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Is a solar lease a good investment?

On Behalf of | Aug 27, 2021 | Real Estate |

Solar energy has become more plentiful in recent years. Solar panels have decreased in cost and public policy has encouraged and subsidized its growth. With growth comes opportunity – and risk.

While there are many types of solar lease arrangements, agricultural land is common for utility scale installations, which are a popular method of farming solar energy. Individual households in the region buy shares in a solar farm, which a developer then builds on a large plot of land. While the developer may own the land, they often rent agricultural instead. Solar panels typically have a lifetime of 20-25 years, and they often seek leases of comparable length.

What are the terms?

A contract needs to appeal to both parties. For landowners, the first detail is often money. A solar lease is often above market rental rate per acre. On the surface, this seems to favor the landowners but there are many details that will play into the final equation. The landowner gains income and the developer gains land access for a long-term but impermanent period.

But like many farmers know, there is more to value than the land itself. Land use ultimately defines the terms. Easements are typically necessary for any project, which includes access, the conditions of maintenance and more. Solar farms typically produce large quantities of electricity – much more than rooftop residential solar panels. Consequently, they may be subject to different regulations.

Relevant lease questions include:

  • Exactly how much land will be leased and how will it impact neighboring property?
  • What is permitted on the property: machinery, storage, fencing, etc.?
  • Does this affect other aspects of the property: tax implications, conservation eligibility, zoning or loans?
  • What are the long-term effects?
  • What happens at the end of the term?

Compare against personal goals

Business and land use questions can be extremely difficult in any situation. While solar leases do not give up ownership, they last far longer than a standard vehicle lease and it can be difficult to project long-term plans that correlate to a new use of property and the ongoing business relationship that such a lease creates.

Relevant personal questions include:

  • How will this affect relocation?
  • What if the developer fails to uphold the agreement?
  • Can the lease be terminated?
  • Is there a confidentiality clause?

Long-term commitment

There are pros and cons to any agreement. The appeal of a lease is often its short-term benefits: no money down and a faster impact. In the long-term, ownership tends to produce more value than a lease, but ownership also involves maintenance and investment.

There are no guarantees with any investment, and solar leases are no exception. Landowners need to consider the benefits, but also their own personal and professional goals. A solar lease may provide an economic boost and a sense of civic pride. Depending on the scenario, it may also lead to significant changes on neighboring land that negatively affect the land value or feeling of home.

The length of a solar lease is a key characteristic. Many farmers can survive an ill-advised lease for a few years, but solar leases last nearly a generation. Every property is unique and every landowner has different goals for their land, their business and their family. It is important that any long-term contract carefully considers each of these factors.