The conditions are right for the addition of renewable energy generation capacity to the Virginia landscape. This is particularly true for photovoltaic electricity generation, on a medium to large scale, on what is called a “solar farm.” In 2019, Governor Northam signed Executive Order Number 43 advancing clean energy innovation. At that time, Virginia had over 3000 megawatts of solar generation capability in service or under development. The Order called for Virginia to reach 100 percent carbon-free power by 2050 and 30 percent renewables by 2030. Fast forward to April 2020. The clean energy directions in the Order became law when the Governor signed the Clean Economy Act.
Solar farming is set to become a big business. If you happen to own the right piece of land, one that is sufficiently large (e.g., 50-100 acres is not uncommon), open, flat, and optimally directionally aligned (all of this is a complex set of inter-related factors), you could be contacted about leasing your farm to a tenant that is a solar development and operation outfit that will catch the sunlight and produce electricity on your farm.
Is this a good deal for landowners? Solar leases can be lucrative for a landowner and her family, but there are factors to be considered and precautions to be taken. The rent paid by a solar company is typically figured as a dollar amount per acre per year and is often attractive. Leases are long term, typically lasting 25-35 years, with possible additional 5 year terms added to the end. The landowner needs to consider and negotiate annual rent increases or other adjustments to keep up with economic conditions over such a long period of time.
The landowner needs to be assured it is working with a reputable solar development company. Is the company educated on local zoning issues? Has it done all its necessary feasibility studies? Does it have good leads on entering into a Power Purchase Agreement, ensuring that there is one or more guaranteed buyers for the electricity to be produced on the property?
The landowner also needs to be aware of potential liability issues as a landlord. Who is carrying insurance on the leased property? In what amounts? What impacts will the solar farm have on the property, itself? At the end of the lease, will the solar farm operator be required to “decommission” the solar facility (in other words, remove all the solar panels and leave the property in good condition).
The bottom line is the relationship between farmer and solar company tenant will be governed by a lease, which is the written agreement between them. The landowner should seek legal advice both as to the terms of the lease and for assistance with negotiating the various landlord protections that should be included in these long term contracts. If you have any questions, please give us a call at 703-251-5400 or email CPierce@surovellfirm.com.
Posted in: Business Law