By Jeff Risley, REFA Executive Director
Margins are tight. Commodity prices swing. Input costs rarely move in a farmer’s favor.
In that kind of environment, steady income matters.
For a growing number of agricultural operations across the country, commercial energy payments have become a meaningful revenue stream. According to USDA Economic Research Service data, farms receiving energy lease payments averaged $30,482 annually between 2011 and 2020. For those same farms, that amount exceeded what they received in government payments over the same period.
That comparison alone is worth paying attention to.
How Energy Payments Fit Into Agriculture
Energy development and agricultural land have long overlapped. About 67% of onshore oil and natural gas production occurs on land classified as farmland. Nearly all wind generation capacity is located in rural areas.
For farmers and ranchers who host this infrastructure, lease payments represent income diversification that does not require additional labor or operating expense.
Between 2011 and 2020, approximately 3.5% of U.S. farm operations received some form of commercial energy payment. While that percentage is modest, the payments themselves were substantial. The average annual payment of $30,482 (in 2020 dollars) can play a meaningful role in an operation’s overall financial picture.
These payments come from multiple sources:
- Oil and gas royalties
- Wind turbine leases
- Solar installations
- Other energy-related agreements
Each type of project has its own characteristics. Oil and gas payments often fluctuate with commodity prices. Wind payments have generally shown more stability.
Who Receives Energy Payments?
Geography matters significantly. The Plains region leads the nation, with 7.4% of farm operations receiving energy payments, averaging $39,087 annually. The Mountain region follows at 4.5% participation. The Midwest, despite its agricultural dominance, shows lower participation at 2.34%, though that number continues to shift as wind development expands.
Operation size also plays a role. Larger farms are more likely to receive energy payments, often because they control more acreage suitable for development. That said, the USDA data shows participation across all farm sizes, and the impact can still be meaningful for smaller operations.
Payment amounts also vary by energy type. Counties with significant oil and gas activity averaged $32,167 per receiving farm. Wind-focused counties averaged $17,303.
How Energy Payments Compare to Other Income
One finding from the USDA research is how energy payments compare to government support programs.
On average, farms receiving energy payments collected $30,482 from energy agreements compared to $19,858 in government payments. That is a 53% difference, showing how energy leases can serve as a meaningful income diversification strategy.
Energy payments also accounted for between 4% and 10% of gross cash farm income over the study period. That percentage varies with commodity prices and farm revenue, but it is large enough to influence long-term planning.
The stability question deserves attention. Oil and gas payments tracked closely with petroleum prices, showing significant year-to-year variation. Wind payments have historically been more consistent. Solar agreements are often fixed, offering greater certainty year to year.
What Makes Energy Income Different
Energy lease payments are different from crop or livestock income in a few important ways.
They don’t require ongoing operational inputs. Unlike government programs, they aren’t subject to policy changes or budget appropriations. They represent a return on an asset you already own: your land and its characteristics.
This doesn’t mean energy leases are simple.
Lease terms vary widely. Contract length, payment escalators, surface use provisions, access roads, decommissioning obligations, and land restoration requirements all shape the long-term outcomes.
What works for a neighbor may not work for your situation. A 30- or 40-year agreement deserves careful review.
Evaluating an Offer Carefully
If you are approached about hosting an energy project, it helps to look at the full picture.
Consider:
- What type of project is being proposed
- How the payment structure works
- What the lease says about decommissioning and land restoration
- How the project footprint fits with your current operation
- Whether you have experienced, independent guidance reviewing the agreement
At REFA, we support landowners who are navigating these opportunities with unbiased information and peer support. Whether you’re evaluating your first offer or reviewing an existing lease, our resources and member community can help you make decisions that protect your land, your livelihood, and your legacy.
Join REFA today to see how we support farmers and ranchers making informed energy decisions.
Sources Referenced
Winikoff, Justin B. and Karen Maguire. “Commercial Energy Payments Contribute to Farm Business Incomes.” USDA Economic Research Service, Economic Information Bulletin No. 271, April 2024. https://www.ers.usda.gov/publications/pub-details/?pubid=108233
