pandemic, inflation rates have been higher than predicted. Although many experts are hopeful that inflation rates will dissipate as economic conditions normalize, continued inflation is a distinct and alarming possibility.

High inflation rates threaten investors; investment shares may be stable or increase in price, but if their growth rates cannot keep up with inflation, then these assets lose real worth. For example, US 10-year treasuries nominally yielding 1.3% have a negative real yield of (4.2%) with an inflation rate of 5.5%. Intent on protecting the value of their assets, investors are increasingly turning to inflation hedges, investments which boast relatively stable or diminishing supplies, i.e. scarcity value. While the value of the dollar decreases, inflation hedges like gold, bitcoin, commodities, and real estate resist price fluctuations or may rise in value with inflation. For example, farmland values are highly correlated with inflation.

Correspondingly, the prices of inflation-protected assets are important indicators of current inflation trends. Although gold value has slightly declined in the past twelve months, prices remain significantly higher than before the outbreak of the pandemic. Meanwhile, bitcoin prices have fluctuated greatly over the course of the pandemic; nevertheless, bitcoin prices are currently three times the price of twelve months ago.

As Federal Reserve Chairman Jerome Powell’s recent comments indicate, inflation rates will likely remain high in the coming months; the Fed has signaled markets that it will allow near-term inflation to run higher than its 2.0% inflation target. Consequently, savvy investors should consider safeguarding their portfolios with inflation hedges.

5. Education

Education is both personally and economically empowering. Teaching skills essential for high-wage jobs, education develops human capital, increases earning power, and alleviates poverty. According to UNICEF, an individual’s income increases 10% with every year of education received.

Conversely, barriers to a quality education hinder development; this fact has caused particular alarm during the pandemic, as many students were forced to pivot to virtual or hybrid learning. The fallout from this transition is staggering: 97% of educators report that students experienced at least some learning loss, while 53% described that learning loss as significant. This learning loss translates to real earning loss. McKinsey & Company predicts that white students will experience a 1.6% annual income reduction and Black students a 3.3% annual income reduction because of substandard virtual learning.

Educators report learning losses during the pandemic.

As these disturbing statistics indicate, improving and investing in education and educational infrastructure is urgent. Edtech companies are one appealing option. Innovative technologies enable independent learning and could allow students to make up for learning loss. Further, as the pandemic’s resolution remains uncertain, developing more effective virtual learning technologies and investing in broadband and other infrastructure in low-income communities is crucial.

Charter schools, high in demand especially in low-income communities, provide another investment opportunity. Investors can provide low-interest loans or purchase charter school bonds.

Finally, we believe there exists a strong correlation between Opportunity Zones (low income communities), food deserts, and educational deserts. In the coming months, we plan to explore this overlap and devise investment strategies to improve the lives of children and families across the country.

2021 has witnessed both frustration and excitement, turmoil and healing. Although the details of our post-COVID world remain uncertain, we are hopeful that the future will bring stability and opportunity. As we reflect on the past six months, we remain confident that our investments can build a bold, auspicious tomorrow. ESG investments, alternative investments, essential businesses, inflation hedges, and education provide opportunities to make a profit while making a difference. From farmland to food access, education to renewable energy, investing with purpose addresses societal challenges with integrity, creativity, and compassion.

Promises and Pitfalls: the Uncertain Future of Carbon Credits

Written June 21, 2021 by Olivia Glunz

Modern-day Americans enjoy a standard of living that our forebears could only have dreamed of. Cell phones and computers, ready-made clothes and food, airplanes, microwaves, and air conditioning contribute to our convenient, comfortable existence. We can access food, transportation, friends, and entertainment with a few choice taps of a handheld screen. Still, our easy modern lifestyle has drawbacks. Although we no longer rely on bodily energy to heat our houses, travel, and obtain food, these activities nevertheless require energy—mechanical energy. Today, humans benefit from the convenience of an industrialized world… but at what cost?

5.1 billion metric tons. That’s the amount of energy-related carbon dioxide the US emitted in 2019 alone. Carbon dioxide, or CO2, is a greenhouse gas. Like methane and nitrous oxides, CO2 traps heat in earth’s atmosphere—the so-called “greenhouse effect” keeps our planet warm and hospitable for life. However, many scientists suspect that the rise of human industry, especially in the past two centuries, has unnaturally elevated atmospheric CO2 levels, which, in turn, result in climate change.

