While promising solar real estate trends emerge in the US, Canada must push for more country-wide incentives and higher adoption rates before we can hope for similar results.
Earlier this year, the Lawrence Berkeley National Laboratory published the most comprehensive solar resale market analysis to date, examining more than 22,000 PV home sale transactions from 2002 until 2013. The study had only good news for the solar industry and PV system owners: solar energy systems add measurable value to homes and increase resale prices.
But are Canadian experts seeing the same trends developing north of the border? For an insightful answer I called up Nathalie Roy-Patenaude, Director of Professional Practice for the Appraisal Institute of Canada (AIC). Roy-Patenaude recently delivered a presentation on Valuing Solar Photovoltaic (PV) Energy at the AIC’s annual conference. She is also deeply familiar with the Berkeley study.
Currently, there is little sale or resale data in Ontario to quantify the impact of solar systems on the real estate market. “We’re still in the early phases of testing the market and the level of market acceptance from purchasers will be the biggest test”, Roy-Patenaude said. Appraisers in Ontario are beginning to see some sales activity of residential, commercial and agricultural properties with PV systems, but separating the market worth of an income-producing PV system from the total value of a property can be challenging.
Many microFIT participants are mature property owners who have either paid cash or tapped into their home equity to finance the purchase of PV systems. “They are in it for the long haul,” Roy-Patenaude said, adding that these individuals are not looking to sell any time soon and view their PV systems as an income-producing home improvement. The microFIT program is still young – only six years old – and with the average payback period ranging between four and seven years, most property owners still have some time before they earn back their initial costs.
The availability or lack of market data will impact how the value of a solar PV system is calculated and how much it contributes to the overall value of a property (that’s contributory value right there). “As the PV system generates an income stream that varies over a 20 year contract period, the discounted cash flow method remains, in many cases, the most relevant method in the absence of any conclusive market data,” Roy-Patenaude said.
Delving into the definitions, discounted cash flow is a valuation model appraisers use that discounts the future income of a PV system, based on the fixed rate tariff to determine its current value. Essentially appraisers are trying to put a fair price tag on what the future net annual cash flow from the 20-year tariff contract is worth today, by deducting such variables as changing solar energy production, time remaining in the tariff contract, maintenance expenses and expected efficiency losses from the modules.
The Berkeley Lab study was able to demonstrate that market acceptance, federal incentives and reduced installation costs are all important ingredients that support the growth of the fair market value of PV homes. As more sales accumulate in Canada and comprehensive trends emerge, appraisers will be able to be less reliant on the discounted cash flow valuation model and begin to include market comparisons, calculated as a dollar per watt premium as per the Berkeley Lab study.
The good news is that some initial trends are emerging. From early sales, PV systems on commercial and agricultural (incoming-producing) properties appear to have a basic contributory value, said Roy-Patenaude. PV systems “provide additional income with very little to no maintenance which is absolutely an appealing feature, even for residential property owners. Most program participants see this as a good return on equity, in addition to contributing to a greener planet.”
The largest takeaway from the Berkeley Lab study is that a cultural shift is happening, highlighting people’s interest in renewable energy and energy efficiency. This change is being reflected in the market’s acceptance of solar resales and rewarding sellers with a “green cachet” or premium for having PV systems installed.