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UrbanTurf Reader Asks: What Effect Will Adding Solar Panels Have on the Value of My Home?

by Mark Wellborn

In this week's installment of UrbanTurf Reader Asks, a reader wonders what the long-term benefits will be to adding solar panels to his roof. We asked Green DC Realty's Michael Kiefer to weigh in with his thoughts.

UrbanTurf Reader Asks: What Effect Will Adding Solar Panels Have on the Value of My Home?: Figure 1

I'm currently trying to figure out what the long-term benefits are to adding solar panels to my roof. DC offers a competitive grant that makes solar somewhat attractive, but the return on investment is still in the five to ten-year range. What does the addition of solar panels do to the value of the home? In DC, your property tax can not take into account solar panels, but I'm wondering if it causes a significant jump in value?

Answer: The value that adding solar panels to your home creates is two-fold – there is the overall year-to-year savings in your utility bills that is realized immediately and then there is the value it directly adds to the home if you plan on selling it.

The incentives offered by the Federal and DC Renewable Energy Grant Programs dramatically reduce the payback time on the investment needed to install solar panels. For the Mid-Atlantic region, a solar electric system will cost about $7 per watt and your typical DC home might accommodate around a 4-5kW system depending upon sun exposure and size (1,000 watts make a 1kW). Approximately 5kWh of energy will be produced each day for each kW of panel installation which means on a monthly basis you can expect around 600-750 kWh of energy produced from a 4 or 5kW system. A system of this size will run about $32,000, but this expense is reduced by about 40 percent with the incentives mentioned above.

Electricity use in homes has a lot to do with lifestyle patterns, but my detached bungalow averages about 750kWh on a 12-month annualized basis, so a 5kW system covers this use just fine.

As far as realized value, the calculation most commonly used these days is for every dollar you save in electricity use it adds about $20 in value to the home. So, $1,000 saved annually via solar panels translates to about $20,000 in additional property value. The key is documenting all this through your utility bills over the course of time.

It is important to note that appraisers/underwriters are not very familiar with this information, so educating potential buyers when you are selling your home is critical to realizing your efforts.

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This article originally published at http://dc.urbanturf.com/articles/blog/urbanturf_reader_asks_what_effect_will_adding_solar_panels_have_on_the_valu/2442

