Here's a Look at the Payback Period for Roof-Mounted Solar Photovoltaics (PV)
For the last 3 years, Albertans have been the beneficiary of extremely low electricity prices. 2018 has seen electricity prices climb back up to pre-recession levels, thanks to new legislation and a recovering industrial sector. Meanwhile, the cost of electricity generated from solar continues to fall thanks to cheaper materials, increased efficiency, and growing knowledge & competition among local installers.
Alberta is home to a world-class solar resource, with a solar system in Calgary able to produce the same amount of energy as a solar system in Miami, Florida, over the course of one year. As a result, the cost of electricity from solar is rapidly approaching parity with the cost of electricity generated from fossil fuels, with the added benefit of zero greenhouse gas emissions.
A Brief History on Electricity Rates in Alberta:
The market price of electricity in Alberta reached all-time lows in early 2017. A languishing industrial sector caused a softening in industrial electricity demand, and rock-bottom natural gas prices allowed gas generators to bid into the electricity market at very low rates. This resulted in Albertan’s paying one of the lowest electricity rates in the world at 2.88c/kWh.
Around this time, the Alberta government put into effect a long-term maximum capped price on electricity of 6.8c/kWh for customers on the Regulated Rate Option (RRO). Customers on the RRO pay the lesser of either the market rate or the government capped rate. If the market rate exceeds the capped rate, the Alberta government pays the retailer the difference. The RRO applies only to the energy rate (c/kWh) and does not apply to transmission & distribution fees, which make up a large part of an electricity bill.
In order to be eligible for the RRO, a business or residence in Alberta must consume less than 250,000kWh annually (approximately $17,000). Customers not on the RRO pay either a fixed contract rate or a variable market rate that may be higher or lower than maximum capped rate.
The capped rate is in effect until May 31, 2021, at which time it will be re-evaluated by the government. There is a possibility that the next government favors a market-based approach and does not renew the price cap, exposing customers to market rates that may be significantly higher than the price cap.
Electricity rates increased rapidly in 2018
The 2015-2018 period of historically low electricity prices appears to be coming to an end. Prices rose sharply in early 2018, rising 89% from an average of 4.6c/kWh in March to 8.7c/kW in August. The average pool price exceeded the 6.8c/kWh capped rate in April, July, August & September. Factors at play in the market include:
Consider a 40kWdc solar array (details below), installed on a commercial flat roof top in Calgary, Alberta. Using the latest commercial technology in an ideal installation, with current government rebates and electricity rates, the end cost to the customer is about $55,000. The array will produce approximately 45,340kWh annually. With transmission and distribution fees and rate riders included, this electricity is valued at about $4,851.38, resulting in a simple payback period of about 11.3 years or 8.8%. As electricity prices increase, payback will improve in lockstep.
In summary, electricity from solar photovoltaics is rapidly becoming cost competitive with grid sourced electricity. Currently, payback periods are hovering around 11 years, but as electricity prices rise from historic lows and the price of material and labor to install a solar system drops, payback periods will improve to less than 10 years.
Building owners that are attracted to solar energy for the carbon-free electricity, and the association with corporate social responsibility and environmental sustainability will also find that the financial benefits of solar PV make it a worthwhile investment.
Appendix – Example project details:
Materials: Tier 1 400W modules (25 year warranty), inverters with optimizers (12 year warranty), ballasted 10 degree racking, array pointed straight south, no shadowing from trees or buildings, installed in Calgary.
Grid electricity: Customer pays 6.8c/kWh for electricity (the RRO). When bundled with transmission and distribution fees, and rate riders, the total cost to the customer is about 10.7c/kWh. Total costs are generally about 10.5c/kWh to 11.5c/kWh depending on the wire service provider and geography. Rates are constantly changing, with a general trend upwards.
SMP Engineering has provided engineering, design and construction administration services for over 2000kW of solar PV arrays on buildings in Alberta, and would be pleased to discuss our portfolio with you and to partner with you on your next project. Should you have any questions regarding the content in this post, please contact our office.