Strange Bed(rock)fellows: Solar Farms and Mineral Rights
- Climate change has spurred energy production from renewable sources, including solar, and land rights are now in the spotlight.
- In most oil/gas-producing states, land ownership typically involves two sets of rights, surface and mineral rights. The mineral estate is deemed dominant, so reasonable use of the surface for mineral drilling operations and production attaches to it.
- Since oil wells and solar farms cannot coexist on the same tract of land, the mineral rights holder’s legal right to reasonable use of the surface for its operations could undermine a solar company’s plan to build a solar array on that land. As a result, solar companies may seek to pay mineral rights owners for a “land use waiver.” While rights negotiations can be complex, our Mineral and Energy Resource Management team is available to help with surface rights waivers and resolving other potential issues.
As it is above, so it is below — at least when it comes to land use rights. That’s because land ownership in many states, especially big fossil fuel-producing states like Texas and New Mexico, is separated into two estates: the surface estate and the mineral estate. With this ownership bifurcation, also known as severance, surface rights and mineral rights can belong to one or more owners, and parties that own one frequently do not own the other.
With concern now about climate change prompting the production of more energy from renewable sources, including solar, land rights are in the spotlight. Before building solar arrays, solar companies may lease land from surface rights owners. But they may also need to obtain a special contract, known as a land use waiver, from mineral rights owners. The good news for owners is that installers are usually willing to pay for these waivers.
Such opportunities can be particularly attractive for owners of mineral rights in land that is no longer producing (or has never produced) oil or gas.
Severance and Dominance
Where severance has occurred, mineral rights are almost always dominant, meaning they take precedence over surface rights, including in part by granting what’s called “reasonable use” of the surface. This means that an oil and gas company that has leased mineral rights technically does not need the surface owner’s permission to use as much of the surface as is reasonable to set up drilling operations and production equipment, storage facilities, and access roads. In short, reasonable use prohibits the surface owner from abruptly declaring, “You can’t use my land anymore so please remove all your equipment.” This is a major reason oil and gas states have mineral estate dominance on the books: It promotes production and reduces the potential for disruption.
The reasonable use issue can also be tricky for solar companies. When planning to lease a tract of land, they need to ensure an energy company isn’t going to invoke reasonable use and set up a drilling operation where a solar farm is to be (or has been) built.
That’s why solar companies will usually ask mineral owners to sign what’s called a land use waiver (or a surface waiver agreement). The waiver basically takes the reasonable use issue off the table. Call it an “I promise not to use the land” agreement. Absent this disclaimer, a solar array might always be at risk of disruption by an energy company.
Possible Fees or Royalties
Solar companies typically pay mineral owners for land use waivers in two main ways. One is in the form of an annual fee that may be negotiated to increase over time (it may be tied to a benchmark such as the consumer price index). Or payments may be royalties based on the volume of electricity the solar farm produces. (See “Solar Panel Types” below to learn about the relative costs and efficiencies of different types of solar technology.) Mineral owners or their management company can usually negotiate the terms of a waiver, including duration.
Being paid for a land use waiver may seem like an obvious opportunity for mineral rights owners. And there are certain situations that may make it appear even better. For example:
- If owners used to receive royalties from a mineral lease but no longer are because the oil and gas company abandoned the well (or wells) as unproductive. These orphaned wells are far from rare: Based on recent Environmental Protection Agency (EPA) estimates, there are more than 3 million abandoned wells in the U.S.1 In some regions, mineral owners may find that solar payments equal or surpass those they used to receive from oil and gas companies.
- They hold mineral rights in nonproductive land; that is, land that has never produced oil or gas. (Notably, even in oil-rich Texas, nonproductive land surpasses productive land by a wide margin.)
- They have the option to sign (or have already signed) a mineral lease contract with an oil or gas company. The bonus here is that they may be able to sign both contracts! A major condition would be that the extraction company drills from a distance, employing horizontal or directional drilling. (That’s where the drill bores down to a certain depth then changes direction and runs at an angle for possibly thousands of feet.) In this way, the company can set up equipment on a separate tract of land and recover oil or gas from underneath a solar farm, and all ideally without disrupting it. (Horizontal and directional wells, once fairly uncommon, now dominate certain forms of oil and gas production in the U.S., according to the Energy Information Administration, or EIA.2
Solar Panel Types
Payments for a waiver come in two main forms: A fixed amount that may increase after a negotiable period. Or a periodic royalty based on the volume of electricity produced.
