Solar farms are a great way to have sustainable, renewable energy generation and also to bring in a nice side income. But how much do solar farms pay to lease land?
Well, it all depends on the size of the farm and your location.
Generally speaking, smaller farms can offer between $250-$2,000 per acre per year for leases.
In this article, I’ll walk you step by step through how to determine what solar farms pay for your land.
So, without further ado, let’s get started!
- Solar farms are large areas of land that are used to generate solar energy to power homes and businesses
- Solar farms pay landowners to lease their land, and the amount offered depends on a variety of factors, including the size of the farm and its location
- The 5-10 acres of land can generate one megawatt of solar power
- The average solar farm can be about 25 acres in size that generates around 5 megawatts
- Solar farms can pay landowners between $250 and $2,000 per acre per year
- Over the course of 50 years, solar farms can generate up to $1,250,000 in income for landowners
- The market demand for solar power in your area can also affect lease prices, with increased demand resulting in higher lease rates
- Alternative uses for land can also impact the amount of money solar farms are willing to pay
- The cost of interconnection to the electrical grid will affect the amount of money offered to landowners
What Are Solar Farms?
Solar farms are large areas of land that are covered in rows of photovoltaic (PV) panels.
These panels convert sunlight into electricity, which is then fed onto the power grid for use by homes and businesses.
You can consider a solar farm as a regular farm, but instead of growing crops, they grow energy to feed the power grid and reduce our dependence on fossil fuels.
But you should also know that they are different from rooftop solar systems.
Whereas rooftop solar systems are installed on individual homes and commercial buildings, solar farms can be owned by a community, business or utility to generate power for many people.
How Does Solar Leasing Work?
A landowner leases their land to a solar farm developer, who then installs and operates the solar farm on that land.
Leasing land for a solar farm is a great way for landowners to make money from their property without having to use it themselves.
To understand how leasing works and how much money you can make, we can use an example.
Let’s assume that the average solar farm generates about 5 Megawatts of electricity which is about 25 acres as one Megawatt of energy needs 5-10 acres.
The average solar farm lease rate is around $250 and $2,000 per year.
If we assume that the landowner charges a rate of $1,000 per acre, so the 25 acres would cost the developer $25,500 to lease the land for one year.
But usually, the lease can last for up to 50 years so the landowner can make up to $1,250,000 over the duration of the lease.
Of course, this is just an example and the lease payment still depends on many factors, like the size of the solar farm, location, type of land, etc.
However, this gives you a rough idea of how solar leasing works.
What Affects the Cost of the Lease?
1. Market Demand
The cost of leasing the land for a solar farm depends on how much demand there is in the area.
If there’s a high demand from investors, then you can expect to get higher lease rates.
The demand for solar farms depends on main 3 factors:
- RPS (Renewable Portfolio Standard): The state’s RPS requirement determines how much renewable energy needs to be produced in the area. For example, in February 2020 Virginia passed legislation requiring utilities in the state to generate 100% of their electricity from renewable sources by 2050. So any solar farm built in the area is likely to have higher demand.
- The Presence of Corporate Buyers: Large corporate buyers such as Facebook or Google that operate data centers can contribute to the demand for solar farms. This is because these companies are always looking for ways to reduce carbon emissions, and leasing land for a solar farm can help them reach their sustainability goals.
- Solar Farm Tax Incentives: Some states have incentives in place that give tax credits or rebates to developers who build solar farms. These incentives can increase the demand for solar farms and help drive up lease rates.
2. Alternative Uses of Your Land
The value of your land will also be influenced by how it can be used for other purposes.
For example, if your land is suitable for farming, you know that you can benefit from crop production.
This sets an anchor price for the land and provides a benchmark against which the solar farm lease rate can be measured.
And a good developer will do their research to determine the potential of your land for alternative uses and will base their lease rate accordingly.
3. Cost of Interconnection
Solar developers have to factor in the cost of interconnecting the electricity produced by the solar farm to the grid.
They need permits and approvals from local authorities, and this can be a lengthy process.
Therefore, any additional expense that’s required during this process will ultimately affect how much they are willing to pay for your land.
If your land has the following benefits, then you can command a higher lease rate:
- Transmission Line Access: If your land has a transmission or distribution line, then the developer can save a lot of money by tapping into this existing infrastructure.
