Can Solar FIT in Alberta?
The Pembina Institute in their report Power to Change provided a plan to reduce ghg emissions from the power sector, by expediting the retirement of Alberta’s coal fired power plants and converting its two youngest to burn biomass, working on energy efficiency and of course developing our renewables capacities. Below I will try to describe a solar incentive that can accelerate Alberta’s solar microgeneration capacity to 200MW by 2020, and facilitate Pembina’s target of 3,000MW by 2033.
Solar today
Solar’s capacity has been doubling every year for the past three years. There are currently about 1,200 solar power systems connected to the grid with a total capacity of 8,069 kW , which is still less than 0.5% of Pembina’s 2033 target. Although solar has a competitive levelized cost of energy (cost of generating one unit of energy over a system’s lifetime), solar microgenerators are best looking at a 15 year payback. The two financial challenges with going solar – namely its upfront costs and the market’s price uncertainty – are going to be tackled in this incentive.
What’s the incentive?
The proposed incentive will reduce payback of a Mini Micro-Generation Unit (Mini MGGUs have capacities less than 10kW, which is enough to offset annual consumption of most homes and small shops) to well less than ten years. The microgenerator is to recover half the installation cost through an energy rebate incentive to be part of other efficiency rebates, the other half will be rewarded by export credits in their power bills over 10 years. The microgenerator is also saving on consuming energy on-site so their payback is actually going to be less than 10 years. After the contract expires they receive retail cost of energy exported to the grid as they do today.
What are the current and expected future cost of going solar?
The table below describes my understanding of solar market’s installation rates in Alberta and expectations for future costs with a strong incentive as the one being described:
| 2015 $/W | 2020 $/W | 2030 $/W | |
|---|---|---|---|
| modules | 0.95 | 0.62 | 0.44 |
| inverters | 0.8 | 0.52 | 0.43 |
| racking | 0.34 | 0.29 | 0.19 |
| other BoS | 0.30 | 0.24 | 0.16 |
| labour | 0.76 | 0.50 | 0.41 |
| shipping | 0.1 | 0.08 | 0.08 |
| installation | 3.32 | 2.30 | 1.76 |
| adminstrative | 0.2 | 0.13 | 0.11 |
| marketing | 0.2 | 0.13 | 0.09 |
| total | 3.72 | 2.56 | 1.96 |
| -31% | -23% |
Future costs were estimated using a per year cost reduction as follows,
| until 2020 | until 2030 | |
|---|---|---|
| inverters | 10% | 4% |
| modules | 10% | 5% |
| racking | 5% | 4% |
| other BoS | 5% | 4% |
| labour | 10% | 4% |
| adminstrative | 10% | 4% |
| marketing | 10% | 5% |
What is the FIT rate going to be?
As with Ontario’s microFIT program, which started out at a very generous $0.8/kWh and is now at $0.384/kWh, rates will decrease as new supply chains enter the market, solar providers become more competitive and global module and inverter costs continue to fall. As mentioned above, the FIT rate will be designed to reward microgenerators half the installation cost over 10 years. If we take a starting installation rate of $3.5/W then we need a FIT rate of $0.32/kWh.
What’s the cost to incent 3GW of solar?
If we are going to apply the same rate of incentive (ie. payback within less than years), we can expect that larger MGGUs (capacities between 150 kW and 1,000 kW) would cost less to sign up because they will have lower installed costs. If we assume that the average cost per watt spent on microgenerators is $2.5/W then the total payments for incenting 3 GW of solar would be $7.5B. These 3GW of solar will produce 3,300GWh per year, half of which will (supposedly) be exported to the grid, and which at a pool price of $70/MWh will yield $81M per year towards the program, reducing the total cost to $6.7B.
How is it different from Ontario’s microFIT program?
The Ontario microFIT program rewards microgenerators for the energy their systems generate through a unique meter connected directly to the system. In Alberta the MGGU is connected to a load first (a home, building etc.), which is connected to the utility by a single bidirectional meter that measures energy imported and exported from site. By keeping this setting, solar microgenerators are persuaded to reduce their daytime energy consumption when the sun is shining – and when energy is in its highest demand – in order to maximize their energy exports and return on investment.
How does this cost compare to the cost of paying members of microFIT program?
The microFIT program pays credits not for energy exported from site, but rather on the total amount of energy generated. The average payment for a new microFIT contract over 20 years is $7.68/W, more than double this proposed incentive.
What would be the cost per kWh to power consumers?
The incentive can be funded through a regulated surcharge on consumers’ power bills. $6.7B spread over 10 years and an annual supply of 50,000 GWh per year works out to a spread of $0.0134/ kWh.
Benefits of providing export incentives for mini and small microgeneration generating units
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