Solar energy and NET METERING in Ontario
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)
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).