TODAY’S STUDY: GETTING TO KNOW YOU (SUN PAYS OFF)

One sure thing about solar energy: It’s too expensive. Except that, as Mark Twain famously observed, “it's what you know for sure that just ain’t so” that causes the most trouble.

In real life, there is always more to know. That’s the challenge and the beauty.

There is harsh opposition to the New Energies from some U.S. political leaders. Grossly inaccurate anti-New Energy arguments from the fossil fuel industries have long been accepted by their allies in politics and the media and are hard to discredit.

Opinion-makers who believe such inaccuracies and half-truths are responding to propaganda designed to protect vested interests. It can only be fought, tirelessly, with the truth. Many who understand the New Energies and all the good they offer continue to fight like demons.

They fight to make the truth known because much opposition to New Energy comes from a simple a lack of knowledge, especially in a wider public that is otherwise intuitively inclined toward the blessings of this good earth’s sun, wind, deep heat and flowing waters. That public’s intuitions can be challenged because it hasn’t yet taken the time to get to know New Energy better. As a result, the half-truths of entrenched interests sway it.

Though the urgencies of a needy economy, rising energy prices and a changing climate all press in, knowing takes time. Inevitably, the undeniable logic of New Energy will make it easy for the public to embrace what every poll shows it already sees with its heart.

Case in point: As the new study highlighted below concludes, the question of New Energy’s cost is not as simple as the Old Energy propagandists contend.

Robert Bryce, one of the most outspoken oil and gas industry spokespersons, frequently concludes his diatribes with the condescending observation that though solar is great and he has panels on his own home, it is too costly.

This argument that solar is not ready to be a part of the nation’s energy mix because it is too expensive fails to recognize the calculation’s many dimensions.

Set aside the enormous cost burdens of oil spills that kill and create ecological disasters and nuclear meltdowns that devastate and create environmental catastrophes. The study below shows that Bryce will – when he sells his house – likely discover he is completely wrong about the cost of solar.

Bryce will get back the expense of having installed the solar panels in the house’s resale price – after benefiting from all the free electricity they generated while he owned them.

But, having had this personal experience of getting to know New Energy, will Bryce be able to adjust his understanding and embrace solar? As President Obama’s ardent believers have discovered in the last two years, change does not come easy.

If Bryce is as fair-minded as he claims to be, he will have to reconsider his position about solar. If he continues to spout fossil fuel industry half-truths, he will reveal himself as their tool.

The facts are the facts. The fossil fuels' self-protective yammering cannot indefinitely deceive this great nation’s sensible citizens. Sooner or later, they will trust what they see with their own eyes and they will – from personal experiences – come to know and embrace New Energy.

An Analysis of the Effects of Residential Photovoltaic Energy Systems on Home Sales Prices in California
Ben Hoen, Ryan Wiser, Peter Cappers and Mark Thayer, April 2011 (Lawrence Berkeley National Laboratory)

Abstract

An increasing number of homes with existing photovoltaic (PV) energy systems have sold in the U.S., yet relatively little research exists that estimates the marginal impacts of those PV systems on home sales prices. A clearer understanding of these effects might influence the decisions of homeowners considering installing PV on their home or selling their home with PV already installed, of home buyers considering purchasing a home with PV already installed, and of new home builders considering installing PV on their production homes. This research analyzes a large dataset of California homes that sold from 2000 through mid-2009 with PV installed. Across a large number of hedonic and repeat sales model specifications and robustness tests, the analysis finds strong evidence that California homes with PV systems have sold for a premium over comparable homes without PV systems. The effects range, on average, from approximately $3.9 to $6.4 per installed watt (DC) of PV, with most coalescing near $5.5/watt, which corresponds to a home sales price premium of approximately $17,000 for a relatively new 3,100 watt PV system (the average size of PV systems in the study). These average sales price premiums appear to be comparable to the investment that homeowners have made to install PV systems in California, which from 2001 through 2009 averaged approximately $5/watt (DC), and homeowners with PV also benefit from electricity cost savings after PV system installation and prior to home sale. When expressed as a ratio of the sales price premium to estimated annual electricity cost savings associated with PV, an average ratio of 14:1 to 22:1 can be calculated; these results are consistent with those of the more-extensive existing literature on the impact of energy efficiency (and energy cost savings more generally) on home sales prices. The analysis also finds - as expected - that sales price premiums decline as PV systems age. Additionally, when the data are split between new and existing homes, a large disparity in premiums is discovered: the research finds that new homes with PV in California have demonstrated average premiums of $2.3-2.6/watt, while the average premium for existing homes with PV has been more than $6/watt. One of several possible reasons for the lower premium for new homes is that new home builders may also gain value from PV as a market differentiator, and have therefore often tended to sell PV as a standard (as opposed to an optional) product on their homes and perhaps been willing to accept a lower premium in return for faster sales velocity. Further research is warranted in this area, as well as a number of other areas that are highlighted.

