High solar installation costs and cheap grid electricity have burdened the economic case for solar for the past few decades. However, recent rising grid electricity prices, falling solar installation costs and the greener homes program are creating a perfect economic environment where solar has become cheaper than grid electricity.
Grid electricity prices are rising
Electricity prices are rising across Canada, recently reaching all-time highs. According to the Canada Energy Regulator, Canadian electricity prices are in fact increasing faster than inflation (link).
As shown below, Alberta’s electricity prices have never been this high. From 2007-2021 the average monthly price for electricity was 7.57 cents/kWh. In 2022 alone, the average price for grid electricity has been 13.65 cents/kWh and it currently sits above 16 cents/kWh.
Kudos to you if you’ve locked into a low fixed rate! But as we all know, that will eventually expire, and fixed rates are already starting to follow the rising trend of variable rates.
Solar installation costs are falling
The cost to install solar panels has fallen dramatically in the past ten years, driven largely by increased solar panel efficiency as well as lower solar panel and inverter costs. In the early 2010’s the price to install residential solar was above $5/watt which equates to $35,000 for a 7 kW system.
The current average price for a 7kW system is around $2.75/watt which equates to $17,500 for a 7 kW system. As shown above, the steady decline in solar installation costs and rapid increase in grid electricity costs is creating an ideal economic environment for solar. The higher grid electricity prices are, the more it makes sense to generate your own energy.
The Greener Homes Program is a no brainer
The only thing that could improve the economics of solar at this point is free money! The Canada Greener Homes Program is just that, offering Canadians both a grant and an interest-free loan. The grant covers up to $5,000 off the initial cost of solar. So, using the grant to install a 7 kW solar array means that the upfront cost becomes $12,500 which equates to $1.80/Watt. That’s a 64% price reduction since 2010!
To further insulate yourself against inflating electricity costs and spread out the upfront cost of solar, the Canada Greener Homes Program also offers an interest-free loan (10 years up to $40,000). With the way interest rates are currently trending, a 10-year interest-free loan is a great deal! For the 7 kW system, the loan would allow you to amortize the $12,500 net cost over 10 years. So, you’re replacing electricity bill costs with interest-free loan payments for 10 years.
Solar’s average electricity price is a bargain
Solar panels replace costly grid electricity with cheaper renewable energy. The price of a solar installation divided by the total amount of electricity generated over its lifetime (30+ years) becomes the new fixed price for solar electricity. This is what’s known as the Levelized Cost of Energy (LCOE), which is a great way to compare different electricity sources.
A 7 kW solar array that costs $12,500 (after the $5,000 Greener Homes Grant is applied) will typically produce around 8,500 kWh of electricity in the first year. Solar panel efficiency degrades by about 0.5% per year so the amount of electricity produced will decrease slightly over time. Factoring in degradation and adding up 30 years of solar electricity production means that a 7 kW system would produce roughly 240,000 kWh over its lifetime (it is worth noting that after 30 years the panels will continue to produce electricity, but we have to stop the example somewhere!).
To get the LCOE, we divide the net cost ($12,500) by the lifetime electricity production of the system (240,000 kWh). So the new fixed rate for solar electricity over the next 30+ years is $0.052/kWh. It’s tough to find a fixed rate that low nowadays!
Money spent on solar is money you’ll spend anyway
With solar cheaper than grid electricity and the greener homes program taking on the upfront cost, solar is a no-brainer! Especially when any money spent getting solar panels is money you will end up paying on your electricity bill anyway if you don’t get solar. Buying solar panels is just pre-purchasing your electricity for the next 30+ years. Either way, you’ve got to spend money to supply your home with electricity, it’s just a matter of where that electricity comes from and how much it costs.
You can choose to continue to buy fossil fuel-generated electricity from the grid at whatever price is available at the time.
You can take advantage of the greener homes grant and loan to reduce the upfront cost of solar and spread the loan payments over a 10-year period. This allows you to lock into a low electricity price for the remaining life of the system. Not to mention, you are powering your home with clean, emission-free electricity!
Solar hedges you against inflation
Once you pay the upfront cost for solar, the fixed price for solar electricity cannot rise, fall or be affected by inflation in the same way that grid electricity prices are. The higher grid electricity prices rise, the more money you save and the better the economics of solar become. As inflation continues to affect grid electricity prices, a home that produces its own solar electricity at a fixed price will feel much less of an impact.
What is Glean?
Glean is a broker of solar quotes that was built by Canadians to make solar easier for Canadians. We provide you with 3 solar quotes, an easy-to-compare quote summary (that includes a detailed financial analysis) and a quote review call to answer your questions. Our service is free for homeowners! With Glean, there’s no back-and-forth with multiple installers. You get our unbiased opinion to help you make the best decision for you and your family!