What is the average solar farm lease rate?

Contractually fixed rental rates on a per acre basis are the most common structure for solar farm land leases.

Eric Allen, Strategic Solar Group

Solar Farm Land Lease Rates

In the right locations, solar is one of the most profitable uses of rural land. However, pinning down an exact figure of what land should rent for can be a challenge for landowners because of the wide range of data found on the Internet. The truth is that the United States is expansive with complex markets for power and so a straightforward answer of $300 to $2,000 per acre per year can be misleading without context.

Before getting into rental rates, it’s first important to understand the metrics common for calculating rent in solar land transactions and some high-level factors that impact the market. Royalty structures where the landowner shares in a percentage of project revenue are common in upstream oil & gas leases; however, solar energy production should be predictable and consistent over time. Therefore, contractually fixed rental rates on a per acre basis are the most common structure for solar farm land leases. This is a good thing for landowners as it makes the job of projecting lease revenue much simpler. Since utility-scale solar leases have terms from anywhere between 15 and 50 years (accounting for extensions), built in annual rent escalation is the standard. Rates should be near estimates of future inflation with average figures between 1.5% to 2.5% annually. Starting rent amounts per acre – both pre-construction and post-construction – vary widely by project size, land values and regional supply and demand of solar sites.

What Affects Solar Farm Rental Rates?

solar farm land lease rates

Project Size

Within the same region, solar rent is almost always higher on small sites under 30 acres compared to larger power plant projects spanning hundreds of acres. The major reasons for this have to do with electrical infrastructure and landowner risk and reward.

Smaller projects under three Megawatts generally benefit from having existing substations nearby. Purchasing new, expensive equipment to add a minor amount of energy onto the grid is not justifiable. This means smaller developers have an incentive to pay more for just the right piece of land – one where their interconnection to the grid makes sense. Another major factor in higher rents per acre on smaller projects can be summed up as landowner resistance. Whether someone is leasing 10 acres or 100 acres, there is a certain amount of upfront time required to get started and certain liabilities that are roughly equivalent. Many landowners are not willing to entertain construction on their property and a long-term solar tenant unless the financial reward crosses some threshold. This translates into higher rental amounts per acre versus large tracts.

Land Prices and Substitute Uses

The lower contiguous 48 states contain approximately 1.9 billion acres. At the risk of making an obvious statement, this is a mind-boggling amount of land that has tremendous variance in value and use. To put some numbers to this, let’s explore USDA’s 2018 report on agricultural land prices. The average across the United States is $3,140/acre with a low in New Mexico of $530/acre and a high in Rhode Island of $13,800/acre; that’s a price difference of more than 20-fold. It should not be surprising then that there would be big differences in solar farm lease prices throughout the U.S. since agricultural land is a prime target for developers.

Even within states, the variance of land prices can be large and mainly has nothing to do with solar farms, but rather the more common uses of property. Savvy developers will understand the profits a landowner can expect to make on their acreage in its current use and alter their offer accordingly. For example, non-irrigated land may go for less than irrigated row cropland and a commercial timber operation in Georgia or cattle ranch in Texas would warrant less than a California vineyard or tomato farm. In general, solar is a higher value use for land compared to agriculture and so, mostly, good business deals can be struck with solar developers even on productive ground. Some exceptions to this come into play when land is right outside of a growing urban area or valuable minerals like oil and gas exist beneath the surface.

USDA 2018 Farm Real Estate Value by State

Source: USDA; Click Image to Zoom In

Regional Supply and Demand of Solar Sites

Even if you never took Economics 101, you likely still know that the price of something goes up as it becomes more rare. Solar is no different and land rental rates increase if good sites are hard to find at a regional level. Natural land constraints can limit supply. Take, for example, Florida with wetlands and high insurance rates near coastlines. Or, Virginia where the western part of the state is mountainous and the eastern part is urban and coastal. Another factor to consider is how long solar has been happening in your area. In more mature markets like southern California, the best sites may have been taken while excellent sites are more likely to still exist in emerging solar states like Illinois or Texas. Lastly, the robustness of the transmission system can reduce supply; sites will be fewer in spots where the grid is aging and overburdened.

On the other side of the solar land market is the demand from developers for sites in an area, driven largely by the market size for renewable energy, electricity prices and the cost to develop. Top states for utility-scale solar include California, North Carolina, Arizona, Nevada, Texas, Georgia, Utah, Florida, New Jersey, Massachusetts, Vermont and Illinois although development is quickly expanding across the entire country as solar prices decline. The more buyers of renewable energy in your state – utility companies or big corporations like Wal-Mart or Google – the higher the demand for land. Besides being able to sell solar energy readily at a good price, developers naturally care about their costs. The lower the development barriers, the higher the demand for land. For example, demand may be lower in California due to the onerous permitting processes and higher in the Southeast because of cheap, non-union labor. Large generator transmission studies are a couple hundred thousand dollars across Texas (ERCOT) and the Southeast (SERC) but are even higher in states like Minnesota, Illinois, Arkansas and Louisiana (MISO).

The best deal is one that’s fair for you as the landowner and the developer, not one that puts either party at a disadvantage.


Now that you know more than you ever wanted about the solar land market in the United States, let’s talk rates per acre.  A 10 acre site next to a substation outside of an urban area with high land prices might be justified in asking $2,000 per acre. Even in rural areas of North Carolina or California where demand for small solar sites is high, rent over $1,000/acre would be common by a substation with capacity. Larger tracts over 100 acres for major power plant projects commonly rent at $300 to $500 an acre across Texas and normally around the $500/acre range across most of the Southeast. Large tracts can sometimes fetch upwards of $800/acre in Illinois, Virginia and the Carolinas depending on numerous factors. High priced, large tracts in California’s Central Valley might go for $1,000 per acre.

Before you use this information to start negotiating against a solar development company, I will leave you with a bit of controversial advice. The best deal is one that’s fair for you as the landowner and the developer, not one that puts either party at a disadvantage. Your instinct might be to get every last penny possible from the developer, but I have seen this backfire more times than it works. In a large project where acreage is assembled from numerous landowners, the family that has the highest rent on paper is often the one who ends up with nothing as the developer constructs on everyone else’s property. Even in projects where your property may be the only land leased, electricity is a commodity and the developer’s customers will buy the cheapest energy from among the reputable companies. If you have a contract that entitles you to above market rental rates, this decreases the chance the developer can sell the power and, thus, lowers the probability that you end up with a solar farm.

Ready to Talk?

The lease rate is the first thing to consider, but there’s much more that needs to be right to make a good solar farm land deal.

2018-10-14T15:40:46+00:00Solar Real Estate|