CO2 levels over time

Rising ocean levels, droughts, and severe storms are just some of the phenomena attributed to climate change, a controversial issue, to say the least. While some experts believe that climate change poses a dire threat to our planet, others are more reserved. These climate change “skeptics” do not necessarily deny climate change; rather, they believe its severity and its connection with CO2 levels are exaggerated.

However one views the climate controversy, all can agree that climate change is an influential political issue. Intent on mitigating the “climate crisis,” activists are targeting all areas of human activity in the name of the environment. Business and industry, closely tied with fossil fuels and greenhouse gas emissions, are an especial focus. Environmentalists have proposed numerous plans to regulate, limit, and improve industry with the ultimate goal of net-zero emissions. One particular strategy, although still nascent, is gaining prominence: carbon credits.

What are Carbon Credits?

Harnessing the power of markets, carbon credits incentivize businesses to reduce greenhouse gas emissions. A carbon credit, also known as a carbon offset, is a license to emit one metric ton of CO2 or the equivalent amount of another greenhouse gas. Based on its size and nature, a business receives a certain number of carbon credits. If a business desires to emit more CO2 than its credits permit, that company must purchase subsequent carbon credits. Conversely, should a business emit less CO2 than its allocated carbon credits allow, the company may sell its unused credits. Furthermore, businesses which actively engage in carbon sequestration (for instance, by planting forests, reducing tillage, or implementing crop rotation) are awarded carbon credits. In this way, businesses are penalized for increasing emissions and profit from reducing emissions.

Currently, participation in the carbon market is voluntary. Committed to achieving net-zero emissions, numerous corporations—including IBM and JPMorgan Chase—are purchasing carbon credits through Indigo Ag’s carbon marketplace. Indigo not only advises farmers as they implement carbon sequestration but also verifies the efficacy of these methods by analyzing agricultural data and soil samples. Successful sequestration produces verified agricultural carbon credits. When eco-conscious companies purchase credits through Indigo’s marketplace, farmers profit. Other groups at the forefront of the carbon offset initiative include Nori, a carbon marketplace similar to Indigo, and Verra, which develops standards for awarding carbon credits.

Iowa farmer sequesters CO2 for cash through Nori

Many climate activists envision a compulsory carbon market, known as a compliance market. In this scenario, the government mandates and regulates the carbon market in a cap-and-trade system. Government officials allocate carbon credits, oversee their trade and creation, and certify that businesses comply with emissions requirements. Select jurisdictions, including California and Europe, have already implemented partial compliance markets for certain companies or industries.

Controversies and Concerns

Like the problem it proposes to solve, the carbon market is controversial. Most obvious are the logistical issues: in a compliance market, how will carbon credits be allocated? Will individuals or only companies be compelled to participate in the market? How will carbon pollution be measured? Must every pollution-producing activity, no matter how minuscule, be reported to government regulators? How will startups be treated? Will carbon credits cripple innovation? Cheating is also a concern. Selling phony carbon credits, underreporting carbon emissions, and double-counting carbon sequestration practices are just some of the many opportunities for dishonesty.

Additionally, some environmentalists argue that carbon credits will actually harm the environment by taking the onus off of major polluters. Rather than compelling large corporations to reduce their personal carbon emissions, the carbon market allows them to take credit for the carbon reduction of others. Why should companies change their reliably profitable practices when carbon credits allow them to keep polluting for a small fee?

Furthermore, is agricultural carbon sequestration actually effective? Studies measuring CO2 levels only in the soil’s upper inches produce optimistic findings; when scientists dig deeper, however, the results are less encouraging. Several comprehensive studies show that no-till methods merely change the distribution of CO2 in the soil—more CO2 is stored in the upper layers than the lower layers—rather than sequester more total carbon. Other scientists are skeptical of the benefits of cover crops, which may actually induce microbes to release carbon from the soil into the atmosphere.

