Solar PV economics - approaching grid parity in Nova Scotia

In recent years, the cost of solar PV panels has dropped from over $3/watt to under $1/watt.  The drop in prices has even caused China's LDK Solar to declare bankruptcy.  Surging exports of low-cost Chinese-made PV products has lead to a tariff war that will likely put a halt to big price drops in the US and EU.  Assuming Canada does not follow suit and impose high tariffs on Chinese imports, we should see panel prices of C$0.75/W by the end of 2015.  Even at current prices, I'll explain how PV is getting close to grid parity in places with relatively high electricity costs (15c/kWh).

Most of the solar power industry in Canada is focused on Ontario, due to the high subsidies under the microFit program.  At 39c/kWh, a rooftop PV system is a no-brainer.  The cost of the panels and an inverter to convert the DC power into AC adds up to about $1.50/kWh for a 8kW system.  Installation costs can vary depending on how high and steep the roof is, however I think around $5000 for a 8kW system is a reasonable price.  If a solar installation contractor wants to charge much more than that, I'd consider hiring a roofing contractor to mount the panels and an electrician to install the wiring and inverter.

Although the cost of solar panels has dropped by about 75% in the last five years, there has not been an equivalent reduction in the costs of inverters.  Given the costs of the input materials - the solar wafers, glass, metal frames - I think PV panel costs will bottom out around 50c/W.  With inverters, the technology still has room for significant improvements.  Google's Little Box challenge is one example of incentives to improve inverter technology.  Within the next five years, I expect the cost of grid-tie inverters to drop from over 50c/W to under 20c/W.  This along with more competition on the PV installation market should bring the total installed cost including taxes of a residential PV system to under $1.50/W, compared to around $2.50/W now.

So at current prices, a 8kW system would have a total installed cost of about $20,000.   How long that cost is amortized over has a big impact on the economics.  Solar panel warranties are usually 25 years.  Their efficiency drops over time as well; after 25 years about 80% of the installed efficiency is common.  Warranties on inverters are much less - 5 or 10 years.  For financing, the longest amortization for mortgages available in Canada now is 25 years.  Therefore, I think a 25-year amortization makes the most sense.

Interest on a 10yr fixed mortgage with a 25 year amortization is about 4.4%, and the monthly payments on that mortgage would be $109/month.  The PV pontential of most of Eastern Canada is around 1000kWh/kW.  That means a 8kW system would generate about 8000kWh of electricity per year.  With a cost of electricity of 15c/kWh, that would generate an average of  $100 worth of electricity per month, almost covering the $109/mth costs of the system.

One caveat for Nova Scotia is that the current grid-tie tariff does not allow you to produce more electricity than you use.  An energy-efficient house, unless it uses electric heat, would likely use less than 8000kWh of electricity per year.  Smaller systems have less economies of scale, so a 5kW system would likely have a cost of $3/W.  Grid parity may not be here yet in Eastern Canada, but it is coming soon.

Mini split heat pumps

My regional electric utility has been promoting air-source heat pumps, and  my friend Dan who works installing these types of units tells me they have become quite popular over the last few years.  I discussed the efficiency of geothermal heat pumps in my heating costs comparison post a few years ago, so I figured it's time I did a similar analysis of air-source heat pumps.

As with any type of heat pump, the bigger the temperature difference (called lift), the lower the efficiency of the heat pump.  The efficiency rating for air-source heat pumps is usually given as a heating seasonal performance factors (HSPF).  This is a seasonal average of BTUs of heat provided per watt of energy consumed.  To convert HSPF to COP that is the usual performance rating for geothermal heat pumps, divide the HSPF by 3.4 - the number of BTUs per Watt.

HSPF by itself is not a useful performance measure, since it depends on the heating season outside temperature.  If the unit does not specify the temperature for the HSPF, it is likely 8.3C (47F for those who don't think in metric).  This might be a useful measure for someone living in Vancouver, BC, but not so much for someone living in Halifax, NS where the average January temperature is about -5C.

NrCan states:
At 10°C, the coefficient of performance (COP) of air-source heat pumps is typically about 3.3. This means that 3.3 kilowatt hours (kWh) of heat are transferred for every kWh of electricity supplied to the heat pump. At –8.3°C, the COP is typically 2.3.

A COP of 3.3 equals a HSPF of 11.2, and a COP of 2.3 equals a HSPF of 7.8.  So if your heat pump has a HSPF rating of >7 at -8.3C (17F), it will produce heat for less than half the cost of an electric resistance heater.  The hard part is finding out that efficiency rating.

Mitsubishi Mr. Slim is a popular mini split system, so I tried to find the full specifications for it's efficiency.  I couldn't find them on Mitsubishi's web site, but I was able to find them on a Mitsubishi reseller's web site.  Page 13 has a chart with the efficiency of several of the heat pump models, but the HSPF is only given for 17F.  There are performance numbers given at other temperatures, and since HSPF is BTUs per Watt times 3.4, the HSPF can be calculated at different temperatures.

I started with the GE24NA, a nominal 2 ton unit with a HSPF of 10 at 8.3C.  At -8.3C, it outputs 16,000BTU and consumes 3290W, for a HSPF of only 4.9.  This equates to a COP of 1.4, far short of the typical 2.3 COP stated by NrCan.  Compare that to the D30NA, a nominal 2.5 ton unit with a lower HSPF of 8.2 at 8.3C.  At -8.3C, it outputs 19,500BTU and consumes 2400W, for a HSPF of 8.1 (2.4 COP).  For heating a home in Nova Scotia, the D30NA is a much more efficient unit.

Another reason the D30NA is a much better choice is because at 19,500BTU it will be able to provide more of your heating needs than the GE24NA at 16,000.  Both units will probably need supplemental heat on the coldest winter days.  If you heat your house with electricity, you can look at your electric bill to figure out your heat load, remembering that 1 Watt is 3.4 BTUs.  If you can't find your bill details, but remember your electricity costs, you can figure it out from that.  For example a $450 electricity bill in January when electricity costs 15c/kWh means your consumption was 3000kWh, or 10.2 million BTUs of energy.  Dividing by the number of hours in the month gives an average of 14,000 BTUs per hour.  During a January winter storm with high winds and temperatures of -20C, you'll likely need more heat than the GE24NA can put out.

To analyze the economics, it helps to look back at my heating costs comparison post.  Electricity and oil are slightly more expensive than they were two years ago, but not by much; heating oil is selling for $1.07 per litre.  Wood pellets can still be found for $5/bag.  That puts the cost of a BTU of heat from electricity at about 1.4 times oil and 2.5 times wood pellets.  The conclusion is that a decent air-source heat pump is cheaper than heating with oil, and about as cheap as heating with wood pellets.  If you can get the time-of-day tariff and use a smart thermostat to avoid using electricity during peak time, the heat pump will be even cheaper than wood pellets.