Solar Energy – An Economic Opportunity for Landowners
Property Owners can sign million-dollar deals marketing their solar resources.
Landowners can now potentially earn millions of dollars from lease options, rental payments and cash bonuses paid by solar developers. In some examples, a property owner with 40-acres can generate a total of $1.2 million dollars over the life of a utility scale solar project, but may have settled for 10-20% of the property’s resource potential by falling prey to competitive leasing tactics.
We have long heard stories about oil and gas operators striking it rich, but nowadays solar developers are partnering with surface landowners to build solar farms and generating millions each year. Using the benefits of renewable energy as an effective marketing tool, developers can commonly appeal to unknowledgeable landowners and negotiate favorable lease terms for a solar farm, generating impressive returns for the developer in the long-run. So, if history tells us anything: surface owners located in key geographic areas of the country will continue to see an extreme increase in value as solar energy demand continues to grow. Don’t make the same mistake mineral owners have made for decades negotiating your land and resources future blind.
Today’s big energy players are investing heavily in solar projects across the United States, for property owners this means increased value for the surface of their land as developers compete for the best land for solar farms . Just like oil and gas minerals, property owners with solar potential are highly vulnerable to be taken advantage of by those with more knowledge and experience. Developers are incentivized to negotiate the best deal for them and their investors. For all the positive stories we have heard about someone striking it rich from their land resources, we have likely heard 10X more horror stories about people getting taken advantage of due to preventable issues such as lack of technical knowledge or access to the proper data and tools needed to analyze an opportunity. When leasing land to solar companies, it is crucial for landowners to seek out knowledgeable experts and assistance when negotiating their lease and avoid missed or lost opportunities.
Energy is incredibly valuable, no matter where it comes from.
Landowners have the opportunity to earn significant income from their land by partnering with energy companies across the United States. Solar energy is extremely dependent on the amount of available land suitable for solar energy projects. As solar energy sees increasing demand in the market, so will the land suitable for solar projects. Solar leases offer landowners the opportunity to partner with a solar developer and earn long-term revenue from the generation of solar energy. It is important to partner with developers that have demonstrated technical expertise and a successful reputation for completing solar projects. Many landowners fall prey to leasing their properties to middlemen and intermediaries that often delay the timeline of a project being completed.
Historically, the largest and most valuable companies in the world have been energy companies. Surprisingly, NextEra Energy, a solar and wind energy company, has now leapfrogged Exxonmobil and Chevron as the most valuable energy company in the U.S. There are countless management teams that tout their technical expertise in marketing materials but have no track record of success building and operating solar farms but simply flipping opportunities to the next buyer. This is important to note when considering leasing land to solar companies.
Negotiate on Solar Value
Many developers will try to negotiate solar leases based on metrics not related to the productivity of the solar energy site. Instead, they may try to negotiate based on metrics such as agricultural leasing rates due to a lack of historical and comparable solar lease terms for nearby properties. Solar developers may offer lease terms equal to a premier agricultural lease offer and justify it because both uses are equally invasive to the surface of a property. This is a common mistake that can result in the same 40-acre property owner mentioned above earning a fraction of what should have been a total of $1.2 million in payments. Successful solar lease negotiations are defined by the property owner and developer reaching an agreement that is advantageous for both parties in the long term. We find that the best way to reach an agreement is by creating a more transparent leasing process and providing access to free solar data and resources for added confidence.
LandGate offers the tools, data and platform to market your property for its true market value.
Solar Valuations That Matter
LandGate boils down all the complex economic parameters to provide landowners with the LandEstimateTM value of each parcel in the US. The LandEstimateTM value is built from the data that matters most in the solar industry and provides property owners a leg-up in negotiations. The LandEstimateTM value is meant to be used as an indicator, contact LandGate to learn more about how the LandEstimate value may change based on your property’s unique circumstances.
It is crucial for property owners to have access to the right information when negotiating their solar lease to avoid making a bad financial decision.
Solar Irradiance determines just how strong the sun is in a location and helps owners determine what type of technology might best be used to efficiently extract the sun’s energy. Irradiance values generally increase closer to the equator with increased access to sunlight year-round and is a key input used in the LandEstimateTM value.
