Solar is being installed at an increasing clip across the United States with large-scale projects looking to farms for the massive tracts of land needed for their development. In fact, I’ve personally spoken with and talked to several landowners who have recently inked longterm leases (10 to 30 years) on +800 acre tracts for between $600 and $1,200 per acre. Wow!!! Bottom line, there are loads of utility-scale solar farms projects popping up and we are seeing more farmers being offered big bucks to lease their ground. But those big bucks do come with strings attached and there are many different factors landowners need to consider before signing long term contracts. Below is just some of the research we’ve found. Make certain you do more specific digging for your particular area.
What is a solar farm? Solar farms or solar arrays are basically a group of solar panels that collect energy from the sun. They most commonly use multiple large photovoltaic (PV) panels that require a good-sized chunk of land. Most of the projects going in across the Midwest are what’s known as “utility-scale”, the definition of which varies widely but in general means projects that are greater than 5 megawatts (mW).
How much land does a solar project require? The amount of land for a typical solar installation also varies depending on the project. The most widely cited literature says the general rule of thumb is for every 1 kilowatt (kW) of solar panels needed, the area required is approximately 100 square feet. So a 1-megawatt power plant would require a minimum of about 2.5 acres. That’s just for the panels, however…there is other equipment needed to run these things as well as space for workers to access them for maintenance, etc. According to a National Renewable Energy Laboratory report, the average direct land requirements for projects greater than 20 mW range anywhere from 7.5 acres/mW to 8.3 acres/mW. Interestingly, most of the deals we have been hearing about as of late are involving a minimum of 500 to 800-acre tracts, with some of the deals further east involving a minimum 1,000 acres.
How much do solar leases pay? Solar operators mostly lease land rather than buy and much of what is considered “prime solar array country” also happens to be farmland – wide open spaces, strong levels of total solar radiation, and flat ground. Typical solar project lease rates vary widely depending on the region, project size, and use. I’ve heard anywhere from $300 to $2,000 per acre but the average seems to be around $1,000 per acre. Leases should also contain built-in annual rent escalations as well to adjust for future inflation. Some leases also have royalty structures where the landowner shares in a percentage of the project’s revenue, though these don’t seem to be very common.
How long do lease commitments last? Lease lengths vary but average around 20 years (we’ve seen them as long as 40 years) and tend to come with automatic extension renewals of 5 or 10 years. Because of the long timeframes, it’s critical that landowners think through possible future events that could interfere with that commitment. Obviously we can’t anticipate every scenario but landowners should have a good idea of what they want their operation to look like 20-30 years or more down the road. Our research finds these solar leases are extremely difficult if not impossible to get out of and generally prohibit any other use of the property. Bottom line, this is not a quick fix to a temporary cash-flow problem. It’s a long term commitment that will shape your farm for literally decades and generations to come.
Other legal interests to consider: Does anyone else have any legal interest in the land you’re thinking of leasing? For example, some mortgages have provisions that can prevent you from entering into such an agreement with a third party. Don’t forget about farmland leases, hunting leases, mineral rights, easements, and trusts.
Property taxes: Some states assess commercial agricultural land at lower values for property tax purposes. Solar energy may not qualify under your state or local tax codes which could mean higher taxes. Also, under some tax laws, qualifying land that is converted to non-agricultural commercial use could be subject to penalties equal to previous years’ tax savings. There could also be penalties under other various agricultural-use laws.
Insurance and liability: Landowners need to consider this from two perspectives – Who is liable if someone gets hurt on the property being leased? And who is liable for damage to the solar panels and other equipment? These are largely going to be determined in the lease but there may be additional insurance requirements or clauses needed, depending on a variety of circumstances.
Your neighbors: Some rural American communities have expressed skepticism about these larger solar farms for many reasons. Some do not like the idea of high-quality farmland “going to waste.” There are also concerns about the rural landscape being crowded with solar panels. And then there is the actual installation process, which can take many weeks or even months, often requiring the addition of access roads that can mean clearing crops or other natural vegetation. This step in the process also brings added traffic, noise, dust, etc. There is also maintenance and possible panel replacements that may be necessary over the years. These are projects that impact entire communities over long periods of time and it’s inevitable that some will oppose them, maybe even your own neighbors. Also keep in mind, depending on how an area is zoned, solar operators might be subject to a lengthy public approval process.
Start with the End in Mind: Another thing to consider is what happens when the lease ends – who is hauling that equipment out and what shape is your land going to be in once it’s gone? And what if the solar operator leasing your land goes under? That could open a whole new can of worms. As you can tell, this is a very complicated decision and any landowner considering adding a solar lease needs to seek legal, tax, insurance, and financial advice from professionals. It would also be prudent to thoroughly research the solar developer and their other existing projects to get a sense of how they operate. You could be in business with them for a very, very long time. (Sources: Texas A&M, National Agricultural Law Center, MU Ag Extension, Strategic Solar)