Selling the Sun: Establishing Value for Solar PV Homes

August 2, 2017

Contents Selling the Sun: Establishing Value for Solar PV Homes ...... i Introduction ...... vi Disclaimer...... vi Acknowledgements ...... vi Welcome ...... - 8 - Solar for the Real Estate Professionals ...... - 9 - Center of the Transaction ...... - 9 - A Note about Terminology ...... - 9 - Structure of the Class ...... - 10 - What You Will Learn ...... - 10 - Structure and Learning Objectives ...... - 10 - Practitioner Spotlight ...... - 12 - Module I. The Emerging Solar PV Market ...... - 13 - Introduction ...... - 13 - The Growth of the Solar PV Market ...... - 14 - Rapid Growth ...... - 14 - What is Behind the Growth of Solar? ...... - 15 - Activity ...... - 18 - An Expanding Conversation ...... - 19 - Research ...... - 19 - Zillow Sun Number™ ...... - 20 - Google’s Project Sunroof ...... - 20 - Social Media ...... - 20 - Practitioner Spotlight ...... - 21 - Review of Module I ...... - 22 - Module II. The Parts and Pieces of a Solar PV System ...... - 24 - Introduction ...... - 24 - The Visible Components of the PV System ...... - 25 - Solar Panels ...... - 25 - Inverters ...... - 26 - Mounting Systems ...... - 28 -

Performance Monitoring System ...... - 29 - Review: Main Components of the Solar PV System ...... - 29 - Bi-directional Meter (a.k.a. Net Meter) ...... - 30 - Batteries ...... - 30 - The Solar PV System: How It Works ...... - 31 - Understanding kWh and kW ...... - 33 - Resources for the Homeowner and the Real Estate Professional ...... - 33 - Activity ...... - 34 - Understanding kWh and kW ...... - 35 - Practitioner Spotlight ...... - 36 - Review of Module II ...... - 37 - Module III. Financing the Residential Solar System ...... - 39 - Introduction ...... - 39 - Solar Financing Options ...... - 40 - Breaking down the differences: Direct Ownership and Third-Party Ownership ...... - 40 - Direct Ownership ...... - 42 - Direct Ownership: Cash Purchase ...... - 43 - General Information ...... - 43 - Liability ...... - 43 - Benefits and Challenges ...... - 43 - Purchasing the PV System with Cash: Costs and Revenues ...... - 44 - Direct Ownership: Solar Loans ...... - 46 - General Information ...... - 46 - Financing ...... - 46 - Liability ...... - 46 - Benefits and Challenges ...... - 47 - Third-Party Ownership ...... - 49 - Solar Leases and PPAs: What's the Difference? ...... - 49 - Third-Party Ownership: Solar Leases ...... - 50 - General Information ...... - 50 - Financing ...... - 50 - Liability ...... - 50 -

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Benefits and Challenges ...... - 51 - Third-Party Ownership: Power Purchase Agreement (PPA) ...... - 53 - General Information ...... - 53 - Financing ...... - 53 - Liability ...... - 53 - Benefits and Challenges ...... - 54 - Industry Spotlight: National Association of REALTORS® Green Designation ...... - 56 - Review of Module III ...... - 58 - Module IV. Listing a Solar PV Home ...... - 60 - Introduction ...... - 60 - Standardizing the MLS ...... - 61 - Solar-Specific Data Fields ...... - 61 - Benefits to the Real Estate Transaction ...... - 62 - Industry Spotlight: California Regional MLS ...... - 63 - Solar Fields in Your MLS ...... - 63 - System Characteristics in the MLS ...... - 64 - Qualities of System Characteristics ...... - 65 - Finding the System Characteristics ...... - 65 - The Importance of System Characteristics in MLS Listings ...... - 65 - MLS Listing Remarks ...... - 65 - Effective and Safe Remarks ...... - 65 - Attachments on Listings ...... - 68 - Residential Green and Energy Efficient Addendum ...... - 68 - Industry Spotlight: The Green MLS Toolkit ...... - 69 - Review of Module IV ...... - 71 - Module V. Establishing a List Price for a Homeowner-Owned Solar PV Home ...... - 73 - Introduction ...... - 73 - Key Concept: Contributory Value ...... - 74 - Approaches to Establishing Value ...... - 74 - Real Property or Personal Property ...... - 74 - Ei Value® ...... - 75 - Ei Value Demo® ...... - 75 -

Practitioner Spotlight ...... - 81 - Review of Module V ...... - 82 - Conclusion ...... - 84 -

Introduction

Disclaimer This material is based upon work supported by the Office of Energy Efficiency and Renewable Energy (EERE) at the Department of Energy, under Award Number DE-EE0007322.

This report was prepared as an account of work sponsored by an agency of the United States Government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States Government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States Government or any agency thereof.

Acknowledgements This class is the result of a collaborative effort led by Elevate Energy through a grant from the U.S. Department of Energy (DOE)’s SunShot Initiative, a national effort to drive down the cost of solar electricity and support solar adoption. Elevate Energy is grateful for the opportunity to advance solar training and education in the real estate industry.

We also extend our gratitude to the numerous partners and reviewers who have contributed to this class through their subject matter expertise and to the organizations that are supporting dissemination.

Project partners

 National Association of REALTORS® (NAR) and Center for REALTOR® Development (CRD)  Learning Library, Inc.  Sandy Adomatis, Adomatis Appraisal  Jamie Johnson, Energy Sense Finance  Craig Foley, Sustainable Real Estate Consulting Services

Subject Matter Experts and Reviewers

 Joe Buonannata, Connecticut Green Bank  Jan Green, RE/MAX Excalibur  Ben Hoen, Lawrence Berkley National Laboratory  Chet McGensy, Dividend Finance  Kerry O’Neill, Connecticut Green Bank  Amanda Stinton, National Association of REALTORS®

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Welcome

Welcome to “Selling the Sun: Establishing Value for Solar PV Homes”.

Solar photovoltaic systems, also called PV, generate electricity from the sun. When added to a property, solar PV systems can power home appliances, lights, air conditioning, cell phones and other electrical devices. There are over one million households in the United States with solar energy systems and the number of solar installations is expected to grow exponentially in the coming years.

There are many reasons why homeowners go solar. One of the most common is to save money on electric bills by cutting energy costs. But the value of solar goes even further. Recent research shows that adding solar to a home—much like renovating the kitchen—can boost its value and resulting home sale price. Solar energy systems may also increase the speed with which a home is sold.1

This class provides the tools you need to properly communicate the value of solar energy systems in the residential real estate market. You will be able to help clients determine the market value of a home with a solar installation, so that sellers receive the proper value at the time of sale and buyers know what solar is worth. By taking this class you will be able to:

 Summarize the emerging trends in the residential solar market  Recognize the components of solar PV systems  Describe the three main financing options for residential solar PV systems  Prepare a comprehensive MLS listing that properly features the characteristics of the system  Use an online solar PV valuation tool

1 Selling into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes

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Solar for the Real Estate Professionals There is a good chance that you have already encountered a solar installation, whether in your neighborhood, an MLS listing, or in a real estate transaction. If you haven’t yet, with the growing residential solar energy market, you will likely come across a solar home soon. Because of this rapid growth, now is the right time for real estate professionals to learn about solar, from how the system works to methods for establishing the value at the point of sale.

Center of the Transaction Real estate professionals who understand the basics of solar and know how to market the benefits of an installation will have a market edge. Learning about solar installations will help you differentiate yourself from other professionals by serving as a source of information for your clients.

Home buyers and sellers will look to real estate professionals who can guide them through the complexities and language that solar entails. When real estate professionals understand the value of a solar energy system:

 Sellers have the best opportunity to attain the full value of their investment  Buyers will feel confident that they paid fair market value for their new home

A Note about Terminology This class uses basic technical terms often used in the solar energy industry. You can refer to the included glossary in the Resources tab for a quick guide to these terms as you move through the course. Here are the few terms that you will see more often:

 Photovoltaic (PV): Photovoltaic is a method of converting the sun’s energy into electricity. Breaking up the word “photovoltaic”: photo is short for “photons”, the energy produced by the sun. “Voltaic” is a reference to voltage and electricity production.  Grid: The infrastructure of power lines, transformers and substations that delivers electric power to consumers. The utility grid is owned and managed by electric utility companies.  Kilowatt-hour (kWh): The unit of measure of electricity usage and/or production. One thousand watts acting over a period of one hour is equal to one kWh.  Kilowatt (kW): A unit of electrical power equal to one thousand watts. The kilowatt is a measure of energy use at a given moment, not over time. Kilowatts are a measurement of the size (or capacity) of a solar PV system.

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Structure of the Class

What You Will Learn This class offers an overview of the core components of a solar PV system, provides guidelines for listing homes to showcase the benefits of solar, and explains the current financing options available to help homeowners fund a solar installation.

Structure and Learning Objectives Module I: The Emerging Solar PV Market In this module you will learn what is driving the growth of the solar PV market and why the solar PV market is growing so quickly. Identifying the benefits that compel homeowners to install solar PV can help agents have more informed conversations with homeowners and buyers with interest in the technology. After this module you will be able to:

 Cite the major influencers that are driving the demand for solar PV installations  Discuss the expanding consumer interest and initiatives regarding residential solar PV

Module II: Solar PV Technology: The Parts and Pieces In Module II, we will cover the components of the solar system and describe their functions. Then we will pull the pieces together and explain the process of generating electricity from the sun. After this module you will be able to:

 Recognize the major components of a residential solar PV system and describe their function  Explain how the solar PV system generates electricity for the home  Explain the relationship between kW and kWh in a typical residential PV system

Module III: Financing the Residential Solar System In Module III, we will review the four common residential solar financing options — direct purchase, solar loans, leases, power purchase agreements —and explain the differences. After this module you will be able to:

 Identify costs and revenues associated with the purchase of a residential PV system  Explain the methods of financing a residential solar system and the differences among these options

Module IV: Listing a Solar PV Home In this module you will learn how to list solar PV homes in the MLS. We will present the PV system characteristics to highlight in the MLS and how to use the MLS features to your advantage. Real estate professionals with this knowledge will be able to highlight the benefits of a solar home while reducing their risk of liability. After this module you be able to:

 Describe the system characteristics of a solar PV home in an MLS listing accurately and thoroughly

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 Collect listing information about solar PV systems that will help appraisers accurately and properly value a solar home  Understand the risk and liability associated with inaccurate performance claims for a PV system

Module V: Establishing the List Price of a Home with Solar PV In Module V you will learn the key concepts and tools that can help you establish a list price for a home with a homeowner-owned PV system. You will also learn what information you will need to collect in order to use an online valuation tool to assist homeowners in transactions that involve homeowner- owned solar PV systems. After this module you will be able to:

 Identify the information needed to establish the contributory value of a homeowner-owned PV system  Use an online tool to establish the contributory value of a homeowner-owned PV system

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Practitioner Spotlight Eileen Oldroyd, REALTOR®, GREEN “Green Eileen” Oldroyd Realty Mission Viejo, CA [email protected] www.oldroydrealty.com

What is the market like in your area for homes with solar PV installations?

It’s the Wild West! There are over 900 solar installation companies in California.

Why is it important to learn about solar PV systems?

Solar is one of the fastest growing trends in our industry. That reason alone should encourage agents to educate themselves on this topic. In addition, not all PV solar systems are exactly alike - whether it is the type of panels, the number of panels, or how the system is financed. You are actually doing your clients a disservice by not educating yourself on the effects a solar PV system has on a real estate transaction.

