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Do solar panels add value to your farmstead?

Land Values: Here’s a look at how to value residential-size solar energy systems on the farm.

Michael Lauher

May 3, 2024

4 Min Read
A close-up of a solar panel in a field
SOLAR VALUE: At face value, it seems like residential solar panels should add value to a farmstead, especially when organizations like Zillow claim they can increase a home’s value by more than 4%. Holly Spangler

One of the best things about my job is that it gives me the opportunity to drive through the heartland of America, where fields stretch as far as the eye can see and the sun reigns supreme. More recently on my drives, I’ve noticed a new crop popping up in backyards, side yards and even on some roofs in the country.

That is, small, residential-size solar arrays.

Not to be confused with community-scale solar farms that I recently wrote about, which typically power multiple homes in a community, a residential or commercial solar system powers one home or commercial business.

I was recently approached to appraise a farm that includes a farmstead with a residential-scale solar power array. It got me thinking, does such a solar system add or detract from the value of a farm? At face value, it seems like it should add value, particularly after reading a Zillow article that indicates, on average, a solar energy system increases a home’s value by 4.1%.

Of course, an appraiser looks to the market to determine if a premium or a discount exists. I have not seen any sales of farms with residential solar energy systems, nor have any other appraisers within the Illinois Society of Professional Farm Managers and Rural Appraisers.

Ascertaining value

However, comparable sales is only one of the three approaches appraisers use to ascertain value. The other two are the cost approach and the income approach. The cost approach identifies the different components of an improvement and sums their individual values, subtracts depreciation, and comes up with a total value. The income approach takes the income stream, less expenses, and divides that number by an expected percent return, which provides a value. Both approaches require more detail about the improvement.

And more information is key. So I reached out to residential brokers, who operate higher volume and are more likely to have experience with residential solar systems.

According to Faiq Mihlar, managing partner for Heavner, Beyers and Mihlar, and general counsel for the Central Illinois Board of Realtors, it really comes down to the original transaction on the solar panels. There are essentially two avenues:

1. Outright purchase. An outright purchase of the solar panels makes for a simpler transaction down the road should the owner want to sell. You can convey what you own.

2. Leasing panels. Selling a home where the solar panels are leased can be a trickier transaction. Does the lease go with the property or with the person who signed the lease? This and other questions, such as who is responsible for maintaining the panels and who owns the panels at the end of the lease, play a part in the valuation equation.

And there are outside forces at work.

Government in action

Currently in Illinois, there are two major investor-owned utilities, ComEd and Ameren, whose rates are determined in proceedings before the Illinois Commerce Commission. They are required to purchase back any excess electricity generated by residential solar energy systems through a program called net metering. However, full net metering is set to expire Jan. 1, and to be replaced with rebates for solar systems. Timing of the purchase of solar panels could have an impact on their value.

Outside of ComEd and Ameren, electricity is supplied to Illinois residents through over 50 electrical cooperatives and municipal utilities throughout the state. These are not regulated by the ICC in the same way as ComEd and Ameren, and each has its own compensation schedules and requirements. Who provides or buys the electricity could have an impact on the value of an individual solar energy system.

Illinois House Bill 5315 was introduced this year to protect solar-powered doorbells and has evolved into a more comprehensive proposal to require electrical co-ops to develop a shared policy on solar that must be approved by the ICC. This bill may provide more uniform requirements for rural solar installations but at the cost of wresting away local control. If it passes, more uniformity adds to more certainty, and more certainty in a market contributes to more value.

When all is said and done, the value that residential solar energy systems may or may not provide to the farm will largely depend on the individual installation itself.

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About the Author(s)

Michael Lauher

Michael Lauher is a farm manager with First Mid Ag Services and is a member of the Illinois Society of Professional Farm Managers and Rural Appraisers. Email questions to [email protected].

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