Solar Panels

[Meandering]

cigar,

You're not looking at it correctly.

You capitalize the $ from the panels into the grid. Not the savings from the bill, especially in CA where you have weekend rates and night time rates and summer rates and winter rates and holiday rates. But the sun only shines during the day. The rate from the panel is the same $ per kWh, while the "savings" vary depending on your usage time of day and weekends.

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[hastalavista]

cigar,

You're not looking at it correctly.

You capitalize the $ from the panels into the grid. Not the savings from the bill, especially in CA where you have weekend rates and night time rates and summer rates and winter rates and holiday rates. But the sun only shines during the day. The rate from the panel is the same $ per kWh, while the "savings" vary depending on your usage time of day and weekends.

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If I understand what you are saying, I disagree. "$ from the panels into the grid"... are you talking about the money one allegedly makes by selling energy back to the utility? i'd never consider that as a benefit because that is inherently uncertain.
But the savings from what I am spending is not uncertain; it is very reasonable to assume if the system allows me to reduce my energy-purchase from the utility, that savings is worth something.

The benefit of the PV system is the savings in one's electric bill, i.e., "With the PV system, I pay this. Without it, I will pay more."
The "more than this" is the benefit. I project that for the average holding period a home, and discount it by the safe rate. I pick the "safe rate" because I conclude it is a "sure thing" that without the PV system, I will pay the higher rate. I don't see any "risk" of my bill going down without the PV savings.

Not only is this process reasonable but it is easy to explain and the rationale is simple:

There are no relevant sales to extract a contributory market value for the PV system to apply in the sales comparison approach. I have concluded that the PV system is beneficial as it does (per the borrower) reduce the electrical bill from $X to $Y per year. A typical buyer would consider that savings beneficial. One method to evaluate the benefits of such a system is to analyze the value of the savings in utility expenses. In order to evaluate the benefit, I have done the following analysis:
A. Annualized the savings. I have not adjusted it for future changes; utility expenses typically increase over time but due to the relatively short duration of the holding period, the impact on any increase is not significant.
B. Estimate maintenance costs. The homeowner indicates there have been no maintenance costs so far. A reserve for maintenance and repairs is prudent, and I've reserved 10% of the savings for that possibility.
C. Select a holding period. I selected a holding period based on the studies from the NAHB, western region, which indicates the average holding period for a homeowner is 13 years.
D. Select a discount rate. I've used a safe rate correlated to the holding period (10-year Treasury), which I've rounded to 2%.
E. Calculate the NPV using the noted inputs.

Annualized savings: $1,800
Repair Reserve: $180
Rate: 2%
Holding Period: 13
Net Present Value of the Savings: $18,385.

While the above method may not reflect how any specific buyer would value the system, it does provide a logical and simple process to evaluate (a) if the system is beneficial and (b) provide an estimate of that benefit in terms of present value. Since no relevant sales exist to complete a market extraction, I consider this method to be a reasonable process and a useful alternative in analyzing the value impact of the PV system.

The adjusted range of the comparables is $510k to $535k. Comparables #2 and #3 are most similar and adjust to $520k. I then considered the PV system. As noted, I consider it a positive appeal item. The simplified NPV analysis concludes it has a quantifiable monetary benefits. I've used this information to modify my initial value reconciliation, and have concluded a final value opinion of $530k. This conclusion at the higher-end of the adjusted range explicitly reflects consideration of the benefits of the subject's PV system.​

There, Marion. Pretty simple and straight forward.
You want to pick a higher rate for your analysis? Be my guest.
You want to throw some probability analysis that the savings won't exist during the holding period? Go ahead.

This isn't that complicated. It shows that the appraiser (a) looked to analyze the value of a PV system with sales, (b) found no such sales, (c) used an alternative methodology, and then (d) considered the results of that alternative methodology in the final value conclusion. It is credible and reasonable. And, you'll note that this analysis maintains the value-point within the adjusted range of the comps. It would be very hard from someone to tell the appraiser, "you know, your analysis isn't valid therefore selecting $530k vs. $520k isn't reasonable". But I suppose there is a reviewer out there who might try that!

But, there is more than one way to skin this cat. You want to use or propose an alternative? I'm listening. And, I'll bow to your local knowledge if you tell me that net savings from an utility bill isn't what happens in your market when someone installs a PV system that reduces his or her bill.

 

[hastalavista]

I'm curious about something Dennis, here in the Bay Area my PG&E bills averaged $68 a month for some years, a couple of years ago an engineer neighbor installed solar panels, I told him I was interested and to please tell me what his "true-up" bill was when he got it. After a year he told me that his basic monthly bill was about $45 a month and his "true-up" bill was right at $600 for the year, that means he paid a total of $1,140 for the year. Meanwhile my bill started creeping up although usage stayed the same with some incomprehensible things like one month a bill of $35 for a "climate credit" and the next month a $100 bill, eventually another climate credit that I can't figure out, last month I got the highest bill I ever received (without usage going up) of $140.

