EditHow to Evaluate Your Solar Investment
Solar is a unique investment opportunity with the following benefits
* A similar risk profile to bonds and GICs.
* Higher annual net returns
EditLow-Risk
The Ontario government's 2009 Green Energy Act contains a significant monetary incentive for solar PV electricity generation, offering 80.2 cents per kilowatt hour of electricity generated from systems with a rated capacity of 10 kW AC or less. The incentive is delivered through the Ontario Power Authority's (OPA) Feed-In Tariff (FIT) program. For more detailed program information, click
here.
The financial backbone of the FIT program is a 20 year power purchase contract with the OPA, backed by rate payers AND the provincial government. This kind of creditor rating can only be matched by government bonds and has proven to be successful for raising capital in other jurisdictions.
EditBehind the Numbers
EditPre-Tax System Cost – $16,000
- Based on an average of quotes from Our Power Vendor Partners in February 2010 using a blend of technologies for residences in Toronto, ON
EditSystem Production – 1,139 kWh/kW/year
- Based on an average of real time system monitoring in the GTA and aligns with production data used by a number of commercial developers
EditPower Purchase Rate – 80.2 cents/kWh
- Based on the acquisition of a microFIT contract with the Ontario Power Authority who purchases each kilowatt-hour a solar generator produces, regardless of the time of day or spot market price, at this set rate for 20 years
EditSystem Performance Degradation – 0.5%/year
- The German solar industry and the National Renewable Energy Lab in the U.S. both list overall system performance degradation between 0.5 and 0.75%/year.
EditUtility Account Fees - $5.25/month
- Account fees charged to micro generators for taking meter readings, billing and administration, standardized across the province by the Ontario Energy Board
EditInsurance – 0.2% of System Costs
- Based on a Toronto homeowner with strong solar knowledge who actively engaged their insurance broker on this issue
EditInflation – 2%
EditTax Implications
Homeowners can write off the income from their solar system until the capital cost of the system is fully depreciated using regular capital costs allowances of the Canada Income Tax Act. Speak to an accountant regarding your tax situation.
Click
here for more information.
EditIncreasing the Value of Your Home'
While some of Ontario's first distributed electricity generators were hit with property tax re-assessments, systems installed under the FIT program will be exempt from this. As such, the increase in home value will not be accompanied by an increase in property value or property tax rates.
Unlike a normal home improvement project that increases your property value and municipal tax payments, a solar PV system operating under a FIT contract, is an asset on your home that generates a revenue stream. The resale value that this asset adds to your home is a function of the revenue that the system will continue to generate after the sale.
This is easily quantifiable over the duration of the 20 year FIT contract but gets more complex thereafter. Because of their simple design, no moving parts and low maintenance characterstics, Solar PV systems can produce electricity for over 40 years and valuing the electricity sales revenue in the 21st year is difficult.
It is a function of system production, grid electricity costs and system lifespan. Reasonable assumptions can be made as to the value of the system in 20 years but certainly the following rule will apply upon resale of the home: the solar PV system will be worth the same as a bond that generates the equivalent of FIT contract revenue over the duration of the contract.
For example:
Once the microFIT contract runs out, a 2 kW solar PV system will produce roughly 90% of its rated capacity or 2000 kilowatthours/year in Toronto. If it simply fed into the grid at peak market rates (21 cents at current inflation rates) it would be worth roughly $430 in annual revenue. Rather than selling a home that is worth $20 000 more, the transaction resembles selling your home with an investment that yields $430 annually, bundled into it.