Do You Know What Grid Parity Is?

As renewables are entering the 2.0 phase, they no longer need governments support to grow. They have reached grid parity in many places. Until about five years ago, renewable energies, like solar and wind energy, were more expensive for electricity generation than existing conventional power plants, such as coal – or gas -fired plants, large hydro power plants or nuclear plants. Utilities saw little reason to buy this more expensive power and thus some governments decided that they would subsidize wind and solar in one way or another (tax credits, feed-in tariffs, capital subsidies…).

The argument was that wind and solar were new, niche technologies. They needed scale to become competitive. And besides, fossil fuels and nuclear power also received vast subsidies in most countries. And what is great about renewables is that they are clean, emission free and can generate power in every country, thus reducing the need to import fossil fuels. Call this renewables 1.0.

Renewables 2.0

And you know, what – for once this government scheme paid off wonderfully. Wind and solar grew very rapidly and costs came down even faster – by more than 70% in the past 10 years for both technologies.

At the same time, the cost of power from coal and gas has been rising because of the high cost of extraction, transportation and infrastructure construction. You see, here is one of the most beautiful things about renewables as opposed to non-renewable sources of power: the more renewables are used the cheaper the get, while the more coal and gas we use the more expensive it gets. And since the world will need ever more energy, renewables are the answer.

In India, since 2010, the price per unit of solar power has come down from seven times that of coal to just 1.5 times that of coal in 2014. Wind is already competitive with coal and both are competitive with more expensive gas-fired power plants. So, from the point of view of the utility, solar and wind power are no longer more expensive than other sources. In fact, they might soon be the cheapest and most preferred options. Result: governments no longer need to support renewables. They will grow by themselves. And the more they grow, the cheaper they get, so the more attractive they will be. It’s a virtuous cycle.

Balancing the grid

Yes, I hear you say, but wind and solar are intermittent sources of power, so the grid has to balance them. That is true. We will need to run our electricity grid differently when we have lot’s of wind and solar in mix. We will need precise generation forecasting, better demand management, and we will need power plants that can ramp up very quickly and step in, if there is no wind and no sunshine but people want to watch the India-Pakistan cricket match. Gas-fired power plants are well suited for that. Basically, our electricity system has to become “smarter”, more responsive and efficient. Not a bad thing it its own right.

However, it is important to know that we can ease into that. The grid can quite easily absorb up to 15% of intermittent power without significant additional investments or a change in the way it’s run. In India, that would be the equivalent of 150+ GW of wind and solar. Way to go, from the current 20 GW. Of course, it helps, if the generation sources are spread out across the country. In India, solar irradiation, for instance, is high throughout the entire country. (Bar perhaps, the town of Mawsynram, Meghalaya, which holds the Guinness Book of Records title for the most rainfall in a year.)


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Tobias Engelmeier
Tobias Engelmeier
Tobias Engelmeier is an entrepreneur and very passionate about the climate, sustainability, solar energy and India. He is a German Indophile. You can find out more about Tobias on and on LinkedIn. He is also active on Twitter (@TEngelmeier).
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