How to Start a Solar Farm

Written by John Ho on October 26, 2020
How to Start a Solar Farm 2020

If you have the interest to know how to start a solar farm, you are in the right place. I will explain to you in detail how you can start a solar farm. A solar farm is designed by acquiring a large land area where we install solar panels with their associated control devices to generate electricity from the solar energy coming from the sun. The solar panel may be fixed or tracking the sun throughout the day. Solar farms are designed from the size of 50 kW to 10 MW or even more. The work executed on the farm may be related to the new installation, reconstruction, maintenance, or the expansion of the solar farm.

Interest in solar farms is developing worldwide due to cheaper electricity generated by solar energy systems. Moreover, once the solar farm is constructed, the farm's electricity does not have any fuel cost. You have to bear a minimal charge of maintenance, supervision, and administrative staff. Electricity generated is fed to the power grid or used locally for an industry or a residential area.

Another reason behind shifting towards renewable energy resources is global warming. Fossil fuels will deplete sooner or later. We should move towards clean and renewable resources, which can be used again and again in a cycle. Governments are giving incentives for residential and industrial level solar projects. Since the announcement of the solar investment tax credit (ITC) by the US government, the solar industry has grown by 10,000 percent.

As the world population is increasing, we need more electricity to feed the power grid. With progressive and modern lifestyles, energy consumption per capita has grown many folds during the past decades. The landowners face a unique business opportunity to rent their land or construct their solar farm and sell the electricity to the power grid or the nearby industry.

How Solar Farm Works

Solar farms are also known as photovoltaic (PV) power stations covering a large area of land. We install many solar panels in rows, making a suitable voltage and current to supply the power to the grid. The landowner or energy company then sells the solar energy generated to the utility grid.

Utility companies take the land on lease from the landowners and construct a solar farm to generate power. It is the easiest way for you to invest your land for a solar farm. You will get monthly or yearly rent for the land used by the utility or energy company.

If you want to construct your solar farm, you will first complete the legal documentation. After getting permission, you will make a contract with a solar company to install the solar energy system on your land. After completing the project, you can contract with the same company or any other company for the operation and maintenance of the solar farm. You will not need to keep an eye on the farm. The company will do the job for operation and maintenance. The utility company will track the power generated from the farm and pay you the electricity generated according to the rate decided.

The Cost of Solar Farm

Utility-scale solar farms start from 100 kW, but the preferred size is the minimum of 1 MW. A one MW solar farm can feed around 200 houses. The cost of installing a solar farm depends on many factors, including land prices, location, size of the solar farm, sunlight hours, and equipment brand used. As the solar farm size increases, the cost of installation per watt decreases. For a solar farm of 1MW and above, the installation cost is around $1/watt. It is relatively lower than the residential solar system due to the large size. It means that 1 MW solar farm will cost you about 1 million dollars.

Selection of Land for Solar Farm

It is preferred not to use agricultural land to construct a solar farm if some unused land is available near the location. The construction of a support structure for solar panels is easy for a flat surface. Professional engineers perform a survey for the feasibility of sunlight reception and ground conditions for system installation. If the land is inclined at an angle, south-facing land is preferrable due to maximum sunlight absorption.

Larger systems must be surveyed for nearby power grid supply to feed a large amount of electric supply. It may require to design and install a small grid station if power is above 500 kW. Power utility may share the installation cost of the grid station based on the contract.

Get Permits and Legal Documents

First of all, you will need to get the necessary permitting from the concerned authorities. Permit requirements change in every state as well as revise every year. It may include permission from the local power utility, the US Bureau of Land Management (BLM), and other local authorities. Large projects may take two to three years for completion of permitting procedures.

You will need to apply for a business license for the power plant operation. If you plan to lease the land for your solar farm, you will also need a lease agreement. For investment, you have to apply for a loan or financial help from banks or investors. You may support the business by yourself if you have the money to invest. For loan or financial assistance, banks and investors ask for a business plan for their satisfaction of supporting the business. Therefore, you should have a business plan ready before applying for any financial support.

Financing Options for Solar Farms

For large solar farms, most people rely on a combination of loans and grants from the government or private sources. Governments are providing tax exemptions up to 26%, which may vary in different states. You can go for a public-private partnership or look for private investments. Many banks offer loans for the construction of solar farms. Many state governments are running programs, assisting in developing zero investment solar power projects. If you have a business plan ready to execute, you can get funding from a bank. Big companies help small companies to establish solar farms. In return, they add your projects to their portfolio to demonstrate their clean energy policy.

Buy or Make Strategy

"Buy or Make" strategy is used in businesses and industries. If it is easy and cheaper to buy a product, equipment or machine, companies prefer to buy it rather than investing a lot of money to make. For example, all personal computer manufacturers do not make computer processors. Instead, they purchase from Intel because Intel is specialized in manufacturing processors at lower prices.

Similar to the situation, you can invest in already built a solar farm instead of building your farm. Solar power generation is an entire field of business that requires in-depth learning about the industry. You will need to know about the manufacturers of solar panels, inverters, combiners and many other protection devices. Even though you will hire the people for the job, you should have a basic knowledge to deal with the people working on your solar farm.

Some people prefer to buy a franchise where the entire business model is already developed, and the business is established. The solar energy company designs and installs the solar farm on your behalf. After completion of the project, they also offer you the business operation services at a reasonable cost. In this method of business, you need to establish a relationship with the chosen franchise. You gather all the information from their business relationship department. They provide you with information about the business strategy, startup cost required and the process of buying a franchise.

Research about Possible Business Challenges

Like other businesses, you should have enough research on the possible challenges and threats in terms of the economy. Cost-benefit analysis, economic downturn, competition and government policies are some factors which you should keep in mind while making a business plan. Keep an eye on the government policies related to the incentives, tax exemptions and energy prices for solar farms. If the energy prices go down, you will probably get lower rates from the power utility, resulting in the loss of your business.

Return on Investment

Return on Investment duration varies depending on the development cost and the price of electricity decided by the local power utility. The payback period highly depends on the number of sunlight hours in a day. The more the sunlight hours, the less time is taken by the solar farm to return the investment. The usual time for return on investment is between six and ten years.

Conclusion on How to Start a Solar Farm

Solar energy is getting many incentives from the state governments to attract business owners. You get tax exemptions on the money invested in solar power projects. A solar farm is not a small project and gives you a good profit with the recovery of investment in 5 to 10 years, depending on the size of the solar farm. Large companies create their portfolio by signing a renewable energy purchase agreement with solar power producing companies. In July 2020, Microsoft signed a single renewable energy purchase agreement of 500 MW, which is quite a significant number. Getting involved in this kind of accords is an excellent opportunity if you are planning you invest in solar farms.

Article written by John Ho

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