Solar energy deployment keeps beating projections, and 2024 is shaping up to be no different, but considerations when building a solar farm persist.
In addition to developers actively seeking sites to deploy more PV, land owners are also proactively pushing for more deployment on their land in a move to generate supplementary incomes with lease prices for PV installations ranging between £3000-3500 Euros per hectare in Europe, which is a substantial increase compared to the average farm lease price of 357Euro per hectare. In most countries, this trend is amplified by an ever-increasing renewable energy investment market and favorable development conditions led by various government incentive plans, such as the EU Solar Strategy.
This article will cover the considerations when building a solar farm, from initial thoughts to the final financing.
Table of contents
What is a solar farm?
Photovoltaic power plants, also just commonly referred to as solar farms or solar parks, use large arrays of solar panels to capture sunlight and convert it into electricity. When people talk about solar farms, this type is usually what comes to mind.
These installations are mostly ground-mounted and located in areas with high solar radiation and can range from a few megawatts to hundreds of megawatts in capacity, even gigawatts, like the current largest solar farm in the world boasting a huge 5 GW of capacity.
Solar farms come in two different versions: utility-scale solar farms and community solar farms.
Let’s cover their differences.
Utility-scale solar farms
This type of solar farm is normally a rather large farm compared to community solar farms, but there is no generic number that defines the scale of a utility-scale solar farm since the capacity of the individual farm depends upon the local market to which the solar farm will deliver its power. In some places, farms producing only 1 MW of power are counted as utility-scale, while in others, utility-scale solar farms must produce more than 25 MW.
It is common for utility-scale solar farms to have long-term agreements in place – often 10-20 years – with an ‘off-taker’ such as a utility company, government entity, or private business to buy their energy in what is known as a Private Purchase Agreement (PPA). PPAs are contractual agreements between energy buyers and sellers. They come together and agree to buy and sell an amount of energy that is or will be generated by a renewable asset, this provides financial security for the developer while the off-taker knows how much energy to expect coming
Community-scale solar farms
Community-scale solar farms are generally smaller and provide power used for commercial or community consumption in a local area. Often working on a subscription basis, residents or local inhabitants can subscribe to a local community solar farm, using it to typically enjoy reduced power bills as a result.
Future demand for solar
In the EU, the total solar power capacity reached 259,99 GW, up from 204,09 GW the year before. The EU predicts that it can manage to reach a total solar capacity of 320 GW by 2025 and almost 600 GW by 2030, leaving plenty of space for more growth.
The really encouraging aspect of solar farm development is how accessible it is to private individuals when compared to fossil fuel energy production. Granted, establishing a solar farm is a cost-intensive investment, however, routes to third-party investment are becoming more accessible as we’ll explore later on in this article. Further to this, the cost of generating solar energy becomes cheaper with every passing year due to advances in technology and the widespread production of solar generation components.
How do you make money from a solar farm?
Traditionally, there are two main ways to make money from solar farms. These include leasing land to a renewable developer or, developing the land and operating the solar farm yourself.
Farmers across the EU are increasingly aware of the supplementary income that’s possible to generate from leasing their land to developers, with prices in some countries ranging between €3000-3500 per hectare. This annual rate is for most crops more profitable than what’s possible to generate from crops. However, this trend has caused some politicians to put the brakes on solar farm development on what’s being classified as prime agricultural land over fears that it might compromise local food supplies in the long run.
But given that it’s a possibility to lease and get approval to build a solar farm, the main benefit to leasing your land is that you just need to provide the land, and the project developer will do the rest.
On the other hand, if landowners have access to renewable energy project investment to develop the solar farm themselves, they stand to make money off the electricity that they generate and earn an average ROI of 10%-20% per annum. These numbers vary, in the US for instance, it’s possible to make $21,250- $42,500 per acre per year.
It’s important to consider where your solar farm will be as this will determine how much solar energy it will be able to generate.
Whichever model you choose, income will trickle down into your pockets by selling energy to off-takers that include utilities, government entities, or private businesses via a Private Purchase Agreement (PPA).
Solar farm development considerations
If you choose to act as the project developer and build the solar farm, there are several common mistakes and considerations that you need to be aware of before committing. Below, we’ve compiled a list of these considerations.
Also read: Our grand guide to PV project development
Environmental permits
The location of a proposed solar project will determine how difficult it will be to attain a valid environmental permit with different countries having different regulations in place.
It’s important for developers to determine – as early as possible – whether they will be required to obtain such permits. This information should be available on local authority websites.
Figuring out whether you’ll require a permit means conducting an environmental impact assessment (EIA) which will evaluate the effects of the project on the surrounding wildlife and habitats – in some cases, a wildlife and habitat protection plan may need to be developed.
Site selection
Location can make a big difference, not just in terms of solar irradiance but also, in whether your solar project can go ahead.
The first consideration is the amount of sunlight/direct light the area gets as this will massively impact the output of the panels. The land should be flat, and ideally south-facing. It should get at least 4 hours of peak sun per day.