Although their prudence and efficacy remain uncertain, carbon credits are indicative of the larger ESG investing trend. Eco-conscious companies, policymakers, and investors are turning to markets to encourage responsible business practices and forge a sustainable future. To learn more about investing with purpose in ESG, contact Servant Financial today.

Fad or Fact? Investing in Organics

Written May 24, 2021March 27, 2024 by Olivia Glunz

From fruit to baked goods, burgers to craft beer, organic is in. In 2016, 82% of Americans reported purchasing organic food. From 2010 to 2018, the organic market grew at least 5 percent annually, and researchers forecast that this incredible growth will only continue. But what is organic food? And is the premium cost really worth it?

Organics Overview

American-grown organics are certified by the US Department of Agriculture (USDA) following a complex set of regulations. Overall, organic farming maximizes natural methods—employing animal or green manures, crop rotation, cover crops, and open grazing, for instance—and limits synthetic methods, including genetic engineering and artificial soil treatments. The details of the intricate balance between natural and synthetic, however, are complicated. For instance, an organic product cannot contain any genetically-modified organisms, or GMOs; however, certain synthetic fertilizers may be used for prescribed purposes in limited amounts. Organic livestock may receive chemical vaccinations; however, the administration of drugs to organic livestock is severely limited.

Ultimately, crops and fresh produce with the USDA organic seal must be grown on soil free from prohibited substances for at least three years. Organic meat is produced from livestock free from hormones and antibiotics, nourished solely on organic feed, and allowed to graze freely. Finally, processed foods labeled organic must contain at least 95% certified organic ingredients (discounting water and salt); the remaining 5% of ingredients—items like cornstarch, gelatin, and dairy cultures—must be produced without GMOs, ionizing radiation, or sewage sludge.

USDA organics factsheet

Is It Really Organic?

Despite the detailed, complex requirements of organic classification, not all “organics” are created—or produced—equal. The USDA relies on accredited certifying agents to approve organic farms. Annual farm audits largely entail inspection of paperwork and a visit to the farm. Only 5% of the time do certifiers physically test soil and farm products for prohibited substances. Infrequent testing leaves room for violation—whether accidental or deliberate—and calls into question the reliability of the organic seal.

Certifying agents also have a conflict of interest—they compete with one another to certify farms and receive payment from the farmers they inspect. If inspectors fail a farm, that farm will not apply for organic status next year—representing a future loss of money—and other farms might hesitate to enlist the strict certifier’s services. Such a system incentivizes leniency. According to a Wall Street Journal study, almost 50% of certifying agents did not enforce rudimentary USDA requirements one or more times between 2005 and 2014, while the USDA deemed inspections of two in five certifiers insufficient in that period

Finally, many organic products are imported. Nominally, these items are held to USDA standards, but many are skeptical of overseas inspections by non-US certifiers. Furthermore, complex global supply chains allow much opportunity for mistakes and fabrication.

Nevertheless, known organic violations are relatively rare. For instance, a USDA study in 2010-2011 tested 571 organic fruit and vegetable samples for residue of 200 nonorganic pesticides. Although the study was limited in scope, results were encouraging: only 4% of samples violated pesticide residue limits, while 57% contained no traces of pesticides whatsoever.

Pesticide residues on organic food samples in 2010-11 USDA study

Human and Environmental Health

Consumers pay a premium for organics, which are often marketed as safer and more wholesome than conventionally produced foods. However, the health and safety benefits are uncertain. Nutrient levels of organic produce are nearly identical to those of their conventionally-grown counterparts. “I don’t see any nutritional reasons to choose organic foods over conventional,” says one Harvard-affiliated nutritionist. Distance from farm to market, time between harvest and consumption, and preparation style may be more crucial considerations for nutrition-conscious consumers.

Organic foods also contain lower levels of pesticides. All pesticides are toxic, yet there is little evidence that trace amounts of pesticides harm consumers. Furthermore, the safety of permissible organic pesticides compared with conventional pesticides is uncertain. Consumers concerned with farm worker safety must be aware that all pesticides carry a risk. Typically, organic pesticides have lower chronic and acute toxicity levels than restricted use pesticides. However, long-term exposure or improper handling, even of organic pesticides, can harm farm workers’ health, while training and protective gear can shield workers from the detriments of both synthetic and organic pesticides.

