How is payment generally structured in a solar lease?

If you have been contacted about leasing your land for a solar array, you’re probably wondering how much you can expect in terms of payment. While each case is different, we can give you some idea of how these payments are generally structured.

For example, you may have heard that, with wind leases, there are minimum royalty payments based on the number of megawatts produced at capacity. With solar leases, you typically won’t see this per-megawatt payment. Instead, you’ll see your payment calculated as a simple surface lease — in other words, a fixed sum per acre of the land that is leased.

Your payment will be calculated based on the underlying value of your land. It can range from around $200 per acre in remote West Texas to over $1,000 for exurban land that has a potential for non-agricultural development.

Your payments will be arranged as a guaranteed minimum payment, which is commonly referred to as “minimum rent” or just “rent,” in some cases. The payments are made annually and are generally adjusted for inflation over time.

Don’t lock in historically low energy prices

When you’re negotiating a solar lease, you should be aware of the circumstances we’re in at the moment. With historically low energy prices, a straight rent payment may not fully compensate you in upcoming years when energy prices go up. Many landowners demand some form of royalties.

These tend to begin at around 3% of the gross revenues, which are:

  • Revenues received from the sale of electricity generated on the property
  • Revenues from the sale of renewable energy credits, pollution credits, etc.
  • Moneys received as judgments or settlements in any take or pay contracts
  • Proceeds from any lump-sum payment to cancel or modify any obligation under any energy or electricity capacity purchase contract or another contract related to the project
  • Payments made by an insurer specifically in lieu of revenues received

Your royalty payments are generally received quarterly.

You should also understand that a solar array will consume the surface of the area it occupies. This may give rise to appropriate payments for surface damages. These include payments for buried collection, transmission and distribution lines and overhead lines carrying electricity out of the area. These payments are generally made within 30 days of starting construction.

There are a lot of things to consider when negotiating a solar lease in Texas. Don’t go it alone. Work with an attorney who has concrete experience with energy law.