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Time of day pricing and the levelized cost of intermittent power generation

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  • Reichelstein, Stefan
  • Sahoo, Anshuman

Abstract

An important characteristic of most renewable energy sources is intermittency in their ability to generate electricity. Yet, intermittency is usually ignored in life-cycle cost calculations intended to assess the competitiveness of electric power from renewable as opposed to dispatchable energy sources, such as fossil fuels. This paper demonstrates that for intermittent renewable power sources a traditional life-cycle cost calculation should be appended by a correction factor which we term the Co-Variation coefficient. It captures any synergies, or complementarities, between the time-varying patterns of electricity generation and pricing. We estimate the Co-Variation coefficient for specific settings in the western United States. Our estimates imply that the benchmark of cost competitiveness for solar photovoltaic (PV) power is 10 to 15% lower than previous average life-cycle cost analyses have suggested. In contrast, the generation pattern of wind power exhibits complementarities with electricity pricing schedules, yielding a cost assessment that is higher than that suggested by traditional calculations. For the specific settings we study, the corresponding magnitude of the markup is 10 to 15%.

Suggested Citation

  • Reichelstein, Stefan & Sahoo, Anshuman, 2015. "Time of day pricing and the levelized cost of intermittent power generation," Energy Economics, Elsevier, vol. 48(C), pages 97-108.
    • Handle: RePEc:eee:eneeco:v:48:y:2015:i:c:p:97-108
    DOI: 10.1016/j.eneco.2014.12.005
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    1. Erin Baker & Meredith Fowlie & Derek Lemoine & Stanley S. Reynolds, 2013. "The Economics of Solar Electricity," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 387-426, June.
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    3. Lamont, Alan D., 2008. "Assessing the long-term system value of intermittent electric generation technologies," Energy Economics, Elsevier, vol. 30(3), pages 1208-1231, May.
    4. Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," American Economic Review, American Economic Association, vol. 101(3), pages 238-241, May.
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    More about this item

    Keywords

    Levelized cost of electricity; Renewable energy; Intermittent electricity generation; Solar PV; Wind power;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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