At first blush, solar farming and tree farming appear to have a lot in common.
Both are basically solar energy converters on poles. One was a divine creation and the other invented by man. Which should be more efficient at converting sunlight to essential products like electricity or wood? I’ve worked in stands so thick with vegetation that basically no sunlight hit the forest floor. The easier way to get through those stands was on my hands and knees, because there was no foliage below waist height. Trees have to be a much more efficient converter of solar energy. But are trees more profitable than solar?
The SC Distributed Energy Resource Act of 2014 effectively jump-started the rush to solar energy in South Carolina. This law set the basic sideboards for building a solar energy program. It set initial goals for renewable energy programs at a minimum of 2 percent of a utility’s peak retail demand. The upper limit of production will eventually be determined by the cost of production of solar farms in comparison to other utilities’ “avoided cost” or the cost of adding similar capacity.
A quick Google search will locate numerous recent solar farm announcements. An average of 5 acres per 1 megawatt (200 kilowatts/acre) of production capacity seems to be the norm for stationary systems, but tracking panels that follow the arc of the sun during the day require as much as twice the room to allow for efficient operation. Utility-scale solar farms must fit onto the landscape, which requires additional acreage for drainages, roads and structures.
Solar farm announcements are being made everywhere the sun shines in South Carolina. Stated capital investments typically range from $10 million to $20 million per project, but electricity providers can sign multi-project deals such as the $340 million announcement for 17 individual solar projects in Darlington County. The initial capital investment covers land costs, site preparation, construction and infrastructure.
Land rental payments are the primary recurring cost of operating a solar farm. Annual payments can range from $300 to $900/acre with the higher rates reserved for ideal locations with low site preparation costs. Rental payments for recently harvested timberland that must be intensively site-prepared before construction will typically receive lower rents, in the $300-$600/acre range. The rental payments are generally tied to an annual inflation rate, so they hold their value over time.
A timberland owner who has just completed a final harvest now faces a new alternative. Should the timberland be converted to a solar farm for a guaranteed annual payment or should the owner invest in site preparation and tree planting for another rotation? Coincidentally, 25 years is a reasonable time length for both investments. Farmers typically lease some of their agricultural acreage, so converting the timberland’s “net present value (NPV)” into “equal annual payments” would be a familiar way to compare tree farms to solar farms.
NPV for Southern yellow pine plantation management varies considerably depending on factors such as site productivity, the intensity of management, market conditions and discount rates. Converting NPV to an equal annual payment can also result in a wide range of values per acre. However, even including additional income from hunting leases, the highest equal annual payment I calculated for plantation management was $117/acre. More typical values for forestry ranged from $66 to $90/acre. In comparison, solar farm rental payments are 3-5 times higher than plantation management’s equal annual payment. So why aren’t all timberland owners converting their land to solar farms?
Although solar farms can be very financially attractive, there are limiting factors that will moderate timberland conversion. For instance, properties in close proximity to transmission lines have a clear financial advantage over distant properties where the cost of extending transmission lines can be significant. Also, cleared agricultural lands have a lower cost of site preparation than harvested timberland. As a result, only 25 percent of proposed solar projects are estimated to be planned for timberlands.
Additionally, solar power is a different animal for utilities to manage. Coal, nuclear and biomass plants are reliable sources to meet base electricity loads. Natural gas plants are well suited for meeting peak power demands. Without battery storage, solar power is a hybrid of sorts. It can help meet base load as well as peak power demands, but it can be problematic under certain situations such as cloud conditions or even during periods of low electricity demand.
With the falling cost of installing solar, it is possible that within five years, solar power could contribute 15-20 percent of each utility’s electric power production portfolio. Transmission issues will constrain solar in the short run to those levels. With a total generating capacity of 20,591 MW (SC State Energy Plan and Santee Cooper Fingertip Facts 2016), 3,088 MW of capacity could go to solar power. Solar’s footprint would cover around 15,000 acres with only a portion (25 percent) of that being timberland. That would equate to 0.03 percent of the state’s 12.9 million acres of forestland.
So, will solar farms replace tree farms? Yes, but only a limited number of timberland acres will be developed for solar generation, and the historic rate of timberland conversion will not change appreciably. For those landowners whose timberland is in close proximity to transmission lines owned by a utility with additional capacity and interest in solar, thank your lucky start.
There are definitely issues for you to consider before signing any contract, but financially, it appears to be a no-brainer. For the rest of us, just remember that forestry can be a profitable, long-term investment that you can enjoy while it is growing.
Tim Adams is the resource development division director for the South Carolina Forestry Commission.