The energy industry is undergoing significant changes in recent years. Renewables have become increasingly appealing and affordable to both utilities and consumers alike. In fact, residential solar economics have become increasingly attractive across the country due to dropping installation costs and rising retail electricity.  That’s where the concept of grid parity comes into play. Residential solar reaches grid parity when the levelized cost of solar energy falls below gross electricity bill savings in the first year of a solar PV system’s life. This will then fuel additional migration from retail electricity to residential solar being the preference. The question is, when will we see actualized grid parity? And how can the energy industry prepare for that event?

The Current State of Grid Parity

While the concept of national grid parity is still far out in the future, currently 20 U.S. states are already at grid parity. 42 states are expected to reach that milestone by 2020 operating under business as usual conditions. When accounting for current net metering rules, rate design, and incentives, California, Massachusetts, and Hawaii lead the nation in residential solar attractiveness. In each state, solar can reduce an average customer’s electricity bill by 20 percent to 40 percent during the first year of system life.

While it makes sense that sunny states with good infrastructure such as California and Hawaii can see a quick return on investment in residential solar power, that doesn’t mean it makes sense for everywhere else in the country. States such as North Dakota, Oklahoma, and Washington are noted as the least attractive states for solar today due to this very reason.

What Grid Parity Means for the Industry

Measuring grid parity generally relies on the average retail electricity rates to calculate customer savings, but there are other factors at play as well. Utility and state-specific rate design, projections, system production, and installation costs all vary pretty widely. And all these variables are needed to gauge the attractiveness of residential solar power accurately. Consistency between the forecasts and methodology of predicting national grid parity is difficult to achieve. But while the specifics may differ from report to report, the trend seems to remain generally consistent. As the cost of investing in solar power drops for energy consumers, and the more efficient and reliable the technology becomes, the closer to grid parity we move as a country.

What that means for utilities is a need to evaluate how to do business and serve customers with the added understanding of how residential solar will impact the larger system. As more and more utilities move to reevaluate net metering rules and rate design, the residential solar economic outlook will no longer be able to depend on a static policy structure. Things are changing on the energy policy side as well. Staying up to date on the latest regulations and rules surrounding residential solar power will be critical. While the consistent policy landscape of rules surrounding residential solar power will be critical. While the consistent policy landscape of the past several years has helped encourage the nearly 1 million homeowners who have invested in rooftop solar, looking ahead, those rules will surely be revised. The real question is when and how. And for that, only time will tell.

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