System LCOE: What are the Costs of Variable Renewables?


From the Potsdam Institute for Climate Impact Research, a serious piece of work on renewable integration costs.


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.

7 thoughts on “System LCOE: What are the Costs of Variable Renewables?

    1. Steve Darden Post author

      I think their road is washed out (great metaphor). Please shout if you find anything squishy in the Potsdam work.

      Also, I’m keen to hear your criticisms of my revised post on nuclear cooperation with China. I noticed overnight that Jim Hansen is proposing much the same in his latest letter.

      And my apologies, when I republished under a new headline I lost your comments on the previous.

      1. Engineer-Poet

        I read the Potsdam paper a week or so ago, and while it rings true to me I don’t have the data or expertise to critique it well.  However, that goes ten times for the typical “green”, who cannot tell the difference between a kilowatt and a kWh and probably can’t even do algebra.

  1. Steve Darden Post author

    I recently proposed the green taxonomy of Numerate and Un-numerate. I think that cleaves about where the greens divide between science-based vs. ideology. But that’s useless wordplay for real conversation, esp. for TV sound-biting.

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