Is Solar Cheaper than Grid Electricity?

Yes and No
John Farrell July 15, 2013 | 22 Comments The word "parity" is to the solar advocate as the word "abracadabra" is to the magician. Through it, all things are possible. But there's really two kinds of solar parity with electricity prices, and the difference is significant. Take this article from Renewable Energy World last month. It claims that solar installations in New Mexico are at grid parity i.e. the cost of solar is equivalent or less than the cost of grid electricity for schools that are buying solar electricity instead of electricity from the power company. It's true, for these schools and many consumers, the price you will pay for solar from a "third party" (i.e. non-utility) solar providers like SolarCity or SunRun is less than what you pay for power from the grid. I'll call this Subsidized Solar Parity when the consumer can buy solar electricity (priced with subsidies) for less than power from their utility. But while the consumer is signing up for less expensive electricity from solar, the cost of energy from that solar array is actually higher. That's because the solar company selling to those schools is still getting 30 percent from a federal tax credit, and a further tax savings via accelerated depreciation. So while the ultimate consumer might be paying 7 per kilowatt-hour for solar energy, the actual cost of generating electricity from the solar array supplying them is closer to 12 per kilowatt-hour. The difference is the federal taxpayer. In other words, calling these power purchase agreements "solar parity" involves a bit of sleight of hand, because it's not really the cost of solar, but the existence of subsidies, that's allowing it to compete. (more on these agreements later) That's why I prefer to talk about Unsubsidized Solar Parity when the consumer can buy solar electricity (priced without subsidies) for less than power from their utility. In the example I just gave, the city of Palo Alto is buying subsidized electricity at 7, with an unsubsidized cost of 12 per kWh. For most residential electricity customers, this is still better than their marginal electricity price, which is between 13 and 17 per kWh. So Palo Alto, with relatively high rates and abundant sunshine, has already reached Unsubsidized Solar Parity. And at the installation cost of $2.15 per Watt that's generating that price, our interactive solar parity map shows that at least 800 megawatts could be installed at Unsubsidized Solar Parity (on commercial property) in New Mexico, as well. Utilities like to claim that there's a third type of parity, pricing solar energy against wholesale electricity prices (matching solar against the price of power from existing power plants paid off years ago). But that's wrong, for two reasons. First, in most geographic regions of the U.S., solar energy competes against the most expensive power during times of peak energy use. And second, it's more often a resident or business installing solar as a way of lowering their electric bill, which is based on the retail electricity price, not the wholesale. An Aside on Solar Leases and Power Purchase Contracts

Back to those power purchase agreements for a minute. As solar has become more cost competitive (but the incentives have remained complicated to access), the market for third-party owned solar arrays has boomed. In simple terms, this means you have a solar array on your roof, but someone else owns it. You either lease the solar array to get the solar energy or buy the solar energy on contract. Many of these providers offer customers a lower price for electricity than they pay to the utility. Great, right? Perhaps not. Many of these contracts have an inflation escalator. A reasonable one might assume that the price of grid power will climb by 2-3 percent per year (as it has historically) and the customer's price will mirror that. But some contracts assume much higher price inflation, 5 percent or 6 percent or 7 percent. Electricity prices have rarely increased that fast over a long period of time, which means that the solar customer may actually end up paying more for their solar energy than if they had stayed with the (dirtier) electricity from their utility. For many customers, that won't matter. But as solar goes mainstream, the price comparison will be that much more important. An Issue With Equity Confusion about solar parity is also going to create a significant issue with equity. While the price of solar has tumbled across the country, places reach parity based more on their local electricity price or solar resource. In the near term, it means that in places like southern California or New York already at Unsubsidized Solar Parity the federal tax incentives will be financial gravy to solar customers or installers. Meanwhile, solar seekers still need incentives to be competitive in places like Minnesota or Illinois. The looming reduction in the federal solar tax credit may not matter for well-established solar markets in the sunniest regions, but it could present a big problem in emerging markets. See ILSR's interactive solar parity map for more on the geographic disparity. It's Unsubsidized Solar Parity That Matters While it makes a great headline to claim solar is delivering energy for less than utilities, it's disingenuous to do it on the basis of subsidized prices. Additionally, the prices reported may be based on contracts with escalators that won't match grid price inflation, or that may reflect a geographic imbalance in solar incentives. Besides, there's already a remarkable story to tell about Unsubsidized Solar Parity. Even at $3 per Watt, there's 100 gigawatts of solar that could be installed at parity with out subsidies across the country. Now that's what I'd call magical.

