Category Archives: Renewable Energy

Join us July 15 for Solar Leasing 101

Many landowners across the state have been contacted by solar energy developers interested in leasing farmland for utility-scale solar energy production.  The combination of improved technology, reduced production costs, the phase-out of federal tax credits, and the willingness of landowners to enter into long-term leases have made 2019 a sunny year for entering into solar leases.

The sudden surge of solar leasing has led to new questions about what this type of lease mean for a landowner, a community, and the future.  As these leases may last for 30 years or more, it is important to understand what a utility-scale solar energy development looks like, along with the terms in a solar lease and the implications of signing.

Join OSU Extension Field Specialists Peggy Kirk Hall and Eric Romich on Monday, July 15th for a conversation on solar leasing.  Together, the presenters will address solar development trends, converting farmland to solar production, and key considerations to weigh before signing a solar lease.  Those interested may choose between one of two sessions:

  • Morning session: Madison County from 9:00am to noon at the Red Brick Tavern (1700 Cumberland Road/Route 40, London, Ohio).  Breakfast will be provided!
  • Afternoon session: Greene County from 2:00pm to 5:00pm at the Greene County Extension office (100 Fairground Road, Xenia, Ohio).

Each meeting will cover the same information.  Registration is required, but there is no cost to attend.  To register for the morning session in Madison County, email Griffith.483@osu.edu or call 740-852-0975.  To register for the afternoon session in Greene County, email Corboy.3@osu.edu or call 937-372-9971.

Click HERE to view the official flier.  In the meantime, if you want to learn more about some of the documents and major considerations that will be discussed at the meeting, click HERE.  If you want to learn more about some common solar lease terms, click HERE.

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Here comes the sun: understanding important solar lease terms

Written by Evin Bachelor, Law Fellow, OSU Extension Agricultural & Resource Law Program

With all the rain and delayed planting that Ohio farmers have experienced this spring, signing a solar lease has been a very appealing prospect for many farmland owners.  While this may be the right decision for a farm, it is very important that the farmland owner understand exactly what he or she is signing.  Once an energy developer offers to pay you to enter into an agreement, and you sign that agreement, its terms will be legally binding.

In our recent blog post on solar leasing, we discussed some of the early documents that a farmland owner is likely to receive from an interested solar energy developer.  Further, we gave some general advice on what farmland owners should do if an energy developer wants to discuss leasing his or her land.  One of our main suggestions was to take the time to fully understand what the farmland owner is getting into, and that is where this post comes in.

In this blog post, we highlight some of the important provisions of a solar lease that you as a farmland owner should look for in your solar lease, and understand what they mean.  A good solar lease will be very thorough, and include a lot of legalese.  Our upcoming Ohio Farmland Owner’s Guide to Solar Leasing, due out in the next month, will go more in depth than this blog post on the terms below and more.  It would also be a wise decision to consult with an attorney to ensure that your understanding of your solar lease reflects what the documents say.

For now, here are a few provisions to be on the lookout for in your solar lease:

The term.  How long does this lease last?  Most solar leases last for 20 to 30 years.  This is the time during which solar energy is being collected and sold.  Solar energy developers like this multi-decade duration because it allows them to use of the solar panels for their expected productive lifespan.

Thirty years is a long time.  Many careers are retirement-eligible after that period, and many farms will transition to the next generation in that amount of time.  This long of a term is not necessarily a bad thing.  It just means that a farmland owner should look back and look ahead.  Think back 30 years to 1989.  What all has changed on your farm?  What would it have looked like to not be able to use this ground for the past 30 years?  Now look ahead.  What do you expect your needs and those of your family to look like when this lease ends in 2049?  Only you can determine if not being able to use your land for that long is a good thing.

Phases.  How is this lease broken up?  We just explained that most solar leases will last for 20 to 30 years, but that clock usually starts ticking once construction has started on the project.  Solar energy developers will often reserve a year or two during which they can conduct their final feasibility studies and obtain necessary permits.  Some leases structure this pre-construction phase as merely an option phase, meaning that the energy developer will pay a small amount of rent to keep its option alive for that one or two-year period, but it does not necessarily have to commence construction.

