There are a variety of ways that landowners can use their property to generate passive income, often with little to no effort on the part of the landowner. Among these opportunities is the possibility of leasing vacant land for solar energy production, which has gained traction across the country. The federal focus on these projects has increased in an attempt to diversify US energy production.

During his recent appearance on the National Land Podcast, West Texas Land Broker Wayne Dunson shared a few valuable insights for landowners considering a solar lease for their property. While leasing land for solar energy production can be incredibly lucrative for some landowners, here are a few important factors to keep in mind before signing on the dotted line!

The Right Infrastructure Is Key

For the same reasons that a developer wouldn’t build a shopping mall in the middle of nowhere, solar developers maintain a certain set of criteria that they require for potential solar sites. Understanding whether a property fits these requirements upfront can save both a landowner and prospective solar developer plenty of time and money.  

Regarding the factors that developers look for in potential sites, Dunson stated, “The first thing we’re going to look at is distance to the nearest transmission line. That’s called the interconnect point and it can make or break a deal. I’ve talked to a company that says they’ll stretch three miles to a transmission line if the project is right, but it’s going to have to be a prime location. We would like to see people within one mile of a good transmission line, if not already touching [that line].”

“So that’s what we’re really looking at is infrastructure, do we have good access? Do we have a transmission line or two that we can connect to? If we can produce all the power, that’s wonderful, but how do we tie into the grid? Within a mile or less or a transmission line and then within two to three miles of the substation is a pretty good rule of thumb as far as distance to infrastructure.”

Solar Leasing is a Slow Process

As is the case with many development projects, leasing land for solar development isn’t something that will happen overnight. These projects will typically run for years if not decades, so developers will do plenty of research before breaking ground to ensure that this property will prove to be a productive and lucrative investment.

As a result, the vetting process and initial stages of development tend to move very slowly as Dunson explains. “One thing I want people to understand is that these energy developers are spending money from day one when they sign this contract because they’re looking at permitting, environmental issues, engineering factors, etc. And in Texas, we have something called the queue. You have to pay and be given permission by the utility provider to plug into the grid, and there’s a waiting list.”

“So this is a land race right now to grab up federal incentives to make these projects pay for themselves, and the faster they can get in line, the better the chances that they’re going to get in there. I’m trying to tell folks that this moves slowly, and I can assure you it’s not because the developers are not in a hurry, they just can’t do it any faster.”

Not All Projects Pan Out

Another important factor to keep in mind with solar land leases is that not every prospective project will be a success. Given how many prerequisites must be met and the long-term nature of these projects, it should be no surprise that circumstances can arise that make a project that was once thought to be reasonable completely infeasible from the developer’s perspective.

Understanding that the project may not come to fruition despite signing initial agreement documents is important for any landowner looking to lease their land for solar development, as Dunson explains. “If you ask anybody working in this space who’s familiar with it, they’re going to tell you that 20% of all deals are going to cross the line. That means one out of five essentially, now that’s going to be nationwide and certain areas might differ from that statistic, but if you look at generalities, it’s about one in five that will actually get into what they call the initial term or break ground. The other four out of five will get a little due diligence money and [the developer] is going to terminate, walk away, and say ‘Sorry it’s just not going to work for us.’”

Despite this, the passive income generated from solar development is often significant and truly life-changing for some landowners whose properties are selected and fully developed. Speaking on the power that a solar lease can have for landowners, Dunson stated, “That’s why I love this so much. I could run around and say, ‘Oh I’m going green,’ but it’s not that. I live in ‘oil and gas country’ and I think a mix is necessary. I want to produce energy in all kinds of ways, but I’m looking at this from a place where people can change their lives.”

“I’m talking about generational money, far better than what wind pays, far more reliable income that you can basically ledger out for 20-30 years and know down to the penny exactly what you’re going to make. It’s money you can pass down to family members, I mean it’s just game-changing.”

If you’d like to learn more about leasing your land for solar energy development, contact your local Land Professional and check out the resources at NLR Solar!