LONDON, Ohio — Ohio is rarely thought of as a sunny state, and never less so than in the last 12 months. Still, around the end of 2017, Eric Romich, Ohio State extension specialist for energy development, started getting calls from farmers about companies interested in leasing their land for solar energy projects.
Just as when the oil-and-gas industry moved in years ago, some farmers are seeing a new income opportunity — but there are a lot of factors to consider before signing a lease.
In Ohio, there are nine utility-scale solar projects, six of them approved and three of them pending, that have been submitted to the Ohio Power Siting Board. These projects combined would total 16,500 acres, with 12,000 of those acres being currently farmed land.
Most of the projects are in southwest Ohio. The solar resources are slightly better there than in the northeast, Romich said, but he still expects projects to crop up in other parts of Ohio.
“I have gotten calls from farmers in every corner of the state,” Romich said.
Solar projects
Romich said there are about 2,710 solar projects in Ohio, but most of them are “behind the meter.”
This means they are built for a specific location or building, like solar panels set up to generate power for a house, instead of feeding into the grid. These smaller-scale projects do not have to undergo the same kind of review as larger, utility-scale projects, which must be approved by the power siting board.
Romich cautioned that even if the projects are approved, this doesn’t necessarily mean they will be built.
Still, because installation costs have dropped as solar energy develops and because the federal Business Energy Investment Tax Credit program is scheduled to begin gradually lowering from 30% to 10% by 2022, Romich expects to see more activity in solar development over the next few years.
Leasing
While this situation might seem similar to the oil-and-gas boom, Ohio State ag law specialist Peggy Hall said there are some differences.
For one thing, because projects are condensed physically into one place, she has not seen farmers form groups to lease like landowners did for oil and gas.
While payment can vary, Hall said farmers could receive $800-1,200 per acre per year once a facility is constructed and operating. During construction, rates could be closer to $2,500 per acre per year. She noted, however, that there are many different ways payment can be structured. Some leases may have a fixed inflation adjustment over the years, while others may be flat.
As farmers consider whether to lease their farmland for solar development, there are some concerns. Many of these leases are long-term, which means taking farmland out of production for a long time.
While some developers allow farmers to graze sheep or build pollinator habitats around solar projects, this is not always the case, since different developers will include different terms in their leases. Farmers who want to continue using their land for another agricultural purpose instead of taking it out of commission entirely should be sure to negotiate that in the leases.
Hall said some leases can last up to 40 years, taking an entire generation away from the land.
Hall said farmers should consider if this fits with their other plans for their farms, and whether they have a next generation who wants to farm that land, before they get into the details of specific leases. “There are some pretty significant amounts being dangled in front of our landowners right now for leasing for this reason,” Hall said.
Leasing for solar development can also mean withdrawing land from the Current Agricultural Use Valuation program, which triggers penalties. Landowners will also have to pay regular property taxes if their land is not being used for agriculture. Hall said farmers should try to negotiate for the company to cover these costs.
Also, if farmers have already leased their land to someone else for hunting, mineral rights or other purposes, they may not be able to lease their land to another company.
First contact
In their online publication, Farmland Owner’s Guide to Solar Leasing, Hall, Romich and OSU extension’s Evin Bachelor said farmers might get a letter or postcard stating that a developer is looking for land to lease for a solar project, or inviting them to an informational meeting about a project in their area.
While these letters and postcards are just informational, the developer will likely eventually set a document, or set of documents, to try to make a legal agreement. Sometimes, the first document is a letter of intent. Other companies might start with an option to lease agreement.
Option to lease
Hall said an option to lease gives the company access to the land for feasibility studies, but gives it the option to back out or terminate the agreement if it chooses not to move ahead with the project.
Usually, these agreements are for a three-year period. Companies will often allow farmers to continue farming while they decide whether or not to continue with the project, but the document should address how farmers are able to continue using the land during this period. Landowners do not have the option to terminate this agreement like the companies do.
Hall, Romich and Bachelor’s guide advises keeping an eye out for written documents that ask for a signature and offer the landowner money. These documents, if signed, are legally binding, so landowners should make sure they understand and are happy with the terms before signing.
Land risks
Romich and Hall said there is some risk of damage to the land. Posts used to construct large solar projects can go down four feet into the earth. While the company is building the project, the site becomes a construction zone, which can also cause damage.
In addition, developers usually need a way to access the project for maintenance while it is in operation, so while the construction zone may not last, there may be access roads added to the property.
Hall said farmers should make sure that the lease specifies that the construction zone will be removed once the project is built, and that, at the end of the lease, all of the structures put up on their land will be removed. The option to lease and the lease should address how damage to crops or forages will be handled during all periods of the project.
Hall recommended that farmers work with an attorney to make sure that the conditions in the leases are acceptable and fit in with their plans for their farms.
