Solar Leasing by R. Scott Alagood
Solar power is increasingly being used around the world. It is used to power homes, cars, planes, calculators, and in Texas, deer feeders.
Solar power is generated by capturing the sun’s radiation and converting it into electricity through the use of solar panels.[1] It takes a little over 8 minutes for a sun ray to reach the earth.[2] In the U.S., solar panels face south to capture the most sunlight.[3]
To power the world with solar energy, it would take over 191,000 square miles of solar panels.[4] The earth is made up of over 57 million square miles of land.[5] There is ample area to install the solar panels needed to generate solar energy worldwide.
In early 2016, over 1,000,000 solar powered systems had been installed in the U.S.[6] It is estimated that the next million systems will be completed sometime in 2020.[7] Solar power is a fast moving technology and is increasingly being used in the U.S. and Texas.
Landowners should anticipate that at some point they will be visited by solar energy development companies. Currently, those companies are using a type of long term lease to obtain surface rights to install solar panels and infrastructure to deliver solar power to the electricity grid. Solar leases in Texas are relatively new, and there is not much precedent to guide a landowner in leasing their land for a solar farm.[8]
Texas courts have not yet weighed in, but it is generally recognized that the right to mine sunrays belongs to the surface owner of the land.[9] In Texas, the surface and the mineral rights are severable. Before a landowner allows the surface to be leased for solar use, the rights of the mineral owner and any lessees of the mineral estate must be considered.
In Texas, the mineral estate is dominant. This means that the mineral owner or lessee has the right to use as much of the surface as is reasonably necessary for the exploration, production, maintenance, and transportation of the minerals. Landowners should be wary of lease provisions which require the landowner to warrant or represent the state of title to the mineral estate underlying their land unless such landowner is absolutely certain of the mineral ownership. It is not unreasonable to expect the solar company to perform its own title search and make its own determination on any interference from the mineral estate.
Due to the large capital investment necessary to create a solar farm, a solar lease is typically leased for multiple decade terms. The lease will typically have a short primary term similar to an oil and gas lease (1-2 years). The primary term (or “development term”) is used to perform due diligence (such as title work), negotiate power consumption contracts, and construct and develop the facilities necessary to generate and transport the solar energy. The lease may also allow the solar company to extend the development term through the payment of an annual flat fee. Instead of royalties, a solar lease typically pays an annual flat fee on a per acre basis once the lease moves past the primary term (the “operating term”). It is also not uncommon for a lease to contain options to extend the lease beyond the operating term (the “renewal term”).
The payments offered during the development term are usually less than those for the operating or renewal terms. A landowner has an incentive to negotiate as short a development term as possible. A landowner may realize millions of dollars over the life of a solar lease depending on the number of acres being leased. However, a landowner must realize that the lease will tie up the land for the better part or all of the owner’s life.
There are numerous other considerations which should be considered when negotiating a solar lease. A few considerations are impacts on adjacent properties and community; environmental; hunting and wildlife; financial stability of the lessee; experience of the lessee; water rights; private power taps; and the time value of money.
The use of solar power is on the rise. Care should be taken in negotiating a solar lease since the effects will be long lasting and impactful on the surface and mineral estates of the land.
- Scott Alagood is board certified by the Texas Board of Legal Specialization in Commercial and Residential Real Estate Law. Scott can be reached at [email protected] and www.dentonlaw.com
[1] Solar Power Authority, “50 Interesting Facts You Need to Know About Solar Power (https://www.solarpowerauthority.com/50-facts-about-solar-power/)”
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] EnergySage, “8 Solar Energy Facts in 2018 (https://news.energysage.com/8-facts-solar-energy-2017)”
[7] Id.
[8] Texas Agricultural Law by Tiffany Dowell posted on May 31, 2016, “Key Solar Lease Considerations for Landowners (https://agrilife.org/texaslaw/2016/05/31/key-solar-lease-considerations-landowners/)”
[9] Id.