The economics of solar power are changing rapidly. And if the Prometheus Institute for Sustainable Development (PI) is right that solar module prices will fall more than 50% by 2012, grid parity will be achieved across many parts of the US. Solar electricity currently carries a price tag that is higher than most other power sources. But if electricity prices continue to rise as they have over the last eight years, the locked-in price of solar will fall below grid electricity over the life of the solar installation.
Prices Today Require Government Incentives
Solarbuzz.com estimates that May 2009 solar PV prices equal 36.88 cents, 26.68 cents, and 20.78 cents per kWh for residential, commercial, and industrial electricity, respectively. Thus, only the state of Hawaii (with its 25+ cents per kWh average has an electricity market where solar can compete with little supportive policy this year. But PI projects solar module prices to fall 25% in 2009, 19% in 2010, and more than 10% in both 2011 and 2012. This would translate into a locked-in price for solar electricity of around 20 cents, 15 cents, and 12 cents per kWh (assuming that installation costs would also fall, though around half the module price drop pace).
2012 Grid Parity in Almost Half the US
Huge electricity markets such as California, Texas, Florida, and New York will join Hawaii by 2012 as long as electricity prices keep rising (I use a price rise of 3.5% per year – much less than the 4.8% per year increase over the last eight years). Since there is state and federal policy supporting solar through the mid-2010s, private consumers already benefit from cost-effective solar in many of these states (Why else would Wal-Mart be deploying it?). And thanks to falling prices for solar, the amount of government support per kilowatt can be lowered as it becomes many times more effective at deploying solar.
Even if electricity prices only rise 1% per year (thanks to effective efficiency and low-cost wind power deployment), solar grid parity is poised to arrive during the mid-2010s.
A New Notion of Grid Parity
Since solar has a locked-in price due to a marginal cost close to zero as you harvest the free sun, grid parity is not when the price of solar is equal to the price of conventional fuels. I am saying that it is instead when the price of solar is equal to the expected price of conventional fuels halfway through the life of the panels. So grid parity in 2012 based on a price of 20 cents per kWh means that I expect the price of electricity in a given market will be at least 20 cents in 2024.
Why Should Fossil Fuel-Powered Electricity Prices Rise
A rising price for oil beyond $100 per barrel is likely due to the rising marginal cost of production. Such an increase would pressure natural gas prices to double back above $9 per MBtu and weigh bullishly on electricity prices. Along with the cost of carbon dioxide finally being internalized into the cost of burning fossil fuels, solar power’s relative price is set to collapse.
Bottom Line: This time of sustainable energy transition is an exciting period to be around for. Solar panels today are like cell phones in 1999. In just a few years, they will be ubiquitous. Passage of federal climate legislation is a crucial step we need to take soon, and then we can all reap the rewards from leading a low-carbon energy future — green jobs, energy security, lower electricity bills (while prices per kWh may rise, efficiency sends the per capita bill down), cleaner air, and a more stable climate.
I’ll keep you up-to-date as solar reaches grid parity in market after market like a set of slow-moving dominoes.