Value of whole home solar PV system

[Terrel L. Shields]

My fear is appraisers get so impressed with the complex computations of the class taught model, that the appraiser can substitute it for what the market is actually returning .

Until the market actually provides enough data the PV calculation is more consistent and probably accurate than pairing sales since there are so many sizes of arrays you'd have to calculate on a net capacity basis. A quantified adjustment is far more defensible even if flawed. A simple sinking fund calculation is a consistent and defensible number. And a calculation that includes an accurate discount rate should replicate the available paired sales.

 

[Renee Healion]

Every approach reports the market. Nothing new.

I watch appraisers, some who no longer appraise, some who have not done residential in over a decade, those who have never done these, all but say that the income approach in the hands of res appraisers is like the apes wielding bones at the obelisk in 2001, A Space Odyssey. I keep waiting for one of them to zero in on the cost approach but they are not inflamed by its use or do not realize its use in such assignments.

So you could read a book or a journal article or take a class for CE or keep speculating.

edit: You do a site valuation in a market value assignment, don't you JGrant? A valuation in a valuation.

 

[J Grant]

Oh - you mean like those who take regression results and apply the coefficients as adjustments with really market testing them You are making a LOT of assumptions/assertions about a course that you have not taken.

If the course teaches no matter what our class model results are, if market shows otherwise, go with the market ! then I am making an assumption. My assumption is not so much what the class might teach, as what an appraiser might do. An appraiser might get so dazzled by the class room theoretical model, they use it instead of what market returns. I only assume that might be a problem for some appraisers an not others...

Actually, a gap between the model ( what the system costs, it's anticipated savings/benefits ) would show the market based deprecation of the system - that would be an astute appraiser , and that application of the theoretical class model and market reality would provide superior support and assignment results.

I

 

[Terrel L. Shields]

a gap between the model ( what the system costs, it's anticipated savings/benefits ) would show the market based deprecation of the system

What it costs is as irrelevant as the cost of a swimming pool. What it contributes is what is important. The rate that you capitalize the savings with is market based if any market data exists. Otherwise faces the very same dilemma extracting a value by paired sales. That applies to any improvement feature.

 

[Gobears81]

Until the market actually provides enough data the PV calculation is more consistent and probably accurate than pairing sales since there are so many sizes of arrays you'd have to calculate on a net capacity basis. A quantified adjustment is far more defensible even if flawed. A simple sinking fund calculation is a consistent and defensible number. And a calculation that includes an accurate discount rate should replicate the available paired sales.

I guess the question would be though, at what discount rate? In the assignment that I mentioned earlier, utility savings were about $6,000 per year and the cost of the system was $40,000 before considering the federal tax credit. The solar company actually indicated a much lower net cost, due to depreciation, and projected a bit higher utility savings. Excluding that depreciation, but not the tax credit, the "cap rate" is 20%. I know that quoting a cap rate could be jumped on, and rightfully so, given the declining effectiveness in later years and it having a shorter life, but nonetheless, that is equating the contributory value of the system with its cost for purposes of illustration. Considering that market evidence did not suggest that solar was feasible, the discount rate would be considerable.

 

[J Grant]

I guess the question would be though, at what discount rate? In the assignment that I mentioned earlier, utility savings were $5,900 per year and the cost of the system was $40,000 before considering the federal tax credit. The solar company actually indicated a net cost of about $16,000 due to depreciation, and projected a bit higher utility savings. Excluding that depreciation, but not the tax credit, the "cap rate" is 20%. I know that quoting a cap rate could be jumped on, and rightfully so, given the declining effectiveness in later years and it having a shorter life, but nonetheless, that is still considering a contributory value of roughly $30,000. Using a 10% or 12% discount rate or less would reflect a disconnect between what the market is actually assigning for the contributory value of said solar system and what the appraiser is assigning. Considering that market evidence did not suggest that solar was even feasible, the discount rate would be considerable.

Isn't the appraiser supposed to apply what the contributory the market is assigning? If it differs from some other model the "appraiser assigns" the appraiser has to put aside their ego and use what the market reaction is, then it does benefit the assignment to show a gap ( depreciation) tween what market returns and the solar industry or class room taught models.

