Econ 101: Solar panels increase home values

An economic study has found that installing solar photovoltaic panels increased home values by about 3.5 percent, which on average covered the installation cost.

It stands to reason that adding an asset which cuts your electricity bills--solar panels--will bump up a home's value. Now an economic study attaches numbers to solar panels' real-estate value.

The National Bureau of Economic Research (NBER) recently released an analysis that found solar panels add between 3 percent and 4 percent to the value of a home. That result is consistent with a study released in April by Lawrence Berkeley National Laboratory which found that solar photovoltaic (PV) panels have a "sizeable effect" on home prices.

SunRun

The NBER study looked at prices in San Diego and Sacramento, Calif., to measure the effect of solar panels. The homes studied have panels generate electricity (not hot water) and are connected to the grid so households draw from the regular electricity system when panels are not generating.

"Our evidence suggests that similar to other home investments such as a new kitchen, solar installation bundles both investment value and consumption value," conclude the authors, who are California-based economists. The "investment value" increases the sale price of a home and the "consumption value" is the benefit of having an environmentally friendly energy source. (Click here for paper.)

In neighborhoods that favor green-branded products, such as hybrid cars, solar panels add more to a home's value, the study said. "Some households may take pride in knowing that they are producers of 'green' electricity and 'warm glow' may triumph over present discounted value calculations in determining a household's install choice," the study found.

In the San Diego area, the price premium of solar panels equated to $22,554 which, when state and federal subsidies are included, is roughly the cost of installing the panels. "This comparison suggests that, on average, homeowners fully recover their costs of installing solar panels upon sale of the property," according to the study.

SolarCity

The Berkeley study calculated the solar premium as a function of the amount of power an array of panels will generate. It found that in California, the premium was $3.90 to $6.40 per watt, corresponding to about $17,000 for the average-size 3,100-watt photovoltaic system. It also found that the premium for solar PV panels decreases over time, although the reason for that was not clear.

The NBER analysis did seek to factor in the non-tangible benefit of leading a greener lifestyle from installing solar panels. But it's worth pointing out there are societal benefits of a renewable, distributed energy source beyond a homeowner's personal satisfaction.

Solar panels help reduce air pollution and greenhouse gases by lowering the use coal and natural gas for power generation. Rooftop solar panels also provide power to the grid during some of the peak demand hours of the day, which lightens the load on power plants which are straining to meet demand in many parts of the country this summer.

Another way to look at the financial benefits is the savings from lower electricity bills. This week, Go Solar California released an online calculator to estimate the present value and annual savings of solar panels, separate from changes in home value.

These economic studies only considered purchasing solar panels, but leases or other financing options can be an attractive route to solar power. Buying panels cost roughly $20,000 to $40,000 upfront depending on the size. Increasingly, solar installers offer financing plans to avoid the upfront cost, while lowering monthly electricity bills.

 

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