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The Economics of Solar in Alberta

A White Paper

Authors: David Kelly, P.Eng, David Vonesch, BSc. Eng, and Tim Schulhauser, P.Eng, SkyFire Energy Inc.

The Choice

Albertans have a choice about how they purchase electricity and how that electricity is generated. The vast majority of grid power in Alberta is produced by coal and natural gas. However, Albertans can choose to generate clean electricity on site from a grid-connected solar electric (PV) system to offset up to 100% of annual household or commercial electrical needs. This paper explores the economics surrounding the choice of whether or not to buy power from the grid or to install a grid-connected solar electric system to offset some or all electricity needs.

Escalation of Electricity Costs in Alberta

Electricity is getting increasingly expensive. In fact, the average regulated electrical rate (RRO) in Alberta increased 5.9% per year from deregulation in 2002 through to 2011. From 2002 to 2008 (before the economic downturn) the rate of increase was 10.2% per year. The historical RRO yearly average rates have been plotted in the graph below. Assuming increases of 5.9% or 10.2%, the predicted future costs are extrapolated on this same graph. Note that these historical escalation rates do not account for additional price increases anticipated from:

 Billions of dollars in planned transmission system upgrade costs

 The end of coal fired power in Alberta – the Government of Canada has mandated that no new coal plants be built that don’t meet natural gas emission standards and that existing coal plants be phased out. This leaves about 10-15 more years of coal power in Alberta.

 Carbon Capture and Storage

 

 

Figure 1 – Historical and predicted cost of electricity in Alberta (Regulated Rate Option - RRO) including energy cost per kWh, Transmission & Distribution cost per kWh, and Local Access fee per kWh1

1 Transmission, Distribution, and Local Access Fee charges vary by wires owner and municipality and change regularly. Assumed Calgary numbers - ~3.8 cents/kWh. Exported solar energy receives retail rate in Alberta; solar energy produced and used on the load side of the meter ‘saves’ on retail rate plus variable portions of the transmission, distribution, local access fees, and rate riders. The example in this document assumes 50% of solar energy is used in the building, while 50% is exported to the grid.

 

 

Comparing the Cost of Solar to Grid Power

 

 

 

Levelized Cost of Electricity (LCOE) is the average cost per kWh of electricity (grid power or solar power) over a set period of time, in today’s dollars. In this way, the average cost per kWh of solar produced electricity can be compared to the average cost per kWh of electricity from the grid. The comparison is done over the life expectancy of the system which is 25 years or more. Choosing electricity from the standard fossil fuel supplied grid, it will likely cost between $0.167/kWh and $0.305/kWh depending on assumptions (listed below). Choosing to source some or all of your electricity from a solar photovoltaic (PV) system, residential users will end up paying about $0.122/kWh to $0.204/kWh for solar electricity. The cost of commercial installations can be written off to further improve the economics. The results are shown below.

 

 

 

 

 

 

 

 

system is typically 30 years or more.

FACTS ABOUT SOLAR IN ALBERTA:

Alberta has an excellent solar resource – A solar PV system in Calgary will produce more energy than the same system in Rome, Rio de Janeiro, Paris, Tokyo, or Berlin

Solar PV systems are virtually maintenance free

Warranties of up to 25 years for all major components

 Glass will withstand Alberta’s hail

Assumptions used in this analysis

5kW Residential PV System: BEST CASE

WORST CASE

Cost/Watt installed

$3.75

$5.25

Installed Cost

$18,750

$26,250

Output (kWh/kW/yr)

1.31

1.15*

Interest on Loan

$0

$6355**

% Solar electricity used***

50%

50%

 

FAQs

 

The most common question homeowners and business decision makers have regarding solar power generation are as follow:

 

Q: What is the payback and return on investment (ROI) on a solar photovoltaic (PV) system?

 

A: This is an important question for evaluating whether a company or homeowner should purchase something that will provide an ongoing value. However, the decision "to purchase electricity" has already been made in this case, and what’s left is a "Lease vs. Buy" question: Whether to lease fossil-fired electricity (in perpetuity) from the grid at a rate that is currently increasing at 5.9% - 10.2% per year, or to buy a PV system that secures a low cost of electricity and adds value to the property.

Continuously using and purchasing electricity from the grid does not have an ROI or a payback period and continuously reduces cash flow and retained earnings (savings). With the addition of solar PV, the consumer becomes a producer. A producing asset is added to a home or business, and replaces not another asset, but an expense item and potential liability item. Net wealth increases, and utility expenses are reduced for the life of the equipment (30 years+). Home or commercial building value increases. Personal or business cashflow ratios increase, opening up financing options, or cash for other activities.

 

 

 

 

 

  

 

Q: Should I wait until the price of PV comes down?

 

A: The price is down. With China, Germany, the United States and Japan having installed massive quantities of PV over the last decade, the solar energy sector has seen a significant increase in production and sales over the past 10 years. The resulting efficiencies have finally brought the price of installed PV solar systems to below $5/Watt in most cases. At this price level, the cost of the equipment has come into line with the labor required for engineering, installation, grid connection paperwork and permits. Any decrease in price over the coming years is predicted to be incremental, given inflation and labor rates. Waiting for equipment prices to come down further will likely mean an opportunity cost for homeowners and businesses as they pay increasing grid rates.

 

Q: Are there more than just financial advantages?

 

 

 

 

A: The installation of a solar electric system on your home or business will:

 Reduce your GHG Emissions and environmental footprint, whether for homeowner satisfaction or to meet corporate or governmental targets

 Provide energy security - hedge your future electric bills against inflation and escalating grid prices

 Demonstrates clean energy leadership in the local community

 Peace of mind for retirees (and near retirees): Given a fixed pension income, a PV system is a solid way to ensure increasing household electricity expenses do not eat into disposable income

 Produce up to 100% of your annual electrical requirements

 Increase the value of your home or business