Alternative Investments – Rooftop Solar System

Rooftop Solar System

Alternative investments provide an option for some great returns that are unavailable by investing in the stock & bond markets. Last month, I posted an article on Alternative Investments – Farmland and discussed the possibility of looking at farmland and agriculture as an viable option for investing. In this article, we look at the option of investments in rooftop solar system installation.

One advantage of buying and owning a property, especially a single family house (as we do), is that it gives you the freedom to do whatever you want with the house. This is an advantage we hold over condo owners, as we do not share the building – and as a result look at our roof as a possible investment opportunity. Until the beginning of this summer, we never saw a hydro bill as our rent cheque covered all utilities; but once we bought a house and the bills started rolling in, it got me thinking if solar PV (photovoltaic) system installation is a sound investment opportunity. I have recently covered the topic of how the solar prices have plummeted and are entering mainstream adoption in an article here.

How Does it Work?

The system is simple. You invest and have a rooftop solar system installed and the power generated from your system is fed back into the power grid. As long as you have a sunny day, you will generate power, provided that your roof is oriented in the right direction to maximize the view to the Sun. For folks in the northern hemisphere, you want your roof slope facing south. Each month, you get a cheque from the utility company for generating power. Note that, while there are tax incentives for the installation of such system, the income is counted as regular income and you will be taxed at the appropriate rate.

There are couple of minor variations on how the final number is settled – in some areas you get a cheque for the net difference in your power consumption and power generation. But in OPA’s FIT and MicroFIT program and Hydro Ottawa, you pay your power bills as before and the cheques for power generation are sent for the whole amount.

Is It Worth It?

  • Bragging rights 🙂
  • Tax incentives – Details for Canadians/Ontarions available here.
  • OPA’s (Ontario Power Authority) FIT and MicroFIT programs will buy the power at a guaranteed rate for 20 years. So, there is some guarantee that your power generation will be not be dropped, leaving you hanging. However, the rate is revised every two years…more details discussed in the following example.
  • Lots of plan owners claim a rate of return of up to 10%. Some of my research shows that this is close and a possibly true. However, keep in mind that you are taxed on the income generated from the program.
  • Consumption and production time – If you are working a full-time job during business hours, you normally spend most of the day in an outside your home and consume majority of your power during off-peak hours. Meanwhile, your power generation peaks during the day when the Sun is shining brightly when the rates are higher!!
    • For e.g.: The chart below shows the rates for power consumption at various times from Hydro Ottawa. Consumption rates range 7.5-13.5 cents/kWh. However, Ontario’s MicroFIT program will buy power from you at a guaranteed rate of 39.6 cents/kWh (source). When launched in 2009, MicroFIT used to pay 80.2 cents/kWh, but that rate has gone down and is revised every two years. The last revision was in Fall 2013.
Hydro Ottawa - Rate Schedule

Hydro Ottawa – Rate Schedule

My next step is to explore on getting some quotes for the cost of setup. My initial research shows that a rooftop system installation costs about $30,000 and program participants can generate about $200-$250 per month in revenue.

Concerns

  • Limited number of sunny days – If I were to be living in Southern US or a sunny region, solar installation would be a no-brainer. But living in Canada, I have to reconsider if there are enough sunny days to make this investment worthwhile. According to this site, Ottawa has approximately 45% of days with Sunshine. I have to validate this data and needs some more research.
  • Invest vs Pay down debt – It is a big commitment considering that we have a mortgage and could possibly pay down $30,000 instead of investing.
  • If borrowing to invest, interest rate implications – With the current low interest rate environment, it is tempting to borrow to invest. But if the interest rates rise, how does that affect the numbers?
  • Tax implications – I am not a fan of the fact that we still have to pay our hydro bill and get a cheque for the whole power generation amount meaning we get taxed a higher amount.
  • Timing – The solar costs are falling every year, which makes waiting sensible. But the OPA’s rates for compensation are also decreasing. If we wait too long, will it get to a point that the rate of returns are so low that the investment opportunity is lost?

What are your thoughts on a rooftop solar system installation? Do you own one or have you considered and rejected it? Share your thoughts below.

Image Source: Franky242/Freedigitalphotos.net

13 thoughts on “Alternative Investments – Rooftop Solar System

  1. I have been thinking of putting up solar panels on my house since I purchased it. I have a flat roof with a big foot print so installation would not be very hard. I do live in Victoria BC so not the sunniest place but sunny enough for BC.

