Grid parity is commonly used to describe the point at which electricity from a renewable-energy technology becomes as inexpensive as, or cheaper than, electricity from conventional alternatives.
The idea is important because renewable technologies may no longer require the same degree of financial support once they become economically competitive.
Levelized cost of energy
A common approach is to calculate the Levelized Cost of Energy (LCOE). LCOE estimates the lifetime cost of generating a unit of electricity from a power plant.
The renewable-energy LCOE can then be compared against electricity prices or the cost of conventional generation.
Why the comparison is imperfect
LCOE is useful, but it cannot capture every characteristic of an electricity system. Wind and solar output changes with weather and time, while the economic value of electricity also varies depending on when and where it is produced.
Network investment, balancing, storage, curtailment and system flexibility may also influence the overall economics.
Grid parity depends on context
Technology costs have fallen substantially, particularly for solar photovoltaics and onshore wind. In many situations these technologies are already highly competitive.
However, electricity prices, financing costs, resource quality and policy environments differ from one country to another. A technology reaching grid parity in one market does not necessarily mean that it has reached the same point everywhere.
A broader view of competitiveness
Grid parity is therefore best viewed as a useful indicator rather than a universal threshold.
Evaluating renewable-energy competitiveness requires looking beyond generation cost alone and considering the wider power system in which the technology operates.