Are solar farms the new “it” industry? With renewable energy and limited natural resources such a hot topic, the solar industry proves itself as one of the fastest growing markets today.
Capitalizing on the forecasted success of solar farms allows investors to build wealth in multiple ways with minimum barriers to entry.
Solar farms are just one of the many ways to profit from vacant land, but the question is, how do YOU fit in?
- What is a solar farm
- How do solar farms work?
- Are solar farms profitable?
- Should I invest in solar farms?
- Buy or Lease land for solar farm
- Renting or selling land to solar farm developers
- What affects the rental price of the land of solar farms?
- How to start a solar farm
- Land requirements for solar farms
What is a solar farm?
In the simplest terms? A solar farm produces electricity. Instead of growing plants, they plant solar panels. And instead of a grocery store or farmer’s market, the farmer sells the electricity to the utility companies that supply electricity to the grid.
Some households and businesses have rooftop and backyard solar panels. These panels use photovoltaics (conversion of light into electricity using semiconducting materials). In keeping up with our earlier analogy. The difference between these rooftop panels and a solar farm, is the difference between a garden and a farm.
Solar farms are power stations that employ many massive solar panels. These power stations convert, store, and distribute electricity to to the electrical grid. Instead of solar panels placed on the rooftops, they attach to stands on the ground in rows. They take up between 1 acre and hundreds of acres. And they have the power to “light up your life”, in ecologically sustainable ways.
The United States stays ranked 2nd in the solar power market behind China. Now, compare that information with the fact that less than 2% of our electrical grid comes from solar power. Add to that, the fact that most states have renewable energy initiatives, funded and pushed by the government.
Let’s take California for example. The home of the largest solar farm in the world until 2015 when China took the title from them. California alone has legislation that requires the state to get 100% of it’s power from zero-carbon sources by the year 2045. And at least 60% has to come from renewable sources by 2030.
That actually makes the solar farm sector one of the single most legally required businesses in America (perhaps the world).
How do solar farms work?
The basic building block of the solar farm, is the solar cell. It’s a small electrical device that converts a small amount of sunlight into electricity, also called a photovoltaic cell. These devices, made out of silicon, usually perform 2 tasks.
- Creation of electrical charge from sunlight
- Separating that charge so that it can be distributed.
These solar cells are wired together on a panel and mounted on stands. Then placed on the ground. Massive quantities of solar panels are connected, covering acres of land. These arrays are connected to the electrical grid and sell their electrical output to the utility company where it is distributed for use to neighborhoods.
Are solar farms profitable?
Yes, solar farms can be extremely profitable! With the profits that come from the actual sale of electricity, coupled with tax credits, deductions and legislative incentives, the profits are looking good.
Additionally, solar power is never going to “go out of style”. The market will always be there, as long as we require power and have a sun.
What is the solar farm profit per acre?
A current report shows the average profit from a solar farm is $21,250 and $42,500 per acre. You can compare that to the profits of specialty farms (lavender/willow/etc) who profit approx 40,000 to 54,000 per acre or even the profits for growers in the cannabis industry.
But when added to the fact that a solar farm is employing fewer laborers (therefore fewer likely workman’s comp. claims, the profits can be considerably higher.
The amount of profits will differ, depending on the role you take. You can be the owner of the land as well as the owner of the solar farm. Alternatively, you may decide land ownership isn’t feasible and lease someone else’s land and operate your solar farm from their property. Or the third option, you can make money with your own vacant land and rent/lease to solar developers.
How much does a solar farm cost?
The cost of a solar farm is measured in dollars per watt. To understand how much it costs, you must first know how many watts it can produce. For households and businesses, a rooftop solar setup can cost around $3 to $4 per watt. On the other hand, a much larger scale solar farm can cost approximately $1 per watt.
This difference in price per wattage is because of the proportionate saving in costs gained by an increased level of production. (Also known as economies of scale).
