Banks provide people with a safe place to stash their money and a potential source of financing, along with a slew of other services. Afterexpanding ...
How to Start a Solar Farm
Solar power is worth $185 billion globally and still seeing explosive growth. With your own solar farm — a large field of photovoltaic panels linked to the grid — you could generate good money while also doing good for the environment.
The initial investment of about $1 million is considerable, but there is an alternative: if you own or buy a sizable piece of land you could lease it to your local utility company, which would then build and maintain the solar farm and pay you a share of the revenue. After some years you might be able to take financial control of the farm and expand further.
Either way, starting a solar farm is challenging, and requires time and hard work. Starting off with the right knowledge is crucial, and this step-by-step guide provides all the information and insight you need to begin building your solar empire.
$1,020,400 - $2,070,700
Time to build
3 – 5 Years
$160,000 - $320,000 p.a.
$144,000 - $288,000 p.a.
Step 1: Decide if the Business Is Right for You
Pros and Cons
- Eco-friendly – Solar power is good for the environment
- Good Money – Profit margins in solar are high
- Minimal Work – A solar farm need servicing just 3-4 times per year
- High Startup Costs – Building a farm costs $1M and up
Since the US instituted a major tax credit for solar projects in 2006, the US solar industry has grown 100-fold, according to the Solar Energy Industries Association.https://www.seia.org/initiatives/solar-investment-tax-credit-itc Research firm IBISWorld now values the US solar farm market at nearly $11 billion and expects nearly 6% growth in 2021.https://www.ibisworld.com/industry-statistics/market-size/solar-farm-developers-united-states/
Market analyst Fortune Business Insights, meanwhile, values the global solar power market at more than $170 billion and expects an impressive 60% expansion by 2028.https://www.fortunebusinessinsights.com/industry-reports/solar-power-market-100764
In terms of trends, the storage capacity of solar batteries has increased in recent years, which helps stabilize the solar grid on your farm and reduce wasteful production. In addition, a rising number of US households are installing solar panels. Shipments of solar modules for residences increased a stunning 33% in 2020, according to the Energy Information Administration. Homeowners can also sell excess energy from their solar panels to the power company, as 40 states allow homeowners to do so.https://www.eia.gov/todayinenergy/detail.php?id=49396
How much does it cost to start a solar farm business?
Startup costs for a solar farm range from $1 million to $2 million and more. The lower end is for a one-megawatt farm, which is the minimum you need for the power company to be interested, and assumes you already have 6-8 acres of land. The higher-end is for a two-megawatt farm and includes a down payment for the land purchase. If you instead decide to lease your land to a utility company, they will pay for the farm’s development and your costs will be next to nothing.
|Start-up Costs||Ballpark Range||Average|
|Setting up a business name and corportation||$150 - $200||$175|
|Licenses and permits||$20,000 - $30,000||$25,000|
|Insurance||$250 - $500||$375|
|Land purchase down payment||$0 - $40,000||$20,000|
|Solar system installation||$1,000,000 - $2,000,000||$1,500,000|
|Total||$1,020,400 - $2,070,700||$1,545,550|
How much can you earn from a solar farm business?
The per-acre profit of a solar farm runs between $20,000 and $40,000, with an average of $30,000. After costs your profit margin should be about 90%.
If you have eight acres and make $30,000 per acre, your annual revenue will be $240,000, and your profit will be $216,000. You could expand your farm over time by using your profits to purchase more land and add to your grid, thus increasing your income substantially.
If you lease your land, you can probably earn $2,000 per acre per year. With 8 acres at $2,000 per acre, you’ll make $16,000 in annual revenue.
You can use Step By Step’s profit margin calculator to analyze your numbers.
What barriers to entry are there?
There are a few barriers to entry for a solar farm. Your biggest challenges will be:
- Costs to develop a solar farm are high
- A sun-drenched swathe of land
- Permission from the utility, which can take years
Step 2: Hone Your Idea
Now that you know what’s involved in starting a solar farm, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
You should research whether your land is right for a solar farm. You should look for:
- Minimum of 6-8 acres, flat and no flood-risk
- At least four peak sun hours daily
- No regulations in terms of conservation
- Within a few miles of the power grid
What? Determine your products or services
You need to determine if you want to lease your land or develop your solar farm. By leasing your farm, you can start with minimal cost, but make far less money. With a farm your revenue potential is much higher, but your upfront costs are significant.
