Optimal Integration of Intermittent Renewables: A System LCOE Stochastic Approach

We propose a system level approach to value the impact on costs of the integration of intermittent renewable generation in a power system, based on expected breakeven cost and breakeven cost risk. To do this, we carefully reconsider the definition of Levelized Cost of Electricity (LCOE) when extended to non-dispatchable generation, by examining extra costs and gains originated by the costly management of random power injections. We are thus lead to define a ‘system LCOE’ as a system dependent LCOE that takes properly into account intermittent generation. In order to include breakeven cost risk we further extend this deterministic approach to a stochastic setting, by introducing a ‘stochastic system LCOE’. This extension allows us to discuss the optimal integration of intermittent renewables from a broad, system level point of view. This paper thus aims to provide power producers and policy makers with a new methodological scheme, still based on the LCOE but which updates this valuation technique to current energy system configurations characterized by a large share of non-dispatchable production. Quantifying and optimizing the impact of intermittent renewables integration on power system costs, risk and CO 2 emissions, the proposed methodology can be used as powerful tool of analysis for assessing environmental and energy policies.