Skyrocketing energy prices have caused a boom in rooftop photovoltaic systems across the state, and it makes good sense. Hawaii electric prices are the highest in the nation and are over three times the national average.
*The U.S. Energy Information Administration shows Hawaii’s electric prices average over $0.34 per kilowatt hour while the national average is just above $0.10 per kilowatt hour.
Hawaii generates over 90% of its energy from fossil fuels – but the good news is everywhere you go in the state you are seeing more and more sexy, earth-friendly power plants on rooftops. It’s good for the environment, and a great investment with typical returns between 4 to 6 years. It is so widespread that it’s now becoming a big selling point in the real estate market.
So the question I get asked all the time is…”How much is that solar system on the roof worth?” Whether you are a buyer or a seller of real estate, there are six things to consider when appraising or evaluating a solar system:
1. Size of the Photovoltaic System
When you are buying a house, the size of the photovoltaic system is a very important component as to how much the system is worth.
A photovoltaic system here in Hawaii should have been sized to accommodate the electrical needs of the current occupants and net a zero dollar balance for the entire year (more capture in the summer and less in the winter; netting to zero balance due over the whole year). If the system is too big, your payments will be more than the electrical savings. If the system is too small, you’re going to still have an electric bill plus a financing payment, reducing the savings of having a PV system.
It’s important for buyers to have an evaluation of the current electrical patterns and history of the seller to see if your habits and uses will match the current system.
2. Cost of the Photovoltaic System
Not all PV ownership is created equal. When you are selling your home, how you paid for it can make or break a deal. There are four ways that you ‘paid’ for it.
1. You paid cash. This is (by far) the best option when trying to sell your house and adds the most value. This adds nearly a one-to-one cost benefit. Free power! Yeah!
2. You financed. In this case you borrowed the money from your bank or credit union and are making payments. When selling you can pay off the loan at close (adding that same 1:1 value for the buyer), or have the buyer assume the payments, with lender approval.
3. You leased. If the system is leased the buyer and seller will have to get the leasing company to transfer the lease payments to the new owner prior to the close of escrow. If the buyer is not willing to assume the lease she won’t be able to get a loan and you won’t close. It’s an extra payment that needs to be factored in.
4. You have a Purchase Power Agreement. It’s like a lease but the monthly payments are based on how much electricity you generate, not a fixed monthly payment. Higher payments in the summer and lower payments in the winter. Just like a lease, this contract will have to be assumed by the buyer prior to the close of escrow, or you won’t be able to close.
So it’s obvious for buyers and sellers to look at that payment structure while doing an appraisal of PV values.
3. Two Words: Hot Water
Roughly 1/3 of energy costs are attributed to hot water. It’s simple. You heat water. True, but not all hot water systems are created equal. How you get your water heated can make a big difference in value.
There are some PV salesmen that will eliminate the solar hot water systems and add photovoltaic panels to power a new electric hot water heater. I’m not going to debate the logic of that here, but when you are valuing the size of a PV system you will also need to account for hot water usage as well.
How often a solar hot water heating system (with or without PV) has been serviced will make a big difference in its effectiveness and its value. A system that has good service records is a great asset to a house and shows pride of ownership. A system that has not been regularly tended to can, potentially, be a liability rather than an asset.
Sellers should get the solar hot water system serviced prior to listing and buyers should seriously consider getting an evaluation from a reputable service company, as most home inspectors will not have the expertise.
4. Warranties and Design
The world is an imperfect place and things break. Rooftop solar is out in the elements and can be subject to a litany of accidents or failures.
You may not think twice about warranties when you’re buying a house. The warranty on most items isn’t truly going to affect the value of the house. However, the warranty of a PV system is inherently part of its value.
When I bring this up I’m not just referring to the manufacturers of the panels and inverters. I’m also referring to the installation companies that are backing them. In this recent alternative energy boom there have been tons of companies that have come and gone. Who manufactured the panels and the inverters and who is guaranteeing the electrical has value. If your guarantor is out of business should your system break or malfunction is significant.
I’m not going to get deep into electrical theory and design here. I’m just going to mention it because it matters. Just like it matters when one Christmas light goes dead…does the whole string go blank or does just the one light go out?
5. Age of the System
Photovoltaic energy is a fairly new technology, and is growing by leaps and bounds. The leaps in efficiency and reduction in costs we are seeing is astounding.
The age of the system not only affects how up to date the technology may be. The other two factors that can be attributed to its age are how many payments may be left and how much longer is the system warrantied.
When doing a PV evaluation, one should review the contract for length of warranty and remaining payments (if any).
6. Off Grid vs. On Grid
Where is the back-up for the renewable power plant on my roof?
Most PV systems are tied into the power grid, which also serves as back-up when the sun isn’t out. However, some people choose to use battery back-up. This is more costly, however, for most it’s preferred, as you completely eliminate HECO. Free Power! Yeay!
Check the batteries for technology, age, warranty, and usefulness just like you would do with the rest of the system as per above. Additionally, if you are buying an Off-Grid home, make sure to evaluate the sizing for your needs.
There isn’t a direct blanket answer to how much any one particular system is worth. But if you use these six most important factors in appraising a PV or solar hot water system, you can get an idea of what it’s worth to you. You can also hire a professional alternative energy consultant to assess its value.
Always do your due diligence when buying or selling a home. Definitely do your due diligence when it comes with a solar photovoltaic system.
Lawrence is a Broker with Hawaii Life. He is also an energy consultant with Haleakala Solar and hosted the radio talk show “Sustainable Maui.”