CommentaryAn

Overview

of

Integration

Costs

of

VariableRenewables

in

thePower

SectorJune2023FarisF.

Aljamed,Frank

A.

Felder,

AmroM.

ElshurafaIntroductionInrecentyears,thecostofelectricitygeneratedbyrenewableshassigni?cantlydecreasedtothepointwhereitiscostcompetitivewithconventionalplants(HeptonstallandGross,2021).

However,

incorporatingvariablerenewableenergy(VRE)technologieslikewindandsolarphotovoltaics(PV)intothepowersystemcreatesintermittency.Byaddingintermittentsourcesofgeneration,demandandsupplywillnotalwaysmatch.Thismeansthatthesystemrequiresmorebackupgeneratorsandmore?exibilitytobalancethemismatchbetweensupplyanddemand.IntegrationcostsmustbefactoredintodeterminetheoptimalshareofVREandthetotalsystemcost.Traditionally,

thelevelizedcostofenergy(LCOE)hasbeenusedtocomparethecostsofdifferentpowergenerators.LCOEcalculatesthetotallifetimediscountedcostsofconstructingandoperatinga

plantanddividesitby

theprojectedtotalenergyproducedduringitsassumedlifespan.However,

LCOEdoesnotconsiderthecoststhatariseduetoVREintermittencyortheexpensesassociatedwithadaptingthepowersystemtothechangesbroughtby

VRE.Therefore,LCOEalonecannotcapturethetotalsystemcostswhenVREisintroducedtothegrid(Lothet

al.,

2022).

Thiscommentaryprovidesa

briefoverviewofhowVREintegrationcostsarecalculatedby

examiningvariousmethodsavailableintheliterature.De?nitionofIntegrationCostsandtheirComponentsIntegrationcostsarecategorizedintothreecomponents:balancingcosts,gridcosts,andpro?lecosts.BalancingcostsrefertothecostsimposedbytheunpredictablenatureofVREgeneration.Supplyuncertaintycausesday-aheadforecastingerrors,whichnecessitateoperatingreservesand/orstoragetobalancesupplyanddemand.GridcostsresultfromVREregion-speci?crequirements.VREtechnologiesareless?exiblethanconventionalgenerationintermsofwheretheycanbebuilt.Sometimes,VREgeneratorsarelocatedfarfromloadcenters,requiringadditionaltransmissioninfrastructuretodeliverenergy.Pro?lecostsaremostlyduetothevariablenatureofVRE(Ueckerdtetal.2013).Integrationcostsarecategorizedintothreecomponents:balancingcosts,gridcosts,andpro?lecostsPro?lecostswerepreviouslyreferredtoas‘a(chǎn)dequacycosts.’Adequacycostsaretheexpensesattributabletothelow-capacitycreditofVRE.Conventionalgenerationcapacityisconsidered‘?rm’capacity,alwaysreadytomeetdemand,whichisnotthecaseforVRE.Asaresult,capacitycostsincreaseasmoreVREisintegratedintothesystem.Pro?lecostsareamorecomprehensiveconceptthatcapturesallcostsimposedbyVREvariability(HeptonstallandGross2021).Pro?lecostscomprisethreecomponents.The?rstcomponentisoverproductioncosts,whicharethecostsarisingfromthecurtailmentrequiredforover-generatedpower.

Thesecondcomponentisbackupcosts,whicharethecostsofbackupcapacityneededtobalancesupplyAnOverviewofIntegrationCostsofVariableRenewablesinthePowerSector2Figure1.

Hierarchyofintegrationcostsandtheircomponents.Source:Ueckerdtetal.(2013).anddemand.Thethirdcomponentisfull-loadhour(FLH)reductioncosts.VREsreducetheFLHofdispatchableplants,resultinginlowergenerationpercapacityfortheseplants(Ueckerdtetal.2013).

