The push for more solar energy projects across the U.S. is intersecting with agriculture, as farmland has become a key target for projects in the Midwest.
As more farmers are approached about potential solar projects, the rates being offered as payment are even more shocking than what AgWeb reported this spring. In fact, one farmer in Illinois says he received an unsolicited offer for as high as $4,500 per acre.
Lower commodity prices, higher interest rates and the pain from inflation are all factors that are starting to eat into the overall farmland market. As the amount of farmland for sale slows, prices are starting to cool, and if commodity prices don’t make a comeback before next year, farmland values are expected to drop in 2025.
There’s one factor, however, creating more competition for farmland, and it could also impact farmland prices and cash rent values in the Midwest, and that’s the growth of solar leasing on land.
“The rates we’ve seen are anywhere from as low as $500 per acre up to, I think, the highest one I’ve legitimately seen is probably close to $4,000 per acre,” says Paul Schadegg, senior vice president of real estate operations at Farmers National Company.
Todd Janzen, an ag lawyer based in Indiana, says solar leasing started in the Hoosier state five years ago. Today, such leasing is gaining traction and some controversy.
“One of the common themes is that these are really long-term leases. So, farmers are used to one-, two-, maybe five-year cash rent leases, and these are for 20, 30 or even 40 years,” says Janzen, founder of Janzen Schroeder Agricultural Law. “So, they’re really a generational decision that needs to be made.”
Janzen has looked at numerous leasing contracts for landowners, and rates are all over the board.
“I’d say the lowest I’ve ever seen is $500 an acre, and that was really low. It’s normally anywhere from $1,000 to $2,000, in that range per acre per year, over the life of 20-plus years,” Janzen adds.
Purdue University’s latest ag economy barometer showed 16% of respondents say they have discussed leasing farmland for solar energy purposes within the last six months.
· 69% said the rate they were offered was $1,000 per acre or more, up from 27% a year prior.
· 27% of respondents said their rate was $1,500 per acre or more.
In Illinois, farmers are reporting eye-popping offers that are well above $1,500. One farmer near Morton, Ill., shared with U.S. Farm Report some information regarding an offer he received via an unsolicited letter. The company offered him a rate of $3,200 to $4,500 per acre. The company offered an additional $1,000 if the farmer signed a letter of intent, plus $3,000 more upon signing the cash lease.
Where is all this money coming from? During an interview last month, AgriTalk’s Chip Flory asked Agriculture Secretary Tom Vilsack if the Inflation Reduction Act (IRA) is being used to bankroll some of these high lease rates.
“From a standpoint of the individual farming operation, the program basically plays 50% of the cost of the installation. There’s a tax credit that will give you another 40% of the value. So, 90% of the cost, of an individual solar operation, of the windmill projects, things of that nature can be paid under the IRA,” Vilsack said. “In addition, we are creating a vehicle in which the PACE program and the New ERA program are providing significant resources to municipal utilities to convert from a fossil fuel generation and use to a more balanced portfolio with renewables. So, that resource is potentially a forgivable loan program that can significantly increase the opportunities in this space.”
“Are you hearing concern from the countryside about taking some very productive farm ground out of production for the solar farms?” Flory asked, following Vilsack’s answer.
“Well, there’s always that concern, but he reality is that that’s not as prevalent as it may seem. Less than 1% of the land is currently engaged here,” Vilsack told Flory. “But having said that, you’re seeing new technology now being developed that will allow for productive agriculture to continue and still have solar on the farm as well. If you raised the panels from 3' to 10' you can graze underneath those panels, and you’ve got the best of both worlds.”
The push for solar on farmland is creating attractive prices for farmland owners across the U.S. But at anywhere from $500 to $4,000 per acre, such prices are also causing concern about what they would do to cash rent and land values in those areas.
“That’s going to put upward pressure on cash rent, and it’s probably going to put upward pressure on land values,” says Michael Langemeier, associate director of the Purdue Center for Commercial Agriculture. “And so it probably impacts a fairly local area, depending on whether your area has solar leasing or not, but it certainly has pretty wide ramifications on what’s going on in agriculture.
Janzen says in Indiana, as these solar companies offer a very lucrative cash rent for solar compared to what the commodity market would pay for raising grain, there’s growing interest among farmers.
“I think that’s one of the surprises is that we used to see it was a lot of landowners who weren’t really in farming anymore, probably retired, or the landowners aren’t involved on the farm. But anymore, we also see a lot of farmers who just think let’s take 100 acres and put it into solar so that we can diversify our income stream,” says Janzen.
Whether it’s Indiana or Illinois, the eastern Corn Belt has been ground zero for solar companies looking for farmland.
“If you look at the map and how concentrated the population is as far as the further east you get, I think that’s probably a big part of it. There are more metro areas that they can feed from those, from those solar fields. And the further west you get, the more unrealistic it becomes,” explains Schadegg.
Janzen says the other variable with these agreements is how much land farmers are putting into solar production.
“I’d say probably 20 acres is on the low end up to, you know, farmers have 300, 400 acres that they can put into it. I think a solar company would gladly be much more willingly to work with one landowner than multiple ones,” he adds. “So, if you’ve got the acres and they’re in the right location, then they would sign you up.”
But whether the lease is for a few years, or up to a 40-year agreement, there’s no guarantee the money will be there for that long. But according to Janzen, the solar companies he’s dealt with have been positive so far.
“Of course, there’s always risk that the rent won’t be paid. And then you’ll have to try to foreclose on the solar company. We haven’t seen that yet. So that’s great,” he adds.
Yet, Janzen points out there are still risks.
“I think there’s some risk on a personal level.These are becoming somewhat controversial at the county level,” he says. “And so it can divide neighbors and counties, which is unfortunate, but it’s also a reality.”
With commodity prices under pressure, and solar cash leasing rates sometimes thousands of dollars per acre above other cash rent prices in the area today, the financial incentive to even put 50 acres of farmland into solar is high.
