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What is rooftop solar power worth to homeowners in Honolulu?
In recent years, a cocktail of high electricity bills, generous government incentives and increasingly cheap photovoltaic panels have made the shift to solar so appealing that top electricity executives in the islands acknowledge that homeowners who can afford rooftop systems should probably buy them.
All of the green talk aside, many homeowners who have bought rooftop solar systems did so at least partly to save money. After all, we live in the state with by far the most expensive electricity in the nation.
So, if installing solar systems is a money saver for Hawaii homeowners, how do those systems affect the value of the homes they are installed on?
Sherilyn Wee, of the University of Hawaii’s Economic Research Organization’s Energy Policy and Planning Group, decided to calculate this “solar premium” for homes on Oahu.
The researcher and Ph.D. candidate examined a very large random sampling of 13 years of Honolulu Board of Realtors data on single-family home sales. She then cross-referenced that information with data on solar permits and calculated that rooftop solar systems increased the resale value of the median single-family homes between 2000 and 2013 by an average of 5.4 percent.
During the period Wee studied, the real price for the median non-solar home was $630,000 in 2013 dollars. Add a solar system on that median home and you get an increase of $34,000 in value.
The 5.4 percent premium is higher — in many cases, far higher — than elsewhere. A U.S. Department of Energy study of rooftop solar’s impact on real estate values in eight states between 2002 and 2013 concluded that home-buyers paid a typical solar premium of about $15,000 premium.
Why do solar customers in Hawaii get more than double the return on their investment in a rooftop system?
The solar premium in the islands is far higher because electricity rates have been two to four times mainland rates and homes are more costly, Wee explained.
So on the one hand, solar benefits from its competition with much higher electricity prices in the islands, and the cost of installing a system accounts for a smaller percentage of the overall cost of a home.
A 2011 study published by the National Bureau of Economic Research looked at solar’s impact on home values in San Diego and Sacramento. The report, entitled, Understanding the Solar Home Price Premium: Electricity Generation and “Green” Social Status, calculated a 3.5 percent boost in home values there.
In California, where home values are lower than in Hawaii and where there is also plenty of rooftop solar, Wee said the solar premium on home values tends to be in the 3 percent to 4 percent range. The median home price in California is $450,600, while it is $550,800 in the islands, according to the online real estate data site, Zillow. The typical single-family home in Honolulu goes for $730,000.
There are other reasons why rooftop solar is worth more to homeowners here. Residents of Honolulu have faced periodic obstacles to installing solar, especially in recent years when Hawaiian Electric cited overburdened circuits and other pressure on the electric system to justify big slowdowns in the permitting process.
In the last year, HECO has made substantial progress in reducing the backlog of solar applications — the company says the vast majority are now resolved in 60 days or less.
“We lost the (net-metering) program. That throws a monkey wrench into a lot of things. We don’t have a true definition of the value of solar.” — Drew Bradley of REC Solar
But the Public Utilities Commission dealt a blow to the rapid expansion of solar when it announced in October that it would end net metering for future customers. Net metering has been a popular program among homeowners because it allows people with rooftop solar to sell the energy they generate to the power company at retail rates.
The high rates they received helped many people who purchased solar systems to pay them off in as little as three to five years.
With that option finished — other than for the people who already had rooftop systems or who had applications in by the cut-off date of October 12 — various electricity experts say that the numbers remain favorable for the shift to solar. They just aren’t as favorable as before.
It now takes more years of paying the equivalent of customers’ old utility bills to cover the costs of a solar system.
What the industry is really trying to figure out is how much a permitted solar system is really worth, said Drew Bradley, the Hawaii regional manager of REC Solar. “We lost the (net-metering) program,” he said. “That throws a monkey wrench into a lot of things. We don’t have a true definition of the value of solar.”
Rooftop solar customers and the industry face other challenges, particularly about the durability of federal and state tax credits that add up to 65 percent of the cost of a system. Gov. David Ige recently said in a recent interview with Civil Beat that he expected a reduction in such supports since the industry is thriving.
Wee acknowledged the changing terrain. “The payback period is now significantly slower, but it is still a great investment,” she said.
That’s especially true for people who continue to benefit from net metering.
Honolulu realtor David Nash said that with the end of net metering, the homes with grandfathered-in agreements and paid-off solar systems have a special selling point. “Now if you sell a home that has a $17 monthly (electric utility) bill, that is forever; you have something now that nobody else can have,” he said.
That should mean a bigger home value boost for owners of such homes. Nash spoke of a large home in Lanikai whose owner once had monthly bills in the $500 to $600 range, but who is instead paying the small minimum monthly fee to HECO — resulting in thousands of dollars in savings each year.
Solar systems can play a different, less obvious role for aspiring homeowners, Nash explained.
In cases where a potential buyer might not be able to get a large enough mortgage to buy a lower-end home, the realtor said a lender can calculate in the fact that a home has a paid-off solar system to show that the borrower can afford a higher mortgage.
And, in such cases, there is no risk of the sort of price volatility that HECO customers have endured in recent years.
“Certainly it would be to the realtor’s advantage to make sure the appraiser knows there are offsets,” Nash said.
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