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Friday, May 30, 2014

Solar As a Hedge Against Rising Energy Prices

Solar energy should be thought of as not only a green way to consume energy, but also as an investment which hedges against the rising cost of that energy.

Civic Solar analyzes this investment in Solar as an Investment:

To effectively hedge against inflation, you need to lock in rates to eliminate future exposure to price increases. For a very hypothetical example, if you had somehow been able to purchase and store a very large quantity of automobile gas in 2004, you'd be paying less than $2 a gallon not only today, but also for decades to come, assuming, as has been the case, that the increase in gas prices outpaces normal inflation. With every gas price increase, you'd be saving even more money. That's exactly what you're doing with the cost of electricity when you install a solar electric system.
Because installing solar is a fixed cost, savings increase as utility rates rise. There aren't many investments that will offer you increasing returns over time, but that is precisely what solar does. Therefore, solar PV systems actually appreciate in value over time as electric rates and bill savings increase. This advantage alone makes solar a unique profit-earning investment.
Solar Adds Value to Your Home

You've invested in a solar PV system, but the question is, how much will that investment add to your home's resale value, if at all.  Thankfully, this question has been analyzed in two key studies that have conclusively demonstrated that solar adds significantly to home resale values.  

A study from April 2011 by the Lawrence Berkeley National Laboratory looked at home sales (both homes with solar systems and homes without) in California over an 8 ½ year period beginning in 2001. The study concluded that California homes with PV systems sold for a premium ranging from $3.90 to $6.40 per watt of installed capacity over comparable homes without PV systems. The results from this study indicated that a solar home's value would reflect an extra $5.50 per watt of solar installed on average, suggesting that the added value to a home of a 5 kW system would be approximately $27,500.

Interestingly, the study found that the solar premium for retro-fitted existing homes was almost twice as much as for new homes.  Thus, depending upon how much a homeowner paid for their system (current systems are selling for sub $4.00/watt installed), the premium can reward homeowners with a positive return on investment at the time of sale.  We should remember, however, that this study was conducted in California, the state that currently dominates solar PV installations in the U.S.  The question remains open for the time being as to whether the same results hold for homes in a different states.

Solar panels don't just increase the value of a home, but they also reduce the time it takes to sell a home.  According to the U.S. Department of Energy, Solar homes often spend half as much time on the market as comparable homes without solar.  Their research shows that homeowners weigh energy costs as an extremely important factor in the decision to purchase a home. Energy-saving improvements make homes look more affordable to more people and attract attention in competitive real estate markets.

Realistically, these results make good sense as it is clear that the savings that solar homes provide are not only perceived as a tangible benefit by home buyers, but it is clear that the savings can be applied to purchase a more valuable home.  Thus, investing in solar will become more and more attractive as homebuyers become more and more accustomed to the value that solar actually provides.