Landowner Leasing for Utility Scale Solar Farms

Introduction

Utility scale solar projects have been expanding across the U.S. due to a need for additional energy development, changing technology, and some encouragement through public policy. Landowners in some regions are being approached with exploratory offers to lease their land for solar development. Solar developers may be in contact with a number of landowners to see if there is sufficient interest and land area to develop a project. While most utility scale projects have been developed in the western and southern U.S., areas in the Northeast are also under consideration. Leases can provide extra income to landowners, but this leasing decision can affect the property for many years. Landowners should seek independent information regarding this decision and should strongly consider having an attorney review all documents before signing. Unlike conventional "net metering" in Pennsylvania, Utility scale solar development, (on a scale greater than 3 or 4 megawatts of capacity), is a wholesale power function. That means that these systems and the power that they produce are not regulated by the Pennsylvania Public Utility Commission (PUC). Instead these facilities are interconnected under the control of the regional transmission organization in PA called PJM Interconnect. The regulatory oversight for these projects generally comes from the Federal Energy Regulatory Commission or FERC. As such utility scale solar generation facilities are connected to transmission facilities at voltages greater than 100,000 volts.

Property Evaluation

A solar developer will usually seek permission to visit and evaluate a property to determine its feasibility for a solar project. Some of the evaluation may include consideration of the following items:

• Amount of land available: Solar development depends on enough quality acres (see below) to make it worthwhile. It may take up to 5 acres per megawatt of installed generation capacity.
• Proximity and access to high-voltage transmission lines (access to the grid): Cost effective interconnection to the wholesale electric power grid is a requirement to successful project development.
• Site Analysis: Qualified developers will perform a detailed analysis of the available annual solar resource, including a shading analysis, on any parcel of ground under consideration.
• Lay of the land: Utility scale solar projects require good southerly exposure on gently sloping ground. They create an opportunity to dedicate marginal farmland to an alternative use.

The conversion of quality farmland for utility scale solar projects, because of the length of commitment, is not recommended.

Lease Document

A lease document is a legal document. Landowners are advised to seek legal advice before signing any document.

The lease document for solar development often includes a number of items bundled into one agreement: an option agreement (their option, not yours), a lease agreement, and an easement agreement (allowing them to access and use your property for evaluation, construction, operations, and maintenance). Landowners should understand that an option is often tendered in favor of the lessee (company approaching the landowner). In other words, the option is theirs, not yours. The terms offered in each lease will differ significantly.

Questions to Ask When Approached About Leasing for a Solar Farm: Several issues should be spelled out in any lease. Some of the questions that you may want to ask include:

• What is the term of lease - how long? Solar ground leases can last between 15 and 30 years, with most lasting around 20 to 25 years, which coincides with the useful life expectancy of solar PV panels.
• What annual payment will I receive in exchange for granting the option to use this land for a solar farm (what payments will be made prior to the start of any solar project)?
• What annual payment will I receive during project construction?
• What annual payment will I receive when the project is operational? Are payments to the landowner a guaranteed fixed amount, or are they dependent on the variable market for electricity and/or renewable energy credits?
• Do I have the right to consider other offers after signing this lease?
• What rights will I have to access and/or utilize the land before and/or after the solar farm is built?
• Who will be responsible for environmental and legal compliance and any liability, fines, or other penalties that may arise over the life of the project?
• Who will be responsible for maintaining the site? Are there restrictions on what can be planted and where?
• What provisions are made for removal of the system at the end of the project's lifetime or if the project goes bankrupt?
• How many solar farms has the company (lessee) built?Where are they? Who can I speak to that now has an operating solar farm on their property?

Sometimes the solar developer will have unreasonable expectations, and sometimes the landowner may be expecting more than is practically possible. Regardless, the key to a successful outcome is to communicate clearly.

