Next Generation Wind and Solar Power
From cost to value
Mexico City, 23 May 2017
Simon Mueller, Head
System Integration of Renewables Unit
© OECD/IEA
© OECD/IEA
20162016
-1
Significant cost reductions
Energy prices for selected technologies, 2008-2015
120%
Indexed cost (2008=100%)
100%
80%
60%
40%
20%
0%
2008
2009
2010
Onshore wind
2011
2012
Solar PV - utility scale
2013
2014
2015
LEDs
 PV and wind costs have fallen dramatically in recent years
 Causes: sustained technological progresses, expansion into newer markets with
better resource, better financing conditions…
 Impact of VRE deployment magnified by energy efficiency
 Less energy demand  effective speed of VRE deployment is higher
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Onshore wind: increased resource
base and growing capacity factors
Capacity factors
Key point:
Wind resource versus swept area
4.50
95
4.00
90
3.50
85
3.00
80
2.50
75
2.00
Average wind resource 80 m
Average specific swept area
100
1998-99
2000-01
2002-03
2004-05
2006
2007
2008
2009
2010
2011
2012
2013
2014
Project vintage capacity factor
Index of wind resource at 80m
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1998-99
2000-01
2002-03
2004-05
2006
2007
2008
2009
2010
2011
2012
2013
2014
Capacity factors %
Capacity factor, wind resource and swept area, USA
Average specific swept area (right axis)
Modern wind turbine technology in the United States has supported
deployment in lower-resource areas and increased capacity factors.
Source: Wiser and Bolinger, 2016
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Where do we stand &
where are we heading?
DENMARK
IRELAND
GERMANY
UK
BELGIUM
SPAIN
MOROCCO
ITALY
SWEDEN
AUSTRALIA
MEXICO
CHILE
USA
CHINA
SOUTH AFRICA
THAILAND
INDONESIA
PV share
2015
Wind share
2015
Additional PV
share 2021
Additional
wind share
2021
0%
10%
20%
30%
40%
50%
60%
70%
 Experience in a number of countries available how to integrate significant
shares of VRE
 According to latest available forecasts in 2021:
 VRE is forecasted to exceed 20 % of annual generation in at least 6 countries
 Double-digit shares becoming new normal for many power systems
Source: Medium Term Renewable Energy Market Report, 2016
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Recent RE integration milestones
Scotland, 14 August 2016 : Daily
wind power production exceeded
demand
Denmark, 2 September 2015: The
Western Danish power system runs
without centralised power
generation for the first time
Germany, 8 May 2016: Wind and
solar PV cover the equivalent of
75% of power demand
Portugal, 7-11 May 2016:
Renewable energy (including hydro)
covers the equivalent of 100% of
power demand for 107 consecutive
hours
Spain, 28 February 2016: For the
first time, wind power provides
upward balancing reserves
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… but also challenges
Wind penetration and curtailment in selected countries, 2012-2015
Wind penetration
level in the energy
mix (left axis)
Curtailment rate
(right axis)
Grids
+
+
+
o
+
o
o
o
o
o
o
Generation
+
+
+
+
+
o
o
+
o
+
-
Operation
+
+
+
+
+
+
+
+
+
+
-
Key point:
Curtailment levels are a good indicator for successful VRE integration –
growing curtailment signals shortfalls in power system flexibility
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The problem with LCOE
 Levelised cost most common way to benchmark generation technologies
 Pro: simple, straightforward
 Con: assumes that electricity from all sources has the same value for the power system
Electricity prices in North-East US (PJM), 1 Jan 2014, 17h05
Key point:
LCOE metric is not sufficient, because value of electricity can differ strongly
depending on time and location.
Image source: http://avalonenergy.us/blog
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Factoring in value
Less useful:
Lower value
More useful:
Higher value
The value of electricity for the power
system depends on where, when and
how it is generated.
Low value electricity
High value electricity
When
When electricity is abundant
When electricity is most needed
Where
Far away from demand
Close to demand
How
No additional system services
Provides additional services for system
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The solution: system value
 System value (SV) considers the overall benefit arising from the
addition of a power plant to the power system
SV
•
•
•
•
Investment costs
Operation and maintenance
costs (fuel, emissions)
Financing cost
…
Key point:
+
LCOE
-
•
•
•
Reduced fuel and emission costs
Reduced costs/ need for other generation capacity
Possibly reduced grid costs and losses
•
•
•
Increased operating costs for other power plants
Additional grid infrastructure costs
Curtailment
LCOE and SV are complementary: LCOE focuses on the level of the individual
power plant, while SV captures system-level effects
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New priorities for deployment
of wind and solar power
Traditional approach
Next generation approach
When is
electricity
produced?