Originally posted at ILSR's Energy Self-Reliant States

The information and views expressed in this b log post are solely those of the author and not necessarily those of Renewab leEnergyWorld.com or the companies that advertise on this Web site and other pub lications. This b log was posted directly b y the author and was not reviewed for accuracy, spelling or grammar.

22 COMMENTS
ANONYMOUS
20 July 2013

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A $200 per month average bill with any utility is still a $60,000 cost/expense over 20 years and $120,000 over 40 years equal to the life of a quality system. This is calculated with a zero utility rate increase. In AZ you can purchase a quality 10 kw system for $30,000 cash. If you do nothing... You're already buying the most expensive and overpriced solar system money can buy at $120,000... You're just not getting the any of the benefits. Does it make sense?

JOEY STAWLEN
17 July 2013

Solar energy is far cheaper then any other source of energy. The only thing which may be hurdle for

proving my point is its upfront cost. But then again, there is quite a cost involved in building up entire grid. grid have maintenance cost associated with it. On the other hand solar panels are normally low maintenance. Here i have found interesting article mentioning top 5 cheapest sources of energy. http://www.eproguide.com/5-cheapest-sources-of-energy/

MARC MICHON
17 July 2013

Buying a solar generator is a good deal Solar lease is a rip if you get a solar lease you are a sucker Buy system $4.50 watt installed 2012 price with 30% fed tax subsidy produce electricity for 6 cents Kwh Cost 5 KW DC (4.3AC) $13,592 in 30 years will produce $100,000 of electricity (California value) $80,000 profit for electricity user Lease 12 cent Kwh to 18 cents Kwh figure it out the leesor makes all that money customer gets a loss Lease turns benefit profit of customer into a profit for lease company investors Instead of profit for millions of Americans sends that profit to a few Utilities are subsidized by ratepayers and taxpayers Taxpayers paid for smart meters, Fed paid for And they are crooked for example PG&E San Bruno pipeline explosion PG&E charged ratepayers to fix that and other pipelines the year before and did not fix it Now they will charge them a second time Since you dont like subsidies for solar but like tax subsidies for everything else Lets see.. Double what you pay for a cup of coffee at Starbucks 100% tax subsidy Offshore profit Taxpayer subsidizing your coffee Same GE, Apple - 100% tax subsidy Offshore profit tax subsidy Exxon 100% tax subsidy add billions to what is paid for gas Companies sending jobs to china tax break taxpayer subsidizing their own jobs being sent overseas Farmers in CA central valley taxpayer pays 2/3rd of water delivery cost Corn farmers in Midwest taxpayer direct 50% subsidy A congress madman from Nebraska subsidy $200,000 year not to grow crops (paid not to work) He happens to be against subsidies for anyone else Tax deduction interest on home when you sold your house you did not make $100,000 Because the taxpayer paid $120,000 Tax deduction subsidy for you (Varies with price house interest) Double price of all Nuke electricity as 50% of all federal loans to build nuke plants were never paid back to the taxpayer (Greg Palist) 5 biggest banks in US QE3 subsidy $85Billion a year they would be bankrupt without They can not make a profit without subsidy Since those are such good subsidies why is a subsidy for solar bad? Everything in the US is subsidized so why not solar? I think solar subsidies are the only good subsidies as only one where regular person gets a cut of the loot It seems all Americans think only billionaires should get taxpayer subsidies Not them or their neighbor when its their money The billionaires are not paying taxes

The Fed tax credit needs extended it would be good for all to push to extend it The 100% tax credit for Exxon is pernamant why is solar tax credit temporary?

