The Village Green

A blog about how Canadians can achieve energy independence by powering down and then powering up the right way.

With the introduction of the Green Energy Act in Ontario this past year, interest in all things solar is at an all time high.   Selling electricity back to the grid has captured the imagination of a public seeking to divorce itself forever from utility bills.  Even in the past couple of months, interest in the technology has been reflected in the volume of calls we’re getting from clients looking to explore the potential of the technology.  So, I thought I’d riff on selling solar-generated electricity to the grid since it seems to be what’s captured people’s imagination.  

First, a primer: there’s different kinds of solar energy where buildings are concerned. The three major kinds are:

  • Passive solar design that relies on certain building and design principles that are sun-friendly, enabling a building to harvest sunlight for natural lighting or the energy of the sun for natural heating.  Think of the way your cat sleeps in the sun after breakfast.  That’s what we can do with our buildings with the right passive design choices.  
  • Solar heating systems that use actual panels or collectors to heat things like water.  In Southern Ontario, roughly 50% of the hot water used in a typical home could be generated using a solar water heating system.  In a commercial setting, a larger system could be used for heating water in a brewery or a commercial kitchen or even for cleaning horse stables.  
  • Solar electricity generating systems that use a photo-chemical process for converting sunlight into electricity.  These systems are called Photovoltaic (PV) systems.  

Let’s look at solar PV. 

Solar PV by numbers in Ontario 

So what do the numbers look like?  

In Ontario you can expect to pay roughly $10,000 for a 1 kilowatt system that is connected “to the grid”.  A 20-year fixed-price contract with the Ontario Power Authority enables you to sell this electricity under the province’s Micro Feed-In-Tariff (FIT) program at a guaranteed rate of $0.802 per kWh.  

With the solar resource (that is, the amount of sun we get here in Southern Ontario), that 1 kilowatt system would generate roughly 1,225 kWh of electricity through the year.  With the fixed-rate contract under the FIT program, that 1,255 kWh of electricity would result in roughly $980 in revenue annually.   

Following these revenue flows, you could expect your system to attain break even in about Year 11.  Through its 20 year expected life, that 1 kW system would generate roughly a 6-7% rate of return.  (Note: in our modeling exercises we generally allow for a 0.5% reduction in system efficiency per year).  

For commercial installations above 3 kW in size (roughly a $30,000 system), project returns could be further enhanced given that some renewable energy technologies and projects benefit from preferential tax treatment.  In Canada, certain renewable energy technologies fall into special asset classes that allow for accelerated depreciation rates.  

For a business however, a large solar energy installation can be a very tangible expression of values.  Polling research demonstrates consistently that Canadians are confused by corporate claims of green.  Installation of a large renewable energy system is tangible, visible.  It sends a distinct and clear message to the community; it speaks of leadership, innovation, vision and responsibility.  For businesses, solar energy installations are even more valuable as visible statements and representations of core values than as financial-return generating vehicles. 

Solar PV; ready for prime time? 

Is solar PV ready for prime time?   The answer is probably a cautiously reserved “Yes”.   Certainly in Ontario the Micro Feed-in-Tariff is a game-changer.  A similar tariff introduced in Germany kick-started the industry in that country. 

Certainly the future lies in solar as it does with other renewables and efficiency measures.  

According to McKinsey Consulting, by 2020 billions in capital investment will raise the global solar electricity generating capacity between 20 and 40 times what it is today.  

Historically, manufacturing costs on a dollar-per-watt basis have dropped 22% with each doubling in manufacturing capacity.  Meanwhile, the cost of generating a watt of electricity by conventional means (nuclear, natural gas and coal fired plants etc), has been rising. 

If the cost of solar generating capacity continues to drop on a dollar per watt basis, and there is every reason to believe it will, unsubsidized solar electricity generation could reach cost parity with fossil fuel-generated electricity within three to seven years according to some estimates.  Jurisdictions with a high level of solar resource and high electricity prices could reach solar grid-parity in that time frame.   The southern US states, California, Italy, Japan and Spain and high electricity prices have been specifically identified.  

But perhaps more importantly for the carbon-constrained future, the costs of solar are more fully internalized or counted when compared with conventional means of electricity generation.   Electricity generated by fossil fuel burning plants are inherently subsidized given that their greenhouse gas emissions are externalized onto everyone on the planet.  As we begin to assign a price to carbon emissions, solar stands to become the less expensive of the two options. 

The future of solar 

As with all technologies, solar technology continues to evolve and improve.  

Silicon-wafer-based solar PV modules comprise about 90% of the current installed base of systems.  The current state-of-the-art technology is now reaching efficiencies of 23% which is approaching the theoretical efficiency limit of 31% for the technology. 

Thin-film technologies are starting to be deployed at greater rates but the current technology operates at roughly 10% efficiency.  The attraction of the technology is that it uses roughly 5% of the raw material input of current silicon-wafer-based panels.  Thin-film wafers will likely be used in the near future to a far greater extent on building-integrated installations that see building cladding systems and roofing systems generating electricity for in-building or grid-tied use.  

Finally, 3-G or third generation technologies are under development.  3G solar technologies will likely focus on improving efficiencies of thin-film technologies.  The stacking of two thin-film cells could create tandem cells that pull from greater portions of the light spectrum, both visible and infra-red, to greatly improve efficiency.    

Is the future solar? 

Will the future be solar?   The answer is both yes and no.   Solar will be merely one technology of many used in the future as we make the transition to the de-carbonized economy.   

The future of energy will be marked not only by technology shifts but by wholesale design shifts.  Just as computing evolved from a centralized model to a de-centralized model, energy generation will become de-centralized and localized.  We’ll move from massive, centralized, complex and expensive power plants to local, building-level and neighbourhood-level energy infrastructure.   Buildings will become smarter and energy more expensive as we power down and then power back up the right way.  

Solar will be just one technology of many technologies we use along the way to the low-carbon economy.  

Gabriel Draven January 2010 

Village Technologies