The need for land to build ever-larger solar arrays has increased tremendously along with the solar industry.
The spread of solar energy on a global scale has been greatly aided by solar farms, but how precisely do these facilities generate income for landowners?
Research has shown that globally, Nigeria currently ranks fifth in sales volume of key off-grid solar (OGS) markets and is continuously growing quickly. The OGS market opportunity has an estimation of US$9.2 billion per year, while the stand-alone solar (SAS) sector alone receives US$227 million from 2015 to date.
It’s important to get off to the correct start, and this step-by-step guide gives you all the knowledge and advice you need to start erecting your solar farm and also profit from it.
This article seeks to succinctly discuss and answer the query: are solar farms profitable?
Key Takeaways
- The amazing thing about solar energy investments is that they improve profit by boosting sustainability. Everyone who is involved, including the environment, benefits.
- Solar energy projects have the potential to yield a good return over the long run. Solar farms provide ongoing income after the initial investment for many years.
- The energy generated by a solar power plant is sold back to the electricity company so that it can be distributed and utilized by others, which is one of the reasons it can be so profitable.
What Is A Solar Farm?
The term “solar farm” is typically used to describe large-scale ground-mounted solar arrays.
Photovoltaic panels, such as concentrating solar systems, are used in solar farms to collect solar energy and harness the power of the sun.
Solar power plants or solar parks are other names for solar farms that are frequently used.
Companies that operate solar farms serve as electricity generators for the public in the same way that fossil fuel generators do.
However, there are a number of key ways that solar farms are distinct from both rooftop and commercial solar power installations.
By placing large orders for solar panels, project developers can take advantage of economies of scale and purchase equipment at a lower cost for solar farms.
A part of the utility’s energy mix often includes solar farms, which provide electricity to the grid. Decentralized, they are made up of ground-mounted solar panels dispersed over large areas.
Utility-scale and community solar farms are two different types of large solar installations.
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Are Solar Farms Really Profitable?
There is a misperception that installing solar truly results in financial gain.
Instead of directly earning money, you really cut or eliminate an expense (your electric bill).
Running a business or farm, however, gives you additional money to use toward expanding or strengthening your enterprise, which boosts profitability.
How Much Money Can a Solar Farm Make this Year?
First of all, it’s crucial to understand that a variety of factors affect the land’s value and, consequently, the solar lease rates.
The following are the main variables that affect a solar farm’s landowner’s profit potential:
1. Quantity of Land
Large projects like solar farms often need a specific amount of acres before a developer will show interest.
1kW per 100 square feet is a general rule of thumb for how many panels the property can support.
You should also consider the additional surrounding space needed for non-panel solar equipment because the quantity of land needed varies depending on the project.
Generally speaking, developers will seek out properties with at least 10 acres of open, level terrain, within 2 miles of a substation, and 1,000 feet of three-phase power.
2. Light from the Sun
It may seem obvious, but for a solar farm to be profitable, the area must receive a lot of sunlight each year.
A solar installation should avoid areas with many barriers because they cast a lot of shadows.
Don’t give up on the possibility of removal if there are barriers on your property right away.
Naturally, it might not always be possible to remove these barriers.
A building should be OK to remove, but a few plants or trees should not.
3. Nearby Grid
For solar farm developers searching for a property to lease, this is a critical decision factor.
It’s unlikely that the project will move forward if the required infrastructure to connect the solar farm to the electric grid is not available.
Infrastructure as simple as a road leading to the property, which appears obvious, might be crucial.
You have a much better chance if your property is already close to the required elements because this type of infrastructure is expensive and challenging to create.
The site must be no more than two miles from a substation and no more than 1,000 feet from three-phase power, as was mentioned above.
4. Qualitative Soil
This might sound more of a concern for people who engage in conventional farming than for those who are working on solar technology, but it is still a significant factor.
This can be a deal-breaker if the property is unsteady, difficult to develop, or covered in other trash and obstacles.
A developer’s budget may be severely impacted by clearing the area, rendering the project unfeasible.
If the site cannot be safely developed, any potential solar farm projects are likely to be abandoned.
Moving on to the negotiation phase is necessary if all of these variables have been considered and the value of the land has been established.
A draft lease agreement will be created by the solar developer for the property owner to evaluate.
All important details, including the monthly rent, the required amount of land, and the lease’s duration, will be covered in this agreement.
Make sure you’re satisfied with the lease and aware of all its terms as you proceed through this part of the procedure.