What kind of information about homes with solar PV installations has been the most helpful?

Because we have so many companies that install residential solar PV systems, we have hundreds of different types of contracts. It is difficult to be an expert on solar contracts, but understanding the basic methods of financing and their effects can lead to a smooth transition from a seller to a buyer.

Why should a homeowner select an agent educated in energy efficiency and solar?

An agent who is well-educated on the topics of energy efficiency and solar can become a vital resource for homeowners. These agents can find upgrades in a home that even the homeowner may not even know that could be attractive to a buyer, thus increasing the asking price. Because solar is a fairly new phenomenon in our industry, it is crucial to find an agent that can navigate the ins and outs of solar systems and solar contracts. Not only will this agent help to increase the value of a home, but they can also educate the buyer and buyer’s agent regarding solar PV systems and assist with a positive real estate transaction.

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Module I. The Emerging Solar PV Market

Introduction

AUDIO: In this module, you will learn what is driving the growth of the solar PV market in residential real estate and why the solar PV market is growing so quickly. We will explore the different factors driving the demand for residential solar PV installations. Identifying the benefits that compel homeowners to install solar PV can help agents have more informed conversations with homeowners and buyers with interest in the technology. This opportunity will help you build your business and become a local source of information about solar.

After this module you will be able to:

 Cite the major influencers that are driving the demand for solar PV installations  Discuss the expanding consumer interest and initiatives regarding residential solar PV

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The Growth of the Solar PV Market

Rapid Growth There are over one million households in the United States with solar energy systems. The number of installations is expected to grow exponentially in the coming years.

Some states have more installations than others, but the growth in installations is happening all over the United States, including states not typically considered sunshine states, like Massachusetts and New Jersey.

In some neighborhoods of San Diego County, more than 1 in 5 homes have installed solar PV2

More Americans have jobs installing solar panels than mining coal or extracting oil and gas3

A recent report found that 56% of millennials are looking at installing solar panels within a 5-year time span.4

2 Center for Sustainable Energy, 2016 3 http://www.thesolarfoundation.org/ 4 Accenture Consulting

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What is Behind the Growth of Solar? Real estate professionals need to know what is driving the growth of the solar PV market. Identifying the benefits that compel homeowners to install solar PV can help agents have more informed conversations with homeowners and buyers with interest in the technology.

Several factors are driving the growth of the residential solar PV market. Let’s explore some market drivers and personal motivations that are influencing homeowners’ interest in solar.

 Policies  Incentives  Declining Costs  Saving on Utility Bills  Total Cost of Home Ownership  Values

Policies Federal, state and local policies can affect the growth of the solar PV market directly. The adoption of these policies varies state by state. Examples of successful policies include:

 Renewable Portfolio Standard (RPS): a regulatory mandate for utilities to increase production of energy from renewable sources.  Net metering: a billing mechanism that allows PV system owners to receive bill credit, but not money, for the energy produced by their solar PV installation.

Incentives Cash grants, rebates, tax credits and deductions provide a strong incentive as well as ease the cost of installing solar panels. Real estate professionals can provide a valuable service to their clients and customers by making them aware of these incentives. Major contributors to the growth of solar PV are:  Solar Investment Tax Credit (ITC): a 30% federal tax credit provided to system owners. For residential owners, the full 30% tax credit runs through 2020 and steps down the following two years, expiring in 2022.  Performance-based incentives (PBI): incentives that are paid by utility companies to system owners based on the actual energy production of the solar system. Common types of PBI include Feed-in Tariffs (FIT) and Solar Renewable Energy Credits (SRECs). Not all jurisdictions offer these types of incentive.

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Keeping Up to Date with Policies and Incentives Funded by the U.S. Department of Energy, the Database for State Incentives for Renewable Energy (DSIRE) is the most comprehensive source of information on incentives, rebates, and policies that support renewable energy and energy efficiency in the United States.

A comprehensive list and description of incentives and policies are available on DSIRE’s website. With this resource, real estate professionals have the opportunity to guide their clients to the most up to date policies and incentives available in their market.

Policies and incentives are constantly changing. Make sure to keep up to date with what is available in your market by reviewing the incentives on www.DSIREusa.org.

Declining Costs As the demand for solar PV has increased and the number of PV installations has taken off, the cost of hardware, installation and other costs have fallen dramatically. According to the Solar Energy Industries Association® (SEIA), the average pricing for residential rooftop systems declined by nearly 30% over the two years from 2014 to 2016.5

How much does a residential solar PV system cost? A typical residential system of 5 kW in size has about 20 solar panels, which take approximately 400 square feet of space.

5 http://www.seia.org/research-resources/solar-market-insight-report-2016-q2

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Saving on Utility Bills The National Association of REALTORS® 2016 Profile of Home Buyers and Sellers found that 84% of home buyers consider heating and cooling costs to be a least “somewhat important.”6 The allure of saving money on utility bills and hedging against the volatility of energy prices can be a strong motivator. No matter how small the installation, and as long as the energy needs of the house are the same or less, homeowners may start seeing smaller monthly bills from their local utility company.

Total Cost of Home Ownership Homeowners are increasingly looking at the total cost of home ownership. In this model, a home buyer looks at all of the costs of owning a particular home. This would include not only principal, interest, taxes and insurance (PITI), but also the cost of commuting to work, utility bills, and other considerations.

For home buyers who are thinking along these lines, a solar PV system has the potential to significantly reduce utility costs and make the total cost of ownership more attractive. For example, a homeowner who spends less on energy than a typical homeowner in the same market may be able to afford a more expensive house because their annual expenses are lower.

Values More than ever, people are thinking about not only where they live, but how they live. Buyers often look for a home that is considered resource-efficient – one that needs fewer resources, like electricity, natural gas, and water. A solar PV system allows homeowners to produce electricity right where it is needed — without noise or air pollution—from a clean, renewable resource.

6 https://www.nar.realtor/reports/2016-recent-home-buyer-and-seller-profiles

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Activity

1. Which of the following is not a factor that has helped drive the growth of the residential solar PV market? A. Incentives B. Saving on Utility Bills C. Values D. Consumer protection

The correct answer is D. Major factors driving the growth of the residential solar PV market include policies, incentives, declining costs of solar panels, potential savings on utility bills, total cost of ownership, and values.

2. A home buyer considering utility bills along with the traditional PITI is concerned with: A. Saving on utility bills B. Total cost of home ownership C. Total cost of home maintenance D. Volatility of energy prices

The correct answer is B. A home buyer considering utility bills, commuting and other costs along with the traditional PITI could be considering total cost of ownership.

3. A comprehensive list of policies and incentives for solar energy is available on which website: A. www.DSIREusa.org B. www.SEIA.org C. www.USDOE.gov D. www.REALTOR.org

The correct answer is A. The Database for State Incentives for Renewable Energy (DSIRE) is the most comprehensive source of information on incentives, rebates, and policies that support renewable energy and energy efficiency in the United States, and can be found at www.DSIREusa.org.

4. More than half of ______are looking at installing solar panels within a ______time span A. Generation X, 5-year B. Millennials, 5-year C. Baby boomers, 2-year D. Millennials, 2-year

The correct answer is B. A recent report found that 56% of millennials are looking at installing solar panels within a 5-year time span.

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An Expanding Conversation An increasing number of people in several sectors are engaging in conversation about the growth of the residential solar PV market. For instance:

 More research is being done on the value of solar homes  Real estate websites are integrating solar potential ratings  New online tools are available for homeowners to connect easily to the solar industry  Social media is offering new ways for real estate professionals to grow and market their business in solar

These activities indicate that residential solar PV systems are not simply a temporary trend, but rather a shift in purchasing decisions that is well on its way to becoming the new normal.

As a real estate professional learning about solar, you have the opportunity to build your business and become a local source of information about solar. You can be seen as the professional who can help your sellers attain the full value of their investment and your buyers feel confident that they paid fair market value for their new home.

Research The research community is taking an interest in the market value of residential solar installations. Two recent studies have shown that properly valued solar homes are selling for more money than similar homes without solar.

 Selling into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes Researchers from Lawrence Berkeley National Laboratory (LBNL) led the most comprehensive PV home premium analysis to date. In this study published in 2015, researchers found that homeowner-owned PV consistently adds value at the time of sale across a variety of states, housing and PV markets, and home types.

 Appraising into the Sun: Six-State Solar Home Paired-Sales Analysis In this 2015 study, researchers engaged a team of seven appraisers from across the six states to determine the value that homeowner-owned solar PV systems added to single-family homes using the industry-standard paired- sales valuation technique, which compares recent sales of comparable homes to estimate the premium buyers would pay for PV. The findings show that potential buyers are willing to pay a premium for solar homes.

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Zillow Sun Number™ Millions of Americans looking to buy a home have a new resource to help them go solar in the process. Thanks to a partnership between Sun Number and real estate company Zillow, homeowners and prospective buyers across the country can now quickly and easily access detailed information about a property’s solar energy potential.

The Sun Number Score, developed through a U.S. Department of Energy program, determines a home’s suitability for solar by giving it a score from 1-100. The scores are an easy and intuitive way for consumers to understand their solar potential—the higher the Sun Number Score, the more ideal a home is for solar. This new level of awareness indicates the increasing importance of energy costs when buying a home.

Google’s Project Sunroof Another example of how the market is responding to the growing interest in residential solar PV is Project Sunroof, a new tool introduced by Google in 2015.

Project Sunroof is designed to assist homeowners in determining whether solar panels might be a good fit for their home. Many consumers often believe their roof simply does not receive enough sunshine to go solar. In other cases, homeowners may believe that going solar is simply too expensive. It is important to note that while Project Sunroof is not currently available in every state, it eventually plans to expand nationally and potentially globally.

By using this tool homeowners can find out the solar potential of their home, the estimated cost of the solar installation, and their possible return on investment.

Social Media The increased interest in solar and real estate is reflected in the growing number of articles, blogs, and social media posts on this topic available on the web. For example, Twitter offers a platform to find out what people are talking about. Twitter hashtags enable everyone to find conversations happening on specific topics of interest.

Some of the hashtags used by people interested in solar energy include #cleanenergy, #pv, #solarenergy and even #solarrealestate. Using solar-related hashtags on Twitter and other social media platforms can help you grow your business and build your solar brand.

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Practitioner Spotlight Jan Green, REALTOR®, GREEN®, SFR, EcoBroker® RE/MAX Excalibur Scottsdale, AZ [email protected] www.GotGreen.info®; www.RelocatingToScottsdale.com

What is the market like in your area for homes with solar PV installations? Have you seen growth?

Solar is a hot topic in Arizona! Our solar market has grown due to several factors, one of which is our abundant sunshine. Businesses and schools are adding them to their parking structures and rooftops as part of their sustainability initiatives and homeowners want to save money on their energy bills. Homeowners can add solar at little to no cost as leased solar systems.

Why is it important to learn about solar PV systems?

Solar is gaining in popularity for homeowners and businesses. The general public wants to save money on their energy bills. Due to increasing demand, we REALTORS® have to stay educated to understand how to handle transactions with these systems or else we’ll be missing out on sales, and clients will be underserved.

How has your knowledge of solar financing options helped you in transactions involving solar PV?

