Pennsylvania Landowners Guide to Utility-Scale Solar Leasing

Background

The term "utility-scale" does not have a legal definition, nor is it defined by parameters of being a specific size. In this case, we are referring to solar arrays that intend to sell all the energy they generate to the grid. 

In Pennsylvania, and many other northern states, utility-scale solar has not played a significant role in generating power. Presumably, things have changed. Technology has gotten better, solar panels have become far less expensive, battery storage is cheaper, and many are interested in renewable energy. 

Thousands of Pennsylvania landowners were contacted in 2019 through 2021 by solar developers interested in a lease or purchase option to develop solar arrays on these properties. We expect this trend to continue. These inquiries are not limited to any section of the state but have been limited to properties near accessible infrastructure (high-voltage power lines and substations). This is often a long-term commitment that could last 25 to 40 years (with a lease and extension option).

Landowners are usually the first people contacted in a community about a proposed utility-scale solar development.

Siting Utility-Scale Solar

Solar developers are interested in properties with easy access to high-voltage power lines in proximity to electrical substations. Since the developer's objective is to sell power to the electrical grid, developers need a path to get to the grid. This connection and distribution capability is a large part of the cost of solar development. If your property does not have access to high-voltage power lines and proximity to a substation, it will probably not be considered a potential site. 

Other siting considerations might include slope, terrain, access, shading, soils, pipelines, exposure to the sun, interstates, rail, wetlands, preserved land, and proximity to homes.

Developers may prefer farmland because of a lack of rocks and roots and access to sunlight and drainage capabilities. Farmers should consider a loss of tillable land in their farm business.

How Utility-Scale Solar Works

While some residential solar arrays may use thermal systems (heating water), utility-scale solar uses photovoltaics (PV) to capture the sun's energy and convert it into electrons. No water is used in the PV process.

Solar panels produce direct current (DC), which must be converted to alternating current (AC). This will require inverters and potentially other infrastructure.

PJM New Requests

These arrays may wish to store power on-site as well. This would require batteries or other energy storage that would exist on site. Currently, about 20% of proposals in Pennsylvania submitted to PJM Interconnect (who manages the electrical grid in Pennsylvania and elsewhere) have included proposed battery storage on site.

Right-of-Ways (ROWs)

The energy produced on a solar site must be transported to high-voltage power lines. There will be a path to get there, either by trench or pole. If neighboring properties host solar arrays that need to go through your property, there may be other ROWs. These ROWs will have restricted use by the landowner. Depending on how this ROW is configured, this could affect other areas of your property. Landowners should consider the current and future uses of their properties. Landowners should also consider how they will be compensated for restricted use of this area of their property.

Fencing

Most solar arrays will be fenced with limited access. When landowners lease this area, they may need permission to enter this section of their property (unless this is addressed in the lease document).

Regulation

Solar leases are a private contract between a landowner and a solar developer. If the solar developer is going to disturb more than one acre, a permit is required. See www.bit.ly/DEPsolarpanelfarms. 

Pennsylvania DEP only regulates earth disturbances like stormwater management and Erosion and Sedimentation (E&S) control. PJM (Pennsylvania, New Jersey, Maryland Interconnect) administers the process for evaluating and approving requests by developers to interconnect new energy resources, including grid-scale solar projects, into the regional transmission system. This process involves multiple stages of technical reviews of how the proposed project will impact grid operations. The PJM review process does not consider local land-use regulations that may affect the ability of the proposed project to be permitted and ultimately constructed.

The National Electric Code (NEC) governs the installation of all components of the solar panels, connections, inverters, battery storage, and connection to the grid. The NEC devotes two articles to addressing solar PV systems: Article 690 (Solar Electric Systems) and Article 705 (Interconnected Electrical Power Production Sources). These articles are key to the safe installation and operation of PV systems.

Local governments in Pennsylvania can regulate land use, including utility-scale solar development. This is the developer's burden to work with local governments for utility-scale solar.

Which Utility-Scale Solar Arrays Will Be Developed?

While many solar lease options are signed, some (maybe most) likely will not be developed. It may be wise for a landowner to react to the proposed contract as if it will be developed but plan finances without relying on annual solar payments. Most utility-scale projects will only be developed if someone has committed to purchasing the energy from the project in a long-term contract (a PPA or Power Purchase Agreement).

Letter of Intent (LOI)

Some, but not all, proposals start with a letter of intent from the developer to the landowner. This letter is typically brief but may include some important details of the project. This letter may give the potential lessee (the solar developer) some binding provisions from the lessor (the landowner):

• Exclusivity (you can't engage with a competitor)
• Non-Interference (you give them access to your property)
• Confidentiality (you can't discuss this with anyone except possibly your attorney).

This letter lays out the potential deal they are offering but does not obligate the developer to do anything. Landowners should be cautious that this letter does not provide benefits to the landowner and requires them to give up some rights.

This is a legal document that requires a signature. As a general rule, any legal document that requires your signature should be reviewed by your attorney. While this document is usually written clearly, it is still a good idea to engage legal counsel at this early stage.

