INDUSTRY I SUBSIDY
GRID PARITY occurs when an emerging technology such as wind or solar can produce electricity at the same levelised cost as buying power from the grid. This has long been regarded as the ‘holy grail’ of the renewables industry, as when grid parity is reached, market forces (rather than subsidies) would drive large scale deployment.
However, given that different consumers pay different prices for electricity, there are different definitions of grid parity, depending on what price is compared:
Retail grid parity occurs when the levelised cost of wind or solar falls below the retail price of electricity (for example, the price at which a typical household buys electricity). Since the retail price includes transmission and distribution costs, retail margins, as well as taxes and often renewables subsidies, the price paid is high and reaching grid parity is hence easier.
Wholesale grid parity occurs when wind or solar becomes competitive with wholesale price and with large-scale power generation – such as gas, coal or nuclear power stations. Since the wholesale price is much lower than the retail price, this requires the cost of renewables to fall further.
Although retail grid parity will be reached sooner than wholesale parity (and in some countries has already been reached) many of the advantages may be short- lived as they stem from the way in which the fixed costs of the system (such as the cost of the grid) are shared. For example, a move to charging grid fees for consumers based on peak consumption (per kW) rather than on energy (per kWh) would quickly remove much of the advantage that solar gains. Equally, a move to charging based on time of day rather than average monthly or quarterly prices may quickly erode many benefits of selling surplus electricity back to the grid.
For this reason we focus this article on wholesale grid parity, as the point when solar or wind can compete with conventional power stations is likely to be transformative.
Where might grid parity happen first? Grid parity of renewables technologies is geography specific as: £ Available wind and solar resources differ significantly across different locations;
£ Installation and operating costs of wind and solar vary from location to location; and
£ Electricity prices vary by country or region depending on relevant generation mix, fuel and carbon prices, and short- run marginal cost of marginal generators in the system.
In Europe, there is much more sun in the south, and wind in the north, so we would expect these to be the dominant factors driving grid parity. However, the cost of electricity is also crucial, as whether a country has a system dominated by hydro (leading to low prices) or gas (currently leading to high prices) is vital. Thus a country with high electricity costs and excellent solar or wind resource is likely to be first for large-scale deployment of solar or wind without subsidies.
When might grid parity be reached? We have conducted a detailed analysis to assess when wind and solar will reach grid parity across Europe by applying our state-of-the-art electricity market model BID3. BID3 is the leading European electricity market simulation software1 the dispatch of all generation on the European network.
for modelling
Country specific wind and solar output profiles based on wind speed data of a 20x20 km grid and solar radiation data of a 30x30 km grid were applied. A pragmatic learning rate of these renewable technologies was also considered. Furthermore, our analysis is centred on wholesale electricity prices based on Pöyry analysis.
Solar PV achieves wholesale grid parity ahead of onshore wind, while offshore wind and solar CSP would not reach grid parity during the analysis period spanning 2014 – 2040. Assuming falling capital costs, countries in Southern Europe will first attain grid parity for solar PV, primarily due to high solar irradiance. Spain would achieve solar PV parity as early as 2021 followed by Portugal (2022) and Italy (2025 to 2032 depending on specific region). 5% higher capex for solar PV would delay the grid parity by one to three years as represented by the upper value
Issue V 2014 I
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