Further, toward the end of the term, the energy developer may have written in an option to renew for another 5 or 10 years.  These renewals are often structured as a right that the energy developer may exercise merely by giving notice to the landowner.  Additionally, in the middle, if there is a natural disaster that puts the operation out of service for any period of time, a solar lease may stop the clock from ticking until the project is operational again and solar energy is being collected.

The important take-away for the phases is being able to know when each phase begins and ends.  When all of the different phases are combined, instead of just a 30-year lease, you could be looking at a 42-year agreement.  The only way to know how long it could last is to thoroughly read the entire lease.

A description of the premises.  Every solar lease will contain a description of the premises.  If an entire parcel is being leased, then this part is fairly easy.  However, if only a portion of the parcel is being lease, the farmland owner will want to make sure that the lease provides an adequate description so that the leased portion can be easily determined on the ground.  Often, this will include a survey and maps.  Knowing the boundaries is important because these leases are often exclusive, such that the farmland owner has little or no use or access of the leased land throughout the term.

Easements.  What rights are being granted to the solar energy developer?  Solar leases include a series of easements that give the solar energy developer the right to use your land.  Some of the common easements include a:

  • Construction easement: a right to cross over portions of the farmland owner’s property in order to construct the solar facility
  • Access easement: a right to cross over portions of the farmland owner’s property to reach the solar facility
  • Transmission easement: a right to install power lines, poles, and other equipment to transmit the energy produced by the solar panels to the grid
  • Solar easement: a right to unobstructed access to the sun without interference from structures or other improvements
  • Catch-all easement: a general right to do whatever is necessary for the benefit of the project

Solar energy developers want their easements to be as broad and generous as possible in order to maximize their flexibility with the project.  This is not always to the advantage of the farmland owner.  If the lease is general enough to allow the solar energy developer to sub-lease to another entity such as a telecommunications company, the landowner will have a difficult time preventing the solar energy developer from doing so.  The farmland owner wants to make sure that the easements being granted are specific enough to not result in any surprises.

Landowner obligations and rights.  What does the lease require of you as the farmland owner?  Usually private solar energy developers include a non-interference provision, a quiet enjoyment provision, and an exclusivity provision.  All combined, these provisions are a promise by the farmland owner to not enter the solar facilities without prior permission, not interfere with the solar facilities, and not allow anyone else to do so for the duration of the term.

Further, solar leases often include a confidentiality provision that courts will enforce as legally binding.  These provisions allow the solar energy developer to control the flow of its proprietary information, and also prevent landowners from talking with one another about topics such as rent rates.  It is important to understand:

  • What information is protected
  • If there are any exceptions
  • When consent might be granted
  • If specific penalties apply
  • How long confidentiality lasts

The solar lease may also include a provision about farmland owner improvements.  These explain if and when the landowner needs to obtain prior approval of the solar energy developer in order to build a structure or plant something that may interfere with the solar project.

Property maintenance.  Who is going to mow?  Ohio landowners have a legal duty to cut noxious weeds, and a well drafted lease will cover which party to the lease bears responsibility for keeping the leased land clear.  Usually, the solar energy developer will take this responsibility, but it helps to have this in writing.

Cleanup terms.  Cleanup involves a lot of questions.  Does the solar lease require the solar energy developer to restore the land to its previous state?  If so, how is this measured?  Will all stakes and foundations be removed?  Will all improvements, like roadways, be removed?  How will the solar energy developer guarantee that it will be able to pay for this cleanup in 30 years?  Does it post a security, and if so, when?  A thorough lease will answer these questions.

Tax and conservation penalties.  Tax and conservation also involves a lot of questions because constructing and operating a solar facility will make the property ineligible for the full benefits of CAUV and most conservation programs.  Does the lease require the solar energy developer to cover real estate taxes?  Does the lease require the solar energy developer to cover the three-year lookback penalty for removing land from CAUV?  What will the solar energy developer do toward the end of the lease so that the land can be put back into production and made CAUV eligible again?  Similar questions must be asked for conservation programs.

