Solar Power World

The question that everyone’s asking is when will solar become cost-competitive with fuel?

Dr. Mohan Narayanan, VP of Technology at Solarfun, set out to answer this question yesterday in his Webinar, “The Truth Behind Grid-Parity, 8 things you should know.”  He started off explaining that grid parity will not happen all at once, but instead market by market and according to technical, financial, and political conditions.

Dr. Mohan Narayanan, VP of Technology at Solarfun

“We’ve been talking about grid parity for more than ten years,” he says. “Since 2000 PV production has rapidly expanded and cost has been significantly reduced. The conversation is becoming more intense and sometimes controversial.”

Narayanan notes we can all agree that solar energy is available universally, though quantities depend on geography and location. Also, access to power is becoming critical for most employment and business activities. Yet, more than 1 billion people don’t have access to electricity. About 15 GW of solar power has been installed as of 2008, and about eight countries account for 90% of that 15 GW. And less than twenty countries have installed any large scale solar projects. “We need to think if all 190 countries will sign to various clean energy regulations,” Narayanan says.

Before starting his list of truths, Narayanan discussed  enablers that have allowed the industry to start talking about grid-parity with great confidence. He said cost-effective, high-efficiency cell technology and reliable module technology are of great importance to grid-parity. Also is the availability of high-volume tools, “so they can be put in commission and in two weeks we can have solar modules available.” Lastly, quality of consumables has improved tremendously in the past ten years, such as with metalization paste, and improvement in manufacturing excellence in large-scale PV manufacturing facilities, financial support, and subsidies have enabled the discussion as well.

#1 “Grid-parity is like a wave,” Narayanan says. It will occur in many countries and power markets at different times, depending on material costs, the cost of modules, balance of systems, consumer electric rates, local sunshine, and costs of installation. For instance, grid-parity has already occurred in California, which has the same installation as India, where grid parity may take much longer to happen.

#2 PV market growth catalysts: Grid parity is only available if grid capacity is there, according to Narayanan. He notes wind farms in one country that had to operate at 20% load capacity because there was not grid capacity available to take electricity. Grid connectivity protocols also matter because it’s little use for electricity to be there, but can’t be connected to the grid. These problems have to be solved in order to achieve grid parity.

Other immediate factors impacting PV market growth are national economic development goals, international competition, cooperation, dependence on imported fossil fuels, pro-solar industrial policy, and consumer willingness to pay. For example, in Sweden consumers were ready to pay more for green energy, in addition to many European countries that are supporting renewables, which are good catalysts for PV growth.

#3 The price rebound effect. As large markets reach grid-parity, demand surges and may push installation costs upward. As a result, grid-parity will be fleeting. True sustainability will require manufacturing capacity, installation capacity, and inventory. Narayanan notes price surges in may components including inverters, cables, and glass because of the problematic price of available consumables.

#4 It’s also a question of policy. In an idealized vision of grid parity, subsidy support is no longer needed, but this overlooks realities of the current physical and economic condition of the grid and energy transition requirements for large-scale PV. For instance, in Germany a subsidy and FIT runs into billions for the entire tax rate base. Even though it’s only a couple of euros per family, but adds up to a lot. “But it also generates employment and reduces greenhouse gases, so there’s a lot of debate about subsidies,” he adds.

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#5 Sometimes grid parity doesn’t matter, such as in BIPV (building integrated photovoltaics), which replace traditional building materials. In this market sector, bill of materials (BOM) advantages increaseingly drive demand, reguardless of grid-parity.

#6 Financing issues remain key. Fuel costs may contribute 70% to marginal costs of electricity purchased via grid, thus solar PV implementation is paid “up front” (typically financed). The cost from interest rate or required return on equity impacts the cost of electricity produced by the PV. Interest rates have to be maintained. The most secure way to keep finance costs low is a FIT.

#7 Off-grid installations may boost prices. If PV systems become more affordable, off-grid system demand will rise where electrical service is non-existent or unreliable. The exact point of grid parity has not direct effect. International supply constraints may cause prices to rebound in other markets, which may delay or temporarily repeal grid-parity. However, this may encourage new innovations in technology for off-grid installations.

#8 Market share may shift. Market share of utility scale vs. distributed PV is likely to recalibrate at grid-parity. Narayanan notes a grid-parity scenario, in which solar PV rates equal retail rates for households and businesses, thus consumers will buy from solar array vs. paying electrical rates, which may be increasing. In some markets distributed solar will take off dramatically. However, this overlooks increasing attractiveness of large-scale solar PV power plants for utilities. According to the European PV Manufacturer Association, the market may be shifting toward developing countries. OECD (Organization for Economic Co-operation and Development) countries accounted for about 90% of solar modules. The rest of the world accounted for 7%. However, the association predicts that by 2020, OECD countries will be at about 60% and developing countries about 40%. In 2030, that trend is expected to continue with  OSED at 30% contribution and the rest developing countries.

Narayanan finished his presentation on a broader note.”We need to think, is grid-parity the final goal? Or is it just an important milestone to get to a state where there is affordable power for all?”