An Ontario solar energy perspective

◊ This is part of the ‘solar energy’ series of articles ◊

Ontario has the largest installed solar capacity of any province in Canada. It got there by following a twisted and complicated path which I will attempt to unravel as simply as possible for those who may be interested. Other topics in this article include:

the current state of solar energy in Ontario
how much it costs the average ratepayer for solar
where the industry appears to be headed.
solar energy patterns for southern Ontario based on actual data. This helps with the understanding of how energy varies by time of day and season.
‘net metering‘ and ‘virtual net metering’
‘electrically net zero‘
Ontario’s solar business
the economics of solar energy in Ontario with a sample case
a link to an actual rooftop solar installation in Toronto that posts live data
some thoughts on going off-grid

For those that find the details tedious, you may skip to the takeaway section at the bottom of the page for the highlights.

In Ontario at this point in time large-scale solar energy development has been crippled by the elimination of incentives and termination of outstanding contracts by the government. Solar continues its exponential growth worldwide. Governments have come and gone while solar energy production has stayed the course for over a century. It is highly likely that the growth of solar generation will continue when the province’s economic and political woes are sorted, however it will likely be far too late for the industry which has developed to date.

The long and winding road

The facilitation of solar energy development in Ontario dates back to 2003 when the government directed the OEB to facilitate the connection of renewable generators to the distribution system. In 2004 the government set targets for the renewable portion of total generation to be 5% (1,350MW) by 2007 and 10% (2,700MW) by 2010. The Ontario Power Authority launched its Standard Offer Program in 2006. Since then there have been various other programs, some with multiple versions. Prices paid to solar generators through the program contracts varied based on whether it was ground mounted or rooftop, and when the contract was signed. Post 2016 the only option for solar energy is ‘net metered’ which credits generators at the regulated energy rate for the surplus generation delivered to the grid. In 2019 the renewable generation share (wind, solar & biomass) of the provinces total capacity is 20%.

Solar energy development in Ontario

Beginning with the Renewable Energy Standard Offer Program (RESOP) Ontario Power Authority (OPA) began contracting investor-owned Renewable Energy Sources which included solar energy. The contract programs offered included

Table 1

Contract Type	Timeline	Total Solar Capacity Installed (MW)	Solar Energy Price cents/kWh
Renewable Energy Standard Offer Program – RESOP	2006	474	42
microFIT*	2009 – 2016	262	19.2 to 80.2
Feed-in-Tariff (FIT)*	2009 – 2016	1,461	19.2 to 80.2
Green Energy Investment Agreement – GEIA	2011	300	45 to 46
Large Renewable Procurement – LRP	2016	120 (under development)	15.67
Total		2,497

*FIT applications were not accepted beyond 2016, however construction and in-service dates for facilities may have continued into 2018.

The significance of the different programs relate to capacity, price and contract terms. The FIT programs beginning in 2009 offered the highest rate for rooftop solar energy at 80.2 cents for every kWh of energy delivered to the grid. The newer programs became more economic with competitive pricing and overall lower rates. You can find a description of some of these programs in Chapter 3 of the 2011 Annual Report of the Office of the Auditor General of Ontario.

In 2015 the OPA was merged with the IESO who currently manages contracts with generators

The Minister of Energy issued a directive to the IESO on December 16, 2016 to cease accepting applications under the FIT Program. With the termination of the FIT program, addition of renewable generation such as solar must be installed in accordance with net metering regulations.

According to the IESO’s fourth quarter 2018 report on electricity supply there are in excess of 33,000 solar installations with a total capacity of 2,500MW connected to the Ontario grid. Note that 120MW of that solar capacity is currently under development under the LRP program. A total of 148 FIT projects with a cumulative total of 66MW capacity are also identified as being under development, however the government’s cancellation of all renewable projects in July 2018 will likely eliminate these.

