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Solar approaching grid parity

August 14th, 2009 · No Comments

It’s good for the environment, but actually not so good for investors, as the price falls have gone a bit too rapid..

Grid parity, that holy grail for the solar sector in which they’ll become competitive versus conventional energy production, is around the corner at least in some areas (it depends on local factors, like electricity rates, sun hours, etc.).

This is very good news, as it will enable the sector to decrease, and ultimately even free itself of its reliance on government subsidies and tax brakes. That will dramatically increase the market for solar energy. But, in the short term, there is a price to be paid for that.

As recent figures from JASO, LDK, and even to some extent solar behemoth FSLR testified, price declines are steep. There is definitely an acceleration towards grid parity going on, propelled by lower prices of raw materials and excess capacity, apart from the usual suspects like gradual improvements and more radical break-troughs.

Here, from NewEnergyNews:

PARITY IMMINENT, SOLAR NEARER PREEMINENCE

Imminent Grid Parity To Create Solar Boom In California; Solar is nearly competitive with traditional energy in select locations today, says Lux Research, though widespread grid parity will take a decade
July 7, 2009 (Lux Research)

“Solar energy has had an image as an impractical high-cost luxury. However, falling costs and time-of-use electricity pricing have now begun to make solar competitive. Proximity to “grid parity” varies by location, and is closest for commercial rooftop installations in California. Grid parity isn’t a single-point in time, and parity for utility-scale generation remains a decade or more away. However, near-term viability in select applications will drive the thin edge of the wedge that leads to cost reduction and future universal grid parity, says [“The Slow Dawn of Grid Parity”] from Lux Research…

“…Presented as cost per kilowatt-hour ($/kWh), LCOE [Levelized Cost of Electricity] measures the total lifetime cost of a solar installation. This shift [from measuring solar as cost per watt to LCOE] enables a more direct comparison to conventional generation types, and enables more rigorous analysis of solar technology on the basis of life-cycle costs, payback period, and return on investment…”

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“The report also provides executives and investors with data on the internal rate of return (IRR) of new solar installations by geography, application, and technology…[derived from] conversations with twenty utilities, project developers, financiers, and tax experts. Among its conclusions:

“Select applications nearly enable grid parity today. Solar will converge with grid electricity rates in some situations, such as commercial roof decks in California at costs approaching $0.45/kWh. But grid parity comparable with utility generation costs around $0.08/kWh remains a decade away for solar in most markets.”

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“Subsidies are still the primary demand driver for new installations. Even where solar is far from grid parity, ongoing subsidies allow investors, businesses, and homeowners to earn positive IRRs from solar installations. These IRRs will boost demand, fueling further increases in scale and enabling the industry to continue cutting costs and innovating. This should drop future solar LCOEs and further accelerate grid parity.

“Premature views of grid parity could be counterproductive. Mounting fiscal pressure on debt-ridden governments could turn the political tide against solar subsidies, particularly if politicians take the simplistic stance that grid parity is a current reality…”

posted by Herman K. Trabish

Tags: Solar sector