Compensation.  It’s not that we saved the fun and best part for last.  We just wanted to make sure that compensation is not the first and only thing considered when deciding whether or not to enter into a solar lease.  While it certainly is important, some of the issues discussed above must be just as carefully understood.

The solar leases that we have seen involve cash rent that increases over time based upon a fixed escalator.  The escalator is a percent increase.  If the escalator increases at a rate greater than inflation, then the farmland owner will receive more bang for his or her land.  However, if the escalator increases at a rate lower than long-term inflation, then the solar energy developer will have to pay less over time.

Another point of compensation to consider is how damages will be calculated for harm to property and crops.  When the solar energy developer decides it is time to start construction, its option and easements grant it the right to begin construction even if there is a crop already in the ground.  This makes it in a farmland owner’s best interest to have this issue addressed up front.  These damages will often be calculated my multiplying the number of acres by the average county yield for that crop by that crop’s commodity future price with the Chicago Board of Trade for a given date.  This provides an objective calculation for damages.

Verbal promises.  A note of caution: if the solar energy developer makes you a verbal promise, ask for that promise to be included in the written lease.  If there is a conflict between what a representative of the solar energy developer tells you and what is written in the lease, the terms in the written lease are likely to prevail.

The activity we are seeing across Ohio right now with solar reminds us of the early stages of the recent wind and shale energy booms.  Some of the biggest regrets that we hear about are from landowners who thought they were getting a better deal than they actually did.  Reading through, understanding, and thinking about the lease is an essential part of calculating whether or not the lease being offered is actually a good deal for a farmland owner and his or her family.  Don’t be afraid to reach out to your team of professionals in this process.  Your attorney, tax professional, extension educator, and others can be a great resource.

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Here comes the sun: considerations for leasing farmland for solar development

We haven’t seen much sun in Ohio lately, but that hasn’t stopped an increase in solar development.  In the past two years, the Ohio Power Siting Board has approved six large scale solar projects with generating capacities of 50MW or more, and three more projects are pending approval.   These “solar farms” require a large land base, and in Ohio that land base is predominantly farmland.   The nine solar energy facilities noted on this map will cover about 16,500 acres in Brown, Clermont, Hardin, Highland and Vinton counties. About 12,300 of those acres were previously used for agriculture.

We’re hearing that solar energy developers are on the lookout for more land in these and several other counties across the state.  As the markets fluctuate and weather continues to prevent planting, leasing farmland to a solar energy developer might look pretty appealing.  But we always urge caution and due diligence for any leasing situation, and solar energy is no exception.

What should you do if an energy developer wants to discuss leasing your farmland for a large scale solar energy facility?  Our best advice is not to jump too quickly.  Instead, take the time to fully understand what you’re getting into.  A typical solar lease can last for 30 years and thus can have long term legal, financial and social implications for a farmland owner.  An important initial question is how does this type of land use fit into your future vision for your land, your farm operation, and your family?  If you don’t yet know much about large scale solar development and what it means for your land, give a listen to this webinar from our partner, the National Agricultural Law Center.

In this post, we’ll focus on the beginning of the solar leasing legal process.   The large scale solar projects in Ohio range from 600 to 3,300 acres of land, so a developer first has to assemble the land base once it identifies an area for a solar development project.   Leasing the land is the typical mechanism used for the solar projects in Ohio.  If a developer is interested in leasing your land, the first documents you may receive from the developer are a letter of intent and/or an option to lease.  These documents are the precursors to a solar lease but, like a lease, are written in favor of the developer and establish legal rights for the developer.  Careful review is critical, as these documents can tie up the land and the landowner for several years or more.

The letter of intent Some developers use a written letter of intent to notify a landowner of the developer’s interest in a parcel of land.  The purpose of the letter is to begin the process of considering the land for a long term solar lease.   Note, however, that a letter of intent might also contain a confidentiality clause that would prevent the landowner from talking with other developers about the land or sharing details of the developer’s interest with anyone.   Be aware that courts will generally enforce a signed letter of intent as a legally binding contract if the developer has offered the landowner a payment or similar benefit for signing the letter.   By signing confidentiality provisions in a letter of intent, a landowner can be foreclosed from considering other solar leasing opportunities.

