Capturing the Economic Dynamics of Competing Power Generation Sources
39 Pages Posted: 4 Aug 2021 Last revised: 27 Jul 2022
Date Written: December 30, 2021
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: Suggested Citation