Key Takeaways:
California's solar energy now powers over 30% of the state, leading the nation with 23,000 MW capacity, which supports 21 million homes and has attracted $105.3 billion in investments.
The state’s policies, like the Residential Solar Mandate, showcase a strong commitment to renewable energy, offering financial opportunities for landowners through solar land leases.
LandGate assists landowners by providing insights into the value of their land for solar development and connecting them with developers.
The solar development process involves lease negotiations and feasibility studies, but only 20% of projects proceed due to infrastructure constraints.
Incentives such as the Inflation Reduction Act and the PACE program make solar projects financially viable, with average farms generating enough power for 16,510 households.
What Should Landowners Know About Solar Farm Development in California?
Over the past two decades, California's energy landscape has experienced a remarkable transformation, moving decisively from traditional energy sources to renewable ones. In 2000, the state relied heavily on conventional energy, but the rise of solar power has played a significant role in the shift towards a sustainable energy mix.
As of July 2024, solar energy contributed to over 30% of the state's electricity, reflecting substantial growth in this sector. Notably, California leads the nation in installed solar capacity, with 23,000 MW, enough to power over 21 million homes. The state's robust solar market has attracted $105.3 billion in investment and created over 78,000 jobs, highlighting the economic benefits alongside environmental gains.
California's commitment to renewable energy is evident through policies like the Residential Solar Mandate, which requires all new homes built from 2020 onwards to have solar installations. Despite recent policy changes, such as the transition from net metering to net billing, which have posed challenges, the state's solar industry continues to adapt and thrive.
Major installations like the 527.8 MW Mount Signal Solar Farm and corporate projects by companies like Apple underline the extensive development in the sector. Many solar developers are actively planning new projects across the state. This presents a great opportunity for landowners to earn a steady stream of income from their land through solar lease payments, also known as solar payments.
Landowners in California are receiving offers from developers to lease their land for solar farms. They often wonder how much their land is worth for a solar farm and if they are receiving a good offer. Leasing land for solar farms helps landowners provide their future generations with long-term financial stability. Several factors go into solar farm valuations that landowners and realtors should consider.
LandGate is a marketplace that provides data intelligence to landowners while also providing them the opportunity to connect with California solar developers. Traditionally, developers would knock on landowners' doors or cold-call them. This old-fashioned way is not easy for landowners. It can be perceived as unwanted solicitation at a time when the landowner is not ready and doesn’t have enough information to feel comfortable talking about a solar farm on their land.
LandGate provides useful data to landowners or to their agents to inform them for free about the value of their land for solar farm leasing. Equipped with more information, landowners can make good and fast decisions about pursuing a solar lease and joining in on the solar farm development in California.
What is the Process for Leasing Land for a Solar Farm in California?
Step 1: Solar Lease Negotiation Period in California
The solar lease negotiation process is the first step landowners take when interested in having a solar farm on their property. Land professionals can assist landowners during this period to make sure they are receiving the best deal possible but also understand the time period between signing the lease and having an active solar farm on their land.
During the negotiations, landowners can negotiate solar lease payments, the length of the lease for the solar farm, and the percentage of the escalator to combat inflation.
Step 2: Solar Lease Option Agreement in California
The next step is for the landowner to get a solar farm option agreement. At that point, the solar developer has done a preliminary study, also called a feasibility study, to know if the site is potentially suitable for solar farm development.
Why Can’t I Get a Solar Lease Agreement Directly?
The process of a solar farm project in California begins with optioning the land, which is called “site control” by developers. The reason solar developers cannot go straight to a solar lease is that they have to evaluate the land thoroughly.
Typically the initial screening study is good enough that this first due diligence process is all that is needed. Another larger uncertainty for solar developers is to know if the solar project will be accepted by the utility on the electrical infrastructure (or electrical network). We refer to this phase as “utility’s application” in the graph above and developers refer to this phase as “queue submission”. This means that the solar project enters the interconnection queue of that region waiting for regulatory approval.
These queues are known as Independent Systems Operator (ISO) or Regional Transmission Organization (RTO).
During this period, the analysis of possible engineering and land factors is conducted to determine the feasibility of the project to be constructed and connected to the grid. This is the reason why the solar developer starts with an option, as not all solar projects are approved by the ISO/RTO.
How Likely Will My California Solar Option Become a Solar Lease?
At the moment, about 20% of solar options become a solar lease and are built into a solar farm. Currently, the electrical infrastructure network is a big bottleneck. There are more applications of solar projects to get on transmission lines than available capacity.
However, governments are aware of this situation and are working to ease it, to foster more solar development. This means that it will likely get resolved in the next few years. The problem of available capacity applies only to utility-scale solar farm projects, which are typically greater than 5 MW capacity.
Where Can a Landowner Get More Information About the Solar Lease / Option Period in California?
LandGate assists landowners with determining the value of their land for a solar farm. We do this by taking into account the proximity of substations, transmission lines, and state incentives - each of which plays a role in site control.
Am I Getting Paid During the Solar Option Period?
Yes. Solar payments start during the option period but are usually smaller compared to the solar payments during the lease or construction phase of the solar farm.
Step 3: Solar Lease Agreement in California
Once the availability of grid capacity is confirmed, the solar project is moved to a “planned” phase. During this time, the developers will exercise the solar farm option agreement to become a solar farm lease agreement. Typically larger solar rent payments start at this time.