Organic farming also impacts environmental health, for better or worse. According to the UN, organic practices maintain biodiversity, sequester carbon in the soil, reduce groundwater pollution, and improve soil health. However, experts believe some organic methods are more harmful than conventional methods. Recently, scientists called out South Dakota’s Gunsmoke Farms, which transitioned from conventional to organic farming, for harming soil health. Rather than using chemical pesticides to target weeds, Gunsmoke Farms tilled the fields and disturbed fragile soil. Overall, organic and conventional farming both have their merits. In some areas—such as energy use—organic farming is greener than conventional farming, while in other areas—like land use—conventional farming is the clear winner.

Markets and Investment

Despite the uncertain benefits of organics, demand is sustained and the market is growing. In 2018, the value of the organic market surpassed $50 billion. Supply and demand levels, too, are favorable for investors: 5.7% of the food market is organic, while just 0.9% of farmland is organic. Prices reflect this trend: a recent National Retail Report found that consumers generally pay significant double-digit premiums—surpassing 200% on certain products—for organics.

As demand continues to outstrip supply and organics fetch high prices, market-wise investors are looking to cash in on the trend. Natural food manufacturers and grocery stores, such as Hain Celestial and Whole Foods (owned by Amazon), provide opportunity for traditional investment. Perhaps the most interesting opportunity from a risk-adjusted return basis on the “healthy eating” theme is United Natural Foods (UNFI), a natural and organic food distributor supplying stores including Whole Foods and Roundy’s Supermarket. UNFI is trading at a very modest 9 times forward Price-to-Earnings ratio and 1.6 times its book value. Investors can also consider large grocery chains, like Costco and Walmart, with their own organic store brands.

The organic market also abounds with alternative investment opportunities. Groups like Farmland LP and SLM Partners are investing directly in the land by converting farms from conventional to organic. The three-year transition period required by the USDA challenges many small farmers, who input much time and money into their land but are unable to market their food as organic during this time. Farmland LP and similar organizations, however, support farmers during this transition. When their products are classified as organic three years later, farmers ultimately reap higher profits.

Many farmers and farmland investors will not stop with organic certification. They will continue to guide organic and more sustainable farm management practices with innovative, environmentally-conscious methods, like improved irrigation and crop rotation. These practices aim to maximize soil and crop health, an endeavor from which farmers, consumers, and investors all can benefit.

To learn more about investing in organics and other “farm to future” themes, contact Servant Financial today.

Blowin’ in the Wind

Written October 14, 2020March 27, 2024 by Annie Dysart

The History of Wind Power

Seven thousand years ago, the Egyptians and Phoenicians used wind to power sailboats. This was the first recorded instance of humans putting wind to work. Centuries later, the mechanical energy of windmills helped people pump water and mill grains.

Charles F. Brush invented the first electricity-producing wind turbine in 1888. To convert wind into electricity, wind spins the blades of a turbine around a rotor. The rotor then spins a generator, which creates electricity.

The average wind turbine has a capacity of 2  megawatts (one megawatt (MW) equals 1 million watts), yet innovations in technology are paving the way for wind turbine productivity to exceed 10 MW in the near future.

The Increasing Popularity of Wind Power

The global installed wind capacity from 1982 to 2017 (International Energy Initiative 2019)

Over the past four decades, wind energy grew faster than any renewable technology. The industry employs over 1 million people across the globe with installations in over 100 countries. The U.S. has six of the ten largest onshore wind farms in the world.

By the first quarter of 2020, the United States reached an installed capacity of approximately 107 gigawatts (GW), enough energy to power over 32 million American homes (one GW is equivalent to 1,000 MW and can power 750,000 homes annually). The U.S. has the second largest wind energy capacity in the world, still trailing far behind China’s installed capacity of 221 GW.

In 2019, wind power provided 7% of the United States’ electricity, making it the most prevalent source of renewable energy in the country. The U.S. installed an additional 9 GW of wind power that year. Those installations represented 39% of the nation’s new utility-scale power.

