Follow up on the Solar discussion from an Installer

[Meandering]

Gross System price to offset 12,000kWh/year in So Cal $40,392
Current State incentive $10,314
Current Federal Tax Credit $ 9,174
Total to the consumer $21,405

This will offset 100% of the bill (including night use) and could very easily return money from the electric company but I did not figure that in here.

Original average monthly bill $218/ month
30 Years at 5% Financing $116/ month
Added Tax benefit from mtg write off annually $47.52/ month
Bringing the total monthly savings to $163.52/month
Over the course of 25 years with an average annual electricity price increase of 6.5%

Your math does not work.
12000 kwh/12 =1,000 kilowatts per month
@ $218 monthly bill equals $0.218 per kilowatt. As the price of the electricity increases from the electric company, so to does the price increase for what they are buying back from your system. If the system is proving 100% of the need, there is no hedge against the increasing prices until the system becomes obsolete or the electricity used is exceeding the output of the system.

Original average monthly electric bill $218
Current system costs with incentives $21,405.
$21,405 @ 30 Years @ 5% Financing $115/ month. Here is your basic buyer calculated math. $218 dollars a month for electric bill, $115 dollars a month to buy the system. $103 dollars in savings from the electric bill. Why would I spend $115 a month to save $103? Herein lays one of your big problems with solar systems and residential buyers. If their math was better, there would not have been a subprime crisis.

So it is necessary, because of the cost of the system to sell the long term benefit of owning the system, sprinkled with a bunch of you could produce more electricity than you use, sales pitches.

You cannot consider tax benefits in mortgage write offs as this is a program currently on the chopping block to fix the economy, and counting this without consideration for increased assessment is wrong, especially when tax assessments will not go away, but tax incentives can.

At post #16 you said that solar homes sell for 17% more than non solar homes. So let’s say that 17% increase represents $1,360 annually or $113 a month on $8,000 annual taxes. (taxes are ad valorum, per the value) Here comes more buyer math:
Electric bill without solar = $218
Loan repayment for solar = $115
Increased taxes $113
Cost of having solar panels =$220 monthly
Value of installing solar = -$20 monthly

Full repayment of loan, $21,405 @ 30 Years @ 5% = $41,366.40 total repayment.

Using the $218 monthly payment ($115 P&I plus $103 not going to the electric company) it will take 127 months ( 10.583 years) to pay off the loan on the system, (Total interest paid: $ 6,179.92) just about the same time the voltage output is starting to drop before any real savings are realized. But, that 17% assessment increase in the price is going to increase in dollars throughout the life of the loan, every time the tax rates are increased.

The issue, as everyone instantly knows, is the price of the systems is still to high, relative to costs of electricity. This is by design. If, you could generate and store your own electricity for $1,000, who would need an electric company? What would those stock holders do when revenues slip as market share declines and generation declines due to decreased demand? Electric companies have millions tied up in infrastructure. We, the people, are not going to subvert it. Go off grid and no FHA loans for you guys. Electric is not like gas or oil, the sun shines everywhere. Once solar is efficient and affordable someplace, the rest of the world’s people will quickly follow. Prices are artificially high to protect the monopolies.

Solar panels generate DC electricity just like cars and RV’s. You can buy a power inverter for the car or RV to convert the electricity to AC typically for $100 or less. Buy one that’s rated for solar DC conversion and the price quadruples and more. Throw in some technical electronic terms like pure sine wave and a couple of extra resistors and wham, instant barrier to entry.

But in all this discussion, your posts do not appear to be from the guy who screws panels together on roofs. Just saying.

 

[Randolph Kinney]

If the pitch is to sell energy conservation, then the end game is the size of the home must be reduced so the masses can afford to live cheaply with skyrocketing utility rates.

California leads the way. People can live cheaply and affordably with a 450 sq. ft. GLA at the cost of $98,000 to purchase. The home looks like this:

It is the only home that can lay claim to "zero net energy status." The home includes eight solar panels, and they provide enough power to take care of all the home's needs.

 

[Cigar]

Randolph:

Congratulations on all the work you did to create the spreadsheet and graph showing no increased value in the Scripps subdivision, in fact I think Spartacus should copy and use it as a sales tool proving to his potential customers that installing solar won't increase the assessed valuation of their home and hence the tax burden.

Airphoto hit the nail on the head back in post #62

Going back to the first several posts, savings are predicated on a net monthly of about $115.00 or so .. in PA a $25,000 addition to the property incurs about a $375.00 annual property tax .. in NY that'd be closer to $750.00. Reduce the monthly savings ($1,380.00 annualized) by that amount and recapitalize. Further, what's the net cost of the solar system? At $46,000 cost the taxes have netted the savings to zero in NY (although the savings might be greater due to NY's utilities the sunlight available for production is far less than southern Cali! However, the A/C load is near non-existent.)

