Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies
AbstractEconomic evaluations of alternative electric generating technologies typically rely on comparisons between their expected life-cycle production costs per unit of electricity supplied. The standard lifecycle 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. These comparisons also typically overvalue wind generating technologies compared to solar generating technologies. Integrating differences in production profiles, the associated variations in the market value of the electricity at the times it is supplied, and the expected life-cycle costs associated with different generating technologies is necessary to provide meaningful economic 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, incentives for and the evaluation of electricity storage technologies and the evaluation of the additional costs of integrating intermittent generation into electric power networks.
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Bibliographic InfoPaper provided by European University Institute in its series RSCAS Working Papers with number 2011/45.
Date of creation: 01 Jul 2011
Date of revision:
levelized cost comparisons; production profiles; intermittent generating technologies; design of procurement auctions;
Other versions of this item:
- Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," American Economic Review, American Economic Association, vol. 101(3), pages 238-41, May.
- Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," EUI-RSCAS Working Papers 45, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Paul L. Joskow, 2010. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," Working Papers 1013, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
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