Grid Parity

SolarPriceLTO

A graph put together by Deutsche Bank—solar is likely to be cheaper than grid power in the relatively near future. Other forecasts vary a bit, but all tell this same basic story.

If you aren’t familiar with the term “grid parity”, then perhaps you need to be, because it might change your life. Here’s the simple version—electricity created by solar panels is, in most cases, more expensive today than what most Americans pay for grid power, even when calculated out over the life of a photovoltaic system. But, prices for conventionally-produced grid power are slowly rising, and prices for solar are steadily dropping. At some point in the relatively near future, solar power is going to be the same price as grid power—“grid parity”. And after that? Solar will be cheaper, and this likelihood has some large implications. I recently heard Alec Guettel, co-founder of Sungevity, Inc, say that “Solar has won, but the world just doesn’t know it yet”. I think he might be right.

Now, it’s a bit hard to truly pin down “grid parity”, because, like everything else, it’s complicated. Not every region of the country will get to grid parity at the same time; a number of factors affect when those two lines in the graph above will cross. Key among them—the price of grid-power in a particular location, how sunny it tends to be there, how much it costs to get solar installed (those that can do it themselves might save enough to be at grid parity now…), whether or not the system is financed (and at what interest rate), whether the electric company offers time-of-use pricing, and whether there are subsidies or tax credits available. Sunnier locales with relatively high utility rates will hit grid parity first (or have already). In the U.S., places like Hawaii, southern California, and Arizona are already at or very near grid parity even without tax credits. In the slightly-less-sunny Northeast, the federal 30% income-tax credit on solar installations, or third-party ownership models, like those offered by Sun Common and others, make solar pay here, too, in many cases.

Here’s an example of a form of grid-parity that pertains to my post the other week about commercial solar installations (post: “Rooftops Please”). Even here in slightly-less-sunny Vermont, a combination of federal tax credits, accelerated depreciation, the value of Renewable Energy Credits (RECs) and a form of time-of-use pricing offered by Green Mountain Power make large-scale solar arrays, like those in open fields like I was discussing the other week, pay off. (GMP offers a 6-cent premium on each Kwh of electricity from grid-tied solar installations, an “adder”, paid because solar is produced at or near peak demand on sunny days, when wholesale electricity on the spot market is expensive). In these situations, grid parity has been more than reached, which is why you see these installations springing up all over the place—somebody’s making some money.

And, virtually everywhere, if you are able to install solar yourself, on a roof that you already own, you are likely already at grid parity. In my case, building a house that was 1500 feet from the power lines, solar made sense even ten years ago due to the cost of the bringing in the power lines, which is why we’ve been off-grid all of this time. (Though that’s set to change; I’m about to dramatically expand our solar production to run the EV’s on solar power, which will entail grid-tying. More about this project in a future post.)

Now, about those implications—some thinkers worry that grid parity will result in a death-spiral for utility companies, as more and more customers abandon the utilities and put up their own systems, which would raise the cost of transmission for the remaining customers, and thus rates, resulting in still more customers pulling the plug. I don’t actually think this is likely—grid-tied systems are actually quite a bit more efficient than off-grid ones (see my post, “Not Sexy” ). In addition, large urban areas and manufacturing facilities will always rely on the surrounding countryside for renewable power, which will entail a grid. Rather, I think the most likely implications are actually good for the planet—it’s likely that solar power will truly boom in the coming years as it gets cheaper and cheaper, and we will actually begin to fully transition to an economy powered by clean, renewable power. That’s some truly good news. As for personal implications—keep your eyes open out there, because you might be able to install solar and come out way ahead, and it might be sooner than you think.

Graph credit: Deutsche Bank