In part two of our renewable energy series, we talk about leasing your surface rights for solar power development (aka a solar farm). From the terms to think about, going lease rates for solar developments, what would be installed on your property, and the actual carbon footprint of solar vs. natural gas power plants, we break it all down for you.
Even if you don’t own large amounts of surface rights to lease for a solar development, this episode has something for you. As mineral owners, it is important to be aware of how surface uses like a solar farm could impair the ability to use the surface to drill an oil and gas well. When certain provisions need to be made in order to balance the often competing priorities of surface vs. mineral rights, the Accommodation Doctrine comes into play. In fact, we discuss a recent court case in Texas that highlights this potential conflict.
As always, you can find the show notes with links to articles we mention in the show at mineralrightspodcast.com. Questions or comments on this episode? Email us at feedback@mineralrightspodcast.com.
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Spotlight on Solar
Topic that has been in the news a lot – “green” energy, specifically wind and solar energy. And while we’re not here to debate the fact that solar power is not a reliable source of energy because the sun doesn’t always shine. We need reliable and affordable sources of energy from coal, gas, hydro, or nuclear to balance things out until there is a cheap mass storage solution to release energy back into the grid when the sun isn’t shining. So I don’t believe we are there yet and there is the risk we get ahead of ourselves if there is not an energy storage solution to go along with these alternative forms of energy. That said, I believe all forms of energy have a place going forward and the fact is the momentum strongly favors building more solar and wind farms and this is likely going to be enabled by government mandates and credits.
Go to energytalkingpoints.com Alex Epstein, he has a section on the Energy Transition https://energytalkingpoints.com/energy-transition/ which has some more information on solar mandates and government subsidies.
So like our episode on wind power, what we are going to talk about today, leasing your surface rights for solar power development aka solar farm. In addition, we’ll talk about the steps that would be involved, the footprint required, and some of the considerations around solar power. As mineral owners, this is especially important to be aware of as a solar farm could impair the ability to use the surface to drill an oil and gas well and certain provisions would need to be made to provide space for locating any wellpads or surface facilities. This concept of balance between mineral owners and surface owners is called the Accommodation Doctrine and we’ll talk more about this towards the end of today’s episode.
Mineral Rights vs. Surface Rights
But before that, let’s take a step back again. As you may remember from our episode on Wind Power, we talked about the different rights attached with a tract of land (sometimes referred to as the bundle of sticks).
If you have fee simple ownership to the land, you own the entire bundle and the string holding the bundle together is your deed. For severed mineral interests only, you might just own one or two of the sticks. So for today’s conversation about leasing property for solar power, we’re going to talk about the surface right stick.
Again, if you listened to the wind power episode, you may remember the listener question from Mike about priority of mineral rights vs. surface rights.
So when we talk about specific property rights, obviously each person’s circumstances are unique, laws vary from state to state, and you need to review your deed and get help from a competent attorney if you have any questions.
But for the sake of our illustration we’re going to be talking in general terms about some of the things to think about if you are interested in leasing your land to a utility company for a solar farm.
What is a Solar Farm
So everyone is probably familiar with the sight of rows upon rows of solar panels over a large area, and that is what we are talking about when we refer to solar farms.
Now, it is also important to consider that there are different ways to harness the sun’s energy and one of the most common is the use of photovoltaic solar panels that absorb this energy and convert it to electricity. These PV solar panels come in all different sizes and shapes, some are fixed and others have motors to allow them to track the sun’s path in the sky to maximize efficiency.
There are also other ways that the power of the sun is utilized, like concentrated solar power which uses a large number of mirrors or lenses to concentrate sunlight into a solar receiver where the thermal energy is harnessed to power a steam turbine which is connected to an electrical power generate to generate electricity, similar to the way a conventional gas-fired power plant works except in this case the source of the heat comes from the sun, not burning natural gas.
For the purposes of our conversation today, we will talk about photovoltaic solar panels since that technology makes up the vast majority of solar capacity in the United States.
Considerations and Requirements for Solar Farms
As you can imagine, the most important factor is how much solar radiation your property gets when determining if it might make sense to locate a solar farm there. In the United States, the Southwest part of the country is most favorable for PV development, West Texas, New Mexico, Arizona, California, Nevada, Utah, and Colorado all get the most solar radiation when compared to other parts of the country. We’ll link to a map from the National Renewable Energy Laboratory (NREL) in the show notes where you can see where the best places are for solar.
