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I don’t believe in free lunches. Whenever somebody offers me anything for “free” I immediately ask myself what’s in it for them. If the answer doesn’t bother me, I may go with the offer. microFIT PV is no different, so here is the best explanation I could think of.

This is the first part of a series analyzing what are the incentives for the Government to offer such a generous price for the solar-produced electricity. If you remember from my previous post, the electricity produced by the roof-mounted solar panels is rewarded with a price of $0.802/kWh, at least 8 times higher than the price we pay for the electricity we use.

I’ll start with a quick note: since I’m only interested in solar panels, whenever I write microFIT PV I’m only considering the grid-tied Photo-Voltaic installations, aka solar panels. Also, when I’m talking about the Government, I’m thinking of the Ontario Provincial Government, which controls 70% of the provincial electricity market through Ontario Power Generation, and also controls the pricing through its agencies.

Now it’s time for some basic considerations about how the electricity industry works. Because electricity cannot be easily or cheaply stored, the production should always match the consumption. But the consumption varies wildly during the day and also during the year. So we need to have generators capable of producing the maximum amount of electricity needed at peak time, even if that peak is just for a few hours a day. As the demand constantly increases because of our ever growing electricity hunger, the peak also rises and new generators are needed. Building them takes a long time and it’s extremely expensive.

Let’s see if the amount of power potentially generated by the microFIT installations is comparable at least to a power station. OPA’s press release notes that they received 19,000 applications until August, 2010. Just for the sake of the argument, I will consider that only 15,000 of them will finally end up installing their solar panels, and that the average installation is 7kW. The latter is an absolutely wild guess, but based on a few facts:

  • the maximum installed power is 10 kW
  • the minimum installed power that may be financially reasonable is probably around 3-4 kW
  • OPA is complaining that too many applications are for ground-mounted installations. I suspect most of those are probably close to the 10kW limit, since it makes economic sense

The total installed power is:

15000 installs x 7 kW = 105,000 kW = 105 MW

Given that around Toronto 1 kW system can generate around 1100 kWh/year, the total yearly production is:

105,000 kW x 1100 kWh/kWpk= 115,500,000 kWh, or 115,500 MWh

If this power were to be equally spread during the whole year, how big the respective power plant should be? It’s easy:

115,500 MWh/(365 days x 24hours) = 13.18 MW.

And this is only for the people who were interested enough to put an application in the first year of the program! Now, the only thing that we can’t easily grasp is how big a 13 MW power plant really is. According to the list of power plants in Canada, there are lots of hydroelectric plants smaller than 13 MW. I counted 63 in Ontario alone! And it seems that they still build small hydroelectric plants. Glen Miller Generating Station is only 8MW, and it started working at the end of 2005.

So here is one of the main advantages: even if all the microFIT PV installations in Ontario are equivalent to a single power plant, that’s money the Government/OPG doesn’t have to borrow to build it, as they usually do these days! In the worst case, it will at least buy them a little time, for a total cost of … $0. OK, there’s  a little exaggeration here, there are some costs for administering the program, but they should be nominal.


P.S. If you want to read the rest of my analysis, go on and read part 2.

Update: I discovered the OPA report for the second quarter of 2010, which confirms our estimates. At page 9 they mention the microFIT program status, as in the table below. We can see that the installed average system power is lower than the one applied for. That’s probably because they stopped approving the larger ground-mounted systems early in the year, dragging the average installation to a lower value. Anyway, the total power for all the applications is 154 MW, so our estimate was not far off.

NumberTotal Power [kW]Average power [kW]
Applications16756154000 9.19
Approved3997 35000 8.76
Installed552 2900 5.25
The status of microFIT applications as of July 2010

Today, the “green” electrical energy is more expensive to produce than the traditional methods. That’s mainly because it requires huge upfront capital costs for building the new facilities, which can be recovered only after a long time, usually measured in decades. But faced with the need to reduce the pollution generated by the traditional power plants and the foreseeable decrease in available supplies of fuel, the governments all over the world are trying to find methods of making the solar and wind energy production more palatable.

Almost a year ago I first read about a new “green energy” program launched by the Ontario Government. The main program is known as FIT (Feed-In Tariff) and is targeted towards companies. But what interested me more was that it had a little brother, named microFIT, which is intended to be used by families and individuals who want to produce energy on a small scale using sun, wind, water or biomass.

Unfortunately, as a city dweller, wind, water and biomass power are either unavailable or impractical for me to tap. But solar power is relatively easy for me to harness, since my roof has an almost perfect southern exposure. I previously considered installing Photo-Voltaic panels (aka solar panels, or PV panels), so the microFIT announcement was an unexpected chance to look again into the possibility to recheck the viability of one of my old abandoned project.

Prior to microFIT, the only possibility was something called “net metering”. Under this method, all the electricity your PV panels generate will compensate your own consumption, and if there is any excess, it will be injected back into the electrical grid. At such moments, you may see you meter spinning backwards, which is really cool :-). Anyway, you end up paying only the difference between your total consumption (lightbulbs, TV, diswasher, etc) and your total production (solar panels), hence the “net metering” name. However, after receiving a couple of quotes and making a few simple calculation, it was obvious that at the current electricity price, the payback is around 20 long years. Even so, there were a few pioneers which installed such systems. Hats off to them! But for me, there’s no way I would sink $25k only to get them back in 20+ years…

The good news is that microFIT works differently than net metering. All the electricity your panels generate is injected into the power grid, and the utility company (usually known as Hydro in my part of Canada) will pay 80.2 cents for each kilowatt-hour (kWh) of production. At the same time, you only pay the regular price, around 10 cent/kWh, for everything you are consuming! This imbalance is meant to be an incentive for regular people to get into green energy production, and considering the 17000 applications received by the Ontario Power Authority in less than one year, we may say it proved interesting for a lot of folks!

So now I have some thinking to do: does microFIT change the numbers so that it is reasonable to install my own solar panels?


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