The IESO publishes energy data for 4 of the 3,214 listed facilities with contracts in 2018. The balance of over 30,000 installations are microFIT (10kW capacity or less), FIT or RESOP for which energy data is not made available.

In July, 2018 the Ontario government repealed the Green Energy Act and cancelled 758 outstanding renewable generation projects. There will be few solar energy projects in Ontario in the foreseeable future as a result of the elimination of economic incentive and new requirements (Bill 34) for generators.

Ontario’s solar energy snapshot

There are two ways the electricity supply mix is typically presented. It is usually shown by capacity share and energy share. Capacity share indicates the rated power a resource may contribute to the grid at any instance in time. The energy share portion shows how much a particular technology does contributes to the grid over time. An energy resource may have lots of capacity but if it rarely feeds the grid, its energy share will be small. The term commonly used to describe the relationship between capacity and energy is the Capacity Factor (CF) which is described in the article…Solar capacity and capacity factor.

Ontario capacity including transmission and distribution connected generation

Data from the IESO

Ontario energy view including transmission and distribution connected generation

Data from the OEB

By point of grid connection

The grid connection point perspective of the solar capacity shows that the bulk of it is being installed on the distribution grid. Transmission connected generation is for very large utility-scale facilities and only makes up 16.5% of the provincial capacity. There will be no new transmission connected utility-scale installations for the foreseeable future in Ontario. Distribution connections are for smaller scale commercial, farm and residential generators. The availability of Ontario’s renewable energy programs from 2006 until the end of 2016 resulted in over 33,000 solar energy installations. In 2017 the net-metering connection requirement came into effect which will drastically reduce the rate of new installations as it becomes more difficult for power producers to recover costs.

What does it cost a residential ratepayer for solar?

The variation of contracted solar rates over time make it difficult to determine a true overall price. Fortunately, the OEB performs the calculation annually as a part of the Regulated Price Plan Supply Cost Report.

Table 2

Generation Type	% of Total Supply	% of Total Global Adjustment	Total Unit Cost (Cents/kWh)
Nuclear	57	41	7.7
Hydro	23	12	6.2
Gas	8	14	18.8
Wind	9	15	15.9
Solar	2	15	51.3
Bioenergy	1	2	23.6

Source: OEB Regulated Price Plan Supply Cost Report April 19, 2018

Based on the OEB published unit-costs, solar energy is the most expensive energy supplying the Ontario electrical grid. The average price paid by TOU customers in 2019 is 12.6 cents/kWh before the GA modifier from the Ontario Fair Hydro Plan. The Fair Hydro Plan reduces the average rate to 8.2 cents/kWh.

If you are an average residential electricity consumer in Ontario you use 750 kWh of energy per month costing $61.47 on TOU in February, 2019. Based on 2018 OEB supply mix data (latest), approximately 15kWh or 2% of that energy is from solar and it accounts for 10.2% of the cost. As of February 2019 that would account for an average of $6.30 per month on your bill. The average cost is for illustration purposes only. The actual amount you pay would be higher in the summer months when solar energy production is at it highest, and lower in the winter. It doesn’t mean that you would save $6.30 per month if Ontario didn’t have solar energy. The energy would need to come from some other source.

Average cost of 15kWh of energy from various sources:

Table 3

Source	Cost in $ for 15kWh
Solar	6.30
Hydro	0.76
Nuclear	0.95
Wind	1.95
Gas	2.31

If the solar energy was replaced by gas, it would cost ratepayers $2.31 per month for what costs $6.30 for solar. Going forward, solar will be subject to very different rules that completely change the cost model. Small scale solar projects are subject to net-metering which means they are credited at the going regulated rate for their excess energy.

Note that I have used data from the same time period as for my wind energy article “The economic reality of wind – down the rabbit hole” so that the values are more relevant if compared.