Figure1summarizestheintegrationcosts.ReviewofHowIntegrationCostsofVariableRenewableEnergyAreCalculatedLoaddurationcurvesmethodOnemethodtoassessintegrationcostsistheloaddurationcurve(LDC)method.AnLDCdisplaysthehourlyloadofayear,

sortedfromthehighestloadhourtotheleastloadhour.

When(VRE)isadded,theLDCischangedtoresidualloaddurationcurve(RLDC),

whichshowshowmuchelectricitydemandisleftaftersubtractingthesupplyfromrenewableresources.To

determinetheresidualcostsforthesystemwithVRE,oneneedstointegratealongtheinverseoftheRLDCandmultiplythevaluebytherespectiveminimumscreeningcurvevalue.ForthesystemwithoutVRE,theintegrationisalongtheinverseoftheLDC.Screeningcurvesshowthetotalcostperkilowatt(kW)peryearofdifferentgenerationtechnologies.Figure2displaysanexampleofanLDCandanRLDC.AnOverviewofIntegrationCostsofVariableRenewablesinthePowerSector3Figure2.

ConceptualschematicexplainingthedifferencebetweenLDCandRLDC.Source:Authors’illustration.Ueckerdtetal.(2013)

introducedthesystemLCOEmetric,whichisthesumoftheplant’smarginalgenerationcostsandmarginalintegrationcosts.TheauthorsdividedthecostsofthesystemintoVREgenerationcostandresidualcosts.TheresidualcostsarethegenerationcostsofconventionalplantsandtheintegrationcostsofVRE.Theauthorscomparedtheresidualcostsoftwosystems:onewithVREandonewithout.SincethesystemwithoutVREhasnointegrationcosts,comparingtheresidualcostsofthetwosystemsisolatestheVREintegrationcosts.Theintegrationcostsarede?nedasthedifferencebetweenthespeci?ccostsperunitofresidualloadofthetwosystemsmultipliedbytheresidualgeneration.Ueckerdtetal.estimatedbalancingandgridcostsfrompreviousstudiesandcalculatedpro?lecosts.Forwindsharesfrom5%

to30%,balancingcostsrangefrom2.5to5eurospermegawatthour(€/MWh),

andgridcostsarearound13

€/MWhfor40%windpenetration.Pro?lecostsreachabout30

€/MWhat30%windpenetration,andoverallintegrationcostscangoupto60

€/MWhat40%windpenetration.Integrationcostscanbereducedbyintroducingoptionssuchaslongdistanceinterconnection,storage,anddemandmanagement.Notethatthestudybeingrevieweddoesnotoptimizetheenergymix.Theonlyoptionconsideredwasthecapacitymixofresidualpowergenerationbythermalgenerators.Thus,thepro?lecostscalculatedareoverestimated.AnOverviewofIntegrationCostsofVariableRenewablesinthePowerSector4CostproductionmodelmethodAnothermethodtoassessintegrationcostsisthecostproductionmodelmethod.Here,themodelercomparesascenariowithoutrenewablestoanotherwithrenewables.Thedifferenceincostbetweenthetwoscenarioswouldbetheintegrationcosts.Themodelscanbebuiltusingstandardsoftwareorprogramminglanguages.Forinstance,Brouweretal.(2015)

usedPLEXOS,acommerciallyavailablesoftwarepackagethatmodelspowersystems,tosimulatethepowersectorforWesternEuropein2050.Fordifferentpenetrationlevels,theauthorsconsidered?vecomplementaryoptionstointegrateVREatthelowestcost:demandresponse(DR),

gas-?redpowerplantswithandwithoutcarboncapture,increasedinterconnectioncapacity,curtailment,andelectricitystorage.PLEXOSoptimizesunitcommitmentandeconomicdispatchwhilemeeting?veconstraints:balancingelectricitysupplyanddemand,?exibilityconstraintsofgenerators,limitedtransmissioncapacityforinterconnections,scheduledandunscheduledoutages,andthebalancingreservesrequirements.Pro?lecostswerecalculatedforvariablerenewableenergy(VRE)penetrationlevelsbetween22%and59%,withvaluesbetween0%and22%

linearlyinterpolated.Theincreaseinpro?lecostsduetoVREadditionismainlyattributedtotwofactors:thereductioninthecapacityfactorofthermalgeneratorscausedbyincreasedVRE,andtheneedformorecurtailmentduetooverproductionfromrenewables(Brouweretal.2015).Marginalpro?lecostsrangedfrom0€/MWhto100

€/MWhforpenetrationlevelsof0%to60%.

