What’s It Worth? Comparing ways to value solar PV installations
Investments that save energy can improve property value, but when it’s time to sell a building, the question remains: what is it worth? As solar photovoltaic (PV) systems gain popularity, appraisers need a standard way to determine the value they add to buildings. Best practices have begun to emerge.
Three approaches are currently being used in the market:
The income approach based on the net present value of future energy savings and a discounted cash flow calculation.
A cost approach that recognizes the value to the property based on the up-front cost of the PV system at purchase.
A sales comparison and market “greenness” approach that estimates the value of the PV system to the building based on resale comparisons to nearby and similar properties with PV systems.
Increasingly, appraisers prefer the income approach for solar PV valuation on buildings. While this method is more complex than others, it is the most nuanced and accurate. In this brief, Institute for Building Efficiency expert James Finlay reviews the opportunities, challenges and implications of these assessment choices.
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