How Solar Farms Are Financed in Maryland: Behind the Scenes

Ever wondered how a solar developer can afford to spend $100 million building a solar farm? The financial structure behind utility-scale solar projects is fascinating—and it directly impacts why your lease payments are secure.

The Short Version

Here's what you really need to know as a landowner: your lease payments aren't dependent on whether the solar farm makes money. They're guaranteed by contracts signed before construction even starts. But understanding the financing structure helps explain why solar developers can offer such attractive long-term lease rates.

Why Solar Projects Attract Serious Money

Banks and investors love solar projects for a simple reason—they're incredibly predictable. Once a solar farm is built and connected to the grid, it generates revenue every single day for 25+ years. No raw materials to buy, no inventory to manage, minimal staff needed. It's the kind of steady, boring cash flow that pension funds and institutional investors dream about.

A typical 100 MW solar farm in Maryland generates around $12-15 million annually in electricity sales. The sun doesn't go on strike, demand a raise, or call in sick. This predictability is why solar projects can secure financing that other businesses only dream of.

The Players Involved

Development Capital (The Early Money)

This is where companies like Matrix Solar come in. We spend our own capital—typically $3-5 million per project—on all the upfront work: site studies, engineering, permitting, legal fees, community meetings, and interconnection deposits. This phase can take 2-3 years before we ever turn a shovel of dirt.

Most landowners don't realize how much money and risk developers take on before construction. We're betting that the project will eventually get permitted and financed. If it doesn't work out, that money is simply lost. This is why experienced developers with strong balance sheets matter—we can afford to take these risks.

Construction Financing

Once permits are secured, construction loans kick in. These are typically short-term facilities from major banks (think Wells Fargo, Bank of America, or specialized renewable energy lenders). The interest rates hover around 7-9% currently, and the loan needs to be repaid within 18-24 months.

The bank doesn't just hand over $100 million and hope for the best. They require an ironclad Power Purchase Agreement (more on that in a moment) and milestone-based funding. Money is released as the project hits construction benchmarks, with holdbacks for completion.

Tax Equity Investors

Here's where it gets interesting. The federal Investment Tax Credit (ITC) allows solar projects to claim 30% of construction costs as a tax credit. But here's the catch—you need taxable income to use those credits.

Tax equity investors (typically large corporations or banks with big tax bills) essentially "buy into" the project to claim those tax credits. They might contribute 40-50% of project costs in exchange for the tax benefits. It's a win-win: the developer gets crucial capital, and the investor reduces their tax liability legally.

Long-Term Project Owners

After construction, many projects are sold to long-term owners—pension funds, insurance companies, or infrastructure funds. These buyers are looking for stable, 20-year investments. They'll pay a premium for an operating solar farm because it's essentially a bond that pays interest from electricity sales.

The Foundation: Power Purchase Agreements

Everything rests on the PPA—a contract to sell electricity at a fixed price for 15-25 years. The buyer is typically a utility, a corporation, or in some cases, the project sells into wholesale markets with a revenue hedge.

Without a PPA, there's no financing. It's that simple. Banks need certainty about revenue before they'll lend. This is good news for landowners because it means the project has locked-in income before construction starts—which is why your lease payments are secure.

Maryland-Specific Financing Advantages

Strong Renewable Energy Market

Maryland's Renewable Energy Portfolio Standard requires utilities to buy increasing amounts of clean energy. This creates strong demand for solar power and better PPA prices than many other states. Better PPA prices mean projects can afford higher land lease rates.

Stable Regulatory Environment

Maryland has a mature, predictable regulatory framework for solar development. Lenders like this—it reduces risk and makes financing easier to obtain. States with constantly changing rules or hostile policies struggle to attract project finance.

Proximity to Load Centers

Maryland solar farms serve the Baltimore-Washington corridor, one of the most valuable electricity markets in the country. Power sold here commands premium prices, which improves project economics.

Real Numbers from a Typical Maryland Project

Why Your Lease Payments Are Secure

Landowner lease payments are treated as senior obligations—they're paid before almost anything else. Here's why:

• Land Control is Essential: Without access to your land, the project is worthless. Lenders require that lease payments are current.
• Lease Obligations Survive Everything: Even if the project changes ownership (which happens frequently), your lease stays in place.
• Payment Priority: Lease payments come out before debt service, making them extremely secure.
• Lender Requirements: Banks typically require 6-12 months of lease payments held in reserve accounts.

What Happens If a Developer Can't Get Financing?

This is why working with established developers matters. If a smaller developer can't secure financing after spending years on development, the project simply doesn't get built. No harm to the landowner beyond lost time, but it's frustrating.

Matrix Solar has successfully financed and built multiple Maryland projects. We have relationships with major lenders and proven ability to close complex financing transactions. When we sign a lease, we have confidence we can get the project financed.

The Role of Interest Rates

Rising interest rates have definitely impacted solar project economics over the past couple years. Higher borrowing costs mean lower returns for developers and investors. However, solar projects remain attractive because:

• Equipment costs have fallen dramatically
• Operational efficiency continues improving
• PPA prices have risen with inflation and energy demand
• The ITC provides a substantial cushion against rate increases

Questions Landowners Should Ask About Financing

When evaluating solar developers, these financing-related questions are smart:

• Who are your typical lenders? Major banks indicate credibility.
• How many projects have you successfully financed? Track record matters tremendously.
• What guarantees the lease payments? Look for corporate guarantees or parent company backing.
• What happens if the project changes ownership? Your lease should clearly transfer to any new owner.
• Are lease payments subordinate to any debt? They shouldn't be—lease payments should have priority.

The Future of Solar Financing

Solar financing continues to evolve. We're seeing more creative structures including:

• Battery Storage Integration: Adding batteries increases project value and financing options
• Green Bonds: Specialized bonds for renewable energy projects at favorable rates
• Community Investment: Some projects allow local community members to invest
• Merchant Revenue: Selling into wholesale markets instead of fixed PPAs (higher risk, higher potential return)

What This Means for Maryland Landowners

Understanding solar financing helps you appreciate why lease rates are what they are. Developers aren't being generous—they're offering rates that make sense within their broader financing structure.

A developer offering significantly above-market lease rates might be struggling to attract investors and overcompensating. One offering below-market rates might not have strong financing relationships. Fair market rates from established developers indicate a properly structured deal that will actually get built.