Falling costs for solar and time-of-use electricity pricing have now begun to make solar competitive, says Lux Research in a recent report, titled ‘The Slow Dawn of Grid Parity.’ Proximity to grid parity is closest for commercial rooftop installations in California.
Grid parity is not a single point in time, and parity for utility-scale generation remains a decade or more away, the report notes. However, near-term viability in select applications will drive the thin edge of the wedge that leads to cost reduction and future universal grid parity.
‘The solar industry is coming of age, and the metrics for judging solar technologies are shifting,’ says Ted Sullivan, senior analyst at Lux Research and lead author of the report. ‘Instead of up-front capital cost for adding generation capacity – or cost per watt peak – the new standard is the levelized cost of electricity (LCOE).’
Presented as cost per kilowatt-hour, LCOE measures the total lifetime cost of a solar installation. According to Lux Research, this shift enables a more direct comparison to conventional generation types, and enables more rigorous analysis of solar technology on the basis of life-cycle costs, payback period and return on investment.
Additionally, select applications nearly enable grid parity today, Lux Research says. Solar will converge with grid electricity rates in some situations, such as commercial roof decks in California, at costs approaching $0.45/kWh. But grid parity comparable with utility generation costs around $0.08/kWh remains a decade away for solar in most markets.
Subsidies are still the primary demand driver for new installations. Even where solar is far from grid parity, ongoing subsidies allow investors, businesses and homeowners to earn positive internal rates of return (IRRs) from solar installations.
These IRRs will boost demand, fueling further increases in scale and enabling the industry to continue cutting costs and innovating, according to the report. This should drop future solar LCOEs and further accelerate grid parity.
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Finally, the company notes, premature views of grid parity could be counterproductive. Mounting fiscal pressure on debt-ridden governments could turn the political tide against solar subsidies, particularly if politicians take the simplistic stance that grid parity is a current reality.
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For more information, visit www.luxresearchinc.com.
SOURCE: Lux Research Inc.