Financial Discussion of microFIT Solar PV Assessment

In this continuing series of our own experiences with the Ontario micro-FIT solar PV program, I provided the details of the quote we received following the on-site solar assessment from Sun Volts Unlimited; please do access that article for the details of the quote.

Today, following some time to reflect and analyze the details and in receipt of some additional information from Sun Volts, I thought it would be interesting to focus on the financial impact.

Yes, the altruistic objectives of the Ontario Power Authority’s (OPA) microFIT program can be seen as environmental. And, sure, the OPA’s financial objectives of the program can be one where the more green power which is generated in the province the less the OPA will have to spend on creating new electric generating power plants (regardless of the energy source)  to replace the retiring coal burning and old uranium based generating stations.

However, for the program to be of interest for the individual household to participate it must be financially viable. The OPA indicates, in its July 14, 2010 Rational publication, that its pricing of 80.2 cents per kilowatt-hour is meant to achieve “…roughly an 11 percent return on equity over the 20 years of the project contract.

In setting FIT and microFIT rates, OPA took into account typical project capital costs, operating and maintenance costs, financing costs and expected electricity production over the life of the project.  A 70/30 debt/equity split was assumed and debt borrowing costs were assumed at 7 percent.”

The Sun Volts quote indicates that the return on investment would be 15.89% (approximately). However, it does not include any operating or maintenance costs, financing costs, typical reduction in the output of the solar panels over the 20 year microFIT contract or loss of electricity generated by the solar panels to the inverter, etc.

I have to admit that on occasion when I have to deal with some detailed number crunching my head can hurt icon smile Financial Discussion of microFIT Solar PV Assessment even though I do have a significant financial educational and professional background. However, I want to be sure I know what I am getting into should I drop $33,000 of the bank’s money (there, you already know what my financing percentage is icon smile Financial Discussion of microFIT Solar PV Assessment ) on a 4.480 kilowatt Solar PV system.

The best tool, and it is free too icon wink Financial Discussion of microFIT Solar PV Assessment , I have come across for the financial analysis was referenced to me by Vasile, a long time visitor to DailyHomeRenoTips.com. It is a nicely laid out and comprehensive Excel spreadsheet file for microFIT projects provided by SWITCH, the non-profit organization out of Kingston, Ontario (thank you, Vasile). I highly recommend  its use before you commit to any solar installation contract, microFIT or otherwise. It takes into account financing, solar panel performance reduction, insurance costs, etc. It is really quite good. Thank you, SWITCH!

Now, here are the initial data I entered for my situation into the spreadsheet (so you can check my data entry accuracy if you wish) and the result from its vast array (OK, slight pun there icon wink Financial Discussion of microFIT Solar PV Assessment ) of formulas and Excel macros :

  • System Size (Kw)- 4.480
  • System Cost (includes HST for me) – $32,987.77
    • NOTE: The program assumes that the standard / typical installation cost is $8,000 + HST for each Kw installed. For me, the calculation resulted in a system cost of $40,499, which is more than $7,000 more than my quote from Sun Volts Unlimited. I used the Sun Volts quote
  • Utility Connection Fees + MISC  – $750
    • I live in Oshawa and the Oshawa PUC Network charges $550 for the meter & connection, plus HST. To be conservative, I used $750 since the category includes miscellaneous costs.
  • Amount Borrowed – $32,987.77
    • Yes, 100% of the solar roof top system cost. If I had $32,987.77 lying around I would put it into an RRSP to get the tax deduction (I am woefully behind on my RRSP contributions) and would still finance 100%
  • Energy Production (kW hours / kW / year) – 1060
    • To be conservative, I used the number from the OurPower online assessment, which is on the conservative side.
    • The Sun Volts Unlimited quote I received has a number of 1,460 kW hours per Kw per year. Mind you, they would be using 224 watt panels vs 200 watt panels on the OurPower quote. I took the conservative approach as the OurPower quote includes the roof orientation degrees as well as the roof pitch so I have to assume the Sun Volts quote is assuming perfection in the roof orientation and pitch too.
  • Insurance – I left this at the 4% rate in the spreadsheet. Mine would be a little less according to my insurance broker.
  • Interest Payments – 4%
    • The SWITCH spreadsheet uses 5%. However I would be using my existing home line of credit which currently is very good at less than 3%.

And with the above entered, the SWITCH Excel spread sheet indicates I would receive a Before Tax Rate of Return over the 20 year microFIT contract – 10.17%. It is a little less than what the OPA microFIT is aiming to provide little producers like myself; yet, for a 20 year investor I think that is pretty good.

What if I increase the Energy Production from 1060 to 1100? The Before Tax Rate of Return over 20 years increases to 11.17%.

What if I increase the Energy Production to 1130, which is the average in the Toronto area from a variety of sources? The Before Tax Rate of Return over 20 years increases to 11.96%.

All three of these returns are much less than the optimal Sun Volts return. Yet, with 100% financing it still seems like a good deal to me.

Have you ever wondered how investing in a solar installation under the microFIT program compares to simply contributing the same amount to a Registered Retirement Savings Plan? We were. Simply select this link to our comparison between microFIT vs RRSP.

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Comments

  1. Vasile says:

    Hi, Dan!

    I wouldn’t use the current LOC rates (I presume based on prime) for any long-time predictions. Almost everybody agrees that we are currently still very close to a historical low of the interest rates. Even OPA uses 7% for their calculations. If you are conservative in your calculations, you will be double-happy if the rates somehow remain low.

    Regards,
    Vasile

  2. Vasile says:

    Hi, Dan!

    I did and redid the calculations for the small 3 kW system I intend to install. No matter what, I cannot go over 3% after tax. If my calculation are right, even a 10 kW system yields less than 5% after tax. Take a look at the microFIT series I wrote on my blog,
    http://www.searchingforgreen.ca/is-there-money-in-the-sun-207

    Regards,
    Vasile

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