One of the things Marion was alluding to was "Market Acceptance", which is key and must be proved empirically. There may be acceptance in some neighborhoods but not others. If acceptance doesn't yet represent the "market" but a fringe sector of the market, then you'll get people not paying for it or even removing it to improve the appeal of the home.
When you get to 4 unit properties or higher, a property is pretty much just "Numbers" and treated as an investment. The buyers are investors. Homes are largely purchased on the satisfaction of personal preferences for functionality, appeal and prestige and this is why many residential appraisers are having difficulty with this concept - simply, its different than the commercial/investor buyer situation but not necessarily in its entirety.
A solar electric panel depreciates and creates power that has a variable value over time, as prices fluctuate for power.
I wanted to make a few cross correlations to see if there is a similar situation that is valued by residential buyers due to income stream (not talking about investors):
When buyers buy, lets say, a duplex, they are hybrid buyer typically, partly residence appeal bias, partly investment bias. Rental rates can change over time, but they are typically percieved to be fairly stable. One can easily see how renting the other side will offset some of the mortgage payment, its a check in the hand for a certain amount on a monthly basis - very tangible. Solar panel returns are not so easily anticipated by a buyer or fully understood by the market, especially in the long term. Banks can factor in 75% to 90% of the additional unit income in duplexes based upon market rents for qualification purposes, whereas, there is no qualification assistance from solar panel income. In addition, buyers of duplexes may see the additional unit as a mother-in-law or plan to move to another home eventually and rent out the entire duplex after they lived there as a primary residence for the minimum period, so it can function as an investment and yet get a full tax break when they sell. There is no correlation to solar panels in this situation, so a duplex rental can have added utility. Already, I'm seeing significant disparity here in relation to a rental income situation for a residential type individual.
Actually, what I'm thinking is, solar panels are technology that sheds value over time. What sort of thing correlates to this in the residential market? An energy efficient appliance (water heater, furnace, AC system, added insulation, triple pane windows, passive solar-southern exposure), etc. People do pay more for added efficiency but what they pay depends upon the buyer, the appeal of the item if it is visible (furnace doesn't need appeal, but an energy efficient washer does), location of the property and the property itself.
We can see what people are paying for a new unit over and above a standard or less efficient unit. If there is broad acceptance to pay X more for that added efficiency and percieved cost savings per.....year probably, then that should be the contribution for a new unit. I think, to apply a cash flow analysis there has to be proof of market acceptance; otherwise, the market is saying, we don't care about it as an investment, so cash flow is irrelevant for its choice. But they may be paying more for such items and it may be widely accepted, but not because there is tangibly percieved monetary return, but more for a different reason. Appeal, prestige, etc.
The other point I made prior is that even when the investment value is not apparent to the applicable market; it may have value in that market as a hedge against pricing uncertainty, which is more "emotional" rather than numerical and just the stuff that influences buyers in the residential market (sometimes to the point of being irrational). Corporations also hedge against price uncertainty with commodity options, for example, but this tends to be more rational and by the numbers (projects based upon trend lines, standard deviations, business trends, etc).
Other things that influence residential buyers are: Prestige, appeal, social concience, environmentalism, etc. With the exception of prestige, and appeal, I don't think social concience or environmentalism is high on an investors list of priorities.
Appraisers have to think like a typical buyer, we can't deviate from that or else we appraise in an unrealistic way. When buyers percieve a solar installation as an investment that is understood in a rather rational uniform way, then we can appraise using this perception. However, I don't think we are at that point generally in the residential market. The more a particular property appeals to the investor, the more a solar installation factors in as an investment (duplex, triplex, quadraplex, commercial properties). The more tangible and clearly understood is the payback on a solar installation to a non-investor in the residential market, the greater should be market acceptance and the more it should be valued as an investment for non-investors. Then, by all means, stick that result into the sales grid.
