Lance Cheung / USDA

Solar panels on a Pennsylvania farm. Farmers in Michigan may have to give up key tax breaks if they lease farmland for solar arrays.

Solar leases could conflict with key tax break for some Michigan farmers

As interest grows in developing Michigan agricultural land for solar energy, some farmers may have to choose between keeping tax incentives for preserving farmland or leasing their property to solar developers.

Under a state program that provides an annual state income tax break for maintaining farmland, property owners can not do both, state officials say.

The issue has begun to play out in Michigan’s “wind capital” of Huron County, where property owners have reportedly been contacted by an out-of-state developer for large-scale solar projects. It’s a new phase of renewable energy development for an area with a contentious history over wind turbines.

Particularly for property owners who receive a state income tax credit through the Michigan Department of Agriculture and Rural Development’s Farmland and Open Space Preservation program, they’ll have to decide whether to keep the tax break or bet on the income from solar.

Unlike wind turbines, which have minimal footprints, solar projects could block tens of acres of harvestable land and are therefore not “farmland preservation,” according to the state.

“Huron County is one of the major participants in the farmland and open space program through these restrictive covenants,” said Rich Harlow, who manages the state Farmland Preservation program. “We haven’t seen any plans for these (solar) facilities, though there have been a number of calls about land that’s in this program.

“What we do know is that (solar development) is not considered to be agricultural use — they’re not growing a crop.”

Cypress Creek Renewables has reportedly approached Huron County landowners about potentially leasing land for solar development. 

Cypress Creek spokesperson Jeff McKay declined to answer specific questions about the company’s interest in Michigan, stating: “Like other Midwestern states, Cypress Creek is excited about the prospect of developing solar in Michigan to support Michigan’s Renewable Portfolio Standard and renewable goals.”

Over the past month, county officials have received inquiries from attorneys representing landowners as well as other local units of government. Cypress Creek has reportedly offered some landowners $800 an acre for solar leases — which is an enticing offer and more than some make growing crops, one official has said.

The Huron County Board of Commissioners will begin this week to look at zoning utility-scale solar projects and how to approach farmland preservation issues, said Jeff Smith, the county’s building and zoning director.

“(Utility-scale solar) seems contrary to the whole purpose of the farmland preservation program, which is the implication we’ll have to work through,” Smith said. “(Landowners) are going to have to weigh out the benefits and consequences of each program to see which way they want to go with it.”

Additionally, withdrawing from the Farmland Preservation program would require property owners to pay back the previous seven years of income tax breaks they received, or a lien would be placed against the property, according to the program rules.

The program — based on household income and annual property taxes — is designed so that property owners receive a tax credit in bad farming years but may not receive one during a good crop year.

Consistent with farming?

Harlow said property owners are allowed to build structures on land under the program, though they must be consistent with a farming operation.

“A solar array is likely not consistent,” he said, adding that his office recently received legal advice from state counsel on the issue.

However, John Sarver of the Great Lakes Renewable Energy Association questioned the assumption that developing solar on farmland undermines its agricultural value.

“You can make a case — and I think a legitimate one — that long term, maybe a PV farm or array has made that farm profitable enough to continue,” he said. “In that sense it’s farm preservation if a little chunk of a PV array makes the whole thing work even though it initially takes out production of some good farmland.”

Harlow said the state has more than 44,000 agreements with property owners under the preservation program, covering one-third of Michigan’s 10 million acres of agricultural land. He said it’s “not uncommon” for property owners to withdraw, and there are a variety of reasons agreements can be terminated, such as a death or disability of a landowner; the economic viability to use the property for farming is diminished; or the land is transferred to a public or nonprofit entity.

While the state has received “a number of inquiries” about reusing farmland for solar, Harlow said there are still local zoning approvals needed. The state would then review any applications to withdraw from the program. Once back tax credits are paid and the property is zoned accordingly, a landowner could move forward with a solar lease, Harlow said. 

Other benefits

While those in Michigan’s Farmland Preservation program could risk valuable tax credits by pursuing solar, the renewable energy source is still an attractive option for a growing number of Michigan farmers.

In the northwest Lower Peninsula, a growing number of grape, hops and cherry farmers are pursuing solar, though on a smaller scale geared toward self-sufficiency and lowering their own energy costs, said Dan Worth, clean energy policy specialist with the Traverse City-based Groundwork Center for Resilient Communities.

The U.S. Department of Agriculture’s Rural Energy for America Program (REAP) provides tax credits for solar and efficiency projects on agricultural land — “That got us hooked into it,” Worth said, adding that another REAP program provides federally backed loans for up to 75 percent of the program.

“Up here we’re not seeing many lease proposals — it’s mostly people who want to develop their own projects and see how it prices out,” Worth said. “A lot of it is about money and worrying rates will go up. This locks them in in some ways and they’re seeing real economic benefits.”

Also, while sources say the movement is yet to pick up in Michigan, other Midwest states have incentivized growing native plant species around solar panels in rural spaces as a way to boost populations of pollinators. This, too, could bring added value to rural and agricultural areas used for solar development.

“I think there are a lot of reasons solar deployment can be attractive. As we see declining costs, it gets even more interesting,” said Liesl Eichler Clark, president of the Michigan Energy Innovation Business Council. “By using land for energy production, it creates some certainty that you can put in with agriculture. Farming doesn’t have a lot of certainty — if you know you could get X amount on your land, that could be nice.”

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