Intermittency and the value of renewable energy

"This paper develops an empirical approach to estimate the equilibrium value of renewable electricity technologies, and applies it to evaluate solar energy mandates in southeastern Arizona. Solar generation and other renewables suffer from intermittency because weather varies and is only partially forecastable. Intermittency imposes costs as a planner must maintain backup capacity and allocate operating reserves in order to avoid system failure. We model an electricity system where a system operator optimizes the amount of generation capacity, operating reserves, and demand curtailment in the presence of variable and partially forecastable demand and renewable production. We use generator characteristics, solar output, demand and weather forecast data to estimate parameters. Equilibrium costs of a 20 percent mandate are $133.7 per MWh of solar generation; unforecastable intermittency accounts for only $4.1 of this. If solar generation were fully dispatchable, costs would drop by $24.3 per MWh. If CO2 reductions are valued at $25/ton then this mandate would be welfare neutral if solar capacity costs dropped from the current $5/W to $1.78/W. Our methods can be applied to examine the value of other technologies, such as wind power and storage, and electricity market changes, such as real-time pricing"--National Bureau of Economic Research web site.