Had there been no solar charges I would have paid $816 for the year compared to his $1,140 not counting his solar lease payments, if rates stay where they are I will pay $1,680 for this year compared to his $1,140. Let's say everything is equal between our homes (which it never is but assume so) and you are called to appraise both homes, how do you handle the differences?

Your neighbor saves $500 +/- a year vs. you? I wouldn't adjust for that.

- We work in the same market. I was in the City last week to do a couple of appraisals (Anza Vista, Lone Mountain, Jordan Park/Laurel Heights, and NOPA in general). My subject had a leased system (and therefore I didn't value it as part of the real property) but I was very surprised how many homes I did see with solar panels in the neighborhood. There is a big push for LEED commercial buildings, and newer residential market themselves as energy efficient, sustainable, and having a healthy interior-space environment. While the number wasn't huge, they did seem to stick out to me (no doubt because I just left my subject). But, to really gain an advantage, I would think these older homes would need a major energy-footprint retrofit.

 

[Meandering]

You capitalize income, not savings.

The fee the electric company is reimbursing homeowners for their electric generation, is what you capitalize.

Other "savings" are predicated on lifestyle usage, number of people in a home, yada, yada.


From Nevada.

How much does an average rooftop solar array cost?
Depending on size and output, typically between $15,000 and $30,000, but sometimes more. Customers who buy panels outright can be eligible for a federal incentive that provides a 30 percent tax credit on the panel price.

How much does the average homeowner save on his or her electric bill?
Under previous net metering rules, homeowners were expected to save 10 to 20 percent on their NV Energy bill. However, some solar customers have reported seeing their bill as low as $5 during some months.
http://lasvegassun.com/news/2016/mar/28/are-brighter-days-ahead-for-solar-customers/



In red is the rate to work with. Generation decreases over the life of the panel. The RATE, in many places has DECREASED since 2009, is not written in stone and historically, has not survived more than one president, hence the risk of a reduced rate over the 20-25 year life span of the panels is far greater than a safe rate of liquidity.

If you are capitalizing $5 a month in Nevada over 25 years....................

The current political rhetoric not withstanding.................

Solar panels and net metering for solar panels was put in place until public utilities meet 30% renewable federal requirements. Federally there is no mandate to reimburse homeowners at retail rates for solar generation, and no requirement to reimburse homeowners at all, after the utility meets it's 30% renewable requirement - if they meet that requirement some other way, like frying birds in the desert, or giant commercial solar farms. If your state has a mandate to reimburse homeowners for solar generation at $X until 2036, go for it, you have little regulatory risk. Otherwise, consider what happened in Nevada as also going to happen at some point in California.

You must consider these as risk factors in your income calculation, even if the AI didn't and caveated to a before Income tax analysis.

However, escalating real estate taxes, homeowner's insurance, maintenance (cleaning) costs, and verification of soundness of the electrical connections (already lots of home fires from solar panels) All have to be included in the expense of that income generation, even if the AI didn't .

And at the end,
Removal and Disposal of the hazardous waste, in future dollars, including stripping the shingles and patching the mounting bolt holes in the sheathing.

Leaving you with a net present value of???? And still have to caveat to the manufactures that have gone out of business leaving homeowners without a company to service or warranty any issues, and those that have produced faulty panels that caused house fires.


But the rest of the country is not California.

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[hastalavista]

You capitalize income, not savings.

OK, we disagree.

For some reason, you don't see reducing expenses as having value that can be capitalized.
Funny... that is the entire premise of NPV in finance: Evaluating the value of some action based on the impact it may have on one's financial performance. Lowering expenses or raising revenue can have an impact on the bottom line; it is that effect that is the benefit. NPV process values the anticipated future benefits and translates it to a single-point value as of current..
If you were evaluating two HVAC systems on an office building, both with different costs and with different efficiency ratings which would result in different utility expenses, I guess you wouldn't capitalize the expected savings to determine if there is any advantage of buying the more efficient/more expensive system vs. the less efficient/less expensive system.
Because, that is exactly the dynamic in the situation with a residential home (an inefficient system that saves nothing.. the as-is without a PV... vs. an allegedly efficient system that saves something... the savings is the difference in utility bills. The value of the system is based on how much money it saves you).
How much is the PV system worth? You tell me how much it reduces your utility bill and I give you an opinion.