Solar energy patterns for Southern Ontario

It is useful to know and understand the pattern of energy production for a solar installation. Obviously it increases and decreases during the daylight hours but most people won’t know how much. The season of the year makes a significant difference to the energy production capability and is worth knowing for any planned installation. Based on actual data available from Ontario’s Independent Electricity System Operator (IESO) for a ground-mounted solar farm I have cleaned and normalized the hourly output for the year 2018 to produce ideal (best-case) patterns.

Daily:

Daily outputs range between the solstice corner cases of summer (June 21st) and winter (December 21st).

Yearly output from a ground-mounted solar farm in 2018 (see Note 1):

Average yearly Ontario solar energy from Natural Resources Canada’s photovoltaic potential and insolation dataset :

The NRCan dataset shows that the spring months in Ontario provide more solar energy than the fall. This is most likely due to long term average weather effects. The winter minimum is approximately 45% of the summer peak which makes it appear better than the 2018 sample of the ground mounted farm from IESO data. In fact, the ground mounted solar farm data has a higher output in the summer months and overall Capacity Factor (CF) of 17% compared to the NRCan data CF of 13%. The normalization of the curves precludes a comparison by CF on these charts.

The peak values on each chart are normalized where ‘1’ represents the highest monthly output of the solar farm. These charts form the basis for understanding solar generation and are also presented in my article… Solar energy technology and applications.

Net metering, virtual net metering

Metering is the term used to describe how energy flow is measured in order to settle costs with energy producers and consumers. A government approved device (like a Smart Meter) is always installed at the customer grid connection point to record energy transactions for financial settlement. Energy must be measured and recorded as it is delivered to or received from the grid. The most common metering device is for measuring load where power only flows one way – to the customer. In the case where a customer may both receive and deliver power (a generator), they require a special metering device that can measure the amount of energy flowing in either direction.

Ontario transitioned to net metering for renewable generation in 2017 under Regulation 541/05. The regulation defines eligibility and the rules for renewable generator compensation. It represents a fundamental shift from any of the previous government initiatives and is for situations where the generation is primarily to offset the customer’s load. In previous government programs like Standard Offer and FIT, generators would be paid a contract rate (Table 1) for all of the energy they produce. In Ontario’s implementation of net metering, the power producer must supply it’s own energy needs first and if it has excess energy it may push it onto the grid for a credit. The energy measured at the customer connection point is referred to as the ‘net’ energy because it represents the difference between the generator output and the load at the customer’s site.

Without any renewable energy, an illustration of how a residence is metered is shown in Figure 1.

Figure 1 – Metering load at a residential premises

A residence with solar energy that was installed under the old microFIT program (pre-2017) would have different metering to accommodate the inverter-based generator.

The distinguishing feature of these installations is the second dedicated meter at the output of the generating system. The power producer is paid at a contracted rate (Table 1) for the entire energy output of the generator as measured and recorded by the dedicated meter. There are two variations on the connection for a microFIT installation, one of which is shown in Figure 2.

Figure 2 – Metering a residential premises with solar PV in the microFIT program

The metering for a residential solar energy installation under current net metering regulations is illustrated in Figure 3.

Figure 3 – A residential premises with solar PV net metered

Net metered schemes have a single meter that can measure power flow delivered and received from the grid. You must consult your Local Distribution Company (LDC) and the Electrical Safety Authority for the latest requirements for connecting inverter-based generators to the grid.

Net metered installations in Ontario do not receive direct payment for generator output but rather receive a credit on their account for energy in excess of the customer load which is pushed onto the grid. The credit is based on the regulated energy rate (tariff) for the customer connection. The applicable tariff may be two-tier, farm or commercial depending on the LDC. Time of Use (TOU) rates would revert to two-tier since there are no TOU meters capable of measuring two-way energy flow. Energy credits have a time limit for redemption. Check the terms outlined by your LDC.

Virtual net metering is a new concept that utilizes the energy credit at a customer account level instead of the physical premises. This approach enables community or subscriber programs to take advantage of surplus energy credits. In Ontario, virtual net metering required a change to regulations to make it legal. The revision was made as O.Reg. 273/18 to take effect October 1, 2018, however the Ontario Government revoked the change through O.Reg. 422/18 which cancelled virtual net metering before it came into effect. Virtual net metering is not legal in Ontario at this time.

