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Hidden Value of Solar Rights

Updated: May 14

hidden value of solar rights

Learn about the very lucrative government incentives for solar rights and how to capture their value.

 

The most valuable locations for solar leasing often do NOT have the most sunlight. States such as Minnesota, Illinois, and Massachusetts have the most valuable solar rights. Although solar irradiance does play a role in the economic feasibility of a solar farm, it is not the most significant factor that solar companies consider as they plan new projects. To determine the true value of solar rights, we have to look beyond the sun. While factors such as electricity demand, electrical substations infrastructure, transmission lines, and solar irradiance have a large impact on the solar rights value, another very powerful factor is government incentives. Lessees often present solar leases to landowners as $700-$2,000/acre /year across the US, although their value varies greatly depending on many factors, such as the energy company, the location of the land, and more. Most utility-scale projects today are taking advantage of lucrative financial incentive programs.


Before you start negotiating a solar lease, it is important to fully understand the financial incentives being used by solar and wind developers specific to your area. LandGate can help you navigate the tricky and ever-changing government incentives for solar farming to get you what your land is worth. Get a free estimate of your land's value for a solar lease by creating a free property report:


Renewable energy has seen explosive growth across the United States. Americans continue to value the energy produced by solar and wind farms at a higher premium than the energy generated by fossil fuel resources. In many areas of the country, the most affordable option to generate electricity is currently from fossil fuels, forcing utility companies and grid operators to choose between the cheapest option and the “greenest." This means that until renewable energy technology becomes cheaper and more efficient at generating electricity, it must be financially incentivized to stimulate investment and growth today. Thanks to the many local, state, and federal incentive programs that are designed to help the long-term economics of building, owning, and operating solar or wind projects, renewable energy can not only compete with fossil fuels on the wholesale market but can thrive. Additionally, many states have written regulations or set Renewable Portfolio Standards (RPS) that set long-term goals and benchmarks for their states’ utility providers to shift their energy mix towards renewables. These regulations often call for 100% renewable energy by a certain date or they risk penalties from state regulators. The federal government has not set any renewable portfolio standards or regulations on a national scale. In some cases, the financial incentives can be so great that project economics will justify locations miles further from electric transmission networks or substations. The financial incentives can also make properties in certain locations extremely economic from a financial perspective. The projects that don't require expensive network expansion or upgrades can get the same incentives for the electricity they produce.


This means that locations with great financial incentives and low-cost access to electric infrastructure make a property extremely valuable. Property owners are at an especially high risk of signing low-value lease offers due to lacking information about the economics of a solar or wind project over the long term. LandGate makes it easy to understand the unique characteristics that make your land valuable to solar developers.


The Investment Tax Credit (ITC)

The Investment Tax Credit is the most famous and successful green energy program offered by the federal government. The ITC allows developers to deduct 26% of the cost of installing a solar or wind energy system from federal taxes and has no cap on its value. This program reduces the breakeven cost of providing solar or wind electricity greatly.


Lower breakeven costs allow generators to offer competitive prices on the wholesale market, allowing for increased market share. The Investment Tax Credit has been adjusted before and is likely to be adjusted or extended again, affecting the value of your land to renewable developers. LandGate’s advanced LandEstimate™ tool can model how a change in the ITC may affect your property's overall value.

State Renewable Portfolio Standards (RPSs)

Many states have Renewable Portfolio Standards (RPSs) that require utilities to use or procure renewable energy or renewable energy credits (RECs) to account for a portion of their retail electricity sales. Some states even go a step further and outline goals for specific energy types such as Solar Renewable Energy Credits (SRECs).


Renewable Portfolio Standards, Renewable Energy Credits, and Solar Renewable Energy Credits incentivize renewable energy demand at the state level. They allow developers to monetize “clean” energy and sell the electricity at market value. Utility companies buy these credits to meet state energy guidelines. For example, Massachusetts aims for 35% renewable energy by 2030, with an additional 1% each year thereafter. Illinois targets 50% by 2040, and Maryland seeks 50% by 2030. Renewable portfolio standards vary and are state-specific.


For landowners in states with ambitious Renewable Portfolio Standards, it's important to know these guidelines can significantly boost land value as green energy demand rises and land becomes scarcer. If your property is in a state without these standards or incentives, it doesn't mean it's unsuitable for solar leasing. Renewable energy projects benefit from economies of scale, and incentives allow for smaller farms in pricier locations.


Despite no renewable portfolio standards, Wyoming, rich in wind resources with over 3,178 MW of installed capacity by the end of 2022, highlights the potential value increase for landowners in states like Wyoming and Montana. Keeping up with Renewable Portfolio Standards developments can enhance land value for solar leasing.


Places like Wyoming, Idaho, Nebraska, and Montana can generate renewable energy economically already, it is just a matter of transporting it to where the demand is. If things were to change and incentives hit these areas of the country (or increased incentives on a national scale) the value of the land would skyrocket.

Renewable Energy Certificate (REC)

A Renewable Energy Credit (REC) is a certificate proving electricity was generated from renewable resources. Each megawatt-hour of electricity produces a REC, traded in the market like commodities. The REC's value varies by state, depending on local laws requiring utilities to obtain RECs or face penalties under Renewable Portfolio Standards.


Market demand and regulatory frameworks primarily drive REC values. In states like Massachusetts, strict regulations boost REC prices by mandating utilities to acquire them, avoiding fines. Limited land for wind or solar projects in Massachusetts, unlike Nevada, makes RECs more scarce and valuable, priced at $260/REC in Massachusetts compared to $4/REC in Ohio. As regulations evolve, states like Illinois and North Carolina are starting REC programs, influencing prices. For instance, the District of Columbia sees REC prices over $420 due to limited land.


Property owners in states with REC markets, including Massachusetts, New York, New Jersey, Maryland, Pennsylvania, Ohio, Illinois, and most western states, must understand how REC volatility affects their property’s renewable resource value to market it effectively.

Performance-based incentives (PBIs)

Known as production incentives, PBIs pay based on the energy a renewable system generates in kilowatt-hours (kWh). An example is the “Feed-in Tariffs” (FIT), which guarantee a fixed payment for electricity produced from renewable resources for a certain period. This electricity is sold to the utility at a set rate, often higher than the market price.


Feed-in Tariffs help in residential and commercial projects by offering a fixed rate for electricity, aiding in financial planning and project economics. For instance, Rhode Island and Vermont have Feed-in Tariffs offering $151/MwH and $130/MwH respectively, compared to the $30-$40/MwH average on competitive markets. Mississippi also has a program offering $35/MwH.


Property owners near high-energy consuming businesses can benefit by selling electricity directly through negotiated power purchase agreements at rates higher than retail electricity prices, offering a more profitable but less common option.


Property owners need to recognize potential high-energy consumers nearby since selling energy directly to them can be very attractive. On average, retail electricity costs about $100/MwH, while wholesale is around $38/MwH.

Sales Tax & Property Tax Exemptions for Solar Rights:

Many states have enacted laws exempting solar and wind equipment from sales and property taxes. This can lead to significant savings for wind or solar farm projects, which usually cost tens of millions. Taxes could add 5-12% to project costs. For example, buying $10 million worth of solar equipment in California would normally incur a 7.25% sales tax ($725,000), but the state has waived sales and use tax for the solar industry in support of renewable energy goals.


Property owners should understand the economic benefits of these incentives before leasing land for solar farms, as they can significantly increase the land's value. For instance, Colorado has also eliminated sales, use, and property taxes for renewable energy projects.


In essence, until solar and wind energy become more technologically and economically self-sufficient, a piece of land's value is often tied to the financial incentives from state and local governments, its size and location, and its closeness to high-energy demand areas and electric infrastructure.


LandGate helps landowners access the data necessary for determining their land’s value for a solar farm lease for free. How big of a solar or wind farm is buildable on my property? What is the going rate of wholesale electricity in my area? What financial incentives or goals are offered in my area that make my property attractive?


All of these questions boil down to “what are my resources worth,” and LandGate’s free property report helps answer all of these questions by providing a simple to understand market value lease estimate based on the most important facts that developers look for as they plan new projects:




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