Financials of Solar PV

Low-Risk

New legislation has made an investment in solar PV comparable in risk profile to an investment in a government bond.

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.

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Reliable

Having a profitable solar system in Ontario is directly tied to system performance. Our profitability assumptions are based on data gathered from various GTA PV installations and represent the most comprehensive collection of hard data on solar system performance available on the market.

Click through to view the data for yourself.

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Profitable

A residential solar PV system delivers significantly more annual revenue than an average GIC and until the system is paid off, usually 12 years, this revenue is tax free (see Tax Implications below).

Assumptions
System Size - 2 kilowatts AC
Average installed price in Southern Ontario - $19,271
Average system production in Southern Ontario - 1,111 kWh/kW/year
Annual revenue with FIT contract - $1,572
Years to payback - 12

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Behind the Numbers

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System Cost – $19,721

Based on an average of quotes from 4 different installers in July 2009 using a blend of technologies for residences in Thornhill, ON for the most recent Our Power community project

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System Production – 1,111 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

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Power 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

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System Performance Degradation – 1%/year

The German solar industry and the National Renewable Energy Lab in the U.S. both list overall system performance degradation at 1%/year.

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Utility Account Fees - $9.00/month

Based on an average of Toronto Hydro, Hydro One and Utilities Kingston account fees charged to micro generators for taking meter readings, billing and administration

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Insurance – 0.1% of System Costs

Based on a Toronto homeowner with strong solar knowledge who actively engaged their insurance broker on this issue

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Inflation – 2%

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Tax Implications

For purchases made between until Dec 31, 2011, homeowners can use Class 43.2 of the Canada Income Tax Act to write off the income from their solar system until the capital cost of the system is fully depreciated, usually in year 12. Speak to an accountant regarding your tax situation.

Click here for more information.

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Increasing 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:

A 2 kW solar PV system produces roughly 2100 kilowatthours/kilowatt/year in Toronto, worth roughly $1684 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 $1684 annually, bundled into it.