In this blog post, we'll be trekking into the unknown world of Photovoltaics (PV) to answer the emerging question Will solar power increase a home's value?
To understand how solar power increases a home value, we'll go through:
- Understanding Photovoltaic (PV)
- What Incentives are Available to Homeowners
- How Appraisers are Giving Value to PV
- What the Value Means Locally in Snohomish County
Starting this journey, it is important to understand what PV is. In the short, PV is adding solar panels to a property to produce power which the homeowner can immediately use. Wikipedia's definition is a bit longer:
Photovoltaics (PV) is the name of a method of converting solar energy into direct current electricity using semiconducting materials that exhibit the photovoltaic effect, a phenomenon commonly studied in physics, photochemistry and electrochemistry. A photovoltaic system employs solar panels composed of a number of solar cells to supply usable solar power. The process is both physical and chemical in nature, as the first step involves the photoelectric effect from which a second electrochemical process takes place involving crystallized atoms being ionized in a series, generating an electric current. Power generation from solar PV has long been seen as a clean sustainable energy technology which draws upon the planet’s most plentiful and widely distributed renewable energy source – the sun. The direct conversion of sunlight to electricity occurs without any moving parts or environmental emissions during operation. [SOURCE]
There can be no doubt that adding a PV system is cool, very sexy, green, and a valuable addition to any home. Especially compared to a monthly utility payment. Instead of a monthly bill and constant efforts to lower it, homeowners can use the Sun's solar energy to decrease their carbon footprint while saving thousands over the long run.
- How much does a PV system cost?
- How much power does a PV system create?
- Does solar work through Washington's Winter months?
- How do homeowners take advantage of solar incentives?
- What is the ROI in a PV system?
Are all questions that have probably surfaced upon researching Washington solar incentives and installations costs. Let's review each one individually.
Q: How much does a PV system costs?
A: Many variables go into play here; however, for this blog and the subject property mentioned below, the cost was approximately $24,960.
Q: How much power does a PV system create?
A: Depends on the system size, which is measured in kW (kilowatts). For the subject system it is 6.1kW.
Q: Does Solar work through Washington's winter months?
A: Yes. While our subject property's solar was installed in late November, the system has steadily increased power production towards summer.
Q: How do homeowners take advantage of solar incentives?
A: Call A&R Solar at 206-787-9937 for consultation or review the Federal, State, and Utility Incentives below and follow the links.
Q: What is the ROI on a PV system?
A: The ROI of a PV system is based on its size, how much energy is produced, what incentives are utilized, and if the PV system is host-owned or financed. In our opinion, a leased system doesn't give any return on investment.
Solar Power Incentives for Snohomish County Residents
The following incentives were sourced directly from A&R Solar's website.
Federal Income Tax Credit
The federal Income Tax Credit is valued at 30 percent of your total solar system cost. A tax credit is a dollar-for-dollar reduction of the income tax you owe. If you can’t use the full value in one year, you can roll over the remainder to next year. You should certainly check with a tax advisor to make sure you can claim the entire value, but make sure they’re referring to the most recent tax documents. The ITC is applicable to your Alternative Minimum Tax (AMT) as well. This incentive reduces from 30% to 26% in 2019. There are further reductions scheduled each year after that.
Washington State Incentives
Net metering is a contract that you sign with your utility that allows you to trade your power with them at retail rates. You get credit on your bill for your excess Kilowatt Hours (kWh) when your system is producing more than you consume. At night or when your system isn’t producing, you buy power from the utility like you do now.
Typically in Washington State we produce vastly more than we consume during the summer and build up big credits. Then during the less-sunny winters we use the accumulated credits. The fiscal year for net metering is from May to April. If you still have kWh “in the bank” at the end of April, you forfeit their value, although this is rare. It’s for this reason you don’t usually see systems designed to more than 100% of your annual consumption. It’s also important to understand how your utility handles minimum charges and how solar production impacts your bill.
We can help you understand the balance of production and consumption on an annual basis. Net metering is a Washington State law and does not expire.
The main production incentive in our area is provided by Washington State and managed by your local utility. A production incentive is a program that pays you (you can receive a check!) for every kWh you produce whether you consume that solar electricity in your building or not.
Where net metering gives you value at retail rates for your power, the production incentive pays you a premium starting at $0.15/kWh up to $0.54/kWh, depending on whether or not you’ve chosen Made in Washington equipment (that will give you the $0.54/kWh). Production incentives are paid on top of the net metering benefit you are already receiving. It’s possible that rate reductions can occur depending on individual utility customer adoption rates. Our design consultants can walk you through how this might affect your return on investment.
This program is in place until June 30, 2020 and is measured from July to June. How the value of the production incentive is applied to your bill changes from one utility to the next. We can fill you in with the details, or feel free to contact your utility directly for more info.
Snohomish County Home Values for PV Homes
Being there are no statistics published specifically about Snohomish County home values, information was sourced from studies and articles that have been published over the last two years. Using those sources, approximations regarding homes values in Snohomish County will be determined.
How Appraisers are Valuing PV Homes
In the report Six-State Solar Home Paired-Sale Analysis, in-depth appraisals confirmed the added value of rooftop solar to U.S. homes. The Berkeley Lab "study used appraisal methods to evaluate sales-price premiums for host-owned PV systems on single-unit detached houses in seven areas within six states" and the closest metros were Portland and Bend.
Warping to the study's conclusions:
- The most consistent method for valuing a PV homes was a price per watt approach.
- PV systems garnered premiums of $2.68/W to $4.3/W across states, averaging $3.78/W or about $14,000 for an average-size (3.8-kW) PV systems that would have sold in 2011.
In a follow up article Team of Appraiser Across Six State Find Home Buyers will Pay Premium for Solar Homes, it was further confirmed that home buyer's will pay more for PV solar equipped homes in comparison to non PV solar equipped homes.
Values for PV Homes in Snohomish County
What does this mean for a Snohomish County home? For the next step in determining PV home values, a home in Marysville's Sunnyside neighborhood will be used for the real world example.
As mentioned, the subject home is in the Sunnyside neighborhood and has the following features:
- Built in 2006
- 1,546 sq.ft with a 11,326 sq.ft lot
- 3 Bed & 2 Bath
- Air Conditioning
- Attached 2 Car Garage
- Finished Garage w/ separate Gas Furnace
- Covered Rear Patio
- Matching Storage Shed
- Sprinkler System
- House length aggregate patio
- Puget Sound & Olympic Mountain Views
- 6.1 PV Solar System (Owned & not Financed)
Step 1: Conduct a Comparative Market Analysis (CMA) to Determine the Non-PV Home Value.
The CMA was conducted on 3/15/2016 and it should be mentioned that there is NOT an exact comparable for the subject property. However, four properties were close and the closest comparable property DID NOT have:
- View of the Puget Sound and Olympic Mountains
- Finished Garage w/ separate Gas Furnace
- Air Conditioning
- Matching Storage Shed
- Sprinkler System
Taking into account the closest comparable property is missing many amenities the subject property has, the subject property's value is approximately $319,950 in today's market conditions.
Step 2: Determine the Price Per Watt Metric for the Subject Property.
In the results and conclusion portion of Six-State Solar Home Paired-Sales Analysis, the following conclusion is stated:
- PV systems garnered premiums of $2.68/W to $4.31/W across states, averaging $3.78/W or about $14,000 or an average-size (3.8kW) PV system that would have sold in 2011 (Figure 1).
The subject property is equipped with a 6.1kW system which, locally, equates to range of $23,717 - $24,237 in increased value.
Step 3: Add the Price Per Watt Value to the CMA Value.
The value of this Marysville PV home is approximately: $343,700 - $344,190.
In a solar quote obtained by the Barnett Associates Team dated March 22, 2016, Vision Solar detailed terms, rates, and specifics of a financed PV solar system for a South Carolina residence. Being the previous example was an homeowner owned system, it is important to outline some differences with a financed PV system.
The primary pro for financing is:
- Zero Out-of-Pocket Costs
However, financing has it own drawbacks like loan interest, maintenance, and the transfer of real property. The below statements are from Vision Solar's financing terms.
- Borrower agrees to seek prior approval from the Lender before taking any action that may affect Collateral, including roof replacements, renovations, or landscaping that could require or result in physical movement or alterations of Collateral, or could impact the shade profile applicable to the Collateral.
- Lender, in its sole discretion, may choose to take any action necessary or appropriate to protect and maintain the Collateral if Borrower fails to do so, and may require Borrower to pay any expenses or amounts Lender incurs in doing so.
- Borrower must provide written notice to Lender within two (2) days following both (i) the public listing of the Home for Sale and (ii) Borrower's execution of an agreement to sell the Home.
*Note: The Borrower has to own the home and not rent it.
Obviously there are advantages and disadvantages to financing a PV solar system yet even Vision Solar states that adding a PV system increases a property's value by an estimated $32,240. Vision Solar's housing increase estimate was based on a 8.1kW PV system.
Estimated Financial Benefits from 6kW Example
The Sunnyside home example used Made in Washington equipment to take advantage of all the solar incentives offered.
|30% Federal Tax Credit**||$7,380||$8,100|
|Solar Express Incentive||$1,800||$1,800|
6000kWh/yr x 5.5 years
($.15/kWh, non-WA equipment
and $.54/kWh WA-made
$.09/kWh x 25 yrs
|Lifetime Net Savings||$3,030||$14,200|
*)Prices vary, consult a Solar Express installer. **) Consult your tax advisor.
Yes, adding a solar PV system to a home will increase its value.
Even though adding a PV solar system to home is a large upfront expense and will be tough to swallow for many, incentives, rebates, tax-credits, net metering, and zero monthly electric bills all help to soften the initial costs and move towards solar.
In addition, if you're an investor, adding PV to an investment property increases the amount of profit per rent cycle. How? By advertising a property as "power or PUD included" while charging tenants the utility, then the investment property becomes its own utility investment.
Now add an electric car to the equation. Pairing solar with an electric automobile further extends the savings because a gasoline bill is eliminated resulting in a shorter pay-back period.
The more and more PV is researched, the more PV makes sense for homeowners and the environment.