The economics of solar farms

Published 6:00 am Tuesday, August 4, 2020

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Solar facilities have come to the Heart of Virginia, and more are on the horizon.

But why here? Why are farms converting from crops to solar panels, and who is benefiting from this new industry?

In January 2018, the Prince Edward County Board of Supervisors unanimously approved a special use permit for TurningPoint Energy to operate a solar electrical general facility that was set to be located in Pamplin on Good Hope Road.

Adam Beal

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Adam Beal, executive vice president of development with Colorado-based TurningPoint Energy, explained why his company is interested in locating solar facilities in central Virginia, even specifically Prince Edward.

“In and around this area, there appears to be a decent

availability of land,” he said. “Permitting appears reasonable to moderately favorable in this area, and I would say, in general, the area appears reasonably free of what we would consider to be typical development constraints.”

There are really a large number of factors that go into the decision of where to place a solar farm, he said, including interconnection availability, reasonable permitting and land values.

Roadblocks can arise too, as happened with TurningPoint’s project in Pamplin.

“Unfortunately, that one successfully made its way through permitting before we were completed with the interconnection process, and by the time we ended up getting a proposed interconnection agreement with Dominion and the costs of interconnecting at that particular location were known, effectively interconnection costs destroyed that project economically,” he said. “And so unfortunately, we did not move forward with it as the economics would just not support it. These things happen sometimes.”

Interconnection is the process of getting the energy from the solar farm to the electric grid.

But the economics are also key to the successful solar projects, and TurningPoint remains interested in locating projects in central Virginia.

“We most recently have had success in Virginia with two projects in Pittsylvania County,” Beal said. “They are projects that were created for the benefit of Danville Utilities.”

He said the solar industry typically prefers to lease its land for solar projects, but TurningPoint is different in that it prefers to purchase its land when possible. It is flexible enough to do either, though.

Beal offered a general picture of what a typical arrangement looks like for the owner-operator of a solar facility.

“It’s very different market to market, developer to developer, but in very broad strokes, an owner-operator of a solar facility will generally have some form of power purchase agreement where they are selling the power at contracted rates over the life of that power purchase agreement,” he said. “And as we talked about lease agreements up front, a general lease agreement for us will have a 20- to 25-year preliminary term, and that is typically co-terminus with the length of the power purchase agreement.

“And then that ground lease with the landowner will also have three- or four-, typically five-year extensions,” he added. “So a typical lease for a large-scale solar facility is typically a 35- to 40-year total term.”

He explained how TurningPoint approaches a landowner about selling or leasing their land for a solar project.

“Generally, what we will do, when we have identified a site that we think could be ideal from any number of the criteria that we dove into earlier, we will look very much to underlying land values,” he said. “Then we will typically base our purchase or lease offers based in large degree on underlying land values and present an offer.”

He emphasized every site is different, possessing different development constraints. Some are closer to a preferred point of interconnection — with a power company like Dominion Energy — than others, some have more favorable zoning, so there are many criteria that go into what an offer may look like.

“But I’d say in general in more broad strokes in central Virginia, our current pricing guidelines are anywhere from $1,000 to $1,500 per acre per year,” he said. “And our purchase guidelines in central Virginia would be in the realm of, I would say, $8,500 to $12,500 per acre purchase price.

“Now every solar developer is different,” he continued. “They may be looking at different opportunities in a given market. For us, our prime central Virginia site would be somewhere between 40 and 50 acres.”

Beal said the dollar amounts are rough estimates.

“Yes, that’s a pretty wide gap between top and bottom numbers that I gave you, but that allows for the types of fluctuations that we discussed — distance to substation, some sites have more roll to them, some are flat,” he said.

“A perfect world for us is a perfectly flat, square site, devoid of trees, adjacent to a substation — but those sites don’t come around every day. So there has to be some variation in pricing.”

He then made a point about how different types of land can draw different rates.

“I should note that in many cases when we’re looking at land that is agricultural land — all of our sites are definitely not agricultural land, but many are, depending on the market — often we’re finding ourselves offering lease rates that tend to be three to four times more than a farmer is currently making off of the crops on the land. So they can be compelling conversations.”

J.A. Devin is co-owner with his brother, Tune Devin, of a piece of land in Charlotte County that has become the site of a solar effort known as the Moody Creek project. They have leased the site to Apex Clean Energy and SolUnesco.

The solar facility is not operational yet, but J.A. Devin said a good bit of work has been done on it already.

He explained why he agreed to move ahead with the project.

“The economics is the main thing, I guess you could say,” he said.

He and his brother are co-owners of Devin Logging. They grow many trees, harvest them and then plant more trees, which are one kind of long-term investment. He then listed another investment option.

“Typically if I lease my crop land to a farmer here in Charlotte County, I can get anywhere from $30 an acre to $50 an acre, just depending on whether it’s high ground or whether it’s low ground,” J.A. Devin said. “That’s the most I can extract from crop land.”

He acknowledged that some county leaders say they want to maintain their county’s farming heritage and want to see that much of the land remains farmland.

“I have no problem with that,” Devin said. “But at the end of the day, I’m trying to make a dollar, and so I lease a lot of land. But let’s say the farmer is going to pay me $40 an acre for my land. In 20 years time he’s paid me $800, plus whatever little interest I’ve accrued.

“I can lease it to a solar contractor — to Dominion (Energy) or whomever — he’s going to give me $800 an acre per year, every year for 20 or 30 years,” he continued. “They pay me $800 an acre, plus you get a 2% escalator, so it increases 2% every year for the 20- or 30-year period.”

He said the Moody Creek project will feature approximately 875 acres of solar panels, plus buffering space around the facility. The acres with solar panels will involve a greater payment than the acres dedicated to buffering, but all will yield a payment.

Devin said he knows there have been a lot of questions about what happens when the solar facility reaches the end of its life cycle.

“But all of that’s taken care of in the contract.” he said. “Decommissioning, the county requires it. Whomever it is, whether it’s Dominion or whoever, they have to be bonded to make sure at the end of the day, whenever this goes away, everything’s going to be taken out and the land’s returned to its original state.”

Beal said that in many or most cases, the salvage value of the equipment exceeds what the actual cost of decommissioning will be.

Devin said the beauty of solar projects is that they do not smell or make noise, and with buffers, they are not seen.

“It doesn’t require anything from the county,” he said. “It doesn’t cost the county anything, and then the tax revenues for the county will go up because the property is zoned commercial and they tax the equipment out there also.”

He stated it is hard to argue with the economics of leasing or selling land for solar projects.

“It just makes sense,” he said.

In a document produced by Apex Clean Energy sharing information about solar energy and local economies, the company stated that farmers who lease their land for solar farms often receive $400 to $800 per acre annually.

Solar facilities are lowering wholesale electricity costs across the country, the document noted. It also highlighted that revenues from solar facilities are generally used to support schools and a wide array of county services, including police and fire protection, senior services and road improvements.

Beal also emphasized that TurningPoint Energy makes a point of giving back to the communities in which it has solar projects.

Apex Clean Energy stated that recent research on the impact of solar farms on property values supports the conclusion that solar facilities do not decrease property values.

“Furthermore, there is no discernible impact on property values regardless of whether solar farms are located near residential, agricultural or industrial properties,” Apex Clean Energy officials stated in the document.

“Additionally, studies have found that substantial benefits are flowing to the communities where solar farms are located. A report by the University of North Carolina examined the economic impact of more than 100 solar projects in over 50 counties, finding that solar facilities have increased the tax revenue from agricultural property by between 1,000% and 10,000%.”