Information for the Ontario Power Authority MicroFIT Review – Solar Rooftops

The Ontario Power Authority (OPA) is undergoing the Feed in Tariff (FIT) review process. Some media reports have suggested that this process is underway due to the recent election, in which the PC’s made an issue of the Green Energy Act and electricity prices. In reality, the Green Energy Act dictates that a FIT review occur every 2 years, and it is the normal and expected review that is underway.
Every jurisdiction that has FIT’s has a periodic review. This is because if the FIT is working properly, then the business is growing, and as it grows, costs come down. At a minimum, costs need to be reviewed. In Ontario, this happens every 2 years.

Unfortunately, Ontario’s FIT review is being handled in a very clumsy way. Contract issuance has stopped. Orders to manufacturers and installers have stopped. It is not clear when it will be resumed, but most in the industry believe it will be 6 months. Applications submitted as long as 2 years ago, but where contracts have not yet been offered, will receive the new price, which may or may not be viable. After all, what is the new price? Where these contracts have been delayed by bureaucratic bungling, as has happened, prices should be honoured, and contracts awarded.

A far better process would be to announce that new contracts will be offered at a price “not below” a certain rate. If the final price is higher, then the contract offers could be adjusted. This would at least allow some contracts to keep flowing, and sales work to continue. A more frequent price review would also help, if the timeframe for doing it could be shortened dramatically. Note that prices for various technologies do not need to be reviewed at the same time.
The OPA should NEVER stop issuing contracts. Don’t batch things. The lumpy nature of the current FIT program has been difficult for manufacturers, installers, and utilities alike. It drives up costs, with no benefit for anyone. The current FIT review process has stopped contract issuance. Businesses will go under, employees have been laid off. This is no way to build an industry.

With that out of the way, what prices work with the lower costs that the industry is seeing. I took a sample 10.6 kW DC system, 10 kW AC rooftop system. The current FIT price is $.802/kWh. What price works today? What is that price sensitive to? What is the impact of a longer contract, or inflation protection? What works for smaller systems – 5 and 2 KW?

Assumptions:
Fixed Cost: $3550 The largest component of this is the utility connect fee. In my home installation, this was $1300. It took Hydro One 10 minutes. In North Carolina, there is a flat fee of $250, regardless of the size of installation. The gouging by the utilities must stop.

Variable Cost: $3.90/W Includes Ontario content panels, inverters, labour, racking, electrical, shipping.
Mark-up: 17%. This is a fair number to cover the sales work, telephone, office, accounting, equipment, computers etc. required to run an installation business.

Annual expenses: $578. This includes mainly insurance, and the monthly account fee from the utility.
Output: 1100 KWh/KW DC installed. This is a good average for Ontario for reasonable southern orientation and shading.

Return on Capital: 9% This would seem to be high enough to cover the risk involved, and attract investment, but not allow excess profits for the installation.

Other: The costs above do not include HST. A homeowner or business can set up as an HST registrant, and get their HST back on their capital cost, and remit HST collected annually. No residual value was assumed.
Outcome:
10.6 KW 5KW 2KW
25 year fixed price/kWh .51 .61 .802 (earns 7%)
20 year fixed price .54 .64 .802 (earns 5%)
25 year with 2% CPI .45 .54 .82
It is clear that a 25 year contract allows for better price for ratepayers. Also, adjusting for inflation (the model assumed 2%) allows a much lower price. The PC’s, media, and anti renewable people never give credit to the government for protecting ratepayers from inflation, so why do it? Better to have a lower marquee price.

The reason the small systems require a higher price is because of the fixed cost component. Today, I believe utilities are gouging on their charges by a lot. The ESA inspection fee is not cheap – it is $250. In
Germany, the electrician is certified to inspect their work, and also on the hook if they do it wrong. This would seem to me to be a much more affordable system. Reducing the fees is vital to ensuring good costs for ratepayers on small systems especially.

This analysis suggests that rooftop solar can be reduced dramatically from the current 80.2 cents/kWh, while still allowing installations to continue, and the industry to take root. Spreadsheets available on request.

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