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.
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.
- 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