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System LCOE: What are the costs of variable renewables?

Listed author(s):
  • Ueckerdt, Falko
  • Hirth, Lion
  • Luderer, Gunnar
  • Edenhofer, Ottmar

LCOE (levelized costs of electricity) are a common metric for comparing power generating technologies. However, there is criticism particularly towards evaluating variable renewables like wind and solar PV (photovoltaics) power based on LCOE because it ignores variability and integration costs. We propose a new metric System LCOE that accounts for integration and generation costs. For this purpose we develop a new mathematical definition of integration costs that directly relates to economic theory. As a result System LCOE allow the economic comparison of generating technologies and deriving optimal quantities in particular for VRE (variable renewable sources). To demonstrate the new concept we quantify System LCOE from a simple power system model and literature values. We find that at high wind shares integration costs can be in the same range as generation costs of wind power and conventional plants in particular due to a cost component “profile costs” captured by the new definition. Integration costs increase with growing wind shares and might become an economic barrier to deploying VRE at high shares. System LCOE help understanding and resolving the challenge of integrating VRE and can guide research and policy makers in realizing a cost-efficient transformation towards an energy system with potentially high shares of variable renewables.

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File URL: http://www.sciencedirect.com/science/article/pii/S0360544213009390
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Article provided by Elsevier in its journal Energy.

Volume (Year): 63 (2013)
Issue (Month): C ()
Pages: 61-75

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Handle: RePEc:eee:energy:v:63:y:2013:i:c:p:61-75
DOI: 10.1016/j.energy.2013.10.072
Contact details of provider: Web page: http://www.journals.elsevier.com/energy

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  1. Bushnell, James, 2010. "Building Blocks: Investment in Renewable and Non-Renewable Technologies," Staff General Research Papers Archive 31546, Iowa State University, Department of Economics.
  2. Hirst, Eric & Hild, Jeffrey, 2004. "The Value of Wind Energy as a Function of Wind Capacity," The Electricity Journal, Elsevier, vol. 17(6), pages 11-20, July.
  3. Ludig, Sylvie & Haller, Markus & Schmid, Eva & Bauer, Nico, 2011. "Fluctuating renewables in a long-term climate change mitigation strategy," Energy, Elsevier, vol. 36(11), pages 6674-6685.
  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.
  5. Nicolosi, Marco, 2010. "Wind power integration and power system flexibility-An empirical analysis of extreme events in Germany under the new negative price regime," Energy Policy, Elsevier, vol. 38(11), pages 7257-7268, November.
  6. Richard Green, 2005. "Electricity and Markets," Oxford Review of Economic Policy, Oxford University Press, vol. 21(1), pages 67-87, Spring.
  7. Haller, Markus & Ludig, Sylvie & Bauer, Nico, 2012. "Decarbonization scenarios for the EU and MENA power system: Considering spatial distribution and short term dynamics of renewable generation," Energy Policy, Elsevier, vol. 47(C), pages 282-290.
  8. DeCesaro, Jennifer & Porter, Kevin & Milligan, Michael, 2009. "Wind Energy and Power System Operations: A Review of Wind Integration Studies to Date," The Electricity Journal, Elsevier, vol. 22(10), pages 34-43, December.
  9. Richard Green & Nicholas Vasilakos, 2011. "The Long-term Impact of Wind Power on Electricity Prices and Generating Capacity," Discussion Papers 11-09, Department of Economics, University of Birmingham.
  10. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
  11. Severin Borenstein, 2012. "The Private and Public Economics of Renewable Electricity Generation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 67-92, Winter.
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