To develop a grid that is cost effective and reliable, decisionmakers need accurate data that captures the full system costs of integrating new resources onto the grid.
The Electric Power Supply Association (EPSA) and its members have been at the forefront of innovation and emissions reductions over the past two decades, including large-scale adoption of renewable resources. Renewable resources play a vital and growing role on our grid. But it is critical that we have a clear understanding of what it costs to integrate these resources into our grid reliably.
One of the most prominent metrics used today is levelized cost of electricity (LCOE), which shows the per megawatt (MW) price of generating electricity from a respective source. While LCOE provides a valuable data point, it speaks only to the cost of an individual resource in a vacuum, rather than evaluating the broader costs of integrating energy resources onto the electric grid we have today.
As state and federal policies increasingly support specific resources while encouraging the rapid retirement of others, it is critical that decisionmakers understand the implications of resource switching for consumers and businesses who depend on reliable and cost-effective power.
In an effort to arm policymakers and consumers with better information, EPSA commissioned a holistic analysis of grid integration costs in the PJM Interconnection to better capture “full-cycle” costs of electricity with a new metric that can help decisionmakers understand the real-world implications of supporting various resources.
To introduce the analysis, EPSA hosted a webinar in which study author and economist Robert Kaineg, managing director at FTI Consulting Inc., discussed his methodology, assumptions, and findings. The recording of the webinar—including a discussion of the findings and a Q&A session with the author—is available at this link.
A More Holistic View
The analysis was conducted by FTI Consulting Inc. on behalf of EPSA and utilized publicly available data from the PJM Interconnection, which operates the largest organized electricity market in the U.S., covering more than 65 million Americans across 13 MidAtlantic and Midwest states and the District of Columbia. The metric was developed using PJM’s cost and demand forecasts looking ahead to 2026.
Robert Kaineg is a veteran economist who has worked with the World Bank and government agencies in Japan, Mexico, Norway, and Ukraine in matters related to CO2 markets and low carbon development strategies.
This new analysis looks at full-cycle costs by going beyond base unit costs to incorporate the costs of maintaining backup sources, building new transmission, curtailment, and resource adequacy measures that are necessary to actually integrate each resource onto the electric grid.
The analysis is also examined other factors, including the impacts of subsidies, dual fuel plants and other issues in the PJM Interconnection to help evaluate the full range of conditions that impact the reliability and cost of electric generating resources.
Overall:
To reach a more comprehensive full-cycle metric, researchers considered each resource’s effective load carrying capability (ELCC)—a key measure of reliability—in order to estimate the cost of resource adequacy. ELCC assesses what percentage of a resource’s nameplate capacity that the resource could actually contribute at any given time towards reliability if the grid called upon on it. The analysis then assessed the additional investments in backup sources that would be needed for that resource to meet its full rated installed capacity.
Resource Adequacy:
Represented by the light blue bars in the graph above, resource adequacy costs are different for each resource. These costs are often larger for renewable resources because of their intermittency—wind and solar are weather-dependent and therefore not available whenever the grid needs them. When taking these costs into account, integrating these resources alongside sufficient back-ups leads to costs that are roughly double the traditional LCOE estimates (dark blue bars).
Grid Connection & Curtailment Costs:
The orange bars in the graph represents the estimated interconnection cost for new units. These costs exist for all resources, but they are largest for certain resources that have to be built where the best geographic conditions are available, like wind speed and land availability. That often puts them far away from existing transmission lines and demand centers. The full-cycle analysis cost includes the build-out of new transmission lines, upgrades to downstream transmission lines and substations and other costs that are essential to actually connecting a project to the electric grid.
Interconnection is a lengthy and costly process with an uncertain outcome. According to Laurence Berkeley National Lab, most projects historically withdraw from the process before completion, creating costs and delays for those who do make it through. Only 27 percent of projects requesting interconnection in PJM from 2000 to 2016 achieved commercial operation by year-end 2021, and this number continues to fall as more projects join the queue, despite recent moves by FERC that may someday help speed the process.
With so many intermittent and limited-duration resources stuck in the queue while dispatchable resources like gas and nuclear retire rapidly, PJM warned in its February 2023 Energy Transition publication that it is at risk of having insufficient capacity reserves for the 65 million people across its 13-state territory for the first time in its history.
Specific Findings
Overall, full-cycle LCOE can offer a more accurate “apples-to-apples” comparison between resources that accounts for the full spectrum of costs needed to ensure grid reliability.
Specific key findings included:
- The cost of providing resource adequacy services is more than 100% of the traditional LCOE cost of wind and solar units.
- While traditional LCOE is lower for wind and solar units compared to combined cycle (CC) natural gas units in PJM in 2026, when accounting for the full cost of connecting to the system and providing resource adequacy services, natural gas plants are more competitive.
- Tax credits are critical to making carbon capture and storage (CCS)-equipped units economical, even at the low technology costs assumed by the National Renewable Energy Laboratory (NREL).
- Small modular nuclear (SMR) nuclear units are competitive with other forms of non-emitting generation when accounting for the full cost of connecting to the system and providing resource adequacy services, at the technology costs assumed by NREL.
The Bottom Line
Reliable and cost-effective power is a bedrock of the economy and policymakers must be clear-eyed about how policies may impact that. This analysis represents a critical step towards a more accurate understanding of the costs of integrating different resources.
This analysis not an effort to support or detract from any one resource. EPSA supports transparent, open, and nondiscriminatory competitive markets that allow all resources to compete to reduce emissions. Competitive markets have consistently driven the adoption of new technologies, emissions reductions, and lower costs.
The future of our grid depends on balancing reliability, cost, and emissions. But the ability to compare resources on an accurate “apples-to-apples” basis is essential to good decision making. This analysis creates a better tool to help understand those tradeoffs.
