Uses of Renewable Energy in Rural Areas

2. Literature Review

According to data from 2005, about 90% of the EU-27 territory is considered rural (predominantly rural and intermediate regions) where 54% of the population lives (EU, 2008). Hence, that the EU has constantly developed different policies orientated to these particular regions.

Large amount of studies have been done over the years about sustainable development in rural areas, originating different socio economics theories, policies and systems, even some of them have been put in practice with more or less success in different countries.

This review will therefore highlight some works which have been done with the aim of achieving a development in so difficult areas mainly dependent on agriculture and farming economies. Due to the big number of studies done over the years, it would be very difficult to include all of them in this study. Consequently, this review is mainly focusing the attention to those European, national or regional policies that concern the topic of this thesis. Principally, this chapter will review those works about development of rural areas; farming co-ops as an important tool for this objective; Common Agricultural Policy and its positives and negatives influences; and the use of renewable energies for a sustainable and local development in rural areas.

It is not the aim of this review to analyse all the studies done about sustainable development in rural areas, cause it would be out of the scope of this thesis, or at least it would be too wide subject, and it would need its own study. Consequently, the literature has been reduced to those policies about rural development and renewable energy done by public institutions such as European Union, Spanish ministries and regional administrations.

Neither is it the objective of this thesis to do a study about community benefits from renewable energies as a whole, therefore the range of studies treated in this chapter are merely those more related with the topic of this work.

As there are different areas in which it is necessary to concentrate on, the review will be divided in different sections according to the field under study: farming coops as and their role in the development of rural areas; Common Agricultural Policy; Rural Development Policy; and Renewable energies in rural areas.

2.1. Farming cooperative systems.

There is a large amount of studies done over the years showing the important role that the cooperative systems can play in the development of rural areas or even poverty alleviation (de la Jara y Ayala, 1992; Lele, 1981; López and Marcuello, 2005; Monasterios, 2009; Morales, 1995; Nevares, 1963; Novkovic, 2008; Simmons and Birchall, 2008…). These model of company contributes to the rural development not only theoretically but also from the reality.

The International Cooperative Alliance (ICA) (2007) defines co-operative as “autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. They are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others”.

López and Marcuello (2005) not only assume the obvious role that the co-operatives play as an organizational reference, but also, they could not neglect the value of this model as a socio-economic actor. Accoring to their study, joining this two functions co-operatives can be one the pillars of the economy and society, becoming in a fundamental factor of development in rural regions.

Simmons and Birchall (2008) used the same reasons exposed to propose the use of cooperative societies by developing countries as an essential tool to achieve a sustainable economic growth and alleviate the poverty.

However, not only developing countries are using these models, but also the developed countries do, and try to protect, reinforce and increase the creation of co-operatives.

For instance, Spain has put a great effort throughout the years in the growth of the cooperatives, even the article 129.2 of the Spanish Constitution (1978) says that “the public authorities shall effectively promote the various forms of participation in enterprise and facilitate cooperative enterprises by means of appropriate legislation”.

Consequently, Spain count with the law 27/1999 of cooperatives (1999) that foments the creation of this type of organisations as a key to impulse the growth of the economy and employment, highlighting the ethical values that the cooperative principles such as solidarity, democracy, equality and social vocation, have, considering them indispensables to build an enterprise where the members feel identified with.

Proof of the investment made in the cooperatives is that they are very well established in different sectors, especially in the agriculture, in which, for instance, in the European Union and North America imply between 30 and 70% of the market (Cropp & Ingalsbe, 1989; van Bekkum & van Dijk, 1997; Nilsson, 2001). Besides, there are different international organisations that represents this type of societies joining forces in terms of defending their interests out of the local level.

