Should I lease my land for solar?
Can I make money from my land?
Your land could be suitable for different kinds of solar projects. Reach out to us for a free assessment on whether your land is suitable for solar.
Many landowners across the US earn annual payments between $250 - $2000 per acre by leasing their land to solar developers. California has been the top state for solar, but Texas is a close second and is growing fastest now since permitting is easier, allowing quicker project completion. Our network of energy developers is strongest in Texas, but we have also implemented projects in New York, Vermont, Massachusetts, California, Arkansas, Colorado and several other states. Contact us to see if developers are interested in leasing your land.
Advantages of leasing your land to a solar developer
1) Stable, long term income that the developer will pay you, starting from when the developer is ready to build the solar project and starts construction. Landowners in some parts of Texas who worked with Telkes are now receiving between $500 - $750 per acre each year, resulting in a six figure income for those with 100 – 200 acres.
2) No risk or costs for you as the landowner. The developer invests in the project at his own risk and expense. Your lease income is guaranteed, regardless of the project’s performance.
3) Allows your land to recover if previous farming activities have used up soil nutrients. Solar projects have a lifespan of around 30 – 40 years.
4) Some agriculture is still possible, for example by allowing sheep to graze between the panels – this also clears the grass that grows around them and may allow you to keep any agricultural tax exemptions or loans that you currently have on your land.
5) You can still sell your land, as long as the buyer assumes the solar lease. In fact, your land is likely to become more valuable if a solar project is under development.
6) Contribute to energy security for your community. The project will be a cheap and renewable energy source that reduces dependence on fossil fuels. If the solar project also includes batteries to store energy, it will help improve your community’s resilience towards grid outages due to storms or moments of high energy demand.
Disadvantages of leasing your land to a solar developer
Telkes has helped many landowners earn money from their land through solar leases. Contact us to learn more. We understand that this process is a big commitment and can be complex. Although it can ultimately turn your property into a stable, long term source of income, there are some disadvantages:
1) Solar leases are multi-decade commitments. A solar developer needs the land to be available for 30 – 40 years in order to justify the multimillion-dollar investment in a solar project and have enough time to recover the investment and achieve a profit. Although your land will be locked into the project for a long time, this means that you will have decades of guaranteed income as the landowner.
2) Agricultural use will be limited since the solar panels will cover most of the land. Many agrivoltaic projects are able to combine solar with sheep grazing, but other kinds of agriculture are more difficult to integrate into a solar project.
3) Leased land cannot be used for construction. A solar lease does not allow structures to cover the land, since this would prevent a solar project from being built. If your land is a potential site for an industrial complex or a new housing development, its highest and best use might be for construction rather than solar energy. Most agricultural land is not suitable for such uses, so solar leases make sense.
4) Mineral rights holders have priority. If you only own the surface rights of your land and another party holds the mineral rights, the mineral rights holder will need to approve the solar lease, and will want to make sure that oil & gas or other minerals under your land are still accessible after the solar project is built.
Should I sell my land instead? Or is a long term lease better for me?
Land is illiquid – it might be difficult to sell for a good price. Moreover, you may have a long term family connection to your land and a solar lease is a good way to secure income without giving up ownership.
Selling your land will yield the most cash, but only if you can find a good buyer. Leasing land will allow you and your family to remain the owners of the land, and benefit in the future if it increases in value, while securing lease income that is guaranteed for decades.
Why are solar leases different from royalty payments
that apply when leasing land for oil and gas drilling?
Some landowners have experience with oil and gas leases, which have different payment structures than solar leases. Oil companies normally pay landowners as follows:
- Royalty payment based on a percentage of the produced oil and its price on the market, normally a benchmark such as West Texas Intermediate (WTI) Crude for oil and Henry Hub for gas production. This payment will vary significantly based on the following factors:
o Fluctuations in oil or gas price, affected by global markets
o Changes in production of wells drilled on the property: some wells may offer high production for many years, while others may taper off or run dry relatively quickly, especially if they are fracked wells
- Lease bonus as a onetime payment that the mineral rights owner receives for signing the lease with the oil company
Solar leases are structured differently: they are most often a flat rate that is escalated annually with inflation, such as:
- $700 per acre, per year, escalated annually by 2%.
- In this example, a landowner who leases out 200 acres will earn $140,000 during the year when the lease starts, and $142,800 in the second year, $145,656 in the third year, etc.
The advantage compared to an oil lease is that the payment is guaranteed, regardless of any of the following factors:
- High or low electricity prices
- Changes in electricity production due to weather or maintenance on the project
No changes in the solar project’s performance will ever affect the lease payment, which makes this a very stable source of income.
Can I lease my land for a solar project if I don’t own the mineral rights?
Yes – as long as you reach an agreement with the mineral rights owner.
Another key difference to keep in mind between solar leases and oil leases is that oil and other minerals underneath your land belong to the mineral rights owner, while anything that occurs on the surface (such as farming, installing solar panels or building other structures) is determined by the surface owner.
Landowners who own both surface and mineral rights are free to do anything they want with their land. If there is a realistic possibility of oil or gas drilling in the future, the landowner may want to keep part of the property accessible to allow space for drilling.
Very often, landownership is split: the mineral rights are owned by a different owner than the surface rights. The Bureau of Land Management and the Texas Railroad Commission have more information on how surface and mineral rights affect land ownership. The key takeaway is that mineral rights predominate: the owner of the mineral estate has the right to use the surface to the extent necessary in order to access the mineral rights. The mineral rights owner must retain the ability to carry out the following operations (even if structures are built on the land surface):
- Conduct seismic testing
- Drill wells
- Freely access the site
- Maintain and use access roads
- Use surface and subsurface water for drilling operations
- Install pipelines and other production facilities
This means that the owner of the surface rights should ask the mineral rights owner to approve a solar lease. In practice, the mineral rights owner will want to ensure that a large enough portion of the land is set aside for drilling operations. Through deviated and horizontal drilling, wells can access oil and gas that are not directly underneath the drill pad, so mineral rights owners will normally allow the surface owner to lease the land to a solar developer, as long as a portion of the land is still available for a future drilling rig.
Contact us to learn more about solar energy.
LEARN MORE
How valuable is my land? How to negotiate a solar lease
How can I make money from my land? Grid interconnections needed for solar
Leasing my land: Oil, wind or solar? Or all of the above?
Texas land use past and present: how solar fits in
Case Study: A Texas Landowner who found a solar lease that allowed him to retire
Tell us about your land, so that energy developers can propose a solar project on your plot. Make money from your land and make the world more sustainable.
