Success can cause problems. As wind and solar penetration increases the electricity it generates gets cheaper. If it stops being profitable we’ll stop building it, thus endangering our emissions-free goals. Dev Millstein at the Lawrence Berkeley National Laboratory summarises their research paper that looks at how market value changed over time at 2,100 utility-scale power plants across major power markets in the U.S., using 2019 data. It’s clear that market value does decline even at low penetration values of a few percent. The key drivers are the generation profile, grid congestion, and curtailment (the last of which, it turns out, had little effect). However, costs have declined even more – which explains why there was a record number of proposed wind and solar projects. Those cost declines should continue, but forever? Alternative solutions will be needed. Millstein points at building more intra-regional transmission to relieve congestion, shifting wind and solar output profiles through energy storage (already appearing in new solar project pitches), bigger blades for wind turbines (that work at low wind speeds, flattening the profile), and shifting the profile of electricity demand through new rate structures, demand response, or managing flexible loads like EV charging. Every region will need its own strategy to ensure that minimising the decline in market value is matched with its cause, says Millstein.
In regions where wind and solar make up a large share of power generation, sunny and windy days lead to a glut of electricity supply, driving down hourly power prices – especially for that same wind and solar generation.
While lower prices are good for consumers, this decline in market value is not as good for producers. It could potentially limit wind and solar deployment and thus endanger decarbonisation goals.
A new study from Berkeley Lab, appearing in the journal Joule, looks at how market value – defined as the value of energy and capacity in regional power markets – changes over time at 2,100 utility-scale power plants across major power markets, with data through 2019. Note, the air quality, public health, and environmental benefits of wind and solar generation are not incorporated in these value calculations (see our past research on these topics).
The study looked at three drivers of market value:
- Output profiles: how the output of generators matches local market prices.
- Congestion: whether local prices are affected by transmission congestion.
- Curtailment: whether wind and solar generators were cut off due to over-generation.
Some key findings:
- In 2019, output profiles and congestion had the largest impacts on market value, varying by region, while curtailment had little impact.
- Despite a decline over time, the average market value of wind and solar in 2019 was still higher than their average generation costs.
- Future market, technology, cost, and deployment trends may affect the value/cost dynamic in both positive and negative ways. There are several ways to mitigate the decline in market value.
Wind and Solar market values decline as penetration increases
We compared the market value of wind and solar in various regions and years against the market value of a “flat block” of generation, shown in Figure 1. Flat block generation represents a theoretical “always on” power plant, and the market value of flat block generation was calculated across locations in each region. We found that solar tended to have relatively high market values at penetration levels below 3%, but solar’s market value decreased as penetration increased. Wind market value was less than a flat block even at low penetration, but it declined only modestly with penetration.
Figure 1. Annual wind and solar value has declined with increasing penetration levels. “Value factor” is the ratio between wind or solar value and an average regional metric of value based on a flat, or ‘always-on’ generator, which has a value factor of 1.0.
…but Wind and Solar costs have declined even more
While wind and solar market value have declined, wind and solar costs have declined by even more (Figure 3). This dynamic is reflected in the record number of proposed wind and solar projects, as evidenced by the volumes in interconnection queues.
But can wind and solar costs keep up that pace of decline? Or will future market value declines outpace future cost drops? What can be done to mitigate value decline?
Figure 2. Energy value penalties and premiums in 2019 by region. The percent change shown is relative to the average value of a flat profile at all generators in each region. Pie charts show the penetration by wind and solar in each region.
Figure 3. Wind and solar costs have declined more than value, on average. Solid lines show generation-weighted average cost or value across all utility-scale plants. Shaded ranges show the 20th and 80th percentile values. Levelised cost of energy (LCOE) includes the effect of tax credits.
How to minimise market value decline
Strategies to minimise a decline in market value must be matched with its cause in each region. For example, building more intra-regional transmission will relieve congestion penalties, but may provide only limited benefits where the output profile is mismatched with higher market prices. Instead, shifting the output profile through energy storage, or shifting the profile of electricity demand through new rate structures, demand response, or flexible loads like electric vehicles would be more effective in these regions.
Solar seems to be particularly sensitive to a decline in market value due to its output profile and developers have responded by shifting to “hybrid” plants – especially solar paired with battery storage. Recent declines to the costs of batteries have enabled this growth of solar-plus-storage plants.
For wind, the shift to larger blades, relative to turbine capacity, allows for improved generation during low wind speeds, boosting capacity factors and effectively flattening the output profile and reducing profile penalties.
Conclusion: a mix of optimism and caution
There is a good chance that market values will decline as penetration levels rise, but ongoing cost drops and performance gains have helped to maintain the value proposition of wind and solar, and are likely to continue.
Measures to mitigate market value decline may be needed, and these can be targeted by region and technology. The rise of hybrid generation + storage plants allows for greater flexibility in future deployment and operations. Expanded transmission capacity can reduce congestion effects and inter-regional transmission can connect wind and solar to regions with higher market prices at advantageous times. Plus, increased electrification of transportation and buildings may change load profiles and allow additional flexibility from the demand side.
Ultimately, there is a race between cost and value, as utilities, developers, and entrepreneurs search for profitable solutions. Berkeley Lab will continue to track the race with annual reports and updates.
The article in Joule, “Solar and Wind Grid-System Value in the United States: The Impact of Transmission Congestion, Generation Profiles, and Curtailment,” is ‘open access’ and available to all: https://doi.org/10.1016/j.joule.2021.05.009(link is external)
If you have any questions, please contact Dev Millstein (510) 486-4556, DMillstein@lbl.gov(link sends e-mail), at Lawrence Berkeley National Laboratory.
We appreciate the funding support of the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy.
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Dev Millstein is an Energy/Environmental Policy Research Scientist/Engineer at the Lawrence Berkeley National Laboratory
This article is published with permission
