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Grid parity in Ontario April 17, 2013

Posted by Maury Markowitz in FIT program, solar.
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Talking to several local installers, I’m finding that 10 kW microFIT systems can go in at as little as $32,000, fully commissioned. In power-industry lingo, that’s $3.20 a watt (update: I’ve since seen $2.60!). And if you’re not on microFIT and don’t need Ontario content, you can cut another 20 cents off that.

The effective cost of electricity from solar PV is basically a function of the cost of the system and pretty much nothing else. So what rate do we get when we plug in 3.20 a watt into a calculator? You get 16.6 cents/kWh. And what do you get if you plug the current 12 cent average rate for power off the grid? 17 to 20 cents.

So that’s that. We’ve hit grid parity in Ontario.

Now let me show you how to do this on your own, in case you don’t live in Ontario…

I covered the basic concepts in much greater detail in a former article. That was pretty math-heavy though, so this time I’d like to do something simpler and show give you  step-by-step guide to using an online calculator to do the same thing.

So let’s start by opening a new window with the calculator in it, just click here.

Ok, now I’m going to step you through this line by line…

  1. Solar panels last about 25 years. There’s a few caveats to this number, but for now set the Periods field to 25.
  2. Leave the Discount Rate alone, it defaults to 4% and that’s as good a value as any.
  3. The Capital Cost is measured in $/kW instead of $/W, so multiply by 1000. For the prices I’m seeing, the base number in this field is 3000 to 3200. Depending on whether you need to add metering and inspections, you might add as much as another 500 to this value.
  4. Capacity Factor is a measure of how often the power plant is actually producing power. In the case of solar, it’s 50% maximum, because of night. In practice, clouds, rain, snow and the angle of the sun all conspire to greatly lower this. You can get an estimate of the number by clicking on the little map icon, but the values here are known to be too low so use the larger end of the range. Toronto looks to be in the 12-14% range, so I used 14%.
  5. For PV, everything else is in this section of the page is zero – there is a tiny O&M cost for replacing the inverter, but you can simulate this by adding 150 to 200 to the Capital instead. So Fixed O&M, Variable O&M, Heat Rate and Fuel Cost are all set to 0.
  6. After recent announcements in Ontario, the average rate for power is supposed to be about 12 cents. However, this doesn’t take into account all the “adders” like Debt Retirement Charge and Delivery Fees. If you add them in it comes out closer to 15 cents. I set my Electricity Cost to 14 cents, but play with this one.
  7. The Cost Escalation factors in inflation. The calculator defaults to 3%, but in Ontario that’s well below the correct figure. We’ve already been told that our bills will be going up as much as 50% in the next few years, but maybe after that it will go to 0 again? So I left this at 3, but again, play.

And that’s it, you’re done. When I put in the numbers above, including adders in the Capital line to take it to 3500, I get a LCoE of 18.3 cents. If you take the current price of power here, 12 cents, and then add in 25 years of inflation at 3%, you get an average of 19.8 cents.

And when the cost of power from solar is less than buying it from the grid, you’re at grid parity.

Now I highly recommend you play with these numbers. For a small system, under 20 panels, the cost of the system per watt goes up because fixed costs in wiring and meters represents a higher portion of the price. Try running it at 4000 and 4500. I’d also recommend you go and take a look at your power bill and get a better number for the real cost of power. Take the total pre-tax number and divide by the kWh you burned and you’ll have a better value to put here.

This is where things get fun. If Hawaii and Germany are good examples of what happens when you hit parity, things are going to get very interesting over the next few years.

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