Either way, as a mineral owner, you might benefit from being familiar with the types of solar panels and their energy production efficiency (although you will almost certainly have no say in the type that’s ultimately used).
As a rule, solar panels capture more sunlight when facing the sun at a right angle. But, of course, the sun travels east to west, daily, and north and south, more slowly, during the course of a year. Solar panel tracking capabilities have evolved to allow for improved efficiency, although older panels are still in wide use. There are three main types.
- Single tilt panels are fixed at an angle facing south. They capture the most sunlight possible from a fixed position but cannot track the sun throughout the day or year. They are typically the cheapest and least efficient panel type.
- Single axis panels are motorized to track the sun during the day but are fixed at an angle and so cannot follow the sun as it moves north and south throughout the year. These are typically more efficient but also more expensive vs. single tilt.
- Double axis panels use motors to track the sun throughout the day and the year and are usually the most efficient but also the most expensive panel type.
PV Technologies. There are different photovoltaic cell types, such as thin-film, polycrystalline, and monocrystalline. They offer so many features — efficiency, cost, sturdiness, flexibility, ease of installation, recyclability, and more — that they are beyond the scope of this article. Like to learn more? This government website may help.
Sources: “More than half of utility-scale solar photovoltaic systems track the sun through the day,” U.S. Energy Information Administration, 2017.
Earlier we touched on why we expect more solar farms to be built (and, by implication, more land use waiver fees to be paid). Here’s a broader look at why momentum for solar is building right now:
Lower costs. Photovoltaic (PV) cells, small electronic devices that use a chemical process to turn sunlight into electricity, are at the heart of the panels you see in utility-scale solar farms across the country. Little more than a decade ago, PVs were one of the most expensive ways to produce electricity. With constant innovation and growing adoption rates (see below), however, that is no longer the case.
The market price of solar energy has dropped significantly in the past decade. The levelized cost3 of solar was $230 per megawatt hour (MWh) in 2010 but just $33 per MWh in 2021. With the levelized cost of coal at $108 per MWh and natural gas at $60 per MWh, solar is now actually one of the cheapest ways to generate energy.4 Moreover, the National Renewable Energy Lab (NREL) expects solar costs per MWh to continue to decline for some time.5
Climate change. The consequences of climate change — caused by high volumes of carbon dioxide (CO2) and other greenhouse gases in the atmosphere — have become more evident in recent years. Extreme droughts and floods, changes in long-term weather patterns, melting glaciers — these are a few of the global crises that have led to a rise in social and political pressure to slow and reduce CO2 production. This in turn has prompted growing use of renewable energy resources, including solar, that produce less or near-zero CO2.
Smaller carbon footprint. An industrial-scale solar array has a comparatively small carbon footprint; in fact, over their lifetime, and depending on their geographic location, solar panels can be about 20 times more environmentally friendly per generated kilowatt hour (kWh) than coal, according to the National Renewable Energy Lab, and emit 10 times fewer grams of CO2 per kWh than natural gas.6
Growing adoption rates. Energy industry resistance to renewables was arguably standard practice for decades in the U.S., resulting in halting innovation and low adoption rates for solar. But that has changed: Solar adoption increased more than 20-fold between 2011 and 2021, according to research organizations Environment America Research and Policy Center and Frontier Group, using data from the U.S. Energy Information Administration.
Government mandate. President Biden recently signed into law the Inflation Reduction Act. Among a range of goals, the bill authorizes the use of the Defense Production Act to accelerate domestic production of clean energy technologies, including solar panels. The White House expects solar energy production to roughly triple, from 7.5 gigawatts today to 22.5 gigawatts by 2024.7
About That Waiver …
If you are a mineral rights owner, what are the chances a solar company will approach you for a land use waiver? Depending on state and local regulations, it is more likely if the land they are seeking to build on:
- Covers up to 300 acres or more.
- Is in an area where the sun shines all day and clouds are rare.
- Is within a mile of electricity transmission lines.
