Buying land for renewable energy generation
Has anyone ever just thought of doing this? And if so how did you get into it? How difficult is it to get into and what are some of the key issues?
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I think this is already a common thing, no? I’m not an expert on renewables but someone explained it to me once - the LCOE is finally at a point where renewables are equal/cheaper to traditional energy. There are lots of companies now with the purpose of finding and developing renewables projects, which at its core is really just finding good real estate to build on.
Also I don’t think it’s easy to get into if you’re talking about doing it yourself. There is a lot of money/big players doing it, and you obviously need a lot of capital to buy up land and build these projects (big CapEx, low OpEx). For example, I think TPG Climate bought/created a company that literally just develops renewable energy projects.
We looked at a few land development opportunities in this space, acquiring crappy farmland on hillsides only suitable for likes of sheep and getting the relevant approvals for windfarms. It is a highly specialist space and you absolutely need to be working with someone who has a track record in it. It is highly regulated, capital intensive, and has plenty of additional complications over and above usual real estate asset classes. I'd put renewable energy in infrastructure rather than real estate.
I'll heavily caveat my experience by saying it differs hugely by region / country / energy source etc so it most likely isn't even relevant to a lot of users. The main issue we found was getting the relevant approvals in a timely manner, windfarms are generally pretty contentious (they're big, noisy, and can ruin views) so if they're anywhere near homes local residents will complicate the process. Given hilly areas are often pretty scenic places to live, you're bound to have local residents. So if you manage to find a suitable site which can be serviced and can support the turbines, you now have to get it through planning / entitlement. If you're in a country which has various appeals processes and legal steps to complicate it (appeal to local authority, then national authority, then judicial review etc) this can end up taking years and isn't clear cut if it will be successful. If it isn't you're left with crappy agricultural land which is worth a minimal amount. On land you do get through the process, you can get 5-10x type returns.
To mitigate this risk you need to do something like a programmatic JV where you'll buy say 10 sites knowing 3-4 will generate majority of the profit, 1-2 will be okay and remainder will be duds, working out at 2.5-3.0x for the portfolio. Given binary nature of outcome and time issues, it's not a great strategy for IRR driven investors unless the developer can show clear pipeline of say 20-30 opportunities where they are confident they can close 10 of them in a reasonable timeframe. Good investment for likes of HNWI who are happy to take the risk for potentially outsized returns.
Obviously this is specific to one element of renewable energy. My guess is other areas like solar panels are probably much easier as you can presumably throw up a solar farm in the middle of nowhere and people wont complain as it's not an eye sore and nearest neighbor is probably miles away.
Hi,
Could you possibly PM me to share more about your research into this? I am currently going into this exact infrastructure niche soon (renewable land leases) and would love to hear more about what you know. Thanks!
Will respond publicly for completeness. Would be happy to help, but as I've noted above this space is so specialist and differs hugely by region so any advice I give based on my experience could be completely wrong for you. I would speak to someone who has actually completed deals in the region you're looking at doing them in. The regulations in the region I was looking at could be completely different and send you down the completely wrong path.
TLDR: don't do it, more complicated than you probably think.Source: developer at North American arm of multinational renewable energy developer
Longer version:Unless you have several massive real estate positions along/proximal-to very specific transmission lines in very specific solar/wind rich corridors in the US, in development-friendly areas, I wouldn't bother.
There is an almost endless array of factors that renewables developers consider in siting a wind or solar (or battery) project - all leading to a comprehensive picture of what a particular location or "polygon" means economically. The better development shops can drop a pin on their GIS maps and know exactly how much they could sell their power for and at what cost it would be to produce.
Based on my experience, the primary barrier to entry on speculatively acquiring land for renewables is the lack of visibility into the available capacity on electrical transmission lines at a given point. What matters here most is getting into what's often called the interconnection queue (depending on your region). This requires an enormous amount of land (leased or optioned) to enter - and you better know with a high degree of certainty that the transmission line has capacity for a sufficient amount of power that a project could provide. If such a land position was assembled - and an interconnection request was filed - then that MIGHT present some value to a developer if everything else about the polygon was right. Whenever this happens, it's typically a smaller renewables shop who specializes in these very early stage developments.
I know of a few conventional real estate folks who have tried their hand at solar (easier than wind) but with limited luck. Like what was already said in this thread, energy is an infra play and has fundamentally different rules.
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