The media has often pursued the narrative that wind and solar energy have reached grid parity – meaning the cost of electricity sourced from these renewable technologies is as cheap or cheaper than traditional electricity from the grid. However, a recent article published by Forbes writes that this is misleading – there are a number of definitions that can be used to reach the conclusion of “grid parity,” making the metric less reliable.
Location is another problem with describing these renewable sources as having reached parity. There is a wide discrepancy in cost from region to region; where rooftop solar panels may cost less than using grid energy in one state, it may be three times more expensive in another. In most locations, fossil fuels remain the cheapest option for electricity. In fact, some have gone so far as to suggest that the idea of any type of cost comparison between renewables and fossil fuels is a myth.
The aforementioned Forbes article discusses the many definitions used to describe grid parity. Herein lies the problem. There is subsidized retail cost, which is the most meaningful cost of an individual considering investing in renewables. This typically is not the cheapest number to slap onto renewables, but it becomes attractive when subsidies are accounted for. Then, some sources will use unsubsidized cost at the plant, which does not include subsidies or tax benefits. Rather, it measures the out of pocket cost at the manufacturing facility – again not necessarily the cheapest across all fronts. Third is the unsubsidized retail cost, which is the life cycle cost of generating energy with the renewable in question. Again, just because a technology has reached unsubsidized retail parity does not mean it is the cheapest way to generate energy. Finally is all-in wholesale cost. This is the levelized cost, which includes cost of storage, modifications, backup generation, and so on. These are influential costs that should not be ignored, however, it is often difficult to estimate these costs, as they vary so much.
The two most commonly used costs that are applied to renewables comes from the Energy Information Administration, and investment firm Lazard. Earl J. Ritchie, the retired energy executive who is writing for Forbes, believes that these costs are misleading. Neither include intermittency costs, and chose to include the imputed cost of environmental damage. These numbers are reached using a wide variety of assumptions. The two estimates are not identical, however. The US EIA computes its estimates based on expected technological advancements, which again are unreliable estimates. Lazard, however, computes its numbers based on the “current state” of technology.
Analysts and critics alike frequently cite the methods used by Lazard and the EIA to reach their numbers, implying that wind and solar are not at all at grid parity. They would say that the averages are meaningless due to the discrepancies in local variation, and the various types of cost that are either accounted for or ignored completely.
Consistently, in a sampling of four countries (U.S., U.K., Korea, and France) conducted by the World Nuclear Association, natural gas and coal presented the cheapest options, while wind and solar presented the most expensive. Onshore wind was consistently the cheapest renewable option, which is in line with EIA and Lazard estimates. This raises the question: why subsidize solar (one of the most consistently expensive options) when onshore wind is much cheaper? Some figures show a 2-to-1 difference in cost between solar power and onshore wind, yet solar is the renewable most frequently subsidized.
Detractors will also be quick to point out that grid parity simply is not enough to justify the full-fledged transition of renewables. Surveys have been conducted on potential consumers of renewable energy concerning the cost of these sources. The results shows that significant cost margins are necessary for consumers to justify transitioning – price parity it not enough; consumers want cheaper still. At current margins (parity), adoption rates are low.
In the past, renewable energy proponents have claimed that when parity is reached, demand for renewable energy sources will spike. This has not happened. The rapid growth that the industry has seen is the result of subsidies, mandates, and tax credits.
