We Canadians

THE  ROOFTOP SOLAR ENERGY REVOLUTION HAS BEGUN.

There has never been a better time to plan a  solar panel installation for your home in Ontario. Prices of these panels are  expected to drop  fast and the Ontario government is offering incentives to promote their use as never before. The  government’s plans are still at the public review stage but they are expected to be enacted into law within a few months.

Once the new  rules come into effect, homeowners will be paid 80.2 cents for each kilowatt-hour of rooftop solar power that they sell to the grid; this is over ten times the going rate for power that they buy from the grid.Hence, if you install solar panels to meet just 3% of your electricity consumption, you could, potentially, save 30% of your electricity costs.  The trick  is not to consume the solar power directly, but to sell it to the grid at a higher rate and buy it back from the grid at a  lower rate to meet  everyday electricity needs.

The Ontario plan is based on using  Feed-In Tariffs (FIT) that have proved wildly popular  in many European countries, including Germany, which is now one the largest producers of renewal energy in the world. FITs have, however, rarely been tried in North America where  more complicated incentive programs are  in vogue. Not surprisingly, Europe is way ahead of North America in the development of renewal energy.

The beauty of the FIT concept lies in its simplicity. It is easy to administer and it is, essentially, revenue-neutral. In this program,  producers of renewable energy feed energy into the power grid and are paid at an enhanced rate, generally several times higher than the rate at which power is supplied from the grid. The difference  is made up by imposing a small fee on all consumers. In the case of Germany, this fee works out to about two dollars a month for per consumer. Most consumers take this increase in their stride.

The key to success   lies in choosing the correct tariffs,  tailored precisely to the type of renewal energy source  being used. The tariff  is kept high for sources that are expensive to install, such as rooftop solar panels; it is kept  lower for sources like wind power or bio-mass that have lower capital costs. It is, of course, an interventionist approach as the energy regulators provide FITs that they believe are appropriate for stimulating renewal energy production.

Fine tuning of the tariff structure is required from time to time. If the tariff is too low, there will not be many takers, because renewable energy is expensive to generate. If the tariff is kept too high, it may result in high electricity costs for all consumers. Germany had to fine-tune its tariff structure a couple of times before it found the right balance. Once it did, the renewal energy program simply took off.

In 2006, Ontario introduced a plan that had some features  similar to FITs. It was called the Standard Offer Program; the highest incentive was 40 cents per kilowatt-hour(KWH), for rooftop solar units.There were lower tariffs for wind power and other forms of renewal energy.  The program was a mixed success;while it sparked a wind farm revolution in Ontario, there were few takers for its rooftop solar energy  incentive program. At 40 cents per KWH, the payback time was far too long.

Ontario is trying to correct this with its new green energy program that  almost doubles the tariff for rooftop solar units. The aim, obviously, is to   jump-start solar energy generation and create an environment for solar industries to develop in Ontario. The tariff is guaranteed for twenty years when a new contract is signed, making it a very attractive offer. Tariffs for other forms of renewable energy, such as wind and bio-mass, are also attractive and should stimulate further growth of these industries. For homeowners, the  enhanced tariff for rooftop solar panels may well lead to a spurt in home energy generation. The payback time is expected to be 12 years or less;  it may drop substantially if  the  price of solar panels keep falling.

Even if you do not opt for this program, you might still pay for others who take advantage of the scheme, because that is how FITs work. FITs are revenue neutral so, in effect, all consumers end up paying for them. Hence it makes good economic sense to install a solar panel in your home and to do it as soon as possible.