Annual Profit To Expect From Solar Farms Per Acre
Every year, you can anticipate a return on investment of between $21,250 and $42,500 per acre.
However, these numbers will change depending on the specific projects.
You can build the project on a large piece of land to benefit from economies of scale, which will increase your profits.
Even while the initial investment is expensive when dealing with hundreds of acres, the profit margin will be just as large when dealing with thousands of acres.
On the other hand, small farms don’t make a lot of money because of their poor power output.
Steps on How To Start a Profitable Solar Farm
The following details are all you need to know before turning your property into a solar farm:
1. Fulfill the Prerequisites
Your property should be the right size; for every 1 (mega watt) MW of capacity, you will require at least 2.5 acres (for the panels) and more area to accommodate the essential equipment.
It’s also crucial to know that there are no obstacles that create shadows on your land and that it receives enough sunlight throughout the year.
Additionally, you can make sure that the location is near a grid and roads to avoid higher development costs.
For optimal panel placement and proper sunshine exposure, the topology of the land and the quality of the soil are also important.
It can be difficult to level the ground, and the developer may occasionally suggest that the site is not suited for the project.
Keep in mind that you will require a permit, which, depending on your region, may take a while, possibly years.
2. Invest in the Necessary Parts
For a 1 MW solar farm, the following items will be sufficient, however, you can consult your developer on all the project’s equipment needs:
- Solar PV modules, protection and monitoring tools, a ground-mounted solar structure, wires, and MPPT Tech solar inverters are all required for the setup.
- In addition to purchasing solar panels, inverters, safety equipment, combiners, and junction boxes, you must pay for the fees associated with erection. Given that they are the most important components, you must first learn how much solar panels cost in your state.
- Human resources, site upkeep, and solar panel maintenance will all be required after the facility is finished.
3. Become Familiar with the Benefits and Drawbacks
You must be aware of all the pitfalls and rewards before beginning a solar farm business.
Positively, one of the least expensive sources of electricity is solar energy, which lowers your energy costs.
It also helps that it is environmentally friendly because it is renewable.
The drawback is that you will need a lot of money to start because solar panels and the full system can be expensive to create.
It is not suitable if you need to do it quickly because it is a difficult, intricate procedure that can take years.
How Much Building a Solar Farm Costs
In Nigeria, a solar power plant typically costs ₦350 – ₦363 per watt to build.
These expenses, if you have the acreage to create a solar farm, are based on the Solar Energy Industry Association’s (SEIA) average national cost figures.
Installing and maintaining rooftop solar systems costs more than solar farms do.
SEIA figures show that home solar panel systems (less than 20 kW) cost ₦5,453.73 per watt.
To put it another way, installing solar energy for residences is far more expensive per watt than creating a solar farm.
Due to their low cost, solar farms are becoming more and more popular among utilities to expand their power-producing capacity.
Solar energy is currently equally as cost-effective as sources of electricity produced from fossil fuels, making it one of the most economical renewable energy sources.
Pros of Investing in Solar Farms
Solar farms are stable, renewable energy sources that benefit both the local community and the landowner who is renting out their property.
The benefits of investing in solar farms are:
1. Renewable Energy
Solar farms produce clean, renewable energy, reducing the need for fossil fuels and other nonrenewable energy sources that hurt the environment and emit hazardous gases.
2. Assurance of Income
For landowners, a solar land lease is a wise investment since it ensures a consistent stream of income for the duration of the lease, which is typically 20 to 25 years.
3. Community Building
Residents in the neighborhood will immediately benefit from new tax revenue generated by solar farms since local governments can use this money to enhance community services and lower tax rates.
Cons of Investing in Solar Farms
1. Intermittent Energy Supply
Solar energy production is dependent on sunlight, meaning it ceases during the night and is reduced on cloudy days. This intermittency can disrupt energy supply unless cost-effective energy storage solutions are implemented. Additionally, periods of excess sunlight can lead to an oversupply of energy that might go unused.
2. High Land Requirements
Solar farms often require large amounts of land, which can lead to land degradation and potential habitat loss for wildlife. While smaller systems can be installed on existing structures, utility-scale solar installations may need between 3.5 to 16.5 acres per megawatt, depending on the technology.
3. Environmental Challenges
Solar panels contain hazardous materials similar to those in electronic devices. As solar adoption grows, managing and disposing of this hazardous waste presents an increasing environmental challenge.
3 Ways To Invest In Solar Farms
There are a few ways for investors to finance solar projects and it is more complicated than stocks and bonds.