I know the right questions to ask the homeowners so that I can make sure the listing and sales process is smooth and transparent. Knowing if the system is owned or leased helps me form a marketing plan and manage the expectations of buyers and sellers in regard to the system’s value. I know how the PV system can be transferred from seller to buyer; and I can translate the features and benefits of the system to a new buyer in an honest way.

How has learning about solar PV affected your business?

Clients know I am the go-to REALTOR® on this topic. I’m asked to speak at title companies, mortgage companies and REALTOR® associations. I am contacted frequently by agents from other companies asking questions about solar panels. My peers have heard that I can provide value to a listing/sale and have contacted me to work with them. Recently, a local architect sent me a list of upcoming projects that they will be building.

Why should a homeowner select an agent educated about energy efficiency and solar?

A homeowner should receive value where value is due. If a homeowner owns the solar system and they rely on an agent who does not understand how to gain value for their solar system, they may be leaving money on the table. Homeowners who invest in solar PV system should select an agent who understands how to help them get the maximum value for their investment.

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Review of Module I Real estate professionals need to know what is driving the growth of the solar PV market. Identifying the benefits that compel homeowners to install solar PV can help agents have more informed conversations with homeowners and buyers with interest in the technology. This opportunity will help you build your business and become a local source of information about solar.

Now that you have completed Module I you should be able to:

 Cite the major influencers that are driving the demand for solar PV installations  Discuss the expanding consumer interest and initiatives regarding residential solar PV

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Module II. The Parts and Pieces of a Solar PV System

Introduction In this module you will learn about the individual components that make up a residential solar PV system, what they do, and how the system converts sunlight into the form of electricity that can be used in your home to do things like power your electronics and run your air conditioning.

After completing this module, you will be able to:  Recognize the major components of a residential solar PV system and describe their function  Explain how the solar PV system generates electricity for the home  Explain the relationship between kW and kWh in a typical residential PV system

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The Visible Components of the PV System Solar PV systems may seem complex, but in reality they have just a few basic components. In this section, you will learn how to recognize the main components of a residential solar PV system, and describe what they do.

The four main components of a solar photovoltaic system are:

 Solar photovoltaic panels or solar panels  Inverters  Mounting systems  Performance monitoring systems

Additional key pieces of equipment that we will discuss in this section are:

 Bi-directional meter (or net meter)  Batteries

Solar Panels Solar panels are the most visible component of a solar photovoltaic system. They can be typically seen mounted on the roof of a home or on the ground. Solar panels are made up of smaller units called solar cells. Solar cells convert sunlight into direct current (DC) electricity. Several cells are wired together to form a solar panel; a group of solar panels wired together is called a solar array.

Solar panels need direct or indirect sunlight to create electricity, not heat. This is why you will rarely see solar panels hidden behind a tree or placed on the shady side of a roof. Because solar panels need sunshine, they can work everywhere, even in locations that are not typically known as sunshine states.

Stay Informed: Solar Panel Warranties Solar panels are a big investment. Homeowners will most likely want to protect that investment the best they can and a good warranty can help them do that. All solar panels degrade over time.

There are two types of warranties: the performance warranty and the product warranty.

 Performance warranty: The performance warranty covers how much electricity the panels will produce over time. The solar panel industry standard for performance warranties is 20-25 years.

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This is a guarantee that the panels will not lose more than 10-20% of their power output capacity over the useful life of the system.  Product warranty: A solar panel’s product warranty covers the quality of the panel itself. Note that solar panels have no moving parts making them less subject to mechanical failure. A product guarantee covers the homeowner against failure of the panel due to factors like manufacturing defects, or premature wear and tear. Most solar panel manufacturers provide a guarantee that their panels will not fail for at least the first 10-12 years of use.

When the performance and product warranties fall short of the industry standard, homeowners may want to proceed cautiously.

Inverters After sunlight has been converted into direct current (DC) electricity by solar panels, that electricity must be converted into a type of electricity that can safely be used in the home. The inverter converts the DC electricity produced by solar panels into the alternating current (AC) electricity that is used in the home.

There are two types of inverters in the solar market:

 String (or central) inverters  Micro-inverters

String Inverters String inverters are the most cost-effective inverter option available in the United States. Solar installation companies generally offer homeowners a system with a string inverter if the roof is not shaded at any point during the day and does not face multiple directions (such as a gabled roof).7

(*) Image originally appeared on EnergySage, the online solar marketplace at www.energysage.com

7 “String inverters vs. Microinverters vs. Power optimizers”, originally appeared on EnergySage.com, the online solar marketplace, https://www.energysage.com/solar/101/string-inverters-microinverters-power-optimizers

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Micro-Inverters Micro-inverters are more expensive than string inverters but are a better option for installations where one or more of the panels are in the shade or if panels are facing different directions.8

Micro-inverters (*) Image originally appeared on EnergySage, the online solar marketplace at www.energysage.com

Stay Informed: Inverter Warranties  String inverter warranties are often much shorter than solar panel warranties. String inverter warranties range from 5 to 10 years; string inverters are likely to break down before solar panels do. Micro-inverters have the same warranty as the solar panel itself because they are integrated in the solar panels.  As a real estate professional, you should advise your clients to keep all of the documents associated with the PV system, including the inverter’s warranty.  When you are representing a buyer in a transaction that involves solar panels, you should make sure that the panel inverter manufacturers are healthy companies. In this fast-moving industry, it is not uncommon for inverter and even panel companies to go out of business. If that happens, the panel’s and inverter’s warranty will no longer be valid.  If any components have been replaced, it is important to document the replacement date and the new specifications, such as the wattage of the new inverter. The appraiser will need this information to estimate the value of the system.

8 “String inverters vs. Microinverters vs. Power optimizers”, originally appeared on EnergySage.com, the online solar marketplace, https://www.energysage.com/solar/101/string-inverters-microinverters-power-optimizers

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Mounting Systems Mounting systems are used to attach solar panels to a roof or on the ground. They also allow you to position your panels at an angle that is best for capturing the sun’s rays.

To perform at their best, solar panels should face south and be installed at an angle between 30 and 45 degrees. Although these are the optimal conditions, panels facing east or west will still work well, but will produce less electricity.

Panels can be mounted in two ways:

 Roof mount: This is the typical mount for residential PV systems for homes with roofs that have access to sun. The panels remain stationary and have no moving parts.

 Ground mount: When a home’s roof does not have access to sun, but a place on the parcel does, panels can be mounted on the ground. The panels are installed on a rack that is optimized for tilt and orientation to capture the most sun. In some cases the rack will move allowing it to follow or “track” the sun, which is called “track- mounted.”

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Performance Monitoring System The monitoring system is typically a web-based tool that provides detailed information about the performance of a solar PV system. The monitoring system allows system owners to:

 Measure and track the amount of electricity the system produces on an hourly, monthly and annual basis.  Identify any performance issues and quickly fix any problems and ensure that the electricity production of the solar PV system is maximized. 9

The monitoring system provides transparency during the real estate transaction. How?

 For sellers who want to showcase how well the system is performing  For buyers who want an objective source of information on the performance of the system

Review: Main Components of the Solar PV System We just covered the four main components of a solar PV system:

 Solar photovoltaic panels or solar panels  Inverters  Mounting systems  Performance monitoring systems

Now we will talk about two additional components:

 Bi-directional meter (or net meter)  Batteries

9 “How do solar panels work?”, originally appeared on EnergySage.com, the online solar marketplace, https://www.energysage.com/solar/101/about-solar-panels

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Bi-directional Meter (a.k.a. Net Meter) A standard electricity meter measures the energy that flows from the utility grid into a home or business. The meter measures the number of kilowatt-hours (kWh) of electricity the homeowner is consuming so that the utility company can bill for actual usage.

When you have a solar PV system, you are using energy for the home, but also generating energy that may flow back to the utility grid. To measure the flow of energy in two directions, utilities install bi-directional meters, also known as net meters.

Stay Informed: Net metering policies Net metering is the billing mechanism that allows homeowners to be billed only for their “net” energy use:

Net Energy = Energy Consumed - Energy Generated

Due to the rapidly changing solar industry, make sure to keep up to date on your state’s policies. You can visit the DSIRE’s website (www.DSIREusa.org) for the most up to date net metering policies in your market.

Batteries Most solar PV systems today are connected to the utility grid, not requiring storage for the excess energy. Batteries can be installed with the PV system when back-up power is desired or when connecting a PV system to the utility grid is not an option, such as for remote homes without a grid connection. The batteries offer energy storage for the excess electricity for use later when the PV system does not produce power (e.g. at night, on cloudy days, when the power goes out).

At this time, batteries do not play a large role in the residential solar market, as they are currently cost prohibitive. But this is a growing technology to be on the lookout for in the future particularly due to the growing market of electric vehicles.

What Happens to Excess Electricity? At times, the solar electricity generated is more than the home needs. What happens to the excess electricity generated by the solar PV system?

 For most homeowners the excess electricity is sent back to the power grid, giving the system owner credits for the power produced.  If the home has a battery system, the excess electricity is stored and used later when it is needed.

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The Solar PV System: How It Works https://www.youtube.com/watch?v=AylWGaU6eVE

All of the components we have discussed in this module come together as a system to create electricity from the sun. Let’s go through a typical day in the life of a solar PV system.

Sunlight shines on the solar panels.

The solar PV cells in the panels convert sunlight into direct current electricity, also called DC electricity. The DC electricity flows through appropriate disconnects; then through the inverter. The inverter converts the DC electricity into appliance-friendly alternating current (also called AC).

From the inverter, the electricity flows through the existing electrical panel to home appliances, air conditioning, lights and anything else powered by electricity.

During the day, when many people are away from the house, solar panels may generate more electricity than what is needed in the home. This excess electricity flows back into the electricity grid through a bi- directional meter, also known as a “net meter”.

At night or on cloudy days, when solar panels are not generating electricity, the power is supplied automatically by the utility grid.

If the solar PV system includes batteries, the excess electricity generated by the panels is stored in the battery system. That electricity can be used later on cloudy days or at night when the sun goes down, and not have to be provided by the utility grid.

To find out information about the PV system in a solar home, you can contact the owner or the utility provider.

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Understanding kWh and kW You can now recognize the different components of a residential solar PV system and how the components work together to generate electricity. You also see terms like “kilowatt-hour or kWh” and “kilowatt or kW”. These terms relate to the energy and power of the solar PV system. After this section, you will be able to explain how the size of a PV system (in kilowatts) relates to the solar energy produced by the system (in kilowatt-hour).

 Kilowatts (kW). The capacity (or size) of a residential solar PV system is measured in watts (W) or kilowatts (kW) One kW means 1,000 W. A typical panel often has a capacity of 250 W. Therefore, you need 4 of these panels to make up a 1,000 W system.

 Kilowatt-hours (kWh). Electricity usage and production is measured in kilowatt-hours (kWh). A 1 kW solar array can produce around 1,200 kWh per year or more depending on how much sunlight you get in your area.

Resources for the Homeowner and the Real Estate Professional Where can I direct homeowners to estimate the solar energy generated by their PV system?

The National Renewable Energy Laboratories offers PVWatts® Calculator, a free, online calculator that allows homeowners to estimate the performance of PV installations for specific geographic locations, orientation, and other factors.

To access this tool you can visit the website www.pvwatts.nrel.gov.

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Activity Sally, a homeowner in San Diego, is thinking about installing a PV system on her roof. Sally contacts a local solar installer, Tammy, to ask about how many solar panels she might need. Tammy recommends as a first step, checking her utility bills to find out how much electricity she typically uses per year. Sally sees that she uses 6,500 kWh per year.