Upto40%penetration,integrationcostsincreasedlinearly,reachingapproximately30

€/MWh.However,

afterthe40%mark,integrationcostsstartedtogrowexponentially.Reichenbergetal.(2018)

focusedontheintegrationcostsofVREinEuropebydividingitinto10

regions.Theyusedanelectricityinvestmentmodelthataccountsforvariabilityandvariationmanagementtooptimizethedispatchandinvestmentingeneration,storage,andtransmissionforallpenetrationlevels.Theauthorscalculatedthesystemlevelizedcostofelectricity(LCOE)usingthesamede?nitionasUeckerdtetal.ThemarginalsystemLCOEincreasedlinearlyasVREpenetrationincreased,witharateof6€/MWhforeach10%

increaseuntilreaching80%penetration.Afterthatpoint,themarginalsystemLCOEstartedtoincreaseexponentiallyduetoallocatingVREinregionswithlowercapacityfactorsandtheneedtocurtailorstoreexcessenergy.Xietal.(2022)calculatedtheintegrationcostsforthepowersystemintheJilinprovinceofChina,comparingasystemwithnoVREgenerationtoasystemwithVREgeneration.Duetothecoal-dominatednatureoftheJilinpowersystem,itexperiencedarapidincreaseinintegrationcostsatanearlierpenetrationlevelcomparedtootherpowersystems.Yao

etal.(2020)simulatedthepowersystemofGuangdongprovinceinChinaandfoundthatintegrationcostsforwindandsolarPV

rangedfrom-2.18€/MWhto11.47

€/MWhand-5.21€/MWhto6.73

€/MWh,respectively,forpenetrationlevelsupto30%.AnOverviewofIntegrationCostsofVariableRenewablesinthePowerSector5Overall,theintegrationcostsof

VREvaryOverall,theintegrationcostsofVREvarydependingonthepenetrationlevel,system?exibility,andthespeci?ccharacteristicsofthepowersystembeinganalyzed.WhilemarginalsystemLCOEandincrementaloperatingcostsofthermalplantstendtoincreaselinearlywithhigherVREpenetration,curtailmentcosts,idlecosts,andbalancingcostscandecreaseorremainconstantinmore?exiblepowersystems.dependingonthepenetrationlevel,system

?exibility,andthespeci?ccharacteristicsof

thepowersystem

beinganalyzedThetwostudieswe

discussedonChinaonlyconsiderintegrationcostsforpenetrationlevelsupto40%.However,

toincreasethedeploymentofVREintheChinesepowersystem,bettersystem?exibilityisneeded.Ruetal.(2022)proposethattheChinesepowersystemcanachieveVREpenetrationlevelsbetween70%and85%byimplementingvariationmanagementoptionssuchasdifferentenergystoragetechnologyandultra-highvoltagedirectcurrent-based(UHVDC-based)transmission.DiscussionInUeckerdtetal.’s

model,theintegrationcostsstartedtoincreaseatahigherrateatlowerpenetrationlevelsthaninotherstudies.Forwind,thejumpoccurredat25%penetration,whileforPV,

itoccurredat15%penetration.Reichenbergetal.suggestthatthereasonbehindthisrelativelyearlyjumpinintegrationcostsisduetotheabsenceofvariationmanagementsolutionssuchastrade,storage,demandresponse,orcomplementarityofwindandsolar.Brouweretal.calculatedtheintegrationcostsofVREforupto60%penetration.Thesharpincreaseinpro?lecostshappenedlaterthaninUeckerdtetal.’s