Electrically net zero

The term ‘electrically net zero’ has found its way into the renewable energy forum and is a way to describe a balance between energy consumed and energy generated over a prescribed period of time (i.e. one year). A home, farm or commercial premises would need a grid connection to source energy for it’s load when generation is not available and provide a destination for surplus energy when it is available. It says nothing about whether a premises is generating or consuming energy at any particular moment in time. Being electrically net zero is most relevant for account billing since presumably your credit would equal consumption and the bill would be zero. While it may represent an important target for a customer, it would be difficult to achieve given the variables associated with energy consumption and availability of solar radiation. Keep in mind that energy credits expire in time and over-sizing the solar facility implies that you may be providing free energy to the grid without any form of reimbursement.

Ontario’s solar business

There have been many businesses established over the last two decades in Ontario to support the solar industry. Too many have come and gone to keep track of. Canadian Solar is an international company with headquarters in Guelph Ontario, established in 2001. It is ranked the 5th largest solar PV manufacturer in the world . They combine manufacturing and project development in the international market. In 2004, Spheral Solar Power ventured into the market of manufacturing flexible, thin film PV products in Cambridge Ontario. A few years later in 2007 they pulled the plug on the venture.

Photo courtesy of NRCAN. Milfred Hammerbacher, President, Spheral Solar Power, showing flexible solar panels manufactured in Cambridge, Ontario, 2004. Unfortunately, the venture was abandoned in 2007.

Business opportunities in Ontario related to solar PV include grid connected, off grid and microgrid applications. The industry is diverse and supports some or all of the following functions:

manufacturing
design & development
installation
maintenance
ownership
operation
lease to own
lease

During the 2006 to 2016 time frame more than 33,000 solar installations were grid connected in Ontario. That’s an average of 3,300 a year. A significant supply and installation network had to be in place to realize that accomplishment. In 2019 the only option available in Ontario for solar installations is net metering which is a much less attractive option than any previous government initiative. Beyond Ontario the solar industry is experiencing exponential growth. Ontario-based companies will have to rely on international projects to survive without new demand within the province.
The present business opportunities are shrinking, however small-scale, specialty-niche and international operations have the best opportunity to survive Ontario’s bear market. The solar industry has advocacy groups which include CanSIA that lobby the government in support of their members. CanSIA is lobbying the Ontario government to eliminate the ‘red tape’ (a red-flag for me) associated with rooftop installations in order to help that part of the industry survive. Note that I do not endorse any specific organization and only make reference to them for illustration purposes.

The economics of solar energy in Ontario

The cost-benefit of solar energy has been changing rapidly over the last decade with evolving government policies and the declining capital cost of installations. At this time, the Ontario government does little to encourage solar energy implementation and it is up to market forces to influence the trends. Any reference I can make to specific cost-benefits will have a very short shelf life making it important to seek the latest information from reputable sources.

Some basic considerations for a potential solar energy producer include:

capital cost
inflation
increasing energy rates
financing terms
roof repairs (if applicable)
cost of space required (if applicable)
increased insurance costs
increase in property tax
system maintenance
income tax (including depreciation)
impact on farms to meet some definitions under the Income Tax Act
property sale
disposal at system end of life

