Each kilowatt of PV capacity adds nearly $6,000 to the value of a California home, but price premiums fall off quickly as the solar electric systems age, researchers at the Lawrence Berkeley National Laboratory have found.
In a summary of their findings, researchers report that price premiums are “strongly correlated” with the size of the system, adding $5,911 per kW. But each year the system ages causes the premium to drop.
The report, “Exploring California PV Home Premiums,” was published in December and is available online for free.
Building on results from earlier studies, researchers were looking into challenges that appraisers face as they value homes with photovoltaic systems. Under current practice, finding homes that are comparable in size and features, what appraisers call “comps,” is a key part of establishing value for both sales and refinancing.
But even as PV systems becoming more commonplace, appraisers aren’t always sure how to value them, the report says. “Some appraisers and other home valuers assign no value to a home’s PV system, and those who do often cannot find comparable home sales to help determine the PV premium,” the study says.
As a result, alternate methods for assigning value have developed. One is based on the value of energy produced by the PV system over its lifetime (the income approach). Another is based on the installed cost equivalent of the PV system (the cost approach).
“However,” the report says, “those approaches have just begun to have been validated against actual market premiums. Moreover, the drivers underlying PV home premiums are not well understood, which may deter some appraisers from assigning value to PV systems.”
Price premiums greater than expected
Researchers looked at sales data on 1,894 PV-equipped homes sold in California from 2000 through 2009 and 70,425 non-PV homes sold during the same period and in the same neighborhoods as the PV homes. They set out to compare price premiums for the PV houses to estimates that could be derived from the cost approach and income approach.
The decline in value seemed to come more quickly than either the income or cost approach would suggest, 9% per year vs. 0.5% decline predicted by the income approach or the 5% per year drop the income approach predicts.
At the same time, premiums also were bigger than either of the two alternate methods would suggest. For a 3-kW PV system, for example, the replacement cost estimate was only 53% of the actual premium while the income estimate was 33% of the premium.
Researchers said there were a “number of plausible explanations for this disparity,” including the possibility that buyers might be willing to pay more for houses with PV systems because of the “green cachet” or that income estimates understate the actual value of the power the PV systems produce.
Are current estimating tools working?
Among the issues researchers attempted to address was the accuracy of estimating tools currently available to appraisers.
One of them is a downloadable Microsoft Excel worksheet called PV Value, which is based on the income approach. It was developed by Sandia National Laboratories and Energy Sense Finance and Researchers. Researchers concluded that while it’s only beginning to be used, PV Value can be helpful in estimating market premiums for PV-equipped houses when comparable sales aren’t readily available.
But results didn’t match market pricing, researchers said, adding, “the discrepancies between PV value estimates and estimated market-based premiums for California PV homes is an area where further research is warranted.”