Solar panel popularity demands better property valuations
Many insureds want to install photovoltaic panels, but experts report inconsistencies in equipment valuations.
If solar power wasn’t on the radar of more businesses and homeowners before the pandemic, it should be now.
The 2022 Inflation Reduction Act allotted billions of dollars in potential tax credits for smarter energy use and generation, and solar energy is a big part of that push, not to mention the ESG benefits of using solar power.
There also are many ways for insureds to use solar. Some may install panels directly on their properties while others rent out space to third parties who use solar power.
Here’s another reason for the growing popularity of photovoltaic (PV) panels: Installation costs dropped by 90% between 2010 and 2020, JLL notes. The equipment also lasts longer than it used to, now averaging 25 to 40 years of use before needing to be replaced.
“Three quarters of landlords (75%) currently have between 5% and 25% of their portfolio equipped with solar panels,” JLL reports. “With all industries under pressure to decarbonize, the affordability and accessibility of PV offers many benefits to commercial real estate. As a result, PV is expected to have the highest share of future power generating capacity, overtaking natural gas in 2026 and coal in 2027.”
But the potential benefits are complicated. Not all buildings have the exterior space to place the size of array that might be needed for a given use. Rooftop geometry and orientation will affect how much power can practically be generated. All this and more fall into the question of how to construct valuations for a building.
“Although PV solar panels can introduce complexity to valuation, this does not have to be a barrier to widespread adoption amongst commercial and real estate landlords,” said Emre Karagozlu, director of renewable energy valuation at JLL, in prepared comments. “The Discounted Cash Flow (DCF) approach allows greater detail to be inputted into the valuation, creating the opportunity for a more detailed appraisal that more accurately captures the benefits of installing PV panels.”
The more accurate and encompassing the valuation, the better for financing, pricing for sales, financial planning, and also taxes, whether applying for specialized tax credits or determining whether cost segregation might be applicable and, if so, what the depreciation valuations might be.
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