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Why solar power might soon become affordable

Here Comes the Sun: The big promise of solar energy was that it would help us reduce our carbon emissions and our impact on the environment. Nobody ever said it was going to be cheap, too

Aug 15, 2012

by Max Fawcett

As things stand right now, solar power is the energy sector’s answer to organic produce: a nice idea and a source of moral fortification, but one for which most people can’t justify paying extra. That perception was reinforced this past spring when Enmax launched Generation Choice, a boutique solar program aimed at people who wanted to try the technology but didn’t want to go through the hassle of setting it up. “What we’ve tried to do is package a solution so that customers don’t have to go to a store, buy a panel, figure out the racking and the inverter and who’s going to install and maintain it,” says Helen Bremner, Enmax’s vice-president of residential markets. “This is a turn-key solution.”


Solar Potential: Comparing renewable and non-renewable sources of energy to the potential of solar power
Source: Perez & Perez | All Figures except Finite Sources in TWy (TeraWatt Years) per year

But as University of Alberta energy economist Andrew Leach pointed out, turning that key would cost home owners at least an additional $4,300 – and potentially more, depending on how much power the units end up producing – above the cost of grid power over the life of the 15-year contract. Enmax stressed that it never intended for the solar units to be cost competitive. “Yes, there’s a premium on renewables at the moment,” Bremner says, “but this is a long-term relationship.”

That premium is about to disappear, though, and when it does it will do wonders for the state of that relationship. According to Kyle Kasawski, the president of Provident Solar and the general manager of the Landmark Group’s new in-house solar program, the days of solar power being treated as a luxury product are just about over. In the future, people will invest in solar units for one simple reason: they’ll be cheaper than the alternative. In fact, Kasawski says that grid-parity – that is, the point at which the cost of solar energy is the same as the power sold by utilities like Enmax and Epcor – could arrive in time for the next provincial election. “I’ve picked 2016 as my year,” he says. “That’s when I’ll be able to go up to people and offer them cheaper electricity than the utility.”

That sort of optimism is at odds with the prevailing narrative – at least, the one that finds its way into most newspapers – about the solar energy industry. There doesn’t seem to be a week that goes by without the announcement of at least one bankruptcy or restructuring in the solar manufacturing sector, while pundits like the Financial Post’s Terence Corcoran and the Globe and Mail’s Gwyn Morgan aren’t shy about regularly – some might say obsessively – reminding readers why they think solar is a lousy idea.

Kasawksi, though, isn’t fazed by the negativity. “For sure, there’s an oversupply in the marketplace, which is keeping the cost of the solar panels down,” he says. “But that’s a good thing. There’s definitely some culling of manufacturers going on, but it’s not happening as dramatically or as quickly as I thought it would.”

Kasawski thinks that, in time, the North American solar manufacturing business will see the same kind of consolidation that the automotive industry did a century ago, as the operators with better cost efficiencies and superior products weed out their weaker competitors. But the real winners, he says, will be the producers and consumers of power – along with people like him who are in the business of installing the units. “We’re at this point where the cost is extremely low. It’s super exciting.”

Grid parity has already arrived in some parts of California, where solar power can be produced as cheaply as $0.08 per kilowatt hour (kWh) thanks to some pretty generous government subsidies. And while Alberta isn’t there yet, it’s not because the solar resource in the province is lacking. “In Canada, we’re the best,” Kasawski says. “Medicine Hat gets as much sun every year as Miami. We have a phenomenal amount of sunlight that falls here unobstructed by clouds.” Calgary, with more than 2,400 hours of sunshine each year, isn’t far behind.

Edmonton engineer Gordon Howell has witnessed the evolution of the solar industry, and the remarkable gains in efficiencies it has made, first hand. He installed the first solar electric system in Alberta on the roof of his Mill Creek home back in 1995, and the economics behind it make Enmax’s controversial program look like a screaming bargain by comparison. According to his calculations, the system will pay itself off – that is, return savings on his energy bill equivalent to the installation cost – in around 200 years. Obviously neither he nor the unit will last that long.

But when it comes to the cost of solar power, things are changing – fast. Thanks to massive increases in the efficiency of solar panels and the equally substantial decline in their cost, the payback period on a solar system today is closer to 25 years. Howell, who chairs the City of Edmonton’s Renewable Energy Task Force, thinks those improvements are just the beginning. Case in point: by the time the task force delivered its report to Edmonton city council in May, the cost models it had built for solar were already obsolete. Given the relationship between the number of solar installations and their cost – some in the solar community have posited that there is a Moore’s Law-like effect at work – it’s not unreasonable to think solar could move into the mainstream in short order. “My goal is to see every house in Alberta have a grid-connected solar electric system,” he says.

The biggest challenge to getting there, Howell says, is changing the way people think about energy in the first place. “We live in an energy illiterate society,” he says. “We’re not used to putting up the money and doing all the economic analysis and reaping the benefits over a long period of time. We’re not used to that – utilities are.”

Tim Weis, the director of renewable energy and efficiency policy at the Pembina Institute, agrees. “We need to have more people involved in the dialogue around how energy works and understanding its true costs.” Weis says comparisons of the cost of solar to grid power fail to take account of the fact that there are all kinds of additional charges – transmission and local distribution fees and other fixed costs – that get added onto the average Albertan’s electricity bill. “If that were actually on a per-kilowatt basis, you’d be closer to $0.12 or $0.13.” More importantly, Weis says, Albertans are also paying for the adverse health effects associated with relying on and living close to coal-fired power. “The problem is that the average person doesn’t see those costs on their electricity bill.”