click to enlarge

Introduction

In calendar year 2010, approximately 880 megawatts (MW)1 of grid-connected solar photovoltaic (PV) energy systems were installed in the U.S. (of which approximately 30% were residential), up from 435 MW installed in 2009, yielding a cumulative total of 2,100 MW (SEIA & GTM, 2011). California has been and continues to be the country’s largest market for PV, with nearly 1000 MW of cumulative capacity. California is also approaching 100,000 individual PV systems installed, more than 90% of which are residential. An increasing number of these homes with PV have sold, yet to date, relatively little research has been conducted to estimate the existence and level of any premium to sales prices that the PV systems may have generated. One of the primary incentives for homeowners to install a PV system on their home, or for home buyers to purchase a home with a PV system already installed, is to reduce their electricity bills. However, homeowners cannot always predict if they will own their home for enough time to fully recoup their PV system investment through electricity bill savings. The decision to install a PV system or purchase a home with a PV system already installed may therefore be predicated, at least in part, on the assumption that a portion of any incremental investment in PV will be returned at the time of the home’s subsequent sale through a higher sales price. Some in the solar industry have recognized this potential premium to home sales prices, and, in the absence of having solid research on PV premiums, have used related literature on the impact of energy efficiency investments and energy bill savings on home prices as a proxy for making the claim that residential PV systems can increase sales prices (e.g., Black, 2010).

click to enlarge

The basis for making the claim that an installed PV system may produce higher residential selling prices is grounded in the theory that a reduction in the carrying cost of a home will translate, ceteris paribus, into the willingness of a buyer to pay more for that home. Underlying this notion is effectively a present value calculation of a stream of savings associated with the reduced electricity bills of PV homes, which can be capitalized into the value of the home. Along these lines, a number of studies have shown that residential selling prices are positively correlated with lower energy bills, most often attributed to energy related home improvements, such as energy efficiency investments (Johnson and Kaserman, 1983; Longstreth et al., 1984; Laquatra, 1986; Dinan and Miranowski, 1989; Horowitz and Haeri, 1990; Nevin and Watson, 1998; Nevin et al., 1999). The increased residential sales prices associated with lower energy bills and energy efficiency measures might be expected to apply to PV as well. Some homeowners have stated as much in surveys (e.g., CEC, 2002; McCabe and Merry, 2010), though the empirical evidence supporting such claims is limited in scope. Farhar et al. (2004a; 2008) tracked repeat sales of 15 “high performance” energy efficient homes with PV installed from one subdivision in San Diego and found evidence of higher appreciation rates, using simple averages, for these homes over comparable homes (n=12). More recently, Dastrop et al. (2010) used a hedonic analysis to investigate the selling prices of 279 homes with PV installed in the San Diego, California metropolitan area, finding clear evidence of PV premiums that averaged approximately 3% of the total sales price of non-PV homes, which translates into $4.4 per installed PV watt (DC).

In addition to energy savings, higher selling prices might be correlated with a “cachet value” based on the “green” attributes that come bundled with energy-related improvements (e.g., helping combat global warming, impressing the neighbors, etc.). A number of recent papers have investigated this correlation. Eichholtz et al. (2009, 2011) analyzed commercial green properties in the U.S, and Brounen and Kok (2010) and Griffin et al. (2009) analyzed green labeled homes in the Netherlands and Portland, Oregon, respectively, each finding premiums, which, in some cases, exceeded the energy savings (Eichholtz et al., 2009, 2011; Brounen and Kok, 2010). Specifically related to PV, Dastrop et al. (2010) found higher premiums in communities with a greater share of Toyota Prius owners and college grads, indicating, potentially, the presence of a cachet value to the systems over and above energy savings. It is therefore reasonable to believe that buyers of PV homes might price both the energy savings and the green cachet into their purchase decisions.