Tammy explains the following to Sally:

“With your electricity usage of 6,500 kWh per year, I can give you a rough estimate of the number of panels and the roof space needed to cover your annual electricity use.

The capacity of each solar panel I sell is 250 Watts. Each of these panels is roughly 20 square feet. For a system capacity of 1 kW you need four of these panels.

Let’s look at how many kW you need to cover your electricity use. In the online calculator PVWatts®, I found that in San Diego 1 kW of solar panels generate slightly over 1,200 kWh per year. If we divide your annual electricity use of 6,500 kWh by 1,200 kWh we find you need a system of about 5.25 kW.

Now let’s figure out how many panels you need. If you multiply 5.25 kW by 4 panels per kW, comes to around 21 panels.

To find out the roof space you need for 21 of these panels we need to multiply 21 by the square footage of each panel, which is 20 square feet per panel. This comes to approximately 420 square feet.”

Tammy then explains that there are several other factors to consider for a more accurate calculation and a site visit is the best next step. Sally agrees and they set up a time to meet at Sally’s home.

If a homeowner contacts you with similar questions, what do you do?

A. Suggest that the homeowner collect her utility bills to see how much energy she uses B. Offer to measure the roof of the house and help calculate the PV size C. Recommend that the homeowner collect utility bills and the roof size before contacting a solar installer D. Advise that a rule of thumb is 1,200 kWh per kW and help the homeowner through the calculation

“The correct answer is C. A real estate professional should direct the homeowner to available resources such as the online calculator PVWatts®, or advise that the homeowner contact a solar installer directly for a more accurate calculation.”

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Understanding kWh and kW

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Practitioner Spotlight Lisa Dunn, REALTOR® Casa Bella Realty Group Rancho Santa Margarita, CA [email protected] www.lisadunn.net

How has learning about solar PV in the real estate market affected your business and your relationships with clients?

It has helped me communicate to my buyers all of the various details to consider before buying a home with solar panels. It may be a great investment, but my clients deserve to know the facts.

What are the main questions that come up from clients around solar?

Almost everyone is confused about the lease vs the purchase vs the power purchase agreement. This is where a savvy, well-educated agent can play an important role, helping their clients understand the differences. That agent can also help their client navigate the selling or buying process no matter the financing option involved.

Why should a homeowner select an agent who has solar PV knowledge?

It’s a consumer protection issue. Misinformation can lead to a huge liability issue. A knowledgeable agent will know how to market a solar home with the transparency it requires and reduce liability for those involved. An agent doesn't know what they don't know; making assumptions is risky to everyone who is a part of the sales process.

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Review of Module II A real estate professional with a solid understanding of the solar PV technology can become a trusted resource for clients who have a solar-powered home or are considering one in the future.

Now that you have completed Module II you should be able to:

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Module III. Financing the Residential Solar System

Introduction As you learned in Module I, the price of a solar PV system has come down dramatically in recent years. While the price of systems varies considerably, a residential solar PV system may cost as much as a new car. Just like buying a car requires planning and financing between buyers and lenders, so too does the purchase of a solar PV system.

In this module, we will review the four common residential solar financing options — cash purchase, solar loans, leases, and power purchase agreements —and explain the differences for buyers and for the real estate transaction. Real estate professionals who understand the different options available to homeowners, will have a market edge and be better equipped to help their clients make informed decisions when listing or selling a home with PV.

By the end of this module you will be able to:

 Identify costs and revenues associated with the purchase of a residential PV system  Explain the methods of financing a residential solar system and the differences among these options

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Solar Financing Options Solar installers offer homeowners several options for financing a solar PV system on their property. These options range from purchasing the system outright (paying upfront), to no-money-down agreements that commit the homeowner to monthly charges. 10

In this section, we will cover solar financing options under two ownership models:

 Direct Ownership: The homeowner owns the PV system right from the start. Under this model homeowners can pay for the PV system via: o Cash purchase o Solar loan  Third-Party Ownership: A solar developer, or other third party, owns, maintains and operates the PV system, but the lessee reaps the benefits of clean energy. The two alternative third-party ownership arrangements are: o Solar leases o Power Purchase Agreements (PPA)

Breaking down the differences: Direct Ownership and Third-Party Ownership Purchasing a solar panel system with cash, or financing a purchase with a solar loan, may be your best option when you…  Want to maximize the financial benefits of installing a solar panel system, rather than solely benefitting from the system’s environmental benefits  Are eligible to reduce your federal and state tax liability through the federal investment tax credit  Have access to cash, equity or credit to purchase the system  Want to increase the potential market value of your home by installing a solar panel system

A solar lease or Power Purchase Agreements (PPA) may be your best option when you…  Are primarily interested in using electricity generated from renewable resources, rather than maximizing the financial benefits of installing a solar panel system  Want to avoid the responsibility of maintenance or repairs for a solar panel system  Are ineligible for federal or state investment tax credits resulting from your investment in a solar panel system  Do not have access to cash, equity or credit to purchase the system  Do not want to wait until the following year to receive the financial benefits of tax credits

10 Portions of this section originate from Clean Energy States Alliance’s “A Homeowner’s Guide to Solar Financing”, 2016

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Solar Financing Options At-A-Glance 11 Direct Ownership Third Party Ownership Who buys the system? Homeowner Third-party Who owns the system? Homeowner Third-party Are there any up-front costs for the Yes No or Minimal homeowner? Who takes advantage of federal and Homeowner Third-party state incentives available for solar? Who is responsible for Operations and Homeowner Third-party Maintenance? Who is responsible for Insurance? Homeowner Third-party What happens if the homeowner sells With loan: homeowner is Depends on the contract the home where the solar system is responsible for loan payments located? after the transfer unless negotiated with the buyer

11 Clean Energy States Alliance’s “A Homeowner’s Guide to Solar Financing”, 2016

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Direct Ownership Homeowners own their PV system from the start when they pay for the system upfront with a direct cash purchase or over time via a solar loan. A solar PV system that is owned by the homeowner is also referred to as “host-owned” or “homeowner-owned” system.

Direct ownership is a great option for many homeowners who have access to cash or credit and are eligible to take advantage of federal and local incentives and other credits. Just like buying a car, the owner may finance the system, making monthly payments similar to an auto loan. The owner is also responsible for maintenance and operation expenses of the system.

Direct ownership options include:

 Cash purchase  Solar loans

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Direct Ownership: Cash Purchase

General Information Purchasing with cash has been the traditional method for homeowners to finance a PV system. When a homeowner is able to pay upfront for the cost of the PV system, a cash purchase is the least expensive option in terms of total dollars spent to acquire PV. This is because no financing costs or fees are incurred.

With this financing option, a homeowner would typically:

- Request quotes from solar companies to design and install the PV system - Evaluate bids - Contract directly with the selected company

Liability Typically, the system owner is responsible for maintenance and operation expenses. Some homeowners may wish to contract out the maintenance and operations responsibilities.

Benefits and Challenges12 Benefits Challenges • No financing costs—this is a significant benefit as • Homeowner pays for the total installed system interest can add a large amount to the lifetime cost up front total cost of the system • Homeowner incurs the liabilities associated with • Many homeowners are eligible to take ownership, such as maintenance costs, insurance, advantage of federal and local incentives and and additional future purchases (e.g. inverters) other credits • Homeowner-owned PV systems have the potential to increase the market value of the home because they may have equity that should be accounted for in the real estate transaction and in the appraisal process • Ability to choose how to handle maintenance and operation • Potential for an overall reduction in utility bills; however, whether there are savings depends on future electricity prices, the amount of energy produced by the system, and the consumption level of the home, among other unknowns

12 Portions of this table originate from: Speer, Bethany. Residential Solar Photovoltaics: Comparison of Financing Benefits, Innovations, and Options. Golden: NREL, 2012. http://www.nrel.gov/docs/fy13osti/51644.pdf

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Purchasing the PV System with Cash: Costs and Revenues Before we talk about the financing options for solar PV, let’s take a look at a hypothetical solar PV installation financed via cash purchase. We’ll review the costs, the credits and other incentives offered by the state and federal governments. This exercise will offer insight on the payback this hypothetical homeowner could expect.

For this example, we assume that a homeowner in Massachusetts is installing a solar PV system on the roof of her home. She has access to cash and decides to pay upfront for the cost of the system and installation. The size of our hypothetical system is 5 kilowatt (kW), which is within the range of a typical residential solar PV system. We will assume that the 5 kW PV system produces 6,000 kWh of electricity per year and that the current utility rate is $0.15 per kWh, saving the homeowner $900 annually.

Let’s review the costs and anticipated revenues that this hypothetical homeowner will incur, and the time it will take her to recover the investment.

The Solar Equation

$22,500 in the table: Gross cost of the PV System, including material and installation costs, typically paid to a solar installer

$1,000 in the table: Many states offer one-time tax credits, such as in our example in Massachusetts.

$6,450 in the table: The federal investment tax credit (ITC) is a powerful incentive for solar PV system owners. The ITC is a one-time 30% credit on your federal income tax. Note that per the Internal Revenue Service, the 30% credit is not applied until after all other deductions are applied, such as state rebates.

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$15,050 in the table: The net cost of the system is equal to the gross cost minus the tax credits and incentives. This homeowner will need to finance the gross cost of the system. After receiving the tax credits, the homeowner will have paid $15,050 for the PV system.

$900 in the table: The electric bill savings are based on the system’s annual production of 6,000 kWh at the utility cost of $0.15 per kWh.

$1,500 in the table: Some states also offer Solar Renewable Energy Credits (SRECs) requiring utilities to purchase power from solar PV systems. Solar PV systems can earn one SREC for every 1,000 kWh. In our example in Massachusetts let’s assume that the reimbursement to the system owner will average at a price of $250 per SREC for a term of 10 years. The system owner will receive 6 SRECs per year, which comes to $1,500 over 10 years. Not all states offer SRECs. States that do offer SRECs have different rates and terms. Make sure you visit DSIREUSA.org to stay informed on what is available in your market.

6 years in the table: The payback time is the number of years for the system owner to recoup the initial net investment.

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Direct Ownership: Solar Loans

General Information Homeowners who choose not to (or cannot) purchase a PV system with cash, have the option to finance their PV system through a solar loan. Solar loans allow customers to borrow money from a lender or solar developer for the installation of a solar PV system and spread the system’s cost over time. With this approach, the homeowner owns the installed system. A solar loan arrangement enables a homeowner to benefit directly from state and federal incentives.13

Solar loans typically require homeowners to have good credit, enough equity in their home to finance the system, and enough income to cover the loan payment.

Financing Lenders for solar loans can be banks, credit unions, state programs, utilities, solar developers, or other private solar financing companies.

A wide variety of loan offerings are available with different monthly payment amounts, interest rates, lengths, credit requirements, and security mechanisms.

- Some loan products offer bundling of energy efficiency improvements along with the solar PV installation or allow for inclusion of roof replacement or energy-related improvements. For example, the Federal Housing Authority’s 203(k) loans allow homeowners to pay off these improvements easily as part of the home mortgage. - In a few states, on-bill financing through participating utility companies allows solar customers to repay their loans through payments added to their monthly electric bill. - In a few jurisdictions, Residential Property Assessed Clean Energy, or R-PACE, programs may be available. R-PACE is a mechanism for financing residential energy upgrades whereby the upgrade is paid off over an assigned term of years through an assessment on the homeowner’s property tax bill. An R-PACE assessment attaches to the property rather than to the homeowner, which can make it easier for homeowners to purchase a solar PV system even if they may want to sell their home before the system is fully paid off.

