Farmland Partners sold 862 acres of Arkansas farmland to a local farmer for $3.7 million through a deal in which the NASDAQ-traded REIT retained a portion of future earnings from solar development on the property.
The property is located outside Little Rock in White County and the sale price constituted a 24 percent gain over net book value of the property, according to FPI’s statement. The acquiring farmer owns a nearby cotton gin and plans to grow cotton on the property. He will receive 70 percent of future earnings from renewable energy projects on the property, with FPI retaining the additional 30 percent.
“This particular piece of land is in limbo; it’s not sure that it’s going to go to solar, but it’s got a reasonably high probability of going to solar,” FPI chairman and chief executive Paul Pittman told Agri Investor. “Instead of trying to negotiate with the farmer to pay us for that probably of solar, we just said: ‘Hey let’s come up with a mechanism where we split the money between us, if in fact the solar is developed.’”
Pittman explained solar companies will often negotiate an option where they pay approximately $40 per acre for a period of three to five years while they assess the feasibility of a project on the site.
“When it goes into construction phase with certainty of becoming a solar farm, the rent per acre up in Illinois will go to $1,000 per acre or more. Compare that to an ag rent that might have $350 or $400. This is what drives landowners to agree to do a solar farm,” he added.
If a project goes forward, Pittman added, solar companies will lease land for periods of up to 30 years and agree to return the property to useful farmland at the end of the period. He added there has been at least one example of a solar company, in North Carolina, that opted to buy an FPI property it deemed to have a high potential for solar development.
Interest in solar development has been growing steadily for years and has been fueled recently by expectations of federal clean energy projects through the Inflation Reduction Act, Pittman said. He added that actual development levels vary widely from state to state and depend largely on the level of subsidies and tax breaks available for developers.
Most of the solar development thus far, he added, has been in places that are not particularly sunny, including some states in the Delta and the Midwest, Illinois in particular.
“A lot of our big arid, sunny states aren’t very populated. Therefore, there aren’t transmission lines crisscrossing them all over the place and there aren’t nearby consumers of the power. In all electricity transmission, there is massive loss with distance. It’s not just a sunlight question,” Pittman explained. “East of the Mississippi is much more densely populated than west of the Mississippi, so despite the relatively lower quality of the sunlight, the other factors are more favorable.”
In addition to proximity to transmission lines, he explained, complicated permitting processes are often the most important factors dragging out development of solar projects on farmland properties.
“We as a nation have decided we want to expand solar, and bureaucrats rule the world. It takes forever, so there’s this endless process that needs multiple years sometimes to get that approval.”
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