You will need to check the local zoning laws and land-use regulations since these vary across the EU.
Grid access is an important factor, if not the most important factor. You’ll need to make sure that your land will have access to the grid and how long it will take for your project to get a grid connection, and lastly, make sure that the site isn’t located in an area that’s prone to flooding.
Financial planning
Starting a solar farm requires capital. A lot. The starting phase of the project is always the most capital-intensive when the infrastructure is being built. The good news is that roughly 1/3 of the costs associated with a solar farm are directly related to the solar panels, and these are currently at an all-time low, falling 40% in the last twelve months alone.
The cost of a 1 MW solar power plant varies depending on a number of factors, including:
- The type of solar panels you choose
- The efficiency of the solar panels
- The cost of labor and materials in your area
- The amount of land you need
- The permitting process
In general, you can expect to pay between $0.89 and $1.01 per watt for a 1 MW solar power plant. This means that a 1 MW solar power plant could cost between $890,000 and $1.01 million.
Don’t have the money on hand? Few do. There are many funding options out there to assist, including financing part of the capital expenditure through raising debt and typically bringing on board investors to cover much of the remainder or the whole lot.
You may give equity in exchange for the money, or agree on repayment options with a financial institution and retain full ownership of the solar farm.
You can learn more about funding and how to source capital for a solar farm in our article on how to finance your solar project.
Government incentives
Depending on where you are in the world, various governments have different incentives to promote the development of solar energy infrastructure. What you can access will depend on where you are and the current schemes, but common financial incentives include tax incentives, capital subsidies, subsidized loans, and generation-based incentives.
How much financing you need and what financing options are right for you will depend heavily on how big your solar farm will be, where it’s going to be built, who it will serve, and more. Think about whether you are creating a utility-scale farm, a solar farm for a specific nearby commercial off-taker, or a farm just to power nearby residential consumption. The size and type of off-taker will determine the revenue risk and hence the kind of financing options available.
If you are seriously considering starting a utility-scale solar farm and are looking for financing options or investors, then read more on how we can help you find the right investor.
Equipment and technology
Understanding the equipment that you are purchasing and the pros and cons that come with each part is important. Additional research and speaking to an advisor before going ahead with anything is recommended, but here are a few basics that you may find useful.
You’re going to need the right solar panels and inverters to suit your farm’s scale. You will need to decide whether you are going to install monocrystalline or polycrystalline Each has its own pros and cons.
Read more: Our guide on considerations when building a solar farm.
You will also need to think about battery systems and evaluate the different options. Battery systems have, just like solar panels, seen a rapid decrease in price in recent years, and although they remain more expensive, they can nonetheless be an important part of the setup, so doing your research is important.
You may want to consider solar trackers, too; these redirect the panels to face the sun, increasing their efficiency. There are different kinds of solar trackers available, and different pros and cons to using them.
Permitting and compliance
Although governments in the EU are currently adjusting local legislation to align with the European Solar Strategy, it is still necessary to research the regulations in your local area since regulations still vary country by country.
The approval procedure can be quite rigorous; planners prefer to grant permission on unused land that is poorly suited for farming. If the land is agricultural, permission is more likely to be granted if the land can be dually used (e.g. grazing, wildflower meadows, etc.). Planners will look at socio-economic and ecological factors and the environmental impact of decommissioning the farm. This makes leasing more attractive to some individuals because it requires less work for the landowner.
Operations and maintenance
There are operational and maintenance costs to a solar farm, although these tend to be low because there are few moving parts unless you choose trackers for your panels.
Estimates vary, but the annual maintenance may cost around 2% of the system’s startup cost per annum for a small farm, and 1% for a large farm.
Panels need cleaning and damage inspection at least twice per year. You should establish a schedule for panel maintenance. Your installer should visit twice each year to check everything is working correctly.
Read about the most common problems with solar panels.
You will also need to develop systems for monitoring the production of energy and how it is being used. This will help you to ensure that everything is running as it should be.
You should put a contingency plan in place to help you deal with any equipment failures.
Although solar technology is good, no technology is infallible, so issues will eventually come. Having a plan allows you to respond promptly, minimizing the farm’s downtime.
Remember that PV panels have a life expectancy of around 25 years, while monocrystalline panels should last upwards of 30 years. In the long term, you will need to think about panel replacement costs.
Community engagement and outreach
Solar farms aren’t always the most popular addition to an area; although many people recognize the need for more solar power, nobody wants these farms in their backyards!
That means it’s important to spend time engaging with the local community, building relationships with the local authorities and organizations, and encouraging the public to get on board with your plans.
You should also work to listen to and address any concerns that local people have and do what you can to minimize the damage and disruption done to the surrounding countryside.
If you need a bit of inspiration, then take a look at our case study on how the Danish developer Andel managed to overcome NIMBY and gain plenty of public and local support for its onshore renewable energy projects.