To see what solar loan programs may be available in your state, visit www.dsireusa.org.

Liability Typically, the homeowner is responsible for maintenance and operation expenses because they own the system. Some homeowners may wish to contract out the maintenance and operation responsibilities. Options for selling a home with a solar loan vary depending on the type of loan.

- If the PV system is financed with a secured loan (like a home equity loan or home equity line of credit), the homeowner will have to pay off the remaining balance of the home before selling.

13 Portions of this section originate from Clean Energy States Alliance’s “A Homeowner’s Guide to Solar Financing”, 2016

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This is because the property is used as collateral for the loan. In most cases, secured loans don’t have prepayment penalties, so there’s no disadvantage to paying the system off early. 14 - If the solar PV system is financed via an unsecured loan, the loan is not tied to the property, so a homeowner can sell the home and move prior to paying the solar loan off. The homeowner is still obligated to pay off the remainder of the loan.15 - When the PV system is financed with a loan that is secured by the PV system itself, the lien on the system would need to be resolved before selling the home.

Benefits and Challenges16 Benefits Challenges • At the end of the loan term, homeowners own • Paying off the loan sooner and over a shorter the PV installation and potentially reduce their duration may delay immediate positive cash flow, energy costs for many years longer but will lower total interest cost • Many solar loans do not require money down, • Solar loans typically require homeowners to have and allow you to finance the total amount of the good credit, enough equity in their home to solar PV system finance the system, and enough income to cover • Many homeowners are eligible to take the loan payment advantage of federal and local incentives and • The homeowner incurs the liabilities associated other credits with ownership, such as maintenance costs, • Homeowner-owned PV systems have the insurance, and additional future purchases (e.g., potential to increase the market value of a home inverters) because they may have equity that should be accounted for in the real estate transaction and in the appraisal process • If the cost of the solar loan is less than the energy cost savings from the solar system, the homeowner can see savings right away • Ability to choose how to handle maintenance and operation

14 EnergySage, the online solar marketplace at http://news.energysage.com/selling-a-house-with-solar- panels-lease-or-loan/

15 EnergySage, the online solar marketplace at http://news.energysage.com/selling-a-house-with-solar- panels-lease-or-loan/

16 Portions of this table originate from: Speer, Bethany. Residential Solar Photovoltaics: Comparison of Financing Benefits, Innovations, and Options. Golden: NREL, 2012. http://www.nrel.gov/docs/fy13osti/51644.pdf

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Third-Party Ownership Alternative solar financing choices involve third-party ownership, where the homeowner receives monetary benefits from hosting the PV system on their property, but they do not actually own the PV system. This ownership mechanism also often puts some, or all, of the responsibility for system operation and maintenance on the third-party owner, thus alleviating the homeowner from certain liabilities.

These financing choices include:

- Solar leases - Power Purchase Agreements (PPA)

Solar Leases and PPAs: What's the Difference? While the terms “solar lease” and “solar PPA” are very similar, there is a key difference between the two. With a solar lease, homeowners agree to pay a fixed monthly “rent” or lease payment, which is calculated to be less than the estimated amount of electricity savings the system will produce, in exchange for the right to use the solar energy system. With a solar PPA, instead of paying to “rent” the solar PV system, homeowners agree to purchase the power generated by the system at a set price per kilowatt-hour (kWh).

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Third-Party Ownership: Solar Leases

General Information Under a solar lease arrangement, a homeowner enters into a service contract to pay scheduled, pre- determined payments to a solar leasing company over a term of 15 to 25 years. The solar leasing company installs and owns the PV system on the homeowner’s property, and often provides a performance guarantee. In return, the homeowner pays a series of scheduled lease payments to the developer.

With a solar lease, the homeowner may experience lower energy bills due to the solar panels, but must also pay the monthly charge for the leased panels.

- As with all types of solar financing options, under a solar lease arrangement, the homeowner pays their regular utility rate for any electricity consumed beyond what the solar system generates. - If the PV system produces excess electricity, the homeowner may get a credit for that electricity from the electric utility company through net metering. Net metering was covered in Module II.

Financing  Because the homeowner does not own the system, any applicable federal and local incentives and credits go to the third-party system owner. Homeowners may have the option to negotiate these credits into their contract with the third-party system owner.  As a prerequisite to entering into most third-party financing contracts, third-party lenders require the homeowner to meet a minimum credit score. A credit score below 650 will preclude homeowners from most third-party financing options.  A lease may include a small upfront payment to cover administrative expenses. There are also hybrid leases/loans with a higher upfront payment that reduce lease payments, though these are less common. It is important for homeowners to review all of their lease options and terms.  Solar lease payments are either fixed over the life of the contract or escalate annually. If there is an escalator, it will be outlined in the contract.  A solar lease agreement may or may not include maintenance and operation.

Liability Selling a home with a solar lease: When selling a home with a solar lease, the seller can usually do one of the following:

- Transfer the solar lease to the next homeowner for the remainder of the contract term, provided that the new owner meets credit requirements. - Buy out the lease before selling the home so that the system can be included as part of the home sale. - If the new owner does not want to keep the PV system, the seller may have to buy out the PV system before selling the home, so the system can be removed before the sale.

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It is important to look for lease terms that clarify the allocation of obligations when selling a home. It is also important to note that the transfer of a solar lease may not be a part of the transfer of the home at the closing.

System maintenance: A lease agreement can deal with system maintenance in a variety of ways. It is important to clarify who is responsible for maintenance costs as a solar PV system may require maintenance or replacement of parts during the lease contract term.

Escalating payment schedule: Many solar leases come with an escalating payment schedule. Homeowners should thoroughly scrutinize escalating payment schedules when assessing the desirability of a particular lease.

Market value: It is important to note that a leased system cannot be included in the market value appraisal because it is considered personal property not real property.

o The appraiser is required to analyze the effect of the lease on the real estate, which could be negative to the property. The buyer’s agent should ensure that the buyer and/or their representatives have reviewed the lease prior to making an offer on the property. o Some solar leases may delay home closings due to the process of subordinating the lease to the buyer’s lender. Unfortunately, the transactional complications may lead some real estate agents to inaccurately believe that all solar PV leases are not in their buyer’s best interest. This is why an understanding of all PV options is important for practitioners to be able to present clients with thorough and objective information.

Contract term: At the end of the lease, a homeowner may be able to extend the lease, have the developer remove the system, or choose to buy the solar system from the developer. Buy-out terms are not standard in the industry and should be identified when listing a property with a third-party owned system.

Benefits and Challenges17 Benefits Challenges • Potentially no/low upfront costs; however, an • A leased system cannot be considered in the upfront down payment would result in lower market value appraisal because it is personal monthly lease payments property not real property • Transferring operations and maintenance • Because homeowners do not own the PV responsibilities to a qualified third-party owner system, they are not eligible to take advantage of • Monthly electric bill savings may be greater than federal and local incentives and other credits, the lease payments, making for a cash-positive unless the system owner passes some of the cost transaction savings on to the homeowner • Lease payments are locked in for the life of the • Homeowner likely will need good credit contract but may include an escalator • A lease is a long-term commitment with • Often includes a buy-out option in which the penalties for breaking the contract homeowner takes ownership of the system • Some solar leases may delay home closings due

17 Portions of this table originate from: Speer, Bethany. Residential Solar Photovoltaics: Comparison of Financing Benefits, Innovations, and Options. Golden: NREL, 2012. http://www.nrel.gov/docs/fy13osti/51644.pdf

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• May include a performance guarantee in which to the process of subordinating the lease to the the third-party owner (the solar finance company) buyer’s lender and other transactional compensates the homeowner in the event of complications underproduction, as determined in the contract • Only available in some states

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Third-Party Ownership: Power Purchase Agreement (PPA)

General Information Under a residential solar Power Purchase Agreement (PPA,) a solar finance company buys, installs, and maintains a solar system on a homeowner’s property. The homeowner purchases the energy generated by the system on a per-kilowatt-hour basis through a long-term contract at rates competitive with the local electricity rate. This allows the homeowner to use solar energy at a prescribed per-kilowatt-hour rate while avoiding the upfront cost of the solar system and steering clear of system operations and maintenance responsibilities.

PPAs typically range from 10 to 25 years and the third-party owner remains responsible for the operation and maintenance of the system for the duration of the agreement.

As of 2015, less than half of the states allowed the use of third-party solar PPAs. You can check to see if a third-party solar PPA is possible in your market by viewing the “Third-Party Solar PV Power Purchase Agreements” map available through the DSIRE website at www.dsireusa.org.

Financing  As with a solar lease, because the homeowner does not own the system, any applicable state or federal tax credits go to the third-party owner. Homeowners may have the option to negotiate these credits into their contract with the third-party system owner.  PPAs do not typically include an upfront payment. Because the homeowner knows how much the solar electricity will cost for the entire term of the PPA, the homeowner is insulated from possible increases in utility electricity rates. However, PPAs may also have escalation rates to account for that increase. If there is an escalator, it will be outlined in the contract.  As for solar leases, third-party lenders require the homeowner to meet a minimum credit score. A credit score below 650 will preclude homeowners from many third-party financing options.  PPAs typically cover maintenance and operations.

Liability Selling a home with a solar PPA: PPAs are best for homeowners who plan to own their current residence for a significant length of time because, in the event of a move, the homeowner will need to do one of the following:

- Transfer the contract to the home buyer if the buyer meets the credit requirements of the third- party solar finance company. This assumes that the potential buyer is interested in taking over the PPA. - Buy out the agreement by paying for the energy for the remaining term of the contract. This could be expensive for the homeowner, especially if there are a number of years left in the PPA.

Market value: It is important to note that systems under PPAs cannot be included in the market value appraisal because it is considered personal property, not real property.

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o The appraiser is required to analyze the effect of the PPA on the real estate, which could be negative to the property. Real estate professionals should obtain a copy of the PPA and verify the details in writing. The seller should provide the PPA agreement to the potential buyer to avoid any misrepresentations or surprises at closing.

System maintenance: Similar to solar leases, PPAs transfer operations and maintenance responsibilities to a third-party owner.

Rate comparison: Homeowners considering PPAs should look carefully at their electricity bills to see how their current rate compares with the rate proposed by the company offering the PPA. The contractor should calculate the projected per-kilowatt-hour rate and annual savings. For PPAs with an escalating rate, homeowners should consider whether local electricity rates are likely to increase in the future.

Contract term: At the end of the PPA contract term, a homeowner may be able to extend the PPA, have the developer remove the system, or choose to buy the solar energy system from the developer. Buy- out terms are not standard in the industry and should be identified when listing a property with a third- party owned system.

