Arla farmers to power their own dairy company
Arla and its farmer owners are closing the loop on the renewable electricity produced on farm in a move that reduces the carbon footprint of Arla’s milk, secures farmers a better price for their power, and gives the dairy cooperative direct access to more green electricity certificates.
Modern dairy farmers are able to do so much more than deliver nutritious milk to the world. While some engage in biodiversity projects and others provide manure for biogas, many of Arla’s cooperative farmers generate green electricity for their own farms and for the public grid.
As Arla is looking to increase its share of renewable energy in its operations, the company and the farmer owners have collaborated on an idea for how to keep the farmers’ green electricity in the dairy value chain and provide a better profit for the farmer.
“Arla farmers can help their own company to accelerate the transition to renewable energy while the company can maximise the value of their investments in renewable energy. This demonstrates how we in our cooperative’s micro food system can work together to increase the sustainability of our value chain to the benefit of our owners, our business, and the environment,” explains Hanne Søndergaard, Arla’s head of sustainability.
Technically, the loop is created via the Guarantees of Origin (GO) that are issued for the renewable electricity produced on the farm. Until now, the farmers’ only option has been to sell their GO as a commodity for resale, either through a utility company or a trader. Now though, by selling their Guarantees of Origin directly to Arla, the other parties are left out of the transaction and the farmers are rewarded with the full market value that Arla would pay for GOs on the open market.
Generating circularity within its own value chain is a move welcomed by Arla’s chairman, Jan Toft Nørgaard:
“With this opportunity, the green energy that our owners produce can be counted as part of our collective actions to make dairy products more sustainable. The full profit for the GOs that we are able to secure the farmers with this move has no extra cost for the cooperative and is a positive contribution to the business case for Arla farmers who consider investing in renewable energy.”
Another step towards carbon net-zero
In Arla’s operations, emissions have been lowered 24 per cent since 2015 and the share of renewable energy used in operations is currently 35 per cent. A continuous increase is part of the ambition to reduce total emissions by 30 per cent from 2015 to 2030 and to be a carbon net-zero dairy cooperative in 2050.
According to Arla’s Climate Check data, 24 per cent of the cooperative members currently produce renewable electricity from wind turbines and solar panels on their farms. As it’s mandatory for farmers in Germany and Luxembourg to pass over their GOs for the green electricity to the government if their electricity production is subsidised, the share of owners who can choose to sell them to Arla is currently 14 per cent. It’s Arla’s estimate that around a fifth of the company’s total electricity usage in its operations can potentially be covered by farmer-produced GOs.
Fact box: Guarantees of Origin
A Guarantee of Origin (GO) is an EU standardized instrument to guarantee that one MWh of electricity has been produced from renewable energy sources and that the carbon reductions are only counted once – by the owner of the GO.
The GO is issued to the energy producer and is a tradable commodity, which is often sold together with the green energy, e.g. to a utility company that typically resells them to companies who want to reduce their carbon footprint. Some farmers sell the GO separately to traders, who will sell it with a profit on the open market.
Arla already buys GO’s in the open market for approximately one-third of its total electricity use in its operations.
Suppose Arla buys the GO’s directly from the farmer owners at market value. In that case, the full profit stays with the electricity-producing farmer and Arla has the right to claim the ownership of the CO2 reductions in its dairy chain.