Examining Grid Parity Within the Energy Industry
Grid parity has become a hot topic lately in the energy industry and general media. A 2016 by GTM Research predicted that 42 U.S. states would reach grid parity by 2020. With only a few months left before the end of 2019, how close are we to actually reaching this milestone? The answer is: it depends.
What is Grid Parity?
Grid parity refers to the point where the cost to produce and purchase renewable energy outweighs the cost to produce and purchase fossil fuels. Where parity is reached, customers pay less for renewable energy and will, therefore (theoretically) opt-out of fossil fuels in favor of the cheaper alternative.
How Close Are We to Achieving Grid Parity?
The cost of renewable energy vs fossil fuels is driven by many factors:
1. Resource Availability to Produce Renewable Energy in an Area
Some parts of the United States are simply made for wind or solar energy generation. Sunny Arizona, for example, may reach parity for solar much faster than cloudy Seattle. The windy Midwest will likely reach grid parity for wind generation faster than the relatively calm Southeast. For renewable energy to make sense for the market, there has to be an ample, consistent supply of the inputs necessary to generate power.
2. Infrastructure Installation and Maintenance Costs
The cost to build solar and wind generation varies greatly from region to region and is heavily influenced by whether or not a provider can take advantage of government subsidies. Without , grid parity may not be reached in certain areas of the United States for another 10-15 years unless there are significant improvements in renewable technology that can reduce costs and improve efficiency.
3. The Cost of Electricity in an Area
Electricity prices vary greatly from region to region. Some parts of the country pay per kilowatt hour than others. All else being equal, these areas will achieve grid parity faster than areas where electricity produced by fossil fuels is relatively cheap.
Cheap fossil fuel, though, may be a thing of the past in the next few years. A by Deloitte predicts that natural gas prices will rise in the coming years as supply and demand level out. If this comes to pass, the cost of renewables could become far more competitive relative to the cost of fossil fuels.
When all the above factors are taken into account, some areas of the U.S. are closer to achieving grid parity than others. Whether this is an achievable goal by next year, however, remains to be seen.