click to enlarge

Of course there is both a buyer and a seller in any transaction, and the sellers of PV homes might be driven by different motivations than the buyers. Specifically, recouping the net installed cost of the PV system (i.e., the cost of PV installation after deducting any available state and federal incentives) might be one driver for sellers. In California, the average net installed cost of residential PV hovered near $5/watt (DC) from 2001 through 2009 (Barbose et al., 2010). Adding slightly to the complexity, the average net installed cost of PV systems has varied to some degree by the type of home, with PV systems installed on new homes in California enjoying approximately a $1/watt lower average installed cost than PV systems installed on existing homes in retrofit applications (Barbose et al., 2010). Further, sellers of new homes with PV (i.e., new home developers) might be reluctant to aggressively increase home sale prices for installed PV systems because of the burgeoning state of the market for PV homes and concern that more aggressive pricing might slow home sales, especially if PV is offered as a standard (not optional) product feature (Farhar and Coburn, 2006). At the same time, the possible positive impact of PV on product differentiation and sales velocity may make new home developers willing to sell PV at below the net installed cost of the system. After all, some studies that have investigated whether homes with PV (often coupled with energy efficient features) sell faster than comparable homes without PV have found evidence of increased velocity due to product differentiation (Dakin et al., 2008; SunPower, 2008). Finally, as PV systems age, and sellers (i.e., homeowners) recoup a portion of their initial investment in the form of energy bill savings (and, related, the PV system’s lifespan decreases), the need (and ability) to recoup the full initial investment at the time of home sale might decrease. On net, it stands to reason that premiums for PV on new homes might be lower than those for existing homes, and that older PV systems might garner lower premiums than newer PV systems of the same size.

Though a link between selling prices and some combination of energy cost savings, green cachet, recouping the net installed cost of PV, seller attributes, and PV system age likely exists, the existing empirical literature in this area, as discussed earlier, has largely focused on either energy efficiency in residential and commercial settings, or PV in residential settings but in a limited geographic area (San Diego), with relatively small sample sizes. Therefore, to date, establishing a reliable estimate for the PV premiums that may exist across a wide market of homes has not been possible. Moreover, establishing premiums for new versus existing homes with PV has not yet been addressed.

click to enlarge

Additionally, research has not investigated whether there are increasing or decreasing returns on larger PV systems, and/or larger homes with the same sized PV systems, nor has research been conducted that investigates whether older PV systems garner lower premiums. In the case of returns to scale on larger PV systems, it is not unreasonable to expect that any increase in value for PV homes may be non-linear as it relates to PV system size. For example, if larger PV systems push residents into lower electricity price tiers2, energy bill savings could be diminished on the margin as PV system size increases. This, in turn, might translate into smaller percentage increases in residential selling prices as PV systems increase in size, and therefore a decreasing return to scale. Larger PV systems might also enjoy some economies of scale in installation costs, which, in turn, might translate into lower marginal premiums at the time of home sale as systems increase in size – a decreasing return to scale. Additionally, “cachet value”, to the degree that it exists, is likely to be somewhat insensitive to system size, and therefore might act as an additional driver to decreasing returns to scale. Somewhat analogously, PV premiums may be related to the number of square feet of living area in the home. Potentially, as homes increase in size, energy use can also be expected to increase, leading homeowners to be subjected to higher priced electricity rate tiers and therefore greater energy bill savings for similarly sized PV systems. Finally, as discussed previously, as PV systems age, and both a portion of the initial investment is recouped and the expected life and operating efficiency of the systems decrease, home sales price premiums might be expected to decline.

To explore these possible relationships, we investigate the residential selling prices across the state of California of approximately 2,000 homes with existing PV systems against a comparable set of approximately 70,000 non-PV homes. The sample is drawn from 31 California counties, with PV home sales transaction dates of 2000 through mid-2009. We apply a variety of hedonic pricing (and repeat sales) models and sample sets to test and bound the possible effects of PV on residential sales prices and to increase the confidence of the findings. Using these tools, we also explore whether the effects of PV systems on home prices are impacted by whether the home is new or existing, by the size of either the PV system or the home itself, and finally by how old the PV system is when the home sells. It should be stated that this research is not intended to disentangle the specific effects of energy savings, green cachet, recovery of the cost of installation, or seller motivations, but rather to establish credible estimates of aggregate PV residential sales price effects.

click to enlarge

The paper begins with a discussion of the data used for the analyses (Section 2). This is followed by a discussion of the empirical basis for the study (Section 3), where the variety of models and sample sets are detailed. The paper then turns to a discussion of the results and their potential implications (Section 4), and finally offers some concluding remarks with recommendations for future research (Section 5)…

click to enlarge

Conclusions

The market for solar PV is expanding rapidly in the U.S. Almost 100,000 PV systems have been installed in California alone, more than 90% of which are residential. Some of those “PV homes” have sold, yet little research exists estimating if those homes sold for significantly more than similar non-PV homes. Therefore, one of the claimed incentives for solar homes - namely that a portion of the initial investment into a PV system will be recouped if the home is sold – has, to this point, been based on limited evidence. Practitioners have sometimes transferred the results from past research focused on energy efficiency and energy bills more generally and, while recent research has turned to PV that research has so far focused largely on smaller sets of PV homes concentrated in certain geographic areas. Moreover, the home sales price effect of PV on a new versus an existing home has not previously been the subject of research. Similarly unexplored has been whether the relationship of PV system size to home sales prices is linear, and/or is affected by either the size of the home or the age of the PV system.

