Reaching Grid Parity: The Hidden Value of Solar Power

Although most of us perceive solar to be more sustainable than conventional sources such as coal or gas, traditional analysis methods rarely consider the full value that solar generation provides. As a result, economically viable solar power generation that achieves apparent parity with conventional energy sources¹  – commonly referred to as “grid parity” – can seem an elusive goal. By taking a closer look at all the economic benefits of solar generation, however, it’s clear that grid parity is within reach. 

 

Let’s start by looking at just one of the many hidden benefits of solar generation. Solar power generation often coincides with peak demand periods, providing substantial value by generating power when it’s needed most. Take for example the August 2003 blackout in the Northeast. Not surprisingly, demand for power peaked during the day when temperatures were at their warmest and air conditioners were working their hardest. Solar generation is ideally suited to mitigating these peak conditions as the sun fuels both the heat wave and solar power generation. In this case, as little as 500 MW of solar PV installations dispersed throughout the region could have averted the outage.

 

One reason PV value is largely unrecognized is that it is usually defined solely in terms of the investment return it provides the owner of a system. That leaves out the value solar generation provides to utilities and ratepayers who purchase power, as well as taxpayers who have contributed to the installation of new PV systems via incentives and to society in general. Recently, I undertook the task of analyzing  the value of solar power generation to all constituencies in a particular area – in this case New York State – and demonstrated that solar generation can indeed reach grid parity.

 

So what are these hidden benefits? For utilities and ratepayers, benefits come in the form of reduced costs associated with obtaining power, whether it’s from the wholesale market or through increased power generation capacity needed to meet peak demand. In addition, because PV systems can be spread across a distribution system, power loss through long-distance transmission and wear-and-tear of feeder equipment such as transformers is reduced. PV generation also can act as a price hedge to volatile commodity prices for electricity. 

 

Taxpayers and the society at large also realize tangible benefits. Solar generation improves grid security by reducing the chances of power outages. Going back to the 2003 Northeast blackout example, a $3 billion investment in PV could have prevented the outage, which is estimated to have cost $8 billion. Solar generation also benefits the environment and public health through reduced pollution, and it employs more people than conventional energy production, creating jobs.
 
As Figure 1 shows, by quantifying these benefits for the State of New York, we estimated the combined value of distributed solar generation to the state’s rate and taxpayers to be in the range of 15 to 41 cents per kWh. Since the unsubsidized cost of PV is in the order of 20 to 30 cents in New York, the effective grid parity gap is essentially bridged in this state, and likely in several others as well. This a fundamentally different conclusion than arrived at when applying the traditional grid parity definition without any context, comparing unsubsidized PV to least-cost (gas) generation at 6 to 8 cents/kWh – let alone coal at 4 cents per kWh – and showing a large apparent solar grid parity gap.