Investing in a solar farm could mean a huge cha-ching
Anyone who’s seen their utility bill recently knows that electricity has spiked over the last few years. While many homeowners have chosen to install solar panels to save on costs, others have chosen a more daring move—investing in a solar farm. As Thomas Jefferson once said, “With great risk comes great reward.” So, here’s what you need to know about the return on investment (ROI) of solar farms.
A solar farm uses large-scale photovoltaic solar panels or, in some cases, solar thermal energy, to absorb solar energy from the sun’s rays and produce power that can be distributed to residential and commercial buildings.
Unlike the solar panels on a solar roof, solar farms are installed on undeveloped, vacant land, and they generate enough electricity to power multiple houses or even communities. Solar farms supply the electrical grid with power—much like conventional energy plants that use fossil fuels—only, the energy is renewable and “clean,” as it generates no pollution and requires minimal water to operate.
Rooftop solar systems direct the power straight to your home. Excess solar energy can be sent to the grid for credit or stored in backup batteries during inclement weather, but the main purpose of a residential rooftop solar system is to provide a single home with solar energy.
Investing in a solar farm project comes with many benefits and a few disadvantages. Here are the ins and outs of choosing to go solar.
There’s a reason why the Solar Energy Industries Association (SEIA) solar market insight report shows that the solar market increased by 33% in the third quarter of 2020 in the US and represented an astonishing 54% of new electrical capacities in 2021’s first three quarters—solar energy is beneficial and here to stay.
Benefits of solar farms include:
Provides clean, renewable energy
Doesn’t take up space at your home
Installed on open, undeveloped land where shade isn’t a factor
$1.70–$2.20 less per watt than residential solar energy systems
There are very few disadvantages to a solar farm, but you’ll want to keep the following cons in mind as you plan your project:
High upfront costs
Needs land before you can get started
The cost to install a one-megawatt (MW) solar farm is anywhere from $800,000 to $1.3 million without the cost of the land. Acreage varies depending on location, so expect to add around $19,200 to $25,600 for land, based on the USDA Land Values 2020 Summary.
Estimating the cost of a solar farm is multifactorial due to the broad ranges in the cost of land, equipment of choice, and more. For this reason, it’s more straightforward to look at how much it costs per watt. Solar farms cost anywhere between $0.80 to $1.30 per watt.
Residential solar panels cost around $2.50 to $3.50 per watt and between $17,000 and $32,000 for a complete system, for comparison.
The average ROI for a solar farm is approximately 10% to 20%. On average, a solar farm can take around five to 10 years to pay off, but once it’s paid off, you can reap the benefits of free electricity and a potentially hefty profit.
An average one-MW solar farm can earn between $20,000 to $60,000 or an average of $43,500 per year if you sell the energy to the grid. A solar farm with one MW of capacity is between six to eight acres. This means you’ll make roughly between $2,500 to $10,000 per acre.
Landowners who have a leasing agreement with a solar developer should expect to earn less—anywhere from $250 to $3,000 per acre yearly—due to the fees and leasing expenses.
Solar farm ROI depends on a multitude of factors that can impact how much you see in returns. These include:
Type of solar farm
Type of panels
Land requirements and acquisition
Size of your solar farm
Proximity to the grid
Regional climate and terrain
Cost of the installation
Your ROI may vary depending on the type of solar farm you choose for your investment. There are three types of solar farms that you can invest in: utility-scale, community, and microgrid solar farms.
These solar farms generate electricity for public utility companies and can take up thousands of acres with sometimes even hundreds of thousands of solar panels. The U.S. Energy Information Administration, however, states that most utility-scale solar farms in the U.S. are five MW or smaller. A solar farm with a five MW capacity can yield between $100,000 to $300,000 annually.
Most utility-scale solar farms are managed by utility companies and go towards powering corporations and facilities. Since most solar farms have an ROI of around 10% to 20%, this type of solar farm yields a high profit and also falls at the high end of that range, but it’s usually too costly of a project for homeowners and small communities.
Community solar farms are a type of distributed generation, meaning they don’t directly feed into a facility to give it power. Instead, the energy is distributed throughout a neighborhood, powering a community of households who all share in the ownership or leasing of the solar farm.
The EIA states that most community solar farms have a max capacity of two MW, which yields a profit of anywhere from $40,000 to $120,000 annually. These earnings are shared equally between the homeowners invested in the solar farm.
Leased solar farms usually have higher costs to rent the solar energy, and you also don’t benefit from paying off the solar farm in the long run. This means your ROI is lower than it would be through ownership, which falls in the middle of the ROI range. However, if you’re planning on moving, are a renter who can’t install solar panels, or are a homeowner who lacks space or sun exposure, this may be more financially beneficial overall.
Some community solar farms have a max capacity offewer than 100 kilowatts (kW). These microgrids are small but a step up from a rooftop solar panel system; if there is a power outage, microgrids work independently of the grid. As the smallest option, microgrids fall on the lower end of the ROI range.
Many solar power systems depend on the grid in some way, and you might see a nice ROI for a rooftop system that sells excess energy to the grid (also called grid-tied systems), but in case of a natural disaster or other emergencies, traditional solar panels won’t do the job.