Such as the case of COGECA (General Confederation of Agricultural Cooperatives in the European Union) (2009), which it was created in 1959, and nowadays represents about 40,000 farmers’ cooperatives, employing 660,000 people. COGECA (2009) recognised the importance of the agricultural cooperatives in the rural regions, being the most important development operators and becoming the connexion of the socio-economic in rural regions. COGECA (2009) shows how the figures originated by the agricultural cooperatives in the European Union, such as more than 50% of the share in the supply of agricultural inputs; more than 60% in the collection, processing and marketing of agricultural products; and a global annual turnover of three hundred billion euros; speak by themselves.

Going to a more local scale, de la Jara y Ayala (1992) studied the influence of the agricultural cooperatives in the development of the rural region of Extremadura (Spain), taking advantage of his experienced in the area, creating and working with cooperatives since 1975. The study reveals that, in a region affected by the significant emigration of the population to the cities between 1960 and 1981, clearly dependent on the agriculture from the economic and social point of view with a 27,2% of workforce and generating the 20,24% of its GDP by 1987 (while the figures for the whole country were 13,8% and 5,43% respectively); the different policies accomplished by the national or regional authorities, promoted cooperative societies to develop the region and create stable employment. With especial mention to the plan elaborated in 1982, PECOEX (Cooperative Experimental Plan of Extremadura), on the bases of which 98 new cooperatives were created employing more than 1,000 people. All the trust deposited in this kind of socioeconomic system, made that the 24,71% of the working population in Extremadura was directly linked with farming cooperatives in 1992.

Besides, de la Jara y Ayala (1992) made some case studies in populations between 3,000 and 10,000 inhabitants, revealing a significant influence of the farming cooperatives, especially in the smallest villages, as generators of wealth and stable employment. Actually, in the cases studied the workforce dependent on farming coops was between 52 and 83%. And as consequence of the growth of the cooperative societies, the villages have seen the increase of other commercial activities, agricultural industry and standard of living, remarking the role of the agricultural cooperatives as driving force of the development of their communities.

However, there is a significant number of studies arguing the efficiency of this kind of organisations. Among others, Katz and Boland (2002); Lele (1981); López and Marcuello (2005); Nilsson (2001); Ortmann and King (2007); suggest that cooperatives suffer from technical, scale and allocative infficiency. Basically all these studies have been done analysing mainly the economic point of view, seeing the cooperatives societies as businesses and leaving on the side the social consequences of this kind of organisations in their community.

Nevertheless, cooperatives are still competing in different markets prospering and growing. If they were truly uneconomic they would be eliminated of the markets. Nilsson (2001) and López and Marcuello (2005), recognised that one of the possible options of the survival of the cooperatives could be the public support that they have. Usually, due to the important social role of the cooperatives, the different governments compensate this organisations with lower taxes and/or interest subsidies, for instance.

López and Marcuello (2005) analysed the situation of different agricultural cooperatives, trying to identified the link between their economic situation and the subsidies they were getting from the European Union through the CAP (Common Agricultural Policy). The study did not discovered that due to the grants that they received from the CAP the cooperative societies are becoming more inefficient, however, it revealed that these subsidies are allowing some inefficient cooperatives to survive in the market, making them dependent on the European financial support. Consequently with a reduction in the CAP could cause the decease of those inefficient organisations.

2.2. Common Agricultural Policy. CAP.

The Treaty of Rome (1957) commence the Common Agricultural Policy in terms of protecting a sector that, by then, employed one third of the population generating the 20% of the GDP (Bureau and Matthew, 2005). The objectives of the CAP set in the Treaty of Rome (1957) were:

• to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;
• to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;
• to stabilise markets;
• to assure the availability of supplies;
• to ensure that supplies reach consumers at reasonable prices.

Bureau and Matthew (2005) exposed that the main measure implemented to achieve these objectives was through prices intervention, achieving a stabilisation of the prices and a rapid technological evolution. Consequently, the costs decreased and the production increased significantly, reaching some of the goals. However, the actual consequences were that the population in rural areas decreased due to the low income, and the consume grew, but at a lower rate than the production, generating a surplus disposed in domestic and international markets with almost no competition due to the subsided exports.

