Thoughts on Manitoba Hydro’s Solar Energy Program

Brian Ransom, Commentary, Energy

On Earth Day, April 22, 2016, Manitoba Hydro announced its Solar Energy Program offering incentives and financial support for customers to adopt solar power to generate their own electricity and sell excess energy to Hydro.  The Program was part of Hydro’s demand-side management plan to reduce energy use in the province and help customers reduce their bills. The Program offered (1) a subsidy of $1,000 per kilowatt of capacity for installations up to 200 kW, (2) limited financing for up to 15 years, (3) displacement of grid electricity, (4) backup service, and (5) purchase of excess energy.  

Hydro stopped accepting new applications in May 2018.  There has since been considerable public debate about the Program and whether or not it should be renewed.  My contribution to the debate concerns primarily components (3) and (4).

Briefly, a significant ongoing subsidization occurs whenever customers displace dependable hydroelectricity with intermittent solar generated electricity.  The former is two and a half to three times as valuable as the latter. Hydro gets no return for maintaining the capacity to provide instantaneously available backup energy without which solar generation is a non-starter.

Let me explain.  Assume a customer uses 50,000 kWh/year priced at $.08527/kWh (Hydro’s current residential price) costing $4,264.  Assume the customer installs solar panels producing 55,000 kWh/year of which assume 20,000 kWh will be in excess of net month by month consumption and will be bought by Hydro at the current excess energy price of $.03253/kWh totalling $651.  This transaction is a benefit to the customer and presumably nets out for Hydro.

The customer uses the remaining 35,000 kWh onsite and purchases the resulting 15,000 kWh shortfall from Hydro for $1,279 ($.08527/kWh).  The customer’s net cost is now $628, down 85.3 percent for a saving of $3,636. Hydro’s direct revenue from the customer has dropped from $4,264 to $1,279.  Assuming Hydro is able to export the 35,000 kWh displaced by solar at $.0276/kWh (average 2017/18 price for surplus energy) it will realize $966 which together with $1,279 from the customer totals $2,245, a decrease of $2,019 (down 47.3%).  

Despite losing 47.3 percent of pre-solar revenue from its customer, after having subsidized installation by  $30,000 to $40,000 (my estimate), Hydro remains obligated to supply as much electricity as the customer requires every second of every minute of every hour of every day, indefinitely, regardless of darkness and drought just as if there were no solar panels in place.  Peak demand in Manitoba inevitably coincides with zero production from solar.

I was Hydro’s chairman in 1989 when the board set a demand side management target of reducing peak demand in 2001 by 100 megawatts for the purpose of delaying need of the next generating station by one year.  Board and management understood that a hydroelectric utility must always have surplus energy. Energy savings that did not reduce peak demand could therefore only be valued as surplus energy whereas savings that reduced peak demand could be valued in relation to the much greater marginal cost of electricity to be produced by the next new generating station.  This strategy was designed to benefit all customers.

Hydro’s Solar Energy Program (1) does not reduce peak demand (2), results in solar generation adding only surplus power to Hydro’s system, and (3) drives up the utility’s operating costs at the expense of Hydro consumers in general.  

Hydro’s legislated mandate is “…to provide for the continuance of a supply of power adequate for the needs of the province, and to engage in and to promote economy and efficiency in the development, generation, transmission, distribution, supply and end-use of power…”.  Manitoba authorities – government and Hydro – evaluating the Solar Energy Program should pay close attention to this directive from the Hydro Act.

There is no apparent reason why there should be any subsidization of solar installations by Manitoba Hydro.  Customers wanting to generate part of their energy requirements by installing solar panels should (1) pay for the panels and installation costs, (2) pay a fee covering Hydro’s costs of maintaining capacity to provide backup power, and (3) Hydro should value all solar generated power as excess energy currently valued at $.03253/kWh.

Alternatively, customers who install solar panels could go off the grid and provide their own batteries and/or standby generators.  That would reduce peak demand, as intended by the original demand side management program, which might provide a rationale for subsidization.  

Either case would realistically test the competitiveness of solar power in Manitoba while leaving Manitoba Hydro to pursue its business with economy and efficiency.