The option to leaseMore commonly, the first document a solar developer will ask a landowner to sign is an option to lease.  Don’t be fooled by the name of this document and think that it’s not a legally binding agreement.  While an option is not the same as a lease, it can have the same legal effect of tying up the land for a certain period of time and might also dictate many of the terms of the lease if the developer decides to move forward on the project.

An option to lease grants the solar developer rights to explore the possibility of using the land for a solar project, but the developer may choose not to lease the land or develop the project.  The option period, typically up to five years, gives the developer time to conduct due diligence on the property, assemble other land parcels, secure financing, and obtain government approval for the project.  At the end of the option period, the developer should decide whether or not to proceed with the project.  An option also can give the developer the right to terminate and back out of the option at any time prior to the end of the option period.

On the other hand, a landowner doesn’t have an option to back out once he or she signs an option to lease.  The landowner is bound for the entire option period.   Like a letter of intent, an option can contain confidentiality and “exclusive dealing” provisions that prevent the landowner from sharing details or entering into leasing opportunities with other developers during the option period.  The option might also require the landowner to cooperate with the developer’s due diligence and help the developer obtain approvals and permits.  Many options also include language that allows the developer to assign the option to another solar developer.

Be aware that an option can also contain significant leasing terms that carry over if the developer proceeds with the project.  For example, in addition to allowing the developer to consider the land for a project, the option to lease could also include provisions for the period of the actual long term solar lease, the lease payment amount, easement rights, and landowner obligations.  Landowners might think that such terms could be negotiable later if the parties sign an “official” solar lease, but the option language may bind the landowner to the leasing terms that are presented in the option.  Sometimes, the option itself becomes the lease.  The net effect:  a landowner who thinks he or she is just signing a five year option agreement might also be committing to a 30 year solar lease and a predetermined lease payment.

What about crop production during the option period?  An option might contain language stating that the landowner may continue managing and operating the property in the same way after agreeing to the option.  But the option might also allow the developer to enter the property and proceed with the project at any time, including when crops are in the ground, although the option might not provide the landowner payment for the lost production.  In that case, the landowner simply loses out on the crop if the option doesn’t contain provisions for lost production.

As for payment for the option, a landowner usually receives an initial payment for signing the option, perhaps several thousand dollars or more.  During the option period, the landowner also typically receives an annual payment that is based on number of acres, perhaps $20 dollars per acre or more.

Should you have an attorney review an option to lease?  Yes.  Option language can vary and we surely haven’t addressed all potential issues in this post.   A close examination by an attorney shouldn’t take much time or cost a lot and will ensure that you fully understand the legal implications of entering into the option to lease.

Are the terms of an option negotiable?  That’s up to the landowner and the developer, but don’t assume that the developer won’t negotiate.  If you’re faced with an option to lease and don’t like the terms, try negotiating.  An attorney can be helpful here, also.

In our next solar leasing post, we’ll review the terms of a solar lease and consider how the lease can impact agricultural landowners over the typical 30 year lease period.  Watch also for our upcoming Ohio Farmland Owner’s Guide to Solar Leasing, due out in the next month, which will provide a detailed examination of the solar leasing process.

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Ohio General Assembly passes bill to modify tax on energy projects

Bill makes wind and solar in Ohio competitive with neighboring states

Passed by both chambers of the Ohio legislature early morning on Friday, June 4, S.B. 232 provides tax exemptions for certain sources of new power generation. The bill was sponsored by State Senator Chris Widener and enjoyed bipartisan support. A press release from the Governor’s office makes clear he intends to sign it into law as soon as he receives it.

The new law will eliminate both the tangible personal property tax and the real property tax on new advanced energy projects. Qualified energy sources include wind, solar, and all other renewable energy resources as defined in Ohio Revised Code Section 4928, in addition to clean coal, nuclear energy, and the cogeneration of electricity from waste heat sources.  To qualify, new projects involving wind, solar and other renewables must be under construction by January 1, 2012 and in service by January 1, 2013. All other qualified energy sources must be under construction by 2017.

