Solar Value

[Meandering]

Solar panels exist for only two reasons,
Save money on the electric bill without changing your life style, or,
Ego stroking in a false belief that you are saving the planet from global warming.

When the "savings" don't materialize, you still have the ego factor.

This mental mindset looks around at the rich and famous and doesn't see them with solar panels and reducing their private jet fly time, because face it, if you are saving the planet, you could fly with everyone else, and that's the same for public transportation, give up your car that is only transporting you, and ride with everyone else, saves CO2 from being admitted into the air from all those excess vehicles.

But they don't see their heroes doing that. Not even Al Gore, so heck, for the $30k +/- for solar panels, might as well buy a boat and go enjoy the earth while it lasts.


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[George Hatch]

I just finished an assignment involving proposed construction of new detached homes on a condo map that is being built for affordable housing. Apart from the affordable housing issue - which "alters" the fee simple interest - this project also has solar being added. Apparently a solar vendor is donating these units to the project (well, donating the costs that aren't paid for by the available grants and subsidies).

As this involves new construction it makes for a great case study because the comparisons involve new units of specific quality and condition, the combination of which eliminate most of the other variables other than with solar vs without solar.

I lucked out and found 2 projects of new construction and a comparable size that also include solar, albeit located in different municipalities. I was fortunate to find other non-solar projects in each of those municipalities that had similar sized units of recent construction and similar levels of quality; and I was able to interview the brokers for buyer reaction to this feature.

So, 2 with-solar projects involving 144 units vs 5 outside without-solar projects in the $550k - $650k range; and you know what the direct comparison revealed? That the premium the buyers were paying ranged from -$6,800 to zero per unit, depending on how strict I wanted to be with interpreting the resulting adjusted ranges. Meaning, the best case scenario *with these projects* was that the solar either added nothing to the value or resulted in a lower sale price (which I find hard to believe).

This was a direct comparison involving many sale transactions of new construction, uniform finishes, limited floorplans and comparable location attributes. Everything an appraiser could possibly ask for by way of matched pair and grouped comparisons. Direct evidence of buyer/seller reaction in the market that would *always* be weighted more heavily in an appraisal than some industry-advocate's excel-based DCF analysis.

My problem with the issue is that although the way this particular market segment reacted is not an uncommon reaction in this region, other market segments in this region occasionally react differently. I have to do this type of analysis every time I run into a unit with solar.

 

[Randolph Kinney]

Are these solar panels owned by the individual homeowner?

 

[George Hatch]

By the way, one aspect of discussion threads on this forum is that they show up in a Google search. Using the search "appraisers, solar" returns this and 3 other threads as the 4th result in a Google search. So any appraiser who was under fire from a state board or a lender over the issue could cite these threads as indicative of the lack-of-consensus among the appraiser's peers.

Not having consensus about such an issue among the appraiser's peers makes it tough for a state board to prove what is and isn't obviously reasonable in an appraisal. If I got a complaint about my adjustments for solar in an assignment I'd cite this thread and others in my defense, and I'm pretty confident that would make it impossible for my state board to allege that my solution was obviously unreasonable.

 

[George Hatch]

Are these solar panels owned by the individual homeowner?

Yes.

I found another sale of a 2014-built unit that was being resold where the seller had added a PV solar system after their initial purchase - the resulting sale price from the resale would have been a great comparison against the other units in that project. I was all excited about having another relevant example to analyze until I found out from the broker that install was of a "agreement to purchase power" basis, meaning the PV solar array was owned by the vendor and the property owner's commitment was limited to buying that power.

I'm looking forward to the rise in prevalence of solar installs because the larger datasets will make it easier to analyze for this feature.

 

[hastalavista]

George-

You should consider writing an article around this experience.
The takeaway (that I get) is that PV systems' impact on value is not always as simple NPV of the potential energy savings (although I do this in my reports; doesn't mean I use it as an adjustment, but I consider it in my selection of the final point-value in my reconciliation).

BTW, in your cost approach, since the PV systems don't add any value, if you used reproduction cost, did you make a functional obsolescence adjustment for the PV systems? (just kidding!)

 

[Meandering]

Thank you George.

I started out thinking I would look at the issue here, from an Income Approach.

