Study: reasonable cost of capital can make solar competitive in all European countries within five years

Grid-parity can be a misleading concept, and if its definition remains unclear, it can become difficult to know when solar will reach it (or if it has already done so), and whether it really has become competitive with conventional power sources and other renewable energies.

A new study from the European Technology and Innovation Platform Photovoltaics (ETIP PV), however, intends to fill this gap, and to provide, along with a clear definition of what grid-parity (and competitiveness) really is, an insight into how many European countries have achieved it, or are close to reaching it.

ETIP PV experts clarify that grid-parity occurs when the price of PV electricity at which PV becomes cheaper than the price of electricity paid by consumers. According to ETIP PV, solar has already reached this kind of “grid-parity” with retail electricity prices in many European countries. “Even though,” the report notes, “competitiveness implies to the state where it is possible to produce electricity with PV below the price of electricity that is consumed by electricity consumers, this is just a first step toward a true meaning of competitiveness.”

The authors of the report claim that “true grid parity” and real competitiveness can be defined if the PV electricity value is calculated taking only direct self-consumption into account and no other support schemes or subsidies are needed, and if the value of PV electricity is compared with retail electricity price but only the variable part in the customer bill. Furthermore, the study divides the total PV electricity value bases on two parts: the value of the self-consumption electricity, and the value of surplus or feed-in the grid electricity.

ETIP PV clarified that the “real” competitiveness of PV has been assessed by comparing the PV electricity value given the self-consumption ratios at different levels (from 25% up to 100%) with the PV LCOE calculated for every year until 2050 taking into account the fluctuation trends in all PV LCOE inputs.

The study, which does not consider the added value of PV in terms of societal and environmental benefits, concludes that the “true grid parity” or the competitiveness for PV installations under a fair self-consumption framework has already been reached in mature solar markets such as Italy and Germany, and that in Nordic countries like Sweden and Finland this level of competitiveness can be achieved in rooftop segments within the next five years. The achievement of grid-parity, however, will also depend on the level of self-consumption utilized.

The report also highlights that the Weighted Average Cost of Capital (WACC) is the most crucial parameter affecting the PV LCOE, independently from where a project is located. “Because PV has very little operational cost,” the report says, “the WACC rate applied for the investment is a decisive factor. Therefore the biggest threat to PV competitiveness are the various legal, taxes and regulatory changes which may jeopardize investor confidence and thus increase the financial cost.”