Solar: One Home Owner’s Exploration

A home owner recently called one of our agents for input.

He and his wife were thinking about adding solar panels to their home.

It turned into a fascinating conversation over a three-week period and resulted in identifying key factors to consider in making this decision. Here’s the summary of issues to contemplate:

Environmental Care: Climate change is a controversial topic, but it is a factor in to some peoples’ decision to turn to solar. It’s a consideration that goes beyond mere dollars and cents. It was part of the motivation for this particular couple.

This is totally legit. We all make decisions from time to time that go beyond a pure return on investment analysis.

We know we can eat healthier and more cheaply at home rather than going to a restaurant. We go out to avoid cooking or to celebrate a special occasion or to be with friends. In these cases, we value convenience and commemoration and relationships over the extra money we are spending.

Saving the environment will be part of the motivation for some to go the solar route even if the system never completely returns the investment cost.

Installation Cost: The 7-kilowatt system being considered in this case had an estimated net installed cost of $14,440. This is after receiving rebates in the form of federal tax credits.

Monthly Savings: It’s estimated that the bills paid to the local electric utility company will be reduced by $1,550 per year.

Resale Value: Does solar increase the value of a home? Google it and you’ll likely find two studies¹ that suggest your home value will increase by $1,400 to $4,000 for every kilowatt of installed generating capacity. With a 7-kilowatt system planned for the particular house in question, this suggests an increased value of $9,800 to $28,000.

An appraiser² we consulted disputed this. He says he can rarely justify more than a $5,000 adjustment to a home’s value as a result of installing solar panels. We side with the appraiser on this issue.

Both the studies and the appraiser agree on one important item: Home values only increase if you own the panels … there is no increase in value from a leased system. In addition to providing no home value increase, leased system can create a number of hassles between you and the buyer when you sell your home.

Repairs: The main repair cost for the system is the inverter, the device that turns the direct current produced by the solar panels into alternating current you can use in your house. Inverters have a life expectancy of 7 years and cost about $3,000 to replace. You may have to replace a couple of them over the life of a typical system.

Insurance: Warranties generally cover replacement of panels if they are damaged by hail. Insurance will often cover removal and reinstallation of panels if the roof needs to be replaced due to a covered event like hail or wind. However, you’ll bear the removal/re-installation cost yourself if the roof needs replacement for a reason not covered by insurance.

Return on Investment: Here’s a summary of the likely return on investment for this particular case study:

• Purchase and installation at $14,440.
• Add on $6,000 lifetime repair costs and total capital and maintenance cost is $20,440.
• Subtract a home value increase of $5,000 and this put the lifetime cost at $15,440.
• Save $1550 per year in utility costs.
• Divide the lifetime cost of the system at $15,440 by $1,550 in yearly savings and the system pays for itself in 9.96 years.

Of course, this is just one case study. Your particulars may vary. However, the above factors are the minimum ones you’ll want to investigate if you are thinking of going solar.

Footnotes:

¹The two studies you’ll likely find when googling are listed below. Both are sophisticated and well-conceived. The methodology used to isolate how much of a home’s values comes from the solar installation is a good one and is conceptually simple but is hard to implement in practice. A number of assumptions need to be made. For this reason, we think the estimated value increase of $1,400 to $4,000 per kilowatt of installed generating capacity is questionable and believe our local appraiser has a much better feel for the value increase you can expect from a practical perspective – that being about $5,000 total for the typical solar system.

• Selling Into the Sun conducted by the Lawrence Berkeley National Laboratory for the U. S. Department of Energy
• The Impact of Photovoltaic Systems on Market Value and Marketability by the Colorado Energy Office.

² The appraiser we consulted has 40 years in the business, has been president of the Colorado appraiser professional society and is a frequent expert witness in civil cases involving disputes about property values.