How Do Solar Farms Make Money? ROI Explained

Solar Farms are large installations of solar panels that are ground-mounted at an angle in order to harness solar energy. 

Solar farms are different than typical residential solar panels you see installed on rooftops and buildings for a few different reasons: 

  • Rather than being mounted on rooftops or in small areas, solar farms are ground-mounted across large areas of land - even acres on larger solar farms.
  • Solar farms can take advantage of economies of scale - meaning that a larger amount of solar panels can be placed over a larger ground area. This not only generates more solar power, but it is also more cost effective because developers can purchase equipment in bulk for less.
  • Solar farms can be placed in open fields that are free of shade or any direct sunlight obstructions. 
  • Solar farms are more often than not connected to the electric grid and through net metering can be utilized by the municipal government.

Utility Solar vs Community Solar Farms

There are two types of solar farms and the main difference is that Utility Solar Farms are usually much larger than Community Solar Farms.

Utility Solar farms can have a capacity of anywhere between 1 MW to 2,000 MW while Community Solar Farms generally operate under 5 MW in size. 

They also provide power to different consumers. 

Because of their large scale, Utility Solar Farms provide energy to utility companies and their customers as part of the energy that is carried on its power lines.

Community solar farms tend to serve individual consumers who subscribe for a share of its power. 

How Much Does it Cost to Build a Solar Farm?

Assuming you already have the land to build a solar farm on, the installation cost typically ranges between $.82 to $1.36/watt - according to the SEIA’s average national cost figures in 2020. 

Solar farms are 50% cheaper to build and operate than rooftop solar systems, which cost an average of $2.84 per watt - compared to $.82 to $1.36/watt

The larger the solar farm, the lower your installation cost is going to be. 

Utilities are also turning to solar farms when adding new power generation capacity because prices tend to be more competitive than almost any other energy source.

Solar farmers are able to save on installation and operating costs of these larger scale solar farms and are therefore able to be more competitive than other energy sources, making them highly desirable to those looking for more cost effective energy sources.

How Much Land is Needed for a Solar Farm?

solar farm land

Large solar projects have some requirements that need to be met in order to work. 

According to GTM Research,  a 1 MW solar farm will need 6 - 8 acres of land. 

This gives room for all of the equipment needed as well as space between each panel row. 

Large solar projects need space for the solar panels as well as the equipment that goes along with making it function, such as inverters

The rows of panels need to have space for repair and maintenance access and the space is given so that there aren’t any shadows from the adjacent solar panel. 

Lastly, the land must be open, without obstructions that can cause shade over the solar panels. 

Land that is in direct sunlight is ideal - free of trees or nearby tall buildings, barns, etc. 

Solar Farm Licensing and Permitting Process

FundsNet notes that all of the necessary approvals, contract, siting and permitting for a solar farm can take 3-5 years to be approved. 

This is something that many farm and landowners do not realize, so it is important to plan ahead for this process, which is quite drawn out. 

The majority of solar power plants today are located on privately-held land and so the solar power plant process undergoes a strict review by the federal, state, and local regulators. 

These processes ensure that the environmental impact to the land and eco-system is minimal. 

Once the solar farm is approved, the actual construction and installation only takes a few months. 

Once a solar farm is up and running, the maintenance is very low and only needs to be serviced a few times a year. 

While the approval process is painfully slow, you will be glad to know that the lifetime maintenance of your solar farm is very low; Solar panels degradation rate is fairly slow and most panels will last 25-30 years.

Typical Solar Farm Income Per Acre

Now, the part that you are probably most curious about - how much money can I actually make from a solar farm? 

In terms of Revenue, the average 1 MW solar farm (6 - 8 acres of land) can make  $40,000/year. 

Example 1: How Much Money Does a 1 mw Solar Farm Make?

Here is an explanation of how solar farms generate revenue:

A 1 MW solar farm is considered a Utility Solar Farm because of its size. 

Utility Solar Farms (farms over 1 MW or with at least 6 - 8 acres of land) sell their power on the wholesale electricity market by entering into Purchase-Power Agreements for their generation. 

The national average says that there are four peak sun hours per day which means that a 1 MW solar farm would make 1,460 MWh per year (4 peak sun hours x 365 days = 1,460 MWh per year). 

In 2019, solar power was traded for an average of $27.40 per MWh, according to the LevelTen Energy’s P25 Index. 

So to calculate the revenue on a 1 MW solar farm, you would take the MWh per year and multiply it by the trading price: 1,460 MWh per year x $27.40 = $40,000/year.

The calculations show that a 1 MW solar farm can earn an average of $40,000 per year.

Of course this is just an example, and you will want to factor in the actual price of solar power production in your area and the going rate for solar generation in the wholesale market - which will vary the numbers, but this gives you an idea of how revenue is calculated. 

Example 2: How Much Money Does 1 Acre of Solar Panels Make?

A 1 acre solar farm is considered a community solar farm and they usually earn their revenue a little differently than a utility solar farm. 

Community Solar Farms generally operate under 5 MW in size and they tend to serve individual consumers who subscribe for a share of its power.

Community Solar Farms sell their electricity to utilities to reduce bills of subscribers. 

The amount of revenue that a Community Solar Farm generates will depend on the rate for power and the number of subscribers. 

Solar Farm Leases - What Do Solar Farms Pay the Land Owners Who Lease Out Their Land? 

solar farm land lease

For those that don’t want to build their own solar farm, they can lease out their land to an external solar developer. 

Landowners who rent their land to these developers can make $250 to $3,000 per acre, depending on their location, size of the farm, etc. 

There are several factors that are going to affect how much a solar farm lease will pay:

  • Land prices in your area
  • Electricity transmission infrastructure near you
  • Renewable energy demands in your state
  • State and municipal incentives to solar farm operators

The amount that you can earn by leasing out your land for a solar farm really depends on the market conditions in your area. 

Most solar farm lease agreements are made longer term ranging from 10-25 years, with some even going up to 50 years.

This is a great long term income generating option if you have land that you are not using. 

Solar Farm Return on Investment

As you can see, the initial startup costs of a solar farm are not cheap, unless you decide to lease out your land.

From the siting and permitting process to the purchase and installation of the actual solar equipment, a 1 MW solar farm can cost anywhere between $820,000 and $1.36 million.

Utility farms have an average ROI of 15.55% and a payback period of 8.1 years across all states. 

Community solar farms have an average ROI of 13.91% and an average of 8.21 year payback period. 

If you have the initial capital to install a solar farm, the ROI is quite good and the maintenance is low, so you don't need to worry about incurring a lot of additional costs. 

Conclusion

Solar projects will continue to be a part of the renewable energy solution of the future replacing fossil fuel reliance all over the world. 

Larger scale solar projects such as Utility Solar Farms are going to continue to grow in demand and will continue to get cheaper as developers of solar farms are finding more ways to reduce the cost of implementing them. 

We should expect to see more and more solar farms of all sizes in the future, making this a great time to jump on the solar farm train if you have the land and capability to do so. 

Dillon Clayton
Dillon is an Energy enthusiast. The goal of his posts on Energy Follower are to help inform people of the energy options around them based on impartial research.

Leave a Reply

Your email address will not be published. Required fields are marked *

About Energy Follower
Energy Follower looks to cover all aspects of Energy: Wind, Biomass, Geothermal, Solar, Hydropower, Nuclear, Fossil Fuels, and more.