One impetus for this change in tax treatment is that the current tangible tax rate energy companies pay is not competitive with other states. In Ohio, the tax rate for wind facilities stands at approximately $40,000 per megawatt, while solar is approximately $100,000 per megawatt. This compares to a range of $3,000 to $9,000 per megawatt in neighboring states.

The Ohio Department of Development will certify the exemption and base new payment rates (payment in lieu of taxes) on the number of Ohioans employed in the construction and installation of a qualified facility. Energy companies will have to comply with several other requirements including road repair, first responder training, and the establishment of university partnerships to promote the education, training and curriculum development of renewable energy industries.

The new rates will be as follows:

  • Solar – $7,000 per MW

All other facilities:

  • $6,000 per MW when 75% or more Ohio-domiciled employees are employed during construction and installation.
  • $7,000 per MW when 60% or more Ohio-domiciled employees are employed during construction and installation.
  • $8,000 per MW when 50% or more Ohio-domiciled employees are employed during construction and installation.

The bill also addresses Current Agricultural Use Valuation (CAUV) property and provides that the installation of an energy facility will not cause the remaining portion of a CAUV tract to be ineligible for CAUV.

The new law may signify the beginning of wind development in Ohio’s rural communities. Three wind projects have already received an Ohio Power Siting Board certificate and may be the first projects situated to apply for the new tax exemptions. Information regarding the three approved wind projects and four pending projects can be found on the Ohio Power Siting Board website

Full text of S.B. 232 is available here.

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Bill introduced to address on-farm bioenergy production

Proposal would ensure that on-farm bioenergy activities qualify for CAUV and are exempt from zoning regulation.

A legislative proposal in the Ohio House of Representatives would include on-farm bioenergy production activities in two key provisions of Ohio law:  qualification for differential tax assessment under the Current Agricultural Use Valuation program and exemption from local zoning authority.  Representatives Pryor and Domenick introduced  House Bill 485 in mid-April with assistance from the Ohio Department of Agriculture.  The bill was referred to the House Agriculture and Natural Resources Committee, but no other action on the bill has taken place.

The proposal addresses “biodiesel production, biomass energy production, electric or heat energy production and biologically derived methane gas production”  where at least 50% of the starting material or feedstocks are from the same tract, lot or parcel on which the energy production takes place.  This 50% requirement targets on-farm energy production, where a farm is producing and processing the energy inputs, as long as no more than 50% of the supplementary inputs derive from other properties.

The bioenergy production activities that meet the 50% rule would be included in the CAUV’ program’s definition of “land devoted exclusively to agricultural use” in ORC 5713.30, thus guaranteeing eligibility for the CAUV property tax rate.  The bioenergy production activities would also become part of the definition of “agriculture” for purposes of county and township zoning, ORC 303.01 and ORC 519.01.  Because counties and townships have  limited zoning authority over “agriculture,” the proposal would ensure that a county or township could not use zoning authority to prohibit the qualifying bioenergy production activities. 

H.B. 485 is available online, here.

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With Ohio wind projects under consideration, Indiana bat stops wind turbine development in West Virginia

The development of wind farms is a controversial land use issue in Ohio, as in other states.  Arguments abound on both sides and revolve around private property rights, community land use planning, green energy, preservation of open landscapes and wildlife impacts.  It is this last factor–impacts on wildlife–that convinced a federal court to halt a wind development project in the Appalachian mountains of West Virginia, much to the dismay of developers of the $300 million project.

