Chances are, if you drive along an interstate highway through an agricultural area for a decent amount of time, you will encounter a solar farm or a sign announcing an upcoming solar farm. You may also notice them at airports or adjacent to a school. Solar energy is the new frontier in the renewable energy marketplace.
For a landowner, a solar farm lease provides current income while preserving the land's long-term appreciation potential. Further, solar farms derive energy from a renewable source and do a minimal amount of damage to farmland. In fact, a properly negotiated solar lease requires the lessee to restore the land to its original condition, without compromising its agricultural potential.
Solar farms and power generation
A solar farm is a large-scale power generation enterprise that sells power to utilities or large power consumers. Most utilities are eager to purchase renewable power since state mandates require them to derive certain levels of power from renewable sources, such as solar and wind.
Solar panels used in solar farms capture the sun's rays as direct current (DC) power and use equipment called an inverter to convert that power to alternating (AC) power. The AC power then enters the grid via a substation and is available for use. The utility companies can sell AC power to commercial and residential customers.
Solar farms can work together with other farm elements
A concept called agrivoltaics is gaining favor among farmers and solar developers. Shade crops can sometimes coexist with solar panels. Farmers successfully grow crops like kale, chard, tomatoes and herbs in the shade of solar panels. Not only is this productive, but it also makes sense in a resource-constrained world that is highly reliant on a consistent and diverse food supply. Other landowners and solar developers plant crops that attract and help grow the bee population, a critical need in today’s world.
Solar farms can generate good returns
For farmers and landowners who want to diversify their portfolios, a solar farm is an excellent, stable way to lock in a return with a growth factor for the life of the solar lease. Leases are formulated like a commercial real estate lease and usually range up to 25 years.
As with any farm lease, the terms of a solar farm lease are negotiable. The rent per acre is the most important factor, along with an inflation factor that's usually in the 1.5-2.5% range. This important point emphasizes the value of farmland as an inflation hedge. Rental rates commonly range from $300-$1,200 per acre depending on the size of the project and its location.
Variables that affect the rent per acre include the amount of competing solar power available to the local utility, the opportunity cost of growing crops or cash rents on the land, and the cost of electricity in the region. Unlike crops, whose price can vary with demand, weather and uncertainties related to trade agreements, a solar lease provides owners with a stable source of income for the duration of the lease.
Once lease terms are negotiated, the construction phase for a solar farm can proceed very quickly compared to conventional core and shell construction. Solar equipment in green fields is ground-mounted and, besides the panels, there is very little construction. Since power is harvested as DC, inverters are needed to convert the power for end-users.
Halderman Land and Farm Management understands the dynamics and elements that go into a solar lease, helped landowners on thousands of acres of solar leases, and can help you decide if one makes sense for you. We've advised farmers and farmland owners for several generations and invite your inquiries at all our offices.