Economic and Financial Assessment of Solar-Powered Irrigation

This paper aimed at assessing the economic and financial viability of solar-powered irrigation of tomato crop in Jordan Valley. Data were collected from 16 tomato farms that use solar-powered irrigation system. Another 16 farms with diesel-powered irrigation system was investigated for comparative reasons. Descriptive statistics, Cost Function Analysis (CFA), Life-cycle Cost Analysis (LCCA), Water Productivity (WP) and the financial indicators of Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period (PP) and Benefit to Cost Ratio (B/C) were the main economic and financial analytical tools used in this study. The results of the study revealed that costs of inputs, labor costs and equipment and maintenance costs have had a lower adverse impact on the total revenues level when using solar-powered irrigation system. The results also indicated the preference of the investigated financial indicators (NPV, IRR, PP and B/C ratio) when solar-powered irrigation is used compared to diesel-powered irrigation. The results also revealed a lower cost of life of the farm under the use of solar-powered irrigation. The governmental policies and programs should be directed toward the concepts of renewable energy in general and solar energy uses in agriculture in particular. Special agricultural extension plans in training and capacity building of farmers and extension workers on the use of solar energy in irrigation of agricultural crops should be developed. Cooperation in the fields of solar energy between the Ministry of Agriculture and related parties such as the Royal Scientific Society and the Ministry of Energy should be initiated to conduct specialized researches in the fields of solar energy use in agriculture.


Introduction
People are always looking for new sources of energy to cover their growing needs in applications of the advanced life they live. Fossil fuel, the major source of power, is depleting, so other sources of energy are needed to be developed (Mohammad, 2014). Solar energy applications have more attention to substitute the fossil fuel in Jordan. The increasing energy demand has brought challenges to Jordan due to country's limited resources. One of the most important energy applications to be considered in this manner is agriculture. Solar energy is used in many agricultural processes, including solar sterilization of soil, drying of crops, heating and cooling of water, desalination of water for drinking and wastewater treatment. The use of solar energy in agriculture is becoming increasingly popular and the energy produced from this renewable source can be used on the farm providing the farmer with an additional income. One of the most important uses of solar energy in the agricultural sector is generating electricity to irrigate agricultural crops, especially in view of the increasing costs of electricity consumption using fossil fuels to generate electricity (Alnogrouch, 2005). During the last decade, irrigating agricultural crops through solar-powered irrigation pumps is an emerging practice in Jordan. Solar-powered irrigation pumps need little maintenance, and their operating life may be more than 20 years, they are easy to install, and do not pollute the environment. On the other hand, the disadvantages of using solar energy in irrigation are that its capital cost is high, energy storage must be ensured to take advantage of it during the period of solar radiation, and its maintenance requires skilled technicians. Diesel-powered irrigation pumps are characterized by low capital costs, fast and easy installation and widespread use. Their disadvantages include their high operational costs and maintenance costs, short life span, noise and environmental pollution (Neil, 2012).
Worldwide, 15% of total energy consumption in crop production is for pumping irrigation water (Dursun & Ozden, 2012

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Descriptive statistics, Cost Function Analysis (CFA), Life-cycle Cost Analysis (LCCA), Water Productivity (WP) and the financial indicators of Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period (PP) and
Benefit to Cost Ratio (B/C) were the main analytical tools used in this study.

Descriptive Statistics
Descriptive statistics are brief descriptive coefficients that summarize a given data set, which can be either a representation of the entire population or a sample of it. Descriptive statistics are broken down into measures of central tendency and measures of variability, or spread. The main descriptive indicators were estimated for both types of the investigated farms.

Cost Function Analysis
Cost analysis helps allocation of resources among various alternatives. Cost function summarizes all of the economically relevant information about the process of transforming inputs into outputs. Cost functions were estimated, average cost functions were derived for both types of the investigated farms to determine the optimum size of production for allocation of resources to be efficient.

Life-Cycle Cost Analysis
Life-cycle cost analysis (LCCA) is a tool to determine the most cost-effective option among different competing alternatives to purchase, own, operate, maintain and, finally, dispose of an object or process, when each is equally appropriate to be implemented on technical grounds. This Life Cycle Costing Tool has been developed to assist asset managers in decision making based on performing a systematic assessment of the life cycle costs of selected assets. The initial capital outlay cost is usually clearly defined and is often a key factor influencing the choice of asset given a number of alternatives from which to select. The process of identifying and documenting all the costs involved over the life of an asset is known as Life Cycle Costing (LCC). LCC was conducted for both types of the investigated farms. The formula to calculate LCC is as follows: LCC = Investment costs + Present value of future costs of operating, maintenance and replacement costs (1)

Water Productivity (WP)
Water productivity is generally defined as crop yield per cubic meter of water consumption for irrigated areas. The concept of water productivity (WP) is offered by Kijne et al. (2003) as a robust measure of the ability of agricultural systems to convert water into food.
The productivity of the cubic meter of water was calculated for both types of the investigated farms. The following formula was used: Productivity = Average production (kg/dunum)/Average quantity of water used (m 3 /dunum) (2)

