If you are refinancing, buying or selling property with solar equipment you need to know the true economic value of the associated solar assets. Real estate transactions with solar equipment run a high risk of being improperly valued, delayed and even cancelled due to ambiguity around the value of solar equipment.
Informed investors know the difference between installed solar equipment that will save tens of thousands or cost tens of thousands. Providing a third-party independent valuation of a solar PV system provides accurate financial information to expedite a property transaction. At Solar Valuations™, we help investors make smart decisions by providing a customized solar disclosure report, which includes analysis on energy production, maintenance requirements and solar financing arrangements.
The economic value of solar is the value of total energy savings (revenue) less the total cost of ownership (expenses) over the remaining warrantied system life. While revenue minus expenses seems rather straightforward, valuing solar assets requires specialized knowledge. Below are 6 factors to consider when valuing solar equipment.
1. Operations & Maintenance Needs
Photovoltaic solar systems are power plants that need to perform optimally in order to deliver value. Whether it’s a 3.3 kW residential rooftop system or a 3 MW ground-mounted solar farm, all solar equipment needs preventative maintenance and active monitoring to ensure optimal performance and maximum ROI. Inverters will need to be replaced over the life of the system. Total cost of ownership can vary significantly depending on provisions in the warranty and financing agreement.
2. Solar Equipment Financing
Third party financing of solar equipment facilitated explosive growth of both residential and commercial solar in the last few years. Solar leases and power purchase agreements (PPAs) are complex financing arrangements that allow property owners to install solar for little or no upfront cost in exchange for leasing rooftop space to a solar project developer and agreeing to a long-term payment plan. Each solar lease or PPA has unique financial and ownership terms, which drastically affect value and could encumber the property or create hidden liabilities.
3. Solar Equipment Specifications
Solar equipment manufacturers are under intense pressure to reduce costs as the industry becomes more efficient and subsidies decline. As a result of intense industry pressure equipment quality can suffer. Each solar power plant is comprised of a different combination of solar modules, inverters, racking, tracking equipment (if applicable) and other components. With hundreds of different manufacturers and brands it is absolutely critical that property investors gain insights into equipment cost and performance as quality varies.
4. System Installation Specifications
Whether mounted on the roof, a carport or the ground a solar power plant’s energy production will be determined by how much sunlight the system receives. Important variables like module tilt, module orientation and presence of shading throughout the day directly impact the amount solar energy generated and thus the economic value of the system.
5. Utility Rates
Solar is only as valuable as the savings it creates relative to the alternative of purchasing energy from the utility. Therefore, utility rate design and regulatory structures directly affect the economic value of a solar project. Utility rates are complex. Each utility company will have a different rate schedule for residential, commercial, industrial and agricultural customers with time-of-use rates, tiered rate block plans, demand charges, net energy metering credits and on and on. It is important that investors in properties with solar equipment understand and stay current with state and local policies governing utility rates and solar energy production.
6. Energy Usage
For both commercial and residential properties it is important for investors to understand how each property consumes energy. This is especially important for commercial properties, as energy usage can be one of the largest operating expenses. Examine previous utility bills to assess energy consumption and pay special attention to trends in usage. How does energy consumption fluctuate over the course of a day? A month? A year? Keep in mind that if the solar equipment produces more energy than needed you may be eligible for net energy metering credits from your utility. The ability to be compensated for excess generation directly impacts the value of solar.