Do Solar Panels Increase Home Value? The Evidence Says ‘Yes’

Solar power can save you a substantial amount of money on your utility bills. But this ubiquitous and harvestable energy source can also increase your wealth in another way.

Extensive research shows that solar panels can increase your home’s resale value, and possibly by quite a lot. Solar-powered homes are attractive to potential home buyers, since solar can help them maximize their return on a huge financial investment.

How much do solar panels increase home value?

Anecdotal evidence collected from home sellers and realtors confirms the truth about homes that feature rooftop or ground-based solar panel installations. They are in high demand, creating a busy and active seller’s market.

But if solar energy does indeed boost your home’s value, the question you’re undoubtedly asking is, by how much? 

In 2019, the real estate marketplace company Zillow did an extensive survey on the impact of solar energy on home sale prices over the past 12 months. Their data showed that homes with solar panels had been selling for 4.1 percent more than similar sized homes without solar power [1]. For the median-valued home this amounted to a $9,274 premium above the expected profit [2].

The Zillow study also compiled data for specific states and cities. It identified four states, New Jersey, Pennsylvania, North Carolina, and Louisiana, where the solar premiums on home sales were higher than 4.1 percent, with New Jersey homeowners enjoying the highest premiums at a robust 9.9 percent above the norm [3]. Among urban locales New York City stood out, with an impressive 5.4 percent premium on the sales of solar-powered homes [4].

In an earlier study published in 2015, researchers from the Lawrence Berkeley National Laboratory looked at solar home sales in six states. In these locales, they found that solar panels boosted a home’s value by an average of $3.78 per watt of solar-generating power [5]. For a home that featured a four-kilowatt solar energy array, which would be a typical for an modest-sized American residence, this would add $15,120 to the final sale price.

What factors influence the property value of a solar home?

The statistics prove that solar energy pays off, from the moment your install it until the moment you sell your home to an eager buyer.

If you own your solar panels free and clear and decide to sell your home, you’ll be able to get a better price than if you’d never installed a photovoltaic system at all. But the exact amount of the premium will depend on a number of mitigating factors, each of which could cause the final sale price to rise or fall.

Some of these vital considerations include:

#1 Geographic location

The principle is simple. Solar energy systems installed in states that get more sunlight will produce more energy and therefore more savings on energy costs than systems installed in states where the sunlight is relatively sparse.

Grid-tied solar systems will be the only option in low-sunlight locations, and utility-produced electricity will be used frequently to supplement solar output. Conversely, homeowners who install solar panels in high-sunlight localities may be able to supply all or nearly all of their home’s energy need by harvesting the Sun’s prodigious output. If they’re still tied to the grid, they may be able to boost their financial windfall by selling some of their excess solar power back to their utility company. 

You’re probably wondering, where does your state score on the average daily sunlight chart? Here are the top 10 and bottom 10 states on the cumulative sunshine scale [6]:

The state with the least amount of annual sunshine, Washington, gets just 60 percent of the sunlight as the state with the highest amount of annual sunshine, Arizona. Needless to say, a house with a full complement of solar panels in Phoenix will be worth more on the market than a similar home in Seattle, given its increased potential for harvesting the Sun’s free energy.

#2 Electricity rates

This is one instance where higher prices for electricity work to your advantage. If you live in a state where electricity is relatively expensive, your savings from solar panels will be greater, which will add to the value of your solar home. If by chance you have a grid-connected solar array and it produces excess energy you can sell back to the utility company, once again high rates will mean higher compensation for you.

An extensive study by the market and consumer data company Statista provides detailed information about electricity costs across the United States [7]. At the present time the state of Hawaii has by far the most expensive electricity, at 39.97 cents per kilowatt-hour consumed.

Seven states, including the solar hotspot of California, have electrical rates above 20 cents per kilowatt-hour. In total there are 38 states with rates of between 10 and 15 cents per kilowatt-hour, so the variations aren’t that notable in the majority of the country.

What this all means is that people selling solar homes in Hawaii or California will be putting more valuable properties on the market than those selling solar homes in North Dakota or Idaho, where electricity rates are barely above 10 cents per kilowatt hour and the savings on electricity are therefore less.

#3 Percentage of energy needs met by the solar panels

The majority of solar energy systems in the United States are connected to the grid. This allows homeowners to meet all of their energy needs without having to rely exclusively on solar, which may not supply enough electricity at certain times of the day or year.

From the perspective of a potential buyer, the value of your grid-tied solar energy system will be directly proportional to how much of your energy usage needs it actually meets. If you depend too much on the utility company to fill in the gaps, the value of your solar power array—and your home—will be less than you hoped.   

#4 Age of the solar panels

Most solar panels come with 25-year warranties, which is a testament to how reliable solar technology is if it is properly installed and maintained. Nevertheless, solar panels do lose efficiency over time, as a certain amount of age-related wear and tear or degradation is inevitable.

How much the degrade will depend on the quality of the solar equipment you purchase. Solar panels are classified as Tier 1, 2, or 3, with the Tier 1 versions degrading the least and the Tier 3 panels degrading the most [8].

If you get your solar photovoltaic system from a top-rated company that manufactures Tier 1 panels, such as SunPower, SolarWorld, LG, or Panasonic, you can anticipate a degradation rate of just 0.3 percent annually, according to a study undertaken by the National Renewable Energy Laboratory (NREL) [9]. Tier 2 solar panels lose energy-generating capacity at a rate of about 0.5 percent each year, while Tier 3 panels decline in performance annually by about 0.8 percent.

After 25 years of service, you would expect Tier 1s to lose only about seven percent of their operating efficiency, while Tier 2 and 3 panels would be 11 and 18 percent less efficient if they’d been in use for that amount of time [10].

These numbers matter when you’re trying to sell a solar-powered home. If your rooftop panels are 20 or more years old they will be less energy-efficient and may need to be replaced within a decade or so, and both of these factors will suppress your solar home premium.

#5 Motivation of the buyers

Many people are legitimately and truly excited about renewable energy in general and solar energy in particular, for ecological reasons or because they find the technology elegant and attractive.

A real estate company known as Rocket Homes carried out a study of how solar energy affected home sales. They found that solar-powered homes sold 13.3 percent faster on average than solar-free residences, and were 24.7 percent more likely to be sold for more than the original listed price [11].

How do solar panels affect property taxes?

When you install rooftop solar panels it will increase the value of your home, and that may be reflected in your property tax assessments.

Depending on where you live, this is a legitimate concern. You can expect a higher property tax bill after installing solar panels in the following states: Alabama, Arkansas, Delaware, Georgia, Idaho, Kentucky, Maine, Mississippi, Nevada, Oklahoma, Pennsylvania, South Carolina, Utah, Washington, West Virginia, and Wyoming [12].

The good news is that the remaining states all offer property tax relief to homeowners who install solar energy systems. In 29 states plus the District of Columbia you will be 100-percent exempt from property tax increases based on renewable energy installation, either permanently or for a period of up to 20 years [13].

Factors to consider when going solar

A solar photovoltaic power system does represent a serious financial investment. That is why you must be absolutely certain you’re ready for rooftop solar before you join the renewable energy revolution.

The impact of solar energy on your home’s resale value is one factor that could tilt you toward solar. Here are some other factors that should affect your decision:

#1 Location

If you live in a low-sunlight state with no property tax exemptions and low rates for grid-based electricity, solar won’t deliver the same level of savings as it will in a state with the opposite characteristics.

Solar could pay off in the long-run no matter where you are, but it’s a much surer bet in some locations.

#2 Energy consumption rate

If you decide to jump on the solar bandwagon, the amount of money you save on electricity will be directly proportional to how much you’ve been spending on electricity taken from the grid.  

To illustrate how this works, imagine you and your neighbor have both installed four-kilowatt solar arrays, and further imagine that each of you has cut your grid energy consumption by 70 percent as a result of this savvy choice.

If your previous energy bills totaled $2,400 a year while your neighbor’s were just $1,200, it means you’ll enjoy twice the financial windfall as they will even though you’re both saving money.

#3 Solar incentives

Incentives offered by government agencies, solar manufacturers, and energy providers will let you enjoy extra financial benefits for installing solar, above and beyond the normal solar savings. The possibilities include:

• Federal Tax Credit: This income tax deduction is currently set at 30 percent of the total installation costs of your solar photovoltaic system [14].
• State Tax Credit: These will be based on a percentage of the cost of the solar installation. The maximum available credit will range from $500 to $5,000, based on where you live.
• Net metering. This is the practice that allows you to sell any excess power your solar panels produce back to your utility company, in return for credits on your energy bill. Net metering is only available if your solar energy system is connected to the grid, and is currently offered in 33 states [15].
• Rebates. Some cities, counties, states, solar manufacturers and utility companies offer rebates to new solar customers, on specific products or on the cost of an entire installation.
• Solar Renewable Energy Credits (SRECs). In a handful of states you will be issued one of these credits for each megawatt-hour of energy your solar panels produce [16]. You can then sell them back to your utility company for a nifty profit.
• Performance-Based Incentives (PBIs). Available in a limited number of states, PBIs are small direct payments issued to solar homeowners for each kilowatt-hour of electricity their solar panels produce [17].

The Clean Energy Technology Center at North Carolina State University maintains a comprehensive database of all the solar incentives available in each state.

#4 Installation costs

Based on data collected from 37 states, EnergySage estimates that the average cost of a solar panel installation project in 2022 is $20,020, with variations by specific state and city ranging from $16,870 to $23,170 [18]. These figures include the offset from the federal solar tax credit, but exclude other credits and rebates that could help you recover some of your initial investment.

Naturally, costs will vary based on the size of the solar array you require to handle your home’s energy requirements. EnergySage found that the average cost of solar panels in 2022 is $2.86 per watt of capacity purchased, which means you’d need to spend $11,440 on equipment alone if you purchased a four-kilowatt solar power system for your home [19].

#5 Solar payback period

Your solar energy payback period is the amount of time it takes to recoup your initial investment in solar panels via energy savings.

You can estimate this by first determining your installation costs, minus any tax credits or rebates you expect to accrue. Next, you’ll need to estimate your monthly savings on electricity going forward, while also factoring in any additional financial benefits you might be eligible to receive down the line, like SRECs and PBIs.

From this point it’s simply a matter of adding up the monthly savings until the total surpasses your initial investment. EnergySage researchers determined that the average payback period for a new solar customer in 2022 would be 8.7 years, after which all accumulated benefits could be counted on the positive side of the ledger [20].

The answer is clear: solar panels do increase home value

A home with solar energy is less costly to occupy than one that relies exclusively on the grid to power its heating and cooling systems, electrical devices, and appliances. Realtors know it, homeowners know it, and home buyers of all income levels know it.

Multiple studies have confirmed what common sense would suggest about solar energy’s impact on home values, which is that they will automatically go up once a fully-functional solar power system has been installed.