System LCOE and minimizing GHG avoidance costs

Recent references on full life cycle costing of electricity generation options – including accounting for intermittency and integration costs.

Why the Best Path to a Low-Carbon Future is Not Wind or Solar Power Analysis of Brookings paper by Charles Frank

This paper examines five different low and no-carbon electricity technologies and presents the net benefits of each under a range of assumptions. It estimates the costs per megawatt per year for wind, solar, hydroelectric, nuclear, and gas combined cycle electricity plants. To calculate these estimates, the paper uses a methodology based on avoided emissions and avoided costs, rather than comparing the more prevalent “levelized” costs. Three key findings result:

First—assuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less—nuclear, hydro, and natural gas combined cycle have far more net benefits than either wind or solar. This is the case because solar and wind facilities suffer from a very high capacity cost per megawatt, very low capacity factors and low reliability, which result in low avoided emissions and low avoided energy cost per dollar invested.

Second, low and no-carbon energy projects are most effective in avoiding emissions if a price for carbon is levied on fossil fuel energy suppliers. In the absence of an appropriate price for carbon, new no-carbon plants will tend to displace low-carbon gas combined cycle plants rather than high-carbon coal plants and achieve only a fraction of the potential reduction in carbon emissions. The price of carbon should be high enough to make production from gas-fired plants preferable to production from coal-fired plants, both in the short term, based on relative short-term energy costs, and the longer term, based on relative energy and capacity costs combined.

Third, direct regulation of carbon dioxide emissions of new and existing coal-fired plants, as proposed by the U.S. Environmental Protection Agency, can have some of the same effects as a carbon price in reducing coal plant emissions both in the short term and in the longer term as old, inefficient coal plants are retired. However, a price levied on carbon dioxide emissions is likely to be a less costly way to achieve a reduction in carbon dioxide emissions.

The Optimal Share of Variable Renewables. How the Variability of Wind and Solar Power Affects Their Welfare-Optimal Deployment

This paper estimates the welfare-optimal market share of wind and solar power, explicitly taking into account their output variability. We present a theoretical valuation framework that consistently accounts for output variability over time, forecast errors, and the location of generators in the power grid, and evaluate the impact of these three factors on the marginal value of electricity from renewables. Then we estimate the optimal share of wind and solar power in Northwestern Europe from a calibrated numerical power market model. The optimal long-term share of wind power of total electricity consumption is estimated to be 20% at cost levels of 50 €/MWh, about three times the current market share of wind; but this estimate is subject to significant parameter uncertainty. Variability significantly impacts results: if winds were constant, the optimal share would be 60%. In addition, the effect of technological change, price shocks, and policies on the optimal share is assessed. We present and explain several surprising findings, including a negative impact of CO2 prices on optimal wind deployment.

 System LCOE/ What are the Costs of Variable Renewables? by Falko Ueckerdt, Lion Hirth, Gunnar Ludere

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.