Some landowners are receiving offers for annual payments of thousands of dollars per acre if they lease their land for the installation of solar panels. The cumulative lease payments often exceed the value of the land. It all seems a bit too good to be true. In this guide, we’ll dig into what is driving these prices and how you can evaluate whether solar is right for you and your land.

Why are solar projects becoming more popular?

Photovoltaic technology has been around since the 1950’s, but solar only started to become big business in the early 2000’s. Since then, the industry has grown over 100x. Several factors are behind this enormous growth:

• Cheaper solar panels – new technology has dramatically reduced the cost of deploying solar projects.
• High demand – corporations and consumers are increasingly demanding clean, affordable renewable energy to reduce their climate impact.
• Government incentives – both the Inflation Reduction Act (IRA) and the Solar Incentive Tax Credit (ITC) provide an economic stimulus to develop more solar energy projects.

This growth has created an equally large demand for land for solar projects. It takes about 5-10 acres of solar panels to generate 1 megawatt of power. Solar projects have already been deployed on over 50,000 acres of land in the US and it’s likely to take 100 times more (about 5 million acres) for the US to meet its goal of 100% clean energy.

What kinds of solar projects are there?

There are two main types of solar projects that get deployed on rural land, community solar projects and utility-scale solar projects.

Community solar projects tend to be smaller scale (usually 10-50 acres) and generate power for local consumption in the community (hence the name). Because they transmit the power over existing local power lines, they have lower infrastructure requirements and less construction. Community solar projects have become extremely popular due to government incentives, especially in traditionally underserved areas.

Utility-scale solar projects are bigger (100+ acres) and the power generated is sent all over the region rather than staying within the community. The scale of these projects requires more construction and larger power transmission infrastructure. 

Where can solar projects be installed?

To support the installation of thousands of solar panels, the land must be accessible and relatively flat (usually <10% slope). You’ll also need to be close to power lines that carry the energy produced by your project to the customers who are buying it. Going further than about half a mile increases the cost of the project significantly. The type of power lines you’ll need to support your project depends on the size of the project and how much energy it produces. 

Electricity and water don’t mix, so you can’t have solar projects in areas that flood. Wetlands are also off limits, as are other ecologically protected areas.

Finally, other human factors can come into play. Your county’s local land-use policy and local electric utility may restrict your ability to build a solar project. The opinion of the community often plays a role as well throughout the extensive permitting process required by a solar project.

The high demand for solar power and the limited number of available land for solar development have pushed solar lease prices very high.

When does a solar project start and end?

Leasing your land for solar is a long process and an even longer commitment. Projects typically take years to be fully permitted and installed and then you typically have a 30 year obligation to keep the panels on your property.

How does a solar project operate?

Solar projects are a big undertaking that span decades from the original site evaluation through construction, operation, and eventual decommissioning. There is typically no out-of-pocket expense for you as the solar developer typically covers all costs.

• Evaluation and Permitting – There is a lot of upfront work in a solar project. It may take years to fully evaluate that the site is suitable for a project and to secure the required permitting approvals from the county and local electrical utility. During this period, you typically receive an annual payment for the solar developer to maintain the option to build a solar project on the property. Projects may fail at this stage, in which case you would not receive payments beyond the agreed-upon lease option period
• Construction – Installing all the solar panels and associated electrical infrastructure takes at least 3 months and often stretches to a year or more for larger projects. There will be a lot of activity on your land during this period, with many people and construction equipment coming and going constantly.
• Operation – Once the project starts generating electricity, you’ll typically receive annual lease payments until the end of the contract term, which is usually about 30 years.
• Decommissioning – Once the contract is completed, you may have the option to renew the agreement. If you’d like the land restored back to its original state, the developer is required to fully decommission the site and restore the land to the best of their ability. Most reputable developers have a “leave no trace” policy and use bonding to ensure decommissioning will happen, regardless of their company’s future state.

Risks, Rewards, and Restrictions

The payments associated with solar projects are some of the highest per-acre rates you’ll see anywhere. There are three main types of payments you may receive:

• Option payments – Projects typically begin by giving the developer the right to develop the project on the agreed-upon site. Since certain approvals by entities like the local utility are needed for the site to become operational, the developer can’t guarantee the project will move forward. To compensate you during this time, they’ll pay you a fee for the option to develop on your land. These payments can range from nominal amounts to hundreds of dollars an acre a year depending on the market you’re in and the size of the project. Because there is still a lot of risk for the project developer at this point, the payments tend to be small relative to the lease payments once the project is actually generating power. But even these “small” option payments can be large relative to other potential uses of the land.
• Lease payments – Once the site is generating electricity, the hefty lease payments kick in. These can range from hundreds to thousands of dollars per acre per year. You’ll typically receive these payments for the rest of the contract duration, which is usually 20-30 years.
• Additional incentives – Some developers also offer additional incentives such as bonuses for the inconvenience of construction, payments to account for increased property taxes, and even on-site solar energy for landowners who live at the project site.

There are potential downsides to solar projects as well. Some projects are built on productive agricultural land, taking that area out of food production. Communities can be concerned about solar projects changing the character of the rural area, even while county commissioners rejoice at the prospect of a stable 30 year tax-base from the project. And even in welcoming communities, the construction of a big solar project can be a disruption to daily life.

You can mitigate some of these downsides. You can plant vegetation between the road and your solar project to screen the solar panels from public view, which your neighbors may be thankful for. You can also consider “agrivoltaics” which blends agriculture and solar power. If set up properly, you can graze sheep, keep bees, and even grow blueberries and other produce in between the rows of solar panels. These practices can improve soil health and revenue generation on solar sites.

A few other risks to keep in mind:

• Your project may not make it through local permitting and approvals. In that case, you would receive some option payments but would miss out on the big lease payments.
• Will your project developer return the site to its original condition after 30 years? Thirty years is a long time. Will the company still be around? What guarantees do you have? Check to see if your project developer has a solar decommissioning bond in place.

FINDING THE RIGHT SOLAR PROGRAM FOR YOU

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