DUNCAN JIM
17 July 2013

The cost assumptions don't jive. Any incentives paid go into the pockets of the investors and not the PV system owners.Don't believe it? Just take away either the 30% ITC or local incentives and watch how quickly leasing "installers" vanish. Plenty of information points to the fact that lease systems are overpriced compared to customer owned systems. Independent installers get regularly lowballed by leasors yet the cost per Watt is higher, often 50% higher than customer-owned installs. And if I can install your residential GT array for $4.00/W the long-term ROI is absolutely at parity. Of course some fortunate regions are blessed with dirt cheap power like hydro in the NW US. There, parity is just wishful thinking without incentives. Anyway the authors comparison is moot since virtually every PV install qualifies for the 30% ITC; there's no such thing as a non-ITC install.

A. G. GELBERT
16 July 2013

Great, instructive and educational comments! I thank all of you. I believe this transition we are in has serious lagging indicators that make PV and wind turbine electricity appear more expensive than it is. New PV is several percentage points more efficient than older installations. The numbers should be computed from the leading edge, not some average. PV aside for a moment, consider GE's new Brilliant series turbine that has 97% non-intermittency and sophisticated microgrid capable power balance (and storage) capability. They are manufacturing 13 a week right now. If the numbers are run on the latest technology efficiency of both PV and wind, I believe these technologies are cheaper even than new coal. And all this without even considering the enormous costs to human health and to bio-remediate the biosphere that the fossil fuel industry does not now, or ever, want to pay. http://cleantechnica.com/2013/06/30/ges-brilliant-wind-turbine-wind-power-cheaper-than-coal-ornatural-gas-part-2/ Now consider the electrical grid(s) in the hodgepodge that is the USA. The efficiency losses from the last part of the high voltage line transmission towers to the transformer in a neighborhood and then to the house plugs can be as much as 15%. Has anybody ADDED this efficiency to house generated PV (or wind) that eliminates this waste? Every KW that did not travel several miles to reach the consumer is a different animal from the one that did. I think this difference is underplayed by the utilities because they wish to preserve the centralized power structure rather than distributed microgrids that would make the grid more robust with redundancies AND provide power with less transmission losses. It will take a while but I am convinced large centralized power plants run with fossil fuels will be phased out because they are no longer competitive or capable of reliable energy during natural disasters. A distributed microgrid will always be able to keep a large segment of the community supplied with

power regardless of the weather extremes. the U.S. Department of Energy just came out with a study warning of dire consequences for the grid if more of the grid does not become "storm proof". They expect global warming will provide weather extremes and storms we have never experienced and recommend relocation of fossil fuel power stations (that sounds mighty expensive to me) and they also warn of nuclear power shutdowns from excessive intake water temperature. For that reason they favor Renewable Energy from PV and wind turbines because they do not require massive amounts of water to function. The only logical option for a viable future is for power companies is to finance distributed microgrids and thereby avoid massive power blackouts or nuclear or fossil fuel plant closures from high heat or lack of water. It's time to leave these dangerous technologies behind once and for all. If the utility companies won't do it, the people will. Elon Musk is already showing the way to a distributed (cheaper) energy future with his rooftop PV leasing guaranteeing 10% reduction on electricity rates for 10 years. More will follow. Utilities will get either with the program or lose their customers to a type of distributed power utility business model like Elon Musk's solar City. http://www.redorbit.com/news/science/1112896113/doe-offers-dire-warnings-of-climatechange%E2%80%99s-impact-on-energy-grid/

JAMES TYSON
16 July 2013

You can argue for long hours as to what constitutes grid parity in general. But it will vary according to the details of the site and the design of the system, as well as the local utility rates and lots of other factors. If you want to evaluate it for your own site, here is an Excel calculator you can download, as well as an article explaining how to use it and the assumptions you must make: http://www.cjsolarplanning.com/gridparity.htm http://www.homepower.com/articles/solar-electricity/design-installation/solargrid-parity To make an exact determination, the questions you need to answer include: "What will be the cost of grid electricity over the course of the next 25 years or so?" and "What will be the rate of inflation during that period?" Since no one knows the answers to these questions definitively, the exact point at which we reach grid parity--even if we are focused on a single site--will not be known until 25 years after the fact. So there is an unavoidable speculative element to any discussion of grid parity.

