If you ever met a solar PV salesman you may have already encountered the situation below.
Do you have someone asking the right questions for you?
With the feed-in pricing fixed by the OPA, it is possible to estimate the cash flow that a typical system would offer its owners. The numbers in the chart below are for comparison purposes only and are based on typical weather conditions for southern Ontario and on reasonable pricing estimates.
We advise that the quotes you receive may differ significantly from the information below and should be reviewed carefully. See Marketing Traps for more information.
|Tilted roof square, sq. ft.||4,000||10,000|
|Flat roof square, sq. ft.||10,000||25,000||50,000||100,000|
|System capacity, kW||50||125||250||500|
Please note that all prices are quoted to our best knowledge as of August of 2012.
Atop of annual income, a Solar PV system can generate tax benefits for the owner. Please see next section for more details.
Investing in solar PV systems is similar to investing in bonds – 20 years of regular payments are guaranteed by the government – but with better returns. With solar, besides feeling good about helping the environment, you can also feel good about your profits.
In the example below, we compare estimated returns from investing $500,000 in a solar PV system vs. a 20-year 4% bond. For demonstration purposes, we look at year 7 and assume all payments to occur once per year.
Year 7 of Solar PV performance is shown below
|Annual revenue||$20,000||$68,634||Typical annual yield on bond and typical annual revenue resulting from electricity sales under OPA FIT contract|
|Depreciation tax benefit||n/a||$36,695||Full cost of solar PV system can be written off at a 50% annual rate, resulting in no income taxes for the first 6 years and reduced taxes for the remaining 14 years|
|Annual taxable income||$20,000||$31,939|
|Income tax||$6,000||$9,582||A 30% income tax rate is assumed for both investments|
|After tax income||$14,000||$59,052|
|Present day worth of annual income||$11,725||$34,456||To generate present day worth, the cash flows from both investments were discounted: 3% discount rate (annual inflation) was used for bond investment and at 7% for solar PV. The higher discount rate was used for solar investment to account for minor potential risks|
Please note that all prices are quoted to our best knowledge as of August 2012.
Although the bond is repaid at the end of the term, its present day value amounts to only a fraction of the amount invested due to inflation. Over 20 years, an investment in a 4% bond delivers an after tax IRR of 2.8%, including principal repayment in the last year. Over the same period, an investment in a solar PV system delivers an after tax IRR of 10.04%. In present day worth terms this reflects a $14,877 loss on the bond investment compared to $78,293 gain on the solar PV system.