- The Line Voltage: If the range of voltage on the lines that are connected to your land is the same as the voltage that’s needed for the solar farm, then it would make it easier for the developer to connect to these lines. The higher the voltage, the more interconnection costs are as this requires more changes and upgrades to the lines. So if your land offers high-voltage lines, you can get a better lease rate.
- Sufficient Injection Point Capacity: Think of the grid like a highway, and the injection point capacity is the number of cars that can fit on the highway at any given time. Just because a highway is wide doesn’t mean that it can accommodate a lot of cars. Similarly, the grid won’t absorb more energy than it has an injection point capacity for.
4. Amount of Land You Have
This is a tricky one. On the one hand, having large chunks of open land can be attractive to developers as they don’t have to worry about working around other structures.
On the other hand, the regional area your land is in would typically dictate the size of solar farms that can be built.
For example, if you live in a southwestern state such as California or Arizona, finding 100 acres or more of flat, usable land isn’t a challenge.
Therefore, constructing a 600-acre solar farm or one that is merely 100 acres in this region would not differ too much in terms of the cost per acre.
But if you live in a southeastern state such as Georgia or Alabama, finding a large acreage of flat, usable land can be difficult.
So a 600-acre solar farm would cost more per acre than a 100-acre solar farm in this region due to the greater difficulty of finding open land.
5. Other Supply and Demand Issues
Sometimes, solar lease rates can be greatly influenced by other supply and demand issues.
For example, if a state announces a new Renewable Portfolio Standard target, it can increase the competition among developers to secure more land and thus drive up lease rates.
Similarly, if a corporate buyer has an issue in getting RFPs approved, they may be willing to pay a premium for land that can help them meet their renewable energy goals quickly.
Also, if a developer has an existing project in the region and is looking for additional land, they may be willing to pay more for your leased land than another developer who is just starting out.
Tax incentives are another factor that can affect the lease rate you can get for your land.
For example, if your state offers strong solar tax incentives, then developers would be willing to pay a higher lease rate as this can help them save money and make their project more profitable.
These triggers can be short-term or long-term, so it’s important to be aware of the current market dynamics in order to get the best lease rate for your land.
6. Ease of Construction
Last but not least, the ease of construction is another major factor that affects your lease rate.
Flat land that is less than 5 degrees of slope to the south and has no trees, power poles, or other obstructions is the most ideal for building a solar farm.
If your land also offers is bordered by a road with sufficient access construction crews, this can further add to the value of your land and you can potentially get a higher lease rate.
So make sure to research the terrain of your land to know the worth of your land and the best lease rate you can get for it.
How Much Is Your Land Worth?
The only way to truly know the value of your land for solar leasing is to contact an experienced solar company that can assess your land and determines the best lease rate for it.
But you can start by using this calculator to get an estimate of how much your land can be worth in solar leasing.
This will give you a good starting point so that you know what to expect when it comes time to negotiate with solar developers.
How Much Do Solar Companies Pay for Land?
Solar companies typically pay anywhere from $250 to $2,000 per acre for land leases.
The exact amount depends on a variety of factors, such as the size of the project, ease of construction, regional demand and supply issues, etc.
How to Lease a Solar Farm?
You can lease your land for a solar farm by following many steps:
- Contact a reputable solar company that has experience in building and managing solar projects
- Assess your land to determine its suitability for a solar farm
- Negotiate with developers to get the best lease rate for your land
- Sign a legally binding agreement that meets both parties
- Submit the grid application paperwork and follow the specific requirements of your utility company
- Once the project is approved and built, you’ll start to receive lease payments from the solar company
How Much Does It Cost to Build a Solar Farm?
It costs $0.85 to $1.07 per acre to build a solar farm, depending on the size of the project and other factors like location, terrain, etc.
Are Solar Farms a Win-Win for Landowners?
Solar farms are a win-win for landowners, as they can get rent payments in exchange for leasing their land.
Solar farms also provide clean energy while generating tax benefits and jobs in the local area.
As promised, we’ve covered a lot in this article, from understanding lease rates to calculating your land value and the cost of building a solar farm.
And make sure to know the specifics of your land before negotiating a lease with a solar developer to get the best rate for your land.
Do you still have questions on solar leasing? Feel free to leave them in the comments and we’ll be happy to help.