What the PV Value® Assessment Tool Doesn’t Assess
By Peter Gorr, ISEA Board of Directors Member
The added value to a home that a Solar PV system contributes is a very important component that can help offset the concern regarding the initial capital outlay required to purchase a solar system. I have always been a critic of anyone who presented a financial case for purchasing solar equipment that consisted of illustrating a payback period determined by dividing the cash outlay by the annual energy savings and nothing else.
While the energy savings is important and perhaps the most obvious component to offset the cost of the system, real tangible value has been added to the home that will be recovered to some degree when the home is sold. These 2 items are a certainty so it is important to calculate them accurately. Additional items that can generate value but with less certainty and accuracy are the sRECs that the system will generate and potentially be sold and, perhaps the hardest to quantify, the importance (or premium) a potential owner places on using clean energy. For me and many people I meet, this last point is a significant driving force that led us to consider and eventually purchase a Solar PV system.
Determining a home’s added value has been a challenge so I was happy to see an assessment tool developed, PV Value® (http://energy.sandia.gov/?page_id=8047). Unfortunately I was extremely disappointed to see how this model assessed the value of my system. Valuing a PV system with this tool is done using a discounted cash flow approach, which primarily considers the present value of projected future energy production. While I have no argument with this approach, to peg the total added value to the home using just this computation is incomplete. What is missing is indeed difficult if not impossible to model but should not be ignored.
As someone with a math degree and a MBA with a concentration in statistics, I certainly understand and respect the power of number crunching. But my MBA also came with a concentration in Marketing and with over 30 years of sales and marketing experience I also understand and respect that there are some things you can’t input into a pricing model but if you ignore them you will leave serious money on the table if not lose the sale completely. This something is called “perceived value”. Real or perceived, value is what people seek and determines what they are willing to pay. A skilled salesperson knows how to identify any and all value a system offers a prospective customer. And that’s my issue with PV Value®. It misses some real value and all of the perceived value that the system offers.
First let’s start with the missed real value namely potential SREC sales. While selling sRECs are far from certain as well as the price one might receive, sRECs do provide a potential source of income. Since my system was installed over 3 years ago, I have average $70/month in SREC sales income. PV Value® offers no way to account for this which undervalues my system in my opinion. With my energy savings almost the same ($68/mo), PV Value® is undervaluing my system by more than one half. A way to add some value to the system for the income potential it offers the owner should be included. Certainly this should be the case in a state where there is a SREC market or potential to have one. I hate to state a problem and no solution, but I don’t know how to account for this value yet it has been real and I expect it to continue to generate some income.
Second is the perceived value of the system. Most people interested in Solar PV systems are motivated by a concern over climate change and want to lower their carbon emissions. This motivation is so great with some people, like me, that there is a willingness to pay a premium. How much of a premium is certainly subjective and again impossible to input into a model. But it is real enough to add value to the home. Studies indicating homes with solar systems sell faster suggest these homes offer something of higher value to set them apart and this desirable point of differentiation should command a premium.
In conclusion, PV Value® has a place in helping to determine the added value to a home of a Solar PV system but it offers only a part of the total assessment. It basically sets the minimum added value. The current and projected SREC income potential in a given state needs to be added in some fashion as well as the premium justified with a home that has significantly lower carbon and pollution emissions. These additional two other value generators push that assessment up, how high is primarily dependent on the potential buyer. When I add up all the real and perceived value I have received from installing a Solar PV system and compare it to the investment I made, I have always stated and will continue to state “It made me wealthier the day I flipped the switch”. This assessment is accurate, at least to me, and that’s what counts.
About Peter Gorr
Peter Gorr is a retired Director of Marketing, Product Management, and Business Development. He holds aMBA in Marketing and Statistics from the U of Chicago. He is currently the Chair for the NW Cook County Group of the Sierra Club and was recently elected to the state chapter Executive Committee. He is active in local habitat restoration and is on the Board of Directors for Friends of Busse Woods and a founding member of Friends of Deer Grove East. He has been an active member of ISEA assisting the organization with promoting and hosting the Solar Tour, hosting 2012 Summer Social, as well as assisting at several events. His home features a 6.72kw Solar PV system which he has used as a platform to promote the benefits of clean renewable energy throughout the area with speaking engagements and advocating for pro-solar legislation with state representatives