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Considerations for Leasing Land for Solar Development

Considerations for Leasing Land for Solar Development

By F. John Hay  

Utility Scale Solar Update

Utility scale solar development is here — in the eight months since the solar leasing article was published in August 2020, Nebraskans have seen continued land lease activity, county zoning rule adoption, an extension of the federal tax credit, and projects approved by county commissioners/supervisors. Additionally, one project (Saunders County [OPPD electrical purchase]) has reached the important step of electricity sales, which is the most common tipping point between a proposed project and a project that will get built. Many smaller solar projects have been built in the years prior to 2021, with the largest at about 8 MW, or about 50 acres. The utility scale projects being proposed and approved are many times larger, with 500 or more acres.

Solar, wind and other renewable electricity projects have access to federal tax credits, which are only accessible to private (taxable) companies. For our public power utilities to benefit, they are contracting to purchase electricity from the private developers, with some of the tax credit benefit flowing to the utility in the form of lower purchase prices.  

Private electricity development is challenging under Nebraska public power statutes. The Nebraska Legislature desired more renewable development for economic development and green energy reasons and passed laws reducing barriers for private renewable development in Nebraska. For detailed information, review Nebraska revised statute 70-1014.02

The most common purchasers of renewable electricity in Nebraska are Nebraska public utilities, coops, and municipal electric utilities; less common are private companies. Private companies who seek to purchase renewable electricity work with their local Nebraska utilities. The companies may have green energy goals as well as a desire to establish a stable, long-term price for electricity. 

The solar tax credit was 30% until the end of 2019, dropped to 26% (extended in December 2020 to remain 26% until the end of 2022), then will continue down to 22% in 2023, then 10% for future years (residential excluded after 2024). The wind tax credit began expiring in 2016, yet some developments invested enough to get “safe harbor,” allowing them time to develop and still get the credit. There are also safe harbor rules, which may allow for solar developments to extend the years solar credits are available. 

Many questions arise for landowners with leases and neighboring landowners without leases. Some of the questions have clear answers, while other answers are complex and subjective. Below is not a comprehensive list — just a short list to stimulate thoughts and provide further references. 

  • How are Solar Farms Taxed? 
    • Solar farms are exempt from personal property tax and instead pay an annual nameplate capacity tax of $3,518 per MW. Additionally, there are some real property taxes paid. 
    • The land under the solar remains taxed as agricultural land as normal.
  • Solar Farm Visual Impacts
    • Solar farms will be long-term parts of the landscape. 
    • Solar farms are low to the ground, below about 8-12 feet, and will follow the contour of the land.
    • Solar farms are fenced to prevent people from getting near the electrical equipment.
    • Solar panels are treated to be antireflective, which reduces glare effects. 
    • Some solar developers are willing to discuss planting trees and shrubs to reduce visual impacts.
    • Setbacks from residences and property lines are established in zoning rules or set by developer.  Some developers may be willing to discuss setbacks with neighboring residences or landowners.
  • Siting 
    • Each county has authority to approve/disapprove and set requirements for development through zoning.
    • Solar developers generally look to lease land with proximity to transmission lines and substations.
    • Some utilities interested in purchasing solar electricity may seek sites within their service areas, yet electricity can be purchased from generation outside the service area, and even outside the state. 
  • Health Hazards and Solar 
    • A detailed review by North Carolina State provides information on health and safety of solar PV:
      • Health and Safety Impacts of Solar Photovoltaics
      • The solar panels have low risk as they are made of mainly nontoxic materials and the toxic materials, like lead solder, are in low amounts.  
      • Electromagnetic fields are generated but are low in intensity with sufficient distance. Fences and setbacks provide distance. 
  • Decommissioning 
    • Removal of solar equipment is expensive.
    • State law says the solar company must have a decommissioning security bond in place after year 10. The security is money set aside to remove the system in case the company cannot.  
    • Decommissioning should also be addressed in the land lease contracts with landowners, see farmland owner'g guide to solar leasing publication for more information. 

Utility Scale Solar Leasing

Renewable energy has increased significantly in recent years and the number of wind farms and the size of wind turbines are a visual reminder of renewable development. Due to higher development cost, solar electric systems, also called solar photovoltaic (PV), have lagged in commercial electric development. In recent years, the dramatic price decline of solar PV has led to greater interest in utility-scale solar development. For instance, consider a 5-Megawatt system similar to the one constructed West of Lincoln North of I-80. Based on solar cost benchmarks published by the National Renewable Energy Lab, a 5-Megawatt system constructed in 2010 would have cost $27.6 million, compared to $5.65 million to construct the same size project in 2018. Combine this with the 26% federal tax credit and the economics of utility-scale solar are sufficient for major development interest across the nation. 

Utility-scale solar farms are constructed on open ground generally near access to the electric transmission grid. Other considerations for siting solar farms may be the solar resource, proximity to electricity demand, other local incentives, and regional value of electricity. Access to land is an early step in utility-scale solar development. Farmers and landowners in Nebraska are being approached to lease land for solar development and these landowners are facing important long-term decisions about the future of their land.

When considering a solar leasing contract many factors should be considered. According to the Farmland Owner’s Guide to Solar Leasing published by the National Agricultural Law Center, these considerations are:

  • Length of the commitment
  • Who has legal interests in the land?
  • Impacts on the farm and land
  • Family matters
  • Property taxes
  • Government programs
  • Liability and insurance
  • Neighbor and community relations

Utility solar farmland leases are long term contracts and need to be reviewed by a qualified attorney. In Nebraska, these leases can be as many as 40 years and longer if extended. For many landowners, this long-term contract may extend into the next generation and should be discussed with the family. Landowners at times feel pressured to sign contracts and this can be stressful. Take the time to review and negotiate these contracts and always know that saying “no” is an option.

Solar leases can be attractive to landowners as they can offer long term income and profitability on the leased land. A study in Michigan of landowners with wind farm leases showed farmers with leases invested more in their farms than farmers without leases. This suggests the lease income may influence farm stability and longevity. Solar farms like wind farms add to county tax income through a nameplate capacity tax and property tax.

Utility-scale solar farms are unlike wind farms in some ways. For example, wind turbines may take only 1-2 acres out of production per turbine because farmers can farm around the base of the turbine and turbine access road. In comparison, a 1,000-acre solar farm will take all 1,000 acres out of production.

Solar farms are low to the ground and have less impact on the skyline. Generally, solar farms will be fenced with vegetation growing amongst the solar panels. Vegetation could be perennial pollinators, grass, or weeds. Common management is periodic mowing to ensure plants do not disrupt solar operation and production.

Landowners approached about solar leases should seek advice from an attorney and take time to thoroughly consider the contract and its implications to their farmland. Review of the Farmland Owner’s Guide to Solar Leasing published by the National Agricultural Law Center will help frame the issues and considerations for solar leases.

Source : unl.edu

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