RICHARD VIERS
16 July 2013

After reading the comments posted by all of you, I went a little further with the post by Davis Swan, and read his "manifesto" . Though I don't necessarily agree with all of his theme, I do agree that the largest problem looming in the future for all of us producing energy is Storage. CSP, though is not the only answer. Super heating of molten salts is a partial stop gap for however many hours the salts are able to transfer heat. This is not true storage, but does prolong the amount of hours that the power from the sun can be used. We have all heard of the star wars programs, and know that there are some real promises of use for good or bad with anything based in space, but the truth is that in space there is constant sun light as long as the position

of the satellite is continuously monitored and adjusted. We will eventually be using such technology to assist in powering the world. For now though, we do need more land based storage that is able to accommodate large scale utility systems. Battery storage is very costly on a large scale, but is viable. There is new technology in battery storage being developed all the time, and soon we will have a carbon based battery on the market that will not only be able to store large amounts of energy, but will also use the bi product of other non desirable production methods as a component. White papers will be released in the near future outlining the product and submitting requests for partners in production.

KEVIN SWARTZ
16 July 2013

Other have pointed out the obvious flaws in this argument (fossil is subsidized, taxes paid vs unpaid, etc). But I think the reason we are seeing articles like this is that the utilities are finally waking up to the fact that they have competition for customers. The utilities real problem is that they have not priced their goods and services appropriately. This issue goes back to the way they are regulated. They are recovering a great deal of fixed charges through variable rates. There are also other issues regarding cost shifting between rate classes. In areas where residential customers are subsidizing commercial accounts, PV can easily capture customers. Subsidized solar can effectively compete with subsidized fossil plus whatever other fixed costs they are recovering through variable rates. I believe that we, as customers, are going to see utilities charging higher and higher fixed rates, and much lower variable rates. This will leave solar and wind to compete with the variable cost of generation, which will be a challenge. On the other hand, renewables should be able to compete effectively to meet increases in demand and replacing retired generation.

M. SIMON
16 July 2013

A. G. Gelbert, The massive fossil fuel subsidies should indeed be eliminated. Having said that what you need to look at is the subsidy per KWh. AE is far ahead by that metric.

GARY TULIE
16 July 2013

I have read articles from Australia which indicate that customers with air conditioning and without their own solar array add far more cost to the grid than your average solar array of similar rating - such units tend to be used mostly when demand is already highest. This demands a corresponding increase in generation capacity of almost one to one. Whilst this peak load scenario can be designed out by heavy insulation, external blinds to limit solar gains, and high thermal mass to stabilize building temperatures between day and night generally this does not happen, and cooling takes place when the air is hottest rather than when power is most available.

Perhaps anyone adding air conditioning in an area where peak load is dominated by cooling should pay a substantial kVa surcharge for their maximum power use during peak hours, a substantially higher time of use tariff for increasing their consumption at times when peaking plants are used to meet demand, or a requirement if possible to install a solar array of matched capacity?

JSM @ALTWATT
16 July 2013

Good article with some good points. "Parity" is indeed complex. I am not 100% sure that the cited ITC is indeed being necessarily "paid" by the federal taxpayer. To assume this would assume that the entity with a tax appetite has no other means to avoid paying taxes and that the IRS would collect hard dollars if the ITC were eliminated. There are numerous nonrenewable ITC's available as well as other methods to reduce/delay/shift tax liability and it is highly likely that if the solar ITC's were eliminated these organizations would just find some other means to avoid paying taxes.