As an example: It takes approximately 1/2 MW (500,000 megawatts) to power 100 households. For a solar farm that large, it may cost $1 per watt. That’s $500,000 dollars, which is still cheaper than the average cost of any other utility powering the same amount of households.
Should I invest in solar farms?
I would say absolutely. But that’s with the knowledge that there are many ways to invest in solar farms. You don’t necessarily need to build a solar farm or even buy one to enjoy residual income from this growing industry.
Different ways to invest in solar farms
- Invest in stock options offered by publicly traded solar companies. The Nasdaq reports that ” The Invesco Solar ETF, an exchange-traded fund that holds more than 20 solar-focused companies, has surged more than 50%…” According to the reports, the hottest stocks to buy in the solar industry are Con Edison (A utility company), First Solar (solar panel manufacturer), and NextEra Energy ( Yieldcos).
- Crowdfunding. Not all solar developers have the funds to fit their vision. They need investors to foot the bill of the initial development costs. Imagine splitting the costs between 50, to 100 or more people. That ends up being a relatively small investment on your end with potential profits that far exceed what you might have expected. There are multiple crowdfunding sites to explore to find out which ones are right for you.
- Renting or leasing your own land. The perfect piece of land isn’t always for sale. You may have vacant land just lying around costing you in property taxes. It might be perfectly suited to collect a passive income from. You can lease or rent your land to solar developers. With the right contract, and the right developers, you can make that land pay for itself with leftovers.
- Solar Bonds. It is entirely possible to buy solar bonds that are backed by solar leases. Even a $1,000 investment can get you involved in what is being called a revolutionary form of investment. Don’t forget that Elon Musk invested $90 million into solar bonds. Do your research to discover whether solar bonds are a good investment for you. There are risks to go with those rewards, so be diligent.
Buy or Lease land for solar farm
Are you looking to start a solar farm? You may be considering whether to buy land or to lease it. Obviously there are pros and cons to both avenues. And only you can decide what is best for you.
If you buy the land, you don’t have to worry about dealing with a landlord, or making payments that could cut into your profits.
But if you buy the land, you are responsible for all financial and legal obligations. From potentially high property taxes to the additional initial costs. You may have only spent $250 per acre to lease a property. But buying it could cost exponentially more. And what happens if you decide that moving your solar farm to a different area would be more profitable? Maybe a different state has just increased their tax credits for renewable energy. Maybe the state you are in has increased the taxes on rural land or solar farming.
Leasing however, allows you to pay considerably less upfront. A contracted amount is paid to the landowner and you have the freedom to profit.
Renting or selling land to solar farm developers
If you are looking for a large sum of cash to fund your next investment or just don’t want to deal with the headaches, you can sell outright. This can help you avoid any issues that arise if the company goes out of business and leaves you with a large acreage of unused solar panels, wiring, and concrete footers (timely and expensive to remove). On the other hand, you won’t be able to capitalize off the passive regular income.
You can choose to lease your land to solar developers and collect a regular check. As the market grows, especially if the company you lease to becomes more profitable, you may be able to increase your payday.
Additionally, once the lease has expired, if you now find you have a full acreage of solar panels, you can decide to sell later and command a higher price to a different solar developer with the benefit of having the installation already done for them. All they would have to do is come in and maintain them and cut your checks.
You even may decide that you would want to get into the solar developer career now. And look, you’ve got the entire set up ready for you!
The other side of leasing for solar farms
The flip side of this arrangement is the risk that the company may go bankrupt. Although, you can always hedge against this by insisting in your contract that they provide certain provisions to make sure you aren’t left with any costly leftovers.
Also, leasing your farmland to a solar developer could cause the land to lose its Current Agricultural Use Value status. This translates to a much lower tax bill.
And let’s not forget the other hassles that come with being a landlord. Namely, relying on someone to do what they said they would do, like pay you. Obviously, there are legal ways to recoup any losses and you can always go through the courts, but not everyone wants that type of headache. Do what’s best for you.
What affects the rental price of the land of solar farms?
