Are some grid parity claims more equal than others?

Renewable energy is all very well, as long as it's not too expensive.

Large project owners – the people who are going to create the economies of scale to make renewables work – still have shareholders to serve, and profits to make. Hence the advent of one of the most frequently-used buzzwords in the renewable energy business: grid parity. When will renewable energy cost the same as conventional energy created from fossil fuels? And are some renewables likely to be more equal than others?

Finding a definition

Perhaps the first question to ask is what grid parity really means. Do we assume that solar or wind technologies cost the same as grid power on a cents-per kilowatt-hour basis, when government subsidies are removed from the equation? Both solar and wind techologies have enjoyed production tax credits over the years that help large project owners to offset costs.

Conversely, some commentators would argue that carbon intensive energy has been made artificially costly. "Carbon regulation contributes to parity by making fossil generation more expensive," says Jurgen Weiss, managing director at carbon market analyst Point Carbon. "You can think of it as a taxation of the traditional fossil generation."

Including carbon regulation in the equation results in significant regional variations in where grid parity sits. For example, Europe already has a cap-and-trade carbon regulation scheme in place, whereas the US is only just now mulling the idea of a federally mandated carbon exchange. Moreover, groups of states are proposing cap-and-trade schemes of their own, making grid parity even harder to assess unless you tackle it at a regional level. This makes the DoE’s stated goal of grid parity for solar by 2015 seem somewhat simplistic.

Geography isn't the only confounder in the grid parity debate. Technologies are also markedly different, according to Weiss, who says that wind is generally ahead of the pack. "Counting the cost on a per MWh delivered basis, the prices are similar. In fact, wind may already be in the money in some areas," he says. "The caveat to that is that it's tricky to relate to just the technology. It has to do with the fact that both photovolatic solar and wind are intermittent resources. Wind blows or it doesn't. The sun is shining or it isn't."

That's an important point because project owners may need to install backup fossil fuel plants that can kick in when the weather changes. Those might have to provide 10 to 20 per cent of the total capacity of the renewable project, says Weiss, adding that the problem increases as you scale the renewable portion of grid capacity. A grid with a lower percentage of renewable capacity may be able to absorb fluctuations in capacity more easily, just as it absorbs fluctuations from fossil fuel-based outages. But as the renewable portion increases, the fluctuations caused by lapses in wind and sun may become more problematic, he warns.

For example, energy giant E.ON this week warned that if the UK was to meet its target of generating 20 per cent of energy from renewable sources by 2020, it would have to install back up energy generation, primarily from fossil fuel plants, to cover up to 90 per cent of the country's renewable energy capacity if it wants to ensure a reliable supply when the wind is not blowing.

Not an issue

However, Christine Real de Azua, spokesperson for the American Wind Energy Association, downplays such concerns. "The bottom line is it's both technically and economically feasible, so you'll have some costs but they will not be huge," she says, pointing to the US Department of Energy's 20 Percent Wind Energy by 2030 report as evidence. "Anyway, you’ll need additional costs with any technology you put in."

Transmission is another issue affecting grid parity arguments. Not only does the building of transmission lines entail a capital cost, but transmitting electricity across long distances can also waste energy that is lost in the process.

"Especially with gas-fired fossil generation, you can locate it close to load centres," Weiss observes. "With solar and wind, the best sites aren't very close to the load centres, so the equivalent cost of transmission including the capital investment and transmission facilities and the associated line losses exceed those for fossil generation."

Then, consider the other issues. How much do you have to spend on maintaining the equipment? Wind turbines have more moving parts, whereas some solar panels have been operating since the 1970s and are still going strong (and can be refurbished and resold to other countries). Alongside maintenance costs, fossil fuel plants must also factor fuel (coal, oil, or natural gas) into their operational expenditure, whereas wind and sun are free.

In spite of all these uncertainties, solar panel manufacturer REC believes that it has a reasonable projection for grid parity. Right now, it says, the relatively tiny Californian tier four and five markets equal or exceed grid parity (California imposes different rates depending on energy consumption, and rates for tier four and five users are more favourable).

It hopes that by 2012, the rest of California's energy users will move into grid parity for photovoltaic energy, along with Italy, Australia, and Japan, as the per-Mw cost of installed photovolatic solar falls from five to three euros. This grid parity assessment relies on an average increase of eight per cent per annum in residential electricity costs, and also assumes zero land cost, and 25 years of system financing.

Economies of scale also play some part in this goal being achieved. When markets such as China and India begin to recognise solar, that could help to tip the market further still towards renewable electricity. But China is still subsidising oil prices for its domestic users, which creates barriers for the penetration of solar. In REC’s projections, showing the gradual ascent of solar to grid parity in key markets, China barely moves at all in the next four years.

"It's all about introducing new product or process technologies into new plants, ramping them into full capacity and reducing production costs," says REC's senior vice president Jon André Løkke. "Some scale benefits have been taken out. So now you have to industrialise new technology."

REC's own plans in this area include incremental improvements in wafer quality and reduced thickness, along with developments in new cell technology, but it will not be alone in trying to push the solar envelope. Even though the technology has decades of development behind it, the rising costs of oil are pushing more innovation in the area. Every week, more and more companies emerge that seem ready to radically change the game in solar. Whether it is solar concentrators with nanotechnology heat displacement, or new materials that promise dramatic reductions in production costs, these new technologies promise to introduce significant market disruption that could dramatically shorten the industry's timelines for attaining grid parity.

Some are likely to be the cleantech equivalent of snake oil, of course, but if even one delivers what it claims, we could be looking at a scenario where even if subsidies and regulations removed renewable energy would fast displace fossil fuel plants as the energy source of choice. Whichever breakthrough technology makes the difference and moves us further toward the grid parity threshold would be a silver lining with no cloud attached.