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


Publish Date:
April 25, 2013
Publication Title:
Energy Economics
Journal Article Volume 48 Pages 97-108
  • Stefan Reichelstein and Anshuman Sahoo, Time of Day Pricing and the Levelized Cost of Intermittent Power Generation, 48 Energy Economics 97-108 (2015).
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An important characteristic of most renewable energy sources is intermittency in their ability to generate electricity. 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 electricity 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 photovoltaic (PV) power is 10 to 15% lower than previous average life-cycle cost analyses have suggested. In contrast, the generation pattern of wind power exhibits complementarities with electricity pricing schedules, yielding a cost assessment that is higher than that suggested by traditional calculations. For the specific settings we study, the corresponding magnitude of the markup is 10 to 15%.