Abstract
We propose a system level approach to value the impact on costs of the integration of intermittent renewable generation in a power system, based on expected breakeven cost and breakeven cost risk. To do this, we carefully reconsider the definition of Levelized Cost of Electricity (LCOE) when extended to non-dispatchable generation, by examining extra costs and gains originated by the costly management of random power injections. We are thus lead to define a ‘system LCOE’ as a system dependent LCOE that takes properly into account intermittent generation. In order to include breakeven cost risk we further extend this deterministic approach to a stochastic setting, by introducing a ‘stochastic system LCOE’. This extension allows us to discuss the optimal integration of intermittent renewables from a broad, system level point of view. This paper thus aims to provide power producers and policy makers with a new methodological scheme, still based on the LCOE but which updates this valuation technique to current energy system configurations characterized by a large share of non-dispatchable production. Quantifying and optimizing the impact of intermittent renewables integration on power system costs, risk and CO 2 emissions, the proposed methodology can be used as powerful tool of analysis for assessing environmental and energy policies.
Highlights
Levelized Cost of Electricity (LCOE) analysis is an assessment technique routinely used to value electricity generation costs at plant level, in order to compare them with expected electricity sales revenues, and check if breakeven can be reached
The classic LCOE theory is a technique widely used for comparing generation costs among homogeneous individual technologies or between portfolios of homogeneous technologies, useful among other things for assessing capacity planning schemes
A naive use of the LCOE fails to consider the constraints of the interaction of a non-dispatchable source inclusion with the power system
Summary
Levelized Cost of Electricity (LCOE) analysis is an assessment technique routinely used to value electricity generation costs at plant level, in order to compare them with expected electricity sales revenues, and check if breakeven can be reached. That the stochastic system LCOE theory is able to generate endogenous strategies for optimally managing intermittent electricity production In this way, the proposed methodology can be used to analyze and quantify the global effects of the optimal integration on the power system in terms of cost, risk and CO2 emission reduction. One of the main behavioral implications of the stochastic LCOE theory is that the joint effect of fossil fuels prices volatility and CO2 price volatility can induce a rational investor to diversify its generation portfolio in order to minimize the overall impact of risky factors on the risk of production cost.
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