Since the signing of the Paris Agreement and its Net Zero by 2050 iniative, the ripple effects are still being ironed out as the demand for renewable energy increases.
With expanding renewable energy installations such as wind and solar, The Top Producer Podcast host Paul Neiffer asked David Muth of Peoples Company Capital Markets, the Investment platform for Peoples Company, how those land uses change long term land values.
“We’re really seeing emerging revenue streams from our land base–outside of the ag production,” he says. “We’re trying to get our arms wrapped around the asset management strategy and really get this well positioned. So over the next 10 or 20 years, we’re expanding revenue right and capturing that correctly.”
Muth shares the estimate that over $1 trillion dollars a year is being invested globally in the low-carbon energy transition.
“If we step back and look at what that means for farmland, we’re taking our energy production system from highly centralized production facilities and we have to distribute it,” he says.
The team at Peoples Company used the Princeton Net Zero America study as the basis scenario for its work, which shows if there are 6,000 wind turbines in Iowa today, it needs to increase to about 48,000, which could bring almost $1 billion a year in additional revenue back to the landowners from the turbines.
Muth highlights the considerations for landowners with solar power are different than wind.
“With solar, it’s different. There’s certainly a free market element to this where the revenue streams and the value equations associated with the land in different areas will drive just how high they’ll push those numbers,” he says.
Solar’s Impact On Rural Property Values
He notes he’s seen annual leases with standard escalators for $1,100, and there are additional state and federal incentives.
“In Illinois, there’s been a big push, and we’ve seen options for solar development contracts on some of the best of the best farm ground for $1,400. It is what they’re talking about as a starting place on these assets. The core question is because it’s a fundamental shift in land use, how do you look at the underlying land value where you put solar in place?”
Thinking of recent trends, he says Illinois farm land has appreciated 7% a year, but the future appreciation rate is unknown just as the productivity of the land after solar panels are removed is unknown.
“It’s part of this sort of chaos that landowners are having sort through,” he says. “That’s where a pretty detailed discounted cash flow and understanding how much am I really making on that $1,400 an acre lease payment with a 2% escalator if the underlying farmland value doesn’t appreciate the way that the rest of that highly productive Illinois farm ground is going to appreciate.”
Pop-Up Solar: Can Farmers Make Fertilizer, Fuel and Electricity from the Sun?
Muth says the biofuels industry growth will also effect land values as the production of corn and soybeans is needed for Sustainable Aviation Fuel and renewable diesel.
He discusses more about wind, solar, biofuels as well as carbon storage opportunities on The Top Producer Podcast.
