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Presentation to the Oakland Realtors Association


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The Economic Impact of Solar Energy Installations & Energy Efficiency Measures on Home Values

The Economic Impact of Solar Energy Installations & Energy Efficiency Measures on Home Values

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  • Realtors act as advisors to homeowners; their advise is considered valuable by homeowners planning home improvements
  • Will begin by presenting you a high level overview on the state of electricity prices. Utilities business is not growing in volume, their only remedy for value creation is through increasing utility rates
  • Consumers are baulking, choosing to adopt Solar Energy solutions as a means to cap their electricity prices.
  • California has one of the highest utility rates in the country
  • Trajectory of PG&E’s rate increase plans as laid before the CPUC
  • Utility bills constitute the second largest component of household maintenance expenses
  • If we extrapolate historical PG&E price hikes of 7% out into the future how much would a Californian paying a utility bill of avg $150 have to shell out over a period of 25 years
  • Although photovoltaic (PV) penetration in the United States is increasing rapidly, properly valuing homes with PV systems remains a barrier to PV deployment. Previous studies show that PV homes command sales price premiums. Still, 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. This has spurred the development of alternative methods of valuing PV homes, including the use of an income approach (based on the present value of PV energy produced over its useful lifetime) and the replacement cost approach (based on the present installed cost equivalent of the PV system). However, 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.
  • The premium ranged from $3.90 to $6.40 per watt of capacity, but tended most often to be about $5.50 per watt. This, the study said, “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).”And the bottom line: “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.”The study speculates about the reasons, suggesting 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.”
  • Although appraisers might expect, because of the existing analyses, to find some PV premium in the market, they also would be expected to rely on “comparable sales” near any target home (the most common method used by appraisers) to corroborate that expectation and determine the level of the premium of the target home based on market conditions at the time of appraisal. Rarely is there a high enough density of “comparable” PV home transactions near target homes to enable such an analysis. In part to fill this methodological gap, other valuation methods not typically used for residential properties have been proposed for PV homes, such as the income approach and the replacement cost approach, (referred to, for the remainder of the document, as simply the cost approach2) both of which are familiar techniques to appraisers, underwriters, and assessors and other valuers for use with commercial properties (Klise et al., 2013b). The income approach assumes that the value of an asset is developed using theThe cost approach assumes an asset should be worth approximately what the cost to replace it with a similar asset would be. Following this logic, a home with PV would enjoy a premium equal to what it would cost to install a PV system of similar age and size on a similar home without PV. Using the income approach as a guide, Sandia National Laboratories and Energy Sense Finance created a Microsoft Excel-based downloadable worksheet that can be used by valuation professionals to predict the value a PV home might have in the market.3 The PV Value® tool has been received favorably by the lending and appraisal community
  • Going forward Commercial properties will be valued on their Energy Efficiency. Legislation in San Francisco is mandating the transfer of commercial properties be accompanied by a Energy Efficiency benchmark report. Commercial properties are another kettle of fish and matter of discussion for another day.
  • Transcript

    • 1. Oakland Association of REALTORS® The Economic Correlation of Solar Energy and the Realty Business 1Source Energy 1Source Energy
    • 2. About Bijou Lulla  Founder 1Source Energy  Several years experience marketing Renewable Energy Solutions  To know more about me, connect with me on: 1Source Energy
    • 3. 1Source Energy • Solar Energy • Electric Vehicle Charging Stations • Natural Gas Contracts Purveyor of Green • Home Energy Energy Solutions: Management Systems 1Source Energy
    • 4. The Business of Energy Has an Impact on Home Values 1Source Energy
    • 5. Energy Use Data Residential: Electricity sales to the residential sector (blue line) accounted for 36% of all electricity use in 2012, up from 33% in 2000. In 2010, coming out of the recession, year-overyear residential sales increased 6%, and subsequently declined 5% over the following two years, despite growth in the housing stock and the trend of building larger homes.. 1Source Energy
    • 6. Energy Use Data National solar PV capacity is growing rapidly Consumers are looking at Solar as a prospective source of Energy 1Source Energy
    • 7. Energy Use Data Californians pay a higher rate for Electricity as to the national average, electricity expense consumes a bigger portion of Household budgets 1Source Energy
    • 8. The surprising part about people investing in Solar PV is that majority are from the middle income group of $75,000-$100,000 Median Income growth is under pressure 1Source Energy
    • 9. Electricity Prices continue to rise faster that Income Growth 1Source Energy
    • 10. Energy Costs are consuming a large part of household budgets – Consumers are looking at Energy Efficiency as a feature in New Homes 1Source Energy
    • 11. Lifetime cost for an average homeowner over 25 years for Utility Use Period Utility Inflation Factor Utility Payment 2013 7.0% $1800 2014 7.0% $1926 2015 7.0% $2061 ………. 7.0% 2038 7.0% $123,618 Making timely investment in Solar Energy or Energy efficiency improvements can help in building a corpus for your Child’s college education or other lifestyle benefits 1Source Energy
    • 12. Lawrence Berkeley National Laboratory Effects of Residential Photovoltaic Energy System on Home Sale prices STUDY FINDINGS 1Source Energy
    • 13. Scope of Study 1Source Energy
    • 14. Homes fitted with Solar Energy Sell at a Premium Homes fitted with Solar Energy Sell Faster 1Source Energy
    • 15. Study Findings Premium Range: Low $3.90 per Watt High $6.40 per Watt Median $5.50 per Watt The Median price per watt to install Solar today is close to $5.50 per watt Homeowners can recoup their investments at cost if they choose to resell 1Source Energy
    • 16. Approaches to Valuing PV Rooftop Income Approach Comparable Valuation 1Source Energy Replacement Cost Method
    • 17. Valuing Solar Lease v/s Ownership  Solar can be owned like any asset  Solar can be leased like any asset Transfer through sale of PV Owned System relatively straightforward and determined using standard valuation tools as discussed. Transfer of Lease more complex: • Understand lease terms an stipulations • Lease valuation – could be either IN or OUT of Money depends where Solar Prices and Electricity rates are at that point in time • Credit profile of New Owner 1Source Energy
    • 18. Commercial Properties – Energy Efficiency  California AB1103 – mandates the Energy Benchmarking for all Commercial Properties  Annual Energy Summary Reports are due April 01 every year for buildings measuring over: Legislation Effective Benchmarking Oct’ 01, 2011 Buildings > 50,000 sq ft Apr’ 01, 2012 Buildings > 25,000 sq ft Apr’ 01, 2013 Buildings > 10,000 sq ft Lack of Benchmarking will impede commercial transactions 1Source Energy
    • 19. Thank-you for your Patience To k e e p t h i s c o n v e r s a t i o n g o i n g , you can reach me on: Te l . : ( 4 0 8 ) 6 6 0 7 9 9 9 E m a i l : b i j o u @ 1 s o u r c e e n e r g y. u s 1Source Energy