Time of day pricing and the levelized cost of intermittent power generation

Stefan Reichelstein and Anshuman Sahoo

Energy Economics, 2015, vol. 48, issue C, 97-108

Abstract: An important characteristic of most renewable energy sources is intermittency in their ability to generate electricity. Yet, intermittency is usually ignored in life-cycle cost calculations intended to assess the competitiveness of electric power from renewable as opposed to dispatchable energy sources, such as fossil fuels. This paper demonstrates that for intermittent renewable power sources a traditional life-cycle cost calculation should be appended by a correction factor which we term the Co-Variation coefficient. It captures any synergies, or complementarities, between the time-varying patterns of electricity generation and pricing. We estimate the Co-Variation coefficient for specific settings in the western United States. Our estimates imply that the benchmark of cost competitiveness for solar photovoltaic (PV) power is 10 to 15% lower than previous average life-cycle cost analyses have suggested. In contrast, the generation pattern of wind power exhibits complementarities with electricity pricing schedules, yielding a cost assessment that is higher than that suggested by traditional calculations. For the specific settings we study, the corresponding magnitude of the markup is 10 to 15%.

Keywords: Levelized cost of electricity; Renewable energy; Intermittent electricity generation; Solar PV; Wind power (search for similar items in EconPapers)
JEL-codes: M21 Q42 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:48:y:2015:i:c:p:97-108

DOI: 10.1016/j.eneco.2014.12.005

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