study.Brouweretal.’s

modelisimplementedacrossEurope,notjustinGermany.Thisgivesitawiderscopethataccountsfortradebetweenregions.However,

onedownsidetothemodelisthatVREcapacityandtransmissionlocationswerenotoptimized,andthesharpincreaseinpro?lecostsoccursataround40%penetrationduetoreducedFLHandcurtailmentcosts.Integrationcosts

inReichenberg

et

al.start

increasing

sharply

ata

muchhigher

penetration

level

thanthat

of

previousstudies,

which

happens

ataround

80%

penetration.The

authors

state

thatthe

values

ofthe

integrationcost

aremostly

attributed

tocost

assumptions,

while

the

point

atwhich

thecosts

start

toincrease

sharply

stemsfrom

systemdynamics.

This

studyshowsthe

bene?ts

ofaccounting

for

variation

managementoptions

andhow

theyaffect

the

linearincrease

of

integrationcosts

with

respectto

VREpenetration

atsmall

shares.

Employingdifferent

integrationoptions

couldalso

prove

tobe

complementary

toeach

other.

For

example,

Auguadraet

al.

(2023)demonstrate

thatdemand

response

is

complementary

toenergystorageand

provides

?exibility

for

storagetechnology.AlimitationofReichenbergetal.’s

modelisthatitdoesn’tconsidersometechnicalaspectslikeforecastingerrorsandtheneedforbalancingpowerfromthermalplants.Anotherlimitationisthat,whilethemodelinvestsintransmissionbetweentheregions,transmissionwithineachregionisunaccountedfor.

AlimitationofsolarPVs

isthatthetimeresolutionisnothourly,whichimpactssolaravailability,asitcanchangedrasticallyAnOverviewofIntegrationCostsofVariableRenewablesinthePowerSector6fromonepointintimetothenext(e.g.,

from9a.m.to11

a.m.).

Finally,alimitationofwindgenerationistheinterannualvariabilityofwindspeed,whichwasnotaccountedforinthestudy.Accordingtotheliterature,balancingcostsaregenerallylowwhencomparedtoothercomponents,withestimatestheirvaluestypicallybelow6€/MWh.Whenthetrendlineis?ttedtothedata,balancingcostsincreasefrom2€/MWhto4€/MWhforwindpenetrationfrom0%to40%(Hirthetal.2014).

Hirthetal.?ndthatgridcostsarealsosmall,andtheyarenotusuallyreportedinmarginalterms.Furthermore,theresultsareusuallynotbasedoncostoptimization.Gridcostsareestimatedtobeintheorderof5€/MWh.Windpro?lecostsareestimatedtobenegativeorclosetozeroatlowpenetrationrates.However,

athigherpenetrationratesofbetween30%and40%,pro?lecostsforwindareestimatedtobearound15

to25€/MWh(Hirthetal.2014).Accordingto

theliterature,balancingcostsaregenerallylow

whencomparedtoother

components,withestimatestheirvalues

typicallybelow6€/MWhAnotherstudythatreviewedpastliteratureestimateswasconductedbyHeptonstallandGross(2021).

Theyestimatedthatadditionalcostsforoperatingreserves(usedtobalancesupplyanddemand)arebelow5€/MWhforupto35%penetrationandbelow10

€/MWhforpenetrationlevelsupto45%,withthesizeofthesecostsdependingonthe?exibilityofthesystem.Adequacycosts,whichareaspeci?ctype

ofpro?lecost,areestimatedtobearound10

€/MWhorlessforallpenetrationlevels.Pro?lecostsareestimatedtorangefrom15

to25€/MWhat25%to35%penetration.Theauthorsalsoestimatedgridcoststobeintherangeof7to28€/MWh.However,

theynotedthatestimatesforthesecostsvarywidelyacrosstheliterature,anditischallengingtoattributeallgridandtransmissionupgradestothevariablegenerationofVRE.Table

1,

below,summarizesthecostsdiscussedinthissection.Table

1.

