Is grid parity "just around the corner"?

06. March 2012 By:  Shalom Goffri, Ph.D., Navigant Consulting

Shalom Goffri, associate director at Navigant Consulting believes that photovoltaic prices are still too high to achieve grid parity without incentives. However, he says that with new, sustainable, markets, the need for incentives is being reduced, meaning it could be as little as five years before grid parity without incentives is reached.

Over the past year, prices for photovoltaic systems have declined significantly — largely the result of overcapacity throughout the value chain. In addition, capital has been easier to secure as an increased number of financing providers become familiar with photovoltaic investments and the related risks. As a result, the levelized cost of energy (LCOE) generated by photovoltaic systems has declined to the point at which solar-generated power can effectively compete with grid-generated power in several sub-markets across the globe.

These cost-effective photovoltaic markets are driven, for the most part, by incentives such as the feed-in-tariffs (FIT) in Germany and other European countries, as well as Federal and state rebates/buy-downs in the U.S. Without these incentives, most of the current demand for photovoltaics would not exist. The industry is, however, moving closer to achieving parity, even without incentives, which is why many utility companies and third party providers are taking an increased interest in solar business opportunities. 

Grid parity analysis

Solar grid parity can be defined as the point at which the cost of solar generated electricity (e.g., photovoltaics) is equal to the cost of conventional electricity generation. Solar grid parity is dependent on many factors, including the price of grid electricity, installed photovoltaic system price, the location of the system (i.e., is it located on the customer side of the meter, or on the utility side of the meter?), the quality of the solar resource, photovoltaic module technology options, and financing.

Because power rates vary by market and application, residential, commercial, and utility customers are all likely to have different definitions of grid parity. For example, a residential consumer in California pays, on average, around US$0.20 per kilowatt hour (/kWh) for power through retail electricity rates, while a larger industrial consumer may pay on average approximately $0.11/kWh – almost half – for power in the same service territory. Meanwhile, wholesale power bought by the utility has a different price point altogether.

Furthermore, a photovoltaic system located on the customer side of the meter with a rooftop application will be competing against retail rates, and a system located more centrally on the ground will typically need to compete with the cheaper wholesale power.

The annual energy output of a photovoltaic system is measured by the annual system capacity factor (CF), defined as the ratio of actual power plant output over a period of time to the full nameplate capacity potential for the same period of time. Each photovoltaic technology and system configuration has its own CF, which also varies by location. For example, a crystalline silicon (c-Si) system in Bakersfield, California, has a CF of around 16.9 percent, while a CdTe (cadmium telluride) system in the same location has a CF of approximately 17.4 percent. Similarly, tracking devices, which allow solar panels to more accurately follow the sun, will also impact the CF of a photovoltaic system.

One-axis tracking can increase system output by 20 to 30 percent, depending on the location and tracking system. Figure 1 shows the energy output difference between a fixed tilt c-Si system and a fixed tilt CdTe system with the same nameplate capacity. CdTe systems in the U.S. have an equal or better energy output advantage in most of the country due to multiple factors, but most notably a favorable temperature coefficient. Meanwhile, c-Si systems have an advantage in the northern regions where temperatures are lower.

To determine LCOE, Navigant conducted an LCOE analysis void of incentives, in order to show what is needed to reach sustainable grid parity. A residential customer in CA paying an average of $0.20/kWh for retail electricity will reach grid parity by purchasing a photovoltaic system with an installed system cost around $3.00/W. A similar residential customer in Germany paying an average of $0.33/kWh for power will need to purchase a photovoltaic system at around $2.50/W to achieve grid parity.

Key findings

While photovoltaic prices have decreased significantly, today’s prices still cannot achieve grid parity without incentives. Current residential system prices in California still need to come down 40 to 50 percent before photovoltaics can effectively compete with grid electricity prices. However, in cases where rates are higher – around $0.40/kWh – photovoltaics may begin competing with grid power without the need of additional incentives.

As prices continue to decline, more sustainable markets will open up for photovoltaics, thus reducing the need for incentives. Lower cost of capital has also played a key role in supporting the quick decline in photovoltaic LCOEs. Looking forward, capital costs will continue to play an increasingly important role in driving them down. 

Current incentives allow parity with grid electricity prices to be achieved for various customer types in several markets. However, to achieve grid parity without incentives, installed photovoltaic systems prices still need to decrease by about half, which could be achievable within the next five years, as cost continue to decline and module efficiency increases. 

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Steve Yang from Sunnyvale |

Wednesday, 18.07.2012 03:34

Shalom seem to ignore that fact that there is still subsidy on oil, natural gas, and even coal. I consider we are already at grid parity, and by Shalom's rule, it won't take 5 years to reach 'grid parity' for PV.

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