Solar Micro FiT 3.0 as an Investment
I am asked this question over and over again and I can answer quite emphatically, YES! Most think I answer that way because I’m a nut about renewable energy and sustainability and my business also sells solar arrays. These are valid points but I still maintain that the OPA FiT program is one of the best, secure and environmentally friendly investments you will ever make!
Most people that know me probably are not aware that I was educated and began my career in finance and accounting. A very satisfying time, but alas my entrepreneurial urges got the better of me and I left the profession many years ago. The background and experience in that field have served me well over the years by keeping my various business interests on a stable financial track. It has certainly helped these past five years as we have grown our renewable energy business throughout the ups and downs of the Ontario solar marketplace.
Now, I am also able to draw on my financial background as I help to demonstrate to our clients the financial benefits of green energy technology. In this article I will hopefully clearly demonstrate to the reader the financial benefits of investing in a solar array. I will focus specifically on the Ontario Feed-In-Tariff (FiT or Micro FiT) and how an investment in solar panels outperforms any fixed income investment available today. I don’t presume to be an expert on investments so I encourage you to do your own investigations – and I challenge you to come up with a different conclusion.
First lets quickly go over the FiT program for those that are unfamiliar with it. In Ontario, the Ontario Power Authority (OPA) will sign a twenty-year contract to buy electricity from renewable energy systems (wind, solar, biogas and hydro) installed by you. The rates for each kWh sold vary by type and size of system and can be found on the OPA web site. For this article we will focus on a solar roof mounted system at 10 kW’s in size. For this type of system, under the new FiT 3.0 rules, the OPA will pay you $0.396 per kWh. Two years ago the rate was $0.802 per kWh. Unfortunately, this rate was too good to be true and could not last, but if you were one of the lucky ones to get a contract at that rate and then waited until PV prices dropped then you did quite well. So, is it too late? Absolutely not! The cost of a solar array back then was about 3 times what it cost today so the program is still very attractive, which we will demonstrate for you here.
Now lets consider a typical 10kW solar array, roof mounted with a southern exposure. In today’s market you would pay about $30,000 for this system, installed. Factors affecting pricing include type of inverter (micro or string), roof type (metal, slate, asphalt), access to roof (steep or low pitch) and location, but $30k is a good estimate. When I am working with a client I usually present a range of estimated annual energy production numbers for the array based on several estimating tools including Homer and PVWatts. I also refer back to our installed projects that have monitoring and reporting capabilities in order to provide a fairly conservative production and revenue projection for anyone contemplating this investment. For this example, and under the new FiT3.0 rules on array and inverter sizing, I would conservatively estimate that for each installed kW, the system would generate 1,289 kWh’s per annum/ installed kW or 12,890 kWh’s for a 10 kW array.
At a rate of $0.396 per kWh, that would result in an annual payment of $5,104 from the OPA. Now, there are costs involved that need to be taken into consideration as well as the fact that the panels will degrade slightly over the 20-year contract, but these are minor adjustments. For arguments sake, I’m going to use a 20-year average of $4,620 in net revenue (before income taxes). You will note that I am not including HST in any of the calculations. If you do decide to invest in a solar array under the FiT program I highly recommend you speak with your accountant about the various tax strategies but it is beneficial to voluntarily set yourself up under the HST program and claim back the HST on the initial investment and remit the HST on the payments from the program.
Using my trusty HP12C financial calculator (that I’ve used for the past 30 years), or a PVOA table, you can easily calculate that the rate of return on this investment is greater than 14%. Now compare that to a similar investment with a 20-year locked in rate, with a quasi Government credit rating and you would be hard pressed to find anything paying close to 4 or 5% on your money. Some arguments I have heard are that the Government will renege on the contracts (massive law suits, many, many angry voters, therefore very unlikely) or that the energy production and revenue are dependent on the amount of sun. Well, if in some crazy world the OPA does void contracts, your array still has value in its ability to offset your homes energy consumption, and given rate increases over the next 20 years, this is still a better than breakeven scenario. Solar irradiance data (sun intensity) has been reliably predicting the amount of sun for a given area for over 40 years so the production estimates used will hold true. Now if the sun does stop shining, we all have more important things to worry about than our investments!
Absent from this calculation is any consideration for the useful life of your array. Realistically, your array will provide 30 – 35 years of energy so after the contract is up with the OPA, you can easily have your local electrician reconfigure the wiring so that the solar energy is consumed by your house first, and any extra will turn the meter backwards saving you on your electrical bill. Its called Net Metering.
In conclusion, the FiT program here in Ontario is one of the best
investments of its type (fixed income) and should be seriously
considered by anyone with a roof and available investment capital
living in Ontario. It is also a great way to invest in the future
of our planet, as every kW generated by your solar array is one
less kW generated by a fossil fuel source. We think that’s
important and that’s why we do what we do. If
anyone is interested in the financial aspect of such an investment
we have copies of a very comprehensive spreadsheet that takes into
account taxes, insurance and borrowing costs to name a few and we
would be happy to forward a copy to you to do your own comparative
analysis. Just send a note to firstname.lastname@example.org.
Brian Kennelly is the President and owner of Daisy Energy, a
renewable energy systems provider located in Hamilton, ON. Daisy Energy
installed one of the first renewable
energy FiT projects for a local school board in
2009 and has been helping clients embrace renewable
energy ever since.