Solar power is experiencing rapid growth as a renewable energy source in the United States. According to the U.S. Department of Energy, solar energy is not only the fastest-growing source of renewable energy, but it is also the most cost-effective means of generating new electricity in the nation.
To contribute to the solar energy boom, property owners can lease their land for solar farms, which comes with many benefits and a few potential drawbacks that must be considered. Although there are many benefits to leasing land for a solar farm, there are also drawbacks that property owners should consider before deciding to lease their land for solar panels.
Key Takeaways
No Upfront Costs: Property owners incur no initial expenses as the solar company covers installation and maintenance costs.
Guaranteed Income Stream: Leasing land for solar farms provides a steady income, typically ranging from $700 to $2,000 per acre annually.
Limited Risk and Liability: The solar company assumes responsibility for installation and maintenance, reducing the landowner's risk.
Environmental Contribution: Leasing land supports clean energy production, aiding in carbon footprint reduction.
Potential Land Use Loss: Leasing may restrict land use for other purposes, though some agrivoltaic uses like grazing may still be possible.
Uncertain Payments: Payments aren't guaranteed if the solar company ceases operations, though upfront lump-sum options exist.
Long-Term Commitment: Leases often span 20-40 years, requiring careful consideration and due diligence by property owners.
What is a Solar Lease?
A solar lease is between a property owner and an energy development company. The lease contract specifies the area of land allocated for the solar farm, the payment made to the landowner for leasing, the specific type of solar farm operational on the land, and the duration of the lease agreement. Landowners can greatly benefit from solar leasing especially if they are looking to make extra money off of their land that isn’t being used.
The solar company prefers to lease land from landowners rather than purchasing land. This occurs because in the initial stage of the solar lease, developers dedicate a span of 2 to 5 years to examine the landscape, assess the viability of generating solar energy, and obtain the necessary authorization for their documentation.
At present, there is no construction happening, yet landowners continue to receive a predetermined payment as stipulated in the lease agreement. Furthermore, they retain the freedom to utilize their land in its current state.
Once everything is approved for the developers, construction for the leased solar panel system begins. During this construction, the landowner can no longer use their land that the solar panels will occupy. However, their lease payments will be raised to the higher agreed upon rate.
The development phase will become the operational phase once the solar farm is built and active. The operational phase can last between 25 to 50 years with the option to be extended. During this active solar farm time, the rate for the lease payments will increase again to the agreed upon payments.
Pros and Cons of Leasing Land for Solar Farms
Leasing land for solar farms is an increasingly popular option for property owners looking to contribute to clean energy production and capitalize on the renewable energy boom. However, there are many pros and cons of leasing land for solar farms for landowners considering this sustainable yet complex opportunity.
Solar energy leases have really taken off in states where tax incentives are great for renewable energy developers. California offers property tax exclusions for solar energy land development which adds value to a property. Massachusetts offers the Solar Massachusetts Renewable Target (SMART) program that provides financial incentives to solar developers based on solar energy production. Solar energy leases in these states with tax incentives benefit both the property owner and the renewable energy developer.
Some of the pros of leasing land for solar farms include no upfront costs, a guaranteed income stream, limited risk and liability, and the satisfaction of contributing to clean energy production. However, it's not without its drawbacks. Lease payments may not always be reliable throughout the entire lease period, land usage can be restricted due to the presence of solar panels, and the agreements are often long-term commitments.
Pros of Leasing Land for Solar Farms
Due to the numerous advantages, many property owners are choosing to lease their land for solar farms. The main benefits of solar leasing include:
No upfront costs: One of the main advantages of solar leasing is that there are no upfront costs for property owners. The solar company will cover all the costs associated with installing, maintaining, and operating the solar panels on the leased land.
Guaranteed income stream: By leasing land for a solar farm, property owners can secure a steady income stream throughout the solar projects through solar lease payments. The amount of these payments ranges based on many factors, but property owners are generally paid $700-2,000 per acre per year.
Limited risk and liability: Since the solar company is responsible for the installation, maintenance, and operation of the solar panels, property owners have limited risk and liability. This means that in the case of any accidents or damages, the solar company is responsible for covering the cost of any damages.
Contribute to Clean Energy Generation: By leasing land for a solar farm, property owners are contributing to the production of clean and renewable energy, reducing their carbon footprint and helping to combat climate change. Not only do solar leases benefit the environment, they also have many benefits for property owners.
Solar Energy Benefits for Revenue Generation
Not only does leasing your land for solar energy help to reduce greenhouse gas emissions, but it can also provide a financial benefit for you and your family for many years. When it comes to getting paid for a solar lease, most solar companies will offer to lease your land in exchange for making an annual payment to you, providing you with a stable source of passive income.
