Solar Farms Provide Reliable Income Streams

By Halderman

07 /09 /20

Solar farms are large-scale sources of power that sell power to utilities versus commercial or residential customers. As the installed cost for photovoltaic (PV) solar continues to fall, landowners with open or undesirable farmland who seek income are turning to developing solar farms. Even farms with average to above average cropland may lease some acres for solar due to the increased income available when compared to cropland cash rents.

Solar panels used in solar farms capture the sun's rays as direct current (DC) power and use equipment called inverters to convert it to alternating (AC) power that goes into the general electric grid, and utility companies use it for commercial and residential power consumption.

Solar farms can co-exist with some crops

Because of the lack of alternative uses for brownfield sites, they are ideal for solar farms. For land with agricultural potential, technology today allows solar farms to co-exist with shade-tolerant crops. Co-developing land for agriculture and PV solar is known as agrivoltaics. It is also common for a portion of a solar farm site to grow crops, subject to the terms of the lease agreement with the solar farm developer.

Basic economics for solar farms

A solar farm lease provides income for the duration of the solar project while preserving the potential appreciation of land value for the next generation. Most solar farm leases ensure that the land is restored to its previous condition without any encumbrances or disturbances to its prior agricultural value.

Solar farm leases are typically formulated with a fixed rental rate/acre stipulated, along with an inflation adjustment factor ranging from 1-2.5% per year. Additionally, factors that influence the lease payment include project size, the availability of solar power in the immediate region and the value of alternative uses for the land. Across the US, solar lease rates commonly range between $700-$1,200 per acre.

Most leases include provisions for the tenant/solar developer to incur the cost of necessary infrastructure and site access improvements, along with the increase in real estate taxes resulting from the increased investment in the property.

In some areas like Colorado, local utility companies promote community solar gardens constructed on relatively small plots (10-40 acres). The power derived from these projects is used to inject clean, renewable power into the grid.

The financial returns from a solar farm tend to be competitive and are sometimes better than agriculture uses because they offer a more consistent form of payment. Agricultural returns vary with demand and are dependent on weather, trade agreements and other variables outside a farmer’s control. With a solar lease, a farmer or landowner receives a consistent payment stream, including lease bumps, over the term of the project.

For landowners who are accustomed to finding new tenant farmers every several years, there is security in obtaining a long-term (typically 25-40 years) solar farm lease.

Short-term construction and limited environmental disturbance

With a relatively short window for construction, solar farms begin to generate income extremely quickly versus other types of development and agriculture. In addition, once constructed, there is no noise, pollution or traffic that emanates from the site. Solar farms are ground-mounted on low profile structures (10’ tall), and even when they are tilted to optimize the capture of sunlight, they present a very unobtrusive presence on the landscape and horizon. Also, most developers maintain healthy setbacks from adjoining homes and properties.

Halderman Real Estate and Farm Management advises landowners and farmers on alternative income-producing strategies to preserve land value. Solar farms are a great way to diversify your income stream and enhance your overall farm return. We would be delighted to discuss your specific land development plans with you.