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The Renewable Push Towards Grid Parity

Gareth Foulkes-Jones's picture
Chief Strategy Officer IGR Green

A confident and highly organized professional with experience of more than 12 years mainly in Renewables & Technology sector in multinational companies worked within multicultural...

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  • Jun 15, 2020
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"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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Thank Gareth for the Post!
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Matt Chester's picture
Matt Chester on Jun 15, 2020

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. 

If the high was 80% of a price drop, what was the scale of the more moderate / low price drops?

Bob Meinetz's picture
Bob Meinetz on Jun 15, 2020

Gareth, until renewables generate reliable electricity 24/7/365, your comparison suffers from false equivalence, i.e., comparing apples/oranges.

Though churning out creative LCOEs promising "grid parity" for their renewables clients has become a lucrative sideline for investment banks, no respectable economist takes them seriously.

Gareth Foulkes-Jones's picture
Gareth Foulkes-Jones on Jun 16, 2020

Hi Bob. Thank you for taking the time to read my article and to respond. I really do appreciate it!

This fondly reminds me of the discussions I used to have with Dr. Kimm, Chairman of the South African Nuclear Corporation.

I acknowledge that 24/7/365 generation is problematic at this juncture. There you are absolutely right! Hence the objective to achieve an energy mix between various renewable techs. All that aside however, there is certainly alot to be said for the steady power of base load.

This is also why I acknoweldged in the article that many renewable market participants are conveniently overlooking the major costs attached to the storage needed for renewables to address this particular point when speaking of grid parity. 

Therefore, I agree that if one were to argue grid parity now. That would be misleading.

However, grid parity as an evolving trend I do maintain. Especially in the likes of the European Union. Where the Green Deal is already being actioned upon, and will see vast resources poured into the infrastructure needed to maintain a stable grid.

Once again, thank you for taking the time to write. I know we represent different parts of the industry. But its a true delight to always speak to learned men such as yourself! 

Please have a truly excellent day!

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