TY - JOUR A1 - Ueckerdt, Falko A1 - Hirth, Lion A1 - Luderer, Gunnar A1 - Edenhofer, Ottmar T1 - System LCOE: What are the costs of variable renewables? JF - Energy N2 - Levelized costs of electricity (LCOE) are a common metric for comparing power generating technologies. However, there is criticism particularly towards evaluating variable renewables like wind and solar PV power based on LCOE because it ignores variability and integration costs. We propose a new metric System LCOE that accounts for integration and generation costs. For this purpose we develop a new mathematical definition of integration costs that directly relates to economic theory. As a result System LCOE allow the economic comparison of generating technologies and deriving optimal quantities in particular for VRE. To demonstrate the new concept we quantify System LCOE from a simple power system model and literature values. We find that at high wind shares integration costs can be in the same range as generation costs of wind power and conventional plants in particular due to a cost component “profile costs” captured by the new definition. Integration costs increase with growing wind shares and might become an economic barrier to deploying VRE at high shares. System LCOE help understanding and resolving the challenge of integrating VRE and can guide research and policy makers in realizing a cost-efficient transformation towards an energy system with potentially high shares of variable renewables. KW - Renewable energy KW - Integration costs KW - Levelized costs of electricity (LCOE) KW - Power generation economics KW - Market integration Y1 - 2013 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:b1570-opus4-22942 SN - 0360-5442 VL - 63 SP - 61 EP - 75 PB - Elsevier Ltd ER - TY - JOUR A1 - Edenhofer, Ottmar A1 - Hirth, Lion A1 - Knopf, Brigitte A1 - Pahle, Michael A1 - Schlömer, Steffen A1 - Schmid, Eva A1 - Ueckerdt, Falko T1 - On the Economics of Renewable Energy Sources JF - Energy Economics N2 - With the global expansion of renewable energy (RE) technologies, the provision of optimal RE policy packages becomes an important task. We review pivotal aspects regarding the economics of renewables that are relevant to the design of an optimal RE policy, many of which are to date unresolved. We do so from three interrelated perspectives that a meaningful public policy framework for inquiry must take into account. First, we explore different social objectives justifying the deployment of RE technologies, including potential co-benefits of RE deployment, and review modelbased estimates of the economic potential of RE technologies, i.e. their socially optimal deployment level. Second, we address pivotal market failures that arise in the course of implementing the economic potential of RE sources in decentralized markets. Third, we discuss multiple policy instruments curing these market failures. Our framework reveals the requirements for an assessment of the relevant options for real-world decision makers in the field of RE policies. This review makes it clear that there are remaining white areas on the knowledge map concerning consistent and socially optimal RE policies. KW - Energy KW - Mitigation KW - Integrated assessment modeling KW - Variable renewables KW - Electricity market design KW - Renewable policy Y1 - 2013 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:b1570-opus4-22965 SN - 0140-9883 N1 - This is a post-peer-review, pre-copyedit version of an article published in Energy Economics. The final authenticated version is available online at: DOI 10.1016/j.eneco.2013.09.015 VL - 40 IS - S1 SP - S12 EP - S23 ER - TY - JOUR A1 - Hirth, Lion A1 - Ueckerdt, Falko A1 - Edenhofer, Ottmar T1 - Integration Costs Revisited – An economic framework for wind and solar variability JF - Renewable Energy N2 - The integration of wind and solar generators into power systems causes “integration costs” – for grids, balancing services, more flexible operation of thermal plants, and reduced utilization of the capital stock embodied in infrastructure, among other things. This paper proposes a framework to analyze and quantify these costs. We propose a definition of integration costs based on the marginal economic value of electricity, or market value – as such a definition can be more easily used in economic cost-benefit assessment than previous approaches. We suggest decomposing integration costs intro three components, according to the principal characteristics of wind and solar power: temporal variability, uncertainty, and location-constraints. Quantitative estimates of these components are extracted from a review of 100 + published studies. At high penetration rates, say a wind market share of 30–40%, integration costs are found to be 25–35 €/MWh, i.e. up to 50% of generation costs. While these estimates are system-specific and subject to