Extension: Pa. farmers should be cautious about solar energy leases

Pennsylvania isn’t the sunniest part of the country, or the flattest.

Solar energy developers usually want the same type of land that housing developers want: flat, with clear ground. But nevertheless, the commonwealth is becoming a new frontier for solar development.

“We have enough sun in this state, and they’re pitching these proposals everywhere,” said Brook Duer, of Pennsylvania State University’s Center for Agricultural and Shale Law, in a July 8 webinar.

And because solar developers want flat, clear space, farmers and people who own agricultural land are an obvious go-to for more land access, leading some developers to approach landowners with offers to lease their properties.

Penn State announced last year that it was purchasing the power generated from three solar farms covering 500 acres in the state, entering a 25-year contract. The project broke ground last September, and will provide 25% of the university’s purchased electricity.

But Duer noted that while interest in leasing for solar development has ballooned recently, the industry is young, and landowners need to be cautious about getting involved.

New industry

Dan Brockett, of Penn State Extension, first got a call from someone in northwestern Pennsylvania about a developer trying to lease land for solar energy about a year and a half ago.

“My first thought was, ‘that’s crazy,’” he said, adding he initially thought it was a scam.

For more information and webinars on solar development in Pennsylvania, visit extension.psu.edu/energy.

For more information on solar development in Ohio, visit energizeohio.osu.edu.

Pennsylvania, especially the northwestern part, isn’t exactly known for being sunny. But, Brockett said, recently the cost of solar panels has gone down by about two-thirds.

With technological advancements and reductions in cost, “solar really could be viable almost anywhere,” he explained.

Other factors, like solar renewable energy credits, also help make it worthwhile for developers.

Developers look at things like how much land is exposed to the sun, and how close it is to high voltage transmission lines and substations, so they can send the power generated to somewhere useful, Brockett said.

Now, some landowners are receiving interest from solar developers. About 400 people signed on to one of Penn State’s latest webinars on the topic July 8.

Leases

Solar developers typically offer an option agreement first. The option allows the developer to evaluate the property and decide whether or not to develop there.

But while a developer can choose not to enter a lease after the option agreement is up, landowners typically do not have that choice. Usually, by signing an option agreement, they are also agreeing to enter a lease, if the developer chooses to proceed.

“While development may not occur, the landowner should view signing options as if it will occur … make sure they can live within the terms of that agreement,” Brockett said.

For landowners, Brockett said, it’s important to remember that these leases are long-term — often 20 to 50 years. Landowners need to consider how they want to use their own property and how leasing their land could affect that, as well as whether or not any existing leases, such as a hunting lease, or enrollment in government programs will be affected.

The leases are often complicated and long documents, so Brockett recommended getting legal assistance before signing anything.

“I’m a do-it-yourself-er. I don’t like to spend money on things, but this is something, if landowners are considering this, they need to engage with good legal counsel and make sure that they are getting a good deal,” he said.

Brockett has seen offers ranging from $300 to $2,000 per acre.

But landowners need to think about all phases covered in the lease before signing an option agreement, including what developers are allowed to do during the option phase, what payment they will receive during construction and operating and how developers will handle removing the panels once the lease is up.

Similarities

This scenario might sound familiar to anyone who was around through the shale gas boom in Pennsylvania.

Similarly to the shale gas boom, developers make offers to landowners to enter contracts. The agreements can be similar, but there are some big differences. Solar development typically needs more acreage than shale gas.

For shale gas, landowners are usually paid a royalty based on the amount of energy developed. For solar, landowners are typically paid a per-acre rate that doesn’t change based on the energy generated. Some agreements might offer a yearly increase to adjust for inflation.

But just like with shale gas leases, landowners need to do their research before signing anything.

“Usually, if a deal is too good to be true, it’s probably not true,” Brockett added. “If you know that, if your eyes are wide open to all of the things that could happen … then fair enough, you can proceed. But before that, let’s make sure we do it right.”