As a landowner, you might be wondering if hosting a solar project on your property makes economic sense. In this blog, we’ll examine how to assess solar project developers and their proposals. If you missed the first part of this blog series, check out The Landowner’s Inside Guide to Solar Projects, Part 1.
When a developer or land agent identifies an attractive property, they’ll try to engage with the landowner, by phone, email, mail, or a visit, about a two- or three-year option to lease or purchase the property.
In Pennsylvania, the developer will need this option to show PJM, the regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia, that they have control of the site to make the project viable.
For projects up to 20 megawatts (MW) alternating current, a developer would seek a minimum of a two-year option to lease or purchase. A developer would want a minimum of a three-year option to lease or purchase for projects larger than 20 MW. Regardless of the quality of the property for solar development, without an option to lease or buy, the developer can’t do the initial work needed to get the project off the ground.
Before agreeing to any option to purchase or lease their property, a landowner should vet the developer to understand who they’re dealing with and what they’ve done.
Questions Landowners Should Ask Developers
Bear in mind that not all people negotiating land deals are solar developers. Some may be land agents looking for suitable parcels who may or may not be working with solar developers. To figure out who is who, consider asking these questions:
- How many solar projects have you completed?
- Do you have any solar projects in progress now?
- At what stage are these projects?
- How much property do you have under control?
- Have you taken any of these properties through any of the project development stages?
- What changes will you make to the property e.g., tree removal, creation of roads, removal of animals? Who will get the value of the trees? Where will the roads go and who will get to use them?
Get Competitive Quotes
As with any purchase decision, it’s important to get a few competitive quotes. Landowners should seek out reputable regional developers, like BAI Group, and invite them to view the property and provide a bid for developing a project. With this information, landowners can make better informed decisions.
Seek Legal Advice
Before signing any legal document, contact your lawyer or find a lawyer who is familiar with solar development projects. You’ll want a lawyer who understands solar development terminology and the development process.
Proposed Changes to Solar Projects
To improve the quality of project proposals, in October 2022, PJM is looking to implement several changes to its application process, including an increase to the length of the option period from two or three years to five years. The RTO wants to increase the number of projects that have a strong financial commitment from both developers and landowners. PJM’s goal for the extension of the option period is to remove weaker projects from the pool of applications they have to consider.
While developers and landowners have to commit to a five-year option, it’s unlikely that developers will need that much time to determine the viability of a project. This is because the developer will still have an economic incentive, in the form of project deadlines and milestone payments, to determine a project’s viability.
In exchange for agreeing to the option, landowners receive consideration payments or development payments. These payments are typically between $4,000 and $10,000 depending on the acreage of the site and whether it’s an option to lease or purchase.
For example, an annual consideration payment would represent a percentage of what the lease might be. A 100-acre site leased at $600 per acre per year would pay $60,000 in the first year of the lease being executed. Based on these numbers, a developer might pay 10 percent, or $6,000, per year for the option years.
The Landowner-developer Relationship
During the option period, the developer usually interacts with the landowner every few months to give them updates on the project status. The developer may want to visit the property to perform environmental assessments like wetland delineations, weather measurements, solar performance measurements, or a property survey. These activities will be coordinated with the landowner.
Meanwhile, PJM will inform the developer if the project needs an upgrade in the utility grid to make the project viable. As long as the developer’s cost assumptions are close to PJM’s, then things are going well.
During the option term, the landowner has full use of their land. They can continue to farm it, select timber it, and hunt on it, among other activities. Of course, landowners are prohibited from doing anything that hurts the chances of solar being developed on the site. For example, they can’t build a large house in the middle of the site during the option period. While the developer doesn’t take control of the land during the option years, they have reserved the option to purchase or lease it during this period.
Assuming the cost estimates are good, and after satisfying all of PJM’s requirements, the developer will notify the landowner of their intention to execute the lease or purchase the property. At this point, the landowner is a partner in the development.
There are many things to consider when evaluating an offer to build a solar installation on your land. We can help you make sense of the offer and even provide a competitive bid for the project.
To learn if solar is the right move for your property, contact us for a free solar feasibility assessment.