Solar Grid Parity Is Here

It's a moment solar investors, boosters, and tree huggers everywhere have been waiting for. But it doesn't come with a Champagne toast or a ribbon cut by a giant scissors. Instead the all-important grid parity for solar power has greeted us with falling stock prices, bankruptcies, and more than a few skeptical looks. But don't let those fool you -- solar is becoming a major factor in energy.

According to a recent study done by Queen's University and Michigan Technological University, we've passed grid parity in many locations. The study also says that quality improvements and more time in the field mean that models should more aggressively account for degradation and predicted cash flows. Until now, models have been fairly conservative on these two counts.

What that may end up doing is lowering borrowing costs for installing solar to better align with traditional energy sources.

Times are changing
The bigger game changer from a financing perspective may have come earlier this week when Warren Buffett made a big bet on solar. Banks haven't exactly opened their wallets at dirt cheap rates, but if they lower borrowing costs, the levelized cost of energy comes down. Maybe Buffett and meeting grid parity will convince them to do that.

What it means for investors
Progress toward grid parity has come at a fast rate as prices for solar modules decrease and costs for modules, borrowing, and balance of system costs fall along with them. If we have indeed reached grid parity, a nearly endless supply of demand should open up for the industry. Residential solar will be cost-effective for homeowners, and utilities will see solar as a low-cost source of energy. Industry leaders SunPower (Nasdaq: SPWR  ) and First Solar (Nasdaq: FSLR  ) look to be winners, along with top-tier Chinese manufacturers Trina Solar (NYSE: TSL  ) , Yingli Green Energy (NYSE: YGE  ) , and Suntech Power (NYSE: STP  ) .

But this doesn't mean that demand will pick up immediately. Grid parity is still a squishy concept, and the energy industry isn't quick to change the way it does business. But I'll take progress toward the ultimate goal of solar being the lowest-cost source of energy and a growing part of our energy future.

Fool contributor Travis Hoium owns shares of First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (15)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 09, 2011, at 3:14 PM, radicaltruth wrote:

    Solar Grid Parity is here? Maybe for lighting, small appliances and devices, - but not power hungry AC, engines, and automobiles. The cost to generate, save, and utilize that much power through solar greatly exceeds what is spent today. The study cited doesn't address this, and the term 'grid parity' doesn't necessarily take this into account when calculating the total necessary to meet the current energy demand.

  • Report this Comment On December 10, 2011, at 1:39 PM, wolfman225 wrote:

    I think you may be missing an "unintended consequence" that is likely to result if residential solar does become truly cost-effective: the impact such a development would have on government.

    Governments (state and local) gain a large amount of revenue from taxes on energy companies whether it be from sales or transmission of power to the consumer. If most residents install solar arrays sufficient to meet their household needs they will effectively be "off the grid" and not contributing any of that tax revenue to the government. Care to hazard a guess to what will likely be the reaction? Higher taxes on the sale of the arrays, as well as imbedded taxes in the chain of production. In the end, the consumer will realize little or no savings.

    We are beginning to see the same with the automobile and gasoline/diesel industries. When people drove less in response to higher prices at the pump and the urging of mass transit promoters, gas tax revenues fell sharply. To the point that some states and some Congressmen began floating the idea of raising the gas tax to compensate for lost revenue. If they succeed in forcing greater CAFE standards sales at the pump will similarly drop and you can look for the push for increased taxes to return. Ditto for the touted electric vehicles, where you will also likely see an additional surcharge levied on homeowners who install charging stations in their homes for "heavy load usage", particularly as the majority of the time such charging stations will be in use will overlap with peak demand times for electricity in general.

    Every time government puts it's foot into the economic pool, all it does is muddy the water.

  • Report this Comment On December 10, 2011, at 3:30 PM, xetn wrote:

    Reliability is an issue that is often overlooked when discussing solar. Solar does not generate at all during certain conditions. (no light, solar cells don't produce; no wind, wind turbins don't turn.) I have driven past wind farms and noted that many were not turning (generating). Solar will never (given current technology) be a replacement for the grid.

  • Report this Comment On December 10, 2011, at 9:56 PM, JRHaley1980 wrote:

    Must have been a really slow day for the editor - he put two of Travis Hoium's energy articles into the daily email to us - this one and the "3 Reasons to Avoid Nuclear Power" article.

    Travis, your points in this article on Solar Power are good -- but there is a lack of quantitative analysis applied. Understand (and agree with) your qualitative points, but in the end data will guide us to the right decisions. Do some research regarding the efficiency of solar cells, the challenges that the scientific and engineering communities are having with heat dissipation and degradation of power density over time (reduced life-cycle of a solar cell), etc. Those are problems that are driving many universities and companies to develop better solar technologies.

    Unfortunately, you had the same problem in your article on avoiding nuclear power -- short on quantitative and long on qualitative. We as Fools like to look at things from an unbiased and unemotional view; that usually means qualtified (data) support along with the "art" part of assessing things like moats, intellectual potential, etc. You say that "according to trends" renewable energy is picking up slack left by nuclear power being "out of favor." Would submit that you may not want to risk your portfolio on those type "word" assessments; the comments regarding an international view are probably a path to data which could make your decisions better. If you go to Beijing you'll see (both visually and data) on how fossil fuels are a larger "risk" to health than the PRC's nuclear industry. Risk is something that we need to manage -- accept only as much as we need to in attaining our goals. That applies to money as well as life. building a nuclear power plant close to large active fault lines is probably a poor risk to accept; having a plant ina different locale is probably a good risk relative to alternatives for those who live and use the power.