This research has used a dataset of approximately 72,000 California homes, approximately 2,000 of which had PV systems installed at the time of sale, and has estimated a variety of different hedonic and repeat sales models to directly address the questions outlined above. Moreover, an extensive set of robustness tests were incorporated into the analysis to test and bound the possible effects and increase the confidence of the findings by mitigating potential biases. The research was not intended to disentangle the various individual underlying influences that might dictate the level of the home sales price premium caused by PV, such as, energy costs savings, the net (i.e., after applicable state and federal incentives) installed cost of the PV system, the possible presence of a green cachet, or seller attributes. Instead, the goal was to establish credible estimates for the aggregate PV residential sale price effect across a range of different circumstances (e.g., new vs. existing homes, PV system age).

click to enlarge

The research finds strong evidence that homes with PV systems in California have sold for a premium over comparable homes without PV systems. More specifically, estimates for average PV premiums range from approximately $3.9 to $6.4 per installed watt (DC) among a large number of different model specifications, with most models coalescing near $5.5/watt. That value corresponds to a premium of approximately $17,000 for a relatively new 3,100 watt PV system (the average size of PV systems in the study). These results are similar to the average increase for PV homes found by Dastrop et al. (2010), which used similar methods but a different dataset, one that focused on homes in the San Diego metropolitan area. Moreover, these average sales price premiums appear to be comparable to the average net (i.e., after applicable state and federal incentives) installed cost of California residential PV systems from 2001-2009 (Barbose et al., 2010) of approximately $5/watt, and homeowners with PV also benefit from electricity cost savings after PV system installation and prior to home sale.

Although the results for the full dataset from the variety of models are quite similar, when the dataset is split among new and existing homes, PV system premiums are found to be markedly affected, with new homes demonstrating average premiums of $2.3-2.6/watt, while existing homes are found to have average premiums of $6-7.7/watt. Possible reasons for this disparity between new and existing PV homes include: differences in underlying net installation costs for PV systems; a willingness among builders of new homes to accept a lower PV premium because PV systems provide other benefits to the builders in the form of product differentiation, leading to increased sales velocity and decreased carrying costs; and, lower familiarity and/or interest in marketing PV systems separately from the other features of new homes contrasted with a likely strong familiarity with the PV systems among existing home sellers.

click to enlarge

The research also investigated the impact of PV system age on the sales price premium for existing homes, finding - as would be expected - evidence that older PV systems are discounted in the marketplace as compared to newer PV systems. Finally, evidence of returns to scale for either larger PV systems or larger homes was investigated but not found.

In addition to benchmarking the results of this research to the limited previous literature investigating the sales price premiums associated with PV, our results can also be compared to previous literature investigating premiums associated with energy efficiency (EE) or, more generally, energy cost savings. A number of those studies have converted this relationship into a ratio representing the relative size of the home sales price premium to the annual savings expected due to energy bill reductions. These ratios have ranged from approximately 7:1 (Longstreth et al., 1984; Horowitz and Haeri, 1990), to 12:1 (Dinan and Miranowski, 1989), to approximately 20:1 (Johnson and Kaserman, 1983; Nevin et al., 1999; Eichholtz et al., 2009), and even as high as 31:1 (Nevin and Watson, 1998).

click to enlarge

Although actual energy bill savings from PV for the sample of homes used for this research were not available, a rough estimate is possible, allowing for a comparison to the previous results for energy-related homes improvements and energy efficiency. Specifically, assuming that 1,425 kWh (AC) are produced per year per kW (DC) of installed PV on a home (Barbose et al., 2010; CPUC, 2010)Figure 5 ). 43and that this production offsets marginal retail electricity rates that average $0.20/kWh (AC) (Darghouth et al., 2010), each watt (DC) of installed PV can be estimated to save $0.29 in annual energy costs. Using these assumptions, the $/watt PV premium estimates reported earlier can be converted to sale price to annual energy savings ratios (see

A $3.9 to $6.4/watt premium in selling price for an average California home with PV installed equates to a 14:1 to 22:1 sale price to energy savings ratio, respectively. For new homes, with a $2.3-2.6/watt sale price premium, this ratio is estimated to be 8:1 or 9:1, and for existing homes, with an overall sale price premium range of $6-7.6/watt, the ratio is estimated to range from 21:1 to 26:1. Without actual energy bill savings, these estimates are somewhat speculative, but nonetheless are broadly consistent with the previous research that has focused on EE-based home energy improvements.