BOSTON, MA--(Marketwire - July 7, 2009) - Solar energy has had an image as an impractical
high-cost luxury. However, falling costs and time-of-use electricity
pricing have now begun to make solar competitive. Proximity to "grid
parity" varies by location, and is closest for commercial rooftop
installations in California. Grid parity isn't a single-point in time, and
parity for utility-scale generation remains a decade or more away. However,
near-term viability in select applications will drive the thin edge of the
wedge that leads to cost reduction and future universal grid parity, says a
new report from Lux Research, entitled the "The Slow Dawn of Grid Parity."
"The solar industry is coming of age, and the metrics for judging solar
technologies are shifting," said Ted Sullivan, Senior Analyst at Lux
Research, and lead author of the report. "Instead of upfront capital cost
for adding generation capacity -- or cost per watt peak ($/Wp) -- the new
standard is the levelized cost of electricity (LCOE)." Presented as cost
per kilowatt-hour ($/kWh), LCOE measures the total lifetime cost of a solar
installation. This shift enables a more direct comparison to conventional
generation types, and enables more rigorous analysis of solar technology on
the basis of life-cycle costs, payback period, and return on investment.
The report also provides executives and investors with data on the internal
rate of return (IRR) of new solar installations by geography, application,
and technology. "IRR is determined by comparing the LCOE in different
countries, applications and technologies against the specific subsidies and
available retail rates of electricity," explained Sullivan. "The higher the
IRR, the higher the demand in that country, and the more attractive the
investment. In subsidized markets, the internal rate of return can reach
well in excess of 10%, actively fueling demand."
Lux Research's report derives its intelligence from conversations with
twenty utilities, project developers, financiers, and tax experts. Among
its conclusions:
-- Select applications nearly enable grid parity today. Solar will
converge with grid electricity rates in some situations, such as commercial
roof decks in California at costs approaching $0.45/kWh. But grid parity
comparable with utility generation costs around $0.08/kWh remains a decade
away for solar in most markets.
-- Subsidies are still the primary demand driver for new installations.
Even where solar is far from grid parity, ongoing subsidies allow
investors, businesses, and homeowners to earn positive IRRs from solar
installations. These IRRs will boost demand, fueling further increases in
scale and enabling the industry to continue cutting costs and innovating.
This should drop future solar LCOEs and further accelerate grid parity.
-- Premature views of grid parity could be counterproductive. Mounting
fiscal pressure on debt-ridden governments could turn the political tide
against solar subsidies, particularly if politicians take the simplistic
stance that grid parity is a current reality.
"The Slow Dawn of Grid Parity" is part of the Lux Solar Intelligence
service. Clients subscribing to this service receive continuous research on
solar industry market and technology trends, ongoing technology scouting
reports and proprietary data points in the weekly Lux Research Solar
Journal, and on-demand inquiry with Lux Research analysts.
About Lux Research
Lux Research provides strategic advice and on-going intelligence for
emerging technologies. Leaders in business, finance and government rely on
us to help them make informed strategic decisions. Through our unique
research approach focused on primary research and our extensive global
network, we deliver insight, connections and competitive advantage to our
clients. Visit
www.luxresearchinc.com for more information.
Contact Information: Contact:
Carole Jacques
Lux Research, Inc.
617-502-5314
carole.jacques@luxresearchinc.com