December 9, 2022
Adam Hoeksema
Solar farms are on the rise, and despite pushback from the fossil fuel industry, look to outcompete more traditional energy sources very shortly. As for profit-per-acre, it’s already more lucrative than other farming practices in most locations with good sunlight, and with the wealth of government funding options available, it’s never been a better time to start a solar farm.
In this article, we’ll go over the general process of doing this, and a few things to consider when planning ahead. First though, a look at the solar farm industry as a whole, and where it’s heading.
Solar Farms: An Industry Overview
The global solar farm market size was over $62 billion in 2021, and is on the rise at a very enticing rate for curious entrepreneurs, at an expected CAGR of 17.52% up to 2030. This translates to an increase of well over $200 billion by 2030, driven by cheaper photovoltaic panels, growing public awareness, government subsidies, and an overall push to move away from fossil fuels as a primary source of energy.
Consumers can generate power for themselves and even sell any surplus back to the grid. The recent and unpredictable nature of fossil fuel prices has helped stimulate more interest in solar, and with battery tech advancing accordingly, it’s getting cheaper and more efficient to generate and store this renewable resource.
Over the last decade, the cost of installing solar has dropped by 60% and this has resulted in faster and more numerous deployment of solar systems all over the country. However, the adoption of solar power in any context isn’t without its challenges.
Storage remains one of the biggest issues for the industry. Solar can only be generated intermittently, and thus is subject to significant losses in the efficiency of converting it to a storable form and back. Politics and infrastructure are two further hurdles to overcome; in the US, climate change denial affects both public opinion and policy and skews the market in favor of fossil fuels.
The outdated power grid also hinders new electricity distribution and makes it difficult to allocate the land needed to get the power to where it needs to be. Thankfully, even those capable of denying climate change are easily swayed by arguments of cost. And as solar energy looks to reach the price-per-watt that will turn the tide, plenty of startups are taking on these challenges to be part of the modern gold rush of solar farming.
There are quite a few factors to consider when learning how to start a solar farm. Not least is the business model you’ll be expecting to use. Before going through the process of setting up a business, it’s important to know what the initial overheads might be, and where the money’s going to come from to compensate for them.
Starting a Solar Farm Business: Startup Costs and Revenue Streams
The solar farm market can be segmented in numerous ways, so you’ll need to put the research in to figure out what you can expect to get out of your business based on its segment of this market. For example, the market can be broken into three major segments:
- Type – This can be further broken into utility-scale, microgrids, distributed generation, etc.
- End-user industry – Subdivide this into residential, commercial, and industrial sectors, the latter of which is the sector experiencing the most growth.
- Region – The developing world is less hindered by the need for updating aging infrastructure, and many countries experience high levels of sunlight for entire seasons at a time
So, where you’re going to set up, and who your customers will be, will affect how much it costs to get off the ground. We’re going to assume a commercial-scale solar farm that provides power to the grid, rather than a homeowner or commercial end-user.
From here, costs are really only a matter of scale. Utility-scale solar farms are somewhere between 1 MW and 2000 MW, and as you can imagine, the high end will have much higher land requirements than the low end. As a starting point, consider that a 5 MW solar farm may require at least 20 acres for the panels, and possibly closer to 35 acres.
Then, you’re going to have to interconnect your project. This is your legal right – to connect your project to the utility grid, but you will have to pay for it, and in some cases, this is designed to be prohibitively expensive. Some places offer a FastTrack service for this, so check your state.
Then you’ll need to pay for permits; again, this will vary on location. Obviously, you’re likely to get more bang for your buck in states with lots of sun, and this is supported by how they rank in terms of state solar PV; with Texas, California, and Florida taking up the top spots for prime solar real estate.
With all these variables, it’s more or less impossible to throw out any meaningful figures for what it will cost to start a solar farm business, but one useful number comes from the Solar Energy Industries Association (SEIA) report that states installation costs of fixed-tilt PV panels of between $0.77 and $1.36 per watt, assuming that you already have the land needed to build.
It’s worth noting that in California, fast-tracking your interconnection may only be possible for projects under 3MW, so keep this in mind too, and do your research!
So, how do you recoup all these outgoings? The revenue streams for a solar farm like this aren’t exactly diverse. Typically, a utility-scale farm will use a purchase-power agreement with one of the marketplaces like LevelTen Energy, which, in Q4 2021, traded solar power at $29.75 per MWh. Taking Texas as an example, at the state average of 5.7 peak sun hours per day, a solar farm there could make up to 2,081 MW a year, per MW capacity during these hours.
That means a 1MW farm could bring in just under $62k a year in revenue during peak sun hours alone. Of course, this is only going to be a portion of the power generated, and the real figure will be much higher; some figures show a profit per acre of over $40,000, meaning that there is significant room for much higher revenues generated.
Still, these figures vary wildly between sources and depending on the business approach. Regardless, initial startup costs are only one part of the problem.
Running a Solar Farm Business: Ongoing Expenses
Once you’ve got everything set up, you’re likely to be at least a cool million per MW out of pocket. Unfortunately, solar farms aren’t something you can just set and forget, either, and will come with continued expenses throughout their lives. Thankfully, the substantial profit margins should cover these costs, but you’ll still need to be prepared for them.
Maintenance is a big one. Farms will need to be serviced three to four times a year at least, and this cost will depend on the scale of your project and the network you’ve got on your side. Finding a reliable contractor can take time, but forming a long-term business relationship should get you a better deal in the long run.