Proximity to Electrical Infrastructure & Active Solar Farms
It is important for solar developers to understand the proximity to electrical infrastructure in order to estimate project costs and wholesale electricity market pricing the project could receive. Close proximity will add immense value to your solar resource and should be properly understood before negotiating with a developer. It is also helpful to understand where active solar farms are located on the grid in relation to your property. If developers are already building in your area it is usually a good indication that your property has immense potential as solar land. Proximity to electrical infrastructure & active solar farms is a key input analyzed as part of the LandEstimateTM value of each parcel. Check out LandGate.com to see what solar farms are near your property.
The Landowners Benefit
Leasing Solar Rights & Partnering with Solar Developers
The rights to operate and extract useful natural resources have always been considered a valuable asset. As an example, exploration companies and mineral rights owners in the oil and gas industry have long engaged in the purchasing, selling, and leasing of mineral rights as a special asset class with immense value. Operating rights for developing large energy projects are often more valuable in the hands of a reputable, knowledgeable, and well-funded developer who can maximize the resource value while minimizing costs. When leasing property to a developer, property owners are relieved of the financial responsibility to shoulder any project costs related to building the project and give the opportunity to the developer. In return, the developers will typically pay an upfront cash payment and reserve a portion of future revenue payments for the property owner.
For example, a property owner could receive an upfront cash bonus of $500/acre for signing a solar lease option on their 40-acre property ($20,000 cash payment). Then receive an additional $1,000/acre cash bonus at the time the lease is executed ($40,000 cash payment). Once executed, the developer will be required to make annual rental or solar lease royalty payments depending on the lease structure. Some leases may outline a base rental payment and annual escalator increasing the payment every year. For example: $1,000/acre-per year, 2% escalator and 30 year term. This structure would net over $1.2 million in lease bonus and rental payments. Other leases could be structured to pay the property owners a portion of future revenues generated by the project.
The same practice is being applied to solar resources in 2020. Clean energy is driving an increase in property value all across the United States. It doesn’t hurt that the capital costs and taxes are generously subsidized by numerous federal, state and local utility programs. Additionally, many states incentivize the purchase of solar electricity, creating niche demand and allowing solar generators to fetch a premium electricity price.
Energy is big business and property owners are commonly misled.
Many landowners are under the impression that renewable energy is in its infancy and has not been proven profitable yet. This thinking leads many property owners to accept unfavorable terms in the name of “Saving the Planet” but in many cases will quickly realize they entered into a one-sided contract which was not in their best interest. Thanks to generous financial incentives, increasing retail electricity prices, and demand for renewable electricity, solar farms now earn incredible margins for their product. Taking a “bad deal” for the sake of incentivizing green energy is just putting your money in someone else’s pocket.
Solar developers across the country are looking to lease land and generate clean electricity for the next 25-40 years. Just as the oil and gas industry has functioned for decades, solar developers armed with funding and technical knowledge, are left with the issue of identifying and acquiring the operating rights to develop solar farms. Property owners in these areas have the opportunity to negotiate highly lucrative and long term solar land lease agreements, which is a great opportunity to generate consistent long-term revenue.
Solar Land Lease Options
Solar leases can be offered in many different forms but oftentimes will originate as a lease option. Lease options outline a specified term (usually 2-3 years) that the developer holds the exclusive right and option to execute a pre-negotiated solar lease agreement. Lease options are used by developers because of the time and resources required to properly assess the specific project’s viability and installation costs. This means the solar developer requires a level of commitment from the property owner to lease their land for solar farms before investing large amounts of capital to conduct expensive land surveys, environmental impact, and infrastructure studies. If the developer deems the project economically viable they will execute the lease option and advance the project to its next stage. It is important to always read lease and lease option agreements carefully to understand if the terms align with your goals as a landowner. Many landowners are stuck not even knowing the appropriate questions to ask.
Lease options may be negotiated to pay an upfront bonus consideration at the time of signing, additionally when the lease is executed in addition to annual rental or royalty payments. Payment sizes are based on the size, and quality of the project location. Once a lease has been accepted by a property owner it can be in effect for 25-30 years without the opportunity to renegotiate. Solar leases must be negotiated right the first time, or the opportunity may be lost.
Contact LandGate’s land experts at 855-867-3876 today to guide you through the complicated but fruitful solar leasing process.
Market Your Solar Resource with Confidence
LandGate offers property owners the tools to quickly understand the resource value of your property and market it to top solar developers. Bring your opportunity to a larger audience of renewable energy developers, investors, and experts with the help of LandGate. Contact us today to learn more about marketing your property for its solar resources.
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