Farmland for Solar Production: Economic Forces

If you’re considering adding solar production to your land, there are four main forces to consider: environmental, economic, political and social. Previously we discussed the environmental forces behind solar, but what about the money? Broad economic forces can significantly influence a property’s potential use for solar production. 

Although solar production has gathered considerable interest over the past few years, according to the U.S. Energy Information Administration (EIA), in 2021, renewable sources provided a little over 20% of all United States electrical energy, with solar production generating less than 3%. 

According to the National Renewable Energy Laboratory “Spring 2022 Solar Industry Update” – April 26, 2022, there were 11 states that generated more than 6% of their electricity from solar. California leads with 25% of total production. Like other renewable energy, solar continues to be a small but growing percentage of the U.S. electric generation mix. The below charts show the total electricity generation from renewable energy sources against those alternative energy sources in the U.S. through 2021.

System installations for onsite use including residential, industrial, and commercial properties and with utility-scale solar powered-electric generation facilities intended from wholesale distribution have grown significantly from 2010. In a recent study by the "Solar Energy Industries Association" (SEIA) titled 'Solar Market Insight Report 2021 Year in Review', the United States installed a record 23.6 GW of solar capacity, a 19% increase over 2020. 

Primary drivers of this sharp pace of growth can be partially attributed to large price declines in solar equipment. According to the SEIA "Solar Market Insight Report 2020 Q4", the blended average PV system price ($/Watt) has declined from $5.79 in 2010 to $1.33 in 2020. Similar to other industries, the solar industry exhibits economies of scale as there are cost advantages gained from increased output. Residential, community, and utility-scale solar have all moved in similar directions albeit at varying rates of change.

In recent months, supply chain disruptions have caused increased prices for raw materials and consumer goods across the economy. A historically tight labor market in the U.S. has caused upward pressure on wages which in combination has led to higher costs to develop, construct, and operate solar arrays.

According to the SEIA, Illinois ranked 26th nationally in the U.S. in cumulative installations of solar PV. California, North Carolina, and Arizona are the top three states for solar PV. Interestingly, New Jersey (7th), Massachusetts (8th), and New York (10th) are more like Illinois in regards to irradiance and are all in the top-10 for cumulative installations. Illinois has a cumulative capacity of 1,465 MW, of which nearly 250 MW was installed in 2020 and 857 MW in 2021. With these gains, however, the state's total solar production amounted to 0.93% of all electrical production. 

As identified by the EIA, there are a variety of factors that continue to influence the mix of energy sources for electricity generation. Some of these factors include:

• Generally decreasing costs for deploying wind and solar generators
• Federal and state requirements to use more renewable energy sources
• Availability of government and other financial incentives for building new renewable capacity
• Federal air pollution emission regulations for power plants
• A slowing of growth in electricity demand
• The combined effect of several years of low natural gas prices and the performance advantages of new natural gas technologies, particularly highly efficient combined cycle generators

There are a multitude of factors that have an impact on the demand for new energy from solar production. We’ll explore other factors in later newsletters, including governmental and social forces and the financial impacts and considerations to landowners for these solar projects.

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