Farming is a tough business: Expenses continue to rise, labor shortages complicate harvests and falling prices on certain products stretch profit margins thinner. Some agricultural landowners are being forced to look for alternative revenue streams to help make ends meet, and some are seeing light at the end of the tunnel by leasing their agricultural land to solar developers.
“No good numbers have been published, but the estimates we are aware of range from 7,500 to 10,000 acres of agricultural land in North Carolina have solar development,” said Paul Sherman, associate state legislative director with the North Carolina Farm Bureau Federation.
Landowners in other states from California to Texas to New York and points in between have been approached about installing solar arrays on their property in exchange for long-term leases. Dawson Singletary, a North Carolina farmer, told Bloomberg in 2016 that there wasn’t a single crop he could grow on his family’s land that would be as profitable as leasing the land for solar arrays.
While farming solar power may be more profitable and less labor-intensive, it doesn’t come without its own strings attached. Each landowner must decide if the agreement is a good one for his or her land. In this article, we’ll explain the basics of a solar array land-lease agreement and offer tips to consider before signing on the dotted line.
What’s a Solar Array?
A solar array is a grouping of solar panels wired together. Like the smaller solar panels used in residential settings, the purpose is to collect sunlight in lieu of other forms of electrical supply. Because a solar array uses multiple large solar panels, a decent amount of land is needed.
“For the general electrical generating size I have heard, 20 acres is required for the solar panels and related infrastructure,” says Stephen E. Hadcock, agricultural entrepreneur and market development educator for Cornell University Cooperative Extension.
Sherman agrees that the typical utility-scale solar facility in North Carolina uses around 25 to 30 acres. However, he notes that as the facilities grow larger, greater amounts of land are needed.
In exchange for the use of land, the development company leases the property. In New York, Hadcock notes that the average lease offered is 20 years with options for extensions. The lease length in North Carolina is slightly longer at the outset, 25 years with an option for five-year extensions.
This raises a big question: What’s the value of a lease?
“Price varies substantially,” Sherman says, depending on the area and the developer leading the project. “We are aware of proposed prices ranging from $400 per acre per year to $1,200 per acre per year. Prices have been trending toward the lower end of the range lately.”
Signing on for a solar array project can put the landowner on the hook for the ability of the company to work with them for up to 24 months or more before a possible project breaks ground—meaning before any rent changes hands. The devil is always in the details. And it’s the details that will help you decide whether or not such a lease is a good fit for your land.
What’s in a Proposal
As with all proposals—be it for wind energy, oil, gas, cell towers and so on—landowners need to research potential consequences to their property from undertaking such a project. At the top of the list, Sherman encourages landowners to request all the details relating to payment terms, length of lease, property tax implications, liability and land disturbance. The list of considerations covers a wide range of topics.
Development A solar array project requires two phases: development and production. The development happens before the array is constructed and can add two or more years to the length of the overall project.
Zoning Is your local municipality ready for solar? Check zoning regulations prior to signing a contract. Some municipalities are establishing moratoria on solar array development projects to prevent rushed development.
Infrastructure Even if your municipality has zoning, permitting and siting processes in place, the surrounding infrastructure may not be ready to handle the energy output from solar arrays.
Tax Penalties While a monthly lease fee seems attractive, landowners need to account for potential tax consequences. The installation of a solar array on farmland that is currently paying reduced taxes may no longer be eligible for the lower tax rate.
Tax Opportunities Converted land that loses an agricultural tax status may be eligible for other tax exemptions. However, town, county and school districts can opt out of the exemption, making their taxes full value.
Land Valuation Not only are tax exemptions in play, but so too are changes in real property taxes. Improvements to property may mean that your tax evaluation goes up. “If the land comes out of agricultural production because of the solar project, then there are property tax implications,” Sherman says. “This is one of the biggest issues that landowners need to consider when signing a lease agreement.”
Decommissioning Depending on the length of the lease and additional extensions, a solar array’s useful life extends decades into the future, possibly extending beyond your own. It’s important to understand who is responsible for any costs associated with taking the solar array off-line. “The decommissioning terms, meaning who is responsible once the solar array is no longer operating, are critical,” Sherman says.
Next Steps
There is still much to learn and consider about development leases for solar arrays. Many basic contracts start with a 20-year term and can allow for four possible renewals of five years, totaling an additional 20 years. Add in the nearly two years for development, and that can be a 42-year commitment on your land, and a lot can change between now and then.
To protect yourself and your land, Hadcock recommends that all farmers and landowners work with an attorney prior to signing long-term lease. “Doing so ensures there are adequate protections for the lessor,” he says.
Each landowner must decide for themselves if a solar array lease program is a good fit for their land. Before you sign the dotted line, get a lot of advice. Your state farm bureau, local cooperative extension and an attorney who is familiar with solar energy are all good places to start.
To Lease or Not to Lease?
Agricultural land owners across the country are being asked to consider leasing their farmland to development companies. The monthly income can be an attractive revenue boost to landowners who have property that is vacant or isn’t generating enough income through crops.
Leasing that land to a solar development company is a personal decision that is made based on a multitude of factors. We’ve put together a pros-and-cons list to get you thinking about whether or not it’s a good fit for you and your land.
There are many considerations to take into account, such as who is responsible for maintenance and how will development affect drainage and wetlands, among others. Contact your local cooperative extension agent, state farm bureau and an attorney to help you make the best decision for your land.
Pros
- Income Generator for idle or under-
performing land - Potential for Tax Credits Although land may no longer be eligible for agricultural tax credits, it may be eligible for green energy tax credits.
- Participation in Green Energy Initiatives It encourages solar energy on a larger scale.
CONS
- Long-term Commitment Lease can be a minimum of 20 to 30 years.
- Change in Tax Valuation Credits for agricultural ventures may no longer apply.
- Decommissioning Potential responsibility for dismantling equipment at lease conclusion may fall to you.
- Bad for Land It could have a negative impact on the wildlife habitats.
- Proximity and Access to the Power Grid Remote land may not be close enough to grid.
- Unknowns Solar development is still new in many areas, meaning zoning, ordinances, infrastructure, regulations and so on are emerging and changing.
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This story originally appeared in the November/December 2017 issue of Hobby Farms.
