Feed-in Tariff - Grid Parity

Grid Parity

Some have argued that feed-in tariffs can be used to accelerate the pace at which renewable energy technologies become cost-competitive with electricity provided from the grid. The rapid deployment of renewable energy under feed-in tariffs seen in countries like Germany, Denmark and Spain has undoubtedly contributed to reducing technology costs, and hence, in accelerating this trend. For instance, wind and solar technology costs have decreased dramatically since the 1960s and 1970s, as the technologies have become more widespread, manufacturing processes have improved, innovations have been incorporated, and gains have been harnessed from economies of scale.

While it is true that large scale deployment of renewable energy technologies contributes to advancing toward grid parity, grid parity itself is a moving target, both in time (i.e. during the course of the day and over the course of years) and in space (i.e. geographically). The price of electricity from the grid varies widely from high-cost jurisdictions such as Hawaii and California, to lower-cost jurisdictions such as Wyoming, and Idaho. Similarly, due to their dependence on diesel generators, islands typically have higher electricity costs than on the mainland. In jurisdictions with time-of-use pricing the electricity price changes over the course of the day, rising during high-demand hours (e.g. 11AM – 8 PM) and declining during low-demand hours.

In certain jurisdictions, wind power, landfill gas, and certain forms of biomass generation are already lower-cost (on a per-kWh basis) than electricity provided from the grid. In fact, "grid parity" has already been obtained in certain jurisdictions that continue to use feed-in tariffs (e.g. the generation cost from landfill gas systems in Germany are currently lower than the average electricity spot market price) And in remote areas, electricity from solar photovoltaics can be cheaper than building new distribution lines to connect up to the main transmission grid.

There are other reasons to retain FIT laws even as grid parity approaches, because there are other important aspects of FIT laws which should be retained even if remuneration drops to 1:1 equivalence with the retail electricity price. These include the obligation to purchase, the obligation to connect and the long term payment guarantee associated with FIT laws.