They are:
1. Financing the building of community solar farms. Loan fees and interest rates need to be compared because they can vary greatly. A profit-sharing arrangement with local residents is provided by some municipal utility companies to investors. Contact yours to learn if this choice is available where you live.
2. Select an iShares sustainable ETF that focuses on a certain subject, such as environmental concerns. These ETFs can be bought and traded through most modern brokerages.
3. Buy stock in a solar energy company that is publicly listed. This can yield a high return on investment while supporting the nation in developing a more environmentally friendly electrical infrastructure.
Do Solar Farms Save Money?
Installing solar panels will enable you to pay less tax, in addition to lowering a major price.
Although it doesn’t involve overproducing, there is certainly the potential to make some money from solar.
There are Solar Renewable Energy Certificate (SREC) markets in many jurisdictions that let you create and sell credits for each 1,000 kWh that your system generates.
For a free price and evaluation of your energy requirements to see whether solar is the appropriate investment for you, contact any of the available solar specialists in or around your area.
Do Solar Farms Have A Future In Nigeria?
Jobs are created as a result of investments in solar energy. Government incentives and increased availability are both supporting it.
The sun provides limitless energy—far more than humanity would ever require—in contrast to other energy sources.
It is also a cheap form of energy to produce and run, requiring little fuel.
There are alternative ways to get started, even though designing and building a solar farm is fairly challenging. A profit-sharing program or an energy-saving plan may be available to locals through some utilities.
Furthermore, investing in publicly traded solar energy companies and purchasing shares in them is another method to get started.
Conclusion
To construct, own, run, or lease a solar farm, there are several good reasons.
Firstly, there is an increasing and soon-to-increase need for non-fossil fuel alternative energy sources.
People understand that solar energy, which is environmentally friendly, doesn’t harm the earth in the same way that mining operations do, which finally exhausts the available resources.
The efficiency and installation costs of solar farming will only increase with the development of technology.
Thus, the profit margins will increase. Although the equipment may be costly to purchase and install, there are government grants and loans available today, and more are on the way, to assist offset these expenses and get you started along a profitable path.
Lastly, the expected lifespan of modern solar farms is 50 years.
Therefore, this article has successfully answered the question; Are solar farms profitable?
Good luck with your quest for better solar energy.
Frequently Asked Questions
Are there solar farms in Nigeria?
A solar farm of 10MW known as the “Kano Solar Project” was built and developed in the 1st quarter of 2023 in Kano State, Kumbotso LGA, near Challawa Industrial Estate, by Nigeria Sovereign Investment Authority (NSIA) after receiving a letter of appointment by the President, dated 12th December, 2018, to assume the role of Funds and Project Manager for the purpose of development and construction of the farm.
What is the average return on investment for a solar farm?
Every year, you can anticipate a return on investment of between $21,250 and $42,500 per acre nevertheless, to estimate the average return on investment (ROI) for a solar farm, you can follow these steps:
1. Determine the annual energy output expected from the solar panels.
2. Estimate the proportion of electricity supplied by the national grid (e.g., PHCN) versus a backup generator.
3. Divide the solar panel’s expected energy output into two parts based on this ratio.
4. For the portion linked to the grid, multiply it by the applicable electricity tariff.
5. For the generator portion, calculate the cost savings by using fuel consumption rates.
On average:
– Small diesel (<5kW) and petrol generators use ~0.5 liters/kWh.
– Larger diesel generators (5kW–20kW) use ~0.3 liters/kWh.
– Gas generators consume ~0.7 liters/kWh.
6. Combine the savings from the grid and generator portions to find the total energy cost savings.
7. Calculate ROI by dividing total savings by the cost of the solar PV system. This method provides a rough estimate of the ROI, factoring in grid reliability and generator usage.
How much land is required to set up a profitable solar farm?
To attract solar developers, there’s no fixed rule about the size of land required for a solar farm. However, having around 30 acres is a good starting point as it is more likely to catch developers’ interest. That said, smaller plots can still be listed, though they may have lower chances of being leased for solar farm projects.
What are the maintenance costs of running a solar farm?
The maintenance costs of running a solar farm are relatively low. Solar panels require occasional cleaning, particularly in dusty environments, and inspections every 1-2 years.
On average, annual maintenance expenses range from ₦60,000 to ₦120,000, which is significantly less than the cost of fueling a diesel or petrol generator.
Are there government incentives for solar farm projects?
The Nigerian federal government provides a 30% tax credit to individuals who install solar panels on their property. However, this incentive is less beneficial for homeowners with little to no income tax liability.
