Starting a solar farm can be a profitable venture that not only provides communities with renewable energy but also helps in the fight against climate change by reducing carbon emissions.
In 2022, the global solar farm market has reached a size of US$ 79.6 billion.
IMARC Group expects that the market will expand to US$ 196.7 billion by 2028, demonstrating a compound annual growth rate (CAGR) of 14.93% from 2023 to 2028.
With the increasing demand for renewable energy, solar farms have become a popular choice for investors and entrepreneurs.
However, developing a solar farm requires careful planning, investment, and a deep understanding of the technology and the market.
What Is a Solar Farm?
A solar farm is a decentralized power station featuring multiple solar panels that supply power to a specific area. Like home solar projects, these farms connect to the power grid, leading to reduced electricity bills for home and business owners.
Solar farm businesses are mainly of the following types:
Utility-Scale: These large-scale solar farms can generate up to 2,000 megawatts of electricity, enough to power hundreds of thousands of homes and businesses. They connect to the power grid via high-voltage power lines.
Community-Scale: These solar projects produce up to 5 megawatts of power, feeding into the regional power grid. Participants in a community solar farm program enjoy lower energy bills and contribute to renewable energy in their areas.
How to Start a Solar Farm in Eight Steps?
Starting a solar farm involves several steps, each crucial for a successful project:
Establish Your Market: Identify the beneficiaries of your solar farm project.
Whether it’s a rural community, urban neighborhood, or specific institutional campus, research the electric company you’ll work with, their willingness to buy solar power, and other alternative energy providers in your area.
Create a Plan: Like any business, a solar farm needs a clear plan that covers everything from initial construction to long-term operation and maintenance.
Create a Legal Business and Brand: Register your business as an appropriate entity (LLC, corporation, partnership, etc.) and establish your brand with a website and social media profiles.
Find a Suitable Location: Select a suitable location for your solar farm considering factors like zoning ordinances, grade, sun exposure, and land use. Alternatively, you could install the solar farm on a roof, especially in urban or industrial settings.
- Zoning: Research local zoning ordinances to determine the type of land suitable for a solar farm. Agricultural and industrial lands are often used, though exceptions may be possible.
- Grade: Solar panels need relatively flat ground for efficient operation. Land with hills or steep inclines may not be ideal.
- Sun exposure: The chosen land should have significant sun exposure. South-facing plots without obstructions like buildings or trees are optimal for solar farm installations.
- Land use: Consider potential habitat loss for wildlife residing or feeding at the location.
Alternatively, solar farms can also be installed on rooftops, particularly in industrial or urban areas.
Apply for Permits: Obtain the necessary licenses and permits to operate legally, such as a permit to connect your solar farm to the power grid, land conversion permits, and labor contracts.
Purchase Liability and Other Insurance: Protect your investment with suitable insurance policies, including liability coverage and policies covering damage or loss of your solar equipment.
Hire Professional Solar Installers: Collaborate with an experienced solar company for proper installation of your solar panels. Research and review the best solar panel companies in your area.
Establish a Maintenance Schedule: Regular maintenance is crucial for the optimal operation of your solar farm. Follow the recommendations of your solar panel installers and manufacturers for the best maintenance practices.
How Do You Make Money From a Solar Farm?
There are two primary ways to profit from solar farms: leasing land to a renewable developer or developing and operating the solar farm yourself.
Especially popular in the UK and the USA due to unpredictable seasonal farming, landowners lease their land to renewable energy project developers.
This arrangement is profitable as they receive payment rates higher than what they would earn from crops, approximately $1050-$1,350 per acre annually.
The main advantage of this method is that landowners only need to provide the land, and the developer handles the rest.
Developing and Operating Solar Farm
If landowners have the capital to develop the solar farm themselves, they can profit from the electricity they generate.
The return on investment (ROI) is estimated at 10%-20% per annum, though this varies by region.
For example, in the US, earnings can range from $21,250- $42,500 per acre annually.
The location of the solar farm is critical as it determines the amount of solar energy generated. Regardless of the chosen model, income is generated by selling energy to off-takers (utilities, government entities, or private businesses) through a Power Purchase Agreement (PPA).
PPAs provide off-takers with a reliable source of clean energy over a specified period at a fixed or variable rate, similar to house mortgages.
Considerations of Starting a Solar Farm
Selecting a site for a solar project requires careful consideration of several factors:
Sunlight Exposure: The location should receive at least 4 hours of peak sun per day, which significantly impacts the panels’ output. Ideally, the land should be flat and south-facing.
Local Laws and Regulations: Check the local zoning laws and land-use regulations. In the UK, for instance, planning permission is required to ground-mount more than 9 square meters of solar panels. Unused land and brownfields are more likely to get development permission.
Grid Access: The land must have access to the power grid to feed the electricity generated by the solar panels.
Flood Risk: Preferably, the area should have a minimal flood risk to prevent potential damage to the solar infrastructure.
The cost of building a solar farm typically ranges from $0.89 to $1.01 per watt, meaning a 1MW solar farm can cost between $890,000 and $1.01 million.
These costs apply if you have the land to build a solar farm, based on the SEIA’s average national cost numbers.
Rooftop solar systems are more expensive, costing $3.06 per watt for residential solar panel systems (fewer than 20 kW).
Hence, building a solar farm is more cost-effective per watt than installing solar energy for homes.
Due to their low cost and capacity for power generation, utilities are increasingly opting for solar farms. Solar power is not only one of the most affordable sources of renewable energy but is now also competitive with electricity derived from fossil fuels.
Equipment and technology
Understanding the equipment needed for a solar farm and its pros and cons is crucial. Here are a few basics:
You need to decide between monocrystalline and polycrystalline panels.
Monocrystalline panels are more expensive but are more efficient and last longer than polycrystalline panels, which are cheaper but less effective.
Your choice may depend on your region’s solar irradiance.
For instance, monocrystalline panels may be best for less irradiated regions, while polycrystalline panels might be suitable for highly irradiated regions like Italy.
Despite being costly, solar battery systems are an essential part of the setup. Therefore, careful research and evaluation of different options are necessary.
These devices redirect the panels to face the sun, enhancing their efficiency. There are various types of solar trackers, each with its own pros and cons.
It’s advisable to conduct thorough research and consult an advisor before making any decisions.
Operations and Maintenance
Operating and maintaining a solar farm involves certain costs, though they are typically low due to few moving parts.
Maintenance Costs: Estimates suggest that annual maintenance may cost about 2% of the system’s startup cost for a small farm, and 1% for a large farm. Panels need cleaning at least twice a year and regular inspections for damage.
Monitoring Systems: Implementing systems to monitor energy production and usage is crucial to ensure the farm operates efficiently.
Contingency Plan: A plan should be in place to handle equipment failures, minimizing the farm’s downtime.
Panel Lifespan and Replacement Costs: Photovoltaic (PV) panels generally have a lifespan of around 25 years, while monocrystalline panels can last over 30 years.
Long-term planning should consider the costs of panel replacement.
Despite the reliability of solar technology, it’s not infallible, so readiness to handle issues is key. Regular inspections by your installer are recommended.