7 Comments

  1. dcguy said at 7:13 pm on Thursday September 2, 2010:
    I would consider buying a home with solar already installed a huge plus, assuming the system isn't too old. Even with the tax credit, it's still a big bill upfront. I'm wondering if any of these homes with solar in DC are generating enough electricity to earn credits, cash back so to speak, from Pepco.
  1. Ricardo said at 8:01 pm on Thursday September 2, 2010:
    Solar water heating systems are by far more efficient and have shorter payback periods. The reader should consider this option instead. Tax incentives should apply for this use as well.
  1. Mike Healy said at 12:46 am on Friday September 3, 2010:
    dcguy- Currently, in DC you are able to bring your utility bill to zero through the "sale" of solar energy back to Pepco, but once you reach net-zero, Pepco will not write you a check for additional generation. This is often referred to as "net-metering" and is the policy that DC and many other states have had thus far on distributed solar generation. That said, the sale of "Solar Renewable Energy Credits", or SRECs, does help reduce the cost of the system overtime, and in some cases upfront money is available if you can forward sell your SRECs. An SREC is granted to the system owner after one MWH of generation (or consumption in the case of SWH). Regarding the initial question, Mark's answer is technically correct and the solar industry treats the statistic that solar adds $20 in value to your home for every $1 saved as gospel. I have seen it work out that way and I have seen it not work out that way. The statistic that is almost universally true is that solar homes tend to sell twice as fast as non-solar homes. Additionally, a study from 2001 - 2007 by Dr. Barbara Farhar in cooperation with SHEA homes, noted that CA homes with solar increased in value by 55% compared to 44% of traditional energy homes. There is not enough solar penetration yet here in DC to determine whether the same trend is true, but I would expect to see similar results in DC. The local coop groups in the area may have statistics on this for their coop territory. I would encourage you to review: http://www.barbarafarhar.com/resources/pdf/article_solar_today_v22_1_JanFeb2008.pdf and http://money.cnn.com/2006/10/24/magazines/business2/newrules_gogreen.biz2/ Lastly, Solar Water Heating is indeed typically the best value for your money (especially if you have an electric water heater) and rebate monies are available for SWH as well.
  1. Matt Latham said at 4:23 pm on Friday September 3, 2010:
    I'm installing a 2.6 kW system on my flat roof. Total Cost: $20,000 Fed TC: $6,000 DC Grant: $8,500 Net System Cost: $5,500 20 Year IRR: 18% Payback: 4 years Additional improvement value: $8,500 Email me if you have any other questions at mlatham@nhtinc.org.
  1. Anthony said at 8:03 pm on Friday September 3, 2010:
    A combination of the federal tax credit, the D.C. rebate, and solar renewable energy credits (SRECs) can reduce the cost of installation by 70-90%. 40% is a bit of an underestimate. For example: 4 kW installation @ $7 per watt = $28,000 D.C. Rebate @ $3 per watt up to 3 kW and $2 per watt from 3-10 kW = $11,000 Federal Tax Credit @ 30% off gross cost = $8400 SREC savings @ $1600 per kw (common for many D.C. installers) = $6400 Total Savings = $23,800 (85% off cost) Total Net Cost = $4,200 Through Georgetown Energy, a solar co-op run by Georgetown University students, the homeowner will receive an extra 3% off the gross cost, which tends to make the system pay for itself 1 year quicker.
  1. crin said at 8:42 pm on Friday September 3, 2010:
    Resale value of solar panels should only be considered by flippers installing them and selling now. For homeowners, the resale argument is much less important, if it's even measurable at all. Here's why. Solar panels have a finite life span of about 30-40 years. By then they'll be so old they'll need to be replaced (just like windows: new are great, but 10 year old ones are broken). They'll probably also be eclipsed by the technologies that come on line in 5 to 10 years (how's the resale value on your 10 year old computer?). Additionally, it's safe to assume that as solar becomes more popular, solar panels will be the rule, not the exception (are you impressed by the old motel sign that brags about having cable tv?). That takes nothing away from their value in reducing utility bills. They'll pay for themselves on that point alone. The resale value argument however is dubious and unnecessary.
  1. Kim Toufectis said at 7:47 pm on Monday January 28, 2013:
    I too added a solar array to my rowhouse rooftop last June. Bottom line: payback is in 5 years even without increased property value (which I look at as a possibility, but I don't count on it). My experience in the District (other jurisdictions will vary): - Total cost $33K for 27 panels (~6500 watts, a pretty big array) - Cost after DC incentives and Federal Tax credit: $15K - Payback: $3K+/year ($1K/year in energy (about 80% of our electricity usage) and $2K+/year in sale of renewable energy credits) - Maintenance and operations: None. It's silent and periodic rain keeps the panels clean. Downright boring! Insurance: My home insurer didn't bat an eye at covering the system; nor did it change my premium. Thus even without higher resale value, solar pays back in DC in a competitive timeframe; for a $500K+ home (as is common here) $15K out of pocket shouldn't stop a thoughtful owner. Crin rightly warns against overemphasizing resale value. As the technology continues to mature it will become more efficient, and when I want to sell down there are several scenarios that lower the resale benefit: 1. In the nearterm solar is still unusual, and a buyer may not relish what might seem a complication; 2. In the longer term a buyer may my system as an outdated, lower-productivity system compared with what's available then; 3. DC home buyers don't choose among houses that are even close to the same; utility costs aren't how most people decide among properties. 4. My array went in over a new-ish roof, but 10 years from now, it might complicate the eventual replacement of that aging roof.

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