It is difficult to frame the historical cost trend in Ontario in a credible way without either doing a major study, or accepting data from sources that are difficult to validate. All indications on a global scale show that solar PV has dropped by 70 to 80% over the last 10 years, however local factors can have a significant impact on installed costs. I was able to find a CBC news story from 2016 where it was reported that the 2016 installed cost for a 5kw residential solar system was $18,000 and it would generate $1,690 a year in income based on the micoFIT rate of 29.4 cents/kwh. In 2019, energyhub.org says a 5kW system would cost $12,250 It would only result in energy consumption offset and billing credit for surplus which is complicated to accurately estimate. It’s not just the decline of solar PV cost that is a consideration for purchasing a system, its the rising cost of electricity. The terms of net metering leave solar power producers managing up front costs and financing with the promise of avoiding future electricity energy costs. The life expectancy of a solar installation is between 20 and 25 years. The cost of electricity is going to continue to rise – no matter what the current government says. In the 2017 Long Term Energy Plan, the commodity price of energy is predicted to rise more than 70% by 2032. Investing in a solar system today is going to benefit from the continued escalation of energy costs over the coming decades.

The impending end of life of over 33,000 solar installations in Ontario is a red flag for our waste disposal and recycling industry. Existing facilities will not be able to handle the wave of solar PV that will hit the system near 2030. Expect that new protocols will be put in place to manage PV modules before then. It may cost owners to dispose of their equipment!

The average TOU residential case for solar in 2019 with net metering

Here is where the rubber hits the road. The average Ontario customer uses 750kWh of electrical energy per month. That’s 9,000kWh annually. On Time-of-Use rates it would cost approximately $750 per year before tax. You could offset the costs associated with that by installing solar panels. Ontario averages 1,160 hours of full sun annually which means you would need a 7.7kW system to generate 9,000kWh annually and reduce your energy bill to zero. According to energyhub.org, the average installed price for a solar system in Ontario is $2.50 per watt capacity. The cost for a system that size would be $19,300. Without looking any further and considering financing costs, inflation and rising energy costs it would take 26 years to recoup the investment. For this case it isn’t economical to install solar. Off-grid or cases with different tariffs such as farm or commercial will vary.

Note that in Ontario it is likely that a TOU customer switching to net metering would be moved from TOU to the Two-Tiered tariff because there are no TOU meters that can manage net metered power flows at this time. It has no material effect on the outcome of the case examined.

A comprehensive reference for solar economics is available for Canada from the National Energy Board (2018) titled ‘the Economics of Solar Power in Canada (ESPC)‘. The report looks at residential, commercial, community, and utility-scale solar across Canada to determine the financial viability (breakeven point) of solar installations based on regional energy costs. While the methodology seems sound, the numbers for Ontario cause some concern because they are based on a Hydro Quebec study that does not consider the complexity of Ontario energy pricing. Based on the high-level calculation I performed for an average residential customer, there is absolutely no way to ‘breakeven’ with a solar system with current Ontario pricing. The NEB report report shows that with current TOU pricing the solar system investment is slightly better than breakeven. It is not. The ‘breakeven‘ point is not a comforting position to be in as an investor. Considering all of the risks associated with owning and operating a solar system, breakeven after 25 years is a significant loss. An investor would double their money in 25 years at a compound interest rate of 3%. The report methodology says that all of these factors are considered in the findings, however the results for Ontario residential solar do not stand up to scrutiny. I have contacted the NEB (July 2, 2019) regarding the discrepancies and they confirmed that the study was based on the average price of 14.65 cents/kWh where the average residential price is currently 8.2 cents. Be careful of how you interpret the findings of the NEB report.

Benchmarking for solar system installation is also available from the US National Renewable Energy Laboratory report here for Q1 2017. Their numbers when converted to Canadian currency are slightly higher that the $2.50 per watt capacity which I used in the example above.

A Toronto installation you must see!

A keen solar PV owner who lives in Toronto has taken the initiative to post extensive information about their rooftop solar experience online here. It was installed under the Ontario microFIT program which was available until the end of 2016. The site is worth checking out for anyone interested in solar. It is worthwhile to see the variation in energy output that occurs hourly depending on the weather conditions. The output energy swings are inconsequential while the system is grid connected, however if you were off-grid the fluctuations would likely be intolerable without the benefit of some kind of energy storage.

I have no affiliation with the site or its administration.

