IS SOLAR ENERGY THE SECRET HEDGE AGAINST INFLATION?
Inflation has been in the news a lot recently. And for good reason – it’s affecting everyday Canadians in a very real way. Gas prices are rising, food costs are increasing, and wages aren’t keeping up. This is putting a huge strain on budgets all across the country and creating market uncertainty. Market uncertainty equals risk and risk affects investments. Combined with the impact of COVID on worldwide supply chains and the crisis in Ukraine, home security and cost certainty has never been more top of mind.
At Energy Economics, we believe energy is one of the most essential currencies in our world today. The majority of our clients are concerned with the future cost of energy, its’ sustainability, as well as its dependability and security. Producing your own renewable energy on your rooftop can hedge against this market uncertainty while reducing reliance on grid power and adding to your financial independence.
WHAT IS INFLATION AND HOW DOES IT AFFECT OUR EVERYDAY LIVES?
Inflation is a rise in the general level of prices for goods and services. It occurs when the value of money falls due to an increase in the amount of money available in the economy. Rising prices put a strain on our economy as a whole, causing market instability and eroding the purchasing power of money over time. Inflation risk is particularly relevant if you own cash or debt investments like bonds.
Utility bills are a big part of the rising cost of living in British Columbia. With record low winter temperatures and summer heat waves becoming more common, we are using more energy than ever before. And as the demand for power increases, so do our utility bills. $800 electricity bills are shocking.
THE ELECTRIFICATION OF EVERYTHING
Our world is increasingly electric. Demand for electricity is growing because we are becoming more interested in electric vehicles, electronic gadgets are increasingly common in our lives, and we spend more time at home (home offices). From homes to cars, we are electrifying everything.
This increasing demand for electricity is exacerbated by extreme climate events. Last year (2021) BC Hydro experienced record-breaking demand for electricity in both summer and winter, a trend that is expected to continue. On June 28, 2021 BC Hydro broke its all-time summer peak demand record at 8,568 megawatts – breaking the previous record by 600 megawatts – the equivalent of turning on 600,000 portable air conditioners.
HOW IS SOLAR PART OF THE SOLUTION?
There is a silver lining to this situation: solar energy. Solar energy is a fantastic hedge against inflation because it offers stable, long-term cost certainty. What it produces – energy – has value. Solar energy is a productive asset that replaces a liability (your utility bill). By producing your own energy, you reduce your reliance on the grid as well as hedge against fluctuating utility prices. With solar, you can lock in your utility rate for 25 years or more, insulating yourself from future price hikes.
Solar PV systems are a great example of a hard asset and something that will likely increase in value with greater inflation and financial market volatility. A solar system consists of tangible property and uses free energy from the sun to create a valuable resource. As electricity prices go up, the value of the solar asset appreciates too!
If you’re looking for ways to protect yourself from inflation, solar should be at the top of your list!
HOW DO YOU CALCULATE THE RETURN ON INVESTMENT FOR A SOLAR ENERGY SYSTEM?
When calculating the return on investment for a solar energy system, you’ll need to take into account a few factors: the price of the system, the amount of electricity it will produce over its’ lifetime (25+ years), and the cost of electricity from your utility, factoring in annual rate increases.
The website www.energyhub.org calculates the average residential cost of electricity in British Columbia at $0.126 per kWh, or $126 per month, assuming an average monthly usage of 1,000 kWh. Both BC Hydro and Fortis utilize a tiered billing system for residential rates. Tier 1 is far lower than residential tier 2 rates. For BC Hydro clients, tier 2 is 50% higher than tier 1. This means that homeowners who use a lot of electricity enjoy a greater ROI on a solar PV system, because the solar panels offset the energy being billed in the tier 2 first.
For example, if your electrical bill was $200 a month on average, and you hired us to install a 5-kW solar PV system, you could earn 12-14% on your money for the next 25+ years.
*Disclaimer: Several factors including Tilt, orientation, latitude, and the local climate affect performance. As well, install costs are impacted by the type of roof material, the electrical requirements and other factors.
Find out more here: https://energyeconomicssolar.ca/contact-us/
WHY WAITING TO GO SOLAR HAS A COST
As inflation rises and global events cause market uncertainty, electricity prices may start to rise rapidly in the near future. Keep in mind that the entire electrical system is heavily tied to commodities. These include steel, copper, aluminum, and the fuels that traditional power plants require. These commodities must be mined and transported to create energy. That means the cost of solar equipment, which has plummeted over the past decade is rising. We have already seen prices rising over the last 6 months.
The good news is – there are Federal grants out right now to help offset the capital cost of a solar PV system. There has never been a better time to install solar in British Columbia then now. “The best time to plant a tree was 20-years ago, the second best time is now”.
Solar energy is a sustainable and renewable resource that can be used to generate electricity. By hedging against inflation with solar energy, we can take some control back into our own hands and ensure our financial security for the future. Solar is not only a great investment, it’s an important step in creating a more sustainable future for everyone.
Are you considering going solar? If you would like to continue the conversation, reach out to us at ILoveSolar@energyeconomics.ca