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Solar lays hands on Holy Grail

Industry claims Australian PV electricity now at ‘grid parity’

While the solar industry continues its campaign against the new NSW state government, which in its first budget cut back further on subsidies to solar installations, another landmark event has passed with much less notice: various experts and analysts now put PV power cost at parity with the cost of buying electricity from the grid.

The claim has been quietly emerging for a few weeks now. The Sydney Morning Herald said so in this piece, and yesterday Business Spectator attributed the same claim to Muriel Watt, chair of the Australian Photovoltaic Association.

Ms Watt told the Ecogen 2011 conference in Brisbane that the unsubsidized cost of solar is now at $1.22 per Watt, which equates to 25c / kWh. That’s low enough, at least in some service areas, to make the whole-of-life cost of solar cheaper than buying your electricity from the grid.

She acknowledged that the price falls reflect the impact of subsidies provided to the industry in recent years, which created demand sufficient that Australian customers got the benefit of economies of scale (a rising dollar hasn’t hurt, either); and Australia’s climate, which delivers more watt-hours per dollar spent than in many parts of the world.

At the same time, energy network costs have been soaring, attributed by politicians to a carbon tax that doesn’t yet exist, but by industry analysts to catch-up investment required to update transmission infrastructure.

Comment: “Parity” depends, of course, on your assumptions. When the Herald published its story in August, I got in touch with Professor Andrew Blakers of the Australian National University’s Centre for Sustainable Energy Systems. Not only was Professor Blakers the source for the Herald’s report, he kindly provided me with a copy of the data model on which that ‘grid parity’ claim is based.

Professor Blakers’ model provides a great illustration of the complexity that lies behind a statement that PV is at grid parity. The claim depends on an estimate of the unsubsidized system cost (which we can assume the industry understands); where you want to install the system; the discount rate you apply to the capital required; system efficiency; and the likely impact of carbon pricing in Australia.

For example, a system in Hobart is not yet at grid parity because it has fewer hours of sunlight per year than Sydney; other cities aren’t at grid parity because their electricity is cheaper than in Sydney.

But the big assumption in Ms Watts’ speech is that systems are at parity over a 25-year system life.

This is reasonable and defensible in terms of how long a PV system can be expected to function, but it may not reflect how long a customer might actually own a system, because of the frequency with which Australians move house.

On the upside, Professor Blakers’ model suggests Sydney (for example) has reached parity on a system life assumption somewhere between 18 and 19 years (if I’m interpreting it correctly).

All of this would suggest that there’s no need for subsidy: the industry could now compete on its own.

However, there is still the issue of up-front capital. It takes a big chunk of lettuce to put solar panels on the roof – and that suggests that some kind of funding model is needed to help overcome sticker-shock (whether that comes from the industry looking at vendor-finance models or the government supporting the capital outlay).

But the big opportunity for the solar industry is in its pitch to industry: there’s lots of spare roof space in industrial parks all over the country; businesses – particularly property owners – have a better idea about how to access capital than householders; and a 25-year system life is similar to the investment life of the property that the system will sit on. ®

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