Land leasing is another ongoing cost, though this can be cheap, especially in states where there’s plenty of it. There are land prices of as low as $300 per acre for a year but expect to pay more than that, especially as landowners respond to increases in demand and want their cut.
Then you’ll have permit renewals, security, monitoring requirements, and other ongoing expenses related to the upkeep of the farm. Again, all of these will vary depending on the business model and size of the operation.
With that in mind, it’s time to go over the process of how to start a solar farm, and some of the steps you can take to make a return on what can be a very lucrative investment.
How to Start a Solar Farm Business
Let’s assume you’re aiming to put together a 1MW farm. As we established, the panel installation will be likely to take up around six acres and cost just over $1 million, give or take. So, finding these acres is the first step, and figuring out the costs of getting materials to the location, including roads, permits, and so on.
Once you’ve got an idea of where you want to put it and how it’s going to go up, it’s a good idea to start a populating business plan document so that you can request funding. This should lay out the growth plan for the next five years at least, and include specific details of how you’re going to accomplish it.
Do your market research and decide on the specific hardware you’re going to be using. Itemize everything in terms of costs and financial projections and make sure your financial papers are in order.
You’ll need to be able to show investors or lenders that you have a clear path to making a profit. For help with this, consider creating financial projections. We have a specific projection template for solar farms or our CPA on staff can create a custom model specifically for your situation.
While you’re building your business plan, work on making sure you have all the right certifications too. Start planning your branding, and researching the steps it takes to make your company a legal entity. Then you’ll be ready to register for taxes and open your company bank account.
For state and Federal permits and licensing, look into the SBA for advice. Then, you’ll be ready to get business insurance. General Liability Insurance is the bare minimum, but if you’ll have staff working with you, you’ll also want to have Worker’s Compensation Coverage too.
Next up, your website. Regardless of who you are or what you’re selling, you’ll need a website. This will not only lend some legitimacy to your image but also provide a hub for visitors to find exactly the relevant information on your company.
With all of this complete or at least planned down to the finer details, it’s time to reach out for funding. You have several options here. The U.S. Department of Energy has numerous funding options through the Solar Energy Technologies Office that might be relevant to your needs, so browse through some of those, and then decide whether you need to seek other opportunities too.
Loan providers and investors will both want to see a very honest and detailed business plan, and each will come with its own demands. Loans will need to be paid back regardless of your profits, and investors will want a share in your company equity.
Whichever route you take, once you get your funds, lay them down carefully and try to stay within the budget you agreed. The process of getting a solar farm started may take years with all the permits and red tape to cut through. With so much to arrange and get approved, the planning and approval stages are what take solar farms so long to come online. Once all the paperwork is in order, the actual development can be finished well within a year.
Finally, it’s just a matter of getting connected to the grid. If your partnerships with your target utilities have been well formed, this shouldn’t be too tricky. Just make sure that any power you’re generating is being properly accounted for by the company and that their readings match your own.
Solar Farms: Getting the best ROI
With revenue that’s so closely tied to uncontrollable factors such as the sun, it can feel like there’s not much you can do to boost your profitability when running a solar farm. If you’re hooked up to the grid and you’re getting a fixed rate, there are limits to the control you’ll have over your income.
However, there are some things you can do to boost profitability, and we’ve got a short list of suggestions, based on the business model we’ve been discussing in this article so far.
1. Stay on top of maintenance
This should be an obvious one, but if your panels are in a state of disrepair, they’re not going to be outputting the most they have to offer. Spending a little more on maintaining your hardware in top condition will ensure you’re always getting the best out of your investment both in the present and long into the future. Good PV panels should last upwards of 25 years if well looked after, so be sure to keep them clean and functional and replace any damaged components as soon as possible.
2. Make efficient use of space
Cramming as many panels into your acres of land as you can might give you more coverage, but it’s likely to create shadow at certain times of the day, especially if you’re using fixed-tilt panels. Be sure to leave enough space behind each panel so that the next one doesn’t block the sun in the early hours.
It’s a good idea to consult an expert to figure out the optimal arrangement of your panels so that you can maximize the output per acre on your farm.
3. Make use of the land in other ways
Solar farms in sunny areas have proven to be a much more profitable use of land than farming, but the two aren’t mutually exclusive. One farm in Colorado grows shade plants in the spaces under their solar panels, taking advantage of the cooling effect and protection from heavy rain that the solar panels have on the surrounding land to actually boost yields in certain plant species.
It’s also possible to turn the space beneath the panels into a garden or social area, depending on the location, and any of these ideas could help bring in extra revenue for the same amount of cost in upkeep.
4. Start small
Solar technology has come a long way in the last decade and is expected to improve continuously as the industry explodes. For long-term optimal profits, it might be best to begin small and gradually upgrade your farm as tech advances, so that your hardware is always up-to-date. This will be easier if you plan to expand gradually as you won’t have to replace so much to boost your efficiency in the long run.
Conclusion
Solar farms are expected to rise in profitability over the next few years as the tide is changing significantly away from fossil fuels and towards renewables. People getting in early are likely to take advantage of the high CAGR expected over the next five years, but investing too much too soon may result in the need for expensive upgrades to stay competitive as technology improves.
Still, with a little planning and foresight, it’s possible to survive the lengthy approval processes and have your farm up and running effectively a few months later. Doing so will allow you to sell power to utility companies and bring in as much revenue as the sun allows.
