High electricity costs and erratic power supply have become a common phenomenon considering the constantly increasing demand in the power sector. Solar power has presented itself as a strong alternative source that can power energy needs without interruptions and can also save a chunk of money on energy bills. As a result having a household powered by a solar system has become more desirable. Mostly, energy savings and environmental benefits are the two main reasons to go solar, but often times solar systems can promise enhanced financial benefits by way of appreciating home value.
Installing a solar system has many benefits namely:
House Value With Solar System vs Without Solar System
A research by an American real estate information agency Zillow, estimates that houses with solar system sell at an average premium of 4-5%. While it may change based on geographical location; in an Indian context the premium amounts to roughly INR 200-250/Wp on per watt basis. So a 3KW solar system installed on its roof may attract an estimated premium of almost 600-750K. This is a remarkable gain compared to the cost of setting up a solar system in the household.
The value addition may vary depending on the various factors like size of solar system, and age of the solar system.
In general, home buyers show particular interest in owning energy efficient homes and are willing to pay a premium for it.
How does having a solar system add to the value of a housing property?
A solar system positions itself as a high return investment that potentially brings down the cost of ownership of houses in the long run by decreasing the cost of electricity.House owners expect to recoup their initial investments and also make sizable profits thanks to lower electricity bills and property tax benefits from the solar system. Considering the financial benefits in the long term, paying a premium makes sense.
Additionally, solar systems, like interior renovations, are deemed as an improvement to the houses that attracts greater interest in the property.
Factors that influence the corelation between solar system and property value
Solar systems are expected to last easily over 20 years and hence can save much more on bills than installation costs. A location with year long access to the sun promises a faster returns and larger financial benefits. Also location having frequent power cuts and high electricity bills, the buyers value the benefits of solar power more. So location of a house plays a very important role in the percentage appreciation that solar systems add to property rates.
Size of Installation and Average Energy Usage
Property value is directly related to the size of solar systems installed. The average energy utility of a house has to covered under the solar system installed. Some state policies allow solar system sizes equivalent to the 100% of the sanctioned load of grid power. Simply put, greater the solar system size, greater is the annual financial savings and hence greater the perceived value addition.
Cost of Electricity
In localities where the cost of electricity is too low, solar systems do not promise a faster return on investment. In such cases paying extra for a household powered by solar may not attract a premium. Paying more for an eco-friendly option is more a matter of choice than an investment decision.
Age of the Solar System
The age of solar system installations on a property is inversely proportional to the premium that the system attracts.A newer solar system shall have a larger life span and revenue potential than a system that is old. Also the performance of solar system degrades with time decreasing the average returns.
So overall we can come to the conclusion that apart from being a notable environmental initiative, solar systems also offer a plausible investment option. Solar system installation in India is being seen as a smart future investment, from the viewpoint of both finance and environment.
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