Benefits and Challenges18 Benefits Challenges • Typically no upfront costs • A system under a PPA cannot be considered in • Transferring operations and maintenance the market value appraisal because it is personal responsibilities to a third-party owner property, not real property • Ideally, a homeowner’s PPA payments per- • Because homeowners do not own the PV kilowatt-hour will be less than the retail electricity system, they are not eligible to take advantage of rate, making the transaction cash-flow positive federal and local incentives and other credits, from day one unless the system owner passes some of the cost • PPA payments are locked in for the life of the savings on to the homeowner contract but may include an escalator • Homeowners likely will need good credit • Potential option to buy out the agreement by • A PPA is a long-term commitment with penalties paying for the energy for the remaining term of for breaking the contract the contract • Only available in some states • May include a performance guarantee in which the third-party owner compensates the homeowner in the event of underproduction, as determined in the contract

18 Portions of this table originate from: Speer, Bethany. Residential Solar Photovoltaics: Comparison of Financing Benefits, Innovations, and Options. Golden: NREL, 2012. http://www.nrel.gov/docs/fy13osti/51644.pdf

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Note on Third-Party Owned Systems Solar leases or PPAs must be reviewed thoroughly, preferably with the help of the buyer’s attorney, to determine if the lease agreement is in the buyer’s best interest. Lease agreements and PPAs are like real estate offers for a property; all of the details matter including:

 The current utility rate  The utility rate offered in the PPA  The performance guarantee  The rate that the lease or PPA escalates per year  The buy-out or transfer terms

These details should be thoroughly reviewed by the buyer and their representation before determining if the lease transfer is desirable. If they are desirable, then efforts must be made with the PV system owner to ensure that they will act in a timely fashion with the closing attorney.

All of these financing methods have impacts for the homeowner when selling the property or applying for a refinance. Homeowners should seek assistance by professionals who can direct them to the right option. The Clean Energy States Alliance (CESA) offers a good place to start with “A Homeowner’s Guide to Solar Financing”, which can be found in the Resources tab.

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Industry Spotlight: National Association of REALTORS® Green Designation Amanda Stinton, Director of Sustainability & Green Designation Center for Specialized REALTOR® Education National Association of REALTORS® GreenREsourceCouncil.org

What is NAR’s Green Designation?

NAR's Green Designation is a two-day program resulting in a professional credential about energy efficiency and sustainability for new and existing homes, buyers and sellers. As consumer demand for home performance information increases, so will the need for REALTORS®’ awareness of green topics. When you earn NAR’s Green Designation, you’ll gain an understanding of:  Buyers’ and sellers’ changing expectations about energy and home performance  How properties with green features can sell for more  Marketing the benefits of high performance features and smart home technology  The advantages of a sustainable business model What are the benefits of earning the Green Designation?

After earning the Green Designation, you’ll join a community of REALTORS® specialized in marketing the benefits of resource-efficient homes with the skills to share the knowledge with sellers and buyers. This credential gives agents a market edge to distinguish themselves as an invaluable advisor to buyers and sellers in this growing market segment. Some of the tangible benefits of NAR’s Green Designation include:

 Online Directory Profiles – connect with potential clients through visibility on multiple online profiles.  Social Engagement Platform – share relevant green content through ready-to-send posts for Facebook, Twitter, and your blog or website.  Green MLS Initiatives – work with your MLS to incorporate appropriate information about solar and high performance homes.  Green Client Handouts – help your clients understand the benefits of resource-efficiency with a variety of 2-sided, customizable marketing flyers about different green topics.  Energy Assessment Widget – show your clients a snapshot of energy performance for a listing with this handy, on-the-go tool. Produce customized reports with suggestions on home performance upgrades.  Green News – stay up-to-date with information through monthly Webinars and the REsource e- Newsletter.

How does solar tie into earning the Green Designation?

Solar PV is a growing area of interest and is covered in one chapter of the course The Resource-Efficient Home: Retrofits, Remodels, Renovations, and New Homes Construction. That course is one of two required courses to earn NAR’s Green Designation. The designation can also equip agents with a wealth

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To learn more about earning NAR’s Green Designation and to locate live or online courses, visit www.GreenREsourceCouncil.org. You can also visit the Resources tab for more information.

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Review of Module III In Module III we reviewed the four common residential solar financing options – cash purchase, solar loans, solar leases, power purchase agreements – and explained the differences. Each option will impact the balance sheet, the eligibility for incentives, and the payback time. As you add this information to your knowledge base, you will build your solar PV specialization. A real estate agent who understands solar energy financing options can build their reputation and become the go-to professional in solar transactions.

Now that you have completed Module III you should be able to:

 Identify costs and revenues associated with the purchase of a residential PV system  Explain the methods of financing a residential solar system and the differences among these options

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Module IV. Listing a Solar PV Home

Introduction At this point you have learned why the PV market is growing, how the technology works, and what different financing options are available for homeowners. The next step is to learn what information should be included in the MLS and understand how real estate agents can use solar MLS fields to highlight and accurately communicate the features of a solar home. With this knowledge, real estate professionals will be better equipped to help their clients maximize the value of their solar PV investment.

After completing this module, you will know how to:

 Describe the system characteristics of a solar PV home in an MLS listing accurately and thoroughly  Collect listing information about solar PV systems that will help appraisers accurately and properly value a solar home  Understand the risk and liability associated with inaccurate performance claims for a PV system

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Standardizing the MLS The MLS is a key tool used by real estate professionals and appraisers to list and market homes. Through the MLS real estate professionals help sellers showcase their home and attract potential buyers. Appraisers use the information included in a MLS listing to develop the value of a home. For these reasons, the MLS is the central nervous system of the real estate transaction.

Many MLSs do not yet have solar-specific data fields, but this is changing. The MLS industry has responded to the increasing demand for and number of homes with solar installations and green features by adding solar and green specific data fields.

In order to standardize the data fields that MLSs use, the Real Estate Standards Organization (RESO) created a Data Dictionary. The Data Dictionary ensures that each MLS system “speaks” the same language by offering a common group of MLS fields that define real estate data in consistent terms and data structures in all of the MLSs across the U.S.

Solar-Specific Data Fields In June 2016, RESO added several energy efficiency and solar-specific data fields to the Data Dictionary so any MLS can pull them into their system. The table below summarizes the data fields and options available for each field.

Solar-specific data fields and enumerations introduced with RESO Data Dictionary v 1.5 CurrentFinancing - PACE - Power Purchase Agreement - Leased Renewables Electric - Energy Storage Device - Solar PV Seller Owned - Solar PV Third-Party Owned - Wind Turbine Seller Owned - Wind Turbine Third-Party Owned - Pre- Wired for Renewables - Ready For Renewables - Net Meter ElectricOnPropertyYN PowerProductionType - Photovoltaics - Wind PowerProduction[Type]Size PowerProduction[Type] Annual PowerProduction[Type] AnnualStatus - Actual - Estimated - Partially Estimated PowerProduction[Type]Year Installed

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Benefits to the Real Estate Transaction The major benefit of including solar-specific data fields in the MLS is that fields are searchable. Because of that, buyers’ agents can look for homes with solar PV systems; and appraisers can easily find comparable properties to develop an accurate appraised value of a solar home.

How do solar-specific data fields affect real estate?

Proper entry creates more opportunities for accurate appraisal/valuation of features like solar PV.

An increased number of listings with these MLS fields leads to more comparable properties for appraisers.

More comparable properties with similar features – like solar PV – allows proper valuation of solar PV systems on the properties, allowing the seller and the real estate professional to see increased value.

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Industry Spotlight: California Regional MLS California Regional Multiple Listing Service (CRMLS), the nation’s largest MLS, was among the first to incorporate the Data Dictionary’s solar data fields.

Because CRMLS adopted these solar-specific data fields, CRMLS’ members can track features of solar installations that are objective and observable, such as system size and type of ownership. You will learn about these system characteristics later in this module.

“CRMLS began its participation in green with our adoption of the green standards work done at GreenTheMLS.org and our subsequent work to apply those concepts into the RESO Data Dictionary. It is by the way of CRMLS’ forward-thinking members and Board of Directors that we’ve been able to be early adopters of green standards. With our recent work at RESO, alongside the Department of Energy, we are excited to bring these latest solar fields to our members. ‘Photovoltaics’, an option in the new Power Production fields, is where members may include important solar PV system characteristics, based on documented information our members could obtain for their listing input. In addition, we are very happy that the DOE, and other organizations such as Build it Green, are supporting the aggregation and dissemination of solar PV system data to industries such as ours. Our vision of incorporating this data into our Tax Systems and our Listing Auto- Population Workflow promises to bring us leaps and bounds forward on our quest to accurately represent value by attaching performance data to our listings for the comparative analysis and appraisal activates used to show property value today. Ultimately our driving factor is the benefit of the lenders, appraisers, our members, the consumer and ultimately the environment.”

Rob Larson, Chief Information Officer, CRMLS

Solar Fields in Your MLS Real estate agents can contribute to the success of these fields by encouraging the MLS in their market to implement the green and solar PV fields. Work with your MLS for the addition or update of these solar-specific data fields. At the end of this module we will provide tools and resources to help you learn more and get involved.

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System Characteristics in the MLS The listing of a solar home should include PV system characteristics whether an MLS has solar-specific data fields or not. System characteristics might include the system size or installation date. If your MLS does not yet have solar-specific fields, agents should include thorough information about the system in the comments section of the listing, as described below. It may also be helpful to upload supporting documentation for the system. Supporting documentation may include utility bills or lease information. This will be covered in more detail in the “MLS Listing Remarks” and “Attachments on Listings” sections below. These characteristics are easy to document and verify.

The four fundamental system characteristics that should be included in an MLS listing are:

Type of ownership: Real estate professionals should indicate whether the system is owned by the homeowner or by a third party, such as via a lease or Power Purchase Agreement (PPA).

o Homeowner-owned PV systems are typically considered real property and transfer with the other real property at the time of sale. o Systems that are leased or covered by a PPA are typically considered personal property; in this case, additional steps are required to transfer these systems from seller to buyer.

As we have discussed in Module III, the type of ownership has an impact on the market value of the home and the procedures the appraiser must follow, as well as whether or not (and how) the solar system will be transferred from seller to buyer. For these reasons, the type of ownership of the solar PV system must be clearly defined in the MLS.

System capacity (or size): The size of the solar system, also known as the “capacity,” indicates how much power the system can produce under standard conditions. Stating the capacity of the system is another essential characteristic for establishing contributory value of a homeowner-owned system. Typically, the capacity is expressed in kilowatts (kW), but can also be expressed in watts (W). A 3.6 kW system is the same as a 3,600 W system. A home with a 3.6 kW system would produce less revenue than a home with a 6.3 kW system, therefore the contributory value of the smaller system would be less than the larger one. You can review costs and revenues of a homeowner-owned system in Module III.

Year of installation: The date the system was installed is an important characteristic in establishing contributory value. PV systems typically lose efficiency over time at a rate of 0.5% to 1% per year and warranties can run out. Knowing if the system was installed 10 years or a couple of years prior to the transaction will affect the value of the system.

Annual power production: The most important metric of a PV solar system is the amount of energy it produces per year. This number can be actual, if available, or estimated. Annual power production for PV solar systems is measured in kilowatt hours (kWh) per year.

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Qualities of System Characteristics The PV system characteristics have two qualities in common. They are observable and objective.

 Observable: Can be readily identified and verified through documentation, such as manufacturer spec sheets, invoices and contract documents  Objective: Describes something without judgment or opinion; for example, “5 kW system with 20 solar panels,” not “5 kW system with 20 advanced solar panels”

Finding the System Characteristics Real estate professionals can collect the system characteristics from home sellers. Additionally, they might be able to find this information in other several places, including:

 Performance monitoring system report  Documents from the lender  Leasing documentation  Building permit  Invoices from the installer  Utility bill or utility company

The Importance of System Characteristics in MLS Listings While the system characteristics offer an objective description of a PV system to buyers and agents, appraisers need this data to establish the contributory value of homeowner-owned solar PV systems. Missing and incorrect listing information can complicate the appraisal process. In Module V you will see how real estate professionals and appraisers can use system characteristics to find the appropriate value of the PV system.

