Grid parity

Grid parity (or socket parity) occurs when an alternative energy source can generate power at a levelized cost of electricity (LCOE) that is less than or equal to the price of power from the electricity grid. The term is most commonly used when discussing renewable energy sources, notably solar power and wind power. Grid parity depends upon whether figures are calculated from the point of view of a utility or of a retail consumer. Reaching grid parity is considered to be the point at which an energy source becomes a contender for widespread development without subsidies or government support. It is widely believed that a wholesale shift in generation to these forms of energy will take place when they reach grid parity. Germany was one of the first countries to reach parity for solar PV in 2011 and 2012 for utility-scale solar and rooftop solar PV, respectively. By January 2014, grid parity for solar PV systems had already been reached in at least nineteen countries. Wind power reached grid parity in some places in Europe in the mid 2000s, and has continued to reduce in price.

Overview The price of electricity from the grid is complex. Most power sources in the developed world are generated in industrial scale plants developed by private or public consortia. The company providing the power and the company delivering that power to the customers are often separate entities who enter into a Power Purchase Agreement that sets a fixed rate for all of the power delivered by the plant. On the other end of the wire, the local distribution company (LDC) charges rates that will cover their power purchases from the variety of producers they use. This relationship is not straightforward; for instance, an LDC may buy large amounts of base load power from a nuclear plant at a low fixed cost and then buy peaking power only as required from natural gas peakers at a much higher cost, perhaps five to six times. Depending on their billing policy, this might be billed to the customer at a flat rate combining the two rates the LDC pays, or alternately based on a time-based pricing policy that tries to more closely match input costs with customer prices. As a result of these policies, the exact definition of "grid parity" varies not only from location to location, but customer to customer and even hour to hour. For instance, wind power connects to the grid on the distribution side (as opposed to the customer side). This means it competes with other large forms of industrial-scale power like hydro, nuclear or coal-fired plants, which are generally inexpensive forms of power. Additionally, the generator will be charged by the distribution operator to carry the power to the markets, adding to their levelized costs. Solar has the advantage of scaling easily from systems as small as a single solar panel placed on the customer's roof. In this case the system has to compete with the post-delivery retail price, which is generally much higher than the wholesale price at the same time. It is also important to consider changes in grid pricing when determining whether or not a source is at parity. For instance, the introduction of time-of-use pricing and a general increase in power prices in Mexico during 2010 and 2011 has suddenly resulted in many forms of renewable energy reaching grid parity. A drop in power prices, as has happened in some locations due to the late-2000s recession, can likewise render systems formerly at parity, to be no longer interesting. In general terms, fuel prices continue to increase, while renewable energy sources continue to reduce in up-front costs. As a result, widespread grid parity for wind and solar were generally predicted for the time between 2015 and 2020.

Solar power

Pricing solar

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