In the morning I had 2 active listings with solar panels and one expired listing that has since been rented.

I had one sale in 2012 of a very unique property that just wasn't going to work for any analysis here.

So I called the agents for the two active listings and the one expired, explained I was doing research and did they have a copy of the electric bill to show the savings.

Here, when the homeowner owns the credits, their electric bill is annual, not monthly, and is a "true up" bill for the difference between usage and generation.

So here is what my research revealed.

No agent had a copy of a bill and no one called me back after talking to the sellers.
One listing suddenly became expired by dinner time.

One agent did tell me they it might take a couple of days to contact the owners of the property that was expired but is now leased.

So all I can conclude is that at least these agents did not think enough about the solar panels to make any big deal out of them in the listing, or in gathering the information as a selling point.

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[George Hatch]

George-

You should consider writing an article around this experience.
The takeaway (that I get) is that PV systems' impact on value is not always as simple NPV of the potential energy savings (although I do this in my reports; doesn't mean I use it as an adjustment, but I consider it in my selection of the final point-value in my reconciliation).

BTW, in your cost approach, since the PV systems don't add any value, if you used reproduction cost, did you make a functional obsolescence adjustment for the PV systems? (just kidding!)

It's just one analysis involving one little market segment. If I had 20 more of them it might start getting towards being meaningful as indicating to a trend. I've done other such analyses *in this region* that indicated to some minor increases, although I've never seen any results that came anywhere near the costs.

And yeah, I did identify some functional obs in my Cost Approach - but my subject is the entire project so the sum of the costs kinda gets lost in these numbers.

By the time some of these municipalities get done with it, solar installs might become a required feature for new construction, similar to sprinkler systems and ADA accessibility.

 

[George Hatch]

I guess the relevance of valuing-solar-by-income can be best compared to performing an income analysis for 2-4 unit residential properties, or when we perform a Cost Approach for new construction. We go through the motions because it is possible to do so and can provide support for the dominant mode of valuation being used by the buyers and sellers; but in most markets the results from those secondary analyses would never be given primary weight in a value conclusion just because it's higher than the dominant mode of valuation.

The only experience I've ever had with a broker really getting adamant about the value of solar was once when I had a borrower submit an ROV to contest my value conclusion, their broker started quoting articles and telling me the feature MUST add value. But in that situation whether I valued the solar at cost or not wouldn't have come close to bridging the gap between my opinion of value vs what the borrower apparently needed to do their deal.

That was a deal where the broker made the crack that as an appraiser who normally does commercial I was incompetent at appraising SFRs. As if I somehow ever got so far away from SFRs that I forgot how to ride a bike.

I've run into the same situation with ICF construction - it has a significantly higher cost in this region but every time I look into the sales data those costs just evaporate. While I appreciate the energy savings and other eco-aspects of the technology my personal opinions on it don't matter in an appraisal.

 

[Meandering]

I was going to consider the costs of install and purchase as sunk costs, and try and find removal and disposal costs at the end of life, to consider after NPV of the savings stream.

But what I did find which might be of interest to many who attempt the Income Approach this electric bill sample;

https://www.pplelectric.com/master-pages/sample-bill.aspx

Actual usage charge is less than 25% of the overall electric bill
So if you are generating as much electric as you are using, the maximum savings is less than 25% of the electric bill. If you are generating more than you are using, and the surplus is being paid to you, not just rolled over into next year's bill, then the rates vary.

Many utilities roll over the surplus savings, some pay out.

On June 9, 2011, the California Public Utilities Commission (CPUC) approved the Net Surplus Compensation rate based on current market prices, which is between $0.03 to $0.04 cents per kilowatt-hour (kWh). Payments to PG&E customers began on October 21, 2011.
http://www.pge.com/en/mybusiness/save/solar/surplus.page

To know how much the surplus paid, we'd need copies of some of the true up bills to average out for a trend.

To know how much the savings received was, we'd need copies of the bills to average out.

I don't believe the equipment is as important as what the bills say. A 3 Kw panel in San Diego will produce more electricity than a 3 Kw panel in New York for the same reason New York has snow and rain storms, less sunlight.
So we need bills from various regions to understand the income approach.

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