  • Report this Comment On December 11, 2011, at 5:57 PM, MrChapel wrote:

    Something I don't see mentioned anywhere and Travis (and many others) seems to forget, is that homes aren't the only electricity users. Yes, many people in the US have houses, which can be outfitted with solar panel systems. However, those are the suburbs. What about the cities? New York for example? Everything from three-story brownstones to skyscrapers? Do they place solar panels on their roofs, supplanting the airconditioning/heating/elevator equipment? What about the fact that many of them only have a few hours of access to the sun's rays, many more don't have it at all, due to being next to much taller buildings?

    Why not build a solar power plant there, you say? It might be a problem because there is no room nearby. Or the place it is going to be build is home to some type of bird/insect/animal that is under the protection of some environmental group.

    I have no doubt the the studies cited are correct about grid parity being achieved, however, I'd like to see a breakdown of where and how. Chances are great that it is only in areas like the suburbs and newly constructed suburbs at best. For another thing, it only will be for the US as in Europe, it is much harder to achieve as the amount of land available for home building is extremely limited.

    And as wolfman has stated, the government will not like the falling revenue due to 'green initiatives'. Next year, the Dutch government is lowering or shutting down the tax breaks on hybrid cars, since over a third of new car sales are of these vehicles. Meaning, a lot less oil tax revenue. And since we all know what a mess it is in Europe, they need all the revenue they can get. Ever notice how by using the newest lighting technologies, energy efficient appliances and insulating your home to keep the heat in, you still have a higher energy bill, while significantly lowering your energy usage? That's because each year, the taxes on transmission and such are put higher.

  • Report this Comment On December 11, 2011, at 6:45 PM, Melaschasm wrote:

    Does this mean we are about to eliminate all government subsidies of the solar power industry?

    Grid parity plus the value of green marketing should result in all new power generation in the select geographic regions will be solar, without needing subsidies.

  • Report this Comment On December 12, 2011, at 5:01 PM, Shanteram wrote:

    Why don't you at least mention GCL Poly/GCPEF.PK. It's a much larger player (with a $5B Market Cap) than those you mention; its growth rate is stunning, it's 10 and 15 years contracts are comforting, and it's in China, where the government owns 20% of it. Its negative is that it's ADR trades by appointment, but any broker can buy it in Hong Kong and credit it to you as an ADR. Check it out.

  • Report this Comment On December 13, 2011, at 11:49 AM, TMFFlushDraw wrote:

    Hey everyone,

    I was out of town for the weekend so I'm just getting to responding to your comments.

    First, solar reaching grid parity is a big milestone, but it doesn't mean that all of the sudden we're going to be getting all of our power from solar. We are years away from that being both possible or practical. Right now solar generates about 0.1% of the electric power in the U.S. so storage, intermittence, etc. are issues that are valid, but are not a short-term hinderance to solar.

    That isn't to say they won't be eventually. In 5 years energy storage will have to make leaps forward.

    To @JRHaley1980 I understand your desire for more quantitative data but one of my goal on fool.com is to take the quantitative data from research reports and turn it into qualitative data that a wide variety of readers will be interested in. I source my articles with quantitative data but not every article is going to be filled with numbers.

    As for government subsidies. Yes, this is a big step toward eliminating all government subsidies. I think within 2-3 years you'll have various gov'ts making dramatic cuts and within 5 years most subsidies eliminated. I wish I could say the same for fossil fuels because the solar industry would love to play on a level playing field.

    Travis Hoium

  • Report this Comment On December 23, 2011, at 10:35 PM, HLAB wrote:

    I would be interested in reading the study but it is not available except through purchase.

    I would like to begin my personal assessment of the study by asking if I can know who funded the study.

    I would appreciate any information I could receive.

    Thank you for your assistance.

  • Report this Comment On December 30, 2011, at 5:57 PM, PanzerWatts wrote:

    Grid parity is NOT here. The statement is just wrong.

    I've read a study that has stated that Solar installations have:

    1) dropped below the daytime retail power rate

    2) in areas with variable rates (high during the day)

    3) and have high rates in general (CA, HI)

    4) for residential customers

    5) after including all Federal and state subsidies.

  • Report this Comment On March 14, 2012, at 2:27 PM, billyspilly wrote:

    Grid parity is grid parity. All of the rest of the conversation is largely blather. If solar panels are being installed in megawatt, grid-scale power plants...and they ARE, on an exponentially growing curve that is also generally globally indiscriminate but tends to favor sunnier areas: Game over. Fossils lost. Costs on solar continue to drop with fervor only matched by their growth. Stop debating WHETHER. That is a waste of everybody's time and attention.

    The next battleground will be state legislation where energy companies attempt to front ANY tactic to give them tight control over individuals selling back to the grid. Pay attention to your own state's legislation and that will be time well spent.

    But in this case, the Fools were spot on and a lot of the extraneous discussion (minutiae over this location and that, this technology and that) are a distraction from the larger truth. Adoption curves for solar prove they are winning and 2 decades of steady cost reduction don't bode well for that reversing. Solar wins. Its a local law game now.

  • Report this Comment On March 14, 2012, at 2:29 PM, billyspilly wrote:

    Loved this article.

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