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Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies

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  • Paul L. Joskow

Abstract

Economic evaluations of alternative electric generating technologies typically rely on comparisons between their expected life-cycle production costs per unit of electricity supplied. The standard life-cycle cost metric utilized is the “levelized cost” per MWh supplied. This paper demonstrates that this metric is inappropriate for comparing intermittent generating technologies like wind and solar with dispatchable generating technologies like nuclear, gas combined cycle, and coal. Levelized cost comparisons are a misleading metric for comparing intermittent and dispatchable generating technologies because they fail to take into account differences in the production profiles of intermittent and dispatchable generating technologies and the associated large variations in the market value of the electricity they supply. Levelized cost comparisons overvalue intermittent generating technologies compared to dispatchable base load generating technologies. They also overvalue wind generating technologies compared to solar generating technologies. Integrating differences in production profiles, the associated variations in the market value of the electricity supplied, and life-cycle costs associated with different generating technologies is necessary to provide meaningful comparisons between them. This market-based framework also has implications for the appropriate design of procurement auctions created to implement renewable energy procurement mandates, the efficient structure of production tax credits for renewable energy, and the evaluation of the additional costs of integrating intermittent generation into electric power networks.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 1013.

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Date of creation: Sep 2010
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Handle: RePEc:mee:wpaper:1013

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  1. Timothy D. Mount, Surin Maneevitjit, Alberto J. Lamadrid, Ray D. Zimmerman, and Robert J. Thomas, 2012. "The Hidden System Costs of Wind Generation in a Deregulated Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
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Cited by:
  1. Jean-Luc Gaffard & Mauro Napoletano, 2012. "Agent-based models and economic policy," Sciences Po publications info:hdl:2441/53r60a8s3ku, Sciences Po.
  2. Partridge, Ian, 2013. "Renewable electricity generation in India—A learning rate analysis," Energy Policy, Elsevier, vol. 60(C), pages 906-915.
  3. Edenhofer, Ottmar & Hirth, Lion & Knopf, Brigitte & Pahle, Michael & Schlömer, Steffen & Schmid, Eva & Ueckerdt, Falko, 2013. "On the economics of renewable energy sources," Energy Economics, Elsevier, vol. 40(S1), pages S12-S23.
  4. Fridolfsson, Sven-Olof & Tangerås, Thomas, 2012. "A Reexamination of Renewable Electricity Policy in Sweden," Working Paper Series 921, Research Institute of Industrial Economics.
  5. Linares, Pedro & Conchado, Adela, 2013. "The economics of new nuclear power plants in liberalized electricity markets," Energy Economics, Elsevier, vol. 40(S1), pages S119-S125.
  6. Grothe, Oliver & Müsgens, Felix, 2013. "The influence of spatial effects on wind power revenues under direct marketing rules," Energy Policy, Elsevier, vol. 58(C), pages 237-247.
  7. del Río, Pablo & Cerdá, Emilio, 2014. "The policy implications of the different interpretations of the cost-effectiveness of renewable electricity support," Energy Policy, Elsevier, vol. 64(C), pages 364-372.
  8. Grothe, Oliver & Müsgens, Felix, 2012. "The influence of spatial effects on wind power revenues under direct marketing rules," EWI Working Papers 2012-7, Energiewirtschaftliches Institut an der Universitaet zu Koeln.

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