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FIT to be tied January 31, 2012

Posted by Maury Markowitz in FIT program, power grid, solar.
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In my last post I talked about how we try to compare the value of the electricity that different sources generate. When we measure that in terms of how much you pay, we call that the “Levelized Cost of Electricity”, or LCoE. Right now that comes out to around 25 cents/kWh for solar panels on your roof, a little less than double what you pay on average if you buy power from your local utility.

But the key take-away from these sorts of calculations is that solar is falling in cost, and quickly. It’s only a matter of time before it’s cheaper to put a panel on your roof than it is to buy it from the grid. In the best case scenarios, that day is only a few years out.

Except it isn’t. At least not here in Ontario. And that’s because the very program that is helping introduce PV to the market basically guarantees it will never happen. And if we ever want to see grid parity, and we do, then the program has to go. Here’s why…

Brief refresher

The basic idea behind the LCoE calculation is to take all the money you put into the system and then divide that by all the power you get out of it. The result is in the units of “money per power”, and in practice I like to use “cents per kilowatt-hour” because that’s the number you see on your bill.

In order to do this calculation you need to know only a couple of numbers.

One is known as the “annual insolation”, but its just “how much sunlight you get on the average year”. Here in Toronto, if you add in every effect from seasonal changes to weather to dust on the panels, the standard references say you should expect to make 1150 kilowatt-hours (kWh) per year for every 1000 Watts of solar panels you put up. A 1000 Watt system is four modern panels. This 1150 figure is conservative, every real-world system suggests its 1250.

The next is the numbers of years you expect the system to last. Panels are generally warrantied for 25 years, so normally we just use that number. However, everything we see in the field says the panels will make it to 40 years, and the electronics to about 15. So we’ll budget in one replacement of the electronics on a 25 year life on the panels.

The other is how much you pay for the system. The easy way to do this is to divide what you paid by the total Wattage the system is rated for – or “dollars per watt”. Right now equipment costs are around $2.50 a Watt, and the labor adds maybe another $1. So your system should come in around $3.50 a Watt, and a 1000 Watt system should thus cost about $3,500.

Ok, we’re ready to go…

LCoE = ($3500 + $500) / (1150 x 25) = 13.9 cents/kWh

And if we go the “high road”, assuming the better number for insolation, longer-lived panels and two electronics replacements…

LCoE = ($3500 + $500 + $500) / (1250 x 40) = 9 cents/kWh

These numbers are commonly used in the industry.

So what’s the problem?

So that’s all great and all, but it simply doesn’t work here in Ontario. That’s because of the incentive program. That’s right, the incentive program itself makes sure that solar can’t compete. Want to see why?

Well to start with, every level of government wants their piece of the pie. So your city wants you to get a building permit at $350 or so, and engineering to go with it, another $500. The power company needs to inspect it, and that’s another $550 (for 15 minutes, gotta love it…). And finally, since they pay you based on how much power you produce, you need a meter installed, and that’s up to about $1700. And wiring that meter up? About $1000.

Wait, $2,700 for the meter? Yeah, because of an obscure law that demands that I have to take your existing meter down and replace it with a “dual meter”. It’s lots and lots of work. And that’s the base costs, all of this adds time and paperwork, and I have to charge you for it.  If anything happens during the process to delay it? Uggg.

So let’s just do it…

LCoE = ($3500 + $500 + $350 + $500 + $550 + $1700 + $1000) / (1150 x 25) = 28.2 cents/kWh

So, as you can see, government requirements double the cost of solar power.

Note that most of these costs are fixed ones, and one-time only. It might not be obvious at first glance, but you can improve things dramatically by making a bigger system.

Remember that 1150 number? That’s per kilowatt of panels, so if we add more panels we get more power. Right? But those fixed install costs stay the same.

For instance, let’s put up a big residential system, with 5 kW, or 20 panels. The price per Watt of the panels and inverter stays the same, so the cost for the panels at $3.50 goes to $17,500, and that replacement electronics at 50 cents/Watt is $2,500. So…

LCoE = ($17,500 + $2,500 + $350 + $500 + $550 + $1700 + $1000) / (5 x 1150 x 25) = 16.7 cents/kWh

And that is the problem. The way the system is set up, it rewards maxing out the system size. That’s why 95% of the microFIT applications are 10 kW systems (40 panels) in a farmer’s field.

These systems aren’t really helping Ontario’s power problems. To do that we want as many of these panels in downtown Toronto as we can get. But because of these fixed overhead costs, the economics aren’t great, and less people are interested.

I’ll just say it: it sucks.

 The fix is in

This is totally fixable. You just have to know where the problem came from. It came from Germany, because that’s where the Ministry officials went to visit when they were setting up the program. They didn’t visit California or New Jersey, where they have similar programs that avoid all the overhead.

To be specific, it’s one problem that causes all the grief. That problem is the installation of the new meter. That costs thousands of dollars in extra installation costs. It costs almost as much as the system!

In many locales they don’t bother with any of this. Instead, you just run normal indoor wiring to your existing breaker panel in the basement. There’s no extra meter, less installation overhead (typically), and one less inspection. There goes $1700 in metering, $250 in inspections, and maybe $500 of the electrical. Poof, $2,450 of the system price just evaporated.

So then, why do we need that meter? So basically it works like this… your local power company has been tasked with sending you the FIT/microFIT cheque. I don’t understand why, but that’s another issue. Now because they have to read that meter, and calculate how much you pulled into the house, you can’t have the FIT meter on the “customer side” of your existing meter. If you did that, the inaccuracies in the two meters would add up, and bad things would happen.

Yes, it’s complete BS. They have no problem doing exactly this in New Jersey. So when I called the guy at Measurement Canada to find out what was going on, he said in no uncertain terms that there is no problem and he even detailed to the OPA how to do it. And that went exactly nowhere…

Or we could do what they do in California, and just pay you based on the estimate of what your system will produce. No meter at all. What? Sure, why not? It’s easy enough to tell if the system is working or not, and if it’s working you can estimate the production very easily. We did it above.

Better yet…

The #1 question we get asked is “how many panels do I need for my house”. The #2 question is “what will this do to my bill”. Under microFIT the answers are “none” and “nothing”. That’s because the power companies basically consider the system to be completely separate – its like you installed a meter for a basement apartment, that doesn’t change your bill either.

And for big commercial systems, that makes sense. If I put 1,000 panels on the roof of a factory, you bet I want to account for that separately! But homeowners don’t want to. They want their bill to go down. They’d rather have their bill go down by a small amount than get a separate check for a larger one.

And that’s exactly how “net metering” works. And it’s simpler. And it saves thousands of dollars of install costs. And it goes in quicker, and you pay less taxes, and you don’t have to pay account fees on a 2nd account, and and and…

…and that’s how we should make microFIT work. There’s absolutely no reason not to. None. Not technical, not legislative, not cost wise. No reason.

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