Grid Parity: Will We Run to the Shop?

Pat: “Did you hear the news today?”
 
Pete: “What news? You mean the neighbours' dog's pregnant?”
 
Pat: “No, darling, the news said grid parity's been reached.”
 
Pete: “Grid what? You mean they finally fixed the grid and got everybody connected? It's about time. I don't even know who lives at the end of our street. But on the other hand, having seen some of them, I don't even want to be connected.”
 
Pat: “No, darling. Maybe it's time you got connected to some of the new developments going on in the world instead of just watching football. For instance, I have my own followers now.”
 
Pete: “You mean that Scarface from across the street is chasing you again? Let's send our crazy cat to his garden!”
 
Pat: “No, honey, followers on Twitter. But that's something else. I'd better not even try to explain to you about people sending me messages... What I mean is new developments in the area of renewable energy. Particularly solar energy.”
 
Pete: “Solar energy in our country? You must be kidding! Every time I go to the football stadium I'm in my raincoat. And on top of getting soaking wet, most of the games are terrible anyway. And they invested all these sunny oil dollars in our team.”
 
Pat: “Honey, what I mean with grid parity is that the cost of solar energy is the same as we pay for our electricity right now.”
 
Pete: “Invest in solar? You must be kidding. I'd rather start with an investment for a bigger fridge, so we can cool more beers if my friends come over.”
 
Pat: “Darling, I think it's a great idea to produce green electricity from our own roof and still not pay more than the neighbours.”
 
Pete: “Yes, sure - fun! And every cloud will cut off the electricity so I miss the replay of the best goals - although lately those are the opponents' anyway, with all those well-overpaid foreign defenders from sunny countries...”
 
Pat: “Darling, really, you should follow the news some more. A grid-connected system means you won’t even notice where the electricity is coming from - the roof or the grid.”
 
Pete: “Great, so we invest and don’t even notice the difference?”
 
Pat: “Yes, but it will be green electricity. I think we should contribute to making the world a little greener.”
 
Pete: “Greener? I already agreed to eat a green salad with you every week. My lads say my hair's looking more green than grey. And you want to invest our little savings in this solar energy thing?”
 
Pat: “Yes, for only €5000 we can produce almost all our energy from the sun. And if you started by watching less football matches on TV - the ones you've already seen in the stadium anyway - we might even manage to produce our entire electricity consumption from our own roof.”
 
Pete: “And then save what?”
 
Pat: “Well, nothing at the beginning. But with electricity prices going up, we'll be saving money in a few years.” 

Pete: “Who says electricity prices will go up? Politicians? Huh, they promise too much anyway... So, to show you I'm not as negative as you think I am, let me try to understand you... You are intending to mount some ugly green energy panels on our precious nice grey roof to produce solar electricity, and in the next 15 years we might be able to save €30 per year if this solar stuff is €0,01 cheaper per kilowatt-something than what we currently pay to these utility thieves? And for this great news we only have to pay €5000...? We'd be better off growing green salad on our roof to save money! I should have known this green salad would affect your brain...”
 
Pat: “Darling, now you're exaggerating a little. We can contribute to a better world and save some money in the next 15 years. Don’t you think that's a nice thought?”
 
Pete: “Let’s keep it as a thought. I think we'd better wait till we can actually make some real money with these green hobbies of yours...”

The solar energy bubble is good for everybody

Solar module prices have dropped an astonishing 40% in 2011 alone. This is the result of an exploded solar industry where oversupply is now leading to a consolidation phase, including strong competition. This enormous growth of mainly the Chinese PV industry is a result of generous feed-in tariffs for market development in mainly European countries.
On the other side, grants and other incentives for industrial development in China, the USA and Europe contributed to this as well. Both are now leading to what seems to be a solar industry bubble. Bad news never comes alone... In addition to an oversupply, the leading markets are currently facing financial headwinds as well. This means less money available for incentives and project financing. Where and how to sell your products? It all leads to rapidly declining module and system prices.

That sounds like great news, because the sooner we reach grid parity and get rid of subsidies, the sooner we can start exploring the infinite market potential of competitive solar energy. Next year, the solar energy produced by households will be cheaper than electricity from the grid in the world’s biggest markets, Germany and Italy. With solar energy expected to get cheaper, and dirty grid electricity more expensive, the future for solar energy indeed looks bright.

Nevertheless, not everybody seems happy with the current situation. Claiming unfair competition, some industries and politicians are urging for barriers to be imposed on imports of cheap (Chinese) modules, and extra incentives for domestic products.
But, shouldn’t we be happy that Chinese manufacturers are producing such cheap modules? After all, isn’t this what we want? Wasn’t this the original plan and goal: to make solar PV competitive, so that financial (government) support for market development would no longer be needed?

Indeed, Europe has heavily sponsored market development, which has enabled foreign manufacturers to emerge and grow. And, yes, (Chinese) companies have benefited from tax holidays, free land and free infrastructure development, investment subsidies, cheap loans and cheap energy. As such, they have been able to produce at lower cost. Seems unfair? Europe and the USA have seen local industry development stimulated, too. Not surprisingly, most German manufacturing is taking place within the former Eastern German territory. Grants and capital incentives have been made available to build industries and create jobs.
If the Chinese local and central government had not financially supported solar industry development, today's solar modules would have been more expensive. Subsequently, yearly market demand would have been much smaller and grid parity further away. Thus, incentives would have been needed for a longer period.

But this is not the case, because the world is flat – as Thomas Friedman wrote in his book. You can’t stop industrial development in Asia. Because we want everything to be cheap – not only solar modules. From socks, to kitchen equipment, from chemicals, to cars. All US Walmart and European stores are fully packed with products manufactured in China. I bet even a lot of politicians shouting about local solar industry protection are using an iPhone produced in China and watching an Asian flat-screen television at home – and might even be wearing European-labelled underwear produced in China.... Why should solar modules be the exception?

Isn’t it great that the Chinese central and local governments supported the development of their solar industry? Europe and the USA subsidised the market, China subsidised the industry – and in the end we are both benefiting. China has invested a lot of money to build an enormous solar industry. Western solar equipment manufacturers benefited greatly. And Western investors supported the stock-listed Chinese solar manufacturers in New York. Lots of US and European capital is used to build the Chinese module giants, and dividends are flowing back to Western investors.

Now we are facing a solar industry bubble. And in this consolidation phase, only the strongest companies will survive: manufacturers able to cope with reduced feed-in tariffs and able to emerge in markets without any incentives; the strong ones, highly automated with Western equipment, able to produce at the lowest costs, with thin profit margins. Good news for customers and politicians longing for cheap solar energy and market development without costly incentives....

The low costs upstream, with the Chinese solar products (from silicon to modules), mean that Europe and all other markets will be able to achieve grid parity sooner – giving us a future with an abundance of downstream solar business opportunities in local markets, and room for new business models invented by local financial engineers; new local building products with cheap solar cells integrated, and lots of installation work for local electrical installers. We are almost at the point we want to be: low-cost solar energy and a sustainable infinite market. We all want and need cheap (solar) energy – and the sooner, the better. The world is flat. Solar modules are flat. But we don’t want a flat market.