Socket Parity: Is Solar PV Cheaper Than Buying Electricity From the Grid?

Solar doesn’t make sense without subsidies. My uncle (who happens to work for the Oil and Gas industries) repeated this common misconception to me over Sunday lunch. The truth is that the price of solar panels has fallen by so much over the last two years that in many cases solar PV in the UK has achieved a significant milestone all renewable energy technologies strive to attain: Socket Parity.

Socket Parity is a concept which ostensibly means it costs the same to generate your own electricity (without subsidies) as it does to buy it from the grid. The true goal, of course, is for self-generated power to be cheaper than that bought from the grid, something that makes energy supply companies increasingly nervous.

Today Alastair Buchanan, chief executive of Ofgem, has warned of rising electricity costs in the UK due to oil and gas fired generating plants being taken out of service. The purpose of this announcement is perhaps to pave the way for support for shale gas fracturing and new nuclear in the UK but the reason the message resonates for me is because I see more and more people insulating themselves against these price rises by investing in their own energy generation.

Subsidies have been, and continue to be, instrumental in growing the renewables industry in the UK and many technologies will still rely on the subsidies to encourage investment long into the future. A recent report by the investment bank UBS illustrates that Solar PV, however, has reached a point where it would be cheaper to buy 25 years’ worth of electricity in the form of solar panels than it would be to buy that electricity from the grid, even without subsidies.

Now, my uncle is the sort of man who will not listen to reason unless it is substantiated by evidence - so I decided to run some numbers. I accept that the models below have their limitations in that they do not account for the cost of capital (which is actually pretty cheap right now anyway) and that each site has different variables, but the illustration is quite stark; if electricity prices rise by an average of 6% per annum, a Solar PV system will pay for itself in 11 years, even without subsidies! I know I’m repeating myself but my uncle is a little stubborn.

It even surprised me just how much better than Socket Parity Solar PV has become so I ran the same data assuming zero rise in electricity prices in 25 years (chance would be a fine thing) and Solar PV still comes out cheaper than power bought from the grid.

I have used 25 years because this is how long solar panels are guaranteed for but in reality they will still be producing electricity after 25 years (the manufacturers guarantee they will still be performing to at least 80% of their original output) so the benefit of solar will continue beyond this model. I have also accounted for the operational costs of owning a Solar PV system; another misconception being that Solar PV is ‘fit and forget’. Just like a boiler, regular maintenance will ensure you get the best performance out of it (and I didn’t want to be accused of ‘overlooking’ associated costs).

To look at the numbers another way, 25 years’ worth of electricity from a solar panel installation, including all maintenance, insurance and metering costs, will set you back 9.71p/kWh. If your electricity supplier offered to fix a portion of your electricity at 9.71p/kWh for 25 years, what would you say? Much of today’s news on rising electricity prices focuses on the future upper ceiling for wholesale electricity, including that generated by nuclear sources, being £100/MWh. A Solar PV system installed today is already cheaper than this wholesale price at £97.10/MWh; high energy users can’t afford not to install Solar PV.

To my uncle and others, the point I am making is not that subsidies for renewable energy generation should be curtailed; indeed they should be celebrated because they have encouraged the infrastructure investment that has made Socket Parity a reality for many. The point is that Solar PV and other forms of decentralised generation are not just fanciful ideas that are only worth investing in because of the ‘hippy grants’ that support them; they are an important part of energy security that can stand on their own feet for some but still need to be supported to ultimately make cheaper, cleaner energy available to all.