SOLAR: YOUR PAYBACK & EXCESS ENERGY
UNDERSTANDING YOUR PAYBACK & SELLING YOUR EXCESS ENERGY
There are many factors to consider when thinking about installing a solar photovoltaic (PV) system and several of them surround the financial aspects. Installing a solar PV system is a big initial investment, so it’s important to understand your payback period, how to calculate your payback period, and how grid-tied systems can sell excess energy back to Manitoba Hydro.
UNDERSTANDING YOUR PAYBACK
A solar PV system is a big investment. Before making any decisions, you should calculate your payback period to ensure that it makes sense financially. The payback period is the amount of time it’ll take to recoup the initial investment of your solar PV system based on the savings you’ll achieve by installing it.
There are many factors that the payback period can depend on, such as:
- total installation and financing costs;
- estimated operation and maintenance costs;
- system performance;
- the amount of solar energy you use versus the amount of energy you sell to Manitoba Hydro;
- your annual energy needs relative to the size of system you’re installing;
- future electricity rates and excess energy price;
- the panel degradation rate (solar panels produce less energy over time); and
- the system lifetime (solar panels typically last up to 25 years).
CALCULATING YOUR PAYBACK PERIOD
We recommend getting quotes from at least three different contractors and being cautious of quotes that promise quick paybacks. Then, follow these steps to calculate the payback period for your system:
- Determine your project costs:
Using the quotes you’ve received, subtract the value of any federal and provincial incentives from the total cost of your solar PV system. Note that the average price of installing a solar PV system in Manitoba is $3 per watt.
- Determine your annual cost savings:
Calculate your annual financial benefit including your avoided electricity usage at the current electricity rate and add any additional benefits including excess energy sold to Manitoba Hydro.
Use this formula to calculate your annual cost savings:
(solar energy produced x percent of energy used x current electricity rate) + (solar energy produced x percent of energy sold to Manitoba Hydro x excess energy price)
Assuming that your system is sized to produce as much electricity annually as you consume, you can estimate that between 40 and 60% of the annual solar energy produced will be used in your home or business. Generally smaller systems will sell less and larger will sell more.
- Calculate your payback period:
Divide your project costs by your annual cost savings to calculate the number of years it’ll take for you to achieve your payback. If your payback period is longer than the expected lifetime of your system, you likely won’t receive a financial benefit for your investment. However, there may be non-financial considerations to include when making your decision.
SELLING YOUR EXCESS ENERGY
Grid-connected solar PV systems work by transferring energy between your home and the grid, depending on when it’s being produced and used. If you aren’t using all the electricity produced by your system throughout the day, Manitoba Hydro will draw that unused electricity into their grid. This is considered selling your excess energy to Manitoba Hydro and will be reflected on your energy bill.
The purchase price and agreement to sell your excess energy depends on the size and type of your system. There are two types of electricity agreements currently available for Manitoba Hydro customers:
- Non-utility generation less than 100 kw
- Non-utility generation 100 kW or greater
Most residential solar PV systems will fall under the first category. Manitoba Hydro purchases your excess electricity using net billing at the excess energy price.
As a net billing customer, Manitoba Hydro will install a bi-directional electricity meter that records the flow of electricity to and from your home or business. If the value of electricity that you sell to Manitoba Hydro is greater than the value of the energy you buy from Manitoba Hydro, a credit is applied to your account.
A solar PV system can help you save energy and money. Be sure to do your research and consider the financial aspects of installing the system before making your final decision.
LOOKING FOR MORE INFORMATION?
Check out the rest of the articles in our solar series.