Written by Nani Pradeepan, P.Eng.
First, what does Grid Parity mean? Grid parity means, solar PV system produce electricity for the same cost as the electricity available on a utility’s transmission and distribution “grid” from other traditional sources such as nuclear, hydro, coal, gas, oil etc. As we all know cost of electricity from other sources can only go up but properly designed and installed solar electricity cost does not change much over the years as operational cost is comparatively near zero.
Significant incentives and number of resulting solar installations have resulted in substantial prices reductions in the cost of solar power system. This means depending on the country and resources used for electricity generation, solar electricity has achieved or approaching grid parity in many parts of the world including Canada.
Solar equipment prices are three time less expensive today than it was seven years ago at the start of Ontario’s Feed in Tariff program. This has enabled electricity generation from solar closer to grid parity ahead of schedule. Other costs such as balance of system materials, labour costs have not dropped significantly but overall project cost also has dropped proportionately.
Even though hardware cost associated with solar project has come down in last seven years, soft cost (getting the incentive approvals, permit fees, LDC charges etc..) associated with solar project has gone in the other direction. It is industry’s hope that transition from Feed in Tariff program to Net-metering program will bring down these costs as well.
This drop in solar project cost has helped Ontario government to lower the incentive paid to solar power system owners and Ontario government has already decide to phase out the incentives by end of 2017. Solar system owners who secure a contract with Ontario government for selling the electricity into the grid before end of the program will receive payment for their solar electricity for 20 years from their contract start date.
Economics’ basic principle of supply and demand which has caused the significant price reduction in solar equipment price can also go other way. As more people in more countries decide to go solar, demand for solar equipment can surpass the supply and results in higher solar equipment prices. It remains to be seen what will happen to the PV equipment market. As solar industry become mature similar to Ontario government, governments around the world will phase out incentives provided for solar projects. This may keep the balance of global solar equipment supply and demand and keep solar equipment price stable.
This scenario for solar electricity reaching Grid Parity has already initiated changes in the way electricity is produced and distributed. This is just a start look out for the interesting time is a head for energy industry.