Is solar the new normal?

Sensemaking / Is solar the new normal?

As photovoltaic panels continue to get cheaper, the holy grail of ‘grid parity’ is within our grasp. So, how will this reshape the world of power?

11 May 2012

As photovoltaic panels continue to get cheaper, the holy grail of ‘grid parity’ is within our grasp. So, how will this reshape the world of power?

Why buy all your watts from the electric company, when it works out cheaper to generate some of your own? This so-called 'grid parity' may already be within reach of the odd well-sited wind turbine, but the biggest (and, to many, the most surprising) gamechanger on the horizon is cost-effective solar power.

Of course, shelling out for solar today is still a major capital investment – enough to put many people off, even with the sweetener of feed-in tariffs (FiTs) or other subsidies. But once you take into account all the savings you will make by not buying mains electricity, a compelling little calculation known as the 'levelised cost' equation [see box 'PV’s ‘levelised’ costs'], it's a very different story.

Crunch those numbers, and it soon becomes apparent that solar is, in a surprisingly large number of places, poised to compete directly, unsubsidised, with the grid. Hawaii has already got there. The island's sunny climate is near ideal for solar power, while its inflated power prices make it easier for PV to compete.

OK, so Hawaii's a special case. But David Crane, the CEO of US electric utility major NRG, insists that "in the next three to five years you'll be able to get power cheaper from the roof of your house than from the grid". A map published recently on the internet says this 'retail grid parity' could be a reality even sooner for many Americans. John Farrell of the Institute for Local Self-Reliance, who created the map, says Crane's prediction should hold true for solar, unsubsidised, in San Diego as soon as 2013, with other cities on both seaboards following in a few years.

Much of southern Europe could be hitting parity around then too, according to a new report from the European Photovoltaic Industry Association (EPIA). It claims subsidy-free solar will be cost-competitive in Italy in 2013, and in Spain and southern France the following year.

The most startling new factor is how cheap PV panels are getting. In 2011 alone, the average price fell by half. That, admittedly, was an exceptional year: one which saw fiercely competitive Chinese producers with huge new factories vying for market share – and sending some higher-cost US and German operators into the bankruptcy courts. But the longer-term 'industry learning rate', driven by improved production technologies and economies of scale, is for costs to fall by 18% for every doubling of production capacity. That doubling has happened twice over since 2009 – and, with investment pouring in [see box, 'An enduring sun'], there's no sign of a slowdown. The eventual advent of new techniques, such as flexible thin film and spray-on solar, may see further dramatic price falls.

For years, of course, small scale off-grid solar has been a success in developing countries, providing a cheaper and healthier alternative to kerosene for home lighting, for example – witness the many solar winners of the celebrated Ashden Awards for Sustainable Energy [see 'From snake bites to solar lights' and 'Solar start-up benefits over 700,000 people']. It's increasingly competing directly with diesel generators, too.

But it is unsubsidised grid parity that has huge symbolic status as a tipping point. Solar power's detractors have long loved to deride its dependence on government incentives. But this conveniently ignores the reality that energy subsidies around the world remain hugely skewed towards the fossils [see box, 'Skewed subsidy'].

Of course, state support has been vital in nurturing the nascent solar sector, with particularly striking success in Germany. One way to give early adopters a worthwhile rate of return on the 'capital cost versus value of output' equation was to set a deliberately high FiT for solar power sold to the grid. But good policy allows support rates for new installations to decline progressively as their capital costs come down (it's called 'degression'). Ideally, as Jeremy Leggett of UK firm Solar Century put it, this promotes "a smooth glide path to solar parity". The success of the incentives then allows their abolition. The UK Government's recent clumsy and abrupt slashing of FiTs payments may have knocked the industry off balance in the short term, but the logic should still hold good over a longer period.

As with any disruptive technology, however, nothing is cast in stone. Some insist that recent panel price crashes will prove short-lived. Others predict that rising interest rates will choke off householders' ability to afford the capital outlay on PV. Still others warn, sensibly enough, that shortages of roof space or suitable land must be a constraint at some point.

Perhaps the biggest unknown on grid parity is the future price of fossil fuels. Some pundits (waving the 'abundance of shale gas' card) even claim those may go down, not up. This, though, seems an improbable punt – especially since taking climate change seriously "must eventually mean putting a higher price on carbon emissions", says Forum for the Future energy expert Iain Watt.

What's more likely is that renewable sources will increasingly out-compete new fossil fuel power stations, not only for distributed generation but even for providing wholesale power for the grid. We're actually seeing this happen with onshore wind. BNEF's sums show that some turbines are already competitive grid power sources without subsidy, and that this should be more generally true by 2016. And, astonishingly, solar PV is fast becoming so cheap that 'utility-scale' solar farms will be able to do the same. By 2014, says the EPIA, this should be the case in Italy, with other southern European countries following suit. And PV might even overtake concentrated solar power [see 'Saharan solar comes to Europe'] as the preferred option for Saharan countries keen to harvest their vast solar resource.

It helps that solar farms can be set up ten times faster than comparable-sized nuclear plants. And it's notable that the Chinese, keen to build on their PV production strength, are putting money on them (with the added reassurance that China has rich resources of the 'rare earth' elements tellurium and indium, on which thin-film PV modules currently rely). On top of a huge expansion of rooftop installations, they're planning a string of gigawatt-scale solar farms, in Datong City near Beijing, as well as in remoter Tibetan and Mongolian regions. That's solar on a nuclear scale.

