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Will Solar Prices Fall into Grid Parity?

The following is a guest post written by Dan Harding. Dan has written numerous articles on the solar industry, and is a regular contributing author to CalFinder.
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Will Solar Prices Fall into Grid Parity? 


By Dan Harding

The Holy Grail…in solar-speak, it translates roughly to Grid Parity. It is a goal either mythical or predestined, depending on which side of the solar power movement the speaker resides. A recent surge in supply and technology, coupled with increased government subsidies, are tipping the scales toward destiny, although by no means is the path to grid parity set in stone. The rapid fall in prices for solar panels and other system components in an oversupplied and flooded market could continue home solar power on its way to that mythical Grail but, all mythos and wishful thinking aside, what are the odds?

Good, says Swami Venkataraman, Director of Corporate and Government Ratings at Standard & Poor’s, in a recent assessment of the U.S. solar market for Renewable Energy World. As of February, 2009, installed costs for residential and commercial photovoltaic (PV) systems had fallen to $7.60 per watt from $10.50 per watt just two years earlier. Prices continued to fall throughout 2009 and, while expected to stabilize somewhat as the national economy rebounds, they should remain on that downward slope in 2010 and beyond.

So when will solar cross that line? It could be soon, very soon in regions of the country with either abundant sunlight (southwest) or relatively high electricity costs (northeast). Yet some valuable help is still needed at the legislative level which, if provided, could propel solar power to grid parity in the short-term in the aforementioned regions.  


Three factors, says Venkataraman, can help make PV cheaper than, say, a combined-cycle gas turbine plant. One or all of the following could ensure solar power a level playing field in the long term:
  • Rising gas prices
  • Renewable portfolio standards that make renewable energy credits (RECs) more valuable
  • The passage of carbon legislation that would force gas power producers to buy carbon credits, thus forcing an increase in price for natural gas.

Including incentives, solar power is already close to grid parity in many areas. The Northeast holds the handy combination of some of the most lucrative solar incentives (per watt installed) in the country, as well as the highest electricity prices. Therefore, solar has far less distance to make up to reach at least natural gas, and gives solar power the best and fastest chance to reach grid parity in the nation. In California, where incentives have been declining for several years now, the primary advantage is in abundant sunlight (same goes for Arizona, New Mexico, west Texas, etc.), as well as a powerful RPS and a general eagerness from the public to adopt clean energy.

But as those two examples illustrate, grid parity will almost certainly NOT come to the United States as a whole all at once. Federal incentives were expanded in 2009, including the removal of the $2,000 cap on residential systems and the admittance of utilities into the Investment Tax Credit, but continue to vary widely between states. The feds provide a baseline subsidy, but what truly makes solar affordable for most homeowners and businesses are the added incentives offered by their state. So, in terms of reaching grid parity, we can expect the Southeast — despite its healthy share of sunshine — to be the slowest to reach the Holy Grail. This is due primarily to a lack of incentives, low electricity costs and a deep connection to fossil-fueled electricity.

Without incentives, there is still a real chance for PV, especially commercial PV, to reach grid parity in the relative short-term. Current capital costs for commercial PV are about $5.50 to $6.60 per watt depending on the size of the installation, according to Standard & Poor’s. Incentive levels in many northeastern states are upwards of $4.00 per watt, which means that, given incentives, the levelized cost of electricity (LCOE) of commercial PV systems was already below standard commercial rates. Furthermore, if falling panel prices enable systems to reach or fall below $5.00 per watt, then solar PV could reach parity even without subsidies.

Residential grid parity is more distant but still closest in the Northeast. Outside of the Southwest and Northeast, where solar irradiance and/or electricity costs make the solar-grid-parity question more complicated and uncertain, help will have to come from other renewables. Most notable among these are geothermal (Northwest) and wind power (Midwest). It is important when discussing grid parity for solar power not to forget its intermittency and the fact that some backup power system will be needed. Even if our solar infrastructure were so advanced as to provide all our power needs during peak load times, we would still need alternative sources to pick up the slack on cloudy days and at night.

