It recently became official news that solar power is cheaper than electricity from gas-fired power plants. I asked myself: if natural gas is below grid parity and solar is cheaper than gas, doesn’t that mean that solar is also below grid parity? Let’s look at the numbers.
Solar PV is cheaper than natural gas
On January 31, 2011, Southern California Edison (SCE), which serves the Los Angeles metro area wrote an Advice Letter announcing that they had approved 20 contracts totaling 250 MW of solar photovoltaic power.
The bid process was done according to a mechanism called Renewable Auction Mechanism (RAM) which is a market-based reverse auction in which the bidders are ranked starting with the lowest levelized cost of electricity (in cents per kilowatt-hour or ¢/kWh). The contracts were awarded to the lowest bidders with plants ranging from about 5 MW to 20 MW that collectively added up to the program total which was 250 MW. The SCE Advice Letter does not state the exact LCOE on these bids. But it does say that they were all below the 2009 Market Referent Price (MRP). (1)
I went to the California Public Utility Commission (CPUC) website and checked CPUC Resolution E4298 which defines the Market Referent Price as what it would cost to own and operate a baseload combined cycle gas turbine (CCGT) plant. (2)
The SEC Solar PV power plants have 20-year power purchase agreements (PPA) “resulting from SCE’s 2010 Renewable Standard Contracts” so I looked for the equivalent gas timeframe. The 20-year MRP for a gas-fired plant with a 2010 contract date was 9.674 ¢/kWh. (2)
This means that according to Southern California Edison’s Advice Letter, all of the 20 winning solar PV bidders came in below 9.674 ¢/kWh.
Natural Gas is a volatile commodity which has recently dropped in price so I compared the California PUC number with what an electricity customer would pay in Houston, TX. The “Reliant Power Tracker” © is an electricity program where the ratepayer pays based on the variable market price of natural gas. According to Reliant the average price assuming 2,000 kWh is 10.4 ¢/kWh which includes an ‘energy price’ of 9.9 ¢/kWh plus assorted charges such as “transmission fee”. So there doesn’t seem to be much variation between gas power prices in these California and Texas markets.
So sure enough, the numbers officially show that solar PV is cheaper than electricity from a gas-fired plant. – at least in sunny California and Texas. How about ‘grid parity’?
Solar PV below ‘grid parity’
The average residential electricity price in America in 2009 was 11.55 ¢/kWh, according to the United States Department of Energy. (3) The SCE solar projects, which came below 9.674 ¢/kWh, beat residential grid prices in America.
But the 11.55 ¢/kWh grid-parity is an average price. In reality millions of Americans are paying much more for their electricity. For instance, in Pacific Gas & Electric’s territory the ‘baseline’ power price is 12.2 ¢/kWh. (4) However, 2.2 million PG&E ‘tier-three’ and ‘tier-four’ customers will pay 29.4 ¢/kWh and 40.4 ¢/kWh respectively for their power consumption.(4) and (5) That’s three to four times the cost of the SCE solar power plants.
How about commercial grid-parity in the whole country? Remember that businesses pay a different rate from residential consumers. According to the U.S. DOE, the average commercial electricity rate in American in 2009 was 10.21 ¢/kWh.(3)
This means that solar PV (which came in below 9.674 ¢/kWh) is below ‘grid-parity’ for both residential and commercial electricity users nationally.
Furthermore, the 250 MW SCE projects are not the first solar projects that officially puncture grid-parity. A 1MW Concentrating Photovoltaic (CPV) plant at Victor Valley College in Southern California has generated solar power since the summer of 2010 at 8.5 ¢/kWh – without subsidies, according to Nancy Hartosch of SolFocus (Mountain View, CA).
So in the case of the Victor Valley CPV power plant, unsubsidized solar is cheaper than subsidized natural gas as well as electricity from the grid.
So next time someone says that ‘solar is too expensive’ ask them to look at the data above which indicates that:
1- Solar PV is officially cheaper than natural gas in sunny California and Texas.
2- Solar PV is below ‘grid-parity’ for the average residential and commercial ratepayer in America, and
3- Millions of Americans are paying their utilities up to three to four times more than the cost of solar PV.
So start spreading the news: solar is cheaper than both natural gas and ‘grid parity’.
(1) SCE Advise 2547-E, Jan 31, 2011, at www.sce.com/NR/sc3/tm2/pdf/2547-E.pdf
(2) CPUC Resolution E4298, Dec 17, 2009, at http://docs.cpuc.ca.gov/WORD_PDF/COMMENT_RESOLUTION/109813.pdf
(3) “Average Retail Electricity Prices, 1960-2009”, US Department of Energy, at http://www.eia.doe.gov/emeu/aer/txt/ptb0810.html
(4) Pacific Gas and Electric, Electric Schedule E-1, Advice Letter 3797-E-A, Effective March 1, 2011, http://www.pge.com/tariffs/tm2/pdf/ELEC_SCHEDS_E-1.pdf
(5) “PG&E raises electricity rates for some homes”, San Francisco Chronicle, March 2, 2011, at http://articles.sfgate.com/2011-03-02/business/28644976_1_electricity-rates-tiers-pg-e