King coal’s built-in cost advantage won’t last forever, though. The province’s aging stock of coal-fired plants will need to be replaced at some point, and when they are the price attached to the electricity they generate will have to go up. “We’re not going to be replacing it with $0.50-per-watt coal plants,” Howell says. “We’re going to be replacing it with $3-per-watt coal plants, and then they’re going to have to have the pollution emission controls on them that will make them even more expensive. And so, all of a sudden, the base price of electricity is going to skyrocket.” Making matters worse is that there are 11 coal-fired power plants (generating 4,300 megawatts per year, or roughly 40 per cent of Alberta’s current supply) that have power purchase agreements with the province set to expire on December 31, 2020. After that they’ll be able to sell their output on the open market at whatever price they can get. And if the price they can get isn’t worth the trouble of upgrading the aging facilities to new federal environmental standards, they would almost certainly be closed down – which would likely drive prices even higher.

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The price of solar, on the other hand, is headed in the opposite direction. It has come down by more than 50 per cent in some markets in the last year alone, and people like Kasawksi think that, on an industrial scale, it could be produced for as little as $0.05 per kWh. The fact that major players like Enbridge, Capital Power, TransCanada and even Goldman Sachs are making multibillion-dollar investments in solar generation suggests they think the economics are favourable over the long-term as well.

That’s why, Howell says, comparing the spot price of electricity generated by today’s solar to yesterday’s coal-fired plants (a common habit for critics of solar) makes no logical sense. “It would be like saying that 30 years ago I bought a $6,000 Toyota Tercel, and now that it’s all worn out, I want to go and buy another $6,000 Tercel. But will I be able to buy a $6,000 brand new car? No. Now they cost $20,000.”

Howell is betting the costs attached to those new Tercels will soon make programs like Enmax’s Generation Choice more attractive than they are today. The Alberta government could make them look even better if it wanted to and has the means already at its disposal. The basic elements needed for a feed-in tariff are already in place: under the terms of the province’s 2008 Micro-Generation Regulation, Albertans can now sell any solar power they generate back into the grid and receive a credit against the power they consume. “We already have the mechanism in place that would allow individuals to take advantage of these small-scale technologies,” Weis says.

If the Alberta government wanted to encourage more people to take up the solar habit, a small premium above the going rate for electricity would certainly go a long way. There’s just one problem: implementing a more generous feed-in tariff would almost certainly draw the ire of those who support small government – such as those who continue to insist that Ontario’s feed-in tariff has led directly to a dramatic increase in electricity prices in that province, despite evidence to the contrary. The Albertan government could choose to fight that battle – the oil sands, after all, would never be where they are today without massive government support, and the oil and gas industry receives hundreds of millions of dollars every year in royalty relief and tax incentives – but Premier Alison Redford may not have the appetite for the fight.

An alternative, and one that might be more politically feasible, is an increase in the effective price of carbon that emitters have to pay in Alberta. Right now, it sits at around $15 a tonne – and only for certain industrial emitters. Weis thinks doubling it to $30 could have knock-on effects on the price utilities charge for coal-fired electricity that would make solar and other renewables more attractive. The fact that TransAlta, along with its partners, Enbridge and Capital Power, would rather pay the penalty for emissions than try to reduce them through the government’s Pioneer carbon-capture-and-storage project – which had $779 million in secured government funding – has prompted the government to review its policy on the matter. Indeed, as TransAlta’s vice-president of policy and sustainability, Don Wharton, told the Globe and Mail, “What’s really needed is a regulatory framework on CO2 [carbon dioxide] that puts a value on that CO2. A significant value.”

Still, even if the government does nothing, Kasawski is confident that solar’s day is at hand. The only question left, he says, is how quickly it comes. “We are a slow species when it comes to making decisions. We go with the herd.” So far, that herd hasn’t made any aggressive moves towards embracing solar. But if recent history is any indication, it might not take much longer. “Everything’s happening sooner than I expected.

Mythbuster

Ontario’s feed-in tariff, which was created in 2006 and substantially revised in 2009 as part of the province’s Green Energy Act, has been a flashpoint of controversy in recent years. Progressive Conservative candidate Tim Hudak made its elimination one of the central planks of his campaign in 2011, and while he lost that election, the feed-in tariff remains a contentious issue.

The Financial Post’s Terence Corcoran has been a particularly dogged critic and, in a recent column, suggested that anywhere from 40 to 50 per cent of the increase in electricity prices in Ontario is related directly to the McGuinty government’s green energy programs.

The numbers tell a different story. According to the Ontario Energy Board’s April 2012 Market Surveillance Panel Report, the increase residents have seen on their bills in recent years in the “global adjustment” charge – that is, the difference between spot market electricity prices and the contracted price paid to electricity producers – is largely attributable to the province’s nuclear plants. Renewables, including solar, accounted for just six per cent of the charge – and the price the province will pay for renewable power will drop considerably (solar will fetch 30 per cent less) under the latest review to its feed-in tariff.

There’s a growing body of evidence that suggests solar power will ultimately lower people’s electricity bills. The most expensive electricity tends to be generated during peak hours, when the utility’s generating capacity is exhausted and it’s forced to take power from expensive gas peaking power plants or diesel generators. Solar, installed on a wider scale, could largely alleviate that problem – and lower electricity bills in the process.

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