Landowners can sign million-dollar deals by leasing their land to solar developers.
Landowners have the opportunity to earn millions of dollars from lease options, rental payments and cash bonuses paid by solar energy developers. In some cases, landowners with 40 acres can generate a total of $1.2 million dollars over the life of a utility-scale solar project. However, many have settled for only 10-20% of their property's solar income potential by falling prey to competitive leasing tactics. Today's big energy players are investing heavily in solar projects across the United States, and they are always trying to negotiate the best deals for themselves and their investors. This has created intense competition among solar developers for the best sites, so landowners that have property with great solar potential are in danger of being taken advantage of by these groups. From using the benefits of renewable energy as an effective marketing tool, developers can commonly negotiate terms that are more favorable for themselves than for the landowner, and generate impressive returns in the long run.
For all the positive stories we have heard about someone striking it rich from leasing their land, we have likely heard 10x more horror stories about landowners getting low-balled due to preventable matters, such as lack of technical knowledge or access to the proper data and tools needed to analyze the quality of an opportunity. It is extremely important that landowners understand the potential their land holds for solar leasing in order to avoid falling victim to these tactics.
Landowners interested in leasing land for a solar farm can receive a free third-party estimate for their land's solar leasing value in LandGate's free Property Report:
Energy is incredibly valuable, no matter where it comes from.
Historically, the largest and most valuable companies in the world have been energy companies. NextEra Energy, a solar and wind energy company, has now leapfrogged ExxonMobil and Chevron as the most valuable energy company in the U.S. As the demand for solar energy increases, the demand for land suitable for solar projects will also increase.
Solar leases offer landowners the opportunity to generate long-term revenue from the solar lease payments, but it is important that they partner with developers that have demonstrated technical expertise and have a successful reputation for completing solar projects. Although most solar developers will negotiate directly with the landowners that they want to work with, many landowners fall prey to leasing their properties to middlemen and intermediaries that often delay the timeline of a project being completed. 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 - nothing else!
Many solar developers will try to negotiate leases with landowners based on metrics not directly related to the productivity of the proposed solar farm. Instead, they may try to negotiate based on values from agricultural leasing rates for nearby properties due to a lack of historical and comparable solar lease terms.
Solar developers may offer lease terms similar to agricultural leases and justify it because both options can be equally invasive to the surface of a property. This is a common mistake that can result in the same 40-acre landowner mentioned above earning a fraction of what should have been a total of $1.2 million in solar lease payments.
Successful lease negotiations are defined by the landowner and developer reaching an agreement that is advantageous for both parties in the long term. The more that a landowner knows about the true value of their land, the more likely it is that they can reach these mutually beneficial agreements.
Solar Valuations That Matter
LandGate analyzes all the complex economic parameters to provide landowners with the estimated value of their parcels for solar leasing. The LandEstimate value accounts for all of the data that matters most in the solar industry, giving landowners a leg-up in negotiations. To reach the best agreement possible, it is crucial for property owners to have access to the right information when negotiating solar lease offers. Solar irradiance refers to exactly how strong the sunlight is at a specific location, which helps developers determine what type of technology would best be used to efficiently extract the sun's energy. Solar irradiance values generally increase closer to the equator for land that has significant access to sunlight year-round. This is a key input used in LandGate's calculation of your solar lease estimate in our property reports.
Proximity to Electrical Infrastructure & Active Solar Farms
Land that is in close proximity to electrical infrastructure is highly valuable for solar leasing, and its importance should be properly understood before negotiating with a solar developer. It is also helpful to understand where active solar farms are located on the grid in relation to your property: if solar developers are already constructing projects in your area, that is an indication that your property has immense potential for a solar farm.
Both proximity to electrical infrastructure & nearby solar farms is a key input analyzed as part of the solar lease estimate value provided by LandGate, and you can find both in your free property report:
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 land to a solar developer, landowners are relieved of the financial responsibility to shoulder any costs related to building the project. In return, the developers may 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 2023. 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. 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 landowners 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 landowners to accept unfavorable lease terms in the name of “Saving the Planet,” but in many cases, they quickly realize they have entered into a one-sided contract that was not in their best interest. Thanks to generous financial incentives, increasing retail electricity prices, and high demand for renewable electricity, solar farms now earn incredible margins and they are expanding rapidly.
Solar Land Lease Options
Solar leases can be offered in many different forms, but they typically begin as a lease option. Lease options outline a specified term (usually 2-6 years) that the developer holds the exclusive right and option to execute a pre-negotiated solar lease agreement. During the solar lease option term, the solar company will assess the specific project’s viability and installation costs. They will also conduct environmental impact surveys and infrastructure studies that typically require large amounts of capital, which is why they require an exclusive commitment from the landowner before making these investments.
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. 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. Learn more about solar lease payment terms here!
Market Your Valuable Land with Confidence
LandGate offers landowners the tools to quickly understand the value of the different resources on their property and provides them with the opportunity to market it to high-intent solar developers. It all starts by generating your free property report on our map:
