On Grid Parity

Robert Wilson (@CountCarbon), in a comment on my last blog, raises the issue of grid parity, asking what it is in reality. It's a good question. In essence, the idea is very simple. It's when new forms of energy production cease to be expensive and cost the same as existing methods. The idea being when solar PV, or wind turbines, or whatever tickles your fancy, costs the same as gas or coal burning then, voila, everyone will switch to the renewables. They will have achieved grid parity - that means that the electricity they supply to the national grid costs the same.

But I don't think Robert was looking for the mundane answer. He's a bit of an expert in these matters — I think he will know full well what grid parity means in theory. What he is driving at is that the concept is a whole lot more complicated to understand than my simple explanation makes out. And it is. Take a look at my last blog post for starters — this post more or less carries on from there so it's not such a bad idea to read that one first in any event.

There I make the point that comparing fossil fuel burning with renewables (or nukes — I'm fond of nukes) is an apples and oranges scenario. Fossil fuel has to be paid for but the plant to burn it in is cheap to build. All the others are almost free to run but the capital costs of getting the kit up and running are high. So, given this, the concept of grid parity is immediately challenged because to get a true cost of the electricity produced you have to perform a series of calculations involving a number of assumptions.

For instance, how long will the low-carbon plant last? If it's 25 years, the cost of the power will be x; if it's 50 years, it will be half as much (or x/2). We don't really know how long this plant will last because we have only just started rolling it out in large quantities, so immediately we are in the world of guesswork.

Suppose we decide on a 25-year lifespan, so that we can then work out a cost per unit of energy. We then have to look at 25 years of fossil fuel burning to make a comparison. But what will the cost of fossil fuel be in 25 years, not to mention all points in between? We'll need to know that in order to make a grand total so that we can compare with our low-carbon plant costs. But who knows what will happen to fossil fuel prices over 25 years. More guesswork.

This is an exercise you can do and, indeed, it's been done already many times, notably using DECC's 2050 pathways calculator. This suggests that a low-carbon route is likely to be no more expensive than a fossil fuel, business-as-usual one. But it does all depend on the assumptions being made.

If this really is the case, and that DECC's calculator has got it right, then we have already achieved grid parity and we simply don't need any green subsidies to kick start the low-carbon energy drive. Apparently financial logic dictates that we should move towards low-carbon electricity right away because it's already as cheap and is likely to get cheaper over time (fracking notwithstanding).

But no one really believes this to be the case. Institutions are not falling over themselves to build offshore windfarms or new nuclear power stations, or anything else that vaguely fits the bill. They all want generous subsidies or guarantees to take away the risk that the assumptions made might be wrong.

In other words, there is an apparent lack of will here. It easy to carry on with the business-as-usual scenarios because they are perceived as being less risky, because there is less money at stake. The low-carbon plant would have to become a whole lot cheaper than it is now for the institutions to take the plunge and invest in expensive low-carbon plant without any subsidy involved.

Or to put it another way, grid parity is not enough. We need to get to something like half-the-grid price before new energy forms will start to take over off their own bat. Or maybe even less. Once again, we are speculating.

Even then it's not quite so simple, because we need to sort out the power storage issues before we get too far down this track. Before we can talk about one-for-one substitution, we have to have adequate methods in place to store energy from intermittent renewables, otherwise we will still be building new gas plants well past 2050. Power storage has to be built into the financial equation. Without it, each unit of renewable electricity is worth ever so slightly less than the one produced immediately before it. This isn't a problem with nukes but then again nukes have their own problems.

It's not as if the business-as-usual route is without risks. Even discounting the effects of climate change over the next 35 years, this route ties us into burning fossil fuels and who knows how easy these will be to obtain, especially if the emerging economies continue to expand on the back of fossil fuel derived energy. It may be that fracking and other technological breakthroughs will bring about an unexpected energy abundance. But equally it may not. There's really no more logic to the pro-frackers position than there is to the EnergieWende route, as espoused by the anti-nuclear, pro-renewable Germans. Except, of course, that the German route does at least address carbon emissions, something the frackers only pretend to do.

Which brings us back to the concept of grid parity. It's not really measurable, certainly not in terms of unit costs of electricity. Instead, think of it as a ravine that has to be jumped. As you travel along the side of it, the gap gets steadily narrower but at what point do you actually decide to jump? Wherever that is would be where grid parity is. We could hang out a signpost that says Welcome to Grid Parity. But we won't know where to place it until we get there. And there's no guarantee that we ever will.