Nevertheless, the CAP remained untouched until its first great reform, the MacSharry reform that was implemented in 1994. This reform tried to reduce the surplus cutting the intervention prices and compensating the farmers with a direct payment independent of the quantity produced. At the same time it introduced some social policies such as early retirement and agri-environmental scheme (European Parliament, 2001; Fennell, 1993).

It would be with the necessity of preparation for the incorporation of the new members to the EU, when the CAP was further reformed with the Agenda 2000 (1999), which introduced new price cuts and reinforced a second pillar of the policy to support environmental and social services and the quality of the products creating a Rural Development Regulation for the following six year.

However is in the mid-term CAP reform (2002) when appeared the decoupled payments, called Single Farm Payments (SFP), which depend on the commodity not affecting the production. With this reform, the subsidies do not depend on the volume of production and, to get access to them, it is required to follow the EU regulations regarding environment, food safety and quality, and animal welfare. The SFP and the new cuts in intervention prices started in between 2005 and 2007, depending on the country. Other measures of the reform were, first, to fixed the budget of the CAP for the period 2006-2013, so the nominal quantity would be the same, even with the introduction of Romania and Bulgaria by 2007; and second, to strength the second pillar of the CAP, creating a rural development policy which began to be applied in 2005.

All the CAP reforms have been worked out with the aim of reducing the direct subsidies to the prices or volume of production. As Bureau and Matthew (2005) exposed that, after 12 years of reforms, the intervention prices had been cut in more than a 45%, so the support is not being linked to the quantity and to increase the income of the farmers, they will need to do it through the marketplace, and not thanks to the subsidies. Besides, 5% of the SFP was transferred to rural development measures.

Although, the scope of the SFP were to reduce the incentives for intensification, this achievement is still unknown. And another issue detected is that the decoupling differs across the different states, and actually, they are allowed to keep part of the previous payments, hence that some countries, like France, still make them, because of the fearing of land abandonment.

Despite the attempts of the EU of reforming the CAP to solve the problems caused in the international markets and developing countries, and at the same time maintaining the main objectives within the domestic markets, there are different organisations and studies made, claiming for a further reform of the CAP (Bureau et al., 2005; Redclift et al., 1999; FAO, 2009; Rice, 2003; Butault et al., 2006; WTO, 2006; WTO, 2008).

Bureau et al. (2005) summarized the different causes for a further reform of the CAP. Among those are economic, because 40% of the EU budget is going to the CAP, however 50% of it is going to only the 7% of the beneficiaries. Besides there is a growing feeling of spending the money on other sectors like research and development or education. Other reasons are environmental, so making a more ecological CAP, it would be possible to decrease the production farming and intensification.

On the contrary, the reality of the EU-27 agriculture, reported by the Directorate-General for Agriculture and Rural Development (2008), is that it represents 6,2% of employment, varying from 1% to 33% in United Kingdom and Romania respectively, while accounting for 1.8% of GDP, differing from 0.4% to 9.5% in the different countries with Luxembourg at the bottom of the list and Romania at the top. It is evident that the importance of this sector is decreasing in EU-27, although there is still a strong and very important agrifood industry.

There is a significant number of farmers and agri-cooperatives associations, represented at EU level by COPA-COGECA (2009), that defends the CAP as a measure to ensure food stability and quality; moderate price for consumers and fair earnings for farmers; employment and public services.

It is still soon to have clear evidences of the consequences of the last reforms of the CAP, and even more difficult to associate the changes in the agri-food sector exclusively with the modifications of the CAP, cause, as any other sector, it has been affected by the difficult economic situation of the last few years.

On the other hand, the consequences cannot be analysed in a European level and it is much clear at a national or even regional level. In this section, several transformation that the Spanish agricultural sector has suffered in the last few years and, predictably, could be linked to the several CAP reforms, are highlighted.