Anestimateofthecostscalculatedinthestudiescovered.Point

ofGridcosts

Pro?lecostsexponentialPenetrationpercentageBalancingcosts(€/MWh)

(€/MWh)StudyMethodLocation(€/MWh)increaseUeckertdetal.LDCcalculations0%-40%

(wind)0%-25%(Solar)-5

-

60

(wind)-10

-

100

(solar)

15%

(solar)25%(wind)GermanyEuropeEuropeChina2.5-5(wind)0.2-10

-

13

(wind)N/ABrouweretal.Cost

productionmodel0%-60%0%-100%0%-40%0-1000-16.840%80%20%N/AReichenberg

Cost

productionetal.N/A0-110modelCost

productionmodelIncludedwithpro?leXietal.N/ACost

productionmodel-2.18

-11.47

(wind)-5.21-6.73(solar)Yao

etal.China0%-30%USA

andEuropeancountriesCost

productionmodelsHirth

etal.0%-40%2-450-250-25N/AN/AEurope,USA,Asia0%

-

45%

(Balancing)0%-35%(Pro?le)N/A(Grid)Heptonstall

Cost

productionandGross

models0-107-28AnOverviewofIntegrationCostsofVariableRenewablesinthePowerSector7ConclusionTherearegenerallytwomethodsforcalculatingintegrationcosts.The?rstmethodwe

coveredusestheloaddurationcurveandresidualloaddurationcurvetocomparetheresidualcostsofanon-VREsystemandasystemwithVRE.Thesecondmethodusesproductioncostmodels,whichisthemostcommonlyusedmethodduetoitshigheraccuracyanddescriptivepower.

We

alsosawthateachsystemhasitsowncharacteristicsandintegrationchallenges,andthereforerequiresadedicatedstudy.Theproductioncostmethodisthemostcommonlyusedmethodtoestimateintegrationcostsduetoitshigheraccuracy,despiteitbeingmoredataandmodelingheavy.Althoughthecalculationsperformedondifferentsystemswerenotexactlythesame,we

generallyobservesimilartrends.Balancingcostsareusuallybelow10

€/MWhandaretypicallyinthesingledigits.Whileliteratureongridcostsisscarce,thesecostsareusuallygreaterthanbalancingcosts.Pro?lecostsarealwaysthelargestcomponentofintegrationcosts,andtheytypicallyamounttoaround25€/MWhat35%to40%penetration.Insomecases,theycanevenbehigherifthesystemdoesnotaccountforappropriatevariationmanagementsolutions.At

lowerVREpenetrationlevels,integrationcostscanbeclosetozeroorevennegativeinsomecases.However,

asmoreVREgenerationisaddedtothesystem,thesecostsincreaserapidly.Dependingonthesystemcharacteristicsandintegrationoptionsconsidered,thelevelofincreaseinintegrationcostsvaries.Moreover,thepointatwhichthesecostsbegintoincreaseexponentiallyalsodependsontheaforementionedfactors.For?exiblesystems,integrationcostsstarttoincreaseexponentiallyatpenetrationlevelsabove40%.Ifthesystemalsoimplementsvariationmanagementsolutions,thenthepointofexponentialcostincreasescanbedelayedtoupto80%penetration.TheseresultsmustbeconsideredwhenVREtechnologiesareintegratedintothepowersystem.Factorssuchassystem?exibilityandinterconnectivity,forexample,needtobecarefullyevaluatedtoensureasmoothtransitiontothetargetedVREpenetrationlevel.Furthermore,keepinginmindthepowersystem’scharacteristicandchallengesisoftheutmostimportancetosuccessfullyselecttheappropriateintegrationoptions.AlthoughtheseconsiderationswillnotaffecttheLCOEofVRE,thesystemLCOE(theoverallsystemmarginalcosts)willbedecreased.AnOverviewofIntegrationCostsofVariableRenewablesinthePowerSector8ReferencesAuguadra,Marco,DavidRibó-Pérez,andTomás

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