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Solar energy and NET METERING in Ontario

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Solar energy and NET METERING in Ontario

With Ontario microFIT rates going down and hydro rates going up, installing a solar panel system for net metering is becoming increasingly interesting. So here is a thread dedicated to net metering. (LINK to microFIT thread).

What is net metering?
You generate solar power, use what you need and the rest goes to the grid for credit. You don't need an expensive battery system if you are grid-connected, the grid is your "virtual battery" because you can send your excess to the grid (for credit) and can draw on it (or even more) when you need it.

You can carry the credits for up to 11 months. So this essentially means that over a 12 consecutive month period you won't be paid for the total excess over the period.

Hydro One's page on net metering
Download page for the current net metering regulation


Net metering is NOT restricted to roof-top systems like microFIT. It can be land-based. It can be up to 500 kW (but keep in mind you don't get paid for excess generation).

So what exactly do you get paid?
  • If you go net metering you will be on the Tiered Pricing approach (X.X cents for the first 900(?) kWh per month and Y.Y cents for the rest).
  • You will be generating on the Tiered Pricing model as well. So your power generated will be credited first at the first tier (low) rate. This sucks if you use a lot of hydro and are paying second tier prices for some of your use.
  • If you are currently on Time of Use pricing you'll be switched to Tiered Pricing. So you won't be earning at the Peak rate or mid-peak rate when you generate during the day.
  • You will get "credit" for the delivery, regulatory and debt-retirement charges which are based on use.
  • You will still have to pay the fixed portion of the monthly bill in delivery and regulatory charges whether you have to pay for any energy or not. For me this is about $46/month. See HERE for details.
  • I have read that at least some local hydro companies (LDC) charge HST on the full hydro you use but you don't get credit for the HST on hydro you sell them. So if you used $100 of power and generated $100 of power, you'd pay $113 with tax and get credit for $100 = net bill of $13. This doesn't apply to the solar power you are using as it is produced, only when you use "credits" from the excess power you loaned to the grid.
  • An example of a 2014 net metering bill can be found HERE.
  • The amount you get credited on your bill is NOT taxable (and the costs are not deductible)
The Ontario government is developing plans to transition from microFIT to net metering, and re-thinking how net metering would work in the future.
Q&A on the future of Net Metering.
Future direction for net metering in Ontario
There are indications that they may pay for excess generated and are considering different models. Lots of uncertainty as to where things will be in the future.

Possible "hybrid" approach to microFIT and net metering
For tax purposes microFIT is a business (net income is taxable), net metering is not.

The good thing about a solar project being a business is that
1. You can get your HST back (this is $4,000ish back right at the start)
2. You can deduct the cost of the system against your revenue via the CCA (Capital Cost Allowance) system, so you won't have any net taxable income for 8-10 years.

The bad things about a solar project being a business is that
1. Eventually you will have net taxable income.
2. microFIT rates are fixed and retail hydro rates may eventually exceed your contract microFIT rate. With the current microFIT rate of 29.4 cents that will happen sooner for new participants and microFITers that got in earlier.

So how do you get the best of both worlds?
  • Start with a microFIT project. You'll get back your HST and there will be no taxes on your revenues because your net income will be $0 after CCA deductions.
  • When hydro rates (the variable portion that you'd get credit for in net metering) exceed your microFIT rate, sell your solar system from your business to your person and switch to net metering. If you determined that the appropriate price for the system was equal to the unused CCA amount (the un-depreciated value), then there would be no taxable gain or loss on the sale for your business.
  • When considering making the switch you'd also want to understand how much you are generating vs using. If you are generating more than you are using it may be better to stick with microFIT for a while since you won't get paid for the excess (under current rules).

When will hydro rates be high enough to for net metering to make financial sense?
  • You'd think really soon, right? That's what I thought initially but maybe not. According the the forecast rates in this Dec 2013 article:
  • The province’s long-term energy plan, released Monday, project[INDENT]s a 42-per-cent jump in home power bills by 2018, climbing to 68 per cent by 2032. The cost for industrial enterprises will also rise, by 33 per cent in the next five years and 55 per cent in the next 20.[/INDENT]
  • In terms of % increase per year, this works out to about 7.3% per year for the first 5 years (which we are about halfway through), but then only 1.2% per year for the next 14.
  • If the above rates hold true and your all-in variable rate (using Tiered pricing) is about 18 cents/kWh today, your rate by 2032 would "only" be 24.5 cents/kWh and by the end of your microFIT contract in 2036 you'd "only" be paying 25.7 cents/kWh.
  • If you believe rates will increase at a much faster rate the results are different. If you predict 5% increase per year you'd be at the current microFIT rate by 2026 (about the same time you'd start having taxable income).
Last edited by JWL on Apr 23rd, 2016 8:23 am, edited 5 times in total.
56 replies
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I'm glad you like to write about this topic as I love reading about it! Thanks for your contributions to the forums and before anyone asks yes this deserves its own thread.

Another thing to consider for net metering is after your CCA deductions have been used up microfit income is taxable, while this generation consumption is not.
Depending on everyones individual MTR this will make sense at different points.

