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Subsidizing Solar

Due to economies of scale and a small market, Solar PV electricity is more expensive than conventional grid electricity in most jurisdictions, except for at peak demand times. Many governments have introduced subsidies for solar energy to account for the many environmental and social benefits it offers to their citizens. These subsidies have led to generation capacity increases and falling module costs in leading countries such as Germany, Spain and Japan. The most successful subsidy in its simplicity and profitability for investors is the Feed-In Tariff program which rewards production and ensures a reasonable return on investment.

History of Feed In Tariffs

The idea for a Feed-In Tariff (FIT) in Ontario came from the program's successful implementation in European countries such as Germany, Spain, France and Denmark. Germany's renewable energy law, also known as the EEG, was the model used for the design of Ontario's 2009 Green Energy and Green Economy Act, which features FITs as its centrepiece.

How the FIT Works

A FIT is a production incentive that pays a generator of renewable electricity a fixed rate for every kilowatt hour (kWh) of electricity that the generator produces over a 20 year period. This differs from conventional generators whose compensation fluctuates with the Hourly Ontario Electricity Price (HOEP). As a result, the FIT allows for much easier economic modelling of revenue for small projects, lowering development costs for these projects.

Even more important is the ability of a FIT contract holder to access capital. A 20 year FIT contract, guaranteed by the entire Ontario rate base, significantly lowers risk for financial institutions and lowers the cost of borrowing.

Proposed Rates

The rates offered by the FIT program are structured to allow generators to cover their costs and earn a reasonable (competitive) return on their investment. As project size affects project costs, different tariff levels have been proposed to ensure profitability for all project sizes. The Ontario Power Authority (OPA) has proposed the following rates for solar PV which are expected to be confirmed in September 2009.

<10kW - 80.2 cents/kWh

10-100kW - 71.3 cents/kWh

100-500kW - 63.5 cents/kWh

>500kW - 53.9 cents/kWh

<10MW - 44.3 cents/kWh

Realistically, the 80.2 cents/kWh rate is the only one that will apply to the average Ontario homeowner as 3 kW of PV is usually
the maximum sized array that a conventional roof will allow.

Mechanics of Compensation

In order to receive payments under the FIT program, solar electricity generators must sign a 20-year FIT contract with the OPA. This contract is standard for most grid-connected generators in the province. These contracts are expected to be available starting in June 2009.

More Information

See the OPA Feed-In Tariff Webpage