In over 50 years of building homes I've never had a customer want to jack up the value of his new home, they always want to keep the assessed valuation down. Back when I was a young apprentice carpenter we built two homes side-by-side, one was for the retiring County Assessor, the other home looked much better, 4' overhangs, two fireplaces, lots of cabinets etc., I asked the Assessor why he didn't have fireplaces and a tile roof, he brought out the Marshal Swift handbook and showed me (I believe) it was 5 quality levels of homes, he deliberately built his home to access lower for his retirement, and assessment and appraisal should go hand-in-hand. The day of the flipper is over, people are going to be buying homes to live in them and they are not going to be looking for higher accessed valuation, if successful in aging-in-place by the time they get senteneced to those God-awful old people's homes they won't care what the house sells for.

One reason that I would not advise anyone, particularly older people wanting to age-in-place, to add solar panels is the added taxes, taxes are a much bigger expense than utility bills around here, but Randolph's chart could be introduced into evidence in an assessment appeal hearing to lower taxes back down to where they were prior to the addition of solar panels.

Randolph, you should copyright and sell your chart to solar contractors!

 

[George Hatch]

In California the game is a little different in that property tax assessments are basically fixed at the prior purchase price or if reassessed due to major addition; they have a CPI-style adjustment of a maximum tax increase of 2%/year, but that's about it. Also, the base tax rate is only 1% of the value, with add ons applicable in some locations for local bonds and such. In most neighborhoods in my region the cumulative rate only amounts to 1.1% or so.

In states where the property tax assessments don't have those limitations the situation might be different, but the OP is apparently selling systems here in California, so I don't think the property tax angle is really a consideration.

 

[Cigar]

George:

My experience here in the Bay Area is that the assessor's office increases taxes on all capital improvements, and the addition of solar panels would be a capital improvement and not just a maintenance improvement, lately I see them reassessing for all permitted improvements. The 1% 2% rules have nothing to do with the initial reassessments for improvements. A few years ago I did a $316,000 kitchen remodel on a home I built in 1978, I permitted it for $100,000 (like I always do to save money for me on the permit and for my customers on the taxes). The Assessors' Office demanded a copy of the contract from the owner and accessed him much higher than my original permit for $100,000, and he's a real estate attorney. Since it takes them about a year to follow up reassessments on building permits they also go after escaped assessments for the time lag. The reassessment doesn't affect the original tax based property, only the capital improvement, Randolph's chart could go a long way in proving, at appeal, that solar panels are not a capital improvement since they don't increase the value of the real property. I've done many assessment appeals in my lifetime.

 

[prasercat]

I was just thinking that a non-profit; such as a church, could have a solar installation without having to pay taxes, so such non-profits should have a greater financial incentive to go solar. I know that they often incorporate cell towers hidden into their steeples and crosses, etc., to generate income, this could be another source of revenue with a social mission.

 

[Cigar]

Prasercat:

The problem with that is the less taxes some pay the more others will have to pay. I recall in one of our water shortages we were required to cut water usage or pay a huge penalty, at the end of the shortage rates went way up, the water district said that their costs were fixed, if they received less money from the rate payers they had to increase fees to offset the losses in usage fees. From that I would assume that if lots of people cut electric usage by installing solar panels the more the rest of would have to pay in increased fees.

On the subject of churches, a few years ago I permitted both an ADA remodel on a large church and a remodel on a residence on the same day, it so happened that the dollar amounts of the remodels was exactly the same, to my surprise the permit fee on the church was 50% more than the residence, I asked the permit technician why? He sated that churches were commercial and paid a rate 50% higher than residential. This is beside the point but interesting.

 

[prasercat]

Prasercat:

The problem with that is the less taxes some pay the more others will have to pay. I recall in one of our water shortages we were required to cut water usage or pay a huge penalty, at the end of the shortage rates went way up, the water district said that their costs were fixed, if they received less money from the rate payers they had to increase fees to offset the losses in usage fees. From that I would assume that if lots of people cut electric usage by installing solar panels the more the rest of would have to pay in increased fees.
quote]

Corporations will always do all they can to increase profits (why wouldn't they?). If they can fool the public into believing there is a shortage to raise fees (or if there is an actual shortage), it is much easier to hold onto the higher fee later once people have adjusted to paying it for a while. Gas prices at the pump go up easily, but they go down very slowly even though the fuel is much cheaper. The gas stations should be making their best spreads on the way down in fuel prices, but are aggressive in staying ahead of the curve when prices go up in their fuel costs - similar situation.

Centralization of utilities is our current "state of the art" but as technology allows homes to become more and more self sufficient in energy, being off grid will become more and more common. This should first occur with the more rural or suburban communities with adequate roof space and yards, etc., just like Wells and Septic tanks; then later, townhouses and stacked condos, etc., will transition. The utilities will have to serve less and less people, requiring less infrastructure improvements and power generation systems that consume fuels, so their costs will go down (relatively speaking). Eventually, centralized power may become obsolete. Centralization is also prone to terrorism and dependence on centralized systems puts everyone at risk.

