Let's talk about buying land and lease for solar development

[Yi C.]

I have been checking into this idea - find vacant land, determine it's general suitability, find developer and sign the option to lease. I found there's not too much people talking about this idea here so I want to open this topic. I'd like to share some of my thoughts and hopefully I can get useful insights and connection with more people in the forum.

Just to disclose - I am not a professional in solar industry and I might be wrong. So please take my words with grain of salt.

1. Solar farm land lease is generally very profitable, provided you find right place, right price and it went through. That's why many farmers/landowners are willing to sign the lease. Plus the developer will take care of maintenance. You don't have to worry about plumbing, bad tenants, fixing issues. 

2. However, solar farm also come with huge risk in development. What I heard is about 50%+ of the option will not go through. There are many things we can't control even if we did our best due diligence. That's why developers sign the option with landowner, so they can leave if things go wrong. This should definitely put into consideration and have some exit strategies if it failed. 

3. As of now, many potential sites were either identified by broker/developer or too expensive to acquire. However if you are lucky you might still find some places suitable for solar farm and yet to be noticed, especially after the increased interest in community solar. It allows smaller lots to be considered. Here are some factors to be considered.

Interconnection - This is a very deep topic and biggest risk to the project. That's where you might find information about "distance to substation" and "capacity". You can try to check if utility companies have such information to help you understand the the site. However sometimes these information might not be correct and you should really do your DD on this. Exception happens (for example, a project built miles away from substation) but in general you'd like to maximize the chance to success and best to avoid the risk factors.

Land - Generally it should be at lease 20 acres. But it will be complicated by different factors such as flood zone, topology, conservation area, easements, access to roads and more.

Zoning - check the code and check site zoning. Also you can check if the place has additional requirement to solar farm construction.

Policy - Federal grants, state grants, policies. Does the state allow community solar? Is there incentive/grants available for this site?

There are things I didn't mention such as process of buying land, negotiating the lease, insurance. I will leave these topics later if I got chance and focusing on project development here. Overall I would treat this investment as a high risk gamble and willing to accept loss if it failed but It's also a very interesting process to understand how the industry works.

[Chris Martin]

@Jay Hinrichs pinged me so I am posting. Note that my experience is limited to NC, SC, VA jurisdictions, so keep that in mind when reading this or my other posts about solar.

Regarding "Solar farm land lease is generally very profitable," on the east coast at least, that is not necessarily true. There was a time, briefly (a few years), about a decade ago when some prime solar farm site owners signed favorable LTLs (Long Term Leases.)

Regarding "...about 50%+ of the option will not go through." The real numbers, per the U.S. Department of Energy under Contract No. DE-AC02-05CH11231, are not great: "Only ~20% of projects (14% of capacity) requesting interconnection from 2000-2018 reached commercial operations by the end of 2023. Completion rates are even lower for solar (14%) and battery (11%) projects."

Regarding Interconnection, keep in mind (same reference as the above link) "The typical project built in 2023 took nearly 5 years from the interconnection request to
commercial operations." Also, for ground-mount systems, most developers require 200-300+ contiguous acres, a relatively flat parcel, no wetlands or endangered species, and three phase power line access adjacent to the property. For distribution connected projects, the property needs to have close proximity (ideally adjacent) to a utility substation. Larger projects (e.g. 50MW+) generally interconnect with the transmission operator facilities, so you'll need transmission lines close by. For example, on Duke Energy's Warsaw site, collectively 87.5 MW, the developer built a new substation off Penny Branch Rd. since the generation facilities exceeded the existing distribution capacities. On Google Earth, use the two dates 4/2017 and 1/2018 to see the build-out. (Google Maps location)

I'm not sure what the "wholesale export rate" means. In general, developers will model revenue with SAM or an equivalent tool for non-dispatchable production. I am most familiar with fixed rate PPAs with rates that change by season (monthly summer, winter, shoulder) and time (hours on-peak, off-peak). The wholesale electric rates depend on location and time-of-day in 5-minute intervals. Wholesale rates generally average $0.02 to $0.05 per kWh.

Most west coast IPPs deploy solar with energy storage systems (ESS) to time-shift out of the low to negative margin day rates. The CAISO (California ISO) real time markets routinely go negative in summer from 10AM to 2PM (solar peak time), meaning the customers with non-dispatchable roof-top solar will be charged for putting solar onto the grid. During solar peak time, the CAISO market also routinely sees generation from renewables exceed the total grid load, which is quite incredible. See https://www.gridstatus.io/live for the real-time grid monitoring, status, and rates.