Microgrid solar farms are a small-scale solution to keeping the power on without the higher budget needed for a community solar farm investment. They use battery storage as a backup during power outages to provide power to homes or communities during grid outages.
The type of solar panels you choose for your solar farm can also have an impact on your ROI. There are four types of solar panels for solar farms. Here’s a breakdown of how much each one costs and how efficient they are to help you determine which might give you the best return on your investment:
Monocrystalline solar panels are the oldest and purest form of silicon crystals on the market. These crystals are cut into wafer shapes to preserve the silicone. They convert 15% to 20% of the sun’s rays into energy.
$1–$1.50 per watt
Often used in residential solar panels
20% costlier than polycrystalline solar panels
20% more efficient than polycrystalline panels
Ideal for limited spaces
Pure silicon cells
15% to 20% energy efficient
25- to 50-year lifespan
High ROI
Polycrystalline solar panels are comprised of a series of melted silicon fragments that are shaped into squares using a mold. These panels are ideal for hotter climates and sport a 13% to 16% efficiency rating.
$0.90–$1 per watt
Most common solar farm panel type
Most heat-tolerant
Less energy-efficient than monocrystalline panels
13% to 16% energy efficient
25-year lifespan
Moderate ROI
Thin-film solar panels are the easiest to transport and also the most budget-friendly option. These panels are large and easy to produce in mass. They also perform well at temperatures above 95 degrees Fahrenheit. Their energy efficiency, however, is only between 7% to 13%.
$0.70–$1 per watt
Most affordable
Shortest lifespan
Takes up the most space
Less efficient
7% to 13% efficiency
10- to 20-year lifespan
Lowest ROI
PERC solar panels are the latest technology in the solar panel world. Think of these panels as an upgrade to your monocrystalline solar panels. As an upgrade, PERC panels are 5% more efficient than monocrystalline solar panels.
$1–$2 per watt
Takes up the least amount of space
Falls at the highest price point
Most energy efficient
20% to 25% energy efficient
25-year lifespan
Highest ROI
The size of your solar farm can range from just a few acres to hundreds or even thousands. But for most projects, a one-MW solar farm needs around six to eight acres. One-MW solar farms can generate enough power to keep 200 homes up and running.
To reiterate, agricultural land costs between $19,200 to $25,600. This rough estimate is based on the national average for an acre of agricultural land, which is $3,200, and the average number of acres for a one-MW solar farm.
Rural land in less populous regions of the country—such as New Mexico—might cost as little as $400 per acre, while land in populated, high-demand areas—like Rhode Island—might cost upwards of $16,000 per acre, so factor in your local area’s going rates to determine the land acquisition needed to achieve your solar farm project.
Calculating the wrong amount of solar panels could significantly lower your ROI, as you won’t have excess electricity to send to the utility company if you can’t provide ample electricity to the homes connected to your solar farm.
According to the EIA, the average household in the U.S. uses approximately 900 kilowatt-hours (kWh) per month, or 30 kWh a day and 10,700 kWh annually. To power homes of that size, you need a solar system with a 7.5 kW capacity. Remember, this capacity is for ideal weather, meaning the solar panels receive at least four hours of direct sunlight per day.
A good way to calculate your solar farm size is to look at the capacity of your solar panels, as different solar panels have different capacities and efficiencies. On average, though, one kW of solar energy requires a little over 100 square feet of space for the panels. Factor in the number of households investing in the solar farm to determine the number of panels you need.
Here are some tips to accurately determine your solar farm size:
Step 1: Multiply 100 square feet by the number of kilowatts needed to get the number of total square feet.
Step 2: Divide this number by an acre—43,560 square feet—to get the number of acres you need for the panels.
Step 3: Add two to four acres for the space between the panels and the housing for the hardware.
Step 4: Over-estimate your total calculations by 15% to 20% to accommodate for rainy days, inefficient panels, natural module degradation, and increased energy consumption in households.
This factor is easy to accidentally leave out of the budgeting process, but it’s very important for accurate estimations. If your solar farm is too far away from the utility grid, you might not be able to access it at all, making all of your efforts for a high ROI moot!
Make sure the project site is within 1,000 feet of a three-phase power supply and two miles of a grid substation to easily transfer and convert the energy over.
The sun doesn’t always come out tomorrow, especially if you live in a cloudy, rain-prone climate or have lots of trees on your vacant land. These can affect your solar farm’s ROI. Your solar farm needs to be on flat, sunny land to give you the best bang for your buck.
Soil conditions also must be ideal, with minimal trees, or else you’ll need to spend extra to clear these obstacles. This could add thousands of dollars to your project, depending on the acreage, distance away from the company, and complexity of the job. In some cases, a solar developer might deem the project unviable entirely due to the quality of the land.
Ultimately, your solar farm project’s ROI depends on the execution. From the materials and equipment to the land acquisition to the amount of power you’ll need to generate to provide electricity to those planning on using your solar farm, making a mistake could cost you money and negatively impact your ROI.
That’s why it’s best to speak with at least three solar panel installers near you. You want to hire the best solar installation company to ensure your project is on track for a high-yield investment without the high loss that can befall large projects of this nature.
