Journey to grid parity
Three converging forces provide a tailwind for US renewable power
In the US, the debate about when renewable energy will achieve “grid parity,” or the ability to compete on equal footing with conventional sources of generation, generally assumes the continuation of at least some state and federal subsidies for wind power and utility-scale solar photovoltaics (PV). This analysis takes a different tack, purposefully excluding subsidies from the assessment of grid parity in order to provide a different, and perhaps more relevant, perspective on the competitiveness of the renewable energy sector.
Achieving grid parity without federal and state subsidies
At present, many states and countries provide targeted and sometimes significant incentive schemes to engender new renewable energy project development. In the US, these are chiefly in the form of the federal production tax credit (PTC) for wind, which currently provides a 2.3 cents per kilowatt hour subsidy over the initial 10 project years to eligible technologies; the federal investment tax credit (ITC) for solar, which presently provides a 30 percent tax credit for solar generators; or tradable renewable energy credits or certificates, which provide a stream of additional income to developers as part of some state-sponsored renewable portfolio standards programs. Additionally, many states offer other programs such as job credits, research and development incentives, and sales and use and/or property tax exemptions for renewable property.
This analysis, which uses four different models, along with power price projections from Deloitte MarketPoint’s North American Integrated Market Reference Case outlook, investigates six wind and six solar US market regions—all of which have active renewable energy project development or a large installed base of generation capacity.
When will wind and solar be competitive with conventional sources of generation?
This report examines the timing and conditions necessary for onshore wind and utility-scale solar PV to compete with conventional sources of generation on their own, or achieve “grid parity,” without federal or state subsidies.
Key findings include:
- Renewable power generation reaching grid parity without federal or state subsidies is not imminent, except in certain markets possessing the most robust renewable resources and having relatively high wholesale power market prices. Indeed, without dramatic cost declines and improvements in efficiency and utilization, it is unlikely that some parts of the US can reach grid parity without federal or state incentives within the next 10–15 years.
- Onshore wind is more likely to reach grid parity before utility-scale solar PV, under a wide range of assumptions.
- While it is widely accepted that the continuation of the federal PTC for wind and the federal ITC for solar would allow the renewable generation sector to reach grid parity faster, the extent of the acceleration—by as much as a decade—is more pronounced than one might expect.
- Lowering the cost of capital—by adding project-level debt at the outset of the project for instance—advances grid parity timing by around five years across most markets for onshore wind and solar PV.
- Three trends are converging, which are collectively pushing renewable energy development forward: forecasted rising natural gas prices, wholesale power market rebalancing, and ongoing improvements in renewable technology. Whether or not these trends continue and to what degree will affect the timing of grid parity.
- While there are many uncertainties, the pace of innovation across technology, processes, and financing is the big wild card. While it is difficult to include in an economic modeling exercise such as this, innovation should be acknowledged as a factor that could shorten the journey to grid parity to a great extent.
This study was performed by Deloitte MarketPoint. Download the report to dive deeper into the analysis and findings.
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Deloitte MarketPoint LLC
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US Alternative Energy Leader, Principal
Deloitte Transactions and Business Analytics LLP
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