Grid parity

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Grid parity (or socket parity) occurs when an alternative energy source can generate electricity at a levelized cost (LCoE) that is less than or eual to the price of purchasing power from the
electricity grid! "he term is most commonly used when discussing renewa#le energy sources, nota#ly solar power and wind power!
$eaching grid parity is considered to #e the point at which an energy source #ecomes a contender for widespread development without su#sidies or government support! %t is widely #elieved that a
wholesale shift in generation to these forms of energy will take place when they reach grid parity!
With help from government su#sidies, grid parity has #een reached in some locations with on&shore wind power in '(((, and with solar power in '()*!
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Contents
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) -verview

' .olar power

o '!) /ricing solar
o '!' $eaching parity
o '!* $apid uptake

* Wind power

0 .ee also

1 $eferences
Overview
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"he price of electricity from the grid is comple2! 3ost power sources in the developed world are generated in industrial scale plants developed #y private or pu#lic consortiums! "he company
providing the power and the company delivering that power to the customers are often separate entities who enter into a /ower /urchase 4greement that sets a fi2ed rate for all of the power
delivered #y the plant! -n the other end of the wire, the local distri#ution company (L5C) charges rates that will cover their power purchases from the variety of producers they use!
"his relationship is not straightforward6 for instance, an L5C may #uy large amounts of #ase load power from a nuclear plant at a low fi2ed cost and then #uypeaking power only as reuired
from natural gas peakers at a much higher cost, perhaps five to si2 times! 5epending on their #illing policy, this might #e #illed to the customer at a flat rate com#ining the two rates the L5C pays, or
alternately #ased on a time&#ased pricing policy that tries to more closely match input costs with customer prices!
4s a result of these policies, the e2act definition of 7grid parity7 varies not only from location to location, #ut customer to customer and even hour to hour!
For instance, wind power is generally considered to #e a form of #ase load and connects to the grid on the distri#ution side (as opposed to the customer side)! "his means it competes with other
large forms of industrial&scale power like hydro, nuclear or coal&fired plants, which are generally ine2pensive forms of power! 4dditionally, the generator will #e charged #y the distri#ution operator to
carry the power to the markets, adding to their levelized costs!
.olar has the advantage of scaling easily from systems as small as a single solar panel placed on the customer8s roof! %n this case the system has to compete with the post&delivery retail price,
which is generally much higher than the wholesale price at the same time!
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%t is also important to consider changes in grid pricing when determining whether or not a source is at parity! For instance, the introduction of time&of&use pricing and a general increase in power
prices in 3e2ico during '()( and '()) has suddenly made many forms of renewa#le energy reach grid parity! 4 drop in power prices, as has happened in some locations due to the late&'(((s
recession, can likewise render systems formerly at parity no longer interesting!
%n general terms, fuel prices continue to increase, while renewa#le energy sources continue to reduce in up&front costs! 4s a result, widespread grid parity for wind and solar are generally predicted
for the time #etween '()1 and '('(!
Solar power
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See also: Solar Power Economics
/ro9ection of levelized cost of /: energy in Europe
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Pricing solar
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;rid parity is most commonly used in the field of solar power, and most specifically when referring to solar photovoltaics (/:)! 4s /: systems do not use fuel and are largely maintenance&free, the
levelized cost of electricity is dominated almost entirely #y the capital cost of the system! %f one makes the not&unrealistic assumption that the discount rate will #e similar to theinflation rate of grid
power, then one can calculate the levelized cost simply #y dividing the original capital cost #y the total amount of electricity produced over the system8s lifetime!
4s the LCoE of /: is dominated #y the capital costs, and the capital costs #y the panels, the wholesale prices of /: panels are the main consideration when tracking grid parity! "hese prices have
undergone an unprecedented downward fall during the period #etween )<<( and '()(, when the price of electricity from these sources dropped a#out '1 times! "his rate of price reduction is
accelerating6 #etween late&'((< and mid&'()) the wholesale cost of solar modules dropped appro2imately =(>!
+1,
"hese pressures have demanded efficiencies throughout the construction chain,
so total installed cost has fallen even more dramatically!
"he average retail price of solar cells as monitored #y the .olar#uzz group fell from ?*!1(@watt to ?'!0*@watt over the course of '()), and a decline to prices #elow ?'!((@watt seems inevita#le!
+A,
.olar#uzz tracks retail prices, which includes a large mark&up over wholesale prices, and systems are commonly installed #y firms #uying at the wholesale price! For this reason, total installation
costs are commonly similar to the retail price of the panels alone! $ecent total&systems installation costs are around ?'1((@kWp in ;ermany
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or ?*,'1( in the BC!
+D,
4s of '()), the capital cost of /:
has fallen well #elow that of nuclear power and is set to fall further!
+A,
4ll that remains to calculate the LCoE is the e2pected production! 3odules are generally warranted for '1 years and suffer only minor degradation during that time, so all that is needed to predict the
generation is the local insolation! 4ccording to /:Watts a one&kilowatt system in 3atsumoto, Eagano will produce ))D= kWh of electricity a year! -ver a '1 year lifetime, the system will produce
a#out '<,A=1 kWh (not accounting for the small effects of system degradation, a#out (!'1> a year)! %f this system costs ?1,((( to install (?1 per watt), very conservative compared to worldwide
prices, the LCoE F 1,(((@'<,A=1 GF )= cents per kWh! "his is lower than the average Hapanese residential rate of G)<!1 cents, which means that, in this simple case, /: has reached grid parity for
residential users in Hapan!
Reaching parity
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5eciding whether or not /: is at grid parity is more comple2 than other sources, due to a side&effect of one of its main advantages! Compared to most sources, like wind tur#ines or hydro dams, /:
can scale successfully to systems as small as one panel or as large as millions! %n the case of small systems, they can #e easily installed at the customer8s location! %n this case the LCoE competes
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against the retail price of grid power, which includes all upstream additions like transmission fees, ta2es, etc! %n the e2ample a#ove, grid parity has #een reached in Eagano! Iowever, retail prices
are generally much higher than wholesale prices, so grid parity may not have #een reached for the very same system installed on the supply&side of the grid!
%n order to encompass all of these possi#ilities, Hapan8s EE5- defines the grid parity in three phasesJ
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)st phase grid parityJ residential grid&connected /: systems

