This chapter focuses on the renewable technologies that are closest to market and for which assessments of current and future costs are thus more readily available. These include biomass, wind, concentrating solar power, solar photovoltaics, and geothermal (hydrothermal), but exclude traditional hydropower, because the potential for future extraction of this resource is limited, as noted in Chapter 2. The chapter also excludes hydrokinetics and enhanced geothermal technologies, which are still in the early stages of technological development. The costs presented here come from the wealth of data obtained from projects built in the recent past.

THE VALUE OF RENEWABLES

Predicting the economics of future renewable generation involves predicting the cost of generation from alternative sources and the value of electricity delivered to the marketplace. The competitive value would be the wholesale price of electricity for grid scale resources and something close to the retail price of electricity for distributed renewable resources.1 These prices define the value of adding renewables to the mix. The ability to predict electricity price is key to making predictions about future market penetration of renewable sources of electricity.

The value of generation from renewables will vary geographically and by time of day, because the marginal generator,2 which sets the electricity price, varies with location and over the course of the day with fluctuations in total electricity demand and available supply. Construction of more transmission facilities will increase the value of renewables by reducing transmission constraints between regions with abundant renewable resources and those with abundant load (Vajjhala et al., 2008).

1

In his analysis of the value of electricity produced by solar PV installations on household and business rooftops, Severin Borenstein (2008b) points out that, although the value to a consumer of not having to purchase electricity may be the retail price of the purchases avoided, the avoided cost to society from installing PV on one’s rooftop is less than the full retail price, which includes payments for recovery of past costs, including the California Energy crisis, and sunk costs of past high-priced electricity contracts.

2

To meet electricity demand at lowest cost, system operators tend to dispatch electricity generators in the order of their variable cost of generation, which includes fuel and operating and maintenance costs. The marginal generator is the last generator, and therefore typically the highest-cost generator, that is dispatched to meet electricity demand at any point in time.



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