Grid parity – the almost ‘mystical’ point in time when levelized cost of generating electric power from PV energy is equal to the price of purchasing power from the grid – appears to be getting closer every month. Beyond this important point, PV power becomes, in principle, a viable technology for widespread development without subsidy support. This is expected to trigger an accelerated shift in PV adoption.
With the PV industry currently focused on cost reduction – to ensure profitability when widespread grid parity is finally achieved – it is prudent to highlight some important aspects of grid-parity:
- Grid parity is not a singular event – it will happen in different geographies at different times
- Grid parity is a moving target – competing energy sources will adjust to the challenge from PV and other alternatives
- Grid Parity will not be the threshold after which PV quickly becomes the dominating energy source – established infrastructure and utility business models will take time to change
Today, we are already at – or have passed through – grid parity at several locations in the world. This includes Hawaii and other tropical island nations in the Caribbean and South Pacific where PV competes with electricity from expensive oil imports. Also, grid parity has also been achieved in parts of Spain where there is plenty of sunshine and relatively high electricity cost.
In 2013, we expect parts of Italy, Brazil, Chile and Australia to also reach the threshold. Thereafter, the Philippines, California, Japan and others will follow during the period from 2014 to 2016. This accelerated drive towards grid parity is timely because, in many key markets, incentives are declining or disappearing. This trend will continue, especially in Europe.
Many coal, gas and nuclear plants are already fully-amortized and produce low-cost, highly-competitive electric power. Also, PV has been most successful in competing within the ‘peak-power’ segment. However, this is changing within locations where PV provides a substantial portion of the energy on sunny days (such as southern Germany). When PV becomes a mainstream energy source, it then competes with less expensive sources rather than ‘peak-only’ power plants. In many countries, this segment is primarily serviced by natural gas, coal and other fossil fuel powered plants.
The adoption of hydraulic fracking – especially within the US – has caused natural gas production to increase dramatically. This has resulted in prices declining to historic lows, rivaling coal prices. This cheap gas represents serious competition to PV within the US and other areas. Declining fossil fuel prices are also compounded by large subsidies that were four times greater than the total revenues of the global PV industry during 2011.
In addition, the grid infrastructure is not optimized for distributed generation – one of PV’s key advantages. Most grids were typically designed to pipe electricity (mainly coal) from power plants to the industrial and population centers. This legacy infrastructure may cause challenges for PV power in being able to access the grid. Infrastructure changes to take advantage of distributed generation will take time to implement, and will likely require significant investments.
Also, the intermittent nature of PV energy becomes a challenge as PV contributes more to the overall energy mix. This could be addressed with energy storage or buffering in the future. However, these technologies are still expensive today at the scale necessary to ensure grid stability, if PV were to provide the majority of power generated.
Therefore, while grid parity in major electricity markets will mark an important achievement for the PV industry, it will not necessarily represent a single inflection-point in time for overall PV growth.