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.
In exchange for specified due diligence payments from the developer, the landowner agrees to remove the land from the market while the assessment is being done. During the due diligence period, the landowner is offered a series of payments, increasing incrementally each time the developer elects to continue due diligence for a prescribed period. For example, let's assume the first period involves a payment of $250 by the developer to evaluate the entire parcel for 180 days, a second period involves a payment of $1,000 for an additional 180 days, and a third period involves a payment of $5,000 for 365 days. The developer may terminate due diligence at any time, ending the matter. Conversely, the developer has been granted the right to enter into a long-term lease (which will close at a later date). The lease terms negotiated at the time of the due diligence agreement are the terms the landowner must accommodate for the duration of the lease.
Due diligence evaluation takes into account numerous factors about the topography, access to public right-of-way, and proximity of the land to the power grid access required by the CPRE parameters. Though open farmland costs less to develop, forested tracts are not out of the question (but the landowner might choose to maximize the value of the felled timber in the agreements by contracting their own harvest). Though clear and relatively flat parcels are preferred, advancing technology is allowing development on slopes at least to 35 degrees (Chaves and Bahill 2010).
The Landowner Decision: Whether to Proceed
While the NPV of a solar PV facility lease far exceeds both the present market value of rural property and any alternate income source from use of the land, the payments will be spread over a long time. (The author has noted a current lack of research correlation between a parcel’s fair market sale value and the solar lease rent value.) The terms of the lease agreed upon at the due diligence initiation, if executed later at the election of the developer, will not be subject to negotiation at a later date. The first signature on a due diligence document locks in place the terms for the duration.
A solar lease is a generational decision. The initial terms of typical solar land leases can last for as long as 30 years; with multiple extensions (for example, five years) at the option of the developer or its future assignee, such leases can last 50 years. Landowners should consider whether the property must be used for other purposes in that time frame. In effect, the land under the solar lease will not be used for farming in the present generation, and the horizon of the site's decommissioning is likely too far off for any concrete plans for farming. However, care should be taken at the outset to ensure that the site will be thoroughly decommissioned at the expiration of the lease term and after the exhaustion of any extensions. If the developer deems the property unsuitable, the landowner is released from any further obligation.
Solar leases contain language concerning the decommissioning of the facility. The language should address precisely how the land will be restored to its pre-development condition. The contract may dictate restoration of the tract’s suitability for farming or reforestation, which essentially means hauling away all materials, including panels and supports, perimeter fencing, pavement, and subsurface. Though some studies suggest the recyclability of solar panels and infrastructure (Sniderman 2012), developer assurances that the value of removed equipment will compensate for cost of its removal should be rejected outright; that said, nearly a quarter of North Carolina counties are now requiring developer financial assurances on decommissioning. The developer must be capable of restoring the site so that the land will still be suitable for an owner’s anticipated future use. Further, if zoning changes are required prior to development, landowners will need to consider whether those changes will make the land unsuitable for anticipated future uses.
Determining Clear Title
An assessment of a tract’s feasibility also lies in what cannot be seen on the surface, particularly encumbrances to title. It is likely that prior to approaching a landowner, a solar PV developer has performed a preliminary title search, which will reveal “showstoppers” like a permanent conservation easement, or possibly a generations-old grantor deed without subsequent chain of dispositions, indicating a challenging “heir property” situation. While other blemishes on the title will be evident in a preliminary search, the developer must weigh the cost of resolving title issues during the due diligence period.
>A primary concern about an owner's ability to enter into a solar development lease is the status of the title, and how much effort and time it will take to obtain any co-owner's agreement to transfer a solar PV leasehold. The work to be done increases with the number of present owners or those with a vested remainder interest (as at the termination of a life estate held by the present owner) (Branan 2021) and the rights to the land (real property) enjoyed by nonowners (known as encumbrances). The fundamental nature of real property is its aggregation of singular rights that can be severed and transferred to others without causing visible change to the land use and current occupation.
Real property is often owned by several people at the same time, particularly when devised by a will to several persons (“devisees” or “legatees”) to “share and share alike” or to a devisee “per stirpes” (which splits a predeceased devisee’s share among their descendants, further fracturing title across generations). When land is inherited without a will, this is known as intestacy, and the division of interests among heirs is determined by the state intestacy law (N.C.G.S. § 29-1). State intestacy law, like a per stirpes will distribution, preserves the shares of predeceased lineal descendants to be split among their lineal descendants. Either method results in co-tenancy, whereby each owner has a fractional undivided interest, and can dispose only of that fractional interest. Proposals concerning the use of the property must be agreed to by all co-tenants. Once a tract of land is owned by co-tenants of different generations and fractional interests, it becomes known as heir property.
