After two decades of government subsidies the world over, there is hope that at least one scalable renewable energy source that doesn’t rely on locally optimal conditions to be competitive, can now compete with cheap fossil fuels on cost. Investment bank Citigroup has recently released research that says that solar power has now reached grid parity with coal in over a third of China’s 31 province-level administrative units.
With International Energy Agency data showing China last year accounted for 29% of global c02 emissions, the development could be a massive shot in the arm for the worldwide fight to control climate change. Solar becoming independently price competitive with coal is particularly important against the backdrop of Chinese authorities last year substantially cutting subsidies for new projects. Subsidies had encouraged a rapid expansion of the sector. So rapid that a fund set up to cover higher tariffs had fallen to a $15 billion deficit, prompting the cuts.
Unsubsidised wind projects were also announced in China this year, indicating that solar is not the only renewable technology to have now reached grid parity. However, wind farms tend to be efficient enough for grid only in isolated regions where conditions are optimal. The fact solar is now independently viable in 11 of China’s 31 administrative units shows that the technology used in photovoltaic panels, and the cost of producing them, has fallen to levels which have grid parity in less than optimal weather conditions.
The target for solar farm grid parity in China had been 2023. There is now a suggestion that rather than hindering progress, the withdrawal of subsidies has actually boosted the industry by forcing manufacturers and investors into greater efficiencies. However, while the news is unexpectedly positive, solar technology would of course never have reached the point it could carry itself over the last mile without years of subsidies. In 2009 the cost of solar was an average of $4/W in China. In ten years that has fallen to $0.25/W. Another three provinces are expected to reach grid parity by next year.
The one cloud on the horizon is that most of China’s most heavily urbanised and polluted areas are furthest away from grid parity. The largest cities tend to be on the coast or by rivers at lower altitude. The altitude and the fact air pollution blocks out the sun to an extent makes solar less effective.
Renewables capacity still needs to increase massively if it is to make a telling contribution to China’s serious pollution problem. Despite solar and wind power generation rising 50% and 20% respectively last year, China’s energy consumption is growing so quickly as living standards rise that this still only covered 30% of incremental demand. So power stations in the giant country are still burning more coal and other polluting fossil fuels than ever before.
However, in the medium term there is optimism that over the next several years, renewables will, with grid parity, grow to the extent that the inflection point of total emissions dropping will be reached.
India is another huge country, and huge polluter, where renewables, particularly solar, are also approaching grid parity. The sub-continent has targeted a quadrupling of its solar installation rate by 2022.
Grid parity being approached is also seeing more institutional capital diverted towards renewables. If they no longer rely on risky government subsidies for commercial viability, big investors will begin to consider them as ‘infrastructure’ investments and be ready to invest far more aggressively.