If you are you looking to start a solar farm, but don’t know how to get started, you are in the right place.
In this article, we are going to cover step-by-step how you can start a solar farm business.
We will begin by covering key introductory questions, like what solar farms are, how much they cost, and how much money they can make.
We will then dive into some of the most important requirements for starting a solar farm, such as land requirements, permits, etc.
If you prefer to skip the cost and hassle of developing your own solar farm, but have land that may be suitable for a solar farm, you can make great passive income by leasing your land out to developers. We’ll talk about that strategy as well.
We will close by discussing some of the biggest pros and cons of owning a solar farm, so that you have a complete picture of what you will be getting into if you decide to pursue this business.
We’ve got a lot to cover, so let’s get into it!
This post may contain affiliate links. If you click on a link and complete a transaction, I may make a small commission at no extra cost to you.
The information contained in this post is for informational purposes only. It is not a recommendation to buy or invest, and it is not financial, investment, legal, or tax advice. You should seek the advice of a qualified professional before making any investment or other decisions relating to the topics covered by this article.
What Is a Solar Farm and What Are the Different Types of Solar Farms?
Solar farms, also known as solar parks, solar plants or solar power stations are essentially a giant collection of ground-mounted solar installations that harness sunlight and generate electricity. The electricity produced can then be fed into the electricity grid.
There are two ways solar farms can collect sunlight to generate electricity:
1. Solar PV cells: These are solar panels that absorb sunlight and generate electricity directly.
2. Solar Concentrators: This method uses troughs that reflect and concentrate the sunlight on a point to warm a heat transfer fluid. This fluid is pumped into a thermal engine that converts the heat into electricity.
The first method (Solar PV cells) are more popularly used in solar farms.
Now, let’s turn to the two main types of solar farms that are out there.
Utility-Scale Solar Farms
This a large scale farm that consists of hundreds of thousands of solar panels that absorb energy from the sun, generate an electric current and distribute that power on high-voltage power lines.
The power produced at these farms is either sold to the wholesale utility buyers through a power purchase agreement (PPA) or owned directly by an electric utility company. The utility then distributes the generated electricity to residential, commercial, and industrial customers connected to the grid.
As mentioned, these types of farms are large and can have a capacity of anywhere between 1 MW to 2,000 MW. For the uninitiated, MW means means megawatt (or 1 million watts). To get a sense of scale, about 190 homes could be powered by one MW of solar power. Source.
Community-Scale Solar Farm
These solar farms are small-scale solar facilities that generate around 5 MW of electricity.
Subscribers or customers of the neighborhood participate in this community program and a small piece of land (one or more acres) is used to mount the solar panels.
The customers either share the solar farm or own a piece of the land with some panels. They will pay less on their electric bills in line with how much electricity was produced and fed into the electricity grid by the solar farm.
The electricity produced by the community solar farm is used to power the homes within a close range. Thus, they’re less likely to lose power if the grid goes down.
How Much Money Can a Solar Farm Make?
Utility-scale solar farms often enter into Purchase-Power Agreements to sell their electricity on the wholesale electricity market.
This can be done using electricity marketplaces such as LevelTen Energy.
The average 1 MW solar farm can expect an annual revenue of roughly $40,000 per year. This figure is based on energy pricing information from LevelTen Energy’s P25 index. In Q4 2019, solar power traded at $27.40 per MWh (short for megawatt hours). Based on the national average of four peak sun hours per day, the average 1 MW solar farm would make 1,460 MWh per year, which works out to around $40,000/year.
If you want to break it down by size, here’s the calculation based on acreage.
One acre of solar panels can generate approximately 351 MWh of electrical energy per year. So if you use the P25 index pricing of $27.40 per MWh, then you get an annual income of $9,617 per year. Of course, the actual amount will vary, depending on the price you can obtain for the energy and the amount of sunlight that you can capture through your solar panels.
The return on investment of a solar farm can be as high as 10-15%, but may be more likely to fall within the 6% range. The exact ROI will depend on development costs and the local, current value of energy in your area.
How Much Does it Cost to Start a Solar Farm?
According to the Solar Energy Industry Association’s average national cost figures in Q1 2021, solar farm installation costs are typically between $0.77- 1.32 per watt. That means that a 1 megawatt (MW) solar farm would cost between $770,000 and $1.32 million.
To break it down by size, one acre of solar panels produces about 351 MWh of electrical energy per year and the installation cost for 1 acre of solar panels is about $450,000.
The bottom line is that starting a solar farm is going to cost a lot of money, so you will likely need to secure financing.
Traditional banks, online lenders and a variety of other sources are available to fund an enterprise like this. Check out my ultimate guide to starting a business, to learn more about specific financing options that may be available to you.
If you want some federal assistance to help defray the costs of your solar farm, you can also apply for government grants. The federal government currently offers 3 photovoltaics grants. They are the USDA’s Rural Energy for America Program grants, the Tribal Energy Program grant, and the USDA’s High Energy Cost Grant program.
What Are the Specific Requirements to Install a Solar Farm?
