Feature: Reaching grid parity – the UK solar story

As the UK solar market progressed past the gigawatt mark the term “grid parity” begun to creep into industry players’ lexicon, with many suggesting that solar power could become a serious part of the wider energy mix in the next few years. But, is this concept actually realistic in the UK, or is the idea of installing solar panels without a subsidy completely out of reach?

What is grid parity?

Before we get into the when and how of grid parity, let’s first deal with the what. Many working or commentating on the UK solar industry will have heard the term “grid parity” being bandied about, but not everyone will be familiar with exactly what it means. In fact in the latest Solar Power Portal poll on the subject 12.57 percent of readers voted to say they had no idea what “grid parity” means.

Put simply, grid parity is the point at which solar electricity (or another form of alternative energy) produces power at a levelised cost that is equal to or less than the price of purchasing power from the grid.

Reaching this point is considered to be extremely important for solar power as it means this technology will be viable without any kind of subsidy or incentive and will no longer have to reply on Government support.

Solar power is considered to be the most likely form of renewable energy to reach grid parity as it is not only easily scalable but also has many areas where costs can be cut. In fact over the past two years solar component prices have come down more than 50 percent.  

In the case of solar power the low cost of energy competes against the retail price of grid power, which includes all upstream additions like transmission fees and taxes, and is generally much higher than wholesale prices. In order to encompass all of these possibilities, Japan's NEDO defines grid parity in three phases:

    1^st phase grid parity: residential grid-connected PV systems

    2^nd phase grid parity: industrial/transport/commercial sectors

    3^rd phase grid parity: general power generation

These categories are ranked in terms of the price of power they displace – for example residential power is more expensive than commercial wholesale power. Therefore, it is expected that the NEDO’s 1^st phase scenario will be reached earlier than the 3^rd phase, which may never be reached.

How can grid parity be reached?

Now we know what grid parity is it’s important to look at how to get there. We now know that the goal is to get solar power to the point where this power is equal to or less than the purchasing power from the grid but in order to get there faster there are three main factors at play: high conventional energy prices, technological advancements and strong Governmental support.

The first of these points is easy to describe as it’s far easier to reach grid parity by relying on increased energy prices as opposed to waiting for the cost of solar power to drop (especially since component prices have fallen so drastically in the past year or so). In the UK this doesn’t appear to be too difficult to achieve as bills seem to go up every year – in fact most of us spend our time hoping they will go down.

Advances in solar technology will play a leading part on the journey to grid parity, especially on the management and storage side. While it is important that solar panels and inverters continue to increase efficiency levels and the overall cost of installation is brought down there is currently a growing focus on using solar energy when the sun goes down. Detractors of solar energy have long held on to the argument that no matter how advanced the technology gets, it becomes useless at night. In response to this criticism solar manufacturers are beginning to develop solar storage devices alongside management systems which help consumers to use their energy as and when they need it. When this technology reaches a widespread commercial level grid parity will be all the more tangible.

This brings me to the third point: the support solar needs from Government in order to progress. While reaching grid parity is all about solar standing on its own the technology requires support from Government in the lead up to this time. If incentives are taken away too soon the industry will find it too difficult to survive and grid parity will slip further away.

However, there is also another method of pushing towards grid parity that we’re not yet utilising, and that’s net metering. Many argue that by introducing this system the UK will reach grid parity a lot faster than without it.

Net metering is similar to receiving an export tariff; however it is often far more lucrative and seems to be more logical. Net metering works by allowing a consumer to “bank” excess energy generated by their solar system (during the day when the house is empty or when the system is generating more energy than the building needs), giving the consumer credit that can be used to pay for future energy use.

The net metering system has been adopted by many countries with high solar capacity and is a proven model. However, not everyone is sold on the idea of net metering. To the utility companies, the idea of consumers buying less power from them while having to pay them for the energy they produce means shrinking profits. The UK Government is also reluctant to introduce the net metering principle because of complications in paying and refunding the value added tax that is payable on electricity.

I spoke with Jan Jacob Boom-Wichers, the Managing Director of REC Solar for France, Benelux, UK and Ireland about this issue at Ecobuild 2012 and he made it clear that this is really the way forward.

“If the UK Government was to adopt a net metering model we might reach the point where solar reached grid parity in the UK, however without this it probably won’t happen until at least 2015,” he explained.

