Every year more than half a million Americans buy a newly built home. These homes are typically over 30% more energy efficient than an existing home as today's builders are focused on building greener homes. However, if SolarCity (NASDAQ:SCTY) has its way, new homes will eventually be energy producers instead of energy consumers. That concept could enable home buyers to enjoy clean energy that's virtually free.
Going green and saving green
SolarCity has been working directly with homebuilders to incorporate solar into new residential construction for a couple of years now. So far the company has signed up more than 30 national and regional homebuilders that feature a solar energy option in more than 100 communities across the U.S. SolarCity is looking to expand its broad homebuilder program this year by working with builders to build homes that generate more energy than they will use over the course of a year.
The best part of the program is that it costs the homebuilder and the homebuyer nothing up front. The company's Energy Advantage Program lets SolarCity upgrade new homes in a community with solar power systems without adding a dime to each home's purchase price. Homebuilders get a feature that has been shown to sell homes faster, while buyers lock in a low rate for clean solar energy for the next 20 years.
In many cases the savings from solar power pay for the system's cost in 15 years years or less. In theory a homebuyer that's buying a home with a SolarCity system isn't paying a dime for the solar system as the savings, over time, more than make up for the system's cost.
Growing trend of going green
SolarCity isn't the only company looking to increase the number of solar panels placed on new homes built each year. Homebuilders like KB Home (NYSE:KBH), PulteGroup (NYSE:PHM) and others all work with SunPower (NASDAQ:SPWR) to have panels installed on newly constructed homes in some communities. The big difference here is that these builders tack on the extra $10,000 to $20,000 it costs to purchase and install a system to the price of the home. That said, it's about 20% cheaper to have solar pre-installed on a new home than to add it after the home is built.
Under this scenario a homeowner can embed the cost of a system into a mortgage. This, according to SunPower CEO Tom Werner, enables a homebuyer to be, "cashflow positive month one" as the utility savings can be used to help pay the mortgage. While this is a bit different from the SolarCity scenario where the system is leased over the course of a 20-year term at no upfront cost, both options save homeowners money while also supplying them with clean energy.
Overall, homebuilders and home buyers are embracing solar. SunPower has already supplied the solar components to more than 10,000 newly built homes. States like California are leading the way, as one in five new homes in that state are built with solar panels. Meanwhile, KB Homes has really embraced solar, as it has built more than 1,800 homes with rooftop solar systems since 2011. The company is also currently developing 22 communities where solar systems come standard rather than as optional add-ons. This growing trend among homebuilders isn't going away.
Because of this, in many markets today homebuyers can add solar to their newly built homes for absolutely no upfront cost if their builder has partnered with SolarCity. That said, even paying the upfront cost to embed a system into a mortgage can save consumers money over the long-term, especialy with today's historically low mortgage rates. That makes it a great time to be a homebuyer as options abound to have clean solar power pre-installed on a new home, saving buyers a lot of money in the long-run.
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Matt DiLallo owns shares of SolarCity. Matt DiLallo has the following options: short April 2014 $20 puts on PulteGroup. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.