Time of Day Pricing and the Levelized Cost of Intermittent Power Generation

Time of Day Pricing and the Levelized Cost of Intermittent Power Generation

By Stefan J. Reichelstein, Anshuman Sahoo
April 25,2013Working Paper No. 3268

An important characteristic of most renewable energy sources is their intermittent pattern of electricity generation. 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 power 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 PV power is 10-15% lower than average life-cycle cost analyses have suggested. In contrast, the generation pattern of wind power exhibits complementarities with electricity pricing schedules, yielding a cost competitiveness assessment 10-15% above that suggested by traditional calculations.

Keywords
sustainable energy