'nd phase grid parityJ industrial@transport@commercial sectors

*rd phase grid parityJ general power generation

"hese categories are ranked in terms of the price of power they displace6 residential power is more e2pensive than commercial wholesale! "hus, it is e2pected that the )st phase would #e reached
earlier than the *rd phase!
/redictions from the '((A time&frame e2pected retail grid parity for solar in the '()A to '('( era,
+)(,+)),
#ut due to rapid downward pricing changes, more recent calculations have forced dramatic
reductions in time scale, and the suggestion that solar has already reached grid parity in a wide variety of locations!
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"heEuropean /hotovoltaic %ndustry 4ssociation (E/%4) calculated that /: would
reach parity in many of the European countries #y '('(, with costs declining to a#out half of those of '()(!
+0,
Iowever, this report was #ased on the prediction that prices would fall *A to 1)>
#etween '()( and '('(, a decrease that actually took place during the year the report was authored! "he parity line was claimed to have #een crossed in 4ustralia in .eptem#er '()),
+)',
and
module prices have continued to fall since then! Ky late '()), the fully loaded cost of solar /: was pro9ected to likely fall #elow ?(!)1@kWh for most of the -EC5 and reach ?(!)(@kWh in sunnier
regions like the southern Bnited .tates or .pain!
+)*,
"his is #elow the retail rate for power in much of the -EC5 already! %n '()*, ;ermany8s 5eutsche Kank was particularly optimistic a#out solar
power price parity in %ndia, the B!.!, China, the B!C!, ;ermany, .pain and %taly!
+)0,
5eutsche Kank says, that in Hanuary '()0 already more than )< countries are under grid parity for solar power and
sees starting a second gold rush for solar power
+)1,
(see also -penE% 5ata#ase for cost of electricity #y source )!
Rapid uptake
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/hotovoltaics are now starting to compete in the real world without su#sidies! .hi Lhengrong has said that, as of '()', unsu#sidised solar power is already competitive with fossil fuels in %ndia,
Iawaii, %taly and .pain! 4s /: system prices decline it is inevita#le that su#sidies will end! 7.olar power will #e a#le to compete without su#sidies against conventional power sources in half the
world #y '()17!
+)A,+)=,
/redictions that a power source #ecomes self&supporting when parity is reached appear to #e coming true! 4ccording to many measures, /: is the fastest growing source of power in the worldJ
For large&scale installations, prices #elow ?)!((@watt are now common! %n some locations, /: has reached grid parity, the cost at which it is competitive with coal or gas&fired generation! 3ore
generally, it is now evident that, given a car#on price of ?1(@ton, which would raise the price of coal&fired power #y 1c@kWh, solar /: will #e cost&competitive in most locations! "he declining price of
/: has #een reflected in rapidly growing installations, totalling a#out '* ;W in '())! 4lthough some consolidation is likely in '()', as firms try to restore profita#ility, strong growth seems likely to
continue for the rest of the decade! 4lready, #y one estimate, total investment in renewa#les for '()) e2ceeded investment in car#on&#ased electricity generation!
+A,
"he dramatic price reductions in the /: industry have #een causing a num#er of other power sources to #ecome less interesting! Eevertheless, there remains the widespread #elief
that concentrating solar power (C./) will #e even less e2pensive than /:, although this is suita#le for industrial&scale pro9ects only, and thus has to compete at wholesale pricing! -ne company
stated in '()) that C./ costs )'M(B.)@kWh to produce in 4ustralia, and e2pects this to drop to AM(B.)@kWh #y '()1 due to improvements in technology and reductions in euipment manufacturing
costs!
+)D,
;reentech 3edia predicts that LCoE of C./ and /: power will lower to ?(!(= & ?(!)'@kWh #y '('( in California!
+)<,
Wind power
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;rid parity also applies to wind power where it varies according to wind uality and e2isting distri#ution infrastructure! E22on3o#il predicts wind power real cost will approach parity with natural gas
and coal without car#on seuestration and #e cheaper than natural gas and coal with car#on seuestration #y '('1!
+'(,
Wind tur#ines reached grid parity in some areas of Europe in the mid&'(((s, and in the B. around the same time! Falling prices continue to drive the levelized cost down and it has #een suggested
that it has reached general grid parity in Europe in '()(, and will reach the same point in the B. around '()A due to an e2pected reduction in capital costs of a#out )'>!
+'),
Eevertheless, a
Form created: 29-Aug-13
significant amount of the wind power resource in Eorth 4merica remains a#ove grid parity due to the long transmission distances involved! (see also -penE% 5ata#ase for cost of electricity #y
source)!
See also
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Cost of electricity #y source

