The Real Story Behind the Concept of Grid Parity and Why It Relates to Diesel Generators

There’s been a decade of talk about if solar (or wind) has reached grid parity. And now, with the increased use of batteries and storage, the question becomes more relevant, as renewables can supply electricity beyond the generation time. But really, the concept of grid parity is based on the calculation of levelized cost of electricity (LCOE), which, when given the suitable parameter inputs, gives a value for PV of about $0.12/kWh.

So then, the claim is that solar has already hit grid parity. But where’s the explosion in demand? The reality is that with solar you are paying your electricity bill up front. You pay for the equipment and installation and then sit back for 20 years and reap the benefits. But this isn’t a grid parity condition, because you need to pay funds up front, and you want power in the evening, on cloudy days, and you need it when you want it.

The real measure of grid parity is: when does the hardware cost of solar, or some combination with storage, become equal to the cost of a diesel generator, which gives you 24/7 supply. We’ve been involved in numerous projects where there are cost considerations of solar/storage that go up against the “standard” power generating elements, namely diesel gen-sets. Consequently, we’ve developed a more pragmatic view of what goes into the considerations for powering up projects, and to when a client sees themselves at grid-parity so that they're willing to write a check for PV.

Remember, in the beginning (50 years ago), solar was used in off-grid applications. Those uses typically needed a power supply that could be relied upon and where cost wasn’t the overriding consideration. If cost mattered, it would be compared with how much to truck in diesel for a gen-set. Now, we are coming close to a new inflection point, where the real grid-parity happens.

Will the costs of solar or solar/storage start to approach diesel for typical uses? In very round numbers the up-front cost of a diesel generator is about $0.50/W to get the hardware. And the most recent costs, for the cost of PV is starting to tilt towards $0.25/W for the panels, and maybe the equal amount for the BOS.

The bottom line is that a solar installation at $0.50/W is now approaching the cost of the diesel installation at $0.50/W. Now all the cost calculations of saved fuel costs down the line can be applied. Indeed, the displaced costs of saved diesel fuel make the argument for PV even more compelling. There is a minor detail about costs of storage, but we’ll save that for another day.

This my friends, is the beginning of the revolution. Long live grid parity.