Countries with precious few cards in today's geopolitical games could find their hands transformed by solar potential

The implications are profound. Countries with precious few cards in today's geopolitical games could find their hands transformed by their solar potential. Energy security will start to be mapped in new ways, and unexpected places will emerge as powerhouses of energy-hungry new industries. Solar desalination, 'green' hydrogen production, the relocation of manufacturing and a host of other possibilities will start opening up.

A whole raft of technological changes, too, will be spurred by the incorporation of more solar power in the energy mix. Daytime-only PV power might run the aircon and drip-charge the electric car, but intermittency is an issue both individuals and grid managers will need to master. So, make a better battery and the world will beat a path to your door. Other complementary technologies will be at a premium too. At home, you'll want much smarter power management. Not only to tap into your PV while it's peaking, but so your fridge and your other appliances know when grid power is most plentiful, minute by minute, and use it then. You'll want to save money by doing that, so not just smart metering but smart time-related charging becomes a must.

Sophisticated grid management, meanwhile, must help balance a more complex mix of intermittent and base load generation. The grid system itself – indeed, the landscape – will start to look different. Handled badly, solar farm siting could spark planning battles that put our wind turbine controversies in the shade. Conversely, the supposed need for more huge fossil fuel and nuclear power stations assumes that you meet electricity demand by centralised generation, fanning out to the eventual consumer through a network of high-tension lines and substations. It's time to change that assumption.

Rooftop solar helps challenge that whole model not just in the geographic sense but in the relationship between 'suppliers' and 'users' – between producers and consumers. Iain Watt looks forward eagerly to seeing the big suppliers' centralised "we sell, you buy" assumptions challenged by new models of entrepreneurship and community power. Step forward, then, the new 'prosumer' – that's anyone with a PV panel, a turbine or any other device that produces any power (the fuel cell car in the garage, perhaps). Step forward, in fact, legions of 'prosumers', with the collective bargaining clout to demand equitable deals, whether selling or buying.

Grid parity, in retrospect, will look less like an objective and more like a staging post on the road to cheap and ubiquitous PV – one of the keys to the "third industrial revolution" vision of Jeremy Rifkin [see 'Are we on the cusp of a third industrial revolution?'], with "lateral power" flowing across an "energy internet" to and from "millions and millions of players".

PV’s ‘levelised’ costs

It's easy to establish how much each watt from the grid is costing you in cash terms (today, if not tomorrow): you just look at your bill. But working out what solar might save you? That requires some sums. In essence, you'll slowly recoup your initial capital outlay, watt by watt, according to how much electricity your system generates. This depends on its conversion efficiency, and the 'solarisation rate' – that's how many rays it will receive in your latitude, climate and location.

The figure you end up with, for costs divided by watts, is known in the trade as your levelised cost of energy (LCOE). It may sound arcane, but this is exactly the same calculation that a generating company does for any new power station – which is, after all, what your solar panels are. To do the sums properly, says US solar enthusiast Jay Tyson, you need to factor in things like maintenance and costs of financing, and specify an expected lifetime of the system. He calculates that a 10kW rooftop PV system installed in New Jersey in 2011 can already just beat grid parity, based on these main values:

  • Unsubsidised capital cost: $50,000 up front, including installation, plus at least $7,000 to replace the inverter after 12 years
  • Useful life of system: 25 years
  • Ongoing maintenance: just "$25 for my time and water spent on the annual hose-down during pollen season, and $450 for an electrician's visit once every six years for something oddball, like replacing wiring that got chewed on by critters"
  • Inflation: 3% per year (used as the 'discount rate', which values future costs and benefits less than immediate ones)
  • Tax treatment: neutral, no increased taxes on the value of the house
  • End-of-life costs: recycling value equal to removal cost
  • Panel performance: on a well-oriented unshaded roof, 12,000kWh in year 1 (when panels are new), declining at 1% per year
  • Grid electricity retail prices: $0.19 per kWh in 2011, rising by 5% per year

An enduring sun

Despite all the headlines about subsidy fiascos and firms going bust, says Michael Liebreich, Chief Executive at Bloomberg New Energy Finance (BNEF), solar had "a far better year than the press coverage would lead one to believe". In fact, 2011 was the year it became the largest sector in the (expanding) renewables field – with stock market sage Warren Buffett among those buying a piece of the action.

  • Total clean energy investment, 2011: $260 billion (+5%)
  • Of which solar: $136.6 billion (+36%)
  • Total investment in distributed renewables (mainly rooftop PV): $73.8 billion

Source: BNEF preliminary annual figures for 2011

Skewed subsidy

  • $66 billion: subsidies for renewable energy, 2010 (IEA estimate)
  • $409 billion: direct subsidies to fossil fuel consumption, 2010, mainly to hold down prices in developing countries and transition economies (IEA estimate)
  • $45 billion (possibly as much as $75 billion): indirect support to fossil fuel industries in OECD countries, through 250 different mechanisms such as tax credits, government underwriting of corporate risk and favourable access to land and infrastructure (OECD estimate)

Roger East is a freelance writer and editor, specialising in sustainable development.

Photos: E.ON; iStockphoto / Thinkstock; Stockphoto / Thinkstock

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