Abstract

https://ssrn.com/abstract=2200572
 
 

References (27)



 
 

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System LCOE: What are the Costs of Variable Renewables?


Falko Ueckerdt


Potsdam Institute for Climate Impact Research

Lion Hirth


neon neue energieökonomik GmbH

Gunnar Luderer


Potsdam-Institut für Klimafolgenforschung (PIK)

Ottmar Edenhofer


Potsdam Institute for Climate Impact Research (PIK)

January 14, 2013


Abstract:     
Levelized costs of electricity (LCOE) are a common metric for comparing power generating technologies. However, there is qualified criticism particularly towards evaluating variable renewables like wind and solar power based on LCOE because it ignores integration costs that occur at the system level. In this paper we propose a new measure System LCOE as the sum of generation and integration costs per unit of VRE. For this purpose we develop a conclusive definition of integration costs. Furthermore we decompose integration costs into different cost components and draw conclusions for integration options like transmission grids and energy storage. System LCOE are quantified from a power system model and a literature review. We find that at moderate wind shares (~20%) integration costs can be in the same range as generation costs of wind power and conventional plants. Integration costs further increase with growing wind shares. We conclude that integration costs can become an economic barrier to deploying VRE at high shares. This implies that an economic evaluation of VRE must not neglect integration costs. A pure LCOE comparison would significantly underestimate the costs of VRE at high shares. System LCOE give a framework of how to consistently account for integration costs and thus guide policy makers and system planers in designing a cost-efficient power system.

Number of Pages in PDF File: 33

Keywords: renewable energy, integration costs, levelized costs of electricity, LCOE, environmental economics, power generation economics, wind power, solar power, electricity market, market integration

JEL Classification: Q42, Q20


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Date posted: January 15, 2013  

Suggested Citation

Ueckerdt, Falko and Hirth, Lion and Luderer, Gunnar and Edenhofer, Ottmar, System LCOE: What are the Costs of Variable Renewables? (January 14, 2013). Available at SSRN: https://ssrn.com/abstract=2200572 or http://dx.doi.org/10.2139/ssrn.2200572

Contact Information

Falko Ueckerdt (Contact Author)
Potsdam Institute for Climate Impact Research ( email )
Telegraphenberg
Potsdam, Brandenburg 14412
Germany
HOME PAGE: http://www.pik-potsdam.de/pik-frontpage?set_language=en
Lion Hirth
neon neue energieökonomik GmbH ( email )
Karl-Marx-Platz 12
12043
Berlin, 12043
Germany
HOME PAGE: http://www.neon-energie.de
Gunnar Luderer
Potsdam-Institut für Klimafolgenforschung (PIK) ( email )
Telegraphenberg
Potsdam, Brandenburg 14412
Germany
Ottmar Edenhofer
Potsdam Institute for Climate Impact Research (PIK) ( email )
P.O. Box 601203
14412 Potsdam, Brandenburg
Germany
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References:  27
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