    I dont like that you cant feed your power back into the grid up here. Maybe when the incentives get a bit juicier I will take the leap.

    • Interesting…that you cant feed into the grid in BC. Once technology starts improving and the system gets better, you could potentially just get the system where you store the power in batteries locally and just live off of them, with power from the grid supplementing the remaining needs.
      Thanks for sharing, A-G. Hope things are well and you are having a good Thanksgiving.

      cheers
      R2R

  2. My wife and I were talking about solar just the other day. There was a great article in Time, which they foolishly decided to put behind a paywall, about the growth of solar in America. In addition to the exponentially improved efficiency, I think leased systems are a game changer. One guy I know in Texas leased a system and claims that he is credited slightly more then he spends on electric…..over the course of the year. It is Texas, but that’s still incredible. Look forward to hearing what you decide buddy
    -Bryan

    • The prices have fallen significantly over the years and continue to fall. Question is whens the right time to get in. Speaking of power generation in TX, All About Interest has monthly updates on his usage…and a couple of local providers here have live online data feeds which shows how much each house is generating and what the trends are like.
      I dont think we have the money for immediate investment…its something that Ive been thinking about, but more so with an possibility in a year or later. Will let you know if and what we decide.

      Hope things are well on your end.
      cheers
      R2R

  3. Solar system would be very interesting to invest in assuming the weather works out in the area. I’m not sure solar system would work out for Canadian weather, especially considering we have very short daylight in the winter time.

    Geothermal, one the other hand, might be something worthwhile to look into.

    • Yes, that is something that needs more research – but on the surface, it looks like its pretty decent. The low sunlight hours in winter will average out during the high sunlight hours in summer, dont you think? From some of the data Ive seen, it appears Calgary is ranked top for the number of sunlight hours in Canada. Hmmm I havent seen any initiatives for geothermal systems – wonder if there are any available.

      Thanks for the comment…that gives me some more food for thought.

      regards
      ps: Thats quite an interesting profile pic you got there 🙂

  4. I am fortunate to live in SoCal where we get plenty of sunshine. We also have high electricity rates which made me take a hard look at the numbers. After reviewing the options including a 30% federal tax credit and attractive lease options, I decided to pull the trigger in October and I am just waiting on all of the permitting and approval processes to complete so they can begin installation. We had a very hot summer and my August electricity bill was $450. Our electric rates are based on four price tiers. The first one is the cheapest and designed to provide electricity for the basic necessities of life at a reasonable cost per kilowatt. From there, the tiers increase significantly. I spend a lot of time in the Tier 4 category and my bills reflect that. My goal isn’t to zero out, but simply to stay in the Tier one pricing. We do have net metering, so on those bright sunny days when I don’t need air conditioning, I expect to see the meter running backwards. Based on the 20 year pre-paid lease that I selected and the anticipated monthly savings, I expect to see an annualized return of 17-19%. Using some capital for this made sense to my overall portfolio.

    • That is a spectacular return on investment, Deets. I am a bit familiar with the prices in California. My brother lives in San Jose and I remember him telling me about something similar. He ended up getting solar panels installed on his roof as well and he was very happy with the investment.
      Sounds like you made a great choice – best wishes with the installation and Im sure your power bills will plummet.

      Thanks for sharing your story
      R2R

    • Thanks for stopping by, Evan. I read your post and tried posting the following comment. I dont know why – but your site always gives me an error when I try to post a comment. I made it work once by going into Incognito mode and I was able to post something, but this time that didnt work either. FYI, I am using Chrome browser.

      “Interesting….Isnt that business model something similar to what SolarCity is doing. Of course the companies are not doing it out of good will and if you arent putting up the investment up front, you wont be making much either. Renting out your rooftop for $40 sounds like a no-brainer (its not worth the investment), esp considering you are locked in for 20 years and if you sell, the next person has to agree.

      Thanks for sharing your thoughts and numbers.
      R2R”

      • For me the $40 savings per month wasn’t worth the forced contract of 20 years. My main problem is that, what if I sold my house? What if the next person doesn’t want it (for whatever reason)? Then the cost to remove it would be 5 digits plus.

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