The Indiana bat, an endangered species with the power to stop a wind development project

The Beech Ridge wind energy project involves construction of 122 wind turbines along  the ridgeline of the Appalachian mountains in Greenbrier County.   About forty of the turbines are currently in the construction phase, but the federal court has issued an injunction stopping construction of any additional turbines and limiting existing turbine use to the bat’s winter hibernation period.  The reason:  project developers failed to take seriously the issue of harm to the Indiana bat.   The Indiana Bat is on the list of “endangered” species, and interference with the animal or its habitat is prohibited by the federal Endangered Species Act (ESA).   The wind project developers did hire an environmental consultant to examine the situation, but the consultant repeatedly disregarded information and advice from the U.S. Fish and Wildlife Service (FWS) that would have more accurately identified the Indiana bat population.   The court critized the consultant’s efforts, stating that “[s]earching for bats near proposed wind turbine locations for one year instead of three, looking in one season rather than three, and using only one method to detect bats was wholly inadequate to a fair assessment.”  Later surveys revealed the existence of two caves within ten miles of the project that are home to hundreds of bats, including Indiana bats, and evidence suggested that nearly 7,000 bats would die each year because of the project.

Despite the existence of the bats near the project, however, the court pointed out that Beech Ridge’s developers could have requested an “incidental take permit” (ITP) pursuant to the ESA.  The ESA’s incidental take permit mechanism could have allowed the project to proceed, but with preparation of an FWS approved Habitat Conservation Plan demonstrating that measures would be taken to minimize or mitigate adverse effects on the Indiana bat.  “Indeed, the tragedy of this case is that Defendants disregarded not only repeated advice from the FWS but also failed to take advantage of a specific mechanism, the ITP process, established by federal law to allow their project to proceed in harmony with the goal of avoidance of harm to endangered species,” said the court.

The Animal Welfare Institute and Mountain Communities for Responsible Energy filed the lawsuit, and produced expert testimony indicating that Indiana bats exist near the project site and that there was a very high likelihood that the turbines would kill and injure the bats.   The court drew upon Benjamin Franklin in its response to the expert testimony,  stating “. . . the Court concludes, by a preponderance of the evidence, that, like death and taxes, there is a virtual certainty that Indiana bats will be harmed, wounded, or killed imminently by the Beech Ridge Project . . .”

The difficulty of rendering such a decision is apparent in the court’s opinion.   Judge Titus expresses disappointment and frustration with the project developer’s approach to the bat issue, and “reluctantly” orders the injunction.  But unlike many in the wind development arena, the court does not hesitate to give credibility to the interference of wind turbines with the bat population.  He recognizes that the case illustrates a clash between two federal policies:  protection of species and encouragement of renewable energy development, but insists that the two policies are not necessarily in conflict because of  the ESA’s incidental take option and the opportunity for harmonious development.  Seeking an incidental take permit is the only avenue available to help project developers resolve their “self-imposed plight,” states the court.  “The development of wind energy can and should be encouraged,” says Judge Titus, “but wind turbines must be good neighbors.” 

As the Indiana bat did years ago, wind development has made its way to Ohio.  The Ohio Power Siting Board is currently considering approval of several wind projects including the Buckeye Wind Project, a 70 turbine project in Champaign County that would be Ohio’s largest wind development.   Testimony by an environmental consultant at last month’s hearings before the board focused on potential impacts of the project on the Indiana bat.  According to the consultant, studies revealed no evidence of the Indiana bat in the project area.   Studies in nearby Logan County in 2008 revealed the existence of Indiana bats in an area that has since been removed from the project, and another wind developer reported finding an Indiana bat in Champaign County earlier this year.  The Ohio Power Siting Board may take months to decide whether to approve the Buckeye Wind Project and to indicate its conclusions about impacts on Indiana bats.

In accordance with state policy promoting renewable resource development,  the Ohio Department of Natural Resources encourages wind developers to enter into a voluntary agreement to cooperatively address wildlife issues.  In the agreement, ODNR promises not to pursue liability against the developer for any incidental takings of endangered or threatened species.  However, ODNR’s agreement cannot prevent private groups from challenging the turbines in federal court using the approach of the Beech Ridge Energy case.  Should the Ohio Power Siting Board approve a project like the Buckeye Wind Project, Ohio may see its own federal court case on Indiana bats and wind development.

Read the court’s December 8, 2009 decision in the Beech Ridge Energy case here or go to the Maryland District Court’s webpage for the opinion and order at http://www.mdd.uscourts.gov/publications/opinions/Opinions.asp.

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