So obviously, the way photovoltaics work is they directly convert light into electricity at the atomic level. PV solar panels or modules are made up of several solar cells that are directly connected to each other and are mounted in a support structure. A solar installation or solar farm consists of several modules connected together. For example, a typical residential rooftop solar installation has around 30 modules.
Modules are generally designed to supply electricity at a certain voltage and the amount of current and hence the power output (voltage times current) is dependant on how much light strikes each module.
An example of this – on a cloudy day the solar panels will generate less power than on a sunny day because less light is hitting the modules on a cloudy day.
An interesting characteristic of PV modules is they produce direct current (DC) electricity. This is the type of electricity that you find in batteries lying around your house that power things like your TV remote control. The type of electricity that is found in our electricity grid is alternating current or AC. So, in order for solar power to be used on the grid, it must go through what is called a power inverter which converts the direct current into alternating current electricity which can then flow into the electric grid.
Another consideration is the efficiency of the solar panels themselves. According to the Department of Energy, the best panels for commercial use have efficiencies around 18 to 22% whereas the maximum theoretical efficiency of silicon solar cells is around 32% so there is a lot of research going into how to make these more efficient.
What is Involved with a Solar Farm?
A lot of solar panels. Because the amount of electricity a solar farm can generate depends on the area of solar panels, a solar farm will consist of thousands of solar modules typically lined up in rows aligned to the path of the sun. There may be space between the rows to allow maintenance personnel to access all of the solar panels for cleaning and repairs.
You usually need to have a water source nearby. You are probably wondering why? Solar panels need to be kept clean in order to operate at maximum efficiency. Dust and dirt that builds up on the modules blocks the light so they need to be periodically cleaned.
Proximity to power lines. You should be somewhat close in proximity to power lines in order for the project to be feasible. The further you are away from transmission lines, the more a utility company would need to spend on building power lines to connect the solar farm to the grid, which means additional cost. These dedicated transmission lines are called generation tie or “Gen-tie” and they cost approximately $1 million per mile to construct. So as you can imagine, properties located far away from existing utility substations or transmission lines are less desirable because they are less economic for solar developer. This article covers how a Solar Farm Connects to the Grid, in case you want to learn more about this.
The solar developer may also need to build an electrical sub-station on your property to either step up or step down the voltage so the solar farm can connect to the transmission line to feed power into it.
Unlike with wind power where there is a lot of space between wind turbines that can be used for other purposes like ranching, with a solar farm you are committing the majority of the land to the solar farm because the solar panels take up so much room.
Most solar projects are described in terms of the max power generation capacity. In other words, the number of megawatts of power generated.
How much space is taken up by solar power plants? A rule of thumb is that around 4 acres of land is required per Megawatt of power generated.
Minimum size for a small-scale power plant, sometimes referred to as a community solar power project is 5 MW which would take up around 20 acres of land.
For a 100 MW solar PV power plant would require about 400 acres, including the space used up by associated facilities. Actual surface requirements vary based on the types of panels used and whether tracking motors are used or if the panels are installed in a fixed array.
Did you know that while a solar farm may have a capacity of 100 MW of direct current actually will only provide around 80-85MW of AC power. This is because the power inverters that are required to convert DC to AC power cause some energy to be lost in the process.
The takeaway here is that solar power plants require a significantly larger amount of land when compared to conventional power plants. This is because the sun doesn’t deliver concentrated energy so you need a large surface area to capture enough to use. Whereas fuels like oil and natural gas are very energy dense so a thermal power plant running on natural gas only requires a fraction of the land usage.
What are Solar Panels Made of?
What Materials are Required for Solar Power Plants?
- Large amount of concrete for the foundations for the solar modules
- Aluminum and steel for the frames and supports that hold the panels together
- Copper is another large input for wiring to connect the panels together.
What is the Carbon Footprint of Solar Power?
When looking at the pros and cons of solar, it is important to understand the true carbon footprint. This is especially important when solar and wind are advertised as the silver bullet that will solve all of our energy problems. We found a study from 2002 that compares the greenhouse gas emissions from building and operating 5 types of electric power plants of similar size: hydroelectric power plant, a wind farm, a coal-fired power plant, a natural gas fired power plant, and a solar power plant.
That study compared the full lifecycle cost and greenhouse gas emissions from all of these types of power plants. Interestingly, the photovoltaic power plant was by far the highest cost, by more than 4 times higher than the wind farm option after 20 years with hydro and closely followed by natural gas as the lowest cost. I am not sure if this study took into account the degradation that occurs with solar power plants, as the solar panel efficiency degrades over time. NREL analysis estimates degradation rates of around 0.3% to 0.5% per year for the best manufacturers.
