In the State of Texas, solar farm lease rates tend to vary exponentially depending on a vast range of factors, and different places will have different average land lease rates, therefore it is imperative to understand these factors when estimating a solar farm rental rate.
A solar farm is a large-scale solar PV project with the sole purpose of generating energy and sending that energy to the grid for distribution. Note that these farms can serve multiple purposes. They can be used for residential community solar projects, or on a utility-scale basis. Nonetheless, with the rising demand for renewable energy, solar developers are eager for suitable land to house these large-scale projects—and this is where landowners come in.
What is a Solar Land Lease?
A solar land lease is a long-term agreement, somewhere in the region of twenty-five years, and payments are made annually on a per-acre basis. Note that this payment rate is signed and agreed in the contract between the landowner and developer and it is expected to be a fair price for both parties. Since solar energy generation is consistent and predictable over time, fixed, per acre rental rates are the most common payment structure.
According to experts, this allows for a reliable revenue projection over the course of the lease period, and annual rent escalation is usually a part of the lease agreement, with rent escalation rates commonly between 1.5% and 2.5%.
Note that a 10 acre site close to a substation outside of an urban area with premium land prices might be vindicated for requesting $2,000 per acre. Even in rural areas of North Carolina or California, places where demand for small solar sites still remain high, rent over $1,000/acre would be common by a substation with capacity.
However, bigger tracts over 100 acres tend to rent at $300 to $500 an acre across Texas and normally around the $500/acre range across most of the Southeast. Note that these bigger tracts can garner upwards of $800/acre in Illinois, Virginia, and the Carolinas depending on numerous factors. Meanwhile, high priced, bigger tracts in California’s Central Valley often go for $1,000 per acre.
Nevertheless, just like it was stated above, the best deal would always be one that’s fair for the landowner and the developer and not one that puts either party at a losing end. Electricity is a commodity and the customers will always aim for the cheapest energy from among the reputable companies.
Factors that Influence Solar Farm Lease Land Rates in Texas and Other States
With renewable energy expanding across the United States, there is a lot of demand for large-scale solar PV projects. However, there are a number of variables that will determine lease land rates in the United States, and they include;
Size of the Project
Have it in mind that even in the same state, solar rent tends to be higher on small sites under 30 acres in contrast to bigger power plant projects amassing hundreds of acres. This has to do with electrical infrastructure and landowner risk and reward.
Supply and Demand of Solar Sites
Just like many other things, land rental rates tend to increase if the perfect sites are difficult to find at a regional level. Certain natural land constraints are known to restrict supply. For instance, Florida is renowned for wetlands and high insurance rates near coastlines, while Virginia is mountainous in the Western parts and then urban and coastal in the Eastern parts.
Another factor to ponder is how long solar has been around in the area. Note that in full bloom markets like southern California, the perfect sites must have been taken while excellent sites are more likely to still exist in growing solar states like Illinois or Texas.
Meanwhile, on the other side of the solar land market is the demand from developers for sites in an area, engineered primarily by the size of the market for renewable energy, electricity prices, and the cost to develop. According to reports, top states for utility-scale solar include California, North Carolina, Arizona, Nevada, Texas, Georgia, Utah, Florida, New Jersey, Massachusetts, Vermont, and Illinois although development is rapidly expanding across the entire country as solar prices decline.
Always note that the more buyers of renewable energy in the state – utility companies or big corporations like Wal-Mart or Google – the higher the demand for land. Aside from the ability to sell solar energy readily at a good price, developers also tend to care about their costs.
Note that the lower the development barriers, the higher the demand for land. For example, demand may be lower in California owing to the burdensome permitting processes and higher in the Southeast owing to cheap, non-union labor.
Price of Land and Substitute Uses
In the United States, the lower flanking 48 states amass approximately 1.9 billion acres. According to the USDA’s 2019 report on agricultural land prices, the average across the United States is $3,160/acre with a low in New Mexico of $570/acre and a high in Rhode Island of $15,600/acre; note that is a price variance of more than 20-fold.
Therefore, it is not surprising that there would be massive differences in solar farm lease prices throughout the U.S. because agricultural lands have always been a key target for developers. Even within the same state, the difference in land prices can be massive and might even have nothing to do with solar farms, but instead the more common uses of the property.
Experienced developers can easily estimate the profits a landowner can expect to make on their acreage in its current use. For instance, non-irrigated land will cost less than irrigated row cropland and a commercial timber operation in Georgia or cattle ranch in Texas would attract less than a California vineyard or tomato farm.
In general, solar is a higher value use for land compared to agriculture and therefore, most often, good business deals can be reached with solar developers even on the productive ground. Some exceptions to this may involve when land is right outside of a growing urban area.
Indeed, the fast expansion of solar energy production and the creation of solar farms across the United States are breeding a number of financial opportunities for landowners, and especially large landowners, like farmers. Solar farms are without doubt interesting for American farmers since solar farm profits can be far greater than traditional farming practices, especially in the right climates. However, owing to the complex nature and extensive length of these agreements, always consult an experienced attorney before signing a solar lease agreement.
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