As advancements occur, these technologies will become less and less visible and incorporated into the design (not as add-ons). Form will increasingly hide additional functionalities. Shingles, paint and windows were first designed to keep out weather, but they can insulate, generate power, regulate interior temperature (by changing reflectivity, and heat transmission) for example), they can become part of a computer system for the house and have processing functions and hooked into the internet.

The house may eventually communicate to you, like a member of the family, and tell you its needs for maintenance, failures, upgrades, it can call an appraiser it likes for a valuation (just kidding), and order milk for the fridge, scold and report the dog for peeing on the floor, etc. It could thank you for cleaning the windows or taking the leaves out of the gutters. If you pass out on the floor, it could call an ambulance, greet you at the door. These homes of the future will take care of us, scan our bodies and determine if we need medical assistance or warn us if we are about to eat too much cheesecake that day. The very thought that a home will always fit a function that we conceive now as relevant is to deny how technology is changing our lives, even if not always for the better. I sincerely believe that houses will become more than just a dwelling, they will become a sort of living entity that helps take care of itself and take care of us and our needs; being our physician, our grocery shopper, our CPA, our financial advisor, etc.

In the not too distant future, when paint, shingles and windows are generating power (all of which are already in development), and it becomes standard construction material for all homes with them representing most homes in the market, then appraisers will just see shingles, windows and paint much as they do now (They will continue to make obsolescence adjustments for outdated and less functional (than typical) exterior surfaces). Commercial buyers will continue to focus on the income aspects of these components while homeowners will continue to focus on the appeal and quality of the windows, shingles and paint and their style relative to current tastes (not the other things they perform unless its outdated). Homes will increasingly become a piece of technology which may cease to be "owned" but rather leased instead with periodic upgrades part of the lease agreement.

Corporate interests will continue to create conditions that make alternatives to them less attractive by whatever means at their disposal, just as they would respond to any form of competition. However, they cannot prevail in the end, since keeping up with other nations (some of which are not controlled by corporations) will force us to "keep up" to remain competitive.

I'm sorry, did I digress........

 

[Randolph Kinney]

Home Prices Continue to Sink

http://www.mortgageservicingnews.co...medium=email&utm_campaign=MSN_Bulletin_011111


Downturn's Ugly Trademark: Steep, Lasting Drop in Wages

http://online.wsj.com/article/SB100...70830.html?mod=WSJ_business_EconomyNewsBucket

I do believe that things look like they are getting worse. If I had $20,000 to invest, it would not be in solar panels on my house.

 

[Lloyd Bonafide]

Lots of interesting information in this thread.

The newest systems that drastically cut power bills are starting to become more common in the resale market. In my opinion, there's no way to reliably extract a very exact market adjustment at this time due to the limited amount of data. Plus some homes have more panels that generate more power. Currently I just consider the systems as an upgrade that sometimes will require an adjustment, depending on the type/amount of upgrades the comparables have.

I like this post of Elliott's - I think it's pretty close to how these things are playing out in the market at this time.

Spartacus,
For a moment, put yourself in the buyer's shoes. So I'm looking at two houses on the market, one is 2600 SF and and they are asking $350,000 and it has 4 bedrooms, 2-1/2 baths, granite countertops, hardwood floors and is close to schools and shopping.

The other house I'm thinking of buying has 2600 SF, with 4 bedrooms, 2-1/2 baths, granite countertops, hardwood floors, close to schools and shopping, and it has solar panels on the roof, and the agent says it will save me $100 per month on my electric bill. They are asking $360,000.

In the long run, my monthly payments with the energy savings will be the same,
but my mortgage will also be $10,000 higher, which requires I have a higher income to qualify for the mortgage. Also, what if the system requires repair? The other house doesn't have the potential expense of maintenance because it doesn't have solar panels.

So I as a buyer have a decision to make. I'm rational, and if I'm going with the
more expensive house with solar panels, I'll probably decide to discount the feature because it is an additional expense. So I'll probably only be willing to pay $4,000 or $5,000 for the feature, even though it might have cost $20,000. Also, I have to figure that my taxes, insurance, closing costs will all be higher because I'm buying the more expensive house (there was a time when the classical advice was buy the bigger, more expensive house, but not in the current real estate market because no one knows what is going to happen next to real estate).

I'm just being a rational consumer, making a reasonable decision on how to handle a 'upgrade' feature that may have some cost savings, but not necessarily improves my consumption of housing amenities, that comes with additional initial expense with potential expenses in the future.

When times are tough, people buy a Ford Focus with the hope of 30 mpg. They can't justify buying the BMW that costs twice as much which gets the same mileage or the Prius that gets 50 mpg, but costs twice as much. At the end of the day, they'll probably buy the Dodge Charger because it looks good, fun to drive, even though it gets 20 mpg.