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Solar PV’s Impact on Home Resale Value

There are many reasons for a home or commercial building owner to go solar and install PV panels; reasons relating to economic/monetary factors, environmental considerations, technological interests, aesthetic considerations. Each of these broad categories can turn into a complex discussion with many sub-factors and justifications for going solar. For example, in discussing economic/monetary factors, we can discuss immediate Return on Investment (ROI) associated with a solar system based on the present value of energy offset from being purchased by the local power utility. We can talk about future benefit, projecting a future increase in energy price by the local power utility based on historical trend lines. We can talk about the large scale economic benefit to society by preventing a power utility from needing to construct a new power plant because distributed solar systems are producing energy during peak demand. And these economic reasons are barely scratching the surface. Future blogs will go deeper down the rabbit hole into the multitude of reasons to go solar. Today’s blog will discuss one particular economic benefit: solar PV’s impact on home resale value.

We begin the discussion by noting that while we can qualitatively speculate the impact that solar PV will have on a home’s value, it is relatively difficult to quantify. This is in contrast to the precise ability that a solar PV system has to quantitatively demonstrate its ROI. The equation is simple: the rooftop solar array is connected to a central inverter, which counts the number of kilowatt-hours the system is producing. By noting the price that the local utility is charging for energy in terms of dollars per kilowatt-hour we can simply multiply the kilowatt-hours produced by their local value to find the actual dollar value that the solar system has saved at the time this calculation is made. In this way, we could actually calculate the exact day in which the system has paid for itself in energy savings. But what about the more abstract economic benefit of increased value of the home that has had solar installed on it? Homeowners have been known to replace their appliances with stainless steel, or replace their countertops to granite for the long-term benefit of increasing the value of their home as an asset. Shouldn’t installation of solar PV as a home improvement have a similar impact?

To answer this question, we turn to everyone’s favorite subject and pastime: statistics. Since we do not have a situation in which there are two identical homes, one with solar PV and one without, both on the market at the same time in the same neighborhood to the see the sale price difference, we employ the use of statistical regression to construct models that demonstrate the impact that solar will have on sale value when all other relevant factors are considered. To date, the best study of this type has been done by US Department of Energy, Berkeley Lab as part of the DOE’s SunShot initiative to support solar energy. The report is titled Selling Into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes. Their findings can most powerfully be summarized with one sentence: “…home buyers consistently have been willing to pay more for homes with host-owned solar PV energy systems – averaging about $4 per watt of PV installed…”. This means that if a homeowner has contracted installation of solar PV for their home for anything less than $4 per watt, they will instantaneously already increase the value of their home by more than the cost of the installed system. Kind of like the opposite of buying a new car, which depreciates the moment it is driven off the lot. The home appreciates in value the moment the PV system is powered-on by more than the cost of the PV system.

Perhaps the biggest reason this research is important is related to a potential solar customer’s common hesitation about going solar: solar contractors can demonstrate an ROI of commonly 6-12 years depending on system price and local market factors in terms of energy savings. The homeowner may then be hesitant to invest in solar if they are unsure that they plan to stay in the home long enough to reap the benefits of the energy savings in terms of recovering the full investment. What Berkley Lab has demonstrated is that even if the home owner were to sell the house immediately after installing a solar system without waiting several years to return the investment in energy savings, it would still be a profitable transaction (providing the system cost was under $4/watt).
The conclusion is that installing solar will increase the home value by more than the cost of the system, as well as increase the ease and speed at which a home is sold. Solar PV for residential applications need not only be for the home owner who plans to stay in their home for many years and watch the solar investment gradually pay off in energy savings. Going solar is also appropriate for the house flipper, the developer, and the investor who rapidly buys and sells houses since it will add more value than cost, and set a house apart to other comparable homes for sale.

For more information check out:
• The full report: http://emp.lbl.gov/sites/all/files/lbnl-6942e.pdf
• Berkeley Lab’s report presentation: http://emp.lbl.gov/sites/all/files/lbnl-6942e-presentation.pdf
• Quick facts: http://emp.lbl.gov/sites/all/files/lbnl-6942e-newhomes-factsheet.pdf
• Similar study conducted by Sun Marketing and the University of San Diego, titled: The Resale Market Value of Residential Solar Photovoltaics: A summary of literature and insight into current value perceptions http://www.josre.org/wp-content/uploads/2012/09/Resale_Market_Value_Residential-McCabe-JOSRE1.pdf

Please feel free to leave a comment and start the discussion!
-DG

The best study done to date on the subject of the impact that solar PV will have on home resale value

The best study done to date on the subject of the impact that solar PV will have on home resale value