- Is relatively flat and contains little or no marshland.
- Is not home to endangered species and presents no unusual environmental issues.
- Local land use and zoning laws allow for the development of a solar farm.8
Even if the land does not meet all these requirements, which may vary by state, a solar array builder may still be able to negotiate construction — and may still seek a land use waiver. Please contact Bessemer’s Mineral and Energy Resource Management team to find out more.
Oil Wells and Solar Cells: From Similar Origins to Development Imbalance
Oil and gas extraction technologies have a long history in the U.S., stretching back two centuries. As it happens, photovoltaic cells go back a long way, too, almost as far, in fact — which may come as a surprise considering how it’s only in the last decade that they’ve begun to move into the energy spotlight. To illustrate this more clearly, here are some industry milestones:
Wells and Drilling:
- 1821: The first major natural gas well in the U.S. is drilled in upstate New York. • 1859: The first major oil well in the U.S. is drilled in Pennsylvania.
- Late 1920s: First use of horizontal drilling, where the drill line (and later the pipeline) changes direction, which is now the dominant form of extraction.
- 1947: First use of hydraulic fracturing (“fracking,”), where high pressure liquids are used to split apart shale rock formations and loosen up oil and gas deposits, in Kansas.
- 1839: French chemist Edmond Becquerel creates the first photovoltaic cell using platinum electrodes and an acidic solution containing silver chloride.
- 1883: Inventor Charles Fritts installs the first prototype solar panel on a New York City rooftop.
- 1954: The PV industry itself is arguably born when scientists at Bell Labs in New Jersey first create electricity from silicon PV cells with enough efficiency to run household appliances.
- Early 1970s: Research into photovoltaics largely has remained dormant. That changes, albeit only moderately, after the OPEC oil crisis. But nothing major happens until:
- The 2000s: The push to develop solar panel technology takes off as governments, corporations, and individuals start to turn to renewable energy as one way to combat climate change.
Sources: “A Chronology of U.S. Petroleum History,” American Oil and Gas Historical Society, 2022;“A Brief History of Natural Gas,” American Public Gas Association, 2022; “The History of Solar,” U.S. Department of Energy’s Energy Efficiency and Renewable Energy group, 2022.
As the nation moves to lower the production of CO2, which is associated with climate change, evidence points to a continued rise in the generation of renewable, low-, or zero-carbon energy. Part of that transition should include the construction of more industrial-scale solar arrays. The companies building those arrays may need to sign contracts with surface rights owners to use the land they own. Likewise, where appropriate, they will also need to obtain land use waivers from mineral rights owners.
If you are a mineral rights owner yourself, you may be intrigued by land use waivers, especially if the subsurface estate is no longer or never was productive. Or you may find energy from the sun more appealing than energy from fossil fuels. Still, it probably doesn’t make much sense to approach a solar company yourself, even if you own 100% of the mineral rights on a tract of land. Since solar companies are focused primarily on contracting with surface rights owners, overtures from mineral rights owners would likely fall on deaf ears.
On the other hand, if a solar company approaches you, we recommend contacting Bessemer’s Mineral and Energy Resource Management team. We may be able to help you navigate land use waivers, fees, rights, and the resolution of other issues.
1 “Inventory of U.S. Greenhouse Gas Emissions and Sinks 1990–2020: Updates Under Consideration for Abandoned Oil and Gas Wells,” EPA, September 2021.
2 “Horizontally drilled wells dominate U.S. tight formation production,” EIA, 2019.
3 The levelized cost of energy measures the lifetime costs of using a specific type of energy techology divided by the total amount of energy produced; the measure is used to more
accurately compare the costs of different technologies, such as solar and natural gas.
4 Source: “Estimated unsubsidized levelized costs of energy generation in the United States in 2021, by technology,” Statista, 2021.
5 Source: “Modeled impacts of module efficiency on total system costs, 2018,” NREL, 2018.
6 Solar panels do not emit carbon when producing energy, but activities related to their manufacture do create a small carbon footprint.
7 Source: “Modeled impacts of module efficiency on total system costs, 2018,” NREL, 2018.
8 Source: “Solar Farm Land Requirements,” YSGSolar.com, 2020.
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