Another general rule worth considering is to get everything in writing – even conversations with the land agent. Things spoken over the phone or in-person can be misconstrued or may be inaccurate – an email conversation or a written agreement is more accurate. It can easily be shared with family members and your legal counsel.

Option Agreements

Permission to put power onto the grid occurs through PJM in this area of the US. They manage the power grid through this area of the country. Solar developers go through a process of working with PJM and the local utility company to prove the project's feasibility. Before developers submit a project to PJM, they will seek an option from property owners. The developer can exercise this option according to the terms of the agreement. In most cases, the landowner cannot back out of a project once they have signed an option. In other words, the option agreement provides the developer the option, not the landowner. 

Option terms are typically between 2 and 5 years long. The option might be a lease option or purchase option. Landowners may prefer a shorter option term if this is acceptable to the solar developer. Landowners should ensure that no provisions would extend this option past the term stated. If the option is extended, the landowner should look for additional compensation.

Payments for options can vary according to the amounts and frequencies of payment. Some option payments have been made per acre or per property. Some options may pay all upfront, while others may pay quarterly or annually. You and your advisors may be able to negotiate a better rate for your option payments.

It is important to understand that when a landowner signs an option agreement, they have agreed to all terms of the option and the lease or purchase agreement. Since this is often a long, complicated document and this agreement could be in place for decades, it is vital that landowners seek legal counsel before signing.

Lease Agreement

The most common lease term is 25 years before additional options that may continue this lease. Many solar panels are under warranty for 25 years. Lease agreements also might include 5- and 10-year options to extend the lease (and some have multiple extension options) for the developer – this option is typically an option for the developer, not the landowner.

Lease agreements tend to offer payment on a per-acre basis for land used for the solar project. The amount offered has varied a lot across Pennsylvania. Landowners and their attorneys may be able to negotiate better rates than the initial offer.

While options typically extend to the entire parcel, lease payments will usually just be made on the number of acres used (which is usually less). This brings a couple of areas of concern for the lease document; 1) Will you be paid for all use? (Including fencing, access roads, and Right-of-Ways to run electric lines), 2) Will the land be used to limit access or usability to the remaining acres?

Most lease offers also include rent escalators. This provides an annual increase in the per-acre payment to the landowner. Rent escalators have commonly been between 1% to 2.5% per year. This may be a negotiable item in your lease.

Purchase Agreement

Purchase agreements tend to include an offer to pay for the land on a per-acre basis. Some agreements may offer the option (to the developer, not the landowner) to purchase all or some of the acreage at the agreed-upon price. Landowners should consider the ramifications of selling only a portion of the parcel and how that might affect the remaining acreage. Purchase options typically last two to five years in length and may prevent landowners from changing their property in a way that would impede solar development.

Some Concerns That May Affect Landowners

These items may affect solar lessors (the landowner) but may have no or less effect on those who sell their properties for solar development.

1. Maintenance – Maintaining vegetation around solar panels can be done through mowing, spraying herbicide, sheep grazing, or a combination of any of the three. Landowners may wish to have the first right of refusal (or another arrangement) to maintain the property inside the solar array's fence. Another consideration is access for those performing maintenance activities. Other maintenance activities will be less frequent but could include inspections and maintenance of electrical connections and components.
2. Termination, Removal, and Restoration – Most solar lease contracts have language for restoring the property to its original condition following the lease period (and possible lease extensions). Your attorney should review and consider how this provision will be enforced decades into the future.
3. Water Runoff – Some evidence suggests that rain and snow coming off panels can be absorbed by the soil and vegetation below. Still, landowners may wish to consider language in their contracts that will advise parties to the contract on how they may respond if erosion takes place within any of the areas occupied by solar panels or Right-of-Ways.
4. Placement and Access to the rest of your property. Most options are written to allow solar developers access to all your property but may only obligate them to pay for the portion that they use. Landowners may wish to make sure that this does not diminish the use of areas of the property they are not paid for.
5. Use of property. Many lease agreements may allow the developer to use the property (outside of the leased area) for a variety of reasons, e.g., access roads and equipment storage. Good contracts should spell out allowable reasons and restrict access to anything the property owner is not paid for.
6. Bankruptcy, non-payment. Most of the investment into developing a solar facility is upfront. Two periods may carry some risk of non-payment: during construction and toward the end of life for the panels. Landowners may wish to have language in their lease that addresses non-payment.
7. Noise – Solar panels create no noise, but there may be equipment that creates some noise (inverters and cooling fans). While these items are not known for producing loud noise, the placement could make a minor difference relative to houses.
8. Glare – Some solar panel glare might occur, but panels are designed to absorb sunlight, not reflect it. Most glare occurs when light is at a low angle.

Conclusions

Solar lease contracts are lengthy and complicated. Many other potential issues can appear in a lease contract. Landowners considering leasing their property should determine what they want and don't want in their lease contract and present this information clearly to their legal counsel. This decision could be in effect for decades and should be considered as such.