What Should Landowners Know About Solar Farm Development in Michigan?
As of October 2023, Michigan is one of the most active states for solar farm activity and development. The number of solar farms in Michigan have 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 Michigan 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. There are several factors that 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 Michigan solar developers. In a traditional way, 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 agent 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 Michigan?
Step 1: Solar Lease Negotiation Period in Michigan
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 what the percentage of the escalator is to combat inflation.
Step 2: Solar Lease Option Agreement in Michigan
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 Michigan begins with optioning the land, which is called “site control” by developers. The reason solar developers cannot go straight to a solar lease is because 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 Michigan 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 bottle neck. 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 Michigan?
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 play 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 Michigan
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 Michigan
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 Michigan?
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 Michigan
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 Michigan?
In Michigan, the average solar farm size is 60.8 acres generating approximately 8.5 megawatts (MW) of electricity when operating under optimal conditions. This output has the potential to cater to the energy needs of around 1,300 households as the typical electricity consumption of an average household in Michigan stands at 13,400 kilowatt-hours per year.
What is the Impact of the IRA and Other Factors in Michigan?
Michigan 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 Michigan. 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.
Michigan offers mainly the Federal Solar Tax Credit (ITC) as the primary incentive program for solar energy. You can combine this with the property tax exemption offered as well. Federal Solar Tax Credit (ITC) is 30% until 2032 which can be claimed in Michigan as well. Developers of community-scale and utility-scale solar projects are eligible for the Federal Solar Tax Credit as long as the solar energy systems they install meet the requirements. The tax credit percentage for community-scale solar and utility-scale solar projects is also 30% of the total project cost. This means that developers can claim 30% of the installation cost as a credit on their federal income taxes.
Michigan's Renewable Energy Standard (RPS) mandated a gradual increase in the state's retail supply portfolio from 10% in 2015 to 15% by 2021. This applied to all retail electric providers. After 2021, investor-owned utilities continued to use renewable energy credits (RECs) to reach the 15% target, while others voluntarily retired RECs for the same goal.
The 15% Renewable REC Portfolio is measured in RECs, with each REC equal to one megawatt-hour of renewable energy from sources like wind, solar, biomass, and hydroelectric power. The RPS offers "incentive credits" for specific renewable energy characteristics and allows the limited use of energy waste reduction credits instead of RECs.
Michigan's utilities have met these targets primarily using wind power, resulting in a limited market for Solar Renewable Energy Certificates (SRECs) in the state. However, homeowners may consider selling SRECs in Ohio. Michigan does not currently have a viable SREC market as there is no solar carve-out. However, solar owners in Michigan are eligible to participate in the OH & PA Tier-I SREC markets. The goal for the future is 35% by 2025 (including energy efficiency and demand reduction).
The increase in LMP pricing has made solar energy an attractive option for electricity generation in Michigan. 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, Michigan has only experienced a 5.47% increase in PPA pricing and an average price LMP price increase of 93.2% (this is expected to decrease by 1% in 2024).
In the context of solar energy projects in Michigan, 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 Michigan.
Commercial, Community, & Behind-the-Meter Michigan 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 Michigan, solar farms typically 60.8 acres, allowing about 8.5 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 Michigan 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 roof tops. 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 Michigan
The solar energy industries within Michigan 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 Michigan 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.