Feed&in tariff

3icroinverter

Eet metering

-ntario ;reen Energy 4ct, '((<

/hotovoltaics

.olar 4merica %nitiative

References
+edit,
)! Jump up^ httpJ@@www!for#es!com@sites@peterdetwiler@'()'@)'@'A@solar&grid&parity&comes&to&spain@
'! Jump up^ httpJ@@oilprice!com@Latest&Energy&Eews@World&Eews@.pain&4chieves&;rid&/arity&for&.olar&/ower!html
*! Jump up^ httpJ@@www!conergy!com@desktopdefault!asp2@ta#id&)*A@'D)Nread&D*)@
0! O Hump up toJ
a

b
7.olar /hotovoltaics Competing in the Energy .ector7, E/%4, .eptem#er '())
1! O Hump up toJ
a

b
C! Krankera, 3!H!3! /athaka, H!3! /earce, 74 review of solar photovoltaic levelized cost of electricity7, Renewable
and Sustainable Energy Reviews, :olume )1 %ssue < (5ecem#er '())), pp! 00=(&00D'
A! O Hump up toJ
a

b

c
Hohn Puiggin (Hanuary *, '()')! 7"he End of the Euclear $enaissance7! National Interest!
=! Jump up^ Kundesver#and .olarwirtschaft %nstallation Cost of /hotovoltaics
D! Jump up^ Iow 3uch 5o .olar /anels Cost in the BCQ
<! Jump up^ -utline of the $oadmap /:'(*(R, EE5-, Hune '((< (mostly in Hapanese, #ut has an English summary from p! )=)
)(! Jump up^ ;aining on the grid
))! Jump up^ Energy %nformation 4dministration, (Eovem#er '()()! Levelized Cost of Eew ;eneration $esources in the 4nnual Energy
-utlook '())!
)'! Jump up^ 7.olar industry cele#rates grid parity7, 4KC Eews, = .eptem#er '())
)*! Jump up^ Economics of /:J /ower Costs, World-f/hotovoltaics!com we#site!
)0! Jump up^ 7;erman #ank reports solar power cost in %ndia and %taly has reached grid parity7! Technology.org! "echnology!org!
$etrieved )1 4pril '()*!
)1! Jump up^ Deutsche an! 75eutsche KankJ .econd goldrush starts for solar power7 D! Hanuar '()0!
)A! Jump up^ 3ark Clifford (Fe# D, '()')! 7ChinaSs visi#le solar power success7! "ar!et#atch!
)=! Jump up^ "im Ceating (* Fe#ruary '()')! 75eath to /: .u#sidies7! Renewable Energy #orld!
)D! Jump up^ %ntroduction to Concentrating .olar /ower! 5esertec&4ustralia!org we#site
)<! Jump up^ Cost and LC-E #y ;eneration "echnology, '((<&'('(, ;"3 $esearch, '()(
'(! Jump up^ E22on3o#il Corporation! 7"he -utlook for EnergyJ 4 :iew to '(*(7! $etrieved Fe#ruary )A, '())!
')! Jump up^ 7-nshore wind to reach grid parity #y '()A7, Kusiness;reen
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