Solar panels typically have a life of around 25 to 30 years at which time they must be replaced although in certain conditions could extend beyond this. The issue becomes the efficiency as it will degrade over time like we mentioned.
So another issue is that replacement of the solar panels may be required over time and there is a financial cost and GHG emissions cost associated with the manufacture, transportation, and installation of the new panels and the disposal or recycling of the old panels.
Obviously, the longer solar panels remain in service, the more beneficial from a carbon emissions standpoint. But it is important to consider the fact that a lot of raw materials that we mentioned earlier must be mined and used in manufacturing and transporting these to the site requires energy as well.
In fact the lifecycle carbon footprint of a solar PV power plant is around 24 g per kWH for one that uses multi-crystalline silicon panels. The study that I mention above says that solar PV plants generate around one-fifth (⅕) of the CO2 emissions after 20 years in operation. Specifically, the study claims that solar photovoltaic power plant would produce 10,000,000 metric tons over 20 years compared to 50,000,000 metric tons for the natural gas power plant.
Capacity Utilization Factor for Solar Power
Important to realize that this is only part of the picture since the reality of the matter is power plant performance is measured by what is called the Capacity Utilization FActor or CUF. This is the ratio of the actual output from a solar power plant over a year to the maximum possible output from it for that year under ideal conditions (e.g. the sun was shining 100% of the time). According to the EIA, the CUF’s for utility-scale solar PV power plants was around 25% from 2014-2017.
U.S. natural gas combined-cycle power plants had a capacity factor of 56% in 2015 so for the same power requirements, you actually would need two solar power plants to equal the actual amount of power generated by a natural gas power plant. In our wind energy episode (Episode 93), we looked at a few natural gas power plants in Ohio to compare against a wind farm in Ohio. In that case, we found Capacity Utilization Factors (CUF) of around 70-80% for the natural gas plants. The takeaway is that natural gas power plants can have a CUF higher than 56%. This also does not take into account any energy storage solutions that might be installed with a solar power plant and the carbon footprint associated with that.
So rather than one-fifth (⅕) of the CO2 emissions over 20 years in operation, you would really be talking closer to ½ of the CO2 emissions over 20 years for the same amount of power generated over that time (assuming a 56% CUF for natural gas). Again, this is based on the capacity utilization factor which takes into account how much a power plant ACTUALLY produces vs. the stated capacity. If actual utilization of natural gas power plants is closer to 70-80%, it might actually take 3 solar plants to replace one natural gas fired power plant which ends up wiping out much of the CO2 emissions benefits, not to mention you also need a way to store the energy to make solar reliable.
This is an issue that was made apparent in the recent polar vortex affecting much of Texas and surrounding states and the millions of people without power due to the high demand and the solar and wind power that was offline due to the snow/ice.
How Valuable is your Land if it is Suitable for a Solar Farm?
Most of the time, solar farm developers perform large scale studies to determine where it is most advantageous to place a new site and they will then go out and contact the landowners to try to obtain a lease. They already have a good idea of where it makes sense to locate a the solar power plant based on the amount of solar radiation the area receives (how sunny it is), the terrain, proximity to roads and power lines but if you think your land might be suitable, it can’t hurt to contact solar developers to see if they might be interested.
Like with mineral rights, it boils down to location-location-location. Owning mineral rights in an area with good geology and prospects for oil and gas development is similar to owning a large amount of surface land in a relatively flat sunny area close to the grid and with suitable roads leading to your property.
What is a Solar Energy Lease?
A solar lease is like another type of surface lease, whether a grazing lease, or a building lease. You are granting the lessee the rights to use the property in question for a specific period of time in exchange for monthly rental payments.
With solar leasing, if your property meets the first pass of their requirements, they may contact you to survey your property to confirm this.
When you lease your mineral rights, an Oil and Gas Lease is used to outline the terms of the agreement. A solar lease outlines the terms of the agreement.
Like with wind energy land agreements for wind farms, the term of most solar leases are very long. This is because the longer they can operate the facility, the better the return on their investment because a considerable up-front investment is involved.
Some leases can have terms upwards of 50 years when taking into account options to renew the lease so you need to be willing to tie up the land for at least that long. Check the laws in your state as many states may have adopted provisions that limit the effective period of solar to a set number of years.
