Projects Funded for Sara Johns
Solar Farms Land Supply: A Dynamic Discrete Choice Model
Jeffrey Perloff, Shuo Yu, and Sara Johns
Specific Objectives of the Project:
The Biden administration’s goal is to eliminate fossil fuel electricity generation by 2035. Further, the Department of Energy’s Solar Futures Study projects that 40% of U.S. electricity generation could come from solar by 2035, which would require installing 30 GW/year until 2025 and 60 GW/year between 2025 and 2030 (DOE, 2021). The administration’s renewable energy targets are estimated to require an area larger than the Netherlands for solar energy (Rystad Energy, 2021).
These targets raise concerns about renewable energy development’s impact on land use and agricultural productivity. Many developers prefer to build solar farms on flat, clear agricultural land with low construction costs. Solar developers lease the land from the farmers. This lease price is typically much higher than what farmers would receive from leasing their land for agriculture. This project addresses the factors that influence whether farmers lease their land for solar and any unexplained cost farmers face by leasing their land for solar.
Summary of Results:
Illinois passed a law in 2016 and then a follow-on law in 2021 to allocate funding toward renewable energy development and addressing climate change. One program created by these laws was the Adjustable Block Program, which guaranteed prices of renewable energy credits (RECs) for community solar (≤ 2 MW) projects. The program received significantly higher demand than the allocated funding could support, so a lottery was held in 2019 to choose 112 projects out of 919 applications. The Agency published the lottery results, including the winning and losing projects’ sizes, locations, and developers. An application required that the developer had site control (lease agreement/option) of the area listed. Thus, we observe many farmers who agreed to lease their land for solar and many sites that developers thought were suitable for solar development.
We supplemented this field-level dataset with the published lottery results, estimates of lease value provided by a company specializing in new energy development on farmlands, and multiple spatial layers that include climate data, approximations of productivity, and proximity to the nearest infrastructure. We restricted our sample to fulfill the requirements established through conversations with multiple developers, agricultural land information platforms, and an officer at Illinois Power Agency. We then used linear fixed effects models and instrument-based estimation methods to analyze the data.
According to our analysis, a 10% increase in leasing prices is associated with a 4% increase in the likelihood that farmers are willing to lease their land for solar purposes. Not surprisingly, lower-productivity fields are more likely to be leased for solar projects. A 10% increase in field productivity results in a 28% decrease in the probability a farmer agrees to have a solar project installed.
Additionally, farmers who experience higher levels of climate risk are more likely to contract to lease. For instance, if a field experiences an average of 10% more extreme degree days or excessive rainfall during the planting season over the previous three years, the probability of leasing increases by 11% and 15%, respectively.
In summary, this study finds that lease prices, field productivity, and climate risk strongly affect farmers’ decisions to lease land for solar energy projects. These findings have important implications for policymakers, farmers, and other stakeholders in the renewable energy sector.