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10/15/2021
3 ways renewable energy projects can be a boon to rural communities
Renewable energy development in the U.S. has substantially increased over the past decade, particularly in the area of solar photovoltaic (PV) generation, with U.S. utility-scale solar capacity increasing nearly 30% from 2019-2020 alone. While the Southwest has generally been considered the prime sun-generating area, more and more communities are making commitments to green energy, resulting in solar’s expansion into other parts of the country. Developers are focusing on rural areas within close proximity to densely populated areas, due to the amount of land area required for these facilities and the high costs of transmitting this clean energy resource.
As a result, there has been an uptick in utility-sized solar installations between 100 megawatts (MW) and 500 MW in traditionally rural areas in the Midwest and East Coast, areas that historically have been used for industrial row crops. More importantly, these are areas that have not experienced the increasing demand from nonagricultural users over the past 25-30 years and are not experiencing the population booms seen in suburban areas, or in secondary metropolitan statistical areas (MSAs) such as Nashville or Columbus.
Given this new demand for land by solar developers in rural areas, local residents may have some reservations about how this new energy development may impact their communities. In these cases, it’s important to highlight that the concentration of investment for these new projects has the potential to turn around an entire local economy, with direct benefits to both landowners and local residents. In our experience, we’ve seen three main areas where renewable investments have benefited rural communities: 1) increased revenue from commercial real estate taxes, 2) the creation of highly skilled construction jobs for local residents, and 3) increased stability of income for farmland owners.
1. Increased tax revenue
According to Dr. David Loomis, a professor at Illinois State University, “the taxable revenue from utility-scale wind and solar projects is very steady, predictable income.” Dr. Loomis’ analysis of the distribution of property tax revenue generated by the development of utility-scale wind and solar farms in the State of Illinois found that Illinois school districts received nearly $26.3 million in 2019, or 63% of the total revenue. Considering that these same school districts received only $120 total from renewable energy in 2003, the revenue from new renewable energy projects can transform the lives of the local populations. Not only do children living in the same districts as new renewable projects benefit from schools being able to spend this money – on upgraded facilities, higher pay for teachers, newer textbooks, and research tools – but also, well-funded school districts typically are associated with better schools, and an additional correlation known by all real estate appraisers (and local real estate brokers) is that better school districts typically result in higher market values for local residential homes.
In addition, the considerable investment by renewable energy companies in infrastructure for projects does not come at the expense of added pressure on local and civil services; there are generally no additional persons or new schoolchildren added to the local area, only tax revenue.
2. Job creation
The development of new solar farms and wind turbines also creates opportunities for local employment of construction workers – workers who benefit from on-the-job training – and result in a highly skilled workforce that can be mobilized in other areas.
Moreover, income earned by this labor pool is often spent in the workers’ local economy – adding to a “multiplier effect” of the original investment by the developer.
3. Stability of income
Solar farms can also yield higher rents for rural landowners than traditional agricultural uses. For example, “Solar companies typically make annual rent payments between $500 and $1,400 per acre, whereas the average 2015 rent in North Carolina for crop and pasture land is much lower, only ranging from $27 to $102 per acre,” the North Carolina Sustainable Energy Association (NCSEA) wrote in a 2017 report. For Midwestern states where agricultural land has higher soil productivity due to geographical and environmental conditions, average cash rents in Illinois, Indiana, Iowa, and Wisconsin generally range around $245 per acre for irrigated cropland, according to the U.S. Department of Agriculture’s National Agricultural Statistics Service (USDA NASS). Clearly this is an opportunity for landowners to receive rent revenues at more than double what they would receive for ag-use.
These types of arrangements also “help farmers stay on their land because it’s guaranteed income,” Loomis told Continental Energy Solutions. “If they lease their land to a solar developer or a wind developer, that plant’s going to keep running for 30 years. If they’re farming, they’re at the mercy of the climate, with good years and bad years.” These deals can allow farmers to be able to hold on to their land and keep it in the family for decades, and keep it available for their grandchildren to farm in the future. It is important to note that solar facilities are considered an interim use, and the land will eventually be returned to its prior state.
Additional benefits to the community from reserving farmland for solar use for 20-plus years include mitigation of any existing drainage issues and allowing production acreage to “rest” and grow fallow over time, which can increase overall productivity of the land when it is restored for crop production.
How CohnReznick can help
In situations where communities voice concerns about renewable energy projects, it can be helpful to bring in objective valuation consultants early in the process to assess the benefits to the community that the project can provide, to help alleviate those concerns.
CohnReznick’s Valuation Advisory Services team has compiled analyses of residential and agricultural land transactions around both wind and solar projects all over the U.S., which have consistently demonstrated that these uses do not negatively impact adjacent property values. We have learned that the investment made in large solar projects has the potential to consistently benefit rural communities by growing local economies, elevating school districts, adding skilled labor positions, and increasing local property values.
Contact
Andrew Lines, MAI, Principal, Valuation Advisory, Transactions & Turnaround Advisory
312.508.5892
Sonia Singh, MAI, Director, Valuation Advisory, Transactions & Turnaround Advisory
301.280.5193
Subject matter expertise
Andrew Lines
MAI, Principal, Valuation Advisory Services
Sonia Singh
MAI, Director, Valuation Advisory Services
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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.