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What’s better: microFIT or GIC?

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I received this interesting question from one of our readers and I thought I’d write up a quick post with my thoughts on it. It is a question many people should be asking themselves, as we go from early adoption stage of this program to something of an early majority stage, on the adoption curve.

So the question goes like this:

“I read about the losses you predict. All is not the bed of roses the installers predict! I am trying to decide about going ahead with this but I am having my doubts as to the “real” pay-back numbers. Also, it locks up my money tighter than a GIC as I’m never able to cash out the original investment. What do you say?”

Quickest answer is “do it”.

Somewhat quick answer is “you need to do it right to get OK return”.

A more accurate answer is  “it depends”. One thing is clear for sure: if you have someone promising you 14% returns, run. They are not telling the real picture, either through lack of experience or because they don’t want to look more expensive relative to the next guy who advertises 14% returns…  Let’s be real, this is taxpayers’ money and they won’t give you any more of it than they have to, just enough to make microFIT sell.

A more expanded answer… Let’s start with the basics:

  1. I am not a financial advisor
  2. I know nothing about your situation, solar or financial
  3. I don’t know what your goals/priorities are

What I do know through my own experience is:

  1. Scale matters
  2. Sunshine is everything
  3. This is not a DIY project (unless you are a builder and have your own crew)

It would be easier to say “do it” or “don’t” if you had some idea of what sort of capacity you could install on your roof. But basically:

  1. You must have sun; everything else is not important. Solar panels will work even in cloudy weather – even if you turn them North in fact – but if you want to beat GICs you need to optimize for direct sunshine. Sunshine = $$$.
    1. Flat roof is good as it gives you some freedom to design what you want
    2. Large sloping roof is better IF it has good exposure to Southern sky (360 degree azimuth, give or take 20 degrees).
    3. Sloping roof addresses wind loading issues, which you will appreciate during the next F-1 storm in Southern Ontario
    4. Sloping roof should be close to 30 degrees – steep or low angled roofs may need some additional framework to optimize panel angles a bit, but it comes at a cost of losing space to shading between panel rows
    5. No trees or chimneys or other obstructions of significant size that cast shadows during the day (9 AM to 4 PM is where the money is during spring/fall – and I have not seen the summer yet; in the winter, 10 AM to 2 PM is cash time)
    6. If you got all that, next step is to get some (3) estimates
  2. You need scale; there are fixed costs in the project, and variable costs.
    1. No matter how many panels you are going to install, you must have a generation meter, a building permit, a crew working on the roof, you need to run copper wires down the wall of your house, need to pass the same inspection, pay connection fee, pay for engineering approval, etc.
    2. So obviously, the more panels you can physically fit on your property, the thinner you will spread your fixed costs and get a better $ return per watt installed.
    3. If you can’t get into 2 kW, I don’t think you will beat GICs. If you can reach into 5+ kW, you should be pretty happy with your decision.
    4. 10 kW = $$$
  3. You need people who know what they are doing.
    1. I will not recommend anyone in this post because I don’t want you to think that I am selling something. But having people who know that your cutoff switch must be NEMA, Service Entry, AND CSA approved (three labels) can potentially save you 1-2 months of waiting for the next available ESA inspection. It’s things like that which add up. My project went well, and it took me FIVE MONTHS from the time I put in my application and the time when I signed a contract with OPA. Money is committed, but returns aren’t coming – it’s frustrating.
    2. If your roof leaks… You want them to come back and fix it ASAP.
    3. If your panel goes… You want them to come in and swap it ASAP.
    4. If ________…. You want them to come in and fix it ASAP.
  4. You have to ensure that your contract covers everything and protects you from unknowns
    1. OPA is still changing program rules as they go. ESA is raising fees. Toronto is now asking for building permits. Toronto Hydro wants a connection fee. People are starting to figure this out so everyone wants a piece of the pie. Your mission is to hang on to as much of this pie as you can!
    2. Make sure that the language in the contract protects you from unforeseen expenses like new fees or bad calculations. Let your chosen contractor inspect your building and your architectural drawings, as long as they want, to give you a precise quote that they will have to stick to.
    3. If you can get under $7.00 per DC watt installed and connected, I think it’s a steal. $8.00 is too expensive. You are probably going to end up somewhere in between.
  5. Because the question was: GIC or microFIT, I am assuming that you have cash – this is half the battle! You must have cash to do this. Either your own, or borrowed using one of those MBNA or CapitalOne promotional offers, at 0.99% for 12 months (and then keep rolling it over from one to another every 8 to 12 months to keep the rate as close to nothing as possible – I still owe 15K and my interest payment is less than ten bucks a month).
    1. DO NOT BORROW FROM BIG 5 BANK or some unsecured 8% line of credit. They will take a huge piece of your profit and kill most of the benefit.
  6. Things like inflation and income taxes… well, they apply to GICs as well! (OK… you can get rid of income tax if you buy GIC in a TFSA account, but you can only put 15K as of 2011, while your microFIT system could scale into 60K+ range) So at least in this respect we can call it even.
    1. This is important, as inflation and income tax are the real killers of the microFIT program.
    2. See my post on this
  7. As our friend Julian pointed out, you get to keep the panels at the end of the microFIT contract, and can flip to net metering. With electricity prices going nowhere but up in the next 20 years, this will create a very meaningful reduction in your bills, so this investment will keep paying dividends.
    1. But… if you are planning to sell your house, good luck explaining this value to an uneducated buyer – so if this is in the cards, think twice.

You CAN make money with microFIT. In my opinion, you can make a bit more money with microFIT if done correctly, and assuming no out of control inflation, than with GIC.

But you almost need another reason to do this whole thing. You need to be inspired to do a good thing for your community, or for your future generation, or just for yourself as a cool hobby. Don’t get me wrong, I am not buying into the climate change end of the world propaganda. But I have to admit that being the first guy on the block with a cool toy on my roof makes me feel pretty good :) and if you can help others get on the bandwagon, do a good thing for the community, and help others profit along the way – why not?

But, if your roof is not allowing for a ton of capacity… If you want my honest opinion… Open a TFSA account, stuff it up to the 15K limit with cash (vote Conservative so they can increase annual contribution limits!), sit on cash till the next gold pullback, and load up on HGY.UN (NOTE: I AM NOT A FINANCIAL ADVISOR AND THIS IS NOT A FINANCIAL ADVICE :) ) This ETF gives you 7% annual yield from covered call writing on gold contracts, it is hedged against foreign currency risk, and it owns gold-based assets. With this massive amount of printing South of the border, gold is likely not going to tank anytime soon. It is overdue to correct a tad, but 7% yield should make you feel OK about it. GIC sucks, IMHO. Disclosure: I am long HGY.UN.

Good luck with your investment decisions.


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