Concurrent ownership by married persons (where both spouses are on the title) is known as "tenancy by the entirety," whereby when one spouse dies, the other becomes the full owner of the property. As such, one spouse cannot dispose of any full interest in the property (even his or her own) without disposition by the other spouse. Another form of ownership—“joint tenancy with right of survivorship”—is the same in form and function as the entire property, without the requirement that the title holders be married. Thus, jointly owned real property may be owned by more than two persons, and when one dies, that person's interest is divided among the remaining owners. Jointly owned real property is rare outside of marriage, but it may legally exist nonetheless.
A life estate is an example of a consecutive interest, whereby the current title holder(s) (grantor[s]) transfer(s) (by deed) their interest in the land to one or more persons (grantee[s]), reserving for the grantor(s) the right to occupy and use the property for life, whereupon full ownership interest instantly succeeds to the grantee(s) (known as a “remainderman” or "remaindermen"). Neither a life tenant nor the future remainderman can dispose of the tracts of a leasehold interest long enough to support a solar PV facility solely. For example, if a solar developer signed a lease with a life tenant only, that lease term would end upon the death of the life tenant, because the tenant had only a lifetime interest to lease. A simple title search during the developer’s due diligence would discover such consecutive titles.
In either of the concurrent and consecutive interest scenarios previously described, no one interest owner can convey a sufficient leasehold interest to support a solar PV development. Any co-tenants, joint tenants, spouses, life owners, and remaindermen must sign documents conveying the leasehold interest. Indeed, no one owner can execute preliminary letters of intent or option agreements for the project to proceed.
Note that among married people, real property purchased during marriage is presumed to be marital property, provided certain conditions are met. And though only one spouse’s name may appear on a deed to property acquired by purchase during marriage, an estranged spouse may have a right of claim to the property under North Carolina’s equitable distribution statute (N.C.G.S. §50-20). An exception is inherited property, whereby one spouse may own real property by themselves as nonmarital property. This situation is common when one spouse inherits real property during the marriage; for the other spouse to also become an owner, the owner spouse must add the other spouse to the deed. However, in the case of single-spouse ownership of "nonmarital property," a surviving spouse may elect to take a life estate interest in all of the deceased spouse’s property (N.C.G.S. §29-1), even that which has been leased to a solar PV facility. A solar PV developer, like most purchasers of nonmarital property, will require the additional signature of the nonowner spouse; in the event the nonowner spouse comes into an ownership interest, that spouse will have quit any claim against the lessor’s (the owner of the solar PV facility) lease interest.
In an heir property situation, the work required to secure clean title can be considerable. If all heirs can be located, they must all agree in writing to the due diligence and lease terms offered by the developer. Sometimes, heirs are unwilling to respond or are unknown. Given that successful clearance of heir property titles for disposition is often lengthy and speculative, this situation may eliminate the tract from consideration if the developer discovers upon initial investigation that resolution will be too difficult.
As for third-party encumbrances, a title, tax, and court records search by the developer will reveal whether any party has a lien on the property. A lien is a third party’s right—depending on the type of lien—to force a sale of the property to pay off an unpaid debt. The most common liens are mortgages—referred to as "deeds of trust" in North Carolina; these are collateral for the loan that purchased the land or collateral for a farm-operating loan. While purchase liens typically attach only to the land purchased, operating loan liens generally cover all landholdings of the borrower, whether or not the land is used in production. Such liens show up as a deed of trust in the title on the land, searchable in the county register of deeds database. Other liens may include unpaid property taxes or an unsatisfied judgement related to an unpaid debt.
To ensure that a foreclosure and sale do not disrupt a solar operation, a solar PV developer must require that all current lenders subordinate their security interests to the lease so that if the land is sold, the new buyer is still subject to the lease. Commercial lenders holding a lien have the flexibility to subordinate their liens to the lease. Execution of a lease that removes land from agricultural production must not represent a default on an operating loan, which would require it to be immediately paid in full. For other liens such as tax or judgment, these obligations must be satisfied (paid off) before execution of the lease; depending on their costs, they may be satisfied by the developer. Such lien issues will surface in a developer’s due diligence, described later.