Step 4: Solar Farm Construction in California
Solar payments are phased as the project progresses. It starts with small solar lease payments during the option phase. Then it increases during the solar lease phase, it increases again during the construction phase of the solar farm, and the largest solar payment occurs when the solar farm is active and generating electricity.
How Long Does It Take to Build a Solar Farm in California?
Usually, it will take between 1 to 2 years to build a utility-scale solar farm. It takes less time to build a community solar farm since they are usually smaller in size.
Step 5: Active Solar Farm in California
After the construction has been completed, the solar farm is now considered ‘active.’ For landowners, this phase is called ‘production,’ as it signifies that their land is currently producing energy for the electrical grid that it is interconnected with. The production phase lasts anywhere from 25 to 50 years depending on what was negotiated on the lease.
What Can a Solar Farm Power in California?
In California, the average solar farm size for active farms is 171 acres generating approximately 17.8 megawatts (MW) of electricity when operating under optimal conditions. This output has the potential to cater to the energy needs of around 16,510 households as the typical electricity consumption of an average household in California stands at 9,444 kWh per year.
What is the Impact of the IRA and Other Factors in California?
California solar incentives have encouraged solar companies to develop more projects across the state. Additionally, favorable market conditions for electricity prices are encouraging investment into the solar sector in California. Landowners and real estate agents should have an understanding of these incentives and market conditions to be prepared for potential offers for solar project deals.
Inflation Reduction Act: This bill passed in 2022 and became effective at the beginning of 2023 provides incentives to reduce renewable energy costs for organizations on a business, educational institution, and state level. More specifically, in California, solar energy is eligible for a tax credit.
Net Metering: With net metering, consumers are allowed to get retail credit for the surplus electricity generated from local power systems that are sent back to the grid.
Property Assessed Clean Energy (PACE) Program: Eligible homeowners can obtain financing for solar panel installation through the Property Assessed Clean Energy (PACE) program. This program allows the homeowner to finance the installation and repay the loan via their property taxes.
Self-Generation Incentive Program (SGIP): The California Public Utilities Commission’s Self-Generation Incentive Program (SGIP) provides rebates to residents who install a solar battery in addition to their solar panels. The rebate amount depends on the battery's storage capacity and the resident's local utility company.
Renewable Portfolio Standard (RPS): California's Renewables Portfolio Standard (RPS) was initially set by legislation passed in 2002. Over time, amendments to the law have mandated that by 2030, and every year thereafter, 50% of California's electric utilities' retail sales must come from eligible renewable energy sources. The law includes interim targets for utilities to meet. Although Publicly Owned Municipal Utilities (POUs) are not regulated by the California Public Utilities Commission (CPUC), they are still impacted by the law, and their governing boards are responsible for setting procurement requirements.
The combination of a decrease in LMP pricing plus a slight increase in PPA pricing has made solar energy an attractive option for electricity generation in California. LMP is a pricing method used in electricity markets to determine the cost of electricity at specific locations (called ‘nodes’) within the electrical grid.
A PPA (Power Purchase Agreement) is a contract between a renewable energy developer (such as a solar company) and a power purchaser (such as a utility). Over the last three years, California experienced a 0.16% increase in PPA pricing and an average price LMP price decrease of 31.43% (this is expected to decrease by an additional 33.74% in 2024).
In the context of solar energy projects in California, the relationship between LMP and PPA pricing lies in how the PPA sets the pricing terms for the electricity being sold. The relatively stable price in the PPA provides certainty to the solar developer about the revenue they will receive for the electricity that they produce.
Meanwhile, the LMP serves as the market price for electricity at a specific node. When the LMP at a particular node in the grid is lower than the contract price specified in the PPA, it benefits the solar company, as they will receive the contract price and sell the electricity at a higher market price (increasing their revenues). This combination has aided in the rise of solar projects in California.
Commercial, Community, & Behind-the-Meter California Solar Farms
Typically, landowners and land professionals think of solar farms as huge plots of land covered in solar panels out in the middle of nowhere. However, this usually is not the case! In California, solar farms are typically 171 acres, allowing about 17.8 MW of electricity to be produced under ideal conditions.
Commercial solar projects are the commonly largest energy projects being about 40+ acres of land. These solar farms usually feed their energy into the grid to the surrounding area. Realistically these solar farms can be any size as it depends on the capacity available within the grid.
Community solar farms in California serve energy customers directly within the same area or community. These solar farms tend to be smaller in size in relation to acreage and megawatts. Community solar is different from residential solar as residential solar panels are found on top of rooftops. Community solar projects can be larger, it just depends on the location.
Commercial, residential, and industrial solar farms are all considered to be behind-the-meter solar farms. Behind-the-meter means that they are intended to generate power primarily for on-site consumption rather than selling it to the grid. Community solar and utility-scale solar farms generate energy that is utilized in the grid to send it to all consumers a part of that grid. This means that they are front-of-the-meter solar farms.
Discover Land’s Value For Solar Leasing in California
The solar energy industries within California are growing to achieve energy goals for clean energy development. This makes it easier for landowners and real estate agents to participate in solar development deals. Landowners in California can receive a free solar leasing estimate by identifying and claiming ownership of their parcel on our map.
Realtors can assist their clients in learning about their property’s potential for solar energy by using LandGate. Land professionals can utilize LandGate’s data and analytics to provide their clients with information about their resource’s potential.
