NC State Extension Publications

## The Solar Lease Opportunity

Leasing land for solar facilities has often been promoted as a source of potentially significant income for property owners, particularly people with farms that are out of production or other idle rural land. North Carolina was one of the leaders in the nation in siting solar facilities and sourcing solar energy. In the early years of development, solar photovoltaic (PV) developers had more choice in location and size of development, and they enjoyed a state tax incentive. The market is significantly different today owing to legislative changes that have revised renewable energy procurement by utilities. The demand has slowed somewhat; however, opportunities for property owners still exist for the near future.

Granting a solar lease has long-term implications, including an impact on the property owner’s heirs and their use or disposition of the land. To adequately protect one’s interests, it is essential to be prepared and thoroughly informed before paperwork of any kind is signed. This publication is designed for landowners who want to learn whether their property might be a likely candidate for a solar lease and, if it is, what to expect when a solar developer decides to evaluate (perform “due diligence”) whether or not leasing a particular property is desirable. It also provides a description of legal obstacles that might slow or even prohibit a deal, such as unclear ownership, zoning restrictions, and other encumbrances such as liens, easements, and existing leases.

Allowing development of an industrial-scale solar PV facility on your land can bring great financial rewards for decades, even across generations. A solar lease term—with extensions—can endure for nearly 45 years, with a net present value (NPV) exceeding $1 million. This estimate is based on the author's calculation using the example of a 25-year lease—plus three 15-year extensions—on a 35-acre facility at$850/acre/year, multiplied by a net present value (NPV) multiplier of 96%.

Solar PV facility development in North Carolina has outpaced much of the nation's over the past decade, and such sites can be found on numerous parcels across rural North Carolina. Financial returns are far greater than any other leased land use, but landowners must make long-term decisions about rental value. Interested landowners should have a basic understanding of whether their land is suitable for such development.

As of this writing (2022), the pace of solar development appears to be slowing, and though costs of solar equipment have decreased, increasing reliance on natural gas by energy companies operating in North Carolina has reduced utility demand for renewable energy sources (Solar Energy Industries Association 2020). Nonetheless, the market is unpredictable; new renewable initiatives may be developed, and additional development opportunities remain in the near future. Landowners should know that when they are approached by a solar developer (an indication that their land has been deemed suitable for solar PV development in layout and location), their land must meet certain due diligence thresholds for the project to proceed to full development.

## Solar Growth in North Carolina: Then and Now

As has been noted, changes in North Carolina law changed our state's approach to its solar energy development. In 2017, the North Carolina General Assembly passed a law (SESSION LAW 2017-192, H.B. 589 [PDF, 244 KB]) that reformed North Carolina's approach to renewable energy development and procurement—in particular, the process for siting solar PV facilities. Prior to 2017, any site of favorable topography and proximity to a three-phase power line (the common four-line power lines running alongside primary roadways) was eligible. While flat and well-drained open farmland was preferable due to lower development costs, facilities were developed on tracts of varying topography throughout the state. A key challenge for the purchasers of the solar-generated electricity, namely the utilities, was the inefficiency and “line loss” of electricity transmitted from remote facilities. While the majority of solar PV facilities are in eastern North Carolina, 74 of the state's 100 counties have at least one facility (North Carolina Department of Environmental Quality 2019).

North Carolina’s fast growth in solar capacity has been the result of a number of factors, particularly North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard (REPS) (North Carolina General Statutes § 62-133.8)—which required investor-owned utilities (such as Duke Energy and Dominion Energy), electric cooperatives, and municipal utilities to purchase target percentages of electricity for retail sale from renewable energy sources. Also, state and federal tax credits were offered to developers, and while the federal tax credit was recently extended to 2023 (26 U.S. Code §48), the state tax credit was allowed to expire in 2016 (N.C.G.S. § 105-129.16A).

In 2007, North Carolina became the first state in the Southeast to implement a REPS. This standard required all investor-owned utilities to source increasing percentages of their retail energy sales through renewable energy resources—including solar, wind, hydroelectric, and biomass combustion of swine and poultry waste—or energy efficiency measures. Under the statutory requirements for REPS, renewable energy targets increased over the years from 3% in 2012 to 10% in 2018, and 12.5% for 2021 and beyond (N.C.G.S. §62-133.8(b)(1). According to the REPS 2020 annual report (PDF, 7.6 MB) (N.C. Utilities Commission 2020), all electric power suppliers met the solar set-aside requirements from 2012 to 2019, and remained on track to meet the 2020 solar set-aside requirement.