Other third-party encumbrances may include easements across the tract. Easements have many forms: a roadway across one parcel allowing another parcel’s owner to reach a public right-of-way; a utility easement supporting aboveground power lines or a subsurface conduit such as a pipeline; or a restriction on use. Access and other easements may pose an obstacle if the owner of the dominant tract (the parcel that benefits from the easement) is unwilling to modify or extinguish the easement at the request of the owner of the servient tract (the parcel burdened by the easement). Even where an easement is not recorded, one may be proven in court under several legal theories, including necessity (where the dominant tract cannot access the public road without an easement) and prescription (where the dominant tract has used the easement for a minimum 20-year period, along with other factors). The statute requires that the possessor occupy the land (in this case easement) “under known and visible lines and boundaries adversely to all other persons for 20 years”; this essentially means that a) one can see the pathway, and b) taken-for-granted use of the easement is legally adverse to the servient estate’s owner (N.C.G.S. § 1-40).
Utility rights-of-way effectively remove a particular area from solar development; for example, although pipeline right-of-way leases allow farming uses on the surface, pipeline leases prohibit structural development on the easement. Sometimes, though a right-of-way is negotiated and recorded, it is never developed for use (in other words, it is discoverable only in the chain of title). North Carolina now has a statutory process for extinguishing rights-of-way that have gone undeveloped for 20 years (N.C.G.S. §62-193).
A third party may hold a subsurface mineral right, whereby they have leased or purchased the subsurface of a tract for mineral extraction purposes. For example, if the tract of land is located in the northern sandhills area (Moore, Lee, and southern Chatham counties) or in the Sauratown foothills (Rockingham and Stokes counties), there may be unextinguished gas extraction (hydraulic fracturing or “fracking”) leases and other encumbrances recorded during a period of interest in 2012 and 2013 to exploit shale in those areas. Even older subsurface title separations from the surface estate may exist. Though mineral rights do not grant rights to the surface, a holder of subsurface rights might want to access deposits through the surface, which would interfere with solar PV facility function. This doctrine has been developed as the “reasonable accommodation” doctrine in oil and gas producing states, and so has not been applied in North Carolina. However, a similar doctrine (English v. Harris Clay Co.) has been developed in the mining context.
Though North Carolina's Real Property Marketable Title Act is designed to extinguish older property interests, it contains an exception for mineral interests (N.C.G.S. §47. And though by statute (N.C.G.S. §1-42.1), there is a distant point in the past by which unused and untaxed interests are extinguished, there is also a process by which such interests could have been preserved that is difficult to detect (in other words, it does not show up in the chain of title for the tract). The scheme to preserve ancient mineral interest boils down to a narrow window by which a holder of an interest (or their successor) could have published a notice in the local paper indicating the book and page number of the mineral interest (subsurface) transfer. As a practical matter, a title insurance company may except (remove from policy coverage) such interests and issue a title policy sufficient to allow the development financing to proceed.
Third-Party Easements and Conservation Programs
Third-party interests in the parcel may be related to conservation programs, whereby the landowner has been compensated for temporarily or permanently restricting use to all or parts of the land or has installed crop and conservation improvements with public funds. Such commitments are not easily swept aside to provide a clear title for solar development.
If the land is under a permanent conservation easement, it is unlikely that the land may be developed for a solar PV facility. Conservation easements are permanent legal agreements whereby the owner has relinquished (by deed) their right to subdivide and develop the property, or otherwise permit uses of the property that are incompatible with the conservation values of the tract, including the installation of nonpermeable surfaces (for example, paved roads and concrete pads). The landowner still holds title to the property but is restricted by the terms of the conservation easement. The restrictions are enforced by a third party, either a nonprofit such as land trust or conservancy, or a county under management of its local soil and water conservation district. A nonprofit third party responsible for enforcement of the restriction will likely not allow or acquiesce to a modification of the terms of the conservation easement to allow solar development under risk to their nonprofit status (this prohibition is known as the “private benefit doctrine"). Though modification may be possible with a government third-party, the process is long and any tax benefits claimed by the grantor of the easement may be in jeopardy. Under a permanent conservation easement, the tract of land is essentially removed from the market for solar development.
Other conservation programs are term-limited but nonetheless present a financial cost, for example, a Conservation Reserve Program (CRP) contract through the United States Department of Agriculture (USDA) Farm Service Agency (FSA). The CRP is a program authorized by the Farm Bill and administered by the USDA's Natural Resources Conservation Service (NRCS) in which a landowner contracts to receive payments for retiring land from production or installing conservation features to improve soil and water quality. Such contracts typically run 10 to 15 years. If a landowner “fails to maintain” conservation practices, that is, executes a lease that results in development, the landowner must pay back the annual government income, along with interest and liquidated damages (7 CFR § 1410.52). Other term-limited programs—including the Conservation Security Program (CSP) and Wildlife Habitat Improvement Program (WHIP)—though eliminated in the 2018 Farm Bill, may still have live contracts with repayment schemes similar to those of the CRP.
