Integration Costs and the Value of Wind Power

29 Pages Posted: 11 Dec 2012

See all articles by Lion Hirth

Lion Hirth

Neon Neue Energieökonomik GmbH; Hertie School of Governance

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Date Written: December 10, 2012

Abstract

The integration of wind and solar generators into power systems cause “integration costs” for grids, balancing services, reserve capacity, reduced utilization of the capital stock, and more flexible operation of thermal plants. This paper proposes a market-based valuation framework to analyze and estimate these inte-gration costs. The framework exhaustively accounts for all costs that occur at the level of the power system. It is based on three inherent properties of wind and solar power: variability, uncertainty, and location specificity. Each property has a corresponding cost that can be estimated from numerical models or from observed market data. Surveying the literature indicates that at high penetration rates, say a wind market share of 30%, integra-tion costs can be in the same order of magnitude as wind generation costs. Many previous studies do not fully account for integration costs, underestimating the social costs of variable renewables.

Suggested Citation

Hirth, Lion, Integration Costs and the Value of Wind Power (December 10, 2012). USAEE Working Paper No. 12-150. Available at SSRN: https://ssrn.com/abstract=2187632 or http://dx.doi.org/10.2139/ssrn.2187632

Lion Hirth (Contact Author)

Neon Neue Energieökonomik GmbH ( email )

Karl-Marx-Platz 12
12043
Berlin, 12043
Germany

HOME PAGE: http://www.neon-energie.de

Hertie School of Governance ( email )

Friedrichstraße 180
Berlin, 10117
Germany

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