What Should Landowners Know About Solar Farm Development in Arizona?
As of May 2024, Arizona is a prominent hub for solar energy development. The state boasts over 5.3 GW of installed solar capacity, positioning it fifth nationwide. With total solar investments reaching $18.8 billion, Arizona's solar sector is thriving, supported by significant cost reductions—solar prices have declined by 47% in the last decade. Projections suggest an ambitious growth with an addition of 9 GW over the next five years.
The solar energy in Arizona powers approximately 1,173,331 homes, contributing to 10.15% of the state's electricity supply. Several policies and market initiatives have shaped Arizona's solar landscape, such as the state’s Renewable Portfolio Standard and various federal incentives aimed at subsidizing solar manufacturing. Looking forward, for example, one of Arizona’s foremost utilities, Arizona Public Service Company, has outlined plans to install 6 GW of new renewable capacity between 2025 and 2031 to replace retiring coal plants, reflecting a strong commitment to expanding renewable energy and solar infrastructure.
The number of solar farms in Arizona has been increasing exponentially over the past decade. 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 Arizona 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 Arizona 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 a Solar Farm in Arizona?
Step 1: Solar Lease Negotiation Period in Arizona
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 Arizona
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 Arizona 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 Arizona 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, in order 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 Arizona?
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 Arizona
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 Arizona
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 Arizona?
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 Arizona
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 Arizona?
In Massachusetts, the average solar farm size is 262 acres generating approximately 57 megawatts (MW) of electricity when operating under optimal conditions. This output has the potential to cater to the energy needs of around 35,413 households as the typical electricity consumption of an average household in Arizona stands at 14,100 kilowatt-hours per year.
What is the Impact of the IRA and Other Factors in Arizona?
Arizona solar incentives have encouraged solar companies to develop more projects across the state. Additionally, favorable market conditions for electricity prices encourage investment in Arizona's solar sector. 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.
Solar Development Incentive | Type | About |
Federal Solar Tax Credit, Solar Tax Credit (ITC) | Federal | The ITC allows for a 30% tax credit on the cost of solar system installation, applicable through 2032. Furthermore, solar panel installations are exempt from sales tax and any value-added property tax that may be levied from it. |
Renewable Energy Portfolio Standard (RPS) | State | In November 2006, the Arizona Corporation Commission (ACC) set in motion a significant expansion of the state's Renewable Energy Standard (RES), aiming to escalate renewable energy consumption to 15% by 2025. |
Solar Equipment Sales Tax Exemption | State | In Arizona, solar energy devices are exempt from state sales tax, which helps reduce the initial costs associated with solar installations. |
Arizona's Solar Income Tax Credit | State | Arizona offers a tax credit for the installation of solar energy devices in residential and business properties. This credit amounts to 25% of the cost of eligible solar technologies, capped at $1,000, which can be applied per installation, encouraging the adoption of solar technology. |
Energy Equipment Property Tax Exemption | State | In Arizona, solar energy devices are exempt from state sales tax, which helps reduce the initial costs associated with solar installations. |
These incentives, combined with Arizona's high solar potential due to its abundant sunshine, create a favorable environment for solar energy investments. Landowners and real estate agents need to understand these incentives and the overall market landscape to navigate potential solar project deals effectively.
The decrease in LMP pricing has made solar energy an affordable option for electricity consumers in Arizona. 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, Arizona has experienced a slight increase in PPA pricing by 1.2% and an average LMP price decrease of 36.5% (this price is expected to increase significantly in 2025).
In the context of solar energy projects in Arizona, 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.
Decreasing LMP prices has decreased electricity costs for consumers and businesses, which has stimulated the production of renewable energy in the state. What’s more, the expected rise in LMP prices will foster investment in solar infrastructure statewide given the prospect of greater revenues for solar energy producers. As a result, the number of solar projects added to the interconnection queue is expected to rise given the variety of statewide solar incentives in Arizona.
Commercial, Community, & Behind-the-Meter Arizona 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 Arizona, active solar farms are typically 262 acres, allowing about 57 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 Arizona serve energy customers directly within the same area or community. These solar farms tend to be smaller in size about 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.
The implementation of community solar in Arizona has faced significant hurdles despite efforts to establish a robust program. While the Arizona Corporation Commission initially aimed to create a leading community solar initiative, their adoption of a policy statement in March 2023 fell short of stakeholder expectations. Unlike the successful models seen in 20 states and the District of Columbia, Arizona's policy lacks crucial elements necessary for fostering community solar development.
For instance, the compensation structure for community solar gardens in Arizona, set at the utility's avoided cost, fails to reflect the true value of distributed solar and introduces uncertainty with fluctuating rates. Additionally, the policy's optional participation for utilities, coupled with the requirement for community solar projects to compete in a request for proposals process, creates further barriers for developers and adds to the uncertainty surrounding the market.
Furthermore, Arizona's policy fails to adequately support low-income customer access adequately, despite mandating a portion of subscription capacity for low- to moderate-income ratepayers. The lack of assistance for outreach and subscription management places an additional burden on developers. With utilities retaining the discretion to curtail purchased power from community solar gardens, the policy undermines investor confidence and fails to create a conducive environment for community solar investment.
Consequently, while Arizona may have taken steps to address certain aspects of community solar, the policy's inherent flaws deter investment and hinder the potential for widespread adoption of community solar initiatives in the state.
As a consequence of the challenges facing community solar implementation in Arizona, the state has witnessed a surge in utility-scale solar farm developments. Faced with policy uncertainties and a lack of conducive regulations for community solar, developers and utilities have turned their attention toward large-scale solar projects. Arizona's abundant sunshine and vast land availability have made it an ideal location for utility-scale solar farms, which can provide significant renewable energy generation capacity.
These projects, often exceeding hundreds of megawatts in capacity, are typically developed by utility companies or large energy corporations, taking advantage of economies of scale and streamlined regulatory processes for utility-scale installations. Consequently, while community solar initiatives have faced setbacks, Arizona's landscape is increasingly dotted with utility-scale solar farms.
Discover Land’s Value For Solar Leasing in Arizona
The solar energy industries within Arizona 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 Arizona 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’s tool, LandApp. Land professionals can utilize LandGate’s data and analytics to inform their clients about their resource’s potential.
