Hidden Value of Solar Rights

Hidden Value of Solar Rights

Learn about the very lucrative government incentives for solar rights and how to capture their value.

Do you think the most valuable solar rights are in the sunniest places? This is a common misconception. In fact, the District of Columbia and Massachusetts have the most valuable solar rights. Why is that? To determine the true value of solar rights, we have to look beyond the sun. While factors such as electricity demand, electrical substations infrastructure, transmission lines, and solar irradiance have a large impact on the solar rights value, the most powerful factor is government incentives.

Lessees often present solar rights leases as $500/ac across the US although their value varies greatly depending on the states. Most utility scale projects today are taking advantage of lucrative financial incentive programs. Before you start negotiating a solar lease, it is important to fully understand the financial incentives being used by solar and wind developers specific to your area. LandGate can help you navigate the tricky and ever-changing government incentives to solar in order to get you what your land is really worth.

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Renewable energy has seen explosive growth across the United States. Americans continue to value the energy produced by solar and wind farms at a higher premium to the energy generated by fossil fuel resources. In many areas of the country, the cheapest option to generate electricity is currently from fossil fuels, forcing utility companies and grid operators to choose between the cheapest option and the “greenest”. This means that until renewable energy technology becomes cheaper and more efficient at generating electricity, it must be financially incentivized in order to stimulate investment and growth today.

Thanks to the many local, state, and federal incentive programs that are designed to help the long-term economics of building, owning, and operating solar or wind projects, renewable energy can not only compete with fossil fuels on the wholesale market but it can thrive. Additionally, many states have written regulation or set renewable portfolio standards that set long term goals and benchmarks for their states’ utility providers to shift their energy mix towards renewables. These regulations often call for 100% renewable energy by a certain date or they risk penalties from state regulators. The federal government has not set any renewable portfolio standards or regulations on a national scale.

In some cases, the financial incentives can be so great that project economics will justify locations miles further from electric transmission networks or substation. The financial incentives can also make properties in certain locations extremely over-economic. The projects that don’t require expensive network expansion or upgrades can get the exact same incentives for the electricity they produce. This means locations with great financial incentives and low-cost access to electric infrastructure make a property extremely valuable. Property owners are at an especially high risk of signing low-value lease offers due to lacking information about the economics of a solar or wind project over the long term. LandGate makes it easy to understand the unique characteristics which make your land valuable to developers.

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The Investment Tax Credit (ITC)

The ITC is the most famous and successful green energy program offered by the federal government. The ITC allows developers to deduct 26% of the cost of installing a solar or wind energy system from federal taxes and has no cap on its value. This program reduces the breakeven cost of providing solar or wind electricity greatly. Lower breakeven costs allow generators to offer competitive prices on the wholesale market, allowing for increased market share. The Investment Tax Credit has been adjusted before and is likely to be adjusted or extended again, affecting the value of your land to renewable developers. LandGate’s advanced LandEstimate™ tool can model how a change in the ITC may affect your property’s overall value.

State Renewable Portfolio Standards (RPSs)

Many states have Renewable Portfolio Standards (RPSs) that require utilities to use or procure renewable energy or renewable energy credits (RECs) to account for a portion of their retail electricity sales. Some states even go a step further and will outline goals for specific energy types such as Solar Renewable Energy Credits (SRECs). Renewable Portfolio Standards, Renewable Energy Credits, and Solar Renewable Energy Credits all work to incentivize demand for renewable energy on the state level by offering developers a way to monetize the “clean” energy aspects of their energy, and additionally sell the actual electricity for wholesale market value. Utility companies offer special programs to acquire renewable energy credits from generators to meet a state’s energy mix guidelines. Massachusetts is a state that aims to be 30.5% renewable in 2020 and 50% in 2030. This is an increase from the previous 35% by 2030 goal that was set in 2015. Montana set a goal to have 15% renewable energy by 2015 and has yet to update this goal, and New Mexico looks to be 40% renewable by 2025. Renewable portfolio standards can change often and are regulated on a state by state basis. Property owners need to research and understand how state renewable energy policies affect the value of their land and what to expect from any adjustments made to those goals in the future.

It is important for property owners in states with highly aggressive and ambitious Renewable Portfolio Standards to understand that these guidelines will significantly increase the value of your land as demand for green energy increases and viable locations begin to decrease over time.

If your property is located in a state without renewable portfolio standards or incentives, this doesn’t mean your property is worthless. Renewable energy projects are generally economies of scale, and the financial incentives just give developers the flexibility to build smaller farms in more expensive locations (closer to the city). Wyoming for example has no renewable portfolio standards, yet is one of the richest states in wind resources and has over 1,500 MW of installed wind energy capacity. It is important for landowners in Wyoming and Montana to stay updated on any developments regarding Renewable Portfolio Standards as it could make your land more valuable to developers than it already is. Places like Wyoming, Idaho, Montana, and Utah can generate renewable energy economically already, it is just a matter of transporting it to where the demand is. If things were to change and incentives hit these areas of the country (or increased incentives on a national scale) the value of the land will skyrocket.