How much should you charge for solar?
The price you charge for power will be dictated by how much the power company is willing to lease your land for. A good lease could mean $2,000 per acre per year. Strong revenue for a developed solar farm is $30,000 per acre per year. Once you know your costs, use the Step By Step profit margin calculator to determine your price points.
Who? Identify your target market
Your target market will be power companies and solar developers. You should find them via internet search and contact them directly via phone or email.
Where? Choose your business premises
You will probably want to run your business from home to keep costs low. If you choose to have an office, you can find commercial space to rent in your area on Loopnet, Craigslist, Crexi, and Commercial Cafe.
When choosing a commercial space, you may want to follow these rules of thumb:
- Central location accessible via public transport
- Ventilated and spacious, with good natural light
- Flexible lease that can be extended as your business grows
- Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
- Short, unique, and catchy names tend to stand out
- Names that are easy to say and spell tend to do better
- The name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords, such as “solar” or “solar power”, boosts SEO
- Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
- Avoid location-based names that might hinder future expansion
- Use online tools like the Step by Step business name generator
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names at a web cataloging site such as NameChk. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. And if you’ve exhausted all your creative juices but still don’t have a business name, don’t stress! Instead, check out our business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Step 4: Create a Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
- Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
- Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
- Product and Services: Describe your offerings in detail.
- Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
- Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
- Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
- Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
- Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
- Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
- Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan yourself before, it can be an intimidating task. Consider hiring an experienced business plan writer on Fiverr to create a professional business plan for you.
Step 5: Register Your Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as sunnier states could offer real advantages when it comes to solar farms.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your solar farm will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the four main options:
- Sole proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business.
- Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the pre-tax profits and are liable for losses.
- Corporation – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly.
- Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
We recommend that most new business owners form an LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can quickly and cheaply form an LLC using ZenBusiness’s online LLC formation service (it can take as little as 5 minutes). They will check that your business name is available before filing, submit your Articles of Organization and be on hand to answer any questions you have about the company formation process.
Step 6: Register for Taxes
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
- Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
- SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
- Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
- Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
- Crowdfunding: Websites like Kickstarter and GoFundMe offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
- Personal: Self-fund your business via your savings, the sale of property or other assets, and support from family and friends.
Step 8: Apply for Licenses/Permits
Starting a solar farm business requires obtaining a number of licenses and permits from local, state, and federal governments.
Solar farms are subject to strict review processes through federal, state, and local regulators. They also require permission from a power company. The process for approvals usually takes 3 to 5 years.
Federal regulations, licenses, and permits associated with starting your business include doing business as, health license and permit from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level licenses and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. You could also check this SBA guide for your state’s requirements.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
For peace of mind and to save time, we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state, and provide them to you to make sure you’re fully compliant.
Step 9: Open a Business Bank Account
Before you start making money you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your solar farm as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
- General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
- Business Property: Provides coverage for your equipment and supplies.
- Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
- Worker’s compensation: Provides compensation to employees injured on the job.
- Property: Covers your physical space, whether it is a cart, storefront, or office.
- Commercial auto: Protection for your company-owned vehicle.
- Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
- Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.
Step 11: Prepare to Launch
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Develop your website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
You can create your own website using services like WordPress, Webflow, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
Essential software and tools
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
- Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
- If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Step 12: Build Your Team
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a solar farm business would include:
- Maintenance Workers – Maintain your solar panels and grid
- General Manager – Oversee maintenance, accounting
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Step 13: Start Making Money!
Solar power is the future of energy, and it’s good for the planet. By starting a solar farm, you’re doing your community a service and making money at the same time. The US solar market is worth $11 billion and growing, which means your solar farm should provide sizable profits with little effort once it’s up and running. Alternatively, leasing your land for a solar farm costs essentially nothing but will add a nice stream of passive income.
Now that you have the information you need, you’re ready to start building your solar empire!
Solar Farm Business FAQs
Developing a solar farm costs upwards of $1 million. You can, however, lease your land to a power company or solar developer with very little upfront cost.
If you develop a solar farm, once it’s up and running, you should make $30,000 per acre per year. If you lease your land for a solar farm, you can make $2,000 per acre per year.
You will need to contact federal, state, and local regulators to start the permitting and approval process, which can take 3 to 5 years. You will also need to contact the local power company for approval.
The general rule is 6 to 8 acres at minimum. This is enough to develop a 1-megawatt solar farm.