The coordinator of farming organisations, COAG, (2003) predicted some of the impacts of the PAC reform done in 2003. Among them, it brought out the possible reduction in the agrarian exploitations incomes and with it the farmers’ income between 10% and 50% depending on the cultivated crop. It would imply the abandonment of the farming activity estimating the disappearance of about 1.77 million jobs.

In terms of the reduction of the cultivated area, the COAG (2003) made an estimation of the area that would not be cultivated depending on the product (2.1) accounting a total area of 1,757,250 ha.

More recently, the National Commission of Agriculture, Environment and Fish (2008) showed that the agrarian working population has decreased in an 8% for the previous four years, and at the same time, the agrarian income is about 65% of the average.

Also the COAG (2009) has just reported a decrease in the Spanish agrarian income of 26.3% since 2003, the second worst figure for the last 20 years only overtaken by the registered data from 1992, associating the PAC as one of the causes among others.

Nevertheless, due to the pressures, the European Commission, Fischer (2009), started to work on the next reforms of the CAP which should come after 2013, recognising the importance of reducing the direct payments dramatically after 2013. But, due to the high value of the sector and the significant number of population dependent on it, or at least living in rural areas, Fischer (2009) also emphasized the importance of reorientating the CAP to its second pillar, rural development.

2.3. Rural Development Policy.

The OECD (2009) defined rural local units as those whose population density is less than 150 inhabitants per square kilometre. But also classifying in three different categories:

• “Predominantly Rural region” (PR): more than half of the dwellers of the region lives in rural communes.
• “Intermediate Region” (IR): between 15% and 50% of the inhabitants live in rural local units. And those regions with an urban centre with more than 200.000 inhabitants representing more than 25% of the population in a “predominantly rural” region.
• “Predominantly Urban region” (PU): the population living in rural local units is below 15%. Or when having an urban centre of more than 500.000 inhabitants, this represents more than a quarter of the total population of an “intermediate” region.

According to the Directorate-General for Agriculture and Rural Development of the European Union (2008), about 90% of the EU-27 territory is considered rural (predominantly rural and intermediate regions) where 54% of the population lives. However, rural areas are not only important because of their extension, but also because they offer 53% of the workforce and 42% of the GVA in EU-27 (83% and 74% respectively for the new members). In those terms, the primary sector in the EU-27 provide 6.2% of employment (varying from 1% to 33% in UK and Romania) and 1.8% of GDP (from 0.4% in Luxembourg to 9.5% in Romania). Nevertheless, the socioeconomic indicators of these regions are much lower than those in non-rural areas as it can be observed in the figures of appendix A.

Due to the consecutive reforms of the CAP, as it was explained in previous sections, the agriculture was going to suffer significant changes, specially in those situations where it has been clearly dependent on the European subsidies. Being the agriculture the main source of employment and economic development in rural areas, the problems affecting the sector could have repercussions on the entire rural society. In an attempt to compensate the lack of funding on the agriculture, the EU developed a program to support the rural areas.

Agenda 2000 (1999) constituted rural development policy as the second pillar of the CAP creating a unique regulation for the whole EU between 2000 and 2006. Although, it would be in the Mid Term Reform of the CAP (2002) where it was decided to completely reinforce the rural development policy transferring funds from the first to the second pillar of the CAP.

The Council Regulation (EC) No 1698/2005 (2005) originated the European Agricultural Fund for Rural Development (EAFRD), allowing to regulate the rural development policy through one fund, one management and control system. This regulation along with the Council Decision 2006/144/EC (2006) defined the priorities and measures for rural development as well as the objectives and the strategic to follow for the period 2007-2013. The objectives of the new rural development policy are:

• improving the competitiveness of agriculture and forestry by supporting restructuring, development and innovation;
• improving the environment and the countryside by supporting land management;
• improving the quality of life in rural areas and encouraging diversification of economic activity.