The U.S. wind industry installed 1,821 MW of new wind power capacity in the first quarter of 2020, a 117% increase over the first quarter of 2019 (American Wind Energy Association)

Texas has an installed wind power capacity of 29 GW. Texas wind power represents 27% of the nation’s installed wind capacity, over three times greater than any other U.S. state. Its large capacity can be attributed to its location within a wind corridor — a region characterized by high-speed winds stretching from the upper Great Plains to western Texas.

Non-hydro renewables in the U.S. increased from less than 1% in 2005 to nearly 10.1% by the end of 2018. This growth occurred during a time of relatively stable electricity demand. Such growth illustrates renewable energy’s disruptive effect on the electricity industry. The Center for Climate and Energy Solutions projects that the national energy share of the United States’ renewable energy — including hydroelectric — will increase from a value of 17.1% in 2018 to 24% in 2030.

Growth Potential of the Offshore Wind Sector

Wind turbines can be constructed on land, offshore in the ocean, or on big lakes. In 1991, Vindeby Offshore Wind Farm in Denmark became the world’s first offshore operation. Offshore wind power is more powerful than onshore wind power because of exposure to more consistent coastal winds. The largest, most powerful offshore wind turbine is GE’s Haliade-X 12 MW turbine.

The United States has an enormous opportunity to capitalize on coastal territories and grow its tiny offshore wind sector. The Block Island Wind Farm is the nation’s only offshore wind farm: a 30 MW, five turbine operation established in 2016 off the coast of Rhode Island.

According to the Office of Energy Efficiency & Renewable Energy, over 2,000 GW of wind power could be accessed along the coasts of the United States and the Great Lakes. This 2,000 GW potential represents an electricity generation capacity that doubles the current capacity of all U.S. electric power plants.

The Department of Energy allocated over $200 million dollars towards competitively-selected offshore wind research, development, and demonstration projects. Over 58% of U.S. offshore wind resources are located in deep waters. Without a doubt, a key focus area will be development of offshore wind platforms suitable for deep waters.

Floating vertical-axis wind turbine platforms (Office of Energy Efficiency and Renewable Energy)

Advantages of Wind Power

Wind energy is a sustainable, emissions-free power source that does not depend on fossil fuels. In 2019, approximately 42 million cars’ worth of yearly emissions was avoided through wind energy generation. Typical wind projects can offset their carbon footprint in six months or less (carbon offsets work by reducing emissions of carbon dioxide or other greenhouse gases in order to compensate for emissions made in manufacturing and citing the wind farm).

In 2018, carbon dioxide (CO2) emissions from fossil fuel combustion for energy represented about 75% of total U.S. anthropogenic (originating from human activity) greenhouse gas emissions and about 93% of total U.S. anthropogenic CO2 emissions. Greenhouse gases (GHGs) like CO2 trap heat and alter the transfer of infrared energy through the atmosphere. The earth’s global average temperature is rising because of increased atmospheric concentrations of GHGs.

According to NASA, there is greater than a 95% probability that Earth’s current warming trend is the result of human activity since the mid-20th century — a trend accelerating at a rate unmatched over millennia. Zero-emissions energy sources like wind power are necessary and urgent solutions to mitigate climate change.

NASA: Based on the comparison of atmospheric samples contained in ice cores and more recent direct measurements, atmospheric CO2 has increased since the Industrial Revolution (NOAA)

Wind power saves water and is better for the environment. Conventional fossil fuel plants use billions of gallons of water a year. In addition, contaminated water from fossil fuel plants pollutes nearby waterways and marine ecosystems. On the contrary, wind power is a clean energy source that does not need water to produce electricity.

According to the Wind Powers America Annual Report 2019, the expansion of wind power in America has generated positive economic benefits. It has provided jobs to over 120,000 people across all 50 states, supported 530 domestic factories, and generated $1.6 billion a year in state and local taxes and landowner lease payments.

Growing wind and renewable energy operations in the United States will contribute to energy independence and national security. Renewable power presents a dependable, domestic energy source free from the risks associated with foreign energy sources or supply chains. It will also help support more self-sustaining, domestic microgrids. This technology can provide electricity in natural disasters or situations that require power for national defense operations.

Wind power is less prone to harmful, life-threatening malfunctions than other energy sources. Some examples include nuclear disasters like Chernobyl in 1986 or Fukushima in 2011, the 2009 accident at Sayano Shushenskaya Dam, petroleum oil spills, and coal mining accidents.

