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Grid Parity

Grid parity, the point at which the cost of photovoltaic electricity is equal to or cheaper than the price of grid power, is more easily achieved in areas with abundant sun and high costs for electricity such as in California and Japan. In 2008, The levelized cost of electricity for solar PV was $0.25/kWh or less in most of the OECD countries. By late 2011, the fully loaded cost was predicted to fall below $0.15/kWh for most of the OECD and to reach $0.10/kWh in sunnier regions. These cost levels are driving three emerging trends: vertical integration of the supply chain, origination of power purchase agreements (PPAs) by solar power companies, and unexpected risk for traditional power generation companies, grid operators and wind turbine manufacturers.

Grid parity was first reached in Spain in 2013, Hawaii and other islands that otherwise use fossil fuel (diesel fuel) to produce electricity, and most of the US is expected to reach grid parity by 2015.

In 2007, General Electric’s Chief Engineer predicted grid parity without subsidies in sunny parts of the United States by around 2015; other companies predicted an earlier date: the cost of solar power will be below grid parity for more than half of residential customers and 10% of commercial customers in the OECD, as long as grid electricity prices do not decrease through 2010.

Productivity by Location

The productivity of solar power in a region depends on solar irradiance, which varies through the day and is influenced by latitude and climate.

The locations with highest annual solar irradiance lie in the arid tropics and subtropics. Deserts lying in low latitudes usually have few clouds, and can receive sunshine for more than ten hours a day. These hot deserts form the Global Sun Belt circling the world. This belt consists of extensive swathes of land in Northern Africa, Southern Africa, Southwest Asia, Middle East, and Australia, as well as the much smaller deserts of North and South America. Africa’s eastern Sahara Desert, also known as the Libyan Desert, has been observed to be the sunniest place on Earth according to NASA.

Different measurements of solar irradiance (direct normal irradiance, global horizontal irradiance) are mapped below :


North America


South America




Africa and Middle East


South and South-East Asia





Self Consumption

In cases of self consumption of the solar energy, the payback time is calculated based on how much electricity is not purchased from the grid. For example, in Germany, with electricity prices of 0.25 €/kWh and insolation of 900 kWh/kW, one kWp will save €225 per year, and with an installation cost of 1700 €/KWp the system cost will be returned in less than seven years. However, in many cases, the patterns of generation and consumption do not coincide, and some or all of the energy is fed back into the grid. The electricity is sold, and at other times when energy is taken from the grid, electricity is bought. The relative costs and prices obtained affect the economics. In many markets, the price paid for sold PV electricity is significantly lower than the price of bought electricity, which incentivizes self consumption. Moreover, separate self consumption incentives have been used in e.g. Germany and Italy. Grid interaction regulation has also included limitations of grid feed-in in some regions in Germany with high amounts of installed PV capacity. By increasing self consumption, the grid feed-in can be limited without curtailment, which wastes electricity.

A good match between generation and consumption is key for high self consumption, and should be considered when deciding where to install solar power and how to dimension the installation. The match can be improved with batteries or controllable electricity consumption. However, batteries are expensive and profitability may require provision of other services from them besides self consumption increase. Hot water storage tanks with electric heating with heat pumps or resistance heaters can provide low-cost storage for self consumption of solar power. Shiftable loads, such as dishwashers, tumble dryers and washing machines, can provide controllable consumption with only a limited effect on the users, but their effect on self consumption of solar power may be limited.

Energy Pricing and Incentives

The political purpose of incentive policies for PV is to facilitate an initial small-scale deployment to begin to grow the industry, even where the cost of PV is significantly above grid parity, to allow the industry to achieve the economies of scale necessary to reach grid parity. The policies are implemented to promote national energy independence, high tech job creation and reduction of CO2 emissions. Three incentive mechanisms are often used in combination as investment subsidies: the authorities refund part of the cost of installation of the system, the electricity utility buys PV electricity from the producer under a multiyear contract at a guaranteed rate, and Solar Renewable Energy Certificates (SRECs)


With investment subsidies, the financial burden falls upon the taxpayer, while with feed-in tariffs the extra cost is distributed across the utilities’ customer bases. While the investment subsidy may be simpler to administer, the main argument in favour of feed-in tariffs is the encouragement of quality. Investment subsidies are paid out as a function of the nameplate capacity of the installed system and are independent of its actual power yield over time, thus rewarding the overstatement of power and tolerating poor durability and maintenance. Some electric companies offer rebates to their customers, such as Austin Energy in Texas, which offers $2.50/watt installed up to $15,000.

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