To achieve these objectives, the Council Regulation (EC) No 1698/2005 (2005) and the Council Decision 2006/144/EC (2006) specified different key actions acting in diverse fields. Those strategies and plans were divided in four axes according to the objective they are aiming to cover:

* Axis 1: “Improving the competitiveness of the agricultural and forestry sector”

The agriculture is losing importance as the main activity in the rural areas. However, the value of the agrifood sector in the rural economy and its role as food and services supplier, it is fundamental to preserve it. The growth of the market due to the enlargement of the EU is also increasing the competitiveness. Hence that factors such as efficiency and innovation are keys for the survival and development of the sector. Increasing competitiveness means reduction of costs production, improvement of food quality, value-added products, less pollutant and more environmentally friendly production technology, for instance.

* Axis 2: “Improving the environment and the countryside”

Involve all those measures orientated to preserve the EU’s landscapes and natural resources guaranteeing a sustainable use of the land. These actions included in the axis 2 should contribute to the fight against climate change, improvement of water quality and biodiversity.

* Axis 3: “The quality of life in rural areas and diversification of the rural economy”

The aim of this axis is to help to create new employment possibilities with the diversification of the activities to those non-agriculture related. All those measures associated to improve the access to infrastructure, better environment and basic services, are also included in this axis.

* Axis 4: “Leader”.

The leader axis is a continuation of previous programmes implemented by the EU. Basically it contributes to the achievement of the priorities gathered in the axis 1, 2 and 3, by supporting the execution of local development strategies. This axis is created to reinforce the rural development in the long term encouraging actions leaded by local actors. These actions could ascent environmental consciousness, and invest in renewable resources and energy.

The Council Regulation (EC) No 1698/2005 (2005) also established that each member state should create its own strategy plan and programme according to its situation and characteristics.

Consequently, the Spanish Ministry of agriculture, fisheries and food (2007a) (2007b), recently renamed Ministry of the environment, rural and marine affairs (2008), did its job and created the correspondent documents in terms of establishing the new European policy.

Besides, the law 45/2007 (2007) approved by the Spanish parliament, establishes and regulates the diverse measures to support the sustainable development in rural areas. The law takes as a reference the European policy adapting it to its particular social, financial and environmental situation. As the Council Regulation (EC) No 1698/2005 (2005), the Spanish law include measures to improve the diversification of the economy, the quality of life and to protect and recover the natural and cultural resources of the rural environment.

2.4. Renewable energies in rural areas.

In terms of establishing a plan to comply the Kioto protocol and create new commitments after 2012 for the reductions of carbon emissions, the European Union (2009) fixed an objective of 20% of the overall energy generation from renewable sources by 2020. The European Union also highlighted the importance of the development of renewable energies to guarantee the energy supply in the Community; to create new employment opportunities; and to produce a regional development, especially in rural areas.

At the same time, the European Union (2009) emphasized the value of boosting investment at regional and local levels to promote the renewable energy installations and with it also promote the creation of employment; regional and local development; and social cohesion.

In the case of Spain, in its renewable energy plan (2005) acknowledged the importance of investing in those areas where the resources are located according to achieve its renewable energy targets. It assumed that those resources are mainly in rural areas, creating a socio-economic benefit increasing the employment and stimulating the economic development in these specific areas which are suffering from depopulation, contributing to develop sustainably the rural areas.

The Spanish renewable energy plan (2005) also expressed the necessity of promoting the renewable energy development taking into account other European policies, especially the common agricultural policy and rural development.

Congruently, the Spanish Royal Decree 1578/2008 (2008) recognised the advantages that photovoltaic installations integrated in the buildings may offered as distributed generation and social diffusion of renewable energies, extending this advantages to the farming installations being consistent with the Law 45/2007 of rural development mentioned in previous sections.

2.5. Defining the gap.

As it has been described, the CAP has generated positive and negative consequences in external as well as internal markets for years. Hence that the European Union has been trying to correct the problems with consecutive reforms. It seems to be evident that the CAP needs a deep reform in terms to avoid the disruption that it has generated in the international agri-food markets, especially to developing countries.