LandGate’s team of experts make it easy and track each state’s ever-changing renewable portfolio standards to make sure landowners are informed during any negotiations.

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Renewable Energy Certificate (REC)

Represent the environmental attributes of electricity generated through a qualifying renewable energy resource. One REC is issued per megawatt-hour (MWh) of electricity produced by the qualifying source. RECs are bought and sold as commodities in the market. The value of an REC will depend on in which state it is produced and if that state has implemented laws requiring utilities to acquire or generate REC’s or risk penalty and fines for failing to comply with Renewable Portfolio Standards. The value of an REC is driven by the market and regulatory framework. States like Massachusetts have strong regulations propping the value of REC’s up by requiring Utilities to acquire or generate them without being fined. Massachusetts is also more limited in the amount of land eligible for wind or solar projects compared to other places like Nevada for example. REC’s become a scarce and valuable asset valued at over $300/REC in Massachusetts compared to Ohio that has an REC price of $10/REC. Not all states currently have a market for REC’s but that could change as we are seeing in states like Illinois and North Carolina who are beginning to implement REC programs. Another example of an extremely high REC price is in Washington DC where the value has climbed over $440/REC. Similar to the reasoning for the high value in Massachusetts REC price, Washington DC is extremely limited in land space.

Property owners in states like Massachusetts, New York, New Jersey, Maryland, Pennsylvania, Ohio, Illinois, and most western states need to understand how this may affect your property’s renewable resource value. REC prices are extremely volatile and they need to be understood to properly market your land’s resource value.

Performance-based incentives (PBIs)

Also known as production incentives, PBIs provide payments based on the kilowatt-hours (kWh) of energy generated by a renewable energy system. “Feed-in Tariffs” are an example of a Performance-based incentive. Feed-in Tariffs (FIT) provide a fixed price for the purchase of electricity generated (per kWh) from a qualifying renewable resource for a given period of time. All of the electricity generated is sold to the utility at a fixed price, which is usually set above the retail price of electricity. Feed-in Tariffs are commonly used in residential and commercial settings to help developers finance and plan project economics by guaranteeing a fixed premium rate for a period of time. States like Rhode Island and Vermont have Feed-in tariffs that pay the wind or solar generator $151/MwH in RI and $130/MwH in VT. Generators who sell their electricity on competitive wholesale markets generally receive on average $30-$40/MwH for comparison. Mississippi is another state that offers $35/MwH through its Feed-in tariff program.

Property owners with land neighboring other businesses or industries that are large consumers of energy give renewable energy developers additional flexibility to sell their electricity. Rather than sell electricity to the grid or utility on a wholesale basis, they are able to get a higher premium by negotiating a power purchase agreement with a nearby energy consumer at or above the retail price of electricity. This option can be highly lucrative but is less common and more difficult to do. Property owners should still be aware of the potential high energy consumers in their area because it is highly attractive for developers to sell the energy directly to the consumer. The retail price of electricity on average is about $100/MwH while the average wholesale price of electricity is about $38/MwH.

Sales Tax & Property Tax Exemptions:

Many states have also enacted laws that exempt solar & wind equipment, and the land used from sales tax and property tax. This can amount to a large amount of savings when developing a wind or solar farm that typically cost tens of millions of dollars. The taxes alone could increase the project costs 5-12%. If you needed $10 million worth of solar equipment in California, you would normally need to pay 7.25% sales tax ($725,000) but as California looks to aggressively pursue renewable energy through their RPS, they have exempted the solar industry from sales and use tax collection. It is extremely important for property owners to understand the long term economic benefits of these financial incentives before partnering with a solar developer. They can greatly increase the value of your solar resource and should be considered before accepting a lease option or agreement. Colorado is another example of a state that has voided the sales and use tax and property tax collection associated with renewable energy projects like wind and solar.

Generally speaking, until solar and wind energy has advanced further both technologically and economically on its own, many of the reasons a certain plot of land is going to be valuable is related to the financial incentives offered on the state and local level, the properties size and location or more specifically; the properties proximity to high demand energy consumers and viable electric infrastructure.

LandGate helps landowners access the information and more importantly the land experts necessary to understand some of these complicated questions. How big of a solar or wind farm can they build on my property? What is the going rate of wholesale electricity in my area? What financial incentives or goals are offered in my area that makes my property attractive? All of these questions boil down to “what is my resource worth” and the LandEstimate™ tool helps answer all of these questions by providing a simple to understand market value estimate based on the advanced algorithms and data intelligence fueling LandEstimate.™

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