Solar Power and Grid Parity: The Debate

If there’s one milestone that the majority of solar industrialists would hail as the top priority, it’s grid parity. It is that point in which solar electricity can compete or surpass conventional, fossil-fuel energy sources. In fact, the solar market has effectually become a race toward grid parity, even within the industry, where the winner will have a healthy head start on permanent success.

Yet many people still question solar power’s ability to reach that milestone of equality with fossil fuels. On the one hand, you have solar proponents who predict grid parity in as little as five years, and on the other, you have a much more skeptical outlook, such as the already infamous remarks by BP CEO Tony Hayward. Still, the debate rages on…

The Case for Grid Parity

Recent studies in the U.S. and Europe have bolstered the position that grid parity will soon be reached. Travis Bradford, founder of The Prometheus Institute, said at a conference earlier this month that two-thirds of the U.S. solar market will reach grid parity by 2015. The driving forces Bradford noted included federal incentives (now extended through 2016) and a consistent rise in fossil-fuel energy prices. Also contributing are a fast drop in solar panel prices, as well as lower costs for other solar system components, such as mounting systems.

Bradford predicted that commercial solar systems will reach an installed price of about $2-3 per watt and residential systems about $4 per watt installed. Assuming a rise in conventional energy costs of at least one percent per year over the next six years, that will put a good portion of U.S. solar installations at grid parity.

SolarCentury, the UK’s largest solar firm, has an even rosier outlook for solar in Great Britain and Europe. Their study concludes that solar will reach grid parity by 2013. For much the same reasons that Bradford predicted, including abundant and cheaper silicon (as well as a likely feed-in tariff to come in England), SolarCentury is betting on parity within four years.

The resulting boom from the achievement of grid parity will drive solar costs down even further, thus creating a dominant, permanent, and independent force in the energy market. And it should be noted that one solar company, First Solar, has already claimed grid parity from their 12 MW plant in Nevada.

The Case Against Grid Parity (Anytime Soon)

Ironically, those who are more pessimistic about solar power and grid parity often use some of the same contributing factors as those who argue in favor of it. Most notably: the solar industry’s dependence on tax subsidies.

The argument is that solar power will not truly reach grid parity until it’s totally independent of government subsidy. While proponents point to subsidies as a force behind parity, detractors point to financially weak governments around the world as being unable to continue support for solar.

As noted in Earth2Tech, budget woes may plague the solar industry in the near term, effectively halting its race to grid parity. Take California, for example, where some incentives are at risk in the face of a massive and growing budget deficit. In the Earth2Tech piece, which cites a recent study by Lux Research, grid parity is not a lost cause, but certainly not as imminent as some would like to think. Lux puts parity at least a decade away and should the economy continue to weaken or fail to stabilize once more, that timeline could extend.

The general argument against grid parity for solar is that the industry is still far too weak to stand on its own (evidenced by the sudden freeze on solar investing that accompanied fear of expiring federal tax credits last year). Without federal subsidies and the feed-in tariffs that propelled Spain and Germany into solar wonderland, the solar industry would fall flat.

One must accept the fact that such an argument ignores the sizable subsidies still in existence for the oil, gas, and coal industries because solar energy by proportion uses a much larger crutch. And skeptics will also point to Spain, whose feed-in tariff put the country way ahead of schedule for its solar energy goals. So the government pulled out some support after 2008 and demand for solar there has come to a screeching halt.

Overall, however, the arguments against grid parity have become less about if it will come. Some argue that grid parity is still decades away (and often take up the subsequent stance that solar cannot alleviate our urgent need for clean energy), while others argue that in many markets solar is already there. In the meantime, the race for solar grid parity, as well as the surrounding debate, is still on.

Photo Credit: Eideard

Posted on August 12th in Solar Electric by Dan.