And even when I extend you the professional courtesy of every benefit of the doubt of your expertise in your market-

But, there is more than one way to skin this cat. You want to use or propose an alternative? I'm listening. And, I'll bow to your local knowledge if you tell me that net savings from an utility bill isn't what happens in your market when someone installs a PV system that reduces his or her bill.

You come back with a snide remark about mine...

But the rest of the country is not California.

Advocate what you think is best, Marion.

Good luck!

 

[Noreen]

Ah, but,

The matched pair would also need the same utility, to make the "savings" comparable for the sale.

Because all these electric "providers" have different rates that may be higher or lower than the retail rate from the electric generation utility.

It's so much fun figuring out who has the best rates, for electricity they don't generate.

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Marion, that is why we spent over an hour going over the nuances of the items that impacted the issue. Especially here and it was during the winter of a snowmageton. No solar storage when the panes are under multiple feet of snow. The point was, in a winter like last year, the benefit/ return could be a regional issue.

 

[Meandering]

OK, we disagree.

For some reason, you don't see reducing expenses as having value that can be capitalized.
Funny... that is the entire premise of NPV in finance: Evaluating the value of some action based on the impact it may have on one's financial performance. Lowering expenses or raising revenue can have an impact on the bottom line; it is that effect that is the benefit. NPV process values the anticipated future benefits and translates it to a single-point value as of current..
If you were evaluating two HVAC systems on an office building, both with different costs and with different efficiency ratings which would result in different utility expenses, I guess you wouldn't capitalize the expected savings to determine if there is any advantage of buying the more efficient/more expensive system vs. the less efficient/less expensive system.
Because, that is exactly the dynamic in the situation with a residential home (an inefficient system that saves nothing.. the as-is without a PV... vs. an allegedly efficient system that saves something... the savings is the difference in utility bills. The value of the system is based on how much money it saves you).
How much is the PV system worth? You tell me how much it reduces your utility bill and I give you an opinion.


And even when I extend you the professional courtesy of every benefit of the doubt of your expertise in your market-


You come back with a snide remark about mine...



Advocate what you think is best, Marion.

Good luck!

I'm not trying to be snide with you D.

That's why I posted the image of the electric bill with the solar panel generation and rate.

If savings were the thing.......

Then your neighbor could go to Cancun for a week and have a "savings" on their electric bill, when compared month over month, or compared to yours.

For some parts of California that have different night and day rates, a change in job shifts from day to night shift would produce a "savings" of the utility bill, if night usage rates were more expensive than day usage rates, because the owner would not be home during the highest rate times.

The five member family that sells a house to a single person, the single person will not recognize the same usage or savings as the previous owner.

Again, these are predicated on life style.

It is the income from the power generation that gets capitalized. Not "savings".

It is the generation that is degraded over the life of the panels, AND fluctuates with weather changes, such as El Nino out by you that will bring more clouds, or snow, rain and just plain cloudy days, on the east coast.

It is the rate the utility company is willing to pay for that generated power which is at risk.

And it's a risk, the AI does not address in their example.

I'm sorry if we disagree, but at least you should be able to agree that it's the Income Capitalization Approach, Not the Savings Capitalization Approach.

And the Income comes from the generation of the electricity from the solar panels.

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[Meandering]

Marion, that is why we spent over an hour going over the nuances of the items that impacted the issue. Especially here and it was during the winter of a snowmageton. No solar storage when the panes are under multiple feet of snow. The point was, in a winter like last year, the benefit/ return could be a regional issue.

Sometimes it's even a neighborhood issue.

Think of all the tall buildings in urban areas that are shading, at least part of the day, the remaining residential buildings that are intermixed, or on the next block. Ditto for tall trees and any obstruction that produces shade.

But here's something to contemplate.

I tracked down 3 (that's all there were) properties in one MLS in the last 5 years that had been advertised as having solar panels.

None sold. two expired, one got rented.

But regardless, I called the agents, One I even know from my own office.

I asked for copies of the electric bills. Nope didn't have them, never got them, could not get them.

I asked how they had considered the solar panels when pricing their listings.

Straight answer was, they didn't consider the solar panels as any benefit in their list prices.

If the agents are not all excited about contributory value, then buyers won't be either, and this is an uphill battle until agents are on board.


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[George Hatch]

Forget what the value "should be". If "cost /= value" then it also follows that a "reduction in cost /= value".

We're looking for what the typical buyer will do, not what special people do. If the buyers and sellers aren't demonstrating their willingness to pay more then it is what it is.

When the feature becomes the big selling point that will become *obvious* in the marketing and buying decisions. There won't be any need for appraisers to go to heroic lengths to make something out of nothing look good.



Get off my lawn.

 

[Meandering]