significant uncertainty, integration costs are certainly too large to be ignored in high-penetration assessments (but might be ignored at low penetration). The largest single factor is reduced utilization of capital embodied in thermal plants, a cost component that has not been accounted for in most previous integration studies. KW - Wind power KW - Solar power KW - Integration cost KW - Variable renewables Y1 - 2015 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:b1570-opus4-22878 SN - 0960-1481 VL - 74 SP - 925 EP - 939 PB - Elsevier Ltd ER - TY - JOUR A1 - Hirth, Lion A1 - Ueckerdt, Falko T1 - Redistribution Effects of Energy and Climate Policy: The Electricity Market JF - Energy Policy N2 - Energy and climate policies are usually seen as measures to internalize externalities. However, as a side effect, the introduction of these policies redistributes wealth between consumers and producers, and within these groups. While redistribution is seldom the focus of the academic literature in energy economics, it plays a central role in public debates and policy decisions. This paper compares the distributional effects of two major electricity policies: support schemes for renewable energy sources, and CO2 pricing. We find that the redistribution effects of both policies are large, and they work in opposed directions. While renewables support transfers wealth from producers to consumers, carbon pricing does the opposite. More specifically, we show that moderate amounts of wind subsidies can increase consumer surplus, even if consumers bear the subsidy costs. CO2 pricing, in contrast, increases aggregated producer surplus, even without free allocation of emission allowances; however, not all types of producers benefit. These findings are derived from an analytical model of electricity markets, and a calibrated numerical model of Northwestern Europe. Our findings imply that if policy makers want to avoid large redistribution they might prefer a mix of policies, even if CO2 pricing alone is the first-best climate policy in terms of allocative efficiency. KW - Carbon tax KW - Emission trading KW - Redistribution KW - Consumer surplus KW - Producer surplus KW - Wind power generation KW - Electricity market modeling Y1 - 2013 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:b1570-opus4-22886 SN - 0301-4215 N1 - This is a post-peer-review, pre-copyedit version of an article published in Energy Policy. The final authenticated version is available online at: DOI 10.1016/j.enpol.2013.07.055 VL - 62 SP - 934 EP - 947 PB - Elsevier Ltd ER - TY - JOUR A1 - Hirth, Lion A1 - Ueckerdt, Falko A1 - Edenhofer, Ottmar T1 - Why Wind is not Coal: On the Economics of Electricity Generation JF - The Energy Journal N2 - Electricity is a paradoxical economic good: it is highly homogeneous and heterogeneous at the same time. Electricity prices vary dramatically between moments in time, between location, and according to lead-time between contract and delivery. This three-dimensional heterogeneity has implication for the economic assessment of power generation technologies: different technologies, such as coal-fired plants and wind turbines, produce electricity that has, on average, a different economic value. Several tools that are used to evaluate generators in practice ignore these value differences, including "levelized electricity costs", "grid parity", and simple macroeconomic models. This paper provides a rigorous and general discussion of heterogeneity and its implications for the economic assessment of electricity generating technologies. It shows that these tools are biased, specifically, they tend to favor wind and solar power over dispatchable generators where these renewable generators have a high market share. A literature review shows that, at a wind market share of 30-40%, the value of a megawatt-hour of electricity from a wind turbine can be 20-50% lower than the value of one megawatt-hour as demanded by consumers. We introduce "System LCOE" as one way of comparing generation technologies economically. KW - Power generation KW - Electricity sector KW - Integrated assessment modeling KW - Wind power KW - Solar power KW - Variable renewables KW - Integration costs KW - Welfare economics KW - Power economics KW - Levelized electricity cost KW - LCOE KW - Grid parity Y1 - 2016 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:b1570-opus4-22828 SN - 1944-9089 VL - 37 IS - 3 SP - 1 EP - 27 ER - TY - CHAP A1 - Hirth, Lion A1 - Ueckerdt, Falko ED - Stolten, Detlef ED - Scherer, Viktor T1 - The Decreasing Market Value of Variable Renewables: Integration Options and Deadlocks T2 - Transition to Renewable Energy Systems KW - variable renewables KW - market value KW - integration costs Y1 - 2013 SN - 978-3527332397 SN - 9783527673872 U6 - https://doi.org/10.1002/9783527673872.ch6 SP - 75 EP - 92 PB - Wiley VCH CY - Oxford ER -