This is a fairly technical area and both the practical and legal requirements are complex. Once you decide to start a solar farm, the following are the some of the key requirements to keep in mind:
For a typical solar farm installation, generally for every 1 KW of electricity produced, the area required is approximately 100 square feet. This means, for a 1 MW power plant, the area required is about 2.5 acres.
However, it’s important to keep in mind that this amount of land is just for the panels themselves, and doesn’t include the space required for other solar equipment, which is about 4 acres for a 1 MW farm.
The land must receive an adequate amount of sunlight on an annual basis, and the property itself should be free of as many sunlight blocking obstructions as possible (i.e., tall trees, buildings, or anything else that might cast a shadow).
In some cases, these items can simply be removed, but it becomes another expense.
Close Proximity to a Power Grid
This is a very important factor when evaluating whether a location is suitable for a solar farm. The land should be near roads and grid connection points as these are very expensive and difficult to build. The land should be within 1,000 feet of three-phase power and no further than 2 miles from a substation.
Must Have Right Terrain and Quality of Soil
The quality of both the terrain and soil are also very important when evaluating the land.
The land shouldn’t be sloped, excessively rocky, or unstable. It should be flat land that faces south to serve as a sunny platform. Having flat land is important for uniform placement of the solar panels and to avoid shadowing from nearby panels.
If the land is littered with large boulders, the developer will have to take into consideration the cost of removing these boulders into their budget.
Permits Can Take Time
It may take 3-5 years for the permits and siting requirements for your solar farm to be satisfied. The land must be eligible for building these types of structures, so check your local zoning office to make sure you can do this.
You must submit your plans to federal, state, and local regulators. It can be a complicated process, so you may want to hire a lawyer to help you navigate through it.
Your business must also consider water rights, land use, and how to access and transmit solar energy prior to applying for permits. If you want to use federal land for your solar farm, you must get approval from the U.S. Bureau of Land Management.
Generate Passive Income by Leasing Your Land to Solar Farm Developers
If you own land (or are looking to buy land) that meets the various requirements we just discussed, but don’t want to actually deal with the cost and hassle of starting a solar farm, you may want to look into leasing out your land to solar farm developers.
This type of lease can provide a pretty nice source of passive income. According to solarlandlease.com, you can earn between $250 to $2,000 per acre, per year. Not a bad recurring payday for otherwise idle land.
Ok, so we covered the most important and substantive aspects of starting a solar farm, but there are some administrative tasks that you want to address as well. They include the following:
- Naming your solar farm business and creating a logo.
- Creating a website for your business to convey that you are a reputable enterprise for anyone looking you up online.
- Setting up a business entity for your solar farm (i.e., corporation, LLC, partnership, etc.).
- Developing a business plan for your solar farm (this is where you figure out your budget, how you will finance costs, your projected profits, growth estimates, etc.).
- Open up a business checking account for your business. I like Novo for new small businesses.
- Obtain appropriate insurance for your solar farm
Again, I go into detail on all of these administrative tasks in my ultimate guide to starting a business, so check it out if you want more guidance on any of these steps.
What Are the Pros and Cons of Starting a Solar Farm?
Pros of Starting a Solar Farm
1. Solar Farms Offer a Reliable Source of Energy
The sun is a renewable source of energy and it is abundantly available (and free).
2. Solar Farms Are a Clean Energy Option
Once installed, solar farms give out zero emissions.
They generate green and renewable energy that decreases dependence on fossil fuels and non-renewable energy sources that produce harmful emissions and damage the environment.
Also, solar power does not contaminate land or water. Contrast that with non-renewable fuels like oil that can sometimes be leaked or spilled and cause massive environmental harm.
3. Solar Farms Can Help the Community
New tax revenue generated by solar farms can directly benefit residents in the community as local governments can direct these funds to improve community services and reduce tax rates. And if the solar farm is community owned, then of course, those residents will directly benefit from lower electricity bills.
4. Solar Farms Require Little Maintenance
Once set up, the solar panels need little maintenance or support.
Besides a semi-yearly cleaning, these units can work for more than twenty years without even a check-up. Some farms may use moving parts to maximize sunlight exposure throughout the day and these components may require additional maintenance.
5. Solar Farms Generate Passive Income
After the initial investment, there are almost no costs involved and maintenance is low. They can offer recurring and passive revenue for years.
Cons of Starting a Solar Farm
1. Solar Farms Take up a Lot of Space
Since they are ground mounted, solar panels require a lot of space.
2. Solar Farms Are Expensive.
The investment costs are quite high as discussed in earlier sections, so you will need to be adequately capitalized to start this type of business.
3. Set Up is Complex
As we discussed, there are significant permitting and other licenses that may be required and the entire process can take years. This is not something that you will be able to start in a month.
4. Power Storage Can Be Expensive
People need electricity 24/7 but the solar panels work only in daytime. So for the surplus electricity generated (at noon sunny days), storage is required. Lithium-ion battery packs are commonly used to store solar energy and they cost around $1,000 per kilowatt-hour.
So there you have – a complete guide on how to start a solar farm and its pros and cons. If you want to explore some low cost ideas that can generate passive income for you, check out my article Low Cost Passive Income.