PV grid parity and its implications

Muriel Watt.

Muriel Watt.

As the price of photovoltaic modules decrease, and the uptake of this technology in global communities increases, a number of issues must be addressed as grid parity is approached and passed.

International developments saw global average photovoltaic (PV) module wholesale prices drop from $US4.12 per watt (/w) in 2008 to $2.68/w in 2009. This year prices look set to drop even further, to around $2/w (Photon Consulting, 2010).

This has come about through a mixture of higher efficiencies, reduced manufacturing costs, new technology and economies of scale, as well as the collapse of the Spanish market and tight credit markets due to the global financial crisis.

Continued high growth rates and a range of new technologies are expected to see module prices dropping to $US1.50/w by 2013, with several manufacturers already producing at less than $1/W. The graph (right) shows the implications of such trends on Australian PV electricity prices. It also shows projections for residential electricity tariffs in Sydney and Brisbane out to 2020, based on recent price determinations in New South Wales and Queensland, combined with growth rates of 1.5 per cent (low) and 3.5 per cent (high) per annum. All prices are in real values, meaning they would be higher if inflation was included.

While such projections are only indicative, it seems likely that price parity will be reached in parts of Australia before 2020. Note that parity occurs at or after the time that solar credits are expected to be discontinued, and schemes such as the NSW gross FiT will have expired.

This timeline is consistent with international reports, such as the NREL report Break-Even Cost for Residential Photovoltaics in the United States: Key Drivers and Sensitivities, which showed that grid parity could be reached in many parts of the United States by 2015, although there was significant variation between regions due to differences in electricity prices, insulation and financing options.

While the details of these projections can be debated, their real value is in identifying the need to deal with a sudden increase in interest by the general public as grid parity is approached and passed. At this time, there are likely to be many significant issues for PV, over and above the need for government support. In fact, as grid parity will be reached at different times in different states, the need for government support will be piecemeal, with parity-states requiring no pricing support at all – but significant support in other areas.

With a sudden and sustained interest in PV, there will be increased need for suitably trained installers and accreditors. This means there will be a need for a gradual and controlled build up of industry capability rather than a sudden rush, in order to avoid possible reductions in standards and quality control.

Large numbers of systems installed on residential grids may have impacts on distribution networks – both positive and negative. These will need to be managed, ideally in the context of the development of smart grids. Given that residential grid loads do not match well to PV output, inverters may be tripped to take systems offline if voltage limits are exceeded. Network operators may make it difficult for people to connect their systems to the network by, for example, increasing connection charges. Net metering (paying the same price for solar electricity sold as for grid electricity purchased) may no longer be offered.

One way to address these issues would be to increase PV uptake by commercial businesses, and so better match PV output to load. Commercial-scale systems can also be much cheaper per kilowatt installed. Residential users could still participate in commercial-scale systems through community ownership of such systems – placed, for example, on a local shopping centre. This type of model would also allow ownership by individuals who currently have limited solar access, such as those that live in apartments.

After grid parity is passed, owners of PV systems will be able to provide electricity to the grid cheaper than retailers will. How will retailers react to this? They may choose to enter the PV market themselves – either by diversifying into some aspect of provision of PV systems, or by installing PV systems themselves – or they may choose to make it more difficult for systems to be installed, thereby reducing competition for electricity provision.

To avoid unnecessary restrictions being placed on PV uptake, we must all begin now to address these issues. It can’t just be left to government – we need to look at social expectations, planning issues, technical aspects of grid interconnect and management, regulatory and institutional frameworks. In fact, we must begin to put together a picture of where Australia wants PV to fit into our energy future. A smooth and sustainable transition won’t just happen by chance or incremental growth. IT Power is currently investigating these issues for our clients.

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