What is Grid Parity?

Now here is one word that is often heard at all renewable energy based conferences and press meets and also from industry experts.

What exactly is it?

Parity as such means the state or condition of being equal. The word “grid parity” is often used to describe that point in time in which an alternative technology (usually renewable) is able to produce electricity for consumers at the same cost as the retail rate of “grid” power.

What is it based on?

Before getting into that, we need to know what levelized cost of electricity means.

Levelized cost of electricity (LCOE) represents the kilowatt-hour cost of building and operating a power generation plant over an assumed financial life and duty cycle

Now, grid parity is based on the levelized cost of electricity produced by renewable energy means and the utility’s levelized cost. Here utility is the electricity generation system usually owned by the government or sometimes individual parties.

If the renewable system’s levelized cost if at or below the utility’s levelized cost ,the system is said to be at or below grid parity.

Where is grid parity applicable?

The term is applicable to any electricity generating industry and facilitates comparison with other technologies.

What does it depend on?

It depends on various factors as discussed below:

1. Location

Electricity rates vary from location to location. A technology that produces power at a given rate could be above grid parity in some locations and below grid parity in the others. For example Solar PV has reached grid parity in a state like California because the utility rates in California is very high .This cannot be really applied or generalised to suit every other state in the U.S

1. The party it is calculated for

Grid parity depends on whether you are calculating for the point of view of a utility or a retail consumer. At both levels, grid parity can differ. Sometimes the retail utility-based energy rates for consumers are almost the double that of the levelized cost of energy for the utility. So it is possible that Solar PV is at grid parity for the end consumer and not for the utility.

1. The costs which are considered while calculation

The cost components taken while considering grid parity are critical. And these are varying parameters. For examples, the installation costs and permit costs for certain technologies can widely differ from place to place.

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