A Few Lease Document Cautions

In all cases, it is important to have the lease document reviewed by a competent legal advisor prior to agreeing to anything. There are many things that should be checked, and it is important to know that the agreement you are making is fair and balanced. Some issues that you should keep in mind during this process include:

• Verbal/oral agreements or understandings probably won't hold. If you are promised or told something that is not in writing, you may not count on it to be accurate or binding.
• Vague timelines: Grantors/landowners should have a written document that includes dates to describe when things are allowed to occur. This should include each step of the process/agreement. There may be differing timelines for you and the lessee(company trying to get your signature on the lease). Option Term, Exercise of Lease Option, Development, and Operations should each have firm start and stop dates.(It is important to note that these items may have different names in your lease document).
• Vague payment information: While most lease documents will list one or more terms of payments, those payment terms may vary considerably depending on the language of the lease. For example, an agreement may list a sum of $____ per acre but does not include how many acres this applies to. Language may also be present in the lease that gives delays and exceptions to payments being made. You might also question whether you are only going to be paid for land occupied by solar panels or other areas that will be used for fences, equipment, buildings, sheds, poles, access roads, and construction.
• Other things (besides solar panels) allowed on your property: This could include aforementioned fences, equipment storage, buildings, sheds, substations, power poles, access roads, construction, and other things. If it is not your intention to have some of these items on your property, you may wish to remove them from your lease. If they are allowable on your property, you may wish to spell out separate terms and conditions for their use.
• Termination of agreement: Many lease documents give the lessee several easy ways to terminate an agreement at any time. The lessor (you) usually doesn't have many options. When the lessee misses payment deadlines or otherwise does not live up to the language of the agreement, the lessor often has to provide written notice in advance.
• Warranty of title, other easements, other leases: Landowners should avoid a general warranty of title and only provide a warranty in respect to the title being good to the best of your knowledge.
• Confidentiality Clause: Not all leases will include this clause, but when it is present it restricts who you can discuss your lease with. You might consider negotiating this clause out of your lease before you sign. It may be beneficial to discuss this lease with neighbors and advisers to compare lease rates, terms, problems, and language.
• Use/Intended Use of Property: This language in the lease may severely restrict the use of part of the property by the landowner. Language in the lease may lead landowners to believe this restriction only applies to that portion that has solar panels, but as written, it may also apply to access roads, substations, buildings, equipment stored, and a construction zone that may be much larger than the footprint of the solar panels.
• Choice of Law Venue: Your lease may force you to handle all disputes in another state. You should include language that allows Pennsylvania law to govern and your local county to be the location where any legal disputes are adjudicated.
• Restriction of Future Leases: Your lease may preclude you from signing an oil and gas lease, farmland rental, timber agreements, or other leases/agreements.

Other Landowner Considerations

As you consider leasing your land for a solar farm, there are many things to consider, including:

• Converting farmland to solar – this is a long term commitment. Are you ready to make this dramatic change to your land's usage? How will it impact your life and the community around you?
• How much land and which land will be used(marginal farmland/prime farmland)? How will this affect accessibility and usability of any remaining land parcels?
• Zoning ordinances: Check with your township,borough, city, or county to ensure this is an allowed use.
• Farmland Preservation programs: In Pennsylvania,if your property is enrolled in Clean and Green,you may be likely to have to pay back taxes for up to seven years plus interest. In addition, your remaining property will likely not be eligible for Clean and Green.
• Other Tax Considerations: Your property taxes will likely increase with improvements (panels,buildings) to your property. Payments received for options and rent will be taxable under current laws.
• Mortgage/Future Borrowing/Future Value of your property: If you have a mortgage, you may wish to check with your lender before signing an agreement. The equity and value of your property could change with the addition.

Is My Region Economical for a Solar Project?

The amount of sun present in an area differs across Pennsylvania. Maps from the National Renewable Energy Laboratory (NREL) can show the expected solar yield in your part of the state.  The federal government's Energy Information Administration (EIA) analyzed and forecasted the growth in both retail solar PV and utility scale solar projects across the country through the year 2050. The expected increase in utility scale solar is significantly greater than retail solar capacity. As electricity generation transitions away from the use of fossil fuels, more land will be dedicated to solar PV. The natural tendency in the electricity generation industry is to build out from existing substation and transmission facilities for economic reasons.

Summary

Solar leasing is the process when a landowner sells the right to install and operate solar panels on their property. There are many details associated with these agreements, and they need to be fully understood before making any commitments. As a result, landowners are advised to learn and seek counsel before making a decision that could affect their property. There are potential financial benefits that can come from leasing land for solar development, and this opportunity could be worthwhile for many locations in the state. Disclaimer: This information is not intended to constitute legal advice. While efforts have been made to make this document accurate, we cannot guarantee its accuracy. Information changes rapidly; since this was written there may have been changes that affect the information presented.

This document was prepared by Dan Brockett, Extension Educator, Edward Johnstonbaugh, Education Program Associate, and Dan Ciolkosz, Assistant Research Professor.