Landowners should check with the NRCS and FSA offices in their county or region to find out if there are NRCS contracts concerning their land. (Note that FSA cannot share records with anyone other than a landowner or identified farmer.) The relevant office should be able to calculate the amount of repayment and damages owed in the event the solar PV developer wants to move forward. It is important that the landowner negotiate with the developer to ensure they take responsibilities for the early contract termination payments.
It is possible that a tract’s title may be encumbered by an option agreement in favor of a third party. Such option agreements come in several forms, but generally grant a right to a third party to purchase the tract at the option-holder’s election at a future date, or in response to a pending transfer of interest in the tract (which could include a long-term lease). Sometimes these agreements grant a "right of first refusal" to purchase the property at fair market value, either reserved by the original grantor of the tract, as a stand-alone document, or as part of a lease agreement. Though such options are a right of exercise, they need to be released by the option-holder in the due diligence process to eliminate uncertainty and provide a clean title.
Finally, land that has been enrolled in an N.C. Department of Agriculture & Consumer Services (NCDA&CS) Enhanced Voluntary Agricultural District (EVAD)—in counties that have adopted such an ordinance—must remain undeveloped until the expiration of the 10-year irrevocable conservation agreement term associated with such enrollment (N.C.G.S. § 106-743.2). Under state statute, such agreements—unlike those required for basic enrollment in a nonenhanced Voluntary Agricultural District (VAD) program—may be modified or revoked only by action of the council of state (the body composed of the elected chief executives of state agencies) upon a conservation benefit analysis that the modification results in a net benefit. Presumably, termination of an EVAD conservation agreement for development of a solar PV facility would not meet this test (N.C.G.S. § 121-39.1). Note that this section of the law applies to “conservation agreements that ... are terminated or modified prior to the period of time stipulated in the agreement.” A conservation agreement under the EVAD statute requires a minimum 10-year term (N.C.G.S. § 106-743.2). Note that regardless of the minimum 10-year term, a landowner still must file a termination notice prior to end of term; otherwise, an EVAD irrevocable agreement automatically renews for a period of three years.
Farm Tenants and Lessors
If a solar development opportunity emerges, the status of an agricultural tenant on the land must be considered. Much depends on whether the tenant has a written tenancy agreement (that is, a lease), and, if so, the length of the term. If there is no lease, a landowner may not—under North Carolina statutory law—remove a farm tenant who is farming with no written agreement; the landowner must give the tenant notice to vacate the property within 30 days prior to the end of the crop year, which is either January 1 or December 1, depending on the county (N.C.G.S. §42-23 [PDF, 6.1 KB]).
If a solar developer approaches the landowner during an annual statutory term, it is likely that the developer’s due diligence time frame will allow the farmer to vacate at the end of the crop year.
However, the landowner must remember to give the farmer notice of termination; otherwise, the tenancy automatically renews for another crop year. The landowner may not have the authority to allow a solar developer to enter the tenant property for land evaluation, particularly if it will interfere with farming operations or damage crops. If the tenancy is for livestock grazing, a landowner should not create liability for the farmer by allowing someone to enter and wander among livestock.
If the tenant is under lease, and the termination date of the lease falls inside the developer’s window, the lease may be allowed to expire (though attention should be paid to avoid any renewal options). However, if the landowner is approached in year one of a three-plus year lease, arrangements must be made with the lessee for an early termination, which will likely require a buyout. Such buyouts are measured by the tenant farmer’s reasonably anticipated loss of profit on future crops, plus any investments in the land that cannot be removed by the lessee, such as a lime application or other soil enhancement.
Zoning and Special Use Permits
Most rural solar PV development proposals are not consistent with the existing zoning overlay of the target parcel. Counties in North Carolina are authorized by state statute (N.C.G.S. §153A-49 [PDF, 6.1 KB]) to zone the unincorporated (municipal) areas in their jurisdiction. Most counties have elected to zone the entire county, but some zone only certain areas. Solar PV facilities are generally considered to be light industrial use, and such zones in a county are usually limited by geography. Chances are, the land targeted is zoned for residential purposes, which prohibits solar development. Furthermore, though an operating farm may designate its land as a “bona fide farm” (N.C.G.S. § 160D-903 [PDF, 119 KB]) exception to zoning restrictions, solar PV facilities do not qualify as an agriculture use. Some counties may still have a zoning district identified as “agricultural-residential (A-R)” with farming as a redundant permitted use.
