Grid parity – who cares?
The Holy Grail of photovoltaics is grid parity. Why?
Over the past three installments in this series, we have discussed the German policy of "own consumption." Most German publications are fairly neutral about this option; after all, if own consumption provides a better return than feed-in tariffs (FITs), why should we oppose the policy? Berlin’s Solarpraxis, for instance, has published a number of articles simply explaining how own consumption works and providing sample calculations of payback. But one critic was given two pages to argue why the policy is a bad idea.
Susanne Jung, a German solar energy expert, wrote in Solarpraxis’ photovoltaik (issue 04/2010) that a growing number of investors will try to tailor the size of their PV array to their personal consumption, common practice in net-metering but heretofore unknown in Germany (see the same conclusion in SolarServer’s presentation of Centrosolar’s CENPAC). "As a result, not all of the available roof area will be used, which is bad for the growth of solar energy," she explains, later adding that own consumption "is macroeconomically a mistake because it shifts more power consumption into the middle of the day." The German edition of Photon magazine agrees, adding that it sees own consumption as a breach of the contract behind FITs. Is this criticism justified?
As Heiko Stubner, a research aide in the Bundestag, told me last winter, own consumption “was basically drawn up in anticipation of future grid parity as a sort of transitional mechanism.” Apparently, solar proponents in Germany seem to think it would be unfair to pay less than the retail rate for solar power regardless of what solar power costs even though the retail rate is not part of the equation behind FITs today. As Fraunhofer ISE’s Eike Weber told me last year, “Once the feed-in rate has fallen below the retail rate, people will simply cover their own consumption first and then get the feed-in rate for excess production.”
On a number of levels, such assumptions make little sense. For instance, many people -- including Stubner and Weber -- seem to assume that grid parity is somehow the goal for FITs, when actually they can only be the goal for solar FITs because all other FITs (wind, geothermal, and biomass) are already below the retail rate. It therefore makes little sense for the Wikipedia entry about feed-in tariffs to claim that FITs are “methodologically based on the cost of renewable energy generation and tend towards grid parity.” If the tariffs for wind and biomass tended towards grid parity, they would have to rise, not fall.
"But wait, Mister Morris," you may wish to interject at this point, "wind turbines and biomass plants are not connected to domestic power meters -- in fact, wind turbines in particular are generally connected to medium-voltage lines." You would be right. But you also would be forgetting a number of things:
- An FIT for small wind generators was added in 2009 when Germany first adopted own consumption, but nonetheless own consumption only applied to photovoltaics. By the logic above, this is a double standard.
- The ceiling for own consumption has been raised to 500 kilowatts as of July 1, 2010, which would accommodate a number of wind turbines, such as Enercon’s 330 kW E-33 machine. If every business in Germany could get the rate for own consumption rather than the 5 to 9 cents currently offered for wind turbines of that size, these things would pay for themselves everywhere.
- The same holds true now for biomass units up to 500 kW -- why on earth should grid parity not apply to them when they can actually be switched on and off as need be? -- but the situation is actually worse here because small biomass cogen units of a size people can install in their basements have been on the market for quite a while. Admittedly, the smallest category of biomass units in German law is up to 150 kW (compared to 30 kW for photovoltaics), but household micro CHP units (such as WhisperGen, which basically fits in a kitchen like a dishwasher) are now on sale in Germany.
Parity with what?
Why should the retail rate apply as the point of parity for solar arrays connected to the grid? In Germany, grid fees make up a quarter of the retail rate (see chart), and as we saw in the previous installment in this series 40-percent own consumption would be quite an achievement in Germany. In other words, solar homeowners will still be getting 60 percent of their power from the grid. In April, Uwe Leprich, cofounder of the Institute for Future Energy Systems (IZES), stated in an interview with photovoltaik (issue 04/2010, p. 91) that it is "not fair" for solar array owners not to have to pay the grid fee. "After all, the grid has to be available for them when the sun is not shining. So we should probably start thinking about a new way of allocating costs and charging grid fees. It might even be a good idea to charge higher monthly rates for grid connections."
Image: The composition of retail electricity rates in Germany. Source: Wikipedia.de
And then there is the 16 percent fee that municipalities collect when sidewalks, etc. have to be busted up to lay or repair power lines. Question: why should grid-connected solar arrays not be involved in that? Answer: no good reason, really.
So roughly 40 percent of the retail rate – 25 percent grid fee plus 16 percent community fee – would still apply for solar arrays connected to the grid. Given the current German retail rate of around 21 cents, photovoltaics would have to fall to around 13 cents in Germany to reach grid parity if it is defined as the retail rate minus 40 percent. The FIT for small rooftop arrays as of July 1 is around 32 cents, so we have a long way to go depending on what we mean by grid parity.
In the next installment, we will talk about why FITs actually need to be kept after parity with the retail rate has been reached.