As consultants to landowners here at LandVest, it is becoming more common to field questions regarding solar as an alternative land use and possible income generator. Solar is certainly a greener energy choice and an attractive source of property tax revenue for municipalities. There is no need for water, sewer or major road development. And it produces no noise, traffic, school costs, off gases or effluents. For these reasons, many towns look favorably upon these projects. But what makes a good solar site? What size parcels are developers looking for? Can I lease all or a portion of my property to a developer? In this blog we will address these questions.
What makes a good solar site?
Initial site considerations include size, exposure, zoning, and proximity to 3-phase power [1]. In order to carry power to the market, a site’s proximity to power is critical. Developers estimate that accessing power over ¼ mile from a site is not financially feasible. An ideal site is a cleared, non-shaded parcel that is zoned commercial or industrial within close proximity to 3-phase power. However, wooded parcels with slopes will also generate interest from developers as long as power and permitting requirements are met.
What size parcels are developers looking for?
Generally, a 1 megawatt (MW) system requires 5± acres of site area, which can power roughly 1,000 homes if designed efficiently. As of last year, Massachusetts had a maximum non-utility solar power production cap of 6 MW per project. However, a revised Department of Public Utilities rule change states that you can no longer divide a single parcel into multiple meters. The capacity limit is now roughly 2 MW for a private off-taker [2] and 2+ MW for municipal off-takers.
Can I lease all or a portion of my land?
Yes. From our perspective, we are seeing more ground leases [3] in the market as developers focus on project development and site selection over land acquisition. Market data for annual leases range broadly, but a typical lease is structured with the developer covering property taxes or some form of payment in lieu of taxes (PILOT). Lease terms vary with consideration given the project size and the entity buying the power.
What types of parcels have been successful?
We have seen completed projects on town landfills (Canton, Fairhaven, Greenfield), commercial/industrial sites, low-yield farmland, cleared wood lots, and rooftops.
How does the project sequencing work?
After a site is secured, the developer puts in a request to the utility company to gauge capacity and initiate an interconnection agreement [4]. Additional due diligence includes site design, impact studies, and performance models. The next step is signing a power purchase agreement [5] with the entity consuming the power – possibly a town, business, or institutions. If the solar project was sited on a dairy farm for example, the farm operation could satisfy their own energy demands from the solar generated on site and the excess power could then be distributed to an off-site user.
What offers more advantages to a landowner: Sale or Lease?
It depends on the landowner’s goal. Leases are typically 20 years (some with escalation clauses), so a landowner not only benefits from 20 years of income, but at the end of the lease term, the land reverts to its original use and is available for other land use options. In Massachusetts, the good news is that the Commonwealth has been very aggressive with alternative energy targets of 250 MW by 2017, and due to the success of market-based incentives, the ultimate goal is closer to 400 MW. As the installed costs of solar power comes down, landowners should consider the value opportunities of alternative land uses like a solar farms.
Some landowners may prefer to sell their property to a solar project developer and in some cases a developer will buy a site through an option agreement pending approvals. By sequencing the sale of a property with a lease in place, a landowner may receive a better overall return as opposed to selling land with no permits or entitlements. An example of this dynamic was achieved recently when LandVest sold the underlying land on a 6 MW operational solar farm in Salisbury, MA.
For more information on advisory services and investment opportunities in renewable energy and environmental assets, please contact Slater Anderson at 617-357-8990 or Sandy Olney at 617-948-8005 in the LandVest Energy & Environmental Asset Group.
[1] 3-Phase Power: Three-phase power is most common in industrial settings, or where more power is needed to operate heavy demand (load), though there are exceptions; most household loads are single-phase.
[2] Off-Taker: The purchasers of the power
[3] Ground Lease: A rental agreement for the use of land for development. The leases are set up with the landowner, or host, receiving annual payments from developers.
[4] Interconnection Agreement: An agreement between the project developer and the utility covering technical and practical aspects of connecting the solar panels to the power grid.
[5] Power Purchase Agreement: A long-term contract between the developer and the entity buying the electricity generated by the project.
