How Solar Leasing Benefits Landowners
- Yoann Hispa
- Feb 23, 2023
- 5 min read
Updated: Apr 14
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 long-term benefits! If you’re interested in 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.
Key Takeaways:
Passive Income: Solar leasing provides a steady, predictable income insulated from market fluctuations, enhancing land value without selling it.
Tax Benefits: Developers can be responsible for property taxes on solar farm land, reducing landowner expenses.
Land Use Flexibility: Landowners can continue farming or grazing livestock on solar-leased land, maintaining agricultural activities.
Long-term Agreements: Solar leases typically last 25 years with options for extension, offering long-term financial stability.
Environmental Contribution: Leasing land for solar supports the transition to renewable energy, contributing to a cleaner economy.
Financial Incentives: Landowners may receive annual rent payments and potential signing bonuses, with options to sell rent payments for upfront cash.
Land Qualification: Key factors include acreage, proximity to electrical infrastructure, and exclusion zones, rather than sunlight exposure.
How Solar Leasing Benefits Landowners
Solar leasing offers landowners a unique opportunity to generate passive income while maintaining flexibility in their land use. By leasing land to solar developers, landowners can benefit from steady lease payments and potentially reduce property tax responsibilities for the solar farm area. Additionally, solar leasing allows for continued agricultural activities such as crop production and livestock grazing, ensuring that the land remains productive even with solar installations. The benefits of solar leasing for landowners includes:
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 through a practice called agrivoltaics. Grazing can even help maintain grass length around the solar equipment, specifically the panels, getting rid of the need for mowing.
The Solar Leasing Process
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 Much Can I Earn By Leasing Land for Solar Panels?
Landowners can earn between $700-2,000 per acre per year by leasing their land for solar panels. However, this range is affected by various factors, including:
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 & Buildable Acreage: Not every acre on a plot of land is used for solar purposes. Buildable acreage is the remaining land available for solar leasing after accounting for exclusion zones. 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
Proximity to Energy Infrastructure: 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.
Energy Grid Capacity: The available capacity of electricity of the nearest substation and/or transmission line also impacts if a solar farm can be built on your and.
Whether your property is located inside a 100-year floodplain or on wetlands
How accessible your property is
The supply and demand is for solar sites in your area
When it comes to getting paid for a solar lease, landowners typically are paid for 20-40 years depending on what is negotiated in the lease agreement. These solar leases should allow rental payments to increase annually to account for inflation, which is referred to as an 'escalator.' 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 lease payments in order to add ‘green investments’ to their portfolio.
LandApp's free property reports can tell you how much you can earn by leasing your land for solar panels. This calculation accounts for your property's buildable acreage, proximity to energy grid infrastructure, and more:
