Roger Peters – May 27, 2014
Solar power has many benefits for electrical utilities. First, the power output of a solar system coincides well with the summer peak demand on the grid. A hot sun results in high air conditioner loads but also maximum output from solar PV cells. This is valuable to the grid because at peak times it must buy expensive power from gas turbine power plants.
Solar power generated locally also reduces grid transmission losses. Up to 10% of the power generated in large central power plants is lost as it is transmitted and distributed throughout the province. Solar power generated in Ottawa is used to meet Ottawa’s electricity needs without losses. Producing power from solar energy locally also provides local economic and provincial environmental benefits.
But how do we know what these benefits are worth? And what is the value of solar power compared to its cost? The State Of Minnesota has just adopted a standard method of valuing solar that takes all of its benefits into account.
Utilities in Minnesota must now pay this amount for every kWh fed into the grid from a solar system. What is significant is that this value is higher than the current price charged for electricity in the state. It is therefore much better for the solar producer than the “net metering” system currently in place. Under net metering customers are paid the same price per kWh of solar electricity fed into the grid as they pay for the electricity they buy. With the new tariff, there are also no limits on the amount of power that can be sold to the grid under the new system whereas under net metering it is normally limited to the customer’s annual power consumption.
The methodology for valuing solar was developed by the Institute of Local Self Reliance which has become a leader in promoting innovative policies for democratizing energy systems and the use of renewable energy in the United States, including advocating the use of feed-in tariffs.
So what is the relationship between this value of solar approach and feed-in tariffs? The objective of feed-in tariffs is to kick-start investment in renewable power sources like solar and drive down its cost towards parity with conventional power sources. Valuing solar gives us an indication of when we have reached this goal for solar PV and can phase out solar feed-in tariff programs, and also a method for setting tariffs for solar after the end of these programs.
Ontario’s annual FIT programs have already lowered the cost of solar power by more than 50% in the province and are well on the way to halving it again by 2018. The Province should start to work now on a “value of solar” methodology that can be used for setting tariffs once the FIT program is completed and for current FIT contract holders when their 20 year terms are completed.