Searching for Green

There are two stages in a solar system’s life. By far, the most productive one seems to be the first 20 years, when the microFIT contract is in place. The second stage starts after 20 years, when your utility will probably use net metering, and the electricity you generate will be deducted from what you’re using.

We saw in a previous post that a 3kW system returns barely 1% more than inflation during the microFIT contract. So that number alone is not enough to make me jump and spend my hard earned money.  But maybe the “net metering” years hold the key?

Strictly from a technical standpoint, the panels should work longer than 20 years. I’ve read somewhere about some panels being in service for 40 years! You may need to replace the inverter every 10 to 15 years, though. Let’s consider 12 years as an average. Electronics go cheaper and cheaper every day. But if what happened in the consumer electronics industry is any indication, their quality will also decrease, so in the end you will need to replace the cheaper inverter(s) more often. All in all, it’ll probably even out, so it will be the same as replacing a current generation inverter every 12 years.

The main problem with any prediction is that we don’t have a reliable crystal ball. It’s hard to predict with any degree of accuracy what the price of electricity will be in 2030. But we can at least run some scenarios. The Switch Kingston people, who developed the spreadsheet we used to make the detailed calculations for ROI, use 3% as the annual predicted increase in electricity price. In a normal world this should be enough, because it’s 50% higher than the long-term inflation (2%). If we accept this increase rate as reasonable, the spreadsheet will show the results: in the 21st year, the solar profit before tax will be $264(cell Y28) .  As some of us will probably be retired at that time and earn a lot less money than today, we may have a smaller marginal tax rate than the one considered. Even if we don’t pay tax at all, that’s only $264/year! Peanuts… The cause is obvious: the income takes a big hit because the microFIT price is suddenly replaced with the then-current rates. The panels are showing their age (their efficiency decreases by 0.5%/year) and the costs (meter fee and insurance) are slowly but steadily inching up in step with inflation.

The result is clearly shown in the Graph sheet of the spreadsheet. You can see a nice saw-tooth shape after year 20: the cash slowly accumulates, only to be spent every 12 years on a replacement inverter. The real gain is the difference between two successive peaks: $18,548 in year 36 compared to $15.949 in year 24. This means $2599 in 12 years, or $216/year before tax.  But we should also consider that the calculated amounts are in future dollars. At an average inflation rate of 2%, $1 today translates to almost $1.5 in 20 years and to $2.2 in 40 years.

Some may note that the the spreadsheet uses the current price of 9.3c/kWh (cell Cash Flow:E5) as a base. A more accurate value, including all the fees that add on top of electricity price itself, should be 12c/kWh. But, unfortunately, that cell is protected and cannot be altered.

Another observation is that the 3% yearly increase in electricity rates may be too low. Ontario is known to have relatively low energy prices, partly because the price is regulated. A 2008 OCAA study considers the hidden subventions to be 35%.  It’s not unreasonably to consider that once all the subventions are gone, the electricity price may increase close to the inflation rate. 2% translates to 50% in 20 years, and 3% compounds to 80%. So it may well be that the 3% includes the subvention elimination. But I agree that it may not include the effect of the FIT program on the electricity rates

Last thing to note is that in our model the insurance increases by the inflation rate. It may be possible to reduce the coverage or even remove the panels completely from the insurance policy after 20 years. They don’t value too much anyway, why should we insure them? But what if the wiring, 20+ years old by then, somehow starts a fire?

One thing we didn’t include in our model is the roof repairs. When you want to do that, you may need to call the solar installers to remove the panels and the racks, and then install them back after reshingling. Today’s quotes for this operation range between $600 and $2000. But again, maybe in 20 years any roofer will be able to do this operation for a much smaller amount.

Of course, none of the above is a sure thing. They are just (educated?) guesses. I’m not in the energy business, and I think even those who are cannot safely predict the future over such a long time. But at least for me, there’s one thing to take home: unless something catastrophic or revolutionary happens on the electricity market, a 3kW  solar system cannot stand too well on its own feet. You may want them as a hedge for the unlikely energy market catastrophic jump. Myself, I’m not interested in the bet.

And an important thing to mention, before anyone asks: 10 kW system is a totally different story. That would continue making money for its owner.

SearchingForGreen

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