You Can Afford Solar Power

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The rationale is that the money from the reduction in operating costs can go toward a larger mortgage with no net change in monthly cost of ownership. Nevin and Watson state that historic mortgage costs have an after-tax effective interest rate of about 5 percent. If $1,000 of reduced operating costs is redirected toward debt service at 5 percent, it can support an additional $20,000 of debt. Instead of paying the utility, the homeowner pays the bank, but total monthly cost of home ownership is identical.

The column labeled “Appraisal equity/resale increase in first year” in the “Sample Scenarios” table shows examples of the increase in home value. This increase can effectively reduce the payback period to zero years if the owner chooses to sell the property immediately, and it removes the purchase risk. It could even lead to a profit on immediate resale in some cases.

Currently, this increase in property value is theoretical. Many of the existing grid-tied solar-electric systems have been installed since 2001. Most of these homes have not been sold, so no broad studies of comparable resale values are available. However, emerging evidence suggests that some solar homes are seeing significant jumps in resale value.

For example, a 2004 National Renewable Energy Laboratory (NREL) study demonstrated that San Diego zero-energy homes with solar features increased in value faster than comparable conventional homes in a nearby community. On average, the homes increased in value $40,000 more than the conventional homes, at a higher rate of appreciation and with a shorter length of ownership. This boost in resale value outstrips any of the estimates shown in the “Sample Scenarios.”

PV systems will appreciate, rather than depreciate, for several years. Appreciation comes from the increasing annual savings the system will yield as electric rates and bill savings rise. It cannot continue forever, however, as the increase in resale value reaches a limit determined by the savings potential during the system’s remaining life. For these analyses, the system is assumed to be worthless at the end of 25 years. (This estimate is conservative, since panels typically are warranted to work at 80 percent of their as-new capability when 25 years old.) If the system is worthless after 25 years, its only value as it nears that time is the savings it can generate before the end of the 25th year. The remaining-value limitation takes over in about the 11th year. (See “Solar and Property Value” for an example.) As the NREL resale study suggests, however, actual resale value could be much higher depending on the market mood for solar.

Markets Reward Investment

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