While there have been many studies that document the value of solar systems at time of sale, there has been little analysis to date on the impact of 3rd party owned solar system (leases or PPA) on home valuation or marketability. Given the enormous growth in 3rd party financed solar market, which currently represents more than 75% of the market in California, and is increasing market share in just about every viable solar market, this question is of great importance.
In May of 2013 a report entitled The Impact of Photovoltaic Systems on Market Value and Marketability, was released by the Colorado Energy Office. The study, which is far from conclusive, looked at case studies of 30 single‐family homes in the north and northwest Denver metro area and the impact of solar on the roof at time of sale.
In terms of the direct impact on values, they found that solar systems that are owned did in fact have a positive impact on home value, adding between $1,400 to $2,600 per kW on the roof.
However, the qualitative part of this study turned up some interesting and somewhat concerning trends when one looks at the differences between 3rd party owned solar (Leases and PPAs) versus owned systems.
First off, there has long been an economic argument that given the falling cost of solar, and the zero upfront nature of third party leasing, truthfully a "solar ready" house should be more valuable than one that already has a 3rd party owned system on it, as there is no upfront costs to putting a system on, and the price keeps dropping.
However consumers are not always rational economic actors, so the fact that people values solar was not a complete surprise.
When one reads the qualitative results of this report, and looks at the effect of Leased vs. Owned solar systems on the value of houses and transactional friction, there appears to be a rather clear trend that 3rd party owned systems are not having the same positive impact on home values, and in some cases are adding significant friction.
Of the 39 systems studied, 72% were owned systems, and overall, 59% of the time solar was rated as adding market value or marketability to the transaction. However, of the 22 homes where solar systems were rated as a positive, only two (2) of the homes were leased, while of the 14 neutral impacts six (6) were Leased, and in the three (3) cases of negative impacts on the transaction 100% were Leased systems.
I would caveat all of these conclusions and concerns as extremely preliminary. This is a small dataset and these are qualitative results. But when you read the comments in the table on the right there is a clear difference in the feedback when you compare those systems that are owned with those that were leased.
There is a lot more to this study, and to the value of solar in general, this blog is merely highlighting one interest trend, that given the growth in 3rd party ownership of solar, is something worthy of further discussion and research.
The entire study is worth looking at, and the table on the right can be found on page 46.
What Realtors have to say about the impact Solar leases versus owned systems on market value and marketability:
Four years ago Property Assessed Clean Energy (PACE) was set to roll-out to communities across the country and was a key element of our State and Federal strategy to stand up a energy efficiency industry and consumer value proposition. However, In July 2010, FHFA released a Statement on Certain Energy Retrofit Loan Programs, which essentially killed residential PACE by advising Fannie Mae and Freddie Mac to avoid buying mortgages with PACE assessments, leading many PACE administrators to suspend their residential programs.
In the meantime, a number of pirate PACE programs stayed in business and proved that PACE can drive significant demand and volume. In particular, the HERO program in Southern California has done over $100M in residential PACE loans, and just today released a preliminary rating for the first PACE Securitization.
Based on now proven success, and a continued belief by many that PACE is not the threat FHFA made it out to be, and that it is a critical component to meeting our energy and climate goals, many have continued to fight for residential PACE. In California that fight is about to bear fruit.
The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA), with the backing of the California Governor Brown, is about to roll-out a first of its kind PACE Loss Reserve Program. CAEATFA recently published a final version of its PACE Loss Reserve Program which should be officially approved based on their website, by the second week of March - only a few weeks away.
It would appear that we may have a second chance to make Residential PACE happen in California, and if we can make it work here, perhaps the rest of the country as well. A big thank you to all the people who continued fighting for PACE and to CAEATFA and Governor Brown for keeping PACE and residential energy efficiency a priority.
The last remaining question is really FHFA and how they will react to California's new plan. With their primary concern dealt with through the State reserve fund covering any potential losses, I hope this question will be put to rest so we can get on with the business of creating American jobs and saving the planet!
I recently came accross this video from a UC Berkeley panel from back in 2011 entitled Sustainable Residential Energy Use, Design, Feasibility, Performance. Given the current state of residential energy efficiency in California and across the country, the points being made are perhaps even more relevant today, as many of the problems outlined can now be proven based on actual programmatic results. Residential energy efficiency is at a crossroads where we will either transition towards real markets, or become a footnote. However, since 30% of California electrical energy is used by existing homes, we can't afford to keep failing. It is time to change the model away from our programmatic roots and towards market based solutions that trade in energy efficiency as a resource.
Watch the full program.
Matt Golden, Principal