The Renewable Push Towards Grid Parity
- Jun 14, 2020 1:56 pm GMT
"Grid Parity" is when an alternative form of energy generates power at a levelized cost of electricity that’s equal to or less than the price of buying power from the electric grid. This is a significant trend, as it means that renewables will eventually be able to go in direct competition with established utilities based on pure economics alone. So, whether you are pro-renewables or firmly against same, renewables will increasingly provide the cheaper electricity on cost of generation.
A significant contributing factor to this trend are the increasingly cheaper component costs. This is particularly significant with cheaper solar PV modules. The International Renewable Energy Agency (IRENA) performed a study in late 2019. In the course of this study they examined thousands of renewable projects and PPAs scheduled to be commissioned globally in 2020. From this analysis, it was established that 83% of utility scale PV pipeline would boast prices lower than the cheapest fossil-fuel alternative.
To emphasize the point further, utility-scale PV aggregate costs, as projected by IRENA, would equate to US$0.048/kWh in 2020. And would see the solar PV industry outcompete 700GW of operational coal-fired plants worldwide.
With the above context having been laid out, I would submit that the true competitive pricing edge of renewables will come from solar PV, wind and concentrated solar power (CSP).
Whilst there has been a dramatic reduction in renewable costs globally, some countries have had a more pronounced drop than others. By way of example, the greatest cost reductions between 2010 and 2018 were witnessed by India, with an 80% reduction. This was closely followed by Italy with a reduction in cost of 78%. These dramatic reductions allowed both of these nations to place well in the 2018 G20 competitiveness charts. By contrast, Canada, Russia and Japan were the priciest within the G20 group of countries. With a higher module, installation and margin cost than anywhere else.
However, whilst there is an undeniable trend towards grid parity, there are still some challenges worth noting. For instance, solar PV and other renewables are already able in many instances to compete directly with base load producers. However, it is often overlooked that there are also less obvious costs of such projects in the form of grid upgrades and battery storage. I would opine that true grid parity will only be achieved when PV electricity cost of production also factors in the expense of such systems. Cost of storage is still a major factor, and one which must be acknowledged and addressed should true grid parity be achieved.
In conclusion, grid parity is a significant trend in renewables. And one well worth monitoring. However, when factoring in the requisite infrastructure build out above, may still have some obstacles to traverse before it can compete openly in the marketplace without strong government policy supporting the sector.
Written by Gareth Foulkes-Jones
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