Drawbacks of Wind Power

Though no emissions are produced during wind energy operations, there are still negative environmental impacts incurred during manufacturing, transport, installation, and maintenance processes. A circular economy approach can help mitigate environmental burdens by using cleaner and higher quality recovered carbon fiber building materials that can be recycled and reused.

Wind turbines pose a risk to birds or bats that might collide with the sharp, fast-moving blades of the turbine. The U.S. Fish and Wildlife Service estimates that between 140,000 and 500,000 bird deaths occur at wind farms each year. One solution being used to decrease bird fatalities is painting one turbine blade black.

This chart shows the annual estimated bird mortality for selected anthropogenic causes in the U.S. (US Fish and Wildlife Service)

Wind turbines are not the largest threat to the survival of birds and bats. In fact, collisions with buildings, communication towers, vehicles, powerlines, and other manmade installations cause more bird and bat deaths. Other risks associated with wind turbines include blade icing and oil leaks. However, proper maintenance and technological innovations help avoid these problems.

Wind turbines have generated noise complaints from nearby homeowners. However, a typical wind turbine produces a noise level of about 50 decibels (dB). This noise level is similar to that of a midsize window air conditioner or a car going 60 km/h. It is uncommon to build a wind turbine within 300 meters to the nearest home.

The Not in My Backyard, or NIMBY, Syndrome is another consequence of wind turbine installation. Many homeowners support renewable energy yet resent nearby wind turbines. Turbines can decrease property values or block surrounding views.

This graphic by GE provides context about wind turbine noise (decibels) versus distance (meters)

Investing in Wind Energy

Global investment in renewable energy hit a record high of $282.2 billion in 2019. This represented a 1% increase from global spending in 2018 and an additional 180 GW of global renewable energy capacity. Furthermore, declining costs of wind and solar bolstered renewable energy growth.

The International Renewable Energy Agency (IRENA) claims investing $130 trillion over the next 30 years towards renewable energy systems would provide economic benefits three to eight times the amount of those investments.

IRENA’s 2020 Global Renewables Outlook report highlights sustainable investment options and policies that will pave the path towards a cleaner energy system. Its recommendations align with goals set by countries involved in the 2015 Paris Agreement to limit global warming to well below 2 degrees Celsius above pre-industrial levels and hold it to 1.5 degrees Celsius.

IRENA’s report predicts that increased investments on renewables could quadruple global jobs in the industry to 42 million by 2050. Energy efficiency measures would create 21 million jobs and system flexibility measures (measures that support the capability to change power supply and demand of the system as a whole or a particular unit such as flexible generation, stronger transmission and distribution systems, increasing storage capacity and demand-side management) could produce 15 million additional jobs.

Wind and solar projects represented 99% of the $55.5 billion invested in U.S. renewable energy capacity investment in 2019. Renewable energy companies scrambling to qualify for federal tax credits were key players in the nation’s clean energy investment growth.

Wind energy projects are very competitive from a levelized cost of production standpoint. Over 50% of the renewable energy capacity added in 2019 had lower electricity costs than new coal. The global weighted-average cost of electricity of new onshore wind farms in 2019 was $0.053 per kilowatt hour (kWh). The most competitive projects can dip to as low as $0.030 per kWh, without financial support from the government.

Investing in Wind, Renewables, and Clean Technology with ACES

Increased utilization of wind power and renewable energy will be one of the most critical steps towards carbon neutrality. Renewable energy alone will not suffice in achieving global decarbonization goals: innovations in energy efficiency and storage like lithium ion batteries and smart grid technologies will be essential in making strides towards comprehensive clean energy.

The future of wind power and renewable energy presents compelling investment opportunities. In addition, these opportunities align with client ESG preferences. We believe ALPS Clean Energy ETF (ACES) is the most efficient, broadly diversified approach to play the decarbonization megatrend of the next decade and beyond.

ACES contains two categories of constituents in the U.S. and Canada that operate in the clean energy sector. Renewable energy is the first category, including companies that focus on wind, solar, hydro, geothermal, biomass, and biofuel. The second category is clean technology. It includes companies that develop electric vehicles, energy storage, efficiency, light-emitting diode (LED), smart grid, and fuel cells.

