Buongiorno, solar parity!

The cost of generating your own electricity with solar panels will soon fall to a par with buying it from the grid in Europe, led by Italy in 2013.

It will soon make absolute financial sense for European businesses and homes to generate their own electricity using solar panels rather than buy it from the grid.

That’s according to the European Photovoltaic Industry Association, which says that Italian businesses with a typical 100-KW PV installation will hit parity with the grid as early as 2013, followed by Spanish businesses a year later.

EPIA applies a concept called “dynamic grid parity” (DGP), which is when the value of electricity bill savings combined with revenue from selling surplus electricity equals the long-term cost of purchasing electricity from the grid.

Brussels-based EPIA measures the factors over the 25-year presumed lifetime of solar panels, and takes into account the “levelized cost” of the panels. It also assumes the phase-out of subsidies like feed-in tariffs that have helped the solar industry gain a foothold but which in the long run distort the economics.

The forecast takes into account the steadily rising price of utility-produced electricity and the constant fall in the price of solar panels, which averaged €1.20 ($1.70) per watt in July in Europe. EPIA notes that historically the cost of PV has declined by 20% every time sales double, and says that rate could increase to 50%.

“The cost of PV electricity generation in Europe could decrease from a range of 0.16-0.35 €/kWh in 2010 to a range of 0.08-0.18 €/kWh in 2020 depending on system size and irradiance level,” EPIA states in a report called Solar Photovoltaics Competing in the Energy Sector – On The Road to Competitiveness. (For the dollar-minded, those ranges are 0.22-0.50 $/kWh in 2010 to 0.11-0.26 $/kWh in 2020).

As we’ve noted in several posts, the price of solar panels is falling precipitously , in part because of low-cost production in China. While the free fall has helped drive three U.S. solar companies into bankruptcy recently, it is also speeding up the financial case for homes and businesses to generate their own electricity using solar panels.

“Already today, PV electricity is cheaper than many people think,” EPIA President Ingmar Wilhelm said in a press release. “In the coming years it is going to get even cheaper thanks to ever-improving technology and economies of scale. As also the price of electricity from conventional sources increases, solar PV will be become a fully competitive part of the energy mix.”

Italian businesses will hit DPG ahead of other countries not only because of the abundance of sunshine, but also because the wholesale price of electricity in Italy is high, EPIA points out. That means that businesses will benefit more than in other countries from selling excess electricity. Italian peak wholesale prices averaged €76 ($108) per mWh last year, compared with €59 ($84) in France, €57 ($81) in Germany and the UK, and €42 ($60) in Spain, the report notes.

According to EPIA, UK and German businesses will follow their Italian and Spanish counterparts, hitting DPG for 100-KW installations by 2017. France will get there in 2018. Households will trail business DPG because homes do not typically use electricity during the day as often as businesses do and thus won’t save as constantly. Homes with a typical 3-KW installation will reach DPG by 2015 in Italy, 2016 in France in 2016, 2017 in Spain and Germany, and 2019 in the UK.

Photo: BP Solar via European Photovoltaic Industry Association

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This post was originally published on Smartplanet.com