Capturing the Economic Dynamics of Competing Power Generation Sources

39 Pages Posted: 4 Aug 2021 Last revised: 27 Jul 2022

See all articles by Gunther Glenk

Gunther Glenk

University of Mannheim - Mannheim Institute for Sustainable Energy Studies; Massachusetts Institute of Technology (MIT)

Stefan Reichelstein

Stanford University - Graduate School of Business

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Date Written: December 30, 2021

Abstract

Competing power generation sources have experienced considerable shifts in both their revenue potential and their costs in recent years. Here we introduce the concept of Levelized Profit Margins (LPM) to capture the changing unit economics of both intermittent and dispatchable generation technologies. We apply this framework in the context of the California and Texas wholesale power markets. Our LPM estimates indicate that solar photovoltaic and wind power have both substantially improved their competitive position during the years 2012-2019, primarily due to falling life-cycle costs of production. In California, these gains far outweigh an emerging "cannibalization" effect that results from substantial additions of solar power having made energy less valuable in the middle of the day. We also find the competitiveness of natural gas power plants to have either improved or held steady. For these plants, declining capacity utilization rates have effectively been counterbalanced by a "dispatchability price premium" that reflects the growing market share of intermittent renewables.

Keywords: Renewable Energy, Intermittency, Dispatchable Power, Levelized Cost, Profit Margins

JEL Classification: M1, O33, Q41, Q42, Q48, Q54, Q55

Suggested Citation

Glenk, Gunther and Reichelstein, Stefan, Capturing the Economic Dynamics of Competing Power Generation Sources (December 30, 2021). TRR 266 Accounting for Transparency Working Paper Series No. 58, Available at SSRN: https://ssrn.com/abstract=3897672 or http://dx.doi.org/10.2139/ssrn.3897672

Gunther Glenk (Contact Author)

University of Mannheim - Mannheim Institute for Sustainable Energy Studies ( email )

Mannheim
Germany

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Stefan Reichelstein

Stanford University - Graduate School of Business ( email )

Stanford, CA 94305
United States

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