Investing in commercial real estate isn’t limited to traditional routes like multifamily homes and industrial spaces. There are more opportunities emerging that give investors the opportunity to boost their portfolio and create change in the world.
One way to do that is by investing in solar farms. The incredible thing about investing in solar energy is that by increasing sustainability, you increase profit. It’s a win-win for everyone involved – including the planet.
So what could your solar farm return on investment look like? Let’s take a look at what it means to invest in solar power and the innovative changes that are helping to shape the industry.
What Is the ROI on a Solar Farm?
Making an investment in renewable energy provides alternatives to fossil fuels and other non-renewable energy sources.
While this an incredible motivator, it’s also important to consider the solar farm return on investment, or ROI.
The average ROI for a traditional solar farm is between 10 to 20%. Most solar farms pay off their system within five to ten years, and then have at least 30 years of free electricity after that.
These are just general estimates. There are a lot of other factors to consider when figuring out the ROI of a solar farm like the local weather, cost of installation, size of the system, and technology used.
Are Solar Farms Profitable?
The overhead of solar panels, investing in land, and other pieces that go into starting a solar farm can seem like a lot of overhead costs at first glance.
Solar projects are a long term investment with the potential for solid profit. After the initial investment, solar farms offer recurring revenue for years to come.
One of the reasons a solar plant can be so profitable is that the energy created is sold back to the electricity utility so that it can be distributed and used by others.
Solar farms are scalable depending on how much space there is to set up panels. You can generate profit from just a few acres or create a large scale farm.
What does it take to invest in solar energy? Let’s take a look.
How to Start a Solar Farm
Solar energy is a rapidly evolving industry with many different ways to get involved and invest in the future.
Here are some steps on starting a solar farm:
1. Do Your Research
Since this industry is constantly changing, you’re going to want to do your due diligence and research exactly what the reality of starting a solar farm is.
- How much land will you need?
- What are the legal requirements for setting up a solar farm in your particular area?
- How much do solar panels cost per acre?
- How will the electric connections work?
- How will the plant be cleaned and maintained?
- Know how much you will need to invest and how you will access capital.
A big part of research is finding and securing funding. Will you need a predevelopment loan? If you can’t do a cash buy, how will you finance this project and get the biggest ROI? Which lenders will you use?
While banks and credit unions are coming around, finding financing for solar farms can be a challenge. Fortunately, hard money lenders and debt funds are options, some of which specialize in solar farms. A well-connected commercial real estate broker will be able to connect you to the perfect lender for your project.
Create a business plan around these questions so that you are adequately prepared before moving onto the next steps.
2. Find Land for the Farm
Now that you’ve researched and found the best possible location for your solar farm, it’s time to find the land needed for a solar farm.
Typically, you would buy land for a solar farm. However, it is possible to lease land, also called a ground lease. Keep in mind that if you do lease the land, you will need the agreement to span for at least 50 years.
3. Create the Power Structure
After you have a solid business plan and the land has been secured, you’ll need to create the actual solar structures.
Solar investing experts recommend working with one company for both the installation and the maintenance of the solar panels and structure.
They will help create the photovoltaic power structures needed to start a solar farm.
4. Build Your Network
Once the solar farm is up and running, it’s important to find customers and companies who will buy that power from you.
Some industries that may be interested in solar power are:
- Hotels and hospitality
- Real estate developers and owners
- Religious organizations
- Government agencies
This network is how you will generate a profit. It’s helpful to consider this during the research and business strategy step.
The 3 Most Profitable Places to Invest in a Solar Farm
Solar farms can be beneficial no matter where they’re built, but there are certain areas where they tend to be more profitable.
Some of the factors that contribute to profitability are how much the state values solar power, tax incentives, and the feasibility of the land and environment for building a solar farm.
Here are the top places to consider investing in a solar farm:
1. Rhode Island and Massachusetts
Those with solar systems in Rhode Island and Massachusetts tend to have the highest solar farm return on investment and are able to pay back their investment within a short period of time, usually around four years. The cost of electricity in these snowy states makes the switch to solar desirable for residents. Expect incentive programs, tax credits and eager property owners.
2. New Jersey and New York
Much like the previous states, New Jersey and New York offer a fairly high ROI, with an average of a six year payback period. New Jersey in particular has one of the top solar policy incentive programs in the U.S.
Like RI and MA, NJ and NY have some of the highest electricity usage and costs in the country thanks to cold winter temperatures and hot summers. Plus, property and sales tax exemptions are high in these states.
Hawaii is nearly tied with New Jersey and New York in terms of ROI and has an payback period of only four years, making it a great location for a solar farm. Hawaii has a high cost of electricity, making it a worthwhile investment for you and the state’s residents.
The state also plans to reach 40% renewable energy by 2030. While they don’t offer rebates, they do offer tax credits of 35% or $5,000 for solar panel installation. You’ll help residents save a ton on electricity.
Other states to consider building a solar farm in are vast and sunny Oregon, California, Nevada and Arizona to the west, and Vermont and Georgia to the east.
3 Alternate Ways to Invest in Solar Farm Real Estate
The traditional way of investing in solar farms involves buying acreage, building a big system, and selling that power back to the grid.
With developing technology, solar energy has gone from massive farming to individual homes and buildings. Here are a few more ways to capitalize on the booming renewable energy industry:
1. Invest in Microgrids
Ryan Duarte, CEO of Tier 1 Solar, explained how microgrids may be the future of solar energy.
He explained that a point of entry into solar farm investing involves creating microgrids of solar power versus a huge solar farm. These can be set up on one house or grocery store for example, and can be built by investors who can recoup finances in the short term with many years of interest and profit.
For real estate investors, this could look like covering arable land with solar panels and selling it as a service to the neighborhood, or installing a system on each home or in yards.
Another benefit of these smaller scale systems is that the further you go from the panels, the more voltage and kW you’re losing, which means smaller systems are able to conserve more energy.
Duarte’s company builds solar microgrids that charge batteries. Typically, solar farms sell extra power back to the grid, but it costs a lot of money for the technology to do that. These batteries store extra power that can then be used for things like mining cryptocurrency and heating water.
When it comes to investing in microgrids, investors can invest in either the equipment or the equipment manufacturers. Income is generated by having a bunch of individual homes or businesses with small microgrids.
2. Buy Stock in Renewable Energy
You don’t have to set up your own solar system to reap the benefits of investing in solar energy.
Buying renewable energy stocks and mutual funds gives investors a low risk way to get into the industry.
This can be done by buying stocks in a solar company or in a company that manufactures and maintains solar equipment.
3. Solar Income Funds
Solar income funds involve putting money into government run solar-power schemes.
This helps the country as a whole move towards a more sustainable power structure while giving a solid ROI.
The Future of Solar Farm Investing
There are so many ways to get involved with solar farm investing. Whether that’s building a solar farm, creating microgrids, or buying stock.
Investing in solar power helps create jobs, is backed by government incentives, and is becoming increasingly accessible. Read about South Landing Eco-District to learn how these investors made green with green buildings.