Starting two years ago, European consulting firm Eclareon has put out its Photovoltaic Grid Parity Monitor, which compares the competitiveness of rooftop solar panels against electricity prices consumers face when they buy power the old-fashioned way, from power plants through their local utility. Grid parity, as it’s called, means that given the current policy environment — subsidies given to solar power, and taxes and regulations levied on polluting power sources — it makes financial sense to put solar panels on your roof. In technical terms, grid parity is achieved when your levelized cost of electricity equals the price the power company charges you. While mandates are theoretically possible, achieving grid parity is the only realistic way for rooftop solar power to spread.
For the first two years of the report, Eclareon studied residential grid parity. In 2012, it looked at 14 cities across Europe and the Americas, and found two — Hermosillo in Mexico and Las Palmas in Spain — where grid parity had been achieved and where rooftop solar power was, for the most part, as cheap or cheaper than buying from the power company.
A year later, many more cities had graduated to grid parity, largely due to the secular decline in the cost of solar panels. (In Los Angeles, where the Department of Water and Power takes months to approve hook-ups, the stubbornly high cost of installation has kept prices from declining as much as in other cities.) Sydney hit grid parity in 2013, as did Mexico City and Madrid. Chile, France, Germany and California, on the other hand, never reached parity, with the outlook for solar actually getting cloudier in Brazil due to 18 to 26 percent reductions in retail electricity prices. When it comes to grid parity, the price for non-renewable energy is just as important as the price for the green stuff.
This year, Eclareon is turning to commercial grid parity. Houses make up the vast majority of the market for rooftop solar, but the differing economics of the commercial market merit a separate examination. The electricity sector in all countries is highly regulated and political, and therefore commercial and residential users pay different prices for power based on very different formulas. Commercial users, in fact, often enjoy a lower retail price for buying power. While business owners also get the benefit of a tax write-off and economies of scale on solar, it’s generally not enough to compensate for their lower retail energy prices.
Germany has perhaps the most competitive rooftop solar prices for commercial users. At at little more than 10 eurocents per kilowatt-hour, power from the sun is noticeably cheaper than the 16 and 13 eurocents that commercial users pay for retail energy on peak and off in Munich. Compare this to nuclear-reliant France, which has very cheap peak-load power, and where in Marseille you can get energy from the grid for between 3 and 6 eurocents per kilowatt-hour. Solar in Rome, meanwhile, is as competitive for businesses as it is for homeowners.
Grid parity, however, is a necessary but insufficient condition for the widespread adoption of solar power. For that, environmental regulation also needs to get it right: Rooftop solar panel installations must be easy to install, and consumers must be able to sell cheap power back into the grid. Allowing net-metering, where the bill runs backward at a reasonable rate during sunny periods and panels produce more power than needed, is a major way that governments can support solar, as are “feed-in” tariffs and tax credits that subsidize use.
Sometimes — in Spain, for example — solar may be so price competitive because of subsidies and sunny weather than a country’s politicians are not prepared to pay for the regulatory support that solar needs to expand as fast as grid parity would otherwise dictate. In fact, in many countries grid parity and regulatory support are diametrically opposed, perhaps given that it’s cheaper to provide regulatory support – essentially a hollow promise when it comes to subsidies – when the economics are not viable enough for there to be much actual installation.
The report ultimately found that Italy, Germany and Mexico have the best combination of price parity and regulatory support for photovoltaic self-consumption, suggesting that it’s in those countries that we should see the most growth for commercial users.
The Works is made possible with the support of the Surdna Foundation.
Stephen J. Smith is a reporter based in New York. He has written about transportation, infrastructure and real estate for a variety of publications including New York Yimby, where he is currently an editor, Next City, City Lab and the New York Observer.