Grid parity means that, at the end of the PV system’s life cycle, you will have spent the same amount on your PV system as you would have spent on grid electricity, for the same amount of energy—i.e., the payback period is equal to the life cycle.
However, the nature of their costs is different. Grid electricity is paid for as you use it, with payments stretching out forever. The majority of PV expenses are paid for at the time the system is installed. After that, the energy is essentially free, with the exception of minor maintenance and insurance costs.
To accurately compare the two, we must translate all of the expenses into common terms. To do that, we must choose a “life cycle” period for the PV system. Typically, 25 years is chosen because this is the standard length of PV module warranties. To convert the value of payments that far in the future into today’s values, we calculate those amounts based on their “present value.” Therefore, each future payment is reduced to account for the assumed rate of future inflation.
We should also distinguish between GPA and GPT. GPA is based on the actual prices that the consumer pays, both for grid electricity and for solar electricity. GPT attempts to account for certain factors that do not appear in the price. These include removing the subsidies that fossil fuels currently receive and charging for the externalities—e.g., free disposal of gaseous waste into the atmosphere; disposal of wastes into streams and rivers; the costs of fossil-fuel resource wars. These are complex policy issues that may affect the future price of grid electricity. But for the purpose of the individual home- or business-owner who is dealing with real costs now, this article focuses on GPA.