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  Why wind is not coal: on the economics of electricity generation

Hirth, L., Ueckerdt, F., Edenhofer, O. (2016): Why wind is not coal: on the economics of electricity generation. - The Energy Journal, 37, 3.
https://doi.org/10.5547/01956574.37.3.lhir

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 Creators:
Hirth, Lion1, Author              
Ueckerdt, Falko1, Author              
Edenhofer, Ottmar1, Author              
Affiliations:
1Potsdam Institute for Climate Impact Research, ou_persistent13              

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 Abstract: 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.

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 Dates: 2016
 Publication Status: Finally published
 Pages: -
 Publishing info: -
 Table of Contents: -
 Rev. Type: Peer
 Identifiers: DOI: 10.5547/01956574.37.3.lhir
PIKDOMAIN: Sustainable Solutions - Research Domain III
eDoc: 7483
Research topic keyword: Energy
Research topic keyword: Economics
Research topic keyword: Decarbonization  
Research topic keyword: Mitigation
Organisational keyword: RD3 - Transformation Pathways
Organisational keyword: Director Edenhofer
Working Group: Energy Systems
 Degree: -

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Title: The Energy Journal
Source Genre: Journal, SCI, Scopus
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Pages: - Volume / Issue: 37 (3) Sequence Number: - Start / End Page: - Identifier: Other: International Association for Energy Economics
Other: 1944-9089
ISSN: 0195-6574
CoNE: https://publications.pik-potsdam.de/cone/journals/resource/The-Energy-Journal