Solar Policy Can Advance (Or Delay) Grid Parity By A Decade

by John Farrell, via Energy Self Reliant States

In their excellent interactive graphic, Bloomberg Energy Finance calls solar grid parity (when electricity from solar costs less than grid power) the “golden goal.” It’s an excellent illustration of how the right energy policy can help a nation go gold on solar or wallow in metallurgical obscurity.  In the case of the U.S., it may mean delaying grid parity by eight years.

In the screenshot below, countries in purple have reached the golden goal in 2012, based on the quality of their solar resource and the cost of grid electricity, as well as a 6% expected return on investment for solar developers. (Note to Bloomberg graphic designers – countries meeting the golden goal could be colored gold).

By 2020, the universe of countries has expanded significantly, and includes the United States.*

*But this picture isn’t accurate, because the type of solar policy influences investors’ expected rate of return and solar policies vary significantly across countries.  In Germany, their feed-in tariff policy offers long-term, fixed-price contracts for solar.  This certainty and policy transparency means lower risk and investors accept a modest 6% return on investment.

In the U.S., however, there is high uncertainty.

Incentives for renewable energy have a habit of expiring based on the vagaries of federal and states legislatures.  Incentives come in the form of tax credits, leaving developers dependent on a fluctuating market for tax equity partners to “monetize” the credits.  This higher risk means solar developers want higher returns (more like 10% than 6%).  (I wrote about this in a report last fall).

The 4% higher expected rate of return means another eight years of waiting for the golden goal, delaying solar grid parity in the U.S. from 2020 to 2028.

This highlights a huge irony in U.S. energy policy.  There’s a strong bias toward “market-based” policy (auctions, renewable energy credit markets, etc), on the assumption that cutthroat competition to deliver solar will give ratepayers the best deal.  But the high risk to developers means an expectation of higher returns, so that the winning bids are likely higher than could be proffered in a low risk environment.

High risk means Americans will pay more for solar than their international counterparts.  It probably explains why Germans – with a decade of low-risk under their feed-in tariff – are installing solar for [nearly] half the cost in America.  It undermines the opportunity for local ownership, a key tool for spreading the economic rewards of and political support for solar power.

Reaching the golden goal is inevitable, but a country’s time of arrival depends heavily on its choice of solar policy.

John Farrell is a senior researcher with the Institute for Local Self-Reliance. This piece was originally published at the Energy Self Reliant States blog and re-printed with permission.

6 Responses to Solar Policy Can Advance (Or Delay) Grid Parity By A Decade

  1. Adam Browning says:

    There’s a rather elementary mistake here.

    The Bloomberg metric is for RETAIL grid parity. It’s the point when people are better off making their own power using solar behind the meter than buying retail power from utilities.

    A feed-in tariff, of course, is a mechanism for buying WHOLESALE power. Wholesale is of course lower than retail. An entirely different metric–moves the parity bar downwards, considerably. And more importantly, it is an entirely different market–you have to force the utility to buy the power.

    The last thing I want to do is get into another useless discussion on the benefits or drawbacks of FITs. We can and should have both FITs and behind-the-meter solar. Different markets, different stakeholders, different benefits. There’s really no either/or here. (Note that SMUD and Palo Alto muni have both net metering AND a FIT set at their WHOLESALE fossil grid parity –and SMUD’s is working fantastically, Palo Alto just started)

    But in the context of actual markets, this article makes no sense at all.

  2. Leif says:

    The take away is that Solar PV grid parity “is inevitable.” The big question is whether the Fossil Industry wants to emerge having learned to play nice with others or branding themselves the “Attila the Hun” of the ages. I am rooting for the former, evidence is pointing to the latter.

  3. Sasparilla says:

    I would guess that the Koch’s and their minions in the GOP in Washington D.C. want Solar in the U.S. to reach the golden goal as late as possible – this makes things better in the mean time for the coal, natural gas and oil (to a certain clean energy PR extent) industries.

    I wish we had folks in control of the U.S. House of Representatives in the U.S. that could look at Germany and want to update our Federal level Solar support to improve it – but to do that they would have to understand the need to shift from carbon based energy – what a nice day dream that is.

    What we actually have in the U.S. is an entire party (Republcans), in control of the House, that is actively at war with green energy (big change from 5 years ago) and cheering on the expiration of the Federal level Solar and Wind energy support over the next several years.

  4. Mark Shapiro says:

    PV panels at $1/Watt already cost less than the grid, especially for all the high-value, direct-current, electronic devices such as cell phones, ipads, laptops, other computers, internet, and now LED lighting.

    What we lack is a DC standard to connect DC sources to DC uses, without converting to AC and then reconverting to DC.

    This would not require government, but rather standards bodies of manufacturers, like NEMA and IEEE.

  5. meurig says:

    I see no indication on the Bloomberg site as to what the x-axis represents. Is it average local capacity factor?

  6. NeilT says:

    These kinds of charts are really not representative of the realities out there.

    Take France for instance. 504TWh of electricity or 78.8% of the entire production in the country is generated by Nuclear.

    Simply put, there is little incentive, climate wise, for France to go solar. Except for consumer cost and that is behind the meter rather than grid tie as has been stated already.

    What I find about government policy and the way climateprogress reports what is going on, is that there is a huge disconnect in the way things are being viewed.

    Joe, you and I have butted heads here several times on carbon tax. So in the light of recent posts here and also this one, let me try and present that in another way.

    The US has such a disjointed policy because that is what the Republicans want. They WANT you to focus on a carbon tax, they want you to have a carbon tax as the only viable alternative to drive the green energy debate and reduce carbon emissions.


    Because the way to achieve renewable green energy and reduce emissions, in a democracy, is to give choice. Then to make the choice of green renewables cheaper than polluting fossil fuels.

    Republicans are not attacking jobs with their attacks on these support schemes. They are not so much trying to drive you away from supporting renewables as trying to drive you TO carbon taxes. Then they can trump you with “Choice”. The choice not to be taxed into submission.

    Because if the US had a solid and coherent policy which funded solar and other renewables, in the way that Germany does, or even fossil fuel does in the US, it would Then and only Then, be possible to implement a carbon tax.

    The Republicans are attacking the ability of the people to have Choice. A fundamental foundation of their supposed belief that the people are free to choose. They want to remove choice and then present only unacceptable alternatives which they can block as “being in their voters interests”.

    Never mind the fact that they are stopping much more important moves which would be massively more in their voter’s interest and give them the choice to do the right thing rather than suffer the consequences of the wrong thing.

    Joe I think you do you readers and the whole Climate Movement a disservice by not exposing this. Because if we can stop them blocking the ability to fund solar and other renewables, then the people will be able to take the choice of not polluting.

    That is a much healthier debate than one over taxation.