The Fight For A New Electrical Grid Parity

Talk to any energy, clean-tech CEO about what keeps them up at night and I'll bet he/she'll talk about the need to reach Grid Parity at some point. Grid Parity is the averaged cost energy producers pay to produce electricity, which as of late, tends to hover around $1/Kwh. Said CEO would, I'm sure, share anxious optimism over possibly bringing his/her respective energy technology to market at a rate that is competitive with base-load, cheap traditional fuels (i.e. "Big 4"; coal, natural gas, nuclear, hydro). Some of these company leaders are giddy their technology will be the first renewable to get the Grid Parity news headlines because it's just inherently awesome. Others with more subdued commercial egos might discuss renewable technologies and Grid Parity only being becoming a marketplace reality via government intervention. This discussion of risk tends to be the thorn in the side of all game-changing renewables as they try to scale-up and commercialize. So what's the best way to help these CEO's sleep and get their new-tech energy products to market at economically competitive rates… Grid Parity rates?


Rapid technology advances, consumer behavior changes, and a renewed entrepreneurial focus have brought technologies like PV into the realm of competition with the Big 4, though they remain mostly niche, premium products. As we know, these products must be made 'un-premium' quickly. (Commenting on why these products, such as photovoltaics, must come to market is beyond this posts intent.) The shift must be made more quickly than the market's free hand currently directs, thus outside help is needed. This help began at the State government level in the early part of this decade as Legislatures adopted Renewable Portfolio Standards (RPS) directing energy producers to source a certain percentage of their juice from renewables. Cheers came from many, loud yelling by a select few, but overall a big move for renewables like PV. But many people know the mighty USA still sits behind many European and Asian countries on these measures. What are they using? Is it that usual European 'heavy-tax' method or is it something smarter?


Feed-in-tariffs are the crown jewel of over 50 countries renewable energy marketplaces. The tariff is based on the leveled cost of electricity production amongst the industry and is paid by energy producers to many independent producers, which is very common through Power Purchase Agreements (PPA). However, these payment rates decrease over time. Their intent being to cover the cost and associated risk facing firms who want to bring energy technologies to market. It incentivizes these firms to then reduce their own costs to compete rather than allow commercial apathy. Apathetic firms are eliminated via the Free Hand as seen in the modern leader of FITs; Germany. Germany's policy success is so noted that it has every PV firm beating down its door to set-up world class manufacturing facilities there, much to the dismay of U.S. policy-makers.


Futurists here in the U.S. might wonder the difference between RPS and FIT policies. The important difference to note between these similar sounding policies is that a RPS mandates a certain percentage of power be purchased from renewables and is meant to curb greenhouse gasses. FIT are engines of encouragement in that they help subdue the heavy commercialization risks of these industries and provide a predictable regulatory and economic backdrop so PV can have the chance to scale and reach Grid Parity. These are complimentary policies for any nation seeking the benefits of ditching the Big 4.


A Final Dash of Salt...
Once FITs were used to help encourage the immature, but manageably risky renewables such as Wind, leaving the too-risky out (i.e. geo-thermal, PV, etc.). Now PV is close enough to hit the big time with the help of FIT and CEOs in the industry know it. They know Grid Parity could be quickly reached and even lowered by their new energy technologies such as PV. Imagine a day when you can buy a Do-It-Yourself PV system for $2,000 and be on your way to payback-day in a few years. This is the power of RPS, FIT, and a new Grid Parity.

http://www.nrel.gov/docs/fy09osti/45549.pdf