MLS Listing Remarks Real estate professionals can use the “Remarks” section of the MLS listing to highlight the benefits of living in a house with solar PV. Remarks can also be used to include information about the system characteristics in an MLS that does not yet have solar fields. However, agents need to be aware of statements that could put them at an increased liability risk.

Effective and Safe Remarks Appropriate remarks in a solar home listing do not set expectations for guaranteed savings on utility bills, rather they highlight the benefits of a solar PV system and the system characteristics. The purpose of such comments is to effectively communicate the details of the system, while minimizing risk or liability.

Utility cost savings may be a benefit of the PV system for the current homeowner, but the same savings should not be guaranteed or implied for future owners, as variables such as the number of occupants or the preferred indoor temperature can change when the property sells. For example, “for the current owner, electricity bills were reduced dramatically when the PV system was installed” is a safe statement, whereas “solar panels cover the electrical expense” can put the real estate professional at an increased liability risk.

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You can highlight the benefits of living in a solar home without making guarantees:

o “Along with the potential to reduce your energy bills using solar energy is clean and renewable” o “Because this solar system has no moving parts, it has required little maintenance” o “Owned solar panels have the potential to increase home value”

With this knowledge, real estate professionals can effectively communicate the benefits of a solar PV installation to their clients and help them maximize the value of their investment at the time of sale.

It is important to note that some utilities may have monthly charges for solar PV systems. Make sure to note this information in your listing.

SAFE

 “Seller owned 5.2kW system installed in 2014 produced 6026 kWh of free power in the last 12 months!”

This is a safe statement. It provides the appropriate system characteristics including system capacity, year of installation, actual energy produced over the previous year. The statement makes no guarantees that the future owners will experience the same results.

 “Power purchase agreement, 3.6 kW system installed in 2015 produced 4100 kWh of electricity at a rate of $.086 per kWh –compare to the current utility rate of $.145 per kWh!!”

This is a safe statement. It provides the appropriate system characteristics including type of ownership, system capacity, year of installation, actual energy produced over the previous year. The statement makes no guarantees that the future owners will experience the same results.

AT RISK

 “5KV solar panels - owned outright and installed in 2014. No electric bills!”

This statement may increase your risk of liability. Here is an example of a guarantee of “no electric bills” for the home buyer. Another error is in the size of the system which should be expressed in kilowatts (kW) not kilovolts (kV). However, the appraiser will appreciate the fact that the listing broker noted that the seller owns the system and that the installation year is provided.

 “Solar panels have been installed to give you an unbelievably low electric bill of $56.60 per month”

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This statement may increase your risk of liability. Setting an expectation of what the new homeowner may pay for utility costs is a marketing trap. In fact, this statement may or may not be true for the current homeowner, but it implies that any buyer of the home should expect the same performance. Implying guarantees of utility bills in marketing statements is not a good practice.

 “Brand new solar panels on the rear roof provide the future homeowner about a 50% reduction on the electric bill”

This statement may increase your risk of liability. Although this statement does not directly state a specific amount that the potential buyers should expect, the promise of a 50% reduction in utility costs could misguide the new homeowner and set expectations that may not be realized.

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Attachments on Listings There are other ways to market a solar system so that the benefits shine. Real estate professionals should use the attachments section to their benefit and include as much documentation about the system as possible.

Suggested documents to attach to the listing:

o Utility bills from before and after the system was installed o Report from the performance monitoring system, which can highlight solar energy production o Third-party ownership lease/PPA documents o Spec sheets for the panels and inverter(s), showing the capacity and other technical specifications of the PV system components o Pictures of the solar panels in the photo gallery o Residential Green and Energy Efficient Addendum

Residential Green and Energy Efficient Addendum A key tool that real estate agents should consider utilizing is the Appraisal Institute’s “Residential Green and Energy Efficient Addendum”. The addendum is a form appraisers can use as a worksheet to identify energy efficiency improvements, renewables (like solar), and other “green” characteristics, and to help make an accurate assessment of the value of energy efficient and solar homes.

The addendum captures the details about high performance property in a thorough and consistent way, allowing a clean transfer of data from homeowners to appraisers. Appraisers can use this data and form in their appraisal report to meet the appraisal standard of identifying the characteristics that are relevant to the property type. It also communicates the features that make the home a high performing home than the “code-built” home. Attaching it to the MLS provides appraisers with details that are standardized to ensure true comparable selection.

The addendum can be completed by anyone who has primary information on the energy efficiency, green features or solar improvements features. The person with the most knowledge would include solar installers, contractors, energy or green raters, and possibly the homeowners themselves.

You can find more information about the Residential Green and Energy Efficient Addendum in the Resources tab.

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Industry Spotlight: The Green MLS Toolkit Amanda Stinton, Director of Sustainability & Green Designation Center for Specialized REALTOR® Education National Association of REALTORS® GreenREsourceCouncil.org

What does it mean to “green an MLS” and why is it important?

A Green MLS is designed to support the flow of data about green home features among all MLS participants. It does this by providing consistent, designated fields for green home features and documentation. When high-quality, verifiable information about improved homes can pass to all the key actors in a transaction, fair value at closing can follow. A green MLS is often the hub that makes the information-sharing possible.

A multiple listing service with relevant green data fields can:  Help buyers quickly find green homes  Make it easy to fully promote the special features of a new or existing green home and the benefits provided  Support apples-to-apples comparison when it is time to appraise a green home

What is the Green MLS Tool Kit?

The Green MLS Tool Kit is an online resource for those looking to learn more about integrating the Real Estate Standards Organization (RESO’s) standard green fields into their MLS. REALTORS®, appraisers, builders, and other professionals collaborated to develop the initial Tool Kit. Since then, a step-by-step Green MLS Implementation Guide shows MLS administrators how to include these fields to help increase the availability of quality data on high performance homes, certifications, solar installations, and more. Visit www.greenthemls.org for more information.

How and why can you get involved in greening your MLS?

When it comes to data, consistency is key. When included by an MLS, the standard green fields authored by the RESO as part of the Silver Certification fields provide an opportunity for specific, quantifiable data about a home to be entered into listings by REALTORS®. Appraisers can then use this data to assess a fair value of green features on a home – such as high efficiency HVAC systems, home certifications, or renewable energy systems. The relationship between accurate data and searchability allow appraisers to assign value to these features, creating more comparable properties with green features. Ultimately, this creates a benchmark for valuation of homes with green features, certifications or ratings, and solar installations. Check with your MLS to see if they already use the RETS-Compliant green fields. If they have yet to implement these fields, help them access the necessary information by visiting www.GreentheMLS.org.

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Review of Module IV In Module IV we reviewed some best practices for listing solar PV homes in the MLS. You now understand which PV system characteristics to highlight, and how to use MLS features to your advantage. Real estate professionals with this knowledge will be able to highlight the benefits of a solar home while reducing their risk of liability.

Now that you have completed Module IV you should be able to:

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Module V. Establishing a List Price for a Homeowner-Owned Solar PV Home

Introduction Now that you know how to properly list a solar home, you will learn how to establish a list price for a home with a homeowner-owned PV system. You will learn how the key concept of contributory value can be used to determine the list price of a home. We will do an in-depth demonstration of a free online tool that calculates the contributory value of homeowner-owned solar PV systems.

After completing this module, you will know how to:

 Identify the information needed to establish the contributory value of a homeowner-owned PV system  Use an online tool to establish the contributory value of a homeowner -owned PV system

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Key Concept: Contributory Value Contributory value refers to the contribution a particular feature or component has toward the value of the whole property. To establish the listing price of a home with solar PV, you should determine the contributory value of the PV system. While there are multiple approaches to establishing value, this section will focus on the two most likely used for a home with solar PV.

Approaches to Establishing Value  Sales comparison approach: A common method used by real estate agents to determine a listing price is the sales comparison approach. In this approach, a property is compared to recently sold comparable properties (or comps). However, the process of finding accurate comps becomes difficult when solar PV is involved. Not only must the comparable properties match similar size and features of the solar home, the agent must also find a homeowner- owned solar PV system of similar size and age.19  Income approach: Appraising a home with a PV system is different than appraising one without. Agents and appraisers can use the income capitalization approach (or simply income approach) to determine the market value of the property. This approach values a property by the amount of income that it can potentially generate. Since PV systems generate income by producing electricity, the income approach is used to calculate the amount of kWh the system produces annually multiplied by the current utility rate.

The current and future income projections can be calculated with PV Value®, a free online valuation tool available at www.PVvalue.com, which we will cover later in this Module. The income projections calculated in PV Value can be used for contributory value.

Real Property or Personal Property Before we get started with establishing contributory value, let’s review which solar systems can be considered in the appraisal process, based on system ownership. 20

 Homeowner-owned: Solar PV systems that the home seller owns (homeowner-owned) are usually considered real property. Real property adds contributory value and can be included in the appraisal.  Third-party owned: Systems owned by a third party are considered personal property. In 2016, Fannie Mae reiterated that third-party owned solar PV systems cannot add contributory value in the appraisal. A home buyer may find value in a third-party owned system, but that value cannot be expressed in an appraisal report.

19 As discussed in Module III a homeowner-owned PV system is one that is owned by the homeowner instead of a third party (leasing or PPA company). 20 Solar PV system ownership was covered in Module III.

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Ei Value® Next, we will walk through a demo of Ei Value®, a free online tool that will help you determine the value of a new or existing solar PV system installed on properties. Currently, Ei Value® is exclusively compatible with the iPad but the developers are working to offer the software on other devices in the new future.

Ei Value® was developed through a grant from the U.S. Department of Energy and has been endorsed by the Appraisal Institute. You can find out more information at www.EiValue.com.

Ei Value Demo® The valuation of a solar PV system with Ei Value® is done using the income approach. This approach considers the present value of projected energy production, along with estimated operating and maintenance costs. Although this approach is more complicated than a sales comparison as it takes more data points to establish value, its rigor may be its strength from an appraisal perspective.

You receive a call from a former client who would like to move and is ready to sell the home that you helped her buy. She lets you know that 5 years ago she purchased and installed solar PV panels on the roof of her home. She would like to work with you again, but she wants to make sure you know how to establish an accurate and fair list price for her home.

You let her know that you can assist her, and that you just need to collect a few pieces of information about the system to figure out its value. Because your client owns the system, it is actually producing income for the home by reducing the homeowner’s electric utility bill. Once you collect the needed information, you can get started with the Ei Value® tool.

Next, we’ll walk you through the Ei Value® tool step-by-step to show you how to calculate the contributory value of the solar PV system. This value can be added to the base listing price. The next few slides will show you how to create an account on Ei Value® and then we’ll be back to walk you through the tool.

Account Setup To get started using Ei Value®, you will need to set-up an account. Visit www.eivalue.com to register. You will be required to provide:

 A professional email address  A copy of your real estate license

Once your registration has been approved, you will receive an email with a link to download Ei Value® to your iPad from the App Store.

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Property Address Once you have downloaded the app and are logged into your account, the first window that appears will ask for the property address. The latitude and longitude fields automatically populate based on the address. To move on to the next screen, you must tap the house icon to confirm the location.

Usage Profile Now that you have entered the property address, you can tap “PV Value® Pro”.  First, provide monthly energy usage information. If none is available, check the “Utility Bills Unavailable” box to get an average based on location. Tap “Next.”  The next screen shows the utility rate based on data from the National Renewable Energy Laboratory. Tap “Done.”

