Real Estate

Solar systems: Are they worth the investment?

Whether one buys or leases, the end result is energy savings

Palo Alto receives an average of 260 sunny days every year. More residents are not only enjoying the weather but also installing photovoltaic (PV) solar panels to save money on utilities and help the environment.

In fact, some owners are making money from their systems. "Many residential PV systems generate more electricity during the day than is needed to supply a home's energy use, and the electric meter spins backwards, delivering surplus electricity to the utility grid," said Lindsay Joye, marketing engineer at City of Palo Alto Utilities (CPAU), in an email. "In summer months, many PV systems generate more electricity over the month than is needed in the home, and the customer receives a credit on the electric portion of their bill."

"The average residential PV system size in Palo Alto is 3.7 kilowatts (kW) and is estimated to generate about 6,345 kWh/year," Joye said, noting that the average home in Palo Alto uses 650 kilowatt-hours (kWh) per month, or 7,800 kWh per year. "At the average residential retail rate of $0.12/kWh, the first year's electric bill savings would be $761. The bill savings will increase with any potential future rate increases."

By mid-September 2014 59 residents had installed PV systems, according to CPAU records. Seventy-six residents installed systems last year. Solar customers typically have three options: simply purchase and install a system, lease a system or enter a power purchase agreement (PPA).

The average residential system costs $34,800 and produces 4kW, according to Go Solar California. Leasing a solar system is attractive to customers because they sometimes require as little as $0 down and permit customers to lock-in rates. A PPA is similar to a lease in that a panel provider installs and services a home system but in a lease the customer pays a monthly fee whereas PPA customers pay a kilowatt/hour rate.

In addition to the proliferation of solar companies and installers, every layer of government has policies in place intended to incentivize homeowners to purchase PV systems. The federal Residential Renewable Energy Tax Credit allows system owners to claim a tax credit of 30 percent of qualified expenditures.

Under Gov. Arnold Schwarzenegger, California launched the $2.167 billion California Solar Initiative in 2007 with the goal of installing approximately 1,940 MW of new solar generation capacity by 2016.

Palo Alto's Photovoltaic Partners rebate program, which began in 1999, offers a standard rebate of $0.80 per watt. Reservations for residential rebates maxed out on Aug. 9, but there is a wait-list prospective PV owners can join in case there are cancellations. There are still rebate funds remaining for non-residential PV installations. PG&E's residential rebates were fully reserved in May 2013.

On Earth Day, the Palo Alto City Council approved the Local Solar Plan, which identifies strategies for increasing the local solar PV installations in Palo Alto. CPAU staff are currently evaluating new solar programs -- including a Community Solar Share Program, Solar Group Discount program and a Community Solar Donation Program -- and will report back to the City Council for approval of any new solar programs.

Not all homes are conducive to panels. Homeowners have to take into account shade, orientation and, to some extent, their roofs. "The most important parameter is shade," said Mark Byington, president and owner of Cobalt Power Systems Inc., which installs solar panels in the Bay Area. "Shaded solar panels produce little to no energy. Since we are in the northern hemisphere, south-facing panels produce the most energy."

Roof tilt is much less important than shade and orientation. More important is roof structure; residents have to secure a permit from the city certifying their roofs can support a solar system.

"Most of the roof pitches we see in Palo Alto are fine," said Tom Kunhardt at Pure Energies, an energy advisor company. "Flat roofs, like Eichlers, work well."

Purchasing solar panels can increase the value of a house. According to a 2013 Lawrence Berkeley National Laboratory study, "premiums in California are strongly correlated with PV system size and weakly correlated with PV system age. In other words, larger systems garner larger premiums and older systems garner smaller premiums." The study estimates that each kilowatt in a new system size equates to a $5,911 hike on the home's premium. Premiums do depreciate quickly, about 9 percent a year according to the report, and systems more than six years old add a "substantially smaller (premium) than predicted."

Leased PV systems, however, appear to sometimes lower home values. Lease contracts can last as long as 20 years, which can create difficulties between home sellers and buyers. Sometimes the money saved by the easy financing of a lease is negated when the lease holder is trying to sell the property and transfer a lease to the buyer.

"There is not a large pool of data when it comes to homes that are sold with solar panels but I've seen it enough that it is an amenity that people value when purchasing," said Brian Chancellor, vice president and sales manager at Sereno Group Palo Alto. "That being said, there is a greater level of comfort for panels that are owned by the seller versus those that are leased. Along with the high prices people are paying, people don't feel as good about an ongoing payment versus just having the system."

Home buyers are sometimes reluctant to assume a lease, especially if there remains a substantial amount of time on the contract. Some buyers demand that the seller either pay off the lease or lower the asking price. "I've seen sellers forget that their panels are leased and in order to close a deal are forced to buy out the remainder of the lease," Chancellor said.

However, home prices are so high in Palo Alto that the cost of a PV system is comparably insignificant to the overall cost.

"A solar panel is such a small component of the house value that people are willing to pay the price," said Avi Urban, a real estate agent at Palo Alto's Keller Williams Realty.

"I see very little correlation between having a solar panel system and a higher value. The median price of a single-family home is approximately $2.4 million and 70 percent of the price is land value alone. So a $20,000 solar system is a minor implication."

Freelance writer Joshua Alvarez can be emailed at

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