 

[Meandering]

Sunk cost.

Regulatory Risk = #1 factor.

You got some law that protects the income/savings stream to any NEW buyer of the property, not just the current owner?

Then you might have a "value" in the market worthy of a DCF, for the length of the time the law provides for the income/savings stream.

You got a bunch of volunteer utility companies funding an income/savings stream, you only have the income/savings of today to value the system via the income approach, because once that utility decides they are not going to buy the electric generated, or are going to pay much less for it, it's not like you can ship your electric generated to any other potential buyer of electricity for a better price.

But CT would be a good study point, since their regulations and laws have changed concerning net metering.

New property buyers don't get net metering anymore, they have their choice of what? 2 or 3 different options to recoup from the electric generation of the property they buy,

so,

Is the state reporting the most prevalent options chosen buy buyers? Because that right there, is the evidence of the "market value" of existing systems.

Or maybe that information is not publicly available, or no one is collecting it. Sure, just make new laws and don't look at the impact. Oh but hey, surely somebody will produce a 25 year DCF without any discount for regulatory risk, 'cause, they took a class.

.

 

[J Grant]

The problem is numerical equations is : by themselves, they are "accurate" /explicable/logical, and thus belief they are "better". They are stellar when market returns equivalent. But when market does not...

2 plus 2 equals four. That equation is logical, accurate and can be replicated with consistent results,.

However, the market returns 2 plus 2 equals 3. $ 3, three dollars are what buyers in aggregate are paying . That result is a lot harder to deal with, messy, inconsistent,needing narrative. However, if 3 is the actual market reaction and 4 is the cost or income model, than the gap or depreciation between them is what the appraiser analyzes.

2 plus 2 =4 : The math model will return a four in each of the below scenarios.

Market area A returns three, Market area B returns four, Market area C returns five. The results are messy, inconsistent but reflect their markets -why it is called market value, not statistical value or numerical value..

 

[Meandering]

I guess the question would be though, at what discount rate? In the assignment that I mentioned earlier, utility savings were about $6,000 per year and the cost of the system was $40,000 before considering the federal tax credit. The solar company actually indicated a much lower net cost, due to depreciation, and projected a bit higher utility savings. Excluding that depreciation, but not the tax credit, the "cap rate" is 20%. I know that quoting a cap rate could be jumped on, and rightfully so, given the declining effectiveness in later years and it having a shorter life, but nonetheless, that is equating the contributory value of the system with its cost for purposes of illustration. Considering that market evidence did not suggest that solar was feasible, the discount rate would be considerable.

What they have in Illinois is different than in other states. Net metering is the law, until they change it.

But notice that it is not uniform across the state, and differs by utility company.


Note: The Future Energy Jobs Act (Illinois Public Act 99-0906) did not change Illinois' basic net metering rules; the 5% aggregate cap remains in place and a new compensation process will be developed when the cap is reached (a net billing process is the default). Community solar and meter aggregation were made eligible for net metering under the terms of the legislation; the language in previous law allowing utilities to "consider" whether to allow net metering to meter aggregation and community solar customers was removed and replaced with specific terms under which net metering must be allowed.
Illinois enacted S.B. 680 in August 2007, requiring investor-owned utilities and alternative retail electric suppliers in Illinois to offer net metering. Municipal utilities and electric cooperatives are not required to offer net metering.

For customers in competitive classes as of July 1, 2011, the law prescribes a dual metering and bill crediting system, which does not meet the definition of net metering as the term is generally defined. Customers in non-competitive classes as of July 1, 2011, are eligible for net metering; this includes all residential customers and non-residential customers with electric loads of up to 100 kW in the ComEd service territory and up to 150 kW in the Ameren utilities service territory.

DSIRE

programs.dsireusa.org

.

 

[Gobears81]

Isn't the appraiser supposed to apply what the contributory the market is assigning? If it differs from some other model the "appraiser assigns" the appraiser has to put aside their ego and use what the market reaction is, then it does benefit the assignment to show a gap ( depreciation) tween what market returns and the solar industry or class room taught models.

For sure! That was my point