For an overwhelming number of homeowners, their homes are the biggest assets. Before planning any addition, modification, or renovation on it, it is natural to weigh the pros and cons. The crucial questions that come up are:
- Does it offer value for money?
- Will it enhance or diminish the aesthetic appeal?
- Will it add value to the property?
It makes sense to consider whether the installation will add to the market worth of the property. This is not always the case. Often we make improvements, changes, and additions to the property for our own convenience and it may not be of interest to future buyers. In fact, it may end up as a liability at the time of sale, with homeowners not able to recover even part of the investment.
Is this the case with a home solar panel system? Do solar panels increase home value? What are the factors that can help in this regard?
Read on to learn more about the impact solar panels have on home value. But before we get to that, let us see the advantages of installing solar power for homes and the options available in home solar panels.
Benefits of home solar panel installation
One of the main selling points for solar panels is that it is clean and green energy. Tapping into the free and abundant sunlight available on the earth, the solar panels help in reducing our carbon footprint. It also leads to less air and water pollution and less emission of greenhouse gases.
Reduce or eliminate electricity bill
Installing a solar energy system can help in meeting your energy needs fully or partially depending on your energy usage, the size of the system, and availability of sunshine. As the lifespan of the system is 20-25 years and the maintenance cost minimal, the energy rate remains essentially the same throughout, while the grid energy rate increases at a steady pace.
As long as your location receives reasonably good sunshine year-round, solar systems are reliable on the energy front. To bridge the gap, you may consider connecting to the grid or including a battery or diesel generator.
Choices in home solar panels
To get a fair idea about the perks of installing solar panels in your home and how it can influence the price of the property, you need to know more about the choices in solar panels and solar systems available to you and their pros and cons.
Types of home solar panels
There are essentially two types of solar panels used in home installations.
1. Silicon panels
Silicon panels come in two varieties – monocrystalline and polycrystalline. The monocrystalline silicon panels are more expensive and slightly more efficient in the absorption of sunlight. However, polycrystalline panels are more common in recent times because they are priced less and offer better value-for-money efficiency-wise.
2. Thin-film panels
Thin, flexible, and lightweight, this newer technology comes with the added attraction of being less expensive than silicon panels. Made by depositing thin films of semiconductors on glass, plastic, or metal, thin-film panels can be incorporated into shingles and roof tiles. This is immensely helpful with aesthetics.
However, thin-film panels come with the disadvantage of being less efficient. Thin-film panels are made from amorphous silicon, cadmium telluride, and copper indium gallium selenide.
Types of home solar systems
You have the choice to connect the home solar energy system to the utility grid or remain off-grid.
1. Grid-connected installation
Connecting to the grid is more common due to the numerous advantages it offers. This arrangement makes it easy to deal with the surplus or shortfall in energy generation. This can eliminate the need for expensive add-ons like batteries and diesel generators. Using the net-metering system, it is possible to bring down your energy bill to zero.
2. Off-grid installation
If freedom from the grid is your priority, this is the ideal choice for you. This is the only option for homes in remote locations far away from the grid. However, this freedom comes with additional expenses for the purchase of supporting equipment such as batteries, charge controllers, and meters.
How do solar panels increase home value?
The home solar panels system can add value to your homes in two ways – consumption value and investment value.
Consumption value refers to the environmental benefits, reduced energy bills, freedom from the grid, and other such advantages offered by solar systems. This depends on factors such as:
Location: A solar energy system in an environmentally-conscious solar-friendly locality adds more worth than in a less active solar market.
Quality and size of installation: The energy efficiency of the solar system and how much it can meet your energy needs is a vital factor concerning its value addition. Having a low-quality solar energy system that can cover only a small share of your energy usage is more a liability than an asset.
The intrinsic value of your home: Luxury homes with solar installation get a bigger boost in property value than moderately-priced homes.
Investment value is the value added to the property in monetary terms. A rough estimate of monetary addition to property value is calculated as:
- For every 1 kW of solar power installation, the home value goes up by $4,000-$6,000.
- In general, solar panels can increase 3-4% in your home value.
Factors influencing solar system’s added value
For the same home solar power installation, the value addition differs for different homes. The main factors influencing the boost in home value are:
Location: In more active solar markets, the value addition will be substantial. This is mostly because of the awareness about the benefits of solar installation among homebuyers. Again, many incentives for solar installations are state-specific. The performance-based solar incentives are especially attractive and are offered by states like New Jersey and Massachusetts.
Cost of grid electricity and monthly savings: The savings in energy bill is directly related to the energy rate in your area. The higher the savings, the more attractive a solar installation is for homebuyers and the more value addition to property.
