Solar PV Grid Parity

Is solar power now cheaper than the grid?

Has solar PV reached the point where it is now a cheaper source of electricity in the UK than a grid supply, even without the aid of subsidies?

This is a goal that environmental campaigners and those in the solar industry have long dreamed of and according to recent studies we may well be there already! Historically, solar PV has been perceived as an expensive luxury alternative to a traditional grid supply, as installations in the UK and other countries have relied heavily on support from government subsidies like the Feed in Tariffs to make them financially viable. However, the last few years have seen a dramatic shift in the markets for both solar PV and wholesale, domestic and commercial electricity rates so where does that leave us today?

The technical jargon – grid parity and socket parity are the two terms used to describe a situation where the price of your electricity from solar power (or another form of generation) is lower than the wholesale or retail price of commercial and domestic electricity from the grid.

The first challenge we must overcome to work out whether or not solar PV has reached grid parity, is to calculate a price for solar PV electricity that can be used in comparison with other forms of generation – a price in £ per KWh or $ per KWh. This is known as a levelised cost of electricity (LCOE) and to get a true representation of LCOE from solar PV we must take into account a wide range of assumptions including installation costs, maintenance costs, yield, performance and system design.

As you can imagine it is immensely difficult to reach a final figure for LCOE when it is dependent on data and assumptions that vary so greatly from project to project. That said, numerous studies cited in a Bloomberg report from 2012 (Reconsidering the Economics of Photovoltaic Power) have concluded that solar PV grid parity has already been achieved in many countries and is due to be achieved in the next 1-3 years in many more countries.

Another more recent report from investment bank UBS also concluded that Germany, Italy and Spain have already reached solar PV grid parity and suggested that the next few years could see an unsubsidised solar revolution as solar becomes a 'no brainer' for many European households, with or without subsidies.

What then for the UK?

The UBS report said there is not an immediate prospect for unsubsidised solar in northern Europe, where there is less sun, but recent findings by Chris Sowerbutts in an article for 2 Degrees proved contrary to this, as he experimented with figures based on a 100kWp UK solar PV system and revealed some surprising results.

Unlike previous studies, which used a levelised cost of electricity (LCOE), Chris decided to plug his figures into an appraisal spreadsheet that shows what the payback of a system would be even without Feed in Tariff (FiT) subsidies. This allows us to see quite clearly what assumptions he has made. He doesn’t specify the location of the theoretical system (the estimated annual production is perhaps a little optimistic for a UK solar PV system and would be somewhere around 90,000kW south of Birmingham) and he also points out that the appraisal doesn’t account for site-specific variables or the cost of capital, but the results are impressive - the system pays for itself in just 11 years, even without FiT subsidies!

Chris Sowerbutts' first appraisal assumes an annual energy price increase of 6%, a conservative estimate when you consider that even DECC expect energy prices to rise by as much as 14% annually between now and 2020. In a second appraisal he removes energy price increases altogether and solar PV still comes out cheaper than the grid. His appraisal is based on a 25 year system lifetime because this is how long solar panel manufacturers guarantee their panels will still be performing at 80% of their original output. In reality a system will produce electricity long after 25 years.

What would this mean for our bills?

Chris suggests looking at the figures in another way – a fixed price for your electricity of 9.71p / kWh for the next 25 years. If your electricity supplier offered this you would jump at the chance! Remember this price includes all the costs of maintenance, insurance and metering associated with solar PV, though the actual installation cost and yield will vary from one project to another due to site-specific requirements. The figures still stack up for large energy users too. Future forecasts for the upper ceiling for wholesale (not retail) electricity prices are £100 / MWh. A solar PV system is already cheaper at £97.10 / MWh.

So what’s stopping us?

The Bloomberg report suggests that the recent and drastic changes in solar PV costs, markets and technological shifts, have not been fully appreciated by decision makers. It blames some confusion on the complex analytical methods used in the industry to explain the finances of solar PV, which have led people to believe it is not competitive with other forms of electricity generation. If we can keep the calculations and assumptions clear, as Chris Sowerbutts has, then hopefully more people will realise that solar PV really is a worthwhile investment!