In addition while gaining the benefit of not receiving any taxable income, any kwh(s) you generate/use will be subject to delivery fees, HST and fixed utility charges so this won't be a simple net metering is better v.s microfit scenario. Also depending on what time of the day you use your kwh this will make the decision different for many people as well. Reasoning would lead us to believe on peak rates will surpass microfit contract rates first, with the other time of use pricing not passing until significantly later. So for an individual that uses majority of their kwh(s) on peak the decision to switch to net metering might be much earlier than another's.

One thing I still don't understand is I thought with net metering if you were to generate 1250kwh for example, you would generate 1250kwh in consumption for the future. Why is there tiered pricing if this is the case?
Is it the case if you generate 900 kwh at rate (x) you can only pull from these kwh if you use them at (x) times, and the remaining 350kwh generating at (y) rate at (y) times?

Also just to clarify with the 11 month carry-forward does this simply states if you generate in Jan 2025 you have until Feb 2026 to use excess credit before they are gone?
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Johnny0c wrote:
Apr 23rd, 2016 10:15 am
I'm glad you like to write about this topic as I love reading about it! Thanks for your contributions to the forums and before anyone asks yes this deserves its own thread.

Another thing to consider for net metering is after your CCA deductions have been used up microfit income is taxable, while this generation consumption is not.
Depending on everyones individual MTR this will make sense at different points.

In addition while gaining the benefit of not receiving any taxable income, any kwh(s) you generate/use will be subject to delivery fees, HST and fixed utility charges so this won't be a simple net metering is better v.s microfit scenario. Also depending on what time of the day you use your kwh this will make the decision different for many people as well. Reasoning would lead us to believe on peak rates will surpass microfit contract rates first, with the other time of use pricing not passing until significantly later. So for an individual that uses majority of their kwh(s) on peak the decision to switch to net metering might be much earlier than another's.

One thing I still don't understand is I thought with net metering if you were to generate 1250kwh for example, you would generate 1250kwh in consumption for the future. Why is there tiered pricing if this is the case?
Is it the case if you generate 900 kwh at rate (x) you can only pull from these kwh if you use them at (x) times, and the remaining 350kwh generating at (y) rate at (y) times?

Also just to clarify with the 11 month carry-forward does this simply states if you generate in Jan 2025 you have until Feb 2026 to use excess credit before they are gone?
Thanks. I'll make the tax stuff clearer in the first post.

If you net-meter you'll be on Tiered Pricing NOT Time of Use (you'd be switched from Time of Use if that's what you were currently on). So Peak pricing of Time of Use aren't relevant (unfortunately).

If you're on Tiered pricing you'd pay using those bands and get credit based on those bands. So effectively that means if your use exceeded your generation you'd pay for the excess use at the upper tier rate.

With the 11 month carry forward you'd have to use your January 2025 excess generation by December 2025. Feb excess by the following Jan, March excess by the following Feb, etc.
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Apr 20, 2011
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So stupid that TOU is removed for net metering.
I thought that was the entire point of TOU.
When demand is the highest, we pay the most for electricity as it is in low supply, high demand.
Then when demand wanes, the price follows.

The whole reason TOU (anywhere else in the world) makes sense is that you can pump out electricity when it is needed most, get paid peak pricing, and then use your own electricity overnight at off peak rates.
You are rewarded for helping the grid during crunch time with profit on the difference.

In this system, they're charging everyone peak pricing to use your electrons, but only paying you mid peak pricing at best.
And you also pay mid peak pricing for all your electricity, no off peak benefit? Cold deal!
Jr. Member
Aug 31, 2015
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Scarborough, ON
Can one essentially tear up a microFIT contract whenever one desires with no ramifications? I have the $0.384 rate as I installed my panels last year. So if rates move up above that level before 2035 can I switch to net metering?

Any idea how much electrical work it would take to switch the wiring to net metering? And I guess it means that I can get rid of the second meter.

I guess one advantage to net metering is that you can still have electricity when the grid is down and everyone else is blacked out. Other advantages are that you can upsize beyond 10kW and put in batteries to store energy. Are there any other advantages?
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I've actually looked into this and I have more than enough space to place enough panels to generate 10000w+ but the payback time is in the decades. Unfortunately, green alternatives such as this will never truly take off unless the initial price barrier is removed :(
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[OP]
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wayner9 wrote:
May 4th, 2016 2:22 pm
Can one essentially tear up a microFIT contract whenever one desires with no ramifications? I have the $0.384 rate as I installed my panels last year. So if rates move up above that level before 2035 can I switch to net metering?

Any idea how much electrical work it would take to switch the wiring to net metering? And I guess it means that I can get rid of the second meter.