However, the reforms of the CAP have also favoured an intensification in the production and with it to the larger producers whereas the small farming co-ops, family farms or any other small producers have it difficult to survive without any external support.

It looks as though there is the challenge of the CAP reform, to adapt the agri-food industry to the world trade liberalisation and at the same time avoid the environmental impact of the intensive agriculture, not forgetting the preservation of the quality of the products.

On the contrary, it is the situation of the farmers. Nowadays they have the conflict whether becoming a specialised producer to compete in the market or assuming a function of environmental manager.

Nevertheless, it has to be taken into account that about 90% of the European territory is considered rural areas where more than half of the population lives and the agriculture is the base of the socio-economy. Agriculture employs directly more then 12 million people (DG AGRI, 2008). However, it has already been shown in previous sections, how agri-food cooperatives may develop their surrounding community making much more citizens indirectly dependent on the agriculture.

According to the last CAP reforms, it seems that the European Union is trying to diversify the economy in rural areas boosting the second pillar of the CAP, rural development, consequently the population it would not be so dependent on agri-food markets. One of the measures to achieve this, it is through renewable energies. Bearing in mind that rural areas are about 90% of the territory and it is there where the resources are located, it seems to be logic the investment in renewable energies, especially if the European Union is aiming to achieve its targets in this field.

It is at this point where the agri-food coops and family farms could have a chance, not only of maintaining the production, but also of increasing the incomes that it would allow them to pay attention to the quality of their products. Although it could even create and independence of the agriculture from the subsidies of the CAP.

If the farmers use part of their fields, or even the roofs and facades of theirs agri-food industry facilities, to generate electricity thanks to renewable sources, and then, they could sell it to the national grid, it would give them that extra income completely independent on the European Union.

It is the scope of this study to analyse the options that small farms could have to substitute the CAP subsidies for the profit they could get becoming also electricity generators using renewable energy systems.

In the case it would be possible for the farmers to become independent of the CAP, it would allow to the European Union to invest that 40% of the budget that it is spending in the agriculture in other fields such as education or research and development. And consequently that investment would also go, directly or indirectly, to the rural areas and agriculture. Because if it is possible to maintain the agri-food coop system in rural areas, it would be also possible to maintain the community benefits that this kind of organisations generate.

This measures would follow the objectives of the CAP reforms, allowing the EU to reduce its budget in agriculture, but at the same time improving the standard of living in rural areas. In addition, it would also do its bit according to the rural development policy. This measure would fulfil the four axis of this policy maintaining the agri-food sector, diversifying the economy and combating climate change.

3. A European rural region: Extremadura.

3.1. Introduction.

As it was commented in the previous section, the use of renewable energy could be an option for the rural areas to achieve its development. All the policies that are being recently formulated at European as well as national level, focused on the promotion of renewable energy and looking for a development in the most unfavourable areas, could be joined together, or at least some of its main points for the improvement of the standard of living in rural areas.

In terms of studying the possibility of substitution of the CAP subsidises for the income a farmer can get with a renewable energy installation, more concretely with photovoltaic, it is necessary to find an European rural region.

The rural region of Extremadura (Spain) has been selected for its rurality, highly dependency on the agriculture compare to the Spanish and European average and its high potential for photovoltaic systems installation.

In the following points this region and its characteristics will be presented analysing its rural condition; the agrarian sector and the consequences of the last CAP reforms; and its photovoltaic potential.

3.2. Rural Development.

Extremadura is one of the 17 regions of Spain. It is located in the mid west, bounded on the west by Portugal (figure 3.1.).

With a total population of 1,102,410 inhabitants, Extremadura is divided in two provinces, Badajoz (half south) and Cáceres (half north), and it is defined as a predominantly rural region according to the OECD criteria. Actually, Extremadura accounts with 41,634 km2, entailing a population density of only 26 inhabitants/km2 (INE, 2009).

Another peculiarity of this region is its economic structure. The primary sector plays a significant role in the GDP and employm