When it comes to making passive income off their land through renewable energy leasing, landowners have many different resource leasing options. Leasing land for solar farms is one of the more popular routes property owners take for the long term benefits! If you’re interested about leasing your land for solar energy, you’ve come to the right place. The guide below will teach you everything you need to know about the solar leasing process.
What You Need to Know About Solar Leasing
Benefits of Solar Leasing
Turn your property into a solar energy land bank for the next generation.
Generate a steady, predictable income—that is insulated from market fluctuations associated with other types of land use—while your land’s value continues to appreciate.
Generate income from and increase the value of dormant land that otherwise would have gone unused.
Eliminate the need to sell off pieces or the whole lot by leasing it for income generation.
Eliminate the need to renegotiate a lease or find new tenants every few years.
Do your part in helping the U.S. economy transition to a cleaner, more renewable alternative.
You may not have to pay property taxes for the portion of land with the developed solar farm. Within the solar lease agreement, the developer can be made responsible for those taxes.
You can continue current farming operations on leased solar land. You can even grow new crops on leased land that doesn’t contain solar panels.
Livestock can graze under and around solar panels on leased land. Grazing can even help maintain grass length around the solar equipment, specifically the panels, getting rid of the need for mowing.
Calculating the Value of your Land for Solar Leasing
Accurately calculating the worth of solar energy on your land depends on several factors.
The size of your property
Whether your land is flat or hilly
The proximity of your land to a substation and/or transmission line
The available capacity of electricity of the nearest substation and/or transmission line
Whether your property is located inside a 100-year floodplain or on wetlands
How accessible your property is
What the supply and demand is for solar sites in your area
When it comes to getting paid for a solar lease, landowners typically receive $300 to $2,000 per acre in annual rent payments for a 25-year solar lease. These solar leases should allow rental payments to increase annually to account for inflation. The solar leases can be extended by an additional five to 15 years if desired. Solar land that is in high demand may also warrant a one-time signing bonus of $50 to $100 per acre.
Once you start receiving solar rent payments, they can be sold and provide you with a lump sum payment upfront rather than waiting years to collect all the earnings. Energy investors are the typical buyers of solar rent payments in order to add ‘green investments’ to their portfolio.
Before the development of the solar farm can commence, the Power Purchase Agreement needs to be completed. This is an agreement between the solar farm developer and a company wanting to purchase the electricity created from the potential solar farm. Once this is in place the investment in the solar farm will be placed and development can begin. The four phases that a solar project goes through after the lease has been signed are:
Development Phase: The development phase typically lasts one to five years and includes planning, permitting, and regulatory steps. The landowner can still use the leased land during this phase. The landowner will receive an annual rental payment during this phase, which will be lower than the rental payment received during the operations phase.
Construction Phase: The construction phase lasts approximately two to four months. During this phase, the operator installs the solar panels and necessary supporting structures on the land. At this point in the process, the landowner no longer has access to use the leased land.
Operations Phase: The operations phase lasts anywhere from 20 to 30 years and involves the generation of electricity. During a solar lease, landowners may still be able to perform certain activities on their land, such as grazing livestock and growing crops.
Decommission Phase: During the decommissioning phase, the operator will remove the solar panels and their supporting structures from the land—unless the lease has been formally extended. The operator will also work with the landowner to help restore the property to its original condition. This will allow crops to be grown or the land can be developed again.
How to Know if Your Land Qualifies for Solar Leasing
Does your land qualify for solar leasing? These are the requirements your land must meet to qualify.
Acreage: Most solar developers prefer land containing 30 acres or more. As time goes on, the amount of land used for solar leasing is increasing. The more acreage you have available, the more income you can make by leasing it for solar panel use.
Exclusion zones and buildable acreage: Not every acre on a plot of land is used for solar purposes. Exclusion zones include land that meets at least one of the following criteria:
- Poor topography
- Includes dwellings
- Located in a flood zone
- Located on a waterway
- Located in the wilderness
- Qualifies as a National Park
- Qualifies as a State Park
- Contains hazardous sites
- Contains NFS land units - Buildable acreage is the remaining land available for solar leasing after accounting for exclusion zones.
- Proximity to a transmission line, distribution line, or substation: Developers will have to pay more if the land is far from the electrical grid in order to connect it to the grid. Property that is adjacent to a transmission line, distribution line, or substation allows the developer to save on interconnection costs.
- Solar power incentivization: Land in areas where solar development is incentivized, including more tax incentives, is more valuable to potential developers.
Amount of sunlight: Contrary to popular belief, the amount of sunlight that hits your land doesn’t play a major role in its value for solar development. That’s because the factors listed above have a much greater impact on ROI than the amount of sunlight.
Determine Your Land’s Solar Value With LandGate
Are you interested in leasing your land for a solar farm? See how much your land is worth for solar development using LandGate's free property report. The above factors and more are used in this calculation to provide landowners with a full analysis: