The Changing Costs and Values of Electricity Generation Technologies: Measuring Profitability and Evaluating Options for Integrating Renewables

Generation costs help determine the amount of electricity that each plant will produce and the technology of new plants, which together explain almost all of the reduction in power-sector CO2 emissions since 2005.Because electricity prices vary over time, generation costs alone are an insufficient measure for intermittent technologies such as wind and solar; generation values must also be considered to assess plant profitability and forecast new installations.A system cost approach considers both generation costs and integration costs—the costs imposed on existing plants and the power grid by the installation of a new plant.Although wind and solar generation costs have declined substantially over the past decade, their generation values are also declining, and integration costs are expected to rise with increased proportions of wind and solar on the grid.An analysis of integration costs allows us to evaluate the potential effectiveness of integration options, such as energy storage and flexible demand.