Higher lease rates, escalator clauses offered for solar projects

Developers of solar farms are offering higher and higher annual lease rates — often above $1,500 an acre — with escalator clauses to sweeten the deal, said farmers in a Purdue University survey released on Tuesday. Some 27% of farmers who spoke to developers said they were offered at least $1,500 an acre, according to the monthly Ag Economy Barometer.

A minority of farmers, 16%, have discussed solar leasing in the past six months. In 2021, only 27% of farmers reported a lease offer of $1,000 an acre or higher. Now, 69% do.

“Lease rates have been rising since we first collected data on solar leasing in 2021,” wrote Jim Mintert and Michael Langemeier, the Purdue agricultural economists who oversee the barometer. “This month’s survey included a more detailed list of lease rate options for respondents to choose from, and 27% of respondents said they were offered a lease rate of $1,500 per acre or more.” Until now, the highest rate in the survey was $1,250 or more an acre.

Some 58% of farmers in the survey said the proposed leases included an annual escalator clause; “the most common escalator range was from 2% to 3% per year.”

The barometer, a gauge of farmer confidence, dipped to a reading of 105, a decline of 3 points from the preceding month. One year ago, the barometer stood at 124. Mintert and Langemeier said high interest rates were a factor and that farmers were less optimistic about farmland prices.

For the Ag Barometer, Purdue interviews operators with production worth at least $500,000 a year. According to USDA data, 7.4% of U.S. farms have annual sales of $500,000 or more. The survey has a margin of error of plus or minus 5%. The latest survey was conducted from June 17-21.

The Ag Economy Barometer is available here.