Size of the installation: This translates to the amount of energy the installation can generate, which in turn decides the share of energy usage it covers. The bigger the system, the higher the value addition. However, an installation that generates solar energy far more than usage is not recommended.
Type and age of the installation: These two factors decide its efficiency, in turn influencing the boost in home value. The remaining warranty period also acts as a deciding factor.
Quality and efficiency of the system: The technology used in the manufacture of solar panels and other equipment in the system vary vastly, resulting in variance in the efficiency levels. Naturally, the higher the efficiency, the more the value addition.
Ownership Status: Nowadays you need not own a solar energy system to derive its benefits. However, value addition to the home is the highest when the homeowner has outright ownership of the installation. This doesn’t mean other types of solar installations add no benefit. They do but to a much lesser extent. As some of them are not eligible for the federal investment tax credit, they are naturally not as attractive.
How much do solar panels add to your home value?
This is a question every homeowner considering a solar power system would like to know the answer to. The answer is not simple as there are numerous variables involved in this.
Many studies have been done to get an idea of the value added by solar panels for homes. Lawrence Berkeley National Laboratory (LBNL) study ‘Exploring California PV Home Premiums’ offers an in-depth view ‘of the impact of PV systems on home values in the state of California.
The study is based on the data collected in the period 2000-2009 – ‘sales data for 1,894 solar homes and 70,425 comparable non-solar homes sold across California between 2000-2009’. And, there is no ambiguity in their findings.
Yes, solar energy installation does add worth to the property. The report says, “Our analysis offers clear support that a premium exists in the marketplace, thus PV systems have value and their contribution to home values must be assessed”. It estimates that for each kilowatt of solar power added, the value added to the property is $5,911”.
The study also found that each year of the solar energy system results in a decline of 9% in the value-added. This means as the system ages, its impact on the home value falls. This reduction in value addition is much faster than the decline in the functioning of the system. In other words, the system will continue to work efficiently but it gets less desirable for future homebuyers.
For other states, the value added by solar installations may not be as attractive as for California state, as it is the most active solar market in the United States with high awareness levels among residents.
Combining the findings of similar studies, it is estimated that property value increases in the range of $20,000 – $30,000 across the different states for a 5 kW solar panel installation. In addition to the value addition, the studies also found that property with solar installation sells up to 20% faster than a property without them.
The study is based on the present energy rates. As the rates go up, as they are expected to, these estimates will also increase proportionally.
Do bigger solar installations add more worth?
Not exactly. Installing a solar energy system much bigger than the energy usage with the idea of exporting the excess energy to the grid may not be viewed as an attraction by future home buyers.
Neither are such bigger-than-necessary installations financially lucrative nor do they add worth to the property as much as expected. At times, these can turn out to be liabilities as well. Bigger installations need bigger initial investment and demand higher maintenance costs.
It is ideal to estimate your usage and find a solar power system that will cover your needs. A solar energy system that generates sufficient power to meet your energy requirements is the best choice.
Do homes with solar systems sell faster?
If you are fortunate to be residing in the more solar aware states like California, your home will sell faster if it has a solar system installed. However, this may not be the case with other states.
When the homebuyers are knowledgeable about the benefits of solar power and the numerous incentives offered for installing a solar system, it translates to more interest in the property with solar panels. Or solar homes sell faster in active solar markets.
If you are leasing solar panels to power your home with solar energy, you need to be aware of the difficulties that may arise at the time of sale of your home. You will have to buy out the lease or find a homebuyer who is willing to take over the lease. Though the transfer of lease is a possibility, the transfer of financial incentives like federal tax credit would not be transferred to the buyer.
The lifespan of a solar panel is 20-25 years, though some brands come with a 10-15 years lifetime. This means as the system nears the end of its productive life, it will lose its efficiency and hence profitability. So, to continue to benefit from solar panels, the system has to be replaced. This will require substantial investment.
The federal tax credit is scheduled to be phased out by the end of 2023. With this, one of the most attractive financial benefits of solar installation will come to an end. Or it may be continued for a few more years. But ultimately, this incentive is expected to be phased out.
In conclusion, it is a win-win situation for homeowners considering solar panel installation.
You get to enjoy a substantial reduction in energy bills; more and more in the future as the utility rates go up. Your investment in the solar system pays for itself many times over in its lifetime.
In case you sell your property, the installation raises the home value substantially enough to cover its cost.
Rarely do you find a home installation or investment vehicle that can offer a return on investment as lucrative as a solar power system.