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.