Cleantech Investor

First published in Cleantech magazine, Issue 6 2011. Copyright Cleantech Investor Ltd.

2011: a giant step towards grid parity

2011 has been a tough year for many investors in renewable energy. A surge in capacity of low cost solar modules being produced by China, combined with the economic downturn in Western economies, has hit margins for manufacturers of solar equipment around the world – and has tipped the balance for high profile casualties such as Solyndra in the US. Wind turbine manufacturers have also been hit hard by the economic conditions – especially the slowdown in projects in the US. The established European and US manufacturers are facing emerging competition from Chinese exports in this industry too.

The good news, however, is that lower prices for wind and solar energy generating equipment means cheaper renewable energy production prices. 2011 has seen renewable energy become significantly more competitive relative to fossil energy sources. So, as the year draws to a close, the goal of ‘grid parity’ for renewables no longer seems so elusive.

Grid parity, of course, depends upon the prevailing natural resources of renewable energy, as well as the prevailing price for electricity – which vary widely in different places. On islands, or in isolated locations which are dependent upon imports of expensive fossil fuel such as diesel to generate electricity, but which may have valuable resources of renewable energy, grid parity can typically be reached more rapidly than in a large country with a developed grid and multiple/entrenched sources of electrical power from fossil fuels and/or nuclear sources. The island of Hawaii is often cited as an example of a location which has already reached grid parity – and has had a long standing emphasis on renewables, including extensive research into marine energy technologies. In this issue we cover the recent launch of ‘EcoIsland’, an initiative on the Isle of Wight which aims to propel the island towards energy independence – and ultimately to transform it into a net exporter of energy.

During 2011 we have seen the elusive grid parity goal achieved in one of the world’s major economies – Brazil. The Brazilian energy auctions, in August 2011, saw the average price for wind energy contracts come in below the equivalent prices for natural gas. It’s probably fair to say that the wind equipment manufacturers entered contracts at these prices at least in part because they want to gain a foothold in this potentially major new market – and because of the necessity to secure a revenue stream to compensate for slowing revenue growth rates in markets such as the US. But it’s also a function of falling manufacturing prices for wind equipment. And, of course, Brazil has the benefit of excellent wind resources in regions such as the North East.

Grid parity for the majority of solar technologies depends in part upon the availability of sunlight in any given location. But it’s clear that the falling prices of solar modules are bringing grid parity closer in many parts of the world. Amid the recent media storm in the UK about the Government’s decision to end the feed-in tariff (FiT) scheme, it is perhaps significant that few – even amongst the solar industry or the political opposition – have contested the principle that FiTs need to be phased out. The debate has been around the timing and methods by which the change in policy is being enforced – and the implications for the broader solar installation industry in the UK.  

The political fallout around the Solyndra bankruptcy and the related battle of words between the US and China have dominated the second half of the year in the US. In Europe there have been battles with the respective governments of Spain and the UK which have also contributed to the noise being made by the industry. However, solar grid parity is approaching in major markets, while wind energy grid parity has actually been achieved in Brazil. Perhaps 2011 will be best remembered as the year when renewable energy started to stand on its own strengths.