Zoning ordinances, commonly known as Unified Development Ordinances (UDOs), are essentially mapping schemes intended to coordinate uses of real property in a county; to ensure uses are compatible with the purposes of a particular zoning district; to promote conservation and water protection; and to eliminate private and public nuisances. Each UDO lists a series of zones (for example, R for residential, B for business, I for industrial, and O for office) with a table of allowable uses enjoyed by the property owner as a matter of right; but there may be uses that are subject to public approval or forbidden. Each zone overlay also specifies particulars such as lot size, building setback requirements (how close a structure can be to the lot boundary), number of structures, and height limitations for buildings. In short, a solar PV facility may be an allowable use in a light industrial district, a permitted conditional use in a rural residential-agricultural district, or a prohibited use in a small-lot residential district.
A solar PV proposal will often require the developer (with cooperation of the landowner, a required agreement) to pursue a conditional use permit (CUP) for the property during the due diligence period. Such permits, allowed per the UDO, require a process of public notice and hearing, followed by approval of the zoning board and county commissioners (the N.C. Court of Appeals in 2019 held that a county commissioner’s failure to recuse himself after expressing bias against solar projects was grounds for reconsideration of a CUP for a solar facility. Dellinger v. Lincoln County, N.C. App. No. COA18-1080). This allows any neighbors to pose challenges to solar facilities for various perceived reasons, including unsightliness, glare, drainage, noise, traffic, and loss of farmland to a community.
When approving a solar CUP, North Carolina counties increasingly require that the developer have firm plans to decommission the site when the lease has run its term. Such requirements now appear in 24 county ordinances, with the majority requiring a timeline and financial assurance (for example, a bond) equal to or greater than the projected costs of decommissioning the site and restoring it (NDCEQ 2021).
Property Tax Issues
A solar PV facility will change the tax status of parcels, particularly those enrolled in the North Carolina present-use value (PUV) program. A solar PV facility, though commonly called a “solar farm,” is not considered “agriculture” for purposes of qualification for PUV tax deferment. As such, the development will disqualify the tract as agricultural land, ending its PUV status and triggering a “rollback” representing a payment of three years of deferred taxes, plus interest. The interest rate varies by county, but compounds over the three-year rollback period (for example, 7.5% for the previous year, 15% for the second year prior, and 30% for the third year prior). The deferred taxes are calculated by applying the county tax rate to the difference between the highest and best valuation and the lower PUV valuation. (For more detail on PUV, see Present Use Value: Transferring Property Enrolled in Present Use Value Property Taxation.) In negotiating the lease terms, it is imperative that the landowner places responsibility for all PUV-related payments on the developer. Properties not enrolled in PUV may nonetheless increase in value. There is an abatement on property taxes for solar PV facilities, but it belongs to the owner of the facility and is abated from the personal property tax assessed on the value of the personal property (for example, solar panels, wiring, and converters) (N.C.G.S. §105-275 [PDF, 162 KB]).
As described previously, the development of a solar PV facility disqualifies land for PUV enrollment, but it is possible that the land may be re-enrolled under a compatible qualifying (agricultural) use. For example, the N.C. Department of Revenue’s Present-Use Valuation Program Guide—while not legally binding on county tax assessment decisions—presents a scenario whereby impacted acreage may be re-enrolled, using sheep grazing under the panels for both agriculture production and weed maintenance (see p. 54, example 3-32 in the guide). Note, however, that re-enrollment for agriculture may occur at a minimum only in the fourth year following removal from PUV, showing annual agricultural receipts of $1,000 gross for the previous three years.
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.
A Solar Farm in My Backyard? Resident Perspectives of Utility-Scale Solar in Eastern North Carolina (PDF, 2.4 MB)
North Carolina Clean Energy Plan: Transitioning to a 21st Century Electricity System. Policy and Action Recommendations
Planning and Zoning for Solar in North Carolina (PDF, 20.9 MB)
Renewable Energy and Energy Efficiency Portfolio Standard (REPS)
Land Title: Understanding Rights in Real and Personal Property
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 email@example.com.
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 firstname.lastname@example.org.
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. DEQ. 2021. Final Report on the Activities Conducted to Establish a Regulatory Program for the Management and Decommissioning of Renewable Energy Equipment.
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)
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Publication date: Feb. 15, 2022
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