Increased solar irradiance will also make an understandable contribution towards this goal, yet here in the UK this is obviously the hardest to reach and therefore perhaps the least significant.

When will we get there?

This brings us to the much chewed-over debate surrounding when we will actually reach grid parity. Some places in the world – such as Hawaii and parts of California – which have the desired levels of sun and high electricity prices, have already reached this point. However most expect that grid parity will be reached in the important markets, such as Germany, Italy and the US, over the next three to five years.

The discussion surrounding when the UK is likely to achieve this milestone has begun to heat up of late, mainly because the feed-in tariff and Renewables Obligation schemes have been so successful in driving solar uptake (and therefore helping to reduce the overall cost of installation) while conventional energy bills have continued to rise. But whether this country will get there as fast as others remains to be proved.

Generally, opinions differ on this subject as there is no real way of predicting when the UK will actually reach grid parity. We can surmise and suggest when it may happen but the only thing we can say for certain is that parts with higher solar irradiation – such as the South West – are likely to get there before others. It does appear, however, that the majority of those commenting on grid parity in the UK expect this to happen in the next eight years.

At Government level, Ministers are playing it fairly safe with grid parity predications. Last month in a leaked email seen by the Telegraph, Cabinet Office Minister, Oliver Letwin, spoke of phasing out subsidies for solar PV by 2020 as the technology will reach grid-parity before the end of the decade.

The email, sent to the President of the Dorset branch of the Campaign for the Protection (CPRE), Terry Stewart, explained: “I anticipate that subsidies for both solar photovoltaic and onshore wind will come down to zero over the next few years and should have disappeared by 2020, both of these forms of energy are gradually becoming economic without the need for subsidies.”

The UK’s only 100 percent renewable energy distributor, Good Energy, remains practical when talking about solar grid parity, explaining: “When and how we reach grid parity are actually two sides of the same coin. Reaching parity is not just about the price of the panels themselves but also reducing the barriers and costs of installing them. And the great thing about solar is that it’s such a simple and straightforward way to generate renewable electricity helping reduce those costs.”

“We’ll hit parity when the UK industry is strong enough to pass on falling panel prices in the most cost effective manner. Government policy has an important role not only through financial support, but also making sure our existing energy market and grid set-up enable the use of solar. There needs to be far more recognition of how solar can lead to better energy efficiency and reduce our reliance on large-scale centralised power plants.”

However Neil Budd, a renewable energy expert at law firm SGH Martineau believes it will take far longer to reach grid parity than most expect. “Given the deep mistrust that now exists in the solar PV industry as a result of the FIT fiasco last year, grid parity is the Holy Grail. Government’s view is that grid parity will be achieved by 2020.  I am not so sure,” he explained. 

“Certainly we have seen dramatic reductions in panel prices over the last year that simply weren’t foreseen when the decision was made to slash FiTs but I think it’s dangerous to assume that prices will continue to go down at the same rate. A lot of suppliers have been willing to swallow price reductions in order to get market share but you can only do that for so long.  In addition, anti-dumping duties imposed on Chinese suppliers in the USA, which are likely to be followed by similar actions in the EU, won’t help.”

However, Budd does agree that we can reach grid parity by relying on other mechanisms. “To get to grid parity you are going to have to rely on higher brown power prices.  Government envisages that carbon prices will go up, and a carbon floor-price mechanism under the proposed electricity market reforms may have that effect. However, there is obviously a political dimension in that manipulating carbon prices will mean higher fuel prices for consumers. We have seen reductions in oil prices recently and developments in shale gas technology may put a downward pressure on fossil fuel prices which may make it hard for the government to justify manipulating carbon prices through the Climate Change Levy to an artificially high level,” he continued.

The most optimistic of views comes from Solar Power Portal’s own readers, who suggest that grid parity is just around the corner. A total of 45.9 percent said that solar power will stand on its own feet in a few years’ time, while 41.53 percent said solar power just isn’t feasible without a feed-in tariff.

And so it seems that while grid parity is certainly achievable in the UK there are a number of factors determining when this will be. Government support is vital at this stage of the game as the solar industry battles for consumer confidence while bringing its own costs down. Yet it seems the most likely push will come from increased fuel bills, which are already nudging many UK consumers towards renewable energy sources. It will only be a matter of time before everyone begins to switch on to the idea.