Of course, straight-laced economics aside, we must also consider the inherent value of solar power beyond mere dollar signs. The point of renewable energy is to switch from pollutive, peaking sources of energy to clean, renewable ones. Solar power emits no greenhouse gases, no carbon dioxide and, when distributed, can provide power at or near the point of use without turning our cities into smog factories. That alone is reason enough to subsidize solar, wind, geothermal and other renewable resources until they reach the Holy Grail that is their destiny.
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March 3, 2010 - Posted by | guest post, reader submission, solar power, solar PV

14 Comments

  1. "So with solar, you won't see the utility investing in it"Except that utilities are investing in solar…not many clearly, but some are.

    Comment by Daniel | March 9, 2010

  2. PV owned by utilities: EDF, FPL, SDG&E, SMUD, and Duke Energy

    Comment by Anonymous | March 9, 2010

  3. Yes, but how many of those utilities have been mandated, or otherwise forced for PR reasons, to do so?Here is a good look at what is wrong with excessive subsidies for solar.http://www.nytimes.com/2010/03/09/business/energy-environment/09solar.htmlWhen the technology is ready and fit for purpose, it will be embraced no subsidies required. To pour money into it at any time before, is creating a false market, as Spain learned the hard way. The only way companies were successful was when the economic reality hit home, so why distort it in the first place?

    Comment by Paul | March 10, 2010

  4. Paul says:"When the technology is ready and fit for purpose, it will be embraced no subsidies required. To pour money into it at any time before, is creating a false market"Nevertheless it is interesting that Germany's subsidy has really stimulated a global solar industry over the past decade which in turn has achieved enough scale to bring down the cost of solar. I expect that solar will reach grid parity (w/o subsidy) in the coming decade.Now I have ask Paul, are you as upset about every single subsidy elsewhere in the economy? Because we could have some fun ticking off all the explicit and hidden subsidies, excessive or not across all sectors of the global economy.

    Comment by Daniel | March 10, 2010

  5. I expect solar prices to fall into grid parity not this year but perhaps in 20 years' time.

    Comment by Saar the climate change star | March 10, 2010

  6. Daniel, Germany's subsidy has simply achieved a transfer of wealth from the general taxpayer to the the few that can afford to install solar systems, and the companies that have set up there, to take advantage of the incentives. if the incentives stop tomorrow, so does Germany's solar industry.did you read the Spain article – after they stopped the oversubsidising, business had to face reality, which was that many were unsustainable. The remainder had to focus on things that were actually likely to be profitable, though this usually means selling equipment to other places that subsidise.Am I upset about all the other hidden subsidies – in a word, yes. Almost all of these are implemented for political gain, and usually achieve little economic benefit. Everyone pays for the gov to win the favour of special interest groups.To quote the famous physicist Richard Feynman "in developing any new technology, reality must take precedence over public relations, for ultimately, Nature cannot be fooled"

    Comment by Paul | March 10, 2010

  7. Paul says:"if the incentives stop tomorrow, so does Germany's solar industry."LOL actually solar panels would get even cheaper!

    Comment by Daniel | March 11, 2010

  8. First, this paragraph makes little sense:Without incentives, there is still a real chance for PV, especially commercial PV, to reach grid parity in the relative short-term. Current capital costs for commercial PV are about $5.50 to $6.60 per watt depending on the size of the installation, according to Standard & Poor's. Incentive levels in many northeastern states are upwards of $4.00 per watt, which means that, given incentives, the levelized cost of electricity (LCOE) of commercial PV systems was already below standard commercial rates. Furthermore, if falling panel prices enable systems to reach or fall below $5.00 per watt, then solar PV could reach parity even without subsidies.He starts off saying "without incentives" but backs that up by using 'incentives' to get back to the so called grid parity of $5/watt.I will disagree with the fact that he states solar is within 50cents/watt of so called "parity".Second, any dream of carbon taxes (or cap/trade revenue) being used by the government to further fund research or incentives is wishful thinking at best. Already in proposed legislation, that hoped for revenue stream will be kicked back to consumers, to help offset the high costs of renewable energy baked into their power bills (baked in, as in the regulated utilities will recover all costs + a fixed % revenue).

