Economic Effect of Energy Price and Economic Feasibility and Potenhal of New Technology and Improved Management for Irrigation in Texas

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Texas Water Resources Institute

Irrigation is a major contributing factor in crop production on the Texas High Plains. It is responsible for greatly increasing crop production and farm income for the region. Two factors, a declining groundwater supply and increasing production costs, are of primary concern because they impact on farm operations and producer economic viability.

Recursive linear programming models for a typical Texas High Plains irrigated farm were developed to evaluate expected impact of energy and crop price changes, tenure and new technology. The model includes a Fortran sub-routine that adjusts irrigation factors each year based on the linear programming solution of the previous year. After calculating new pumping energy requirements, well yield, and pumping lift, the Fortran component updates the linear programming model. This procedure continues automatically to the end of a specified planning period or to economic exhaustion of the groundwater, whichever occurs first.

Static applications of the model, in a deep water situation, showed that a natural gas price increase from $1.50 to $2.20 per thousand cubic feet (mcf) would result in reductions in irrigation levels. Irrigation was terminated when the price of natural gas reached about $7.00 per mcf. In a shallow water situation, much higher natural gas prices were reached ($3.60 per mcf) before short-run adjustments in farm organization began to occur. Under furrow irrigation, irrigation was terminated when the natural gas price reached $7.00 per mcf.

Increased natural gas prices impact heavily on returns above variable costs (up to 15 percent reductions) for a 60 percent natural gas price increase. The effects of rising natural gas prices over a longer period of time were more significant. Annual returns (above variable and fixed costs) were reduced by as much as 30 percent, and the present value of returns to water was reduced by as much as 80 percent as the natural gas price was increased annually by $0.25 per mcf (from $1.50 per mcf). The economic life of deep groundwater was shortened by as much as 18 years.

Renter-operators are even more vulnerable to rising natural gas prices than are owner-operators. With rising natural gas prices, profitability over time for the renter is low. As natural gas prices continue to increase, the greater will be the incentives for renter-operators to seek more favorable rental terms such as a sharing of irrigation costs.

With the problem of a declining groundwater supply and rising natural gas prices, an economic incentive exists for producers to find new technologies that will enable them to make more efficient use of remaining groundwater and of natural gas. Substantial economic gains appear feasible through improved pump efficiency. Increasing pump efficiency from 50 to 75 percent will not increase the economic life of the water supply, but can improve farm profits over time; e.g., the present value of groundwater was increased 33 percent for a typical farm with an aquifer containing 250 feet of saturated thickness and 15 percent for 75 feet of saturated thickness.

Improved irrigation distribution systems can help conserve water and reduce irrigation costs. Results indicate that irrigation can be extended by 11 or more years with 50 percent improved distribution efficiency. In addition, the increase in present value of groundwater on the 1.69 million irrigated acres of the Texas High Plains was estimated to be $995 million with 50 percent improved efficiency.

New technology opportunities were expanded to include analysis of the economic feasibility of wind assisted irrigation pumping. Two wind machines were analyzed, with rate outputs of 40 to 60 kilowatts (KW). Each was applied to the Northern and Southern Texas High Plains over a range of land and water resource situations. Breakeven investment was estimated at discount rates of three, five and ten percent.

Cropping patterns on the Southern High Plains were dominated by irrigated cotton and were insensitive to changes in crop or electricity prices. On the Northern High Plains, irrigated corn and grain sorghum were the major crops, with acreage reverting to dryland wheat at the higher electricity prices. The cropping patterns in this area were impacted heavily by labor restrictions. Considerations of wind power had little effect in determining optimal cropping patterns.

When wind power was applied to an irrigated farm on a static basis, the set of crop prices applied had little effect on the annual value of a wind system. Value of wind power was increased, but by smaller proportions, in response to increases in the price of electricity. Each machine size had a greater value when operated on the larger of the two applicable land units (100 acres for the 40 KW machine and 144 acres for the 60 KW system). The 60 KW system was also tested on the 100 acre unit but returned less per KW than the 40 KW system.

Available wind power in the temporal analysis was less than in the static analysis, thus temporal estimates of wind system value should be regarded as conservative. On the Southern High Plains, breakeven investment was decreased slightly from the static analysis. However, in some situations on the Northern High Plains, breakeven investment increased. This indicates that the value of wind power could increase as the aquifer declines in some situations. Breakeven investment increased by up to 80 percent when the price of electricity was increased by $.005 per KWH per year. The most significant effect of wind power was that it allowed the maintenance of irrigation levels which, without wind power, had been made uneconomical.

These results indicate that, at least in the future when wind system costs decrease and stabilize, wind-assisted irrigation could be an economically viable alternative for Texas High Plains producers. The results are limited by the need for future research regarding the effect of irrigation timing on crop yield as well as some of the long-term characteristics of wind system operation, such as durability and the requirements and costs for system repairs and maintenance.