These charts summarize ACES’ portfolio composition based upon sector (utilities, industrials, etc.) and decarbonization themes (wind, smart grid technologies, etc.)

ACES is a differentiated, pure-play approach to the decarbonization trend. ACES concentrates on companies whose primary operations focus on the clean energy sector. It is an ETF that diversifies across sub-segments and aligns with ESG standards.

Invest with purpose. If you want to invest in a healthier planet for current and future generations, we encourage you to invest in renewables like wind power through ACES. Your next investment opportunity might be blowing in the wind.

To talk more about investing in wind power, or other investment opportunities, contact us today. Together, we can find the right investments for you, the ones that align with your values and help you to reach your financial and life goals.

Go with the Flow — Investing in Hydropower

Written September 8, 2020December 11, 2020 by Annie Dysart , John Heneghan

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What is Hydropower?

Hydropower is a type of renewable energy that uses the force of flowing water to produce electricity. Its energy comes from the water cycle: the continuous movement of water on, above, and below earth’s surface.

Hydropower is a renewable technology because it captures naturally occurring energy from the water cycle and produces electricity without reducing or using up water. The marginal cost of production for hydropower — and renewables like solar, wind, and geothermal energy — is zero.

Check out this 3-minute video on hydropower.

The most common type of hydropower production is an impoundment facility. Impoundment dams hold river water until its release through a turbine that activates a generator and produces electricity. The U.S. has over 90,000 dams, yet only 3% are active hydropower facilities. The majority of dams in the United States were built for irrigation or flood control purposes.

In 2019, conventional hydroelectricity’s generation capacity in the United States was 79,746 megawatts (MW) — or about 80 million kilowatts. This is enough electricity to fuel 32 million homes a year. The state of Washington produces the most energy from impoundment. It is home to the Grand Coulee Dam, the largest U.S. hydropower facility. The dam is also the largest U.S. power plant in generation capacity.

Dams are controversial because of potential harmful environmental impact. They destroy carbon sinks in wetlands and oceans, deprive ecosystems of nutrients, reduce biodiversity, cause habitat fragmentation, and displace poor communities. Fish ladders — a series of ascending pools that allow fish to circumvent a dam — are a solution to impoundment facilities that would otherwise hinder the migration of species like salmon up and down rivers.

Another type of hydroelectric power is diversion, also known as a run-of-river facility. This method diverts part of a stream through a canal or penstock. The water then spins a turbine and produces electricity before rejoining the main river. The typical capacity of a diversion facility is less than 30 MW.

Both small individual operators and large utilities own run-of -river facilities. In some cases, large utilities view these facilities as low value assets due to old equipment, inefficient operations and low power prices.

Pumped storage facilities store energy for later use by pumping water uphill when electricity is cheap to a reservoir at higher elevation. When there is high electricity demand, they release water to a lower reservoir and through a turbine to generate electricity.

Hydro operations can operate under federal, public, or private ownership. There can also be public-private and public-federal partnerships. Federal agencies operate about half of the total installed hydropower capacity in the U.S.

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Hydropower accounts for around 6.6% of the electricity generated in the United States. Hydropower was the nation’s largest source of renewable energy until wind power surpassed it in 2019. According to the U.S. Energy Information Administration, total annual electricity generation from utility-scale non-hydro renewable sources (wind, solar, biomass, etc.) has been greater than hydropower generation since 2014.

Total renewable energy resources represent 17% of U.S. electricity generation. Dirty coal still represents 23% of generation and is a major contributor to greenhouse gases. Renewable energy sources are poised to take coal’s market share aided by technological advances in energy storage.

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Advantages of Hydropower

Hydropower offers the lowest levelized cost of electricity across all major fossil fuel and renewable energy sources. Hydro is a reliable, cost-effective energy source due to low-maintenance equipment and longer facility lifespans that amortize significantly large upfront capital costs over time.