Not considered
Optimised: best mix of wind and solar;
advanced power plant design; strategic
choice of location
Where is
electricity
produced?
Best resources, no
matter where
Optimised: trade-off between cost of grid
expansion and use of best resources
How is electricity
produced?
Do not provide system
services
Optimised: better market rules and
advanced technology allow wind and solar
power to contribute to system services
Key point:
Next-generation wind and solar power require next generation polices.
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System transformation
Policy and market framework
Level of VRE penetration
Flexible resources
planning & investments
System-friendly
VRE deployment
Grids
Generation
Storage
Demand
shaping
System and market operation
Actions targeting VRE
Actions targeting overall system
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Key action areas and policy examples
Action area
24/7
Policy example
Integrated planning: wind and solar
embedded in energy strategy
Denmark: integrated
energy strategy
Location: siting VRE closer to existing
network capacity and/or load centers
Location: new auction
design for wind and PV
Technology mix: balanced mix of VRE
resources can foster lasting synergies
Technology mix: Integrated
Resource Plan
Optimising generation time profile:
design of wind and solar PV plants
California: incentive to
produce at peak times
System services: wind and sun
contribute to balance system
System services: wind active
on balancing market
Local integration with other resources
such as demand-side response, storage
Australia: incentives for
self-consumption
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Next generation policies
 Policy and market frameworks must seek to maximise the net
benefit of wind and solar power to the overall power system.
 A more expensive project may be preferable if it provides a higher value to
the system.
Despite its lower cost, technology B will deliver lesser benefits than technology A
System benefits
Cost of
technology A
Key point:
Value technology
A
System benefits
Cost of
technology B
Value technology
B
Next generation wind and solar power calls for next generation policies. These
must focus on maximising value in addition to reducing cost.
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5 main recommendations
1. Next generation wind and solar power calls for next generation
policies. These focus on maximising value while reducing cost.
Time-based pricing is key.
2. Power system transformation: integrate high shares of VRE cost
effectively by adopting a whole energy systems’ approach.
3. Advanced VRE technology: ensure power plants can provide
system services by adopting forward-looking technical standards.
4. Distributed resources: reform the institutional and regulatory
structure of low- and medium-voltage grids, reflecting their new
role in a smarter, more decentralised electricity system.
5. Strategic planning: develop or update long-term energy
strategies to reflect potential of next-generation wind and solar.
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Mexico
 Good wind and solar resources, in particular near the coastline
 Dynamic power market with strong need for investment in power generation
and transmission expansion
 VRE a key building block of future power supply expansion plans
Average wind speed
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Mexico
 A major energy reform launched in 2013 split the vertically-integrated utility,
and further opened up the market to new investment from private parties
(IPPs)
 Long-term auctions for procuring VRE capacity recognize the spatial and
temporal value of electricity production, while providing investment certainty.
This is a major innovation for VRE procurement globally.
Drivers
Challenges
 Strong demand growth
 Maintain momentum for reform towards
 Reform opens up market further for
full implementation in 2018
 Aligning transmission build-out with
awarded generation capacity
private investment
 Long-term capacity expansion plans plan
good prospects for VRE
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Price adders evolution
Example of price adders for VRE: area of Laguna, 2020
USD/MWh
16.00
1st auction
June
14.00
12.00
10.00
1st auction
September
8.00
6.00
4.00
3rd auction
June
2.00
0.00
-2.00
3rd auction
September
-4.00
1
Key point
3
5
7
9
11
13
15
17
19
21
23
Prices adders are updated for each auction to account for the evolution of local supply
and demand considering the (future) commissioning of previously awarded projects.
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Discussion questions
 Does the current auction design deliver on system friendly




deployment?
Is the long-term evolution of the grid accurately reflected?
Is price-based location control an effective steering mechanism
or could development zones be a better option?
Are future flexibility options sufficiently considered in the price
adders?
What other aspects of the reform need to be prioritized to
achieve wind and solar integration?
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