The average rental rate per year (PER ACRE) is $300 to $2,000. There are several factors that will affect how much it costs to rent or lease land.
The size of the solar farms
Obviously the rental cost for a larger solar farm may be higher altogether. But what many people don’t understand is that a smaller solar farm may have a higher rent per acre price. The reasoning behind this is two-fold.
Smaller solar farms are usually located closer to previously existing substations. That makes the smaller tracts of land that they may rent, even more valuable. Many can’t afford the exorbitant upfront costs of building a substation, so it is an inventive to pay higher rent to be located close to one already constructed.
The second, is landowner resistance. There is a certain risk to leasing, especially since the construction is so time consuming, that a landowner is unwilling to to rent without the promise of a juicier payday. And though the process is time consuming for both large and small solar farms, a smaller solar farm is more likely to garner resistance and must make up for it with better incentives.
Locality and Land Use
Like everything else, it’s all about location. Land in one state can cost 20 times that amount in another state. Similarly, land in one county can be equally priced in comparison to land in another county.
The proximity of one plot of land to an urban city could increase it’s value, compared to a larger plot in the middle of nowhere. The USDA has reports that show that the cost per acre according to state for agricultural land.
Even the previous use of the land can affect the price. Irrigated land is worth more than non irrigated land. Having it’s own water source to aid in maintenance will increase the value. Also land with utilities or near them is more valuable than land without.
Supply and Demand
A factor that goes along with the locality of the land is it’s supply. In areas where qualifying land is rare, the cost is likely to be higher than in areas where the land is plentiful. Why? Because the market is wide open in limited areas where there isn’t as much competition. Where there is a low supply and a high demand, there will always be a high cost.
Competition
The supply of land and price of the competitor will directly affect your rent pricing. If the supply of the land is low and the competitors are paying a certain price, you may be required to pay a higher price to join the competition. Alternatively, if there is a large supply of land and multiple competitors, as a landowner, you might be required to accept a smaller amount to avoid losing out to other landowners.
How to start a solar farm
Every good venture starts with a plan! A business plan to be exact.
In order to build the proper plan, you have to think of several factors.
How big will you go?
A solar farm can range between a few acres to thousands of acres. It’s up to you to decide what the appropriate size solar farm would be.
Financing
Where will the money come from? There are many options to gain funding for solar farms. From public and private loans, to crowdfunding, to receiving grants, there are multiple ways to fulfill your financial requirements.
Where’s the plug?
Where is the closest utility connection? Substation? Will you have to build your own? How will electrical connection work?
Maintenance for solar farms
Is there a water source? Is the land irrigated? How exactly are you going to maintain those solar panels and protect them from nature and wear and tear?
There are some basic legal documents that you may be required to have in order to start your own solar farm:
– Business plan
– Certificate of incorporation
– Non-disclosure agreement
– Memorandum of understanding
– Operating agreement
– Employment agreement
– Insurance policy
– Operating agreement of LLCs
– Company bylaws
Land requirements for solar farms
Obviously, the size and acreage of the land is a key factor, but we’ve already discussed it before, so let’s skip ahead to the other requirements.
Sunlight
However obvious this may seem, it is also a key factor when searching for acceptable land. The amount and quality of sunlight isn’t the only factor though. The length of the average day plays a part. Is the area free of hindrances that could block the sun? (i.e. trees, etc).
What’s the soil like?
Both rocky, craggy dirt, as well as swampy mud fail the test. The soil should be free of encumbrances and as level as possible. Interestingly enough, no one build solar farms on the slope of a mountain.
Is there a nearby connection?
There’s no point in building a beautiful solar farm if there is no substation or connection to the grid nearby. Especially, if you can’t afford to build the connections yourself. So the land must be centrally located close enough to existing power structures.
Are Solar Farms for you?
Hopefully, we’ve provided as much preliminary information as possible to help you in your journey. However, we’ve provided many resources that you can study further to get the information you need. Happy wealth-building.