The Impact of Variable Renewable Energy Integration on Total System Costs and Electricity Generation Revenue

Abstract

Variable renewable energy (VRE) integration creates additional costs, called “integration costs.” These costs have grown with VRE penetration, potentially increasing the total system costs delivered to customers (direct integration costs) and decreasing electricity generation revenue, discouraging generators’ investment (indirect integration costs). Thus, integration costs can be an economic barrier to integrate high shares of VRE. This paper proposes a method to determine the impact of VRE integration on total system costs and electricity generation revenue. The method is a combination of the unit-commitment model, the optimal generation mix and optimal generation schedule analysis, and merit-order simulations. The results show that the total system costs are minimal at 70% VRE penetration. In addition, after 20% VRE penetration, the combination of solar and wind generation provided minimal total system costs rather than relying on wind or solar individually. Moreover, the profitability of generators from supplying energy to the energy market is declined by VRE penetration. Combined cycle gas turbines (CCGT), hydro, and wind generators face higher impacts on their electricity generation revenue than coal and solar generators. Electricity system planners and policymakers need to consider and prioritize the severity of VRE impacts on each technology grown with VRE penetration to enact consistent plans and policies.