How will I get paid for leasing my land for solar panels?
There are quite a few ways to be paid when you lease your land for solar energy. Across the country, deal terms vary. But generally, for Utility Scale Solar Farms, the developer will pay you $10 - $40 per acre per year for a 1-5 year option to lease. Following the option period, if the developer elects to exercise the option to enter into a formal lease, you will be paid between $400 - $2,000 per acre per year for 25 - 30 years. Most solar lease payments are paid on a per acre, per year basis. Additionally, most solar leases do not pay royalties. However, as with everything else in a solar lease, this can be negotiated with the developer!
Solar Development Lease Rates
Solar development lease rates vary from state to state, heavily influenced by the local government’s commitment to renewable energy. States with favorable incentives, such as tax credits, grants, and higher rates of return via renewable energy certificates, create a fertile environment for solar companies to invest in large-scale projects.
These incentives significantly reduce the initial capital expenditure and increase the project’s overall feasibility, making it more attractive for development. Consequently, solar companies are more inclined to seek out and develop solar farms in states where these benefits can buoy them towards both profitability and contribution to renewable energy goals.
Factors Influencing Solar Lease Rates
Solar development lease rates are influenced by a variety of factors, including:
Solar resource potential
Upfront costs of project development
Land accessibility and proximity to existing infrastructure like substations and transmission lines
Typical Rates Across Different Regions
Solar leases tend to vary across different regions of the United States, with some of the most favorable rates being offered in areas with high solar potential, such as the Southwest.
In California, lease rates can range from $300 to $700 per acre annually.
In the less sunny but still viable Midwest, rates may be closer to $200 per acre annually.
Property owners can understand their specific solar lease rate if they were to lease land for a solar farm by getting a free property report from LandGate. Within these property reports, landowners can understand their land’s estimated solar farm lease rates for whatever state they're in and see what kind of electrical infrastructure is nearby.
What is a solar lease option?
A solar lease option is the 2-6 year term at the start of a lease agreement that grants solar developers the exclusive right to enter into a formal lease agreement. During this time, the solar developer evaluates the parcel's suitability for solar leasing and works to obtain the proper permits that would allow them to begin construction. That being said, entering into a solar lease option does not guarantee that the solar developer will move forward with construction.
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 than the energy generated by fossil fuel resources. In many areas of the country, the most affordable 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 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 can thrive. Additionally, many states have written regulations or set Renewable Portfolio Standards (RPS) 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 substations. The financial incentives can also make properties in certain locations extremely economic from a financial perspective. The projects that don't require expensive network expansion or upgrades can get the same incentives for the electricity they produce.
This means that 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 that make your land valuable to solar developers.
The Investment Tax Credit (ITC)
The Investment Tax Credit 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.
What is a fixed annual payment in a solar lease agreement?
A fixed annual payment for a solar lease is a pre-negotiated amount of money you will be paid annually to lease your solar rights. The number of years is also pre-negotiated and usually 25-30 years, with an option to extend the lease for another 5 years.
What is a Power Purchase Agreement?
A Power Purchase Agreement is an agreement between the solar farm developer and a company wanting to purchase electricity. The solar developer will need this agreement in place before making the large investment to build the solar farm on your land.
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 outline goals for specific energy types such as Solar Renewable Energy Credits (SRECs).
Renewable Portfolio Standards, Renewable Energy Credits, and Solar Renewable Energy Credits incentivize renewable energy demand at the state level. They allow developers to monetize “clean” energy and sell the electricity at market value. Utility companies buy these credits to meet state energy guidelines. For example, Massachusetts aims for 35% renewable energy by 2030, with an additional 1% each year thereafter. Illinois targets 50% by 2040, and Maryland seeks 50% by 2030. Renewable portfolio standards vary and are state-specific.
For landowners in states with ambitious Renewable Portfolio Standards, it's important to know these guidelines can significantly boost land value as green energy demand rises and land becomes scarcer. If your property is in a state without these standards or incentives, it doesn't mean it's unsuitable for solar leasing. Renewable energy projects benefit from economies of scale, and incentives allow for smaller farms in pricier locations.
As electricity prices increase, am I compensated in my solar lease contract?
In a fixed annual rent payment lease, the landowner will not benefit from higher future electricity prices. As an alternative, most solar farm lease agreements provide for an annual escalator of 1.5 - 3%. Another benefit to the fixed annual rental payments is that the rental payment does not decrease if electricity prices go down.
Renewable Energy Certificate (REC)
A Renewable Energy Credit (REC) is a certificate proving electricity was generated from renewable resources. Each megawatt-hour of electricity produces a REC, traded in the market like commodities. The REC's value varies by state, depending on local laws requiring utilities to obtain RECs or face penalties under Renewable Portfolio Standards.
Market demand and regulatory frameworks primarily drive REC values. In states like Massachusetts, strict regulations boost REC prices by mandating utilities to acquire them, avoiding fines. Limited land for wind or solar projects in Massachusetts, unlike Nevada, makes RECs more scarce and valuable, priced at $260/REC in Massachusetts compared to $4/REC in Ohio. As regulations evolve, states like Illinois and North Carolina are starting REC programs, influencing prices. For instance, the District of Columbia sees REC prices over $420 due to limited land.
Property owners in states with REC markets, including Massachusetts, New York, New Jersey, Maryland, Pennsylvania, Ohio, Illinois, and most western states, must understand how REC volatility affects their property’s renewable resource value to market it effectively.
Performance-based incentives (PBIs)
Known as production incentives, PBIs pay based on the energy a renewable system generates in kilowatt-hours (kWh). An example is the “Feed-in Tariffs” (FIT), which guarantee a fixed payment for electricity produced from renewable resources for a certain period. This electricity is sold to the utility at a set rate, often higher than the market price.
Feed-in Tariffs help in residential and commercial projects by offering a fixed rate for electricity, aiding in financial planning and project economics. For instance, Rhode Island and Vermont have Feed-in Tariffs offering $151/MwH and $130/MwH respectively, compared to the $30-$40/MwH average on competitive markets. Mississippi also has a program offering $35/MwH.
Property owners near high-energy consuming businesses can benefit by selling electricity directly through negotiated power purchase agreements at rates higher than retail electricity prices, offering a more profitable but less common option.
Property owners need to recognize potential high-energy consumers nearby since selling energy directly to them can be very attractive. On average, retail electricity costs about $100/MwH, while wholesale is around $38/MwH.
Will I have to pay property taxes if my property is developed as a solar farm?
You will be responsible for property taxes on the portion of your property that is not developed for a solar farm. The solar farm lease agreement generally provides that the developer will be responsible for the taxes assessed on the developed lands.
Can I sell my solar rent payments?
Landowners receiving payments for their solar lease can market and sell those future payments. Selling solar lease payments is generally in the best interest of the landowner since those payments technically decrease in value over time as a result of inflation, and the lease payments are never guaranteed (the developer of the lease can stop operating the solar facility at any time). Property owners can market the payments they receive from a solar lease with LandGate. Find your parcel on our map and follow the process to create a listing. Learn more about selling your solar royalties.