DAVIS SWAN
16 July 2013

In my opinion the whole discussion about parity for PV solar or wind for that matter misses the most important point. Because of the variability and unreliability of these sources we have to maintain 100% of the existing thermal generation fleet intact in order to provide electricity on calm nights. These facilities, kept now as spinning reserves running intermittently and inefficiently can no longer be run profitably but cannot be shut down. In some jurisdictions there are already "capacity charges" being built in to utility bills to provide financial support for these facilities. Would it not be fair to attribute all of these payments back to the renewables? Solar panels also create two classes of consumers - those that can install solar panels and those that cannot. I have discussed this in a recent blog post http://debarel.com/blog1/?p=267. A continued focus on solar panels and wind generation will not help us make the transition away from hydro-carbons for electricity generation. A more complex and multi-faceted approach is required as I have outlined in my Sustainable Energy Manifesto http://debarel.com/blog1/?p=152

BILL FERGUSON
16 July 2013

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ROBERT GOLDSCHMIDT
16 July 2013

This comparison against wholesale rates will become mute when customers go off grid by adding their own local gas peaking generator. Without the addition of end-point solar, many utilities would need to rebuild intra-city power distribution which would be prohibitively expensive. They are currently avoiding this by subsidizing LED consumer light bulbs by 60%. This delaying action will soon be overwhelmed by the rise of plug-in electric vehicles.

ANONYMOUS
16 July 2013

Utility hourly wholesale rates determine parity. Here the level of use of solar is important. For most of the southwest the electricity prices will remain high until solar is somewhere between 5 and 10% of total electricity generation because the air conditioning load that couples with solar output. However, once one gets above this penetration level, there are an increasing number of times when solar drives the price to near zero. In a free market that implies near zero revenue. If and until the daily, weekly, and seasonal storage problems are solved, this will become a major economic barrier to solar

JAN FREED
16 July 2013

Is it not realistic to recall the study by the Harvard Medical School that estimates $300-$500 billion per year health care costs of coal pollution on the nation's health? This adds a hidden "tax" of .18/kwh to the true costs to society. Not to mention the 24,000 premature deaths/year (American Lung Assoc.) So, even if HMS study is off by a factor of two, coal is far too expensive. We have been subsidizing coal for years. Why is this not mentioned in more analyses?

WHIT ELFNER
16 July 2013

'Grid Parity' is a simple comparison of the cost to generate a Kw of electric from a solar array to a hydro generator, coal fire plant, natural gas generator, or a Nuclear plant. You can just put the cost high to low and see that Solar is not close to other forms of generation, but still not in the same ball park. If you look at the 'levelized costs' you can get closer. The levelized costs including decommissioning and other costs. Though they exclude health costs. Wikipedia has an article here on costs of generation; http://en.wikipedia.org/wiki/Cost_of_electricity_by_source Jrgen Weiss has it right in that you are skipping the fixed costs. Without that your comparing wholesale solar to retail Grid electric. NOT a fair comparison.

Power companies are rapidly changing the way they bill for their costs, splitting off their fixed costs into user fees or line charges, and kwh charges. In this way they can meet government imposed 'net metering' on the energy costs and still pass along the fixed costs to the consumer. With this fixed cost passed along, the costs for 'off grid' electric is rapidly approaching grid parity! The fixed cost user or line fees of $25-60 or more, small users of electric may find they can generate and store electric at a lower costs. In my area the user fee is $25 a month and I use <8kwh a day. so the effective cost of the 9.5 cents a Kwh is 20 cents a Kwh. My home brewed off grid system will cost about 26 cents a kwh over 30 years, including costs of replacing the inverter/electronics every 10 years and battery(forklift/traction battery) at 15 years. This is WITHOUT including the tax credit! It also does not include my labor in installation/maintenance or costs involved with the use of money.

GARY TULIE
16 July 2013

There are many variables in how grid parity can be described as the comments above indicate. There are also explicit and hidden subsidies for a variety of energy forms - explicit in the form of tax breaks, feed in tariffs and the like, hidden in things like net metering of renewables where fixed grid costs are not taken into account, failure to take account of "external costs" of fossil fuels relating to climate change, air & water pollution, acid rain, cost of spills and accidents etc. or with Nuclear, hidden insurance costs where the operator is not fully responsible for the costs of any potential nuclear accident or radioactive release. Another factor heavily affecting Solar in the USA is "hidden taxes" particularly at small scale - high costs for planning applications, grid connection permissions and inspection in certain areas, and very high administrative costs trying to deal with up to19,000 different sets of rules across the country. These "hidden taxes" which do not apply in the UK or Germany are in some cases almost equal to the subsidies available from accelerated depreciation and federal tax breaks - so that the federal Government in its tax breaks is merely subsidizing the inefficient administrative procedures of local government, and favoring large companies who can access the tax breaks over private individuals and small companies who often cannot. Note:- In the UK the unsubsidized cost of a 1MW solar farm fully installed is now around 1.00 per watt $1.55 (sold price) according to Good Energy with some reports putting the cost price to large installing companies (without margin) significantly lower. The main if not only reason for the lower costs are a simpler more efficient process for obtaining the necessary permissions.

