The Economics of Going Solar
Everyone has different reasons for considering solar power as a viable way to meet their electricity demand. Some do it for environmental reasons, enjoying the fact that their system offers a solution that reduces carbon emissions. Others do it because they like being involved in the implementation of exciting and emerging technologies.
A common misconception however, is that implementing solar is not economically or financially feasible. This may have been very true 10 years ago, but times have changed, and so have the economics on solar. If you are feeling anxious about going solar for financial reasons, here are some facts and figures to ease your apprehensions!
Assessing the Economics
From a financial standpoint, there are two ways you can think about the economics of a solar installation.
The first is to view it as a financial investment, for which there is a specific Payback Period. This payback period is the time is will take for your energy savings to offset your initial capital investment.
The second way to look at your solar system, is through the lens of a Levelized Cost of Electricity (LCOE). In its simplest form, the LCOE is based on the amount you paid for the solar installation, divided by the total energy production of the system during its lifetime.
There are several factors that exist today that lower both the Payback Period and LCOE of solar installations.
In Western Canada, we are fortunate to have abundant solar resources. In parts of BC, Alberta, and Saskatchewan, one kilowatt (kW) of solar installations can produce anywhere from 1100 – 1400kWh of energy annually. This means that each panel installed produces more energy here than in many other parts of the world, some of which are much warmer than Canada. Fortunately, temperature has little to do with solar potential! With more energy produced per panel installed, the economics on each panel improves.
As with any new technology, increase in global production will decrease prices. The amount of global solar installations is increasing exponentially year-by-year. Almost 100GW were added in 2017, and it is expected that even more will be added in 2018.
The efficiencies of solar panels and the quality of the electrical equipment that supports them is also increasing. Just 5 years ago, your average residential solar panel had an efficiency of anywhere from 14-17%. Today, we see panels reaching efficiencies of 18-21%. To supplement this advancement, electrical components such as inverters, which convert the power produced by panels into usable energy, have become more efficient and cost effective as well.
Research and Development
Solar companies and the financial institutions that support them are investing heavily in R&D to stay competitive in an emerging market. Improvements in quality control and process optimization for panel production have reduced costs significantly. Also, the implementation of robotics and automated processes have made production more efficient and less labour intensive.
- Rebates: In some cases, provincial governments offer cash incentives for going solar. In Alberta, residential consumers can receive a rebate of $0.75 per watt of solar installed, up to a maximum of 30% of costs or $10,000, whichever is lesser. In Saskatchewan, SaskPower offers a rebate of 20% of installation costs up to a maximum of $20,000 for consumers capable of generating up to 100kW.
- Net Metering: In BC, Alberta, and Saskatchewan, energy retailers will buy excess power that you produce from solar at the retail rate.
A Bigger Market
The average energy consumer today has more choices as to who they select as their solar installer. This increase in market competition translates to tangible savings. It is estimated that homeowners can save up to 10% on their installation by shopping around for the best deal from a reputable company. Solar providers are constantly updating their pricing and options to stay relevant.
Utility Rate Escalation
In order to account for inflation increasing demand, electricity providers are forced to increase the price at which they sell power to consumers. As distribution systems and transmission lines get older and more used, the cost for their maintenance will be passed down to consumers. Additionally, volatility in the forward markets, where energy retailers buy the power through Power Purchase Agreements (PPAs), can lead to increased downstream costs for energy users.
Both the Alberta Electric Systems Operator (AESO) and Alberta Utilities Commission (AUC) have predicted significant increases in prices in the coming years. In our neighbouring province, SaskPower has escalated its rates consistently over the past few years to meet increasing demand. A recent increase of 3.5% took palace in March of 2018, and the province has approved 10 increases since 2007, translating to a 45% increase in the span of a decade.
With power being more expensive each year, the value of a solar installation increases annually, since the electricity you are offsetting is becoming more expensive.
When people produce their own power locally, their habits change. The ability to monitor your solar power production and energy consumption in real time often leads to a tangible increase in energy efficiency. For example, a homeowner who knows they are producing more power during the day time, may choose to do the laundry or wash the dishes during the day instead of at night. Changes like these translate to your power being used more effectively, which will in turn improve the economics of your system. Most solar installations come with a monitoring infrastructure so you can track your energy usage and savings. The power is literally in your hands!