Like other agreements pertaining to the use of the surface rights, the solar lease will outline things like what type of facilities are allowed on the property, use of resources on the property like water or aggregate to make concrete, and how other expenses associated with the property will be handled.
How Much Will I get Paid for A Solar Energy Lease?
Of course, one of the biggest items that you will want to negotiate for is the highest monthly rent that you will be paid and the acreage required for the solar development. Something that also needs to be considered is what condition the land will be left in at the end of the lease. You may want to specify that the land must be returned back to its original condition (whether that is with native vegetation replanted to prevent erosion or in a form suitable for farming. This can cost a lot of money if you have to restore the land yourself so this is a critical thing to negotiate that might get overlooked because it is not a pressing issue.
Like with an oil and gas lease it is important to negotiate favorable terms like the payment structure for allowing the solar farm on your land. This might include an initial payment which is similar to the lease bonus that is paid upfront in a paid-up oil and gas lease. Then, there are also minimum rental payments that would be covered that would be paid monthly, quarterly, or annually. This is usually before the solar farm starts operating and is like the periodic rental payments on some oil and gas leases.
The going rate for leasing your land for solar farms depends on the location and a lot of factors but typically range from $250 to $2,000 per acre, per year. In addition to the suitability of your land to support a solar farm, demand and local policies and regulations can have a big impact on solar developments. Specifically, if your land is located in a state that has renewable energy targets or if there are large energy buyers in your region wanting to purchase renewable energy (like Google or Facebook for data centers), or if there are tax incentives in your state for new solar projects.
When negotiating the lease rates, it is important to consider alternate land uses and how much revenue you could generate from those other uses, like farming, or ranching. Another consideration is the fact that if you are in a prolific oil or gas play and you own the mineral rights under your land, you’ll probably get more from having an oil & gas operator drill a well on your land. (or if you negotiate a surface use agreement to locate the well on your land and can negotiate favorable terms like an overriding royalty interest).
While we won’t go into detail as to the specific terms to look for, suffice it to say this is where a qualified attorney is really critical to make sure your interests are protected, we’ll link to an excellent article that we found that outlines some of these terms.
The Accommodation Doctrine
Interesting thing to note, as you may know, with mineral rights they can be reserved in a deed when a landowner sells their property.
In most states, the mineral estate is considered the dominant estate because the ownership of minerals would not be useful if you couldn’t access those minerals from the surface. That said, you would really need to look at it on a case by case basis, different case law in different states, different requirements as to the types of accommodations that need to be made to the surface owner. This is often referred to as the Accommodation Doctrine which many states have adopted in the interest of balancing surface vs mineral owners rights. Generally speaking, the accomodation doctrine requires the dominant mineral estate to accommodate an existing surface use when certain conditions apply.
In fact, there is an interesting case addressing this issue recently (Lyle v. Midway Solar), which talks about a conflict between a large scale solar facility and the ability of a mineral owner to develop the oil and gas resources below the ground. This case involves 315-acres in Pecos County Texas. Interestingly the lease with the surface owner identified “designated drill site tracts” on the property for future exploration of oil and gas. The mineral owners sued the surface owner and the solar developer saying that the solar farm impaired their ability to develop their minerals, even though they didn’t have an active oil & gas lease.
The takeaway here is that solar developers would likely look to obtain a lease from a fee-simple owner who also owns the mineral rights under the land or who could obtain a waiver for minerals. Since there was not any oil and gas developing occurring it is hard to say how it would have ended up but needless to say it highlights the potential conflict between a solar lessee and mineral owner.
Outlook for Solar Energy
With the current focus on zero carbon emissions from power generation by 2035 and the United States rejoining the Paris Climate Accord, the future is bright for solar power (pun intended). I would expect that like with wind energy, there may be more opportunities in the future to lease your land for a solar farm.
And like I’ve mentioned before, we need to be smart about the transition from fossil fuels to renewable energy for power generation. The issues we’ve seen in Texas highlight this need. I believe that we need a cheap and reliable mass storage solution in place to balance out the energy supply when the wind isn’t blowing or when the wind isn’t shining. Without this, outages will become more commonplace when electricity demand exceeds current supply in times where renewable power sources are not able to produce what we need.
Here are a few resources that talk more about the future of solar:
- The Future of Solar Energy – A Look at Future Solar Technology
- 2021 Renewable Energy Industry Outlook (Exploring renewable energy trends and the impact of COVID-19)
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