The solar company will typically agree to a long-term lease of 20 to 30 years and usually retain the option to extend the term of the lease for an additional 5 to 20 years. Here are some of the key advantages:
Stable Income - Solar leases provide a source of passive income stream that is insulated from market fluctuations, offering financial security. Payments typically range from $500 to $2,000 per acre annually, depending on the location and the terms of the lease. This stable income can be particularly appealing for landowners looking for consistent revenue.
Tax Benefits - Landowners who lease their land for solar projects may qualify for various tax incentives and credits, which can significantly reduce their overall tax liability. These benefits can include property tax exemptions, federal and state tax credits, and accelerated depreciation on solar equipment. Understanding and leveraging these tax benefits can enhance the financial gains from leasing land for solar energy projects.
Leasing land for solar projects not only supports the transition to renewable energy but also offers landowners a unique opportunity to secure financial gains and contribute to a sustainable future.
Cons of Leasing Land for Solar Farms
Although there are many benefits of leasing land for solar farms, there are a few potential disadvantages that property owners should be aware of, including:
Potential Loss of Land Use: A disadvantage of leasing land for a solar farm is that it may take away the ability to use the land for other purposes during the term of the lease, depending on what the landowner negotiates with the solar developer. During a solar lease, the property owner may still be able to use their land for grazing or crops (also referred to as 'agrivoltaics').
Payments are NOT Guaranteed: The solar company can stop operating the solar farm at any time due to many reasons, meaning that solar lease payments are not guaranteed to continue for the entire term of the solar lease. However, property owners can sell their solar lease payments up front for a lump sum to mitigate this risk. When a property owner decides to sell their solar lease payments in exchange for a lump sum upfront, the purchaser assumes the risk of potential payment discontinuation.
Long-Term Commitment: Solar leases are typically long-term agreements, ranging anywhere from 20-40 years. Although the long-term nature of solar leases is not necessarily a drawback to leasing land for a solar farm, it is a major consideration that property owners need to keep in mind as they consider solar leasing. Given this information, property owners must conduct thorough due diligence to ensure that a solar land lease offer aligns with their needs and goals.
How to Lease Land for a Solar Farm
There are many factors for property owners to keep in mind as they consider leasing land for a solar farm. Evaluating the potential pros and cons of solar leasing is one of the considerations that property owners should keep in mind as they consider whether or not they should explore land lease agreements with a solar developer.
Traditionally, property owners have gotten solar lease offers through unsolicited outreach from solar energy developers. If you are interested in learning your land's value for a solar farm and exploring solar lease offers, consider listing your property for lease for free on LandGate's online marketplace. Solar developers use our data to plan new projects and find land to lease through the marketplace. Listing is completely free, and property owners are NOT obligated to accept ANY offers that they receive through their listing. Listing starts by generating your free report on our map:
Several Factors to Consider When Selling Land with a Solar Farm
Lease Terms:Â The terms of the solar farm lease can have a significant impact on the property's marketability. Longer-term leases with favorable terms, such as high rental payments or escalations, may be viewed more positively by potential buyers.
Conversely, leases with onerous clauses or restrictions on property use could deter buyers.
Rental Income:Â Solar farm leases typically generate rental income for property owners. This income can increase the property's overall value and appeal to investors.
However, buyers may want to review the financial details of the lease to assess the income potential.
Land Use Restrictions:Â Solar farm leases often restrict the use of the land for other purposes during the lease term. Buyers who have other plans for the property may be hesitant if they are limited by these restrictions.
It's essential to clarify the extent of these restrictions and whether they can be modified or terminated.
Location and Market Demand:Â The location of the property and the demand for solar energy projects in the area can also impact its marketability.
Properties in regions with high solar energy potential and strong demand for renewable energy may be more attractive to buyers.
Buyer Preferences: Buyers have different preferences and priorities. Some may see a solar farm lease as an attractive income-generating opportunity, while others may prefer a property with more flexibility and fewer encumbrances.
It's important to target buyers who align with the property's characteristics.
Appraisal and Valuation:Â The presence of a solar farm and the terms of the lease can affect the property's appraisal and valuation.
An experienced appraiser should consider both the income generated from the lease and the impact on the property's market value.
Transferability of the Lease:Â Buyers will want to know whether the solar farm lease is transferable to the new property owner.
Some leases may allow for easy transfer, while others may have more stringent requirements or restrictions.
Legal and Regulatory Considerations:Â Local zoning regulations, permits, and environmental regulations can impact the property's ability to host a solar farm.
Buyers will want to ensure that the property complies with all relevant laws and regulations.
Landowners who are interested in having a solar energy system installed on their property should not worry about the land value decreasing. Landowners do not have to worry about any initial expenses and if they no longer desire the solar project on their land, the responsibility of removing it falls on the energy developers.