ANUMAKONDA JAGADEESH
16 July 2013

No,until we have efficient solar power systems(rather than the present low efficient solar cells). Dr.A.Jagadeesh Nellore(AP),India

JURGEN WEISS
16 July 2013

Comparing solar pricing to wholesale prices is not all wrong - John, you are correct to point out that it is the hourly profile that matters, but wholesale prices in most places in the US exist at the hourly level. Comparing the cost of solar to retail electric rates compares apples and oranges. Retail rates include not only the cost of generation, but also the cost of transmission, distribution and often various other charges. For a number of reasons, utilities tend to charge for most of their costs on a cents/kWh basis, even though many of the costs are fixed. So while a single customer can essentially avoid paying their share of the fixed costs of the system by installing solar, these costs are not avoided, at least not in the short run. This issue is already "hot" in a number of states - and it would be reasonable to expect that retail rates structures will need to change as PV penetration rates increase. Even so, some recently signed PPAs for PV in California get very close if not to the wholesale price of power during the hours of solar generation, then at least to the cost of some alternative fossil new generation. In a system with increasing demand (or where old plants need to be replaced), the correct measure of "grid parity" is the expected wholesale value (before adding the generator) of the power generated by a new plant minus its cost - some measure of the net benefit. The anonymous commenter above is correct that this benefit may be high initially with PV (due to the coincidence of generation with current peak load), but a lot of PV may well shift the peak to time periods when PV is no longer generating (such as early evening), at which point the benefits of adding more PV decrease (unless costs keep falling). it is also important to point out that grid parity per se is not the only criterium that should be used to evaluate the benefits of adding PV. GHG and other environmental issues aside, resource diversity and associated insurance against things like fuel prices changes over the long run, paying more now to scale up the industry so that costs fall further in the future, etc. are additional important issues to be considered.

ANONYMOUS
15 July 2013

Gelbert's comment below about fossil fuel subsidies is an exaggeration: subsidies for fossil fuels are less than a penny per kWh in the US. The major problem with the author's analysis is that he does not factor in intermittency concerns as solar PV gets to an appreciable share of the market. After a few percent market share the notion that solar replaces peaking demand is no longer true. This June in Germany (see http://www.germanenergyblog.de/?p=13522) revenue for renewables on the open market was a mere 2.8 eurocents/kWh. The problem is that June is a very good month for solar generation but a month with weak overall demand. Once solar PV gains a significant market share the notion of net metering is going to go away and intermittent power is going to have to be sold in a spot market. Producers of base load power are going to start to demand purchase agreements that give them a market for all of their generation and this is going to further degrade pricing for intermittent power. The mean cost of utility scale solar PV this year was only about 42% of the mean cost of residential solar PV and in a tough market the residential owner is going to find they cannot compete. It will be a few years before the US sees these types of effects but people need to start considering them now when evaluating the cost effectiveness of a residential PV install. Steven

A. G. GELBERT
15 July 2013

Well, if you are going eliminate the tiny subsidies that solar power gets from the parity equation, shouldn't also eliminate the massive fossil fuel subsidies inherent in non-renewable energy grid electricity? what's good for the goose is good for the gander. Fossil fuel generated grid electricity without subsidies is high enough to make a scientifically objective hypothesis that most, if not ALL PV generated electricity has already achieved parity and is, in fact, cheaper when a level energy playing field is computed. If you don't want to go there, you should accept the grid parity with subsidies for PV as a bona fide grid parity and certainly not some "sleight of hand". You cannot have it both ways.

http://www.renewableenergyworld.com /rea/blog/post/2013/07/is-solar-cheaper-than-gridelectricity-yes-and-no