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Will Demand for Solar Homes Pick Up?


Builders find the savings from cheap power is making solar homes more attractive

As global financial markets melted down in October, Congress handed a gift to America's green energy industry: It renewed and broadened a set of tax credits for wind and solar power, geothermal, tidal energy, and more. The move did little to prop up eco-energy stocks, which have followed oil prices down. But the news did send a positive jolt to one of the economy's darkest sectors: homebuilding. Or, more specifically, solar-powered homes. Consumers recognize that green homes "save money month in, month out," says Rick Andreen, president of Shea Homes Active Lifestyles Communities in Scottsdale, Ariz.

Most of the sweeteners Congress conjured up will go to big projects such as wind farms. But aspiring buyers of green homes will benefit, too. The revised 30% one-time investment credit for solar means that a buyer who installs a typical $25,000 solar panel system on his roof will get $7,500 in income tax credits, up from $2,000 under the old standard. How long that investment takes to pay off will depend on local rules and utility rates. In markets with the most costly power, such as California, Connecticut, and New Jersey, the pretax compound rate of return on a typical home solar system will be better than 15% per year, says Andy Black, chief executive of OnGrid Solar, an industry research firm.

The fresh credits may mark a turning point for solar-powered homes. During the housing boom, when mortgages and energy were both cheap, green power was not a hot option; typical home buyers preferred granite countertops to solar panels. But even before the subprime crash, builders began to see rising interest in sun-powered dwellings. Ryness Co., which compiles sales data for homebuilders, found in a recent survey that homes with solar systems were outselling others by as much as 2:1 in 13 California communities.

Today there are about 40,000 solar homes in the U.S., but that number is set to spike. Shea is adding solar to communities planned for Arizona, California, Florida, and Washington State. And, responding to a shift in buyers' attitudes, big builders such as Centex (CTX), Lennar (LEN), Pulte Homes (PHM), and Woodside Homes are following suit. Consider Whitney Ranch, a development south of Sacramento. Sales there softened in the housing downturn, says Kathryn Boyce, an executive at Hanley Wood Market Intelligence. But when Standard Pacific Homes (SPF) put solar systems on a group of new models in the development, they sold out. The builder then decided to install panels on all 304 of the homes.

The appeal of solar homes could grow as the economic outlook worsens. The more utility bills cut into household reserves, "the more consumers recognize the value of efficiency," says Robert W. Hammon, principal of ConSol, a green building consulting firm. And there's growing consumer awareness that solar homes appreciate faster than ordinary dwellings. They also resell for a premium of up to 5%.

According to Ben Hoen, a researcher at Lawrence Berkeley National Laboratory who studies the effects of eco-features on real estate values, more homeowners now see solar panels as a long-term asset. Mortgage lenders, however, have been slow to make that link. The loan processes at Fannie Mae (FNM) and Freddie Mac (FRE) don't give special treatment to buyers who make improvements to lower utility bills, says Shea's Andreen. Builders wish lenders would start to take stock of eco-features. "Solar panels free up household cash flow," Andreen says. "Lenders should recognize that."

Aston is Energy Environment editor for BusinessWeek in New York .

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