Financial Indicators
To determine the financial viability of using solar-powered irrigation, the Net Present Value (NPV), Internal Rate of Return (IRR), payback period (PP) and Benefits to Costs (B/C) ratio for both types of the investigated farms were calculated. The feasibility of the investigated farms was analyzed at a discount rate of 12% over a 10 years period for both NPV and IRR.
(1) NPV Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of a projected investment or project. The NPV was calculated as follows: Where, t: time, i: discount rate; R i : net cash flow.
(2) IRR Internal rate of return (IRR) is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. IRR is used to evaluate the attractiveness of a project or investment. If the IRR of a new project exceeds a company's required rate of return, that project is desirable. If IRR falls below the required rate of return, the project should be rejected. The IRR can be mathematically calculated as follows: (1 + r) 2 + CF 3 (1 + r) 3 + CF n (1 + r) n = 0 (4) Where, CF: cash flow in the last period being n, and r is the internal rate of return to be calculated.
(3) PP Payback period in capital budgeting refers to the period of time required to recoup the funds expended in an investment, or to reach the break-even point. For example, a $1000 investment made at the start of year 1 which returned $500 at the end of year 1 and year 2 respectively would have a two-year payback period.
(4) B/C Ratio B/C ratio is the ratio of the benefits to costs of an enterprise expressed in monetary basis. It is the ratio of total value of benefits to the total value of the costs. A reliable measurement to accept the investment is when B/C ratio greater than or equal to one.

Descriptive Statistics
Averages of Total Returns (TR), Quantities produced (Q), Productivity of land unit (P) which is Dunum (1000 m 2 ), Cost of Labor (L), Cost of Equipment and Maintenance (EM), Cost of other Inputs (OI) were calculated for both the solar-powered irrigation farms and diesel-powered irrigation farms. Table 2 shows the results of these calculations. Source: Statistical analysis. Table 2 shows that the averages of TR, Q and P are higher in solar-powered farms compared to those in diesel powered farms by almost 10%, 5% and 9% respectively. The table also indicates that the costs of labor, equipment and maintenance and other inputs are lower in solar-powered farms compared to those in diesel powered farms by almost 19%, 7% and 10% respectively. These results confirm the fact that using solar-powered pumps to irrigate tomato in study area is economically efficient than using diesel-powered pumps. Higher returns, production and productivity as well as lower costs were achieved. These results are in line with the results achieved by Hahn (2000), Hossain et al. (2015), Sharif (2013), and Khair (2015) that showed that the use of a solar pump in pumping irrigation water is more profitable than using a diesel pump.

Cost function Analysis
Cost functions were estimated for both solar-powered farms and diesel-powered farms, average cost functions were derived for both types of investigated farms to determine the optimum size of production for allocation of resources to be efficient. Table 3 shows the results of cost functions analysis. Benefiting from the average costs functions, the optimum size of production level was determined for both solar-powered farms and diesel-powered farms. The optimum size of production level for solar-powered pumps farms was 6338 kgs while this size for diesel-powered pumps farms was 5851 kgs. It is clear and expected, due to the higher rate of production using solar-powered pumps, that the optimum size of production level in solar-powered pumps farms was higher than that for diesel-powered pumps farms. The average cost of production using average cost function can be tracked to show the optimal production level where per-unit production cost is lowest and therefore profit margin is the highest. This level was 6338 and 5851 kgs for solar-powered farms and diesel-powered farms respectively. These results are in line with the resuls obtained by Narale et al. (2013), and Bakry and Jasem (20130).

Life-Cycle Cost (LCC) Analysis
LCC was conducted for the solar-powered pumps farms as well as for the diesel-powered pumps farms. Table 4 shows the results of LCC analysis. Source: Statistical analysis. Table 4 shows costs involved over the life of both the solar-powered pumps farms and diesel-powered pumps farms. As shown in the table LCC value for solar-powered pumps farms is less than that for diesel-powered pumps farms by almost 1000 JDs (7.5%). The results showed in table 4 confirm importance of solar-powered pumps in reducing costs over farm assets life cycle that needs to be considered in making the right choice for asset investment. Achkour (2015) derived similar conclusions.

Water Productivity (WP)
The productivity of the cubic meter of water was calculated for both the solar-powered pumps farms and the diesel-powered pumps farms. Table 5 shows the results of these calculations. Source: Statistical analysis.
As shown in table 5, water productivity in solar-powered pumps farms found to be higher than that in diesel-powered pumps farms by almost 5%. This increase could be attributed to better water use efficiency in solar-powered pumps farms compared to diesel-powered pumps farms. This result is in line with a result achieved by Hossain et al. (2015) and Sharif (2013).  As shown in table 6, the NPV values for both types of farms were positive and acceptable. Also, the IRR values in both types of farms indicated that both farms activities provided returns higher than the costs paid. The payback period was less than 2.5 years for both types of farms which is good and acceptable. The B/C ratio was higher than one in both types of farms indicating a viable activity in which the benefits outweighed the actual costs that went in the enterprise. Although all the financial indicators were indicating viable and financially feasible activity, the values of NPV, IRR and B/C ratio were higher in solar-powered pumps farms.

Conclusion and Recommendations
The results of this study revealed that tomato farms irrigated with solar-powered pumps are economically and financially viable than tomato farms irrigated with diesel-powered pumps. In order to save costs, it is recommended that diesel-powered pumps should be replaced by solar-powered pumps. Government policies and programs should be focused on the concepts of renewable energy in general and using solar systems in agriculture in particular. Special extension plans for training and capacity-building of farmers and extension workers on techniques for using solar energy to irrigate agricultural crops should be developed. Cooperation in the fields of solar energy between the Ministry of Agriculture and related parties such as the Royal Scientific Society and the Ministry of Energy should be initiated to conduct specialized researches in the fields of solar energy use in agriculture.