Any country can reach high shares of wind, solar power cost-effectively, study shows

‌Wind power and solar photovoltaics (PV) are crucial to meeting future energy needs while decarbonising the power sector. Deployment of both technologies has expanded rapidly in recent years – one of the few bright spots in an otherwise-bleak picture of clean energy progress – and IEA scenarios indicate that this trend will continue for decades. However, the inherent variability of wind power and solar PV is raising concerns: Can power systems remain reliable and cost-effective while supporting high shares of variable renewable energy (VRE)? And if so, how? 

A landmark study released today by the International Energy Agency addresses these concerns and confirms that integrating high shares – i.e., 30 percent of annual electricity production or more – of wind and solar PV in power systems can come at little additional cost in the long term. However, costs depend on how flexible the system currently is and what strategy is adopted to develop system flexibility over the long term. Managing this transition will be more difficult for some countries or power systems than others, the study says.

“Integrating high shares of variable renewables is really about transforming our power systems,” IEA Executive Director Maria van der Hoeven said as she launched The Power of Transformation - Wind, Sun and the Economics of Flexible Power Systems, the latest in a series of IEA reports shedding light on the challenges and opportunities of integrating VRE into power systems globally.

“This new IEA analysis calls for a change of perspective,” she explained. “In the classical approach, variable renewables are added to an existing system without considering all available options for adapting it as a whole. This approach misses the point. Integration is not simply about adding wind and solar on top of ‘business as usual’. We need to transform the system as a whole to do this cost-effectively.”

Currently, wind and solar PV account for just about 3 percent of world electricity generation, but a few countries already feature very high shares: In Italy, Germany, Ireland, Spain, Portugal, and Denmark, wind and solar PV accounted respectively from around 10 to more than 30 percent of electricity generation in 2012 on an annual basis.

The report says that for any country, integrating the first 5-10 percent of VRE generation poses no technical or economic challenges at all, provided that three conditions are met: uncontrolled local “hot spots” of VRE deployment must be avoided, VRE must contribute to stabilising the grid when needed, and VRE forecasts must be used effectively. These lower levels of integration are possible within existing systems because the same flexible resources that power systems already use to cope with variability of demand can be put to work to help integrate variability from wind and solar. Such resources can be found in the form of flexible power plants, grid infrastructure, storage and demand-side response.

Going beyond the first few percent to reach shares of more than 30 percent will require a transformation of the system, however. This transformation has three main requirements: deploying variable renewables in a system-friendly way using state-of-the art technology, improving the day-to-day operation of power systems and markets, and finally investing in additional flexible resources.

The challenges of such transformation depend on whether a power system is “stable,” meaning no significant investments are needed to meet demand in the short term, or “dynamic” which requires significant investments short-term, to meet growing power demand or replace old assets.

The publication helps to clarify the very different perception of wind and solar around the globe. In stable systems, such as those in Europe, the existing asset base will help to provide sufficient flexibility to increase VRE generation further. However, in the absence of demand growth, increasing VRE generation in stable systems inevitably comes at the detriment of incumbent generators and puts the system as a whole under economic stress. This outcome is based on fundamental economics; market effects are thus not only a consequence of variability. The transformation challenge in stable systems is twofold: scaling up the new, flexible system while scaling down the inflexible part of the old.

Governments with stable systems face tough policy questions about how to handle the distributional effects, in particular if other power plants need to be retired before the end of their lifetimes and, if so, who will pay for stranded assets. Meeting these challenges will only be possible through a collaborative effort by policy makers and the industry. In any case, “these surmountable challenges should not let us lose sight of the benefits renewables can bring for energy security and fighting dangerous climate change. If OECD countries want to maintain their position as front runners in this industry, they will need to tackle these questions head-on,” Ms. Van der Hoeven said.

By contrast, in “dynamic” power systems such as in India, China, Brazil and other emerging economies, wind power and solar PV can be cost-effective solutions to meet incremental demand. VRE grid integration can – and must – be a priority from the onset. With proper investments, a flexible system can be built from the very start, in parallel with the deployment of variable renewables. “Emerging economies really have an opportunity here. They can leap-frog to a 21^st-century power system – and they should reap the benefits,” the IEA Executive Director concluded.

The Power of Transformation - Wind, Sun and the Economics of Flexible Power Systems is available for free download here, and the executive summary is available here. To see a fact sheet, please click ‌here.

About the IEA

The International Energy Agency is an autonomous organisation that works to ensure reliable, affordable and clean energy for its 29 member countries and beyond. Founded in response to the 1973/4 oil crisis, the IEA’s initial role was to help countries co-ordinate a collective response to major disruptions in oil supply. While this remains a key aspect of its work, the IEA has evolved and