Leasing underutilized land for solar farms is an increasingly popular choice for landowners seeking to make money from their land. Across the country, solar lease rates vary and are dependent on many factors. This resource explores how solar lease payments work, their advantages, and what to consider before signing a lease.
Discover your property's estimated solar lease payment with a free LandGate property report. Simply locate your land on the map, head to the 'Solar Energy' tab under the Value Index scores, and uncover its potential value for a solar farm.
How Much Do Solar Companies Pay to Lease Your Land?
There are quite a few ways to be paid when you lease your land for solar energy. Across the country, deal terms vary. Generally, for Utility Scale Solar Farms, the developer will start by paying 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 $700-2,000 per acre per year for 25-30 years depending on what you negotiate. Most solar lease payments are provided to landowners 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!
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.
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. 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.
Do I Have to Pay Property Taxes If I Lease My Land for 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:
Factors that Affect Solar Lease Rates
Solar development lease rates vary from state to state. The main factors that affect solar lease rates are accessibility, solar irradiance levels, the property's proximity to energy grid infrastructure, and local renewable energy development incentives.
Accessibility: Properties with existing road access are more likely to be leased for solar farms and fetch higher lease payments. Existing road access makes it easier for solar developers to install and maintain the panels since they won't have to get an easement from neighboring property owners.
Solar Irradiance: Solar irradiance refers to the power per unit area received from the sun in the form of electromagnetic radiation. The higher the solar irradiance on a specific property, the more electricity it can produce, which makes it more valuable for a solar farm.
Proximity to Energy Grid Infrastructure: The closer a property is to power grid infrastrucutre, the more valuable it is for a solar lease. Transmission lines and substations are necessary for transforming the solar power into electricity so that it can be distributed to energy consumers.
Renewable Energy Incentives: States with favorable incentives, such as tax credits, grants, and higher rates of return via renewable energy certificates (RECs), are more likely to have more solar farms. 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.
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 the less sunny but still viable Midwest, solar lease payments may be lower.
Government Incentives for Solar Development
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.
Renewable Portfolio Standards
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.
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.
State Renewable Portfolio Standards (RPSs)
Many states have Renewable Portfolio Standards (RPSs) requiring utilities to use or buy renewable energy or Renewable Energy Credits (RECs) for part of their electricity sales. Some states go further, setting goals for specific types like Solar Renewable Energy Credits (SRECs). RPSs, RECs, and SRECs drive demand for renewable energy at the state level. They let developers monetize clean energy and sell electricity at market value. Utilities buy these credits to meet state guidelines. For instance, Massachusetts targets 35% renewable energy by 2030, increasing 1% yearly. Illinois aims for 50% by 2040, and Maryland seeks 50% by 2030. These standards vary by state.
For landowners in states with ambitious RPSs, these guidelines can boost land value as green energy demand grows and land becomes scarcer. If your state lacks such standards, it doesn’t mean your land is unsuitable for solar leasing. Renewable energy projects benefit from economies of scale, and incentives can make smaller farms viable in pricier areas.
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.
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. 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.
How Much Can I Earn By Leasing My Land For a Solar Farm?
You can find your property's estimated solar lease payment value by getting a free LandGate property report. Simply find your land on the map and navigate to the 'Solar Energy' tab in the Value Index scores to learn how much your land is worth for a solar farm:
