Solar Panel Investment Increases Home Values

Free Solar Panels: Doing the Math

Today, most homeowners are aware of the fact solar panels can reduce, or completely eliminate, their monthly electric bills. While these savings are attractive, some homeowners have postponed purchasing solar panels because they are concerned about the cost of installation.

However, a new study* conducted by The U.S. Department of Energy indicates solar panels increase the value of a home by $18,000-$24,000.  That would make solar panels free for the typical California homeowner when Federal tax credits and local rebates are also taken into consideration.

 

Solar Panels Increase Home Values

The Department of Energy completed a study in April 2011 that evaluated sale prices for 72,000 homes in California. These homes in the study were located across 31 counties and sold between the years 2000 and mid-2009.  The objective of the study was to compare the sale of homes with and without solar panels and to determine whether the presence of solar panels increased the sale price of a home. The study was careful to factor out the impact of square footage, lot size, number of bathrooms, age of the home and other aspects that would influence the sale price.

The study concluded a home seller who invested in solar panels were able to command higher prices as a result of making an investment in solar panels. Specifically, homeowners could expect to capture a premium of $18,600-$23,870 versus comparable homes without solar panels. The authors of the study believe this premium occurs because solar homes are more attractive to buyers who anticipate saving money on their monthly energy bill.  These buyers may also be willing to pay more for a home with solar panels because there is cachet value to owning such a home (being green, combating global warming, impressing the neighbors etc.) Whatever the source of the premium, the news is extremely encouraging for homeowners who are interested in adding solar panels to their home.

Free Solar Panels: Doing the Math

Many home owners will choose to finance their solar system with a no money down lease. However, homeowners considering solar panels as an investment typically look at the cost of installing a solar system and subtracting out the Federal tax credits and local rebates to determine the cost of installing the system. Homeowners also look at their monthly energy costs and the savings they anticipate receiving after installing solar panels, calculating the number of years it will take to pay for installation.  Typically, homeowners want their investment in solar panels to pay out as quickly as possible.

Most homeowners in California pay a top tier electric rate of $0.35/kWh.  Homeowners in these communities have generally been more receptive to installing solar panels because the savings they will garner from adding solar panels is relatively large. Therefore, the investment in solar panels pays out fairly quickly – Typically within 8 years. (See below)

Representative PG&E Customer
Cost of Installation for 4.75 kW system $22,148
Less Federal Tax Credit $(6,644)
Less Local Rebate $ (1,000)
Net Cost $14,503
Time required To Pay for Solar Panel Installation 7 Years

 

However, this calculation does not take into account the price appreciation that the homeowners can expect to earn when selling their property.  Again, the Department of Energy estimates that this amounts to somewhere between $18,000-$24,000. When this is added to the equation, solar panels not only pay out sooner, they actually result in a positive return on investment of $4,000 immediately and then a further savings of $42,000 over the following 20 years!

Representative PG&E Customer
Cost of Installation $22,148
Federal Tax Credit $(6,644)
Local Rebate $(1000)
Average Home Appreciation $18,600

Net Savings

$4,100

Time required To Pay for Solar Panel Installation Immediate

 

Low Cost Power Communities: Doing the Math for Palo Alto, Alameda and LA. A number of communities in California have electric utilities that provide power to homeowners at a fraction of the cost of PG&E.  Communities such as Palo Alto, and Alameda typically have electric costs ranging from $0.09/kWh to $0.17/kWh.  While some homeowners in these communities have adopted solar panels, many missed the opportunity to save because they didn’t know solar panels would increase their home’s value and, therefore, didn’t factor this into their calculations. When evaluating the cost and benefit of solar panels they mistakenly came to the conclusion that it would take as long as 15 years to pay for solar panels.

However, when home appreciation is added to the calculations it becomes apparent adding solar panels is a good investment, even in communities that have traditionally had cheap power. Below are payout analyses for a representative solar panel system installed in Palo Alto, a low cost energy community.  The first analysis shows how home owners have typically calculated the benefits of a solar systems.  The second analysis properly factors in the benefit of home appreciation.  As seen below, residents in low cost power communities may have under-estimated the benefits of solar panels and thus missed the opportunity to save money.

Representative Low Cost Power Customer
Cost of Installation $22,148
Federal Tax Credit $(6,644)
Local Rebate $(1000)

Net Cost

$14,503

Time required To Pay for Solar Panel Installation 11 Years

 

And here is the corrected payout analysis that factors in home price appreciation…

Representative Low Cost Power Customer
Cost of Installation $22,148
Federal Tax Credit $(6,644)
Local Rebate $(1000)
Average Home Appreciation $18,600

Net Savings

$4,100

Time required To Pay for Solar Panel Installation None

 

Conclusion: An investment in solar panels increases the value of your home more than the cost

Solar panels are increasingly an attractive investment for homeowners in California. Not only do solar panels lower monthly energy bills, they increase the value of your home.  This is even true in communities such as Palo Alto and Alameda that are traditionally considered to have lower electricity rates. To learn more about the benefits of solar panels and for a customized savings analysis, contact Complete Solar Solution.

*An Analysis of the Effect of Residential Photovoltaic Energy Systems on Home Sale Prices in California, U.S. Department of Energy, April 2011.