The total conversion efficiency of a hydropower plant ranges between 90-95%. Conversion efficiency is the useful energy output divided by the energy input. For hydro, it is the hydroelectricity output divided by the kinetic energy of flowing water input. Hydropower’s conversion efficiency is greater than the conversion efficiency of both wind and solar, with wind at a rate of about 45% and solar at 25%.

Hydropower has high diversification potential with other renewable energies. A portfolio with hydro, wind, and solar energy that is diversified across energy sources and regions can have a stabilizing effect on asset portfolios.

Hydroelectric facilities provide baseload power; they run continuously to meet the minimum level of power demand. This consistency makes hydropower complementary to intermittent renewables like wind and solar that can only generate electricity when the sun is shining or the wind is blowing. Hydropower depends on the more reliable flow of water to help meet baseline electricity demands while other renewables can supply peak demands.

Hydropower and Renewable Energy Storage

The push for decarbonization through renewables will require innovation in energy storage technologies that addresses the intermittencies of wind and solar energy. While pumped-storage hydropower accounts for 95% of U.S. utility-scale energy storage, lithium-ion battery storage has seen tremendous growth. The price of lithium-ion batteries has fallen by about 80% over the past five years, enabling the integration of storage into solar power systems.

NREL’s Renewable Electricity Futures Study estimated that if 80% of the United States’ electricity is powered by renewables by 2050, 120 gigawatts of storage would be needed across the nation. The U.S. currently has 22 gigawatts of storage from pumped hydropower and 1 gigawatt from batteries.

Another opportunity looming on the hydro horizon is the potential coupling of hydropower and Bitcoin mining. Bitcoin mining lacks an eco-friendly reputation as an energy-intensive process with a large carbon footprint. However, this can change if miners use electricity from renewable sources.

Much like energy storage utilizing lithium-ion batteries, Bitcoin and other cryptocurrencies are an energy storage technology. Converting energy into bitcoins and storing it for future purchases can help contribute to the storage needed for the renewable energy revolution.

Bitcoin miners can choose their location based on the cheapest cost of electricity. Cheap electricity happens to come from cleaner baseload energy sources like hydro, geothermal, and natural gas. If Bitcoin miners settle near renewable energy plants, they could reduce their emissions and soak up extra energy that would go to waste.

Go with the Flow — Investing in Hydro

Current trends show wind and solar energy assets are more frequently represented in institutional investors’ portfolios than hydropower assets. Hydropower facilities tend to have high upfront costs, complex installation processes, and absence from the market due to a history of public ownership and project sponsorship. These are some of the factors that create a scarcity of hydroelectric investment opportunities.

Brookfield Renewable (BEPC: NYSE) is one of the world’s largest investors in renewable energy. Its strong ESG practices support global decarbonization and create long-term value for stakeholders. In addition, it is geographically and technologically diversified.

There is 19,300 MW of renewable capacity located across North America, South America, Europe, India, and China. Hydro represents 7,900 MW (53% in U.S. & Canada), or 41% of capacity, followed by 4,700 MW of wind (52% in U.S. & Canada), 2,600 MW of solar, and 2,600 MW of energy storage and distribution assets.

Brookfield has an investment grade, BBB+ balance sheet. It has diverse, high-quality cash flows and a strong financial position. In effect, it can pursue growth opportunities and make distributions to shareholders. Brookfield targets annual equity deployment of $800 million in high-quality assets.

Their investment strategy involves acquisition and development of high-quality renewable power assets and businesses below intrinsic value. They also recycle capital from mature, de-risked assets, optimize cash flows through operating expertise to enhance value, and finance businesses on an investment grade basis.

Brookfield partners with governments and businesses to achieve their decarbonization goals. It has an 18,000 MW development pipeline diversified across multiple technologies and geographies, including approximately 2,400 MW under construction.

Since 2012, Brookfield EPC has grown its annual distribution by 6% compound annual growth rate. Brookfield expects to continue distribution growth by 5% to 9% annually. In addition, they deliver total returns of 12% to 15% to unitholders over the long-term.

Brookfield is the best way to go with the flow on the decarbonization megatrend and invest in the inevitable transition to renewable hydro, wind and solar energy.

To talk more about investing in hydropower, or other investment opportunities, contact us today. Together, we can find the right investments for you, the ones that align with your values and help you to reach your financial and life goals.