Going off the grid

There are any number of reasons why someone would want to go ‘off the grid‘. Perhaps there is no grid supply available or it may be prohibitively expensive. If you want electricity in a rural area where there are few customers the delivery infrastructure cost is high. The capital cost must be recovered from a small number of customers. As a result customers pay more for delivery than for the energy they receive. In this case, the economics is favourable for opting out of the utility feed and installing an off grid solution using solar. If you are seriously considering going off the grid it is most likely that solar will only make up part of the solution. Unless you are willing to accept the limitations of solar energy by itself, some form of energy storage and backup power would be advisable.

In Ontario, the delivery charges are very high for low density customers of:

Hydro One (R1 & R2),
Algoma Power,
Atikokan Hydro,
Sioux Lookout Hydro,
Lakeland Power Distribution,
Northern Ontario Wires.

These customer service areas warrant a close look at off grid solutions from an economic standpoint. In 2016 the case study would look much more favourable than it does in 2019 as a result of a 2017 introduction of Distribution Rate Protection under Ontario Regulation 198/17. The introduction of the Fair Hydro Plan also reduces the cost of energy substantially. Although the cost reduction diminishes the economic case for off-grid solar today, those plans won’t be around forever.

I’m not going to drill down on this subject because it is big enough to warrant its own series of articles. Ontario’s energy pricing is likely to be unstable in the short term because of government policy change, so any economic view of this option would be short term and highly likely to be inaccurate.

The takeaway

In Ontario we pay an average of 51.3 cents/kWh for solar energy which amounts to $6.31 a month for an average residential customer using 750kWh of energy per month. That is an incremental amount of between $3.99 and $5.54 per month based on the range of replacement energy costs. The price for contracted solar energy increases the average unit cost of energy.

Ontario has over 30,000 installations which are under 10kW capacity that were installed under the microFIT program. Contract offers for renewable generation ended in 2016.

After the contract phase for renewable generation ended in 2016, all solar projects which are residential, farm or commercial size must be installed with ‘Net Metering’. The net metering approach for generator installations maintains the average unit cost of energy. It is rate-neutral. Virtual net metering is not permitted in Ontario.

Some facts…

In southern Ontario the solar energy output of a typical installation follows an annual cycle which will dip by 55 to 80% during the winter months.
The maximum solar energy available daily occurs around noon standard time.
The maximum solar energy available annually occurs around the summer solstice June 21st.
The minimum solar energy available annually occurs around the winter solstice December 21st.
Ontario will see an average of 1,160 hours of full sun annually which can generate electricity

The cost per watt capacity of a solar installation declines as the capacity increases. Rooftop residential is the most costly and larger scale commercial is the lowest. It is approximately $2.50 per watt capacity for rooftop solar in 2019.

Disposal of solar PV modules will become a serious challenge within the next 10 years as the 33,000 installations in Ontario reach end of life. Owners should expect that disposal fees will apply when the time comes.

With the current cost of rooftop solar in Ontario new installations are not economical if you are grid connected and expect to recover the cost. If the installed cost continues to drop and electricity prices continue to rise faster than inflation the situation will change. When the Ontario Fair Hydro Plan is cancelled, the cost of energy will rise substantially and solar will warrant serious consideration. The Distribution Rate Protection regulation is heavily subsidizing low density areas in the province and may disappear at any time. Farm and commercial installations will become attractive before residential because of the tax benefit of capital cost write-off. Ultimately it is always best to consult with several installers for up to date costs.

Fact check from reliable sources before making the leap to solar energy production.

Derek

Note 1 – The normalized energy curves for ground mounted solar are generated from data for a specific solar farm in the IESO generator output files for 2018. Bad data was set to zero and the hourly variations were smoothed using 5th order polynomial trending in Microsoft Excel. The generator outputs were then normalized using the maximum monthly output and manually adjusted for symmetry. The curves are based on a single sample case over the year 2018 and therefore have limitations. They are only intended to illustrate the solar variation phenomenon.

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