I guess one advantage to net metering is that you can still have electricity when the grid is down and everyone else is blacked out. Other advantages are that you can upsize beyond 10kW and put in batteries to store energy. Are there any other advantages?
Yes you can terminate your microFIT contract at any time.
I too am curious about cost. It sounds like you need a new 2-way meter and may need to connect your solar output BEFORE your electrical panels.
traderjay wrote:
May 4th, 2016 3:25 pm
I've actually looked into this and I have more than enough space to place enough panels to generate 10000w+ but the payback time is in the decades. Unfortunately, green alternatives such as this will never truly take off unless the initial price barrier is removed :(
That's a lot longer than I've calculated. What were your cost, hydro rate and rate inflation assumptions?
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traderjay wrote:
May 4th, 2016 3:25 pm
I've actually looked into this and I have more than enough space to place enough panels to generate 10000w+ but the payback time is in the decades. Unfortunately, green alternatives such as this will never truly take off unless the initial price barrier is removed :(
Yes, I would like to see your model as well. I installed 10kWh of panels last year for about $30k. I am getting $0.384/kWh as part of microFIT. I should earn about $4500/year which is about a 6.7 year payback. So let's assume that a correct revenue assumption is more like half of what I am getting - $0.192/kWh - that gets you to a 13.5 year payback. Not great but not what I would call decades. And the return will be higher and payback shorter if rates rise.

My average electricity cost in March was $0.169/kWh - that is calculated by dividing the bill by the kWhs used, regardless of time or day, and includes HST, delivery, etc. And rates have just gone up by about a half cent per kWh as of May 1. And that understates what my cost savings would be from a net metering solar system since five days of the week I will be generating power during peak periods when the all-in rate is around $0.23/kWh.

Maybe your site does not have good sun exposure?
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wayner9 wrote:
May 4th, 2016 3:48 pm
Yes, I would like to see your model as well. I installed 10kWh of panels last year for about $30k. I am getting $0.384/kWh as part of microFIT. I should earn about $4500/year which is about a 6.7 year payback. So let's assume that a correct revenue assumption is more like half of what I am getting - $0.192/kWh - that gets you to a 13.5 year payback. Not great but not what I would call decades. And the return will be higher and payback shorter if rates rise.

My average electricity cost in March was $0.169/kWh - that is calculated by dividing the bill by the kWhs used, regardless of time or day, and includes HST, delivery, etc. And rates have just gone up by about a half cent per kWh as of May 1. And that understates what my cost savings would be from a net metering solar system since five days of the week I will be generating power during peak periods when the all-in rate is around $0.23/kWh.

Maybe your site does not have good sun exposure?
I was quoted around $45 to $50K for net metering as I am not interested in leasing my roof to a third party company and based on my electricity usage of $170/month thats one hell of a long payback period.
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Any idea what the size of the panels was in kWh and if there was battery storage or anything else included.

If you only have a bill of $170/month then you aren't using much electricity, but the problem with solar panels is that the output fluctuates throughout the year. So if you are sizing panels to provide enough electricity in December then you will have way too much in January, unless you can sell it back to the grid. Or were the panels sized so that, on average throughout the year, you would use net zero electricity? If that is the case then I would guess that you would only be needing something like 8kW of panels. I paid $30k for 10kW of panels and many here paid less. My 10kW panels are estimated to produce about 11,700kWh of electricity through the year. How much electricity do you use in a year?

FYI - my bill in March was about $1100 for using about 6700kWh, but I have a large house with lots of toys, including a hot tub and an electric car to charge, so I am a heavy user of electricity.
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wayner9 wrote:
May 4th, 2016 4:31 pm
Any idea what the size of the panels was in kWh and if there was battery storage or anything else included.

If you only have a bill of $170/month then you aren't using much electricity, but the problem with solar panels is that the output fluctuates throughout the year. So if you are sizing panels to provide enough electricity in December then you will have way too much in January, unless you can sell it back to the grid. Or were the panels sized so that, on average throughout the year, you would use net zero electricity? If that is the case then I would guess that you would only be needing something like 8kW of panels. I paid $30k for 10kW of panels and many here paid less. My 10kW panels are estimated to produce about 11,700kWh of electricity through the year. How much electricity do you use in a year?

FYI - my bill in March was about $1100 for using about 6700kWh, but I have a large house with lots of toys, including a hot tub and an electric car to charge, so I am a heavy user of electricity.
No battery storage, just the panels and other associated equipment to connect to the grid. Now if I were to run the AC full blast in summer, my bill might be $250/month but my average electricity is about $175/month - this is with 4 servers running 24/7 in the house too!
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traderjay wrote:
May 4th, 2016 4:10 pm
I was quoted around $45 to $50K for net metering as I am not interested in leasing my roof to a third party company and based on my electricity usage of $170/month thats one hell of a long payback period.
Why would you have to lease your roof a third party?
Under microFIT (which is another thread) you own the panels the same as under net metering, just different payment process. No third party owns any of the hardware unless you want them to.
The solar leasers are scammers for sure. But no reason to not own it yourself if you have the capital and the desire.
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aqnd wrote:
May 4th, 2016 6:05 pm
Why would you have to lease your roof a third party?
Under microFIT (which is another thread) you own the panels the same as under net metering, just different payment process. No third party owns any of the hardware unless you want them to.
The solar leasers are scammers for sure. But no reason to not own it yourself if you have the capital and the desire.
Maybe I am mixing up solar leaser and microFIT, but either way doesn't it require at least $30k of capital outlay and wait for it to payback either through electricity sale or offsetting your current bill?
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