Grid Parity: Solar Energy Tipping Point in Europe?

by Olivier Benny

Grid Parity in the Solar Context

Grid parity is defined as the stage at which governments no longer need to subsidize an innovative concept since it has become cost-competitive enough to thrive on its own. In the energy context, fossil fuels are a great example of an innovation that has long received, and continues to benefit from, subsidies from governments around the world. For solar energy to become truly competitive, the price of solar-generated electricity needs to be equal to or lower than the current retail electricity price. Some European nations, notably Spain, Germany, and Italy, have already achieved commercial solar grid parity. This means the levelized cost of energy (LCOE) for self-consumed commercial solar in these jurisdictions is competitive with retail electricity prices.

Overcoming Regional Market Challenges

For the better part of two decades, eight of the world’s top ten solar companies were based in Germany. By 2012, however, China had overtaken Europe across multiple metrics, including total solar power installed, gross output in manufacturing across the value chain, and contribution to solar technology research and development. This important market shift occurred despite the implementation of strict import controls on Chinese solar panels, as high as 64.9%, designed to protect the quickly diminishing European advantage over China in the solar manufacturing space.

Brighter Days on the Horizon

While Europe may no longer be the center of PV manufacturing it once was, the continent has transitioned towards a new, exciting phase of solar integration. Emerging European markets such as Turkey – which contributed most to total solar installations in Europe with 1.79 GW in 2017 – have experienced exceptional growth in recent years, while mature markets like Germany and Spain have turned their focus towards optimizing the economic environment for solar energy to reach grid parity. Recent notable EU market developments include:

EU clean energy package legislation, which will allow EU citizens to produce, consume, sell and store renewable energy.

Robust private sector investment, with a dozen unsubsidized european projects set for completion by the end of 2018.

Power Purchase Agreements (PPA), a proven U.S. financing approach that’s quickly becoming the norm in Europe. PPA’s involve the sale of electricity to corporations for fixed, lengthy terms to provide an important revenue stream to solar project developers, who could previously only rely on the leasing and sale of solar panels for income.

The growing affordability of Energy Storage Systems (ESS), which is contributing to lowering the capital requirements for Solar PV projects, improving overall grid stability, and delivering more consistent energy output with fewer interruptions.

Europe is well-positioned to become the next investment hotbed for solar PV projects. Private, rather than public, capital investments combined with healthy returns on PPAs, is likely to boost investor confidence and drive the pursuit of large-scale renewable energy projects across Europe. And as solar assets become more profitable over time, all eyes will be on the asset owners with the healthiest solar portfolios in Europe.

For over a decade, Targray PV material solutions have played an important part in making solar a competitive alternative to traditional energy sources. The company’s value-added solar modules, solar cells, and supply chain financing programs help PV manufacturers, EPCs, and solar project developers worldwide lower the cost-per-watt their solar energy solutions can deliver to end-users.
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