Grid parity is the point where the cost of alternative energy (such as solar or wind) is equal to or less expensive than conventional forms of energy such as fossil fuels. With distributed energy resources, such as Solar Power remaining increasingly popular nationwide, energy supply in 42 states is expected to reach grid parity by 2020. This is a pattern that will hopefully continue and eventually become uniform across the country in the coming years.
Renewable Rayna is here to clarify grid parity’s meaning, why it matters, and what technologies are driving this trend in the energy industry.
What is Grid Parity?
Grid parity marks the critical point that shifts the transition to clean energy into high gear.
It occurs when the overall cost of renewables crosses the line to become equal to or less expensive than that of fossil fuels, rendering irrelevant the argument we cannot afford to utilize renewable energy. Once the economic argument is gone, markets begin to flow investments into clean energy projects and technologies, starting a virtuous cycle in which wind and solar just keep becoming more affordable and accessible.
At this point clean energy is not merely a moral choice, but a choice which is economic.
Source: Today’s Power Battery Energy Storage Systems
How is Grid Parity Measured?
It all comes down to the levelized cost of electricity, or LCOE, to measure the point of Grid Parity. This cost metric (LCOE) is used by most analysts when assessing grid parity because using LCOE helps eliminate biases between the various technologies such as solar, wind, and fossil fuel generators.
Measuring a given technology’s lifetime generated energy and electricity cost – from its production to the moment it generates its first watt and up to the moment it generates its last, it is also the go-to benchmarking tool for evaluating the cost-effectiveness of different technologies for generating energy.
For example, if the wholesale power cost was $10 kW/month from the grid, while with solar it was $8 kW/month, that is the point of grid parity. Said differently, if it costs $0.10/kWh to purchase electricity for your home, and is only $0.062/kWh with solar, that is another example of grid parity.
Regionalized Grid Parity – Locations Matter
There are many factors that contribute to the LCOE and when a particular region achieves grid parity.
These factors vary from location to location, but include the amount of sunlight and the area it receives (as far as solar power is concerned), the differences in financing and incentive options, and the current cost of electricity and installation prices.
For example, there is generally more sunlight in the state of Arkansas than in Washington. The difference in the amount of sunlight between the two states, along with other factors, means that Arkansas has a much greater potential for solar energy and could have a leg in achieving grid parity first.
Despite such regional differences and recent trends in rapidly declining solar energy costs, 42 US states are expected to reach grid parity by the end of 2020, according to a report by GTM Research. This means, in even low-cost energy areas, like Arkasnas, the price of solar remains competitive.
According to Bloomberg New Energy Finance (BNEF), solar and wind power have already reached grid parity in a number of European countries, China, and the State of California (PV Magazine).Nov 4, 2019
Currently, many states and countries are providing targeted and sometimes significant incentive schemes to stimulate the development of new renewable energy projects.
In the US, these are primarily in the form of a federal wind production tax credit (PTC), which currently provides a subsidy of 2.3 cents per kilowatt-hour for eligible technologies over the initial 10 years of the project; The federal investment tax credit (ITC) for solar, which as of January 1st, 2020 provides a 26% tax credit for solar generators; or tradable renewable energy credits (RECs) or certificates that provide additional revenue streams to developers as part of some state-sponsored renewable portfolio standards programs.
Additionally, many states offer other programs and incentives such as grants or tax credits.
Getting to the Point of Grid Parity
Without state and federal policies and incentives, solar could have a long way to go before it can stand without such support.
Declining costs in solar modules are setting the stage for grid parity to become the norm for the global solar industry as early as next year, according to the International Renewable Energy Agency (IRENA).
Efficient grid parity will be easier to achieve with solar when the cost of factors for grid upgrades and storage systems are factored in.
Battery energy storage systems take intermittent power out of solar, or other generation resources, making it available whenever the demand for energy is high and generally more expensive.
Source: Today’s Power Battery Energy Storage Systems
Following a similar trend of solar modules, the lithium-ion battery technology that makes up a battery energy storage system is experiencing a decline in costs, driving the market to install more and more batteries on the grid.
As more and more renewable energy is installed around the world and combined with battery storage, grid parity is becoming a global trend and a reality.