Solar Energy on Rural Farmland: A Data-Driven Opportunity for Climate Investors

The solar energy industry has experienced exponential growth globally, with solar capacity increasing by 22% annually over the past decade. This growth creates new investment opportunities, particularly in rural areas where farmland is increasingly repurposed for solar projects. In the U.S., solar energy deployment on rural farmland offers an exciting opportunity for climate and impact investors, combining solid financial returns with significant environmental and social benefits.

Rising demand for renewable energy driven by data centers and the computing power needed for large language models, supportive government policies, and the availability of underutilized rural land are turning solar projects on farmland into high-potential investments. With equity returns on rural solar farms ranging from 25% to 35% and increased demand for energy driven by data centers and artificial intelligence, these projects present a win-win for investors looking to make a positive environmental impact while securing stable, long-term revenue.

The Untapped Potential of Rural Farmland for Solar Energy

Over 895 million acres of farmland make up a significant portion of the country's land use, and much of this land is either underutilized or marginal for traditional agriculture. According to the U.S. Department of Agriculture (USDA), approximately 25% of U.S. farmland is classified as marginal, which is unsuitable for high-yield crop production. However, we believe the land is ideal for solar installations, allowing farmers to diversify their income streams and generate consistent, long-term revenue.

Over the next 18 to 24 months, we expect the U.S. solar energy market to reach 325 GW of installed capacity, up from 100 GW in 2021. A significant portion of this growth will likely come from rural solar projects. Farmland solar installations can generate income of up to $1,200 per acre annually, far exceeding the average returns from traditional crops such as corn, which generate around $200 to $500 per acre.

This shift in land use offers higher returns for farmers and provides investors access to large tracts of land at lower costs than in urban or industrial areas. Farmland in rural America is generally priced at a fraction of the land cost in more densely populated areas, providing solar developers with an economically attractive option for large-scale solar installations.

Financial Returns and Revenue Stability

Solar energy projects on rural farmland offer highly attractive financial returns, with internal rates of return (IRRs) ranging from 25% to 35% for well-structured deals. The long-term revenue streams generated through power purchase agreements (PPAs), which typically last 20 to 30 years, drive these returns. PPAs with utilities or municipalities guarantee stable income by locking in rates for the electricity generated, providing investors with predictable cash flows over the project's lifetime.

Additionally, the cost of solar technology has fallen dramatically in recent years, decreasing by 89% since 2010, making solar projects more financially viable than ever before. The levelized cost of electricity (LCOE) for utility-scale solar in the U.S. is now as low as $30 per MWh, making solar one of the most cost-effective new energy generation sources.

Solar energy projects also benefit from various tax incentives and subsidies. The federal solar Investment Tax Credit (ITC), currently offering a 30% tax credit for solar installations, significantly reduces upfront capital costs, further enhancing project profitability. State-level incentives, grants, and renewable energy credits (RECs) add additional financial support, strengthening the economic case for rural solar projects.

The Environmental and Social Impact

Investing in solar energy on rural farmland offers solid financial returns and contributes significantly to environmental sustainability. Solar farms are crucial in reducing greenhouse gas emissions by displacing fossil fuel-based energy production. A typical 1 MW solar farm can offset about 1,600 metric tons of CO2 annually—the equivalent of removing 340 cars from the road each year.

The U.S. has set ambitious targets for achieving net-zero emissions by 2050, with solar energy expected to contribute 40% of the nation's electricity supply by 2035. Investing in rural solar projects supports these national climate goals and helps to combat global warming by transitioning the energy system to cleaner, more sustainable sources.

In addition to environmental benefits, rural solar projects provide economic opportunities for local communities. Agriculture is the primary economic driver in many rural areas, but farming incomes can be volatile due to fluctuating commodity prices and changing climate conditions. Leasing farmland for solar energy provides farmers with a stable, diversified income source that can buffer against economic uncertainty. On average, a solar lease can generate two to three times the income of traditional crop farming, offering economic benefits to rural communities.

Solar energy projects also create local jobs during construction and ongoing maintenance. The U.S. solar industry employed over 300,000 workers in 2023, and we expect employment to grow by 10% annually as the industry expands. Many of these jobs are created in rural areas, where solar farms are built, contributing to local economic development.

Government Policies and Support Provide Tailwinds

The U.S. government is committed to accelerating the deployment of renewable energy, and solar power on farmland is central to these efforts. In 2022, the Inflation Reduction Act (IRA) was passed, providing over $369 billion in climate and clean energy investments. The IRA includes extended and expanded tax credits for solar energy, including the solar Investment Tax Credit (ITC) and production tax credits, which are expected to drive additional solar installations in rural areas.

State governments are also actively supporting solar projects on farmland through renewable portfolio standards (RPS), which require utilities to source a certain percentage of their electricity from renewable energy. Roughly 30 states have implemented RPS policies, and several states, such as California and New York, have set targets to reach 100% clean energy by 2045 or sooner. These policies create a strong demand for renewable energy, incentivizing solar developers to build in rural areas where land is more readily available.

Additionally, rural solar projects often qualify for federal funding through the U.S. Department of Agriculture (USDA) and programs such as the Rural Energy for America Program (REAP), which provides grants and loans for renewable energy projects in rural areas. These funding programs further reduce investors' financial risk and increase the likelihood of project success.

Risk Mitigation and Investment Security

While any investment comes with risks, rural solar projects benefit from several mitigating factors. The long-term nature of power purchase agreements (PPAs) ensures stable revenue over multiple decades, reducing exposure to market volatility. Additionally, the declining cost of solar technology, combined with government incentives, improves the overall financial viability of projects.

Investors also benefit from the strong demand for renewable energy from utilities, corporations, and governments. As more companies commit to sustainability goals and carbon reduction targets, the market for clean energy continues to expand. 

A High-Potential Investment in the Clean Energy Transition

Solar energy projects on rural farmland present an exceptional opportunity for climate and impact investors to achieve strong financial returns while contributing to environmental and social sustainability. With falling technology costs and robust government support, rural solar projects offer a financially sound investment with a significant positive impact.

By leveraging the untapped potential of farmland for solar installations, investors can help drive the transition to clean energy while supporting rural economies. As the U.S. continues to scale up its renewable energy infrastructure, rural solar projects are set to play an increasingly important role in meeting the country's energy and climate goals.