Efficiency of Farms producing Sustainable Energy in Italy with DEA

Abstract

A major concern of today's society is sustainability and in particular renewable energy production. From a circular economy perspective, sustainability can be linked to the use of renewable sources and the recovery of production waste. Many actors play a role in the energy production sector, including some farms that, alongside their core business, can produce renewable energy to be used for internal purposes or even sold as an income supplement. There are several ways to produce energy on farms, including installing solar panels that harness energy from the sun, or wind turbines that exploit wind power, or producing bioenergy from waste or specially grown agricultural products. In any case, farms are economic entities devoted to the production of goods and services ranging from classic food production, to providing agritourism services, energy production, and many, many others. Every economic production requires starting inputs that are necessary for outputs to be obtained. Some farms, starting with the same number of inputs, manage to produce a greater number of outputs than others, and to produce the same outputs they require less inputs. In other words, they are more efficient. The purpose of this study is to identify these more efficient units and to understand whether renewable energy production can be a factor in making companies more economically efficient. If the thesis of this study is confirmed, namely that sustainable energy production makes farms more economically efficient, then decision makers such as the EU could implement a supportive policy that is not a subsidy but is instead an investment that stimulates economic growth. The tool with which the research will be conducted is Data Envelopment Analysis (DEA), a nonparametric deterministic frontier analysis procedure initially proposed by Charnes et al. (1978). This study initially describes the energy market, then draws attention to why a green transition is necessary and how this market will change, then briefly describes the Italian situation at the level of progress and policies made toward green transition, then reports some studies from the literature and formally describes the DEA method. Finally, it addresses the DEA analysis of more than 10.000 Italian farms, using data from the Italian RICA database, part of the European FADN community.