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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 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 Info

Paper provided by European University Institute in its series RSCAS Working Papers with number 2011/45.

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Date of creation: 01 Jul 2011
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Handle: RePEc:rsc:rsceui:2011/45

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Keywords: levelized cost comparisons; production profiles; intermittent generating technologies; design of procurement auctions;

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References

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  1. Mount, Timothy D. & Maneevitjit, Surin & Lamadrid, Alberto J. & Zimmerman, Ray D. & Thomas, Robert J., 2011. "The Hidden System Costs Of Wind Generation In A Deregulated Electricity Market," Working Papers 126529, Cornell University, Department of Applied Economics and Management.
  2. Boccard, Nicolas, 2009. "Capacity factor of wind power realized values vs. estimates," Energy Policy, Elsevier, vol. 37(7), pages 2679-2688, July.
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Citations

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Cited by:
  1. Fridolfsson, Sven-Olof & Tangerås, Thomas P., 2013. "A reexamination of renewable electricity policy in Sweden," Energy Policy, Elsevier, vol. 58(C), pages 57-63.
  2. Wolf-Peter Schill, 2013. "Residual Load, Renewable Surplus Generation and Storage Requirements in Germany," Discussion Papers of DIW Berlin 1316, DIW Berlin, German Institute for Economic Research.
  3. Grossi, Luigi & Heim, Sven & Waterson, Michael, 2014. "A vision of the European energy future? The impact of the German response to the Fukushima earthquake," The Warwick Economics Research Paper Series (TWERPS) 1047, University of Warwick, Department of Economics.
  4. 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.
  5. 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.
  6. 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.
  7. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9l564igg8g is not listed on IDEAS
  8. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
  9. Jean-Luc Gaffard & Mauro Napoletano, 2012. "Agent-based models and economic policy," Sciences Po publications info:hdl:2441/53r60a8s3ku, Sciences Po.
  10. repec:fae:wpaper:2014.05 is not listed on IDEAS
  11. 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.
  12. Adela Conchado & Pedro Linares, 2010. "The Economics of New Nuclear Power Plants in Liberalized Electricity Markets," Working Papers 04-2010, Economics for Energy.
  13. Partridge, Ian, 2013. "Renewable electricity generation in India—A learning rate analysis," Energy Policy, Elsevier, vol. 60(C), pages 906-915.

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