As the renewable energy industry continues to grow in the United States, solar farms are becoming increasingly common. As such, more and more landowners are interested in earning additional income from their property through solar energy production. In this guide, we will explain the difference between leasing land for a solar farm and starting your solar farm.
Key Takeaways
Leasing vs. Owning: Landowners can lease their land to solar companies or start their own solar farms. Leasing provides steady income while owning offers higher long-term returns but requires significant investment and effort.
Considerations for Starting a Solar Farm:
Upfront Costs: High initial investment is needed for land and equipment.
Time Frame: Permits and construction can take years.
Infrastructure: Proximity to transmission lines is crucial.
Land Suitability: Factors like acreage, slope, and zoning affect feasibility.
Permits and Insurance: Necessary for legal operation and financial protection.
Process for Starting a Solar Farm: The process for starting a solar farm involves research, business planning, and construction.
Costs to Start a Solar Farm: Starting a solar farm requires large upfront capital investment. A 1 MW solar facility can cost between $820,000 and $1.36 million, excluding permits and insurance.
How Do Solar Farms Work?
Solar farms are expansive arrays of photovoltaic (PV) panels that convert sunlight into electricity across several acres of land. These panels, made from semiconducting materials like silicon, generate an electric current when exposed to sunlight via the photovoltaic effect. The panels can be either fixed in position or mounted on tracking systems. Fixed-tilt systems maintain an optimal angle for sun exposure while tracking systems follow the sun’s movement to maximize energy production.
The generated electricity is initially in direct current (DC) form and must be converted to alternating current (AC) using inverters for compatibility with the power grid and general use in homes and businesses. In larger solar energy farms, centralized inverters handle the DC-to-AC conversion. Once converted, the electricity is often routed through step-up transformers for long-distance transmission and then fed into the power grid.
Some solar energy farms incorporate battery storage systems to store excess electricity for times of high demand or when sunlight is unavailable. This storage mitigates solar power intermittency and enhances energy reliability. Monitoring and control systems further optimize a solar farm's performance by tracking panel efficiency, inverter function, and overall energy output, enabling operators to address issues in real-time. Remote control features allow for efficiency adjustments.
Solar farms vary in size and function. Utility-scale farms, often spanning hundreds of acres, supply power directly to the grid and produce megawatts or gigawatts of electricity. Community solar farms are smaller, serving specific consumer groups, allowing individuals to purchase or lease portions and receive energy credits. Some businesses establish commercial solar farms to power their operations or sell surplus electricity back to the grid.
Solar energy farms are bolstered by policies such as net metering and Power Purchase Agreements (PPAs). Net metering allows operators to sell excess electricity back to the grid at favorable rates, while PPAs offer long-term revenue stability with guaranteed electricity rates.
How to Start a Solar Farm
Landowners can either start their own solar farms or lease their land to solar developers. Starting your own solar farm involves investing in and developing the solar farm on your property. While this is a much more complex and costly process, it also offers the potential for high long-term returns.
Factors to Consider When Starting a Solar Farm
Before starting your own solar farm, there are several important factors to consider:
Upfront Costs: Both commercial and residential solar installations have high up-front costs. This cost is heavily dependent on the size of the land and the number of panels that will be installed.
Time Frame Required: Solar farms can take a few months to be constructed and start collecting energy. Similarly, it can take years for you to collect the proper permits and approvals before beginning construction.
Electrical Infrastructure: The energy from solar panels is sent from transmission lines to substations, where that energy is then turned into usable electricity and distributed to homes and businesses.
Transmission lines and substations can only hold certain amounts of energy at one time, so they'd need to enter the interconnection queue, which can be thought of as a waitlist to add power to the grid. If there are no transmission lines on or adjacent to your property, you would need to work with your local utility company to install one, which is not guaranteed.
The Land Itself: Factors such as acreage, solar irradiance, slope, and zoning are all important considerations when it comes to determining if your property is suitable for a solar farm. For acreage, not only do the solar panels themselves take up land, but there must also be space for equipment and maintenance of the panels. Similarly, solar panels can typically only be installed on flat land.
Calculations: To ensure you'll meet the expected energy demand with your solar farm, you'll need to determine how many kilowatt hours of energy and then work backward to calculate the number of panels you'll need for the solar array.
Permits: Your solar farm needs certain licenses and permits to operate legally. For example, you will need a permit to connect your solar farm to the power grid. These permits vary by location, so be sure to research local regulations in your area if you are interested in starting your own solar farm.
Insurance: Investing in the appropriate insurance policies (such as liability insurance or policies to cover the damage of solar equipment) will ensure that you don't encounter financial trouble in unforeseen circumstances.
Maintenance: Solar technology has improved greatly over the last few years, so solar panels rarely require maintenance. However, if you install your own solar farm, you may be responsible for the maintenance and repair of the solar panels depending on which solar installer you are working with.
Process for Starting a Solar Farm
1) Research: Extensive research is crucial for starting your own solar farm. Researching the local permits required for solar farms, the costs to install solar panels, local solar installers, and the availability of electrical infrastructure on your property is a helpful starting point.
2) Make a Business Plan: Starting a solar farm requires starting your own business, which requires a thorough business plan and legal backing (acquiring the proper permits, which vary based on location).
3) Construction: Once you have the proper approvals and permits to begin construction, you can build the solar panels by working with a solar installer.
Cost to Start a Solar Farm
Starting your own solar farm requires a large amount of capital investment. Costs for ground-mounted solar panels for a 1 MW solar facility range from $820,000 - $1.36 million. On top of that, negotiating permission to access the interconnection queue so that you can sell the electricity to the grid can cost upwards of $30,000 or more. These figures do not include the costs of obtaining other permits and insurance.
Lease Land for a Solar Farm
It is common for property owners to lease their land to solar companies as opposed to starting their own solar farms. A solar lease is a long-term legal agreement between a property owner and a solar energy company. The solar developer installs the solar panels and then sells the energy produced from the solar panels to the local utility company.
In exchange for granting permission to the solar company to install solar panels on their land and generate electricity, the landowner receives solar lease payments. During a solar lease, landowners aren't responsible for the construction of the solar panels. These payments are typically calculated based on a per-acre, per-year basis. The specific payment amounts for solar leases may vary across the country but generally range from $700 to $2,000 per acre per year. Solar leases typically last from 20-40 years.
LandGate provides landowners with free solar lease estimates for their land in our free property reports:
Leveraging Your Property Report
Although it is most common for landowners to lease their land to solar companies, it is also possible for property owners to add solar panels to their land and sell that electricity to the utility company. It is important to consider starting your own solar farm in a very cautious manner by conducting thorough due diligence before initiating this process. Both opportunities allow property owners to make money on their land and contribute to clean energy generation.
LandGate's free property reports provide landowners with valuable information regarding the solar energy potential for their land along with solar lease estimates. Get your free property report by finding your parcel/s on our map below:
