Rocco Quaresima, FRQ Property Advisors, LLC

Although solar photovoltaic (PV) systems used to convert the sun’s light to electricity have been around for over 100 years, they have recently gained popularity for several reasons. Increasing energy costs, declining costs of solar PV systems, improved energy production, tax incentives, public policy, renewable energy credits (RECs) and the growth of the green movement have all contributed to increased demand for renewable energy and in particular, solar PV systems. In addition to fields that hold large ground mounted arrays, solar PV systems are being incorporated in commercial, industrial, and residential properties. Therefore, appropriate methods for estimating their contributory value must be developed. Typically, the contributory value is derived using a discounted cash flow analysis that develops an estimate of value based on the present value of projected future energy production along with an estimate of operation and maintenance costs that are anticipated to be incurred during the solar module power production warranty timeframe. The valuation incorporates the solar PV system’s specifications to include size, age, module warranty, inverter warranty, derate factor, module degradation, array type, array tilt, and array orientation. Additional factors to consider include local electric rates, estimated electricity escalation rates, and salvage value. Assuming all the necessary information is available, a credible estimate of the solar PV system can be derived. Historically, the cost of solar PV systems has been greater than the estimated value, however, the gap has been shrinking as technological advancements have led to decreased cost and increased energy output. Current incentives that help bridge the gap include a 30% tax credit and 5-year depreciation schedule. Within the State of Connecticut, ZREC contracts are also available. ZREC is defined as a Connecticut Class I Renewable Energy Credit from a zero emissions facility which meets the zero emissions standards as defined in the Energy Act. One  ZREC represents one megawatt of energy production. As part of Public Act 11-80 signed into law by Governor Malloy on July 1, 2011, the state of Connecticut directed Eversource and The United Illuminating Company (UI) to launch a 22-year program to promote, fund and expand “behind the meter” renewable generation. According to Eversource, electric customers in Connecticut who install new, qualifying renewable energy projects including rooftop solar panels have an opportunity to sell qualified Connecticut Class I renewable energy credits (RECs) created from their projects to Eversource under a long-term, 15-year contract. The contributory value of a ZREC contract is valued separately and provides an additional incentive to prospective purchasers of PV systems. Connecticut Green Bank also provides funding for energy related improvements through their Commercial Property Assessed Clean Energy (C-PACE) program. According to the Connecticut Green Bank, C-PACE allows building owners to finance qualifying energy efficiency and clean energy improvements through placing a voluntary assessment on their property tax bill. Property owners pay for the improvements over time through this additional charge on their property tax bill and the repayment obligation transfers automatically to the next owner if the property is sold. The PACE assessment can be either (1) assumed by the buyer; (2) paid off by the seller during the sale; or (3) paid off prior to the sale of the property. The availability of C-Pace funding has also attracted property owners to make energy efficient improvements. The Appraisal Institute has been instrumental in providing their members with the education, resources and tools necessary to provide credible results when valuing solar PV systems as well as other energy efficient improvements in residential and commercial properties. Members that complete the coursework requirements under the Valuation of Sustainable Buildings Professional Development Program are placed on a registry that allows users of appraisal services to find appraisers that have identified green/sustainability as a specialty. The National Association of Home Builders recognizes the Appraisal Institute’s training on green properties and encourages lenders to consider appropriately qualified appraisers to value green properties. A summary of requirements for completing the Valuation of Sustainable Buildings Professional Development Program can be found at http://www.appraisalinstitute.org/education/yourcareer/professional-development-programs/. The Connecticut chapter of the Appraisal Institute is offering Case Studies in Appraising Green Commercial Buildings on November 8-9. Members that are interested in completing the requirements and being recognized on the commercial registry are encouraged to sign up given the limited offerings of the course nationally. Solar PV systems are an important part in addressing the need for renewable energy in the USA and throughout the world. As technology continues to advance, the systems will start to blend into the architecture of new buildings and will hardly be noticeable. Therefore, it is important for not only real estate appraisers, but for lenders, underwriters, attorneys, tax assessors, builders, realtors and others to become familiar with the systems and their impact on value. FRQ Property Advisors, LLC is a commercial real estate appraisal and consulting company located in Hartford, Connecticut. The firm specializes in the analysis of commercial real estate, with an emphasis on multi-tenant income producing property, including office, retail, industrial and mixed-use developments. The company’s mission is to provide unbiased, credible valuation services in a timely manner.

Rocco Quaresima, MAI, is principal of FRQ Property Advisors, LLC, Hartford, Conn.