10 Things Farmers Need to Know Before Signing a Solar Lease

It is an exciting time for energy companies and solar activity in Illinois following the passing of the Future Energy Jobs Act (FEJA). The 2016 Act has created lucrative incentives, and solar developers wish to work with you, so their company can generate solar renewable energy credits, (SREC’s) that will be sold to utility companies. This program is about to open in Illinois, and developers have been working hard to find the best plots of land to develop so they can keep the cost of interconnection to a minimum, and ultimately keep the grid running as efficiently as possible. There are certainly better pieces of land than others, and if you own one of the desired parcels, have been approached by multiple developers, they are likely wanting you to sign a long-term lease.

Before signing an agreement, there are several important factors to consider.

Farmers considering a solar land lease should be thinking about their land’s current and future uses and values. Land leases for solar fields generate more revenue than traditional crops and provide a steady and predictable stream of revenue for twenty years or more, removing the risk we typically have with crops. Leasing land for a solar array shifts the operations and maintenance of the land from the farmer, to the solar company. This means that revenue increases while input costs and labor decreases, freeing up time for other chores.

A community solar lease is determined by two factors. First, the solar company has an agreement with the utility to provide energy for a set amount of time. Second, financial investors of the project usually require back-end options after the initial term, because solar arrays have long term value, and can generate value well past the first 15-20 years. This is why you will see multiple 5-year options on your lease terms; a detail to ensure you understand and are comfortable with.

Additionally, the time between signing a lease and the construction of the solar array can vary widely, ranging between a few months and a few years. Solar developers are often required to get land use approval from the local zoning board and this process is key to the overall project. Without it, the project likely comes to a halt.

Farmers should be aware that the solar company must provide sufficient access to the solar array, and that typically involves construction of a gravel road from the nearest public right-of-way. By law, the array must be accessible for emergency purposes, so if a road doesn’t exist, developers must pay for, and build one. In addition to the access road, solar companies are responsible for surveys, environmental reviews, interconnection agreements, and various other requirements before a project can legally begin.

Typical Steps and Timeline for a Solar Array:
• Site identification and lease negotiation, lease signed (0-3 months)
• Development period (1-3 years)
• Construction period (3-12 months)
• Operations period (15-25 years, plus options)
• Decommissioning and site restoration (3-12 months)

Solar companies must have an agreement with the utility company to connect their solar project to the energy grid, so farmers should know if the solar developer already has received this permission, or if the developer is leasing the land in hopes of gaining permission in the future. In either case, the land lease agreement should clearly provide provisions allowing for the termination of the lease without penalty if the developer does not receive this permission.

Solar developers should have a plan to remove the solar array when their agreement with the utility ends. Because solar equipment is designed to operate for many decades, the residual value of the components combined with the salvage value of some of the aluminum, steel, and electrical wiring parts, means that the overall value of the equipment is anticipated to be greater than the cost required for a contractor to remove the equipment. In some cases, a bond or other form of guarantee to account for equipment removal should be considered.

Finally, all farmers should consider hiring an attorney before entering into any long-term contracts associated with their land. While solar energy land leases are becoming more common, not all lawyers are familiar with their structure. Finding a lawyer with renewable energy experience will help both parties quickly come to terms and begin developing the project.

Things to Know about your Lease:
• Length of lease and options to extend beyond original term
• Pricing: $/MW, $/acre, or flat fee as well as escalation percentage
• Land use approval process and permitting timeline
• Size of solar array, fence boundary, equipment and infrastructure needs
• Operations and Maintenance of array, inside and outside of the lease area, and any landowner responsibilities
• Utility and access easements
• Property tax implications and responsibilities
• Utility agreements and interconnection plans in place
• Decommissioning: bonds, guarantees, and salvage value vs cost to remove

For more information regarding renewable energy for your farm, contact the UpField Group. We are here to answer your questions and help you find solutions.
Mark.Inkrott@UpfieldGroup.com or 419-348-3830

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