The 2017 HB 589 law introduced the Competitive Procurement of Renewable Energy (PDF, 18.2 KB) or CPRE, which established a system whereby utilities would now have “authority to determine the location and allocated amount” of renewable energy procurement in their respective areas of operation. This system effectively allowed utilities to design the parameters for their needs and then, through CPRE, request proposals from solar facility developers for project approval in a series of four tranches. The practical effect was to shift solar development onto fewer and larger sites. Though CPRE originally called for four tranches, as of 2021, contracts between utilities and developers have been signed for only two.

The CPRE generally defines the geographic region(s) acceptable to utilities in the next tranche. However, developers must investigate the suitability of individual tracts primarily from a cost perspective. Forested tracts, for example, are more expensive to develop, as trees must be cut—with stumps removed—and the land surface altered for drainage. Tracts not immediately adjacent to transmission infrastructure require more cost in building out connection from the panels to the grid.

As of 2019, there were 601 solar PV facilities in North Carolina with 1 megawatt (MW) or greater of electricity-generating capacity; more than 240 of the facilities are greater than or equal to 5 MW, but less than 10 MW. Solar PV projects generally require about 5 acres of land for each MW of generation capacity. One MW is generated by an average of 5,068 panels (NCDEQ 2019). One MW can supply power to 200 homes for a day.

## Developer Due Diligence

Solar PV development is a staged process. The first stage is the developer’s due diligence, which is not an agreement to develop and pay rent, but rather a promise made by the landowner in exchange for a fee to grant the developer the right to build (and pay the landowner rent) if the property is deemed feasible, from both cost and title perspective. The solar PV developer’s due diligence period begins with the landowner’s first written permission, which in effect is the landowner’s agreement that if the developer so chooses, the agreement will proceed with development based on the terms presented with that first document. This is important. The first document the landowner signs gives the developer the option to develop the facility, thus legally obligating the landowner to accept the terms of a long-term lease. Again, the terms of the lease may effectively be in place for 50 years, so all negotiations must take place prior to signing the first document. A solar PV developer does not wish to expend money and secure financing and a place in the North Carolina Utilities Commission approval queue only to have the landowner balk at signing the lease. If the developer has completed the due diligence and deems the property suitable, then the developer will proceed with executing the lease agreement with all attendant agreements and title recordings.

## Conclusion

Securing a solar PV facility lease can be a lucrative and long-term commitment. A particular landowner may not survive an entire lease term but will leave a legacy of payments for successors. As a practical matter, the opportunity may come once. The administrative issues outlined in this publication will largely be handled by counsel for the solar PV developer with the landowner’s cooperation.

## Acknowledgements

An article addressing these issues was previously written in 2014 by Theodore Feitshans, Extension Professor, and Molly Brewer, Extension Research Assistant. The current author invites comments and suggestions. Contact Andrew Branan at rbrana2@ncsu.edu.

## Disclaimer

This information is not intended to constitute legal advice. While every effort has been made to ensure accuracy, it cannot be guaranteed. Readers are encouraged to consult a private attorney for their individual legal questions. Since this information is changing rapidly, readers should note the publication date. This fact sheet is a living document and represents research in progress. Please address comments to Andrew Branan at rabrana2@ncsu.edu.

## References

Branan, R. 2021. Fact Sheet: Understanding Rights in Real and Personal Property. NC State Extension

Chaves, A. and A.T. Bahill. 2010. “Locating sites for photovoltaic solar panels: pilot study uses DEM derived from LiDAR.ArcUser (Fall): 24–27.

North Carolina Department of Environmental Quality. 2019. North Carolina Clean Energy Plan: Transitioning to a 21st Century Energy System.

N.C. Utilities Commission 2020. Annual Report Regarding Renewable Energy and Energy Efficiency Portfolio Standard in North Carolina Required Pursuant to N.C.G.S. § 62-133.8(j)

Sniderman, D. 2012. “Life after death.” Solar Builder (May 14).

Solar Energy Industries Association. 2020. State Solar Spotlight.

# Author

Assistant Extension Professor (Agricultural and Environmental Law)
Agricultural and Resource Economics