Key Takeaways:
Active Solar Development: Kentucky is a leading state for solar farm development, driven by incentives promoting renewable energy.
Landowner Opportunities: Landowners can earn income through solar lease payments, providing long-term financial stability.
Leasing Process: Involves negotiation, option agreements, and eventual lease agreements, with payments increasing as projects progress.
Incentives: Federal and state incentives, including tax credits and net metering, make solar projects financially viable.
Infrastructure Challenges: Limited grid capacity is a bottleneck, but efforts are underway to improve this.
Community Solar Growth: Kentucky is expanding small-scale and community solar projects, supported by cooperative utilities.
Key Installations: Notable projects include LG&E Solar Share and Amazon Air Hub Rooftop, showcasing diverse solar applications.
What Should Landowners Know About Solar Farm Development in Kentucky?
As of February 2024, Kentucky is one of the most active states for future solar farm development. The number of solar farms in Kentucky has been increasing significantly over recent years, especially queued solar farms. This is a direct result of the implementation of various incentives promoting renewable energy generation across the state. 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 Kentucky 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 Kentucky 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.
What is the Process for Leasing Land for Solar Farm Development in Kentucky?
Step 1: Solar Lease Negotiation Period in Kentucky
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 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 Kentucky
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 Kentucky 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 Kentucky 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 Kentucky?
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 Kentucky
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 Kentucky
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 Kentucky?
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 Kentucky
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 Kentucky?
In Kentucky, the average solar farm size is 113 acres generating approximately 9.7 megawatts (MW) of electricity when operating under optimal conditions. This output has the potential to cater to the energy needs of around TBU households as the typical electricity consumption of an average household in Kentucky stands at 13,128 kilowatt-hours per year.
What is the Impact of the IRA and Other Factors in Kentucky?
There are several federal and state incentives available for solar development in Kentucky, intended to encourage the use of solar energy by making solar power more affordable for businesses and organizations that install solar systems. These incentives can improve the financial viability of solar projects since they lower the initial costs and increase the return on investment.
Solar project incentives aid in the switch to clean, renewable energy sources, which lower greenhouse gas emissions and slow climate change. Incentives aid in increasing the deployment of solar projects by making solar energy more financially appealing, replacing fossil fuel-based power, and lowering the environmental effects related to traditional energy sources.
Federal Solar Investment Tax Credit (ITC)
The most significant incentive is the federal ITC, offering a 30% tax credit on the entire value of your solar system, applicable until 2032. This can lead to an average saving of around $10,098 for Kentucky residents.
Net Metering
Kentucky mandates utility and electric cooperatives to offer net metering for systems up to 30 kW. This allows solar panel owners to earn credits for excess electricity produced, which can offset the cost of power drawn from the grid, though compensation is at the avoided-cost rate, which is lower than the retail rate.
Kentucky PACE Financing Program
For commercial customers, PACE financing provides a method to finance solar installations with minimal initial costs, repaid through a voluntary property tax assessment. This program is particularly beneficial for those unable to secure traditional financing methods.
Commercial Incentives
Kentucky also offers specific incentives for businesses and nonprofits, such as below-market-rate loans through the City of Louisville Go Green Loan Program and the USDA REAP Grant for agricultural producers and rural small businesses to purchase and install renewable energy systems. Additionally, commercial customers are eligible for a one-time income tax credit upon switching to solar from fossil-fuel energy.
While Kentucky's solar incentives may not be as robust as those in some other states, the available programs still offer substantial benefits that can make solar energy a viable and financially attractive option for many residents and businesses. The combination of federal tax incentives, net metering, and financing options can significantly reduce the cost barrier to adopting solar power, making it an investment worth considering for long-term savings and environmental benefits.
The increase in LMP pricing has made solar energy an attractive option for electricity generation in Kentucky. 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, Kentucky has experienced a 33% increase in PPA pricing and an average LMP price increase of 52.5% (this is expected to increase by 24.8% in 2024).
In the context of solar energy projects in Kentucky, the relationship between LMP and PPA pricing lies in how the PPA sets the pricing terms for the electricity being sold. The fixed 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 higher 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 Kentucky.
Commercial, Community, & Behind-the-Meter Kentucky 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 Kentucky, solar farms are typically 113 acres, allowing about 9.7 MW of electricity to be produced per farm under ideal conditions.
Kentucky is a state primarily regulated by Duke Energy, LG&E, and East Kentucky Power Cooperative for small-scale community solar farms.
Kentucky has seen considerable growth in Community and Distributed generation. The state is currently building out a pipeline for small-scale solar project development and there has been much discourse on the implementation of community solar programs.
Kentucky has a tradition of cooperative utilities, which are member-owned and often more responsive to local interests. This structure can facilitate community solar projects as cooperative utilities are more inclined to support community initiatives. These programs typically allow consumers to access solar energy without the need to install their solar systems, typically benefiting from energy generated at an external solar array.
Key Installations in Kentucky | ||
Project | Utility/Cooperative | Project Details |
LG&E Solar Share |  |
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Cooperative Solar |  |
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Amazon Air Hub Rooftop |  |
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Walton Solar Power Plants 1 & 2 | |
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Crittenden Solar Power Plant | |
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Discover Land’s Value For Solar Leasing in Kentucky
The solar energy industries within Kentucky 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 Kentucky 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.