    Comment by Jerry on Gulf Coast | March 11, 2010

  9. John, the link to the source article for the numbers given in the post are embedded in the link; "a recent assessment…"; via Renewable Energy World magazine…

    Comment by Daniel | March 11, 2010

  10. I hear a lot about intermittency. People are working on handling that problem. Much of the research being subsidized by the government is working in that direction. MIT has several research projects in development, for example, and molten salts/power towers are being used in Spain to provide solar thermal power into the night.That being said, talk of grid parity does necessarily mean that I think solar power will become our single, absolutely reliable source of electricity. A more diverse energy mix than ever will be needed, including a completely refurbished and more intelligent electric grid to handle that mix. It may seem like a pipe dream now, but how many of us could imagine the iPhone 10 years ago? Or the laptop 20 years ago?Let's not forget that we are in the midst of a technological revolution that thankfully is overlapping with an energy revolution. I for one don't pretend to know how far that will go, but I also won't speak in absolutes by saying grid parity or reliable solar power is impossible or for certain. But I will say that we've already cut the price of solar – subsidized or otherwise – in half in less than a decade. Yes it is still expensive and subsidized – although still less subsidized than coal, a supposedly independent industry – but the whole point of this article is simply to say that solar prices are falling into grid parity.That grid parity, however, involves the TOTAL cost of an energy source, including environmental and social issues, very similar to the triple-bottom line that defines the new business paradigm of social responsibility. We must open our minds to a broader approach to energy and business in the coming future, and yes that includes using wind, solar and geothermal (the most reliable new renewable resource). I have no doubts that intermittency will be taken care of, whether through storage technology, hybrid power plants or simply a diverse energy mix combined with an intelligent power grid. And I feel its undeniable that prices and the people are leaning in that direction…

    Comment by Daniel | March 11, 2010

  11. Daniel, the end of your post answered the start. The best solution to intermittency is the mix of sources. Trying to do molten salt storage or the like for solar is so expensive, that you are better off to build more solar, or better yet, an alternate generation source (more diversity = more security). For a typical solar system, if you divert some of the energy to storage, you are giving up selling high priced peak electricity,, and then when you pull itback from storage, you have lost at least 25, if not 40%, and are then selling it at low, off peak rates. The storage does give you the ability to maintain output on a cloudy/snowy day, but that is a huge price to pay for backup power. The problem with the mix approach, is that the intermittent sources must remain a small % of the total, about 20%, or you have grid stability problems.But given that renewables (other than hydro) are less than 5%, and are barely keeping up with demand growth, getting to 20% is going to take some time yet.

    Comment by Paul | March 11, 2010

  12. Just for the record the two posts by "Daniel" on March 11th were posted by a different Daniel than all the previous posts on this thread…(you can tell b/c the imitator Daniel doesn't snip quotes and respond.I can't believe I've been "handle-jacked"!!

    Comment by Daniel | March 12, 2010

  13. Daniel, you didn't get "handle-jacked," at least not on purpose. My name IS Daniel as well and I have no idea how you got "jacked" I'm signed in under my own email…cheers…

    Comment by Daniel | March 15, 2010

  14. Robert,

    You mention a cost of $5.5 – $6.6 per watt for commercial PV installations. In India, I am regularly getting quotes of $2/watt from PV module manufacturers – they have indicated that they will negotiate for anything greater than 10kW plant size. Granted, I will need to add-in costs for land, installation, electronics and transmission. But, even then, it is not likely to go beyond $4 per watt. Do you think the difference is due to labor costs? With this in mind, my calculation indicates a generation rate of $0.11/kWh considering a plant size of 25kW and tilt irradiance of 5.36 kWh/ m sq per SWERA. I am assuming a 37% output loss over the life of the plant. Your thoughts would be welcome here.

    Comment by Abhijit Athavale | March 17, 2010


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