Location Information  On this screen, hold your finger over the array to select it and drag it to the existing or proposed array location. Tap the array in the circle to confirm the location.  On the next screen, select whether the location is Residential or Commercial, and whether the PV array is Existing, Permitted or Proposed. In our example, we will select “Residential” and “Existing” because the homeowner let you know that the solar PV system was installed five years ago.  The next input is “PV Ownership”. As explained in Module III, appraisers can only consider the contributory value of a solar PV system that is owned by the seller. Tap “Next.”

Solar Resource Now we are at the “Solar Resource” page.

To complete the next couple of screens, you will need to collect information from the homeowner, such as PV system and inverter size, warranty terms, panel tilt, and orientation. Let’s go through each field and what data should be entered for this example.

 “System Size” - In our example, the home seller has a 5 kilowatt (kW) system. Since a kilowatt is 1,000 watts, enter 5,000 watts in the “System Size” field.  “Installation Date” - The homeowner installed the solar PV system in April 2012, so select that date from the drop-down menu.  “Module Warranty” - If the seller provides information about their solar system warranty, use that value, otherwise the default of 25 years is fairly standard.  “System Loss” - This refers to the energy lost in the conversion from solar energy to usable energy, from DC to AC. The amount of power that is lost is indicated by “System Loss”. Unless the seller provides you with specific information, 14% is the default.  “PV Array Type” - You can choose among Standard, Premium, and Thin-Film. In this example, select “Standard.”  “Degradation” - Solar PV panels become less efficient over time. Panels produced in 2000 and before lose about 1% per year. Newer panels lose about .5% per year. From the age of the solar

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PV system, you can determine what degradation factor to apply. Since our example is five years old, use a factor of .5%.  “Array Axis Type” - Residential installations tend to be “Fixed Roof Mounted,” though you should confirm this with the homeowner.  “Array Tilt” - The tilt of roof-mounted systems is typically the same as the roof pitch. The system specifications should include information on the array tilt. You can also do an internet search for rooftop pitches in your geographic location and find resources that will help you determine the tilt of the home’s roof. For this home, the array tilt is 39.8 degrees, or a 10/12 pitch.  “Array Azimuth” - The azimuth represents the orientation of the panels, which means the direction the panels are facing. To select your input for this field, tap in the box next to the words “Array Azimuth,” then drag the orb so that it is in alignment with the direction the panels are facing. Our example array is facing due south, which equates to 180 degrees.  After you have completed this page, tap “Next.”

Discount Rate Calculation The discount rate is used by the appraiser to calculate the value of the projected income of the solar PV system. But what does discount rate mean?

 Let's say you expect $1,000 worth of energy generated by the solar PV system in one year. To determine the present value of this $1,000 (what it is worth to you today), you would need to discount it by a particular interest rate. Assuming a discount rate of 10%, the $1,000 in a year's time is equivalent to $909.09 to you today. If you expect to receive the $1,000 in two years, its present value would be $826.45. This concept is a key step for calculating the present value of the solar PV system. Any future income (energy generated) from the solar PV system must be discounted to determine its value today.

Next, choose the “Selected Rate” to enter the information that will be used to calculate three different discount rates. Ei Value®’s base discount rate is the Fannie Mae 30-year interest rate. Basis points are added to that rate to calculate three different valuations (high, average and low.)

 Adding a minimum number of basis points to the Fannie Mae 30-year interest base rate will apply the lowest discount rate resulting in the highest valuation.  Adding a maximum number of basis points will apply the highest discount rate and result in the lowest valuation.  Adding the average of these basis points to the base rate results in a third average valuation.

The appraiser will decide what minimum and maximum basis points will be used for the discount rate. For this example, select 50 for the minimum basis points and 200 for the maximum points.

After the discount rate information has been entered, click “Calculate Discount Rate” to move to the next screen.

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Effective Utility Rate In order to establish the value of the solar PV system, you have to factor in the rate (in ¢/kWh) that the electric utility company charges the homeowner. Ei Value® has a database of rates for several utility companies in the country. The rate is automatically selected, based on the location you entered. However, you can verify the default rate with the actual utility bills to ensure that these numbers align. An actual rate leads to a more accurate valuation.

Tap “Get Rate” next to “Escalation Rate” to calculate the change in the cost of energy over the course of a year. The state energy data collected by the U.S. Energy Information Administration (EIA) is the default.

Installation Cost Now it’s time to take a look at the “Installation Cost”.

 The first field requires you to enter the source of the data provided by the seller. In this example, input “SolarCity.”  Next select the date of the quote or contract. This is a new quote providing the cost to install a comparable solar system today. Select the date of the new quote from the dropdown menu.  Now you’ll choose the “Current Installation Cost” in $/Watt. For this example, use $3.25.  The next field allows you to choose whether or not to use “Straight Line Depreciation”. In the straight line depreciation method, the cost of a fixed asset is reduced uniformly over the useful life of the asset. Due to its simplicity, the straight line depreciation method is the most commonly-used depreciation method. “Straight Line Depreciation” is the default. For this example, select 20.  You may also choose to add “Additional Depreciation”, which is optional. Tap “Done” to move to the next screen.

Operations and Maintenance Expense The next screen is where you enter information for “Operation and Maintenance.”

• The first field allows you to select “Inverter Replacement Cost” or “Annual Expense”. “Annual Expense” breaks down the cost of the entire solar PV system per year. In this example, use “Inverter Replacement Cost”, which is based on the inverter replacement cycle. • Next choose “Inverter Size”. Generally speaking, the inverter size will be the same size as the solar PV system capacity. For our example, enter 5000 watts. • After this, choose the “Installation Date”. This is typically the same as the module installation date, so tap “Same as Module” for this example. • The next field is for “Inverter Warranty.” The example system has a string inverter with a 15-year warranty. As we explained in Module II, inverter warranty terms differ for string or micro-inverters. Micro-inverters typically have the same warranty term as the panel warranty, approximately 25 years. String inverters have shorter warranties, so select 15 years for this example. • Next select whether or not the inverter has been replaced. In this example, assume that the inverter has not been replaced, so leave the selection as “No”.

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• The “Inverter Replacement Cycle” is next. This value indicates how often the inverter needs to be replaced. The default option is 15 years. • The next field is the “Operation & Maintenance Discount Rate”, which is based on the information that you provided about the solar PV array system. You also have the option to enter a “User Provided Discount Rate” by changing the switch to “Yes” and selecting a rate. For this example, use the “Average Discount Rate”. • Ei Value® provides an estimated inverter replacement cost of 55 cents per watt. For a 5.2 kW system, or 5000 watt system, the inverter value is about $2,750. You have the option of entering a different value by selecting “Custom.” Accept the default value by leaving the selection on “Estimated.” • Tap “Done” to complete the Operations and Maintenance section. • Tap “View Valuation” in the bottom lower left corner of the app to view the complete valuation.

Ei Value® Report Summary

Congratulations! Once Ei Value® finishes the calculation based on your inputs, it displays a summary report. The report includes:

 The solar PV system’s estimated value under three different discount rate scenarios  A projection of annual energy production and income values  A cost approach and Income approach summary

To produce a document that can be presented to the seller, tap the “PDF” button in the top right corner of the screen. Enter the Indicated Value of all of this solar PV system’s valuations in $/Watt and any additional comments that you might have about this particular valuation. Tap “Accept” to generate a PDF report.

Ei Value® PDF Report Just like the previous screen, this PDF report includes the three valuation scenarios, the projected annual production, and the input values entered in the tool. Not only is this report valuable for impressing your homeowner, but it ensures that buyers and their agents are aware of the method you used to determine the contributory value. This report will also be instrumental to the appraiser for developing the value of the solar PV system.

So which of the three valuations should you use? In general, using the average value is a fair way to go. For this example, the average value is $6,939. That can be added to the list price you’ve determined using neighborhood comps.

To share or print the PDF directly from this screen, tap either the “Print” or “Send” button in the top right hand corner of the screen. You can text, email, copy to Notes, copy to iBooks or Copy to iTunes U.

To start a new valuation, tap “Completed Valuation” in the top left hand corner of the screen to go back to the valuation report, and then tap “Done” in the top right hand corner of the following page to get back to the home screen.

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Don’t forget the Performance-Based Incentives One final note to keep in mind: in some states with Solar Renewable Energy Credits (SRECs), the real estate agent can take their value into consideration. As a reminder, we introduced SCRECs in Module III. You can find out if your market offers SRECs on the DSIRE website at www.DSIREusa.org.

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Practitioner Spotlight Craig Foley, Associate Broker, REALTOR®, GREEN, OICP Sustainable Real Estate Consulting Services Somerville, MA craig.srecs@gmail.com www.realestate-sustainability.com

What is the market like in your area for homes with solar PV installations?

Massachusetts has seen tremendous growth of solar PV on residential rooftops over the last few years. One of the drivers was Green Communities Act (GCA) in 2008-2009. GCA established a net metering policy and solar incentive program that attracted the solar industry to our state. Today, our rate of growth for solar PV systems is around 1500 new systems per month. As an added benefit, we have over 100,000 clean energy jobs in our state. Looking back just a few years ago, it would have been impossible to predict that over 60,000 homes in MA have solar PV.

Why is it important to learn about solar PV systems?

Well the easiest answer is the potential for litigation. I think that there are too many opportunities for a real estate agent without some level of knowledge and competence on this issue to get themselves in trouble. If you are a REALTOR® you may recognize “knowledge and competence” as they are specifically referred to in Article 11 of our Code of Ethics.

Is there anything about solar PV systems that seems to confuse homeowners?

With the industry being relatively new, I don’t think that many homeowners interested in solar PV knew that they had the opportunity to receive bids from multiple suppliers. Additionally, many homeowners weren’t entirely clear on the pros and cons of leasing versus purchasing the units.

Why should a homeowner select an agent educated in energy efficiency and solar?

Home sellers who want the investment they made in the system realized at the point of sale should use a real estate agent who is well versed in solar PV. The benefit is that they will have someone who is more likely to produce a smooth transaction.

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Review of Module V In Module V we presented the key concepts and tools that can help you establish a list price for a home with a homeowner-owned PV system. You have learned what information you will need to collect from the homeowner in order to use PV Value®. You are now equipped to assist homeowners in transactions that involve homeowner- owned solar PV systems.

Now that you have completed Module V you should be able to:

 Identify the information needed to establish the contributory value of a homeowner-owned PV system  Use an online tool to establish the contributory value of a homeowner-owned PV system

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Conclusion A real estate professional who can assess and understand accurate valuation of solar energy systems is an essential resource for clients:

 Sellers have the best opportunity to attain the full value of their investment  Buyers will feel confident that they paid fair market value for their new home With the exponential growth in PV solar systems and the different solar financing choices available to homeowners, residential solar PV is on its way to becoming the new normal.

Now that you have completed this class, you can recognize the main components of a residential solar PV system, and understand how the system can convert sunlight into energy that can be used in the home. Next time you come across a solar home, you will be able to highlight and accurately communicate its features in the MLS to make its benefits shine.

Solar PV installations add complexity to the valuation process. Because you understand the valuation strategies and resources available to support solar home transactions, you are now equipped to grow your business specialty and have a distinct advantage over the competition.

At the core of learning about residential solar PV is the opportunity for real estate professionals to be at the center of the transaction.

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