Integration costs revisited – An economic framework for wind and solar variability

The integration of wind and solar generators into power systems causes “integration costs” – for grids, balancing services, more flexible operation of thermal plants, and reduced utilization of the capital stock embodied in infrastructure, among other things. This paper proposes a framework to analyze and quantify these costs. We propose a definition of integration costs based on the marginal economic value of electricity, or market value – as such a definition can be more easily used in economic cost-benefit assessment than previous approaches. We suggest decomposing integration costs intro three components, according to the principal characteristics of wind and solar power: temporal variability, uncertainty, and location-constraints. Quantitative estimates of these components are extracted from a review of 100 + published studies. At high penetration rates, say a wind market share of 30–40%, integration costs are found to be 25–35 €/MWh, i.e. up to 50% of generation costs. While these estimates are system-specific and subject to significant uncertainty, integration costs are certainly too large to be ignored in high-penetration assessments (but might be ignored at low penetration). The largest single factor is reduced utilization of capital embodied in thermal plants, a cost component that has not been accounted for in most previous integration studies.