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Lease Rates for Solar Farms: How Valuable Is My Land?

The most commonly-asked question by landowners regarding solar farms is, How much can I lease my land for? The short answer is, “it depends,” but solar lease rates (also called “rents”) typically range from $250 to $2,000 per acre, per year. This article looks at the factors that influence the rates a solar developer may offer for your land.

Market Demand

Solar developers will only build solar farms in regions where there is a demand for solar energy. That, in turn, is driven by any combination of three broad factors:

  • Whether the state (or in some cases a utility, city or county) has a goal for how much energy must come from renewable sources (this is called a Renewable Portfolio Standard, or RPS). For example, in February 2020 Virginia passed legislation requiring 100% of its energy to be produced by renewable sources by 2050. Land in any state where there is an RPS goal is more valuable.
  • Whether there are energy buyers in the region—generally either a utility or a corporation—that want to purchase renewable energy. Some of the largest buyers of renewable energy are technology companies such as Facebook and Google that operate large data centers, which consume huge amounts of energy. These companies typically only build data centers where there is a supply of renewable energy, which drives up land values.
  • Whether the political policies of legislators and utilities, as well as the general regulatory climate, are conducive to solar development. This is typically demonstrated by the availability of tax incentives for certain kinds of solar development, as we see in New York for community solar projects. 

Alternative Uses of Your Land

The economic value of your land hinges on what the highest revenue-generating use of your land is. If you’re a farmer, you probably have a good feel for what you can earn from that. That sets an anchor for any lease offer a developer makes to you—they have to match or beat it for you to consider leasing your land to them. A good developer will do their research on properties in your area and make you an informed offer accordingly.

Of course, if you own a financially successful vineyard in California or your property sits on an oil field, for instance, it is unlikely that a solar developer will offer you more for your land than you’re earning today.

Keep in mind, however, that solar lease payments—which are guaranteed, and in some cases rise over time—offer predictability in income that agriculture, mining, timber, or revenue from other uses may not. Even if you could earn more from one crop today, that may not hold true for the next 20 years. We saw this with the recent trade tensions with China, where demand for soybeans suddenly plummeted.    

Cost of Interconnection

The top reason solar developers pass on developing a property is that there is no cost-effective way to connect a solar farm that would be built on that property to the electrical grid. Your land is significantly more valuable to a solar developer if all three of the following are true:

  • There is a transmission line, distribution line, or substation on or adjacent to your property. This significantly reduces the cost of interconnection, and a developer may pass on that savings to you in the form of a higher lease payment.   
  • The voltage of the line or substation is in the range required by the developer for the desired project capacity. This gets a bit complicated. Project capacity (or size) is measured in megawatts (MW). The cost of interconnection increases with the voltage. A large capacity project requires higher voltages for technical reasons, whereas a low capacity project could use higher voltages but the interconnection cost would be too high. For example, for a small 5 MW community solar project, a developer will want to interconnect to a distribution line of 69 kV or less. For a 500 MW project, they will probably need at least a 230 kV infrastructure. There are exceptions.
  • There is sufficient injection capacity. Think of the grid like a highway. Just because there is a road there doesn’t mean you can add 10,000 cars onto it at rush hour. In some cases the grid infrastructure near your property simply can’t absorb as much energy as a solar farm on your property would inject into it.

Amount of Land You Have

This is a tricky one because there is no simple guideline here. In most cases, the more land you have, the more valuable it is per acre. That’s because there are significant economies of scale in building large solar farms (more than 100 MW), which reduces the developer’s costs per MW of capacity.

However, the regional supply of available land tempers this. In southwestern states, finding 100 acres or more of flat, clear land isn’t a big challenge. In and of itself, the fact that one landowner in Nevada has 500 acres and another has 100 doesn’t mean that the 500-acre property is worth more per acre. But to find 500 acres of flat, clear land in Virginia is extremely rare, and in that case 500 acres is worth much more per-acre than 100 acres there.

In addition, sometimes developers want to build smaller to meet a particular energy buyer’s needs, or to benefit from a tax incentive for a project of a specific size. There is currently an incentive in NY state, for example, to build 5 MW community solar farms, which requires about 40 acres. Developers want to build right up to this limit to maximize their economies of scale, but won’t build any bigger than that. And in this case, the going rate for land in NY for community solar projects currently hovers between $1,000 and $1,5000 per acre. Compare that to central Texas, where lease rates are typically in the $400-$600 per acre range.

Other Supply and Demand Issues

Lease rates can spike, at least temporarily, in response to a variety of triggers. For instance:

  • A state announces a new Renewable Portfolio Standard target
  • A utility or corporate buyer of energy announces they will be issuing a Request for Proposal (RFP) to procure renewable energy in a certain region
  • A utility announces they are upgrading or building new transmission infrastructure
  • An existing tax incentive for solar projects is approaching retirement

These kinds of short-term triggers can spur bidding wars between developers to secure your land. (You might want to follow Utility Dive to stay abreast of news announcements and rumors that might drive up lease rates.)

There are longer-term, structural supply and demand issues, too. California, for instance, is the most developed state for solar. There, the land has been exhaustively “picked over” by developers for years and the easiest to develop, most affordable land is already under lease. As a result, the supply of land is now constrained while demand is still present, which is driving up lease rates toward $1,000/acre.

As another example, West Texas used to be incredibly popular for solar farms due to its unique combination of expansive plots of flat, clear farmland, robust transmission infrastructure, and plenty of sun. But West Texas now is somewhat a victim of its own success, as lease rates escalated due to the popularity of siting solar (and wind) farms there and suitable land became harder to find, plus the recent boom in domestic oil and gas production in the region and increasing congestion on the electrical grid. As a result, developer interest has waned and lease rates have fallen. Interest in developing solar projects closer to central Texas, however, has exploded, and lease rates there are climbing.

Ease of Construction

Your land is more valuable if building a solar farm on it is easier, and thus less expensive to do. Ideally, your land is:

  • Flat (less than 5 degrees of slope; more is acceptable if it slopes to the south)
  • Clear of trees, structures or other obstacles
  • Free of ponds, streams, creeks, etc.
  • Bordered by a road that will provide easy access to construction crews

So What is YOUR Land Worth?

The only way to know for sure is to have a solar developer evaluate it. Start by submitting this form about your property. If your land is in a region developers are interested in for some of the reasons outlined above and it has sufficient acreage, they will assess it for interconnection and other factors. Assuming it meets their evaluation criteria, they will contact you and can begin discussions about lease rates.

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