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How Do Solar Leases Work?

photograph of solar panels with transmission lines in the background

Solar power is a rapidly growing source of renewable energy development in the United States. According to the U.S. Department of Energy, solar energy is the fastest growing and most affordable source of new electricity in the country. Solar technologies convert sunlight into electricity through photovoltaic (PV) panels or through mirrors that concentrate solar radiation (CSP). This guide will explain solar leases and what landowners can expect when leasing land for a solar farm.

Solar leases are long-term legal agreements between a landowner and a solar energy company. The property owner grants the solar developer the right to install and operate solar panels on their property. Then, the developer typically sells the electricity generated by the solar panels back to the utility company. The landowner receives lease payments from the solar developer in exchange for allowing the use of their land.

How do landowners get paid for solar panels?

The solar energy company compensates landowners for allowing them to place and operate solar panels on their land. The amount of these payments varies across the United States depending on the solar company and the lease agreement itself.

Solar lease payments for solar projects can adopt various payment structures. Most solar payments pay on a per acre per year basis without royalties. The amount of these payments typically rises from 1-3% each year, which is referred to as the escalator. Solar lease payments are completely negotiable with the solar developer.

How many acres do you need for a solar farm?

While there is no definitive answer to this question, utility-scale solar farms generally require parcels over 30 acres. Community solar farms do not require as much land as utility solar farms and can be constructed on 5-10 acres of land or less.

As solar developers evaluate parcels of interest, acreage is not the only consideration. They also consider proximity to electrical infrastructure, such as substations and transmission lines. The closer a property is to electrical infrastructure, the more attractive it is for a solar farm. Other considerations include exclusion zones, local clean energy incentives, and more.

Using LandGate's free property report, landowners can receive a free solar lease estimate for their parcel. This calculation accounts for the above factors and more!

What is the process for leasing land for a solar farm?

Once a landowner has signed a lease agreement with a solar developer, the developer will do their due diligence to ensure that they can begin construction. From there, the solar project will begin production.

  1. Development phase: Also referred to as the option period, this is the 2-6 year term that gives the solar developer the exclusive right to construct solar panels on your land. During this term, the solar developer obtains the necessary permits, acquires financing, conducts feasibility studies, and more to ensure that they can begin construction. The developer pays the landowner a modest amount (usually from $10-50 per acre) during this time.

  2. Construction phase: As the name implies, during this period, the solar developer constructs the solar panels and the supporting infrastructure. This phase could last anywhere from 2 to 5 months depending on how many solar panels turbines the developer plans on implementing.

  3. Production phase: This is the phase in which the solar farm is fully functioning and generating electricity. This phase can last for 20 years or longer, depending on the lease. The typical solar farm lease length is 25-30 years. Many solar leases include options for the solar developer to extend the lease by 5 or 10 year increments.

  4. Decommissioning phase: Unless the solar company moves forward with any options to extend the lease, the solar panels and supporting structures are removed from the property, and it is restored to its original condition. The developer is responsible for the restoration of the property to its original condition pre-lease.

While the solar energy facility is operating, landowners may be able to simultaneously graze livestock and cultivate crops on their land. Landowners might also face restrictions preventing specific activities on their land, such as building obstructive structures that block the amount of sunlight that reaches the panels.

In some cases, the production phase does not last the full term of the lease. For example, the solar developer may go bankrupt. In these cases, the solar farm may be sold to another developer, who would take over the lease and continue operating the project as planned. This means that there is a potential for gaps in the lease payments, but the developer who purchases the solar farm would be responsible for any back payments. For that reason, many landowners choose to sell their solar lease payments for a lump sum up front to mitigate this risk.

How can landowners lease land to solar developers?

Landowners can list their land for lease for solar farms for free on LandGate's online marketplace. Solar developers use our data to find parcels of interest and plan/ manage their projects. The first step is to find your land on our map and receive your free property report. Publish your free listing today!


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