This summer, the U.S. Department of Energy’s SunShot Initiative will reach its halfway point. Established in 2011 as a ten-year project, the program aims to make solar “fully cost-competitive with traditional energy sources before the end of this decade.”

Toward that end, it has set a goal of reducing the average installed cost of a solar system to $0.06 per kilowatt-hour (kWh) by 2020. SunShot considers this to be parity level with conventional power sources like coal and natural gas. By this measure, solar has made fantastic progress, with costs falling 65 percent since 2011. Yet experience with solar deployments reveals that isn’t enough. Even at comparable cost, solar will not be able to outcompete coal, nuclear and natural gas on a level playing field.

SunShot’s average cost metric is not a measure of cost-effectiveness, because it doesn’t account for the limits of solar’s ability to provide reliable power. Conventional resources are available around-the-clock. They don’t rely on favorable weather and sunny skies to operate. In contrast, solar power has natural limits in its ability to meet energy demand – even during the day. This difference in performance ability greatly effects the value of solar.

To be clear, solar is valuable. It’s just not quite comparable to conventional sources. Since power demand is highest during the day, solar output actually tends to come at higher value times. In many areas, it can somewhat reduce the need to build power plants and transmission designed to meet peak power demand.

Yet as more solar is installed, these benefits will diminish. More solar means more daytime energy generation, pushing net peak demand to times when solar output is weaker and other resources must make up the difference.

Average cost is not a measure of the value of a resource. This has caused interest groups, academics, and even the government to voice concerns about using the “installed average cost” metric to compare solar apples to the oranges of conventional electricity sources. Unfortunately, it’s the popular measure of economic competitiveness for solar and other technologies like wind, even though it often leads to improper policy conclusions.

Individual utilities and organized wholesale electricity markets use different methods to value resource performance. The natural conditions that affect solar performance also vary by area. This means the value of solar varies widely across regions.

Just consider how solar gets valued in the United States’ largest wholesale electricity market, the PJM Interconnection, which spans 13 mid-Atlantic and Midwestern states and the District of Columbia. PJM uses a capacity market to encourage private investment decisions to ensure that enough reliable, competitive generation comes online to serve customer demand. In 2015, PJM implemented the Capacity Performance Initiative, a series of capacity-market reforms to improve future grid reliability.

Under the new system, the 2016 PJM capacity-market auction cleared more than 140,000 megawatts (MW) of performance resources that can be counted on to provide power through the 2019/2020 planning period. Just 0.4 MW of those resources came from solar, despite hundreds of MWs of solar expected to come online in the planning period. This is a significant change: before the reliability reforms, solar performed much better in the capacity market. In other words, in a performance-based capacity market, solar provides little capacity value.

That capacity value is what separates solar from conventional energy sources: companies can build solar installations and sell solar power to customers, but they can’t reliably do so on-demand. So while solar power displaces the operation of nuclear and fossil generation, it hardly replaces the need to build new nuclear or fossil generation or to keep those facilities open. In an industry characterized by high capital costs and long-term investments, that’s a limited value proposition.

As the electric industry increasingly turns to valuing the performance of resources, the prospects for solar grid parity increasingly rely on the ability of solar to perform comparably to other resources. Improving solar performance, particularly by coupling solar with batteries or other storage technologies, adds great cost. Reducing the cost of storage is just as important to solar competitiveness as cost reductions in solar technology itself.

To its credit, the SunShot program is also working to make solar power available on-demand, a goal that remains elusive. While research continues into these solutions, the Federal Energy Regulatory Commission has begun to identify obstacles to the future deployment of storage technology, which may lead to market rule changes that coincide with the evolving economics of solar and storage.

Solar, wind and other variable-output resources are portrayed as becoming competitive with conventional electricity sources based on average cost alone. This limited focus creates a nice narrative for renewable advocates, but ignores the significant obstacles to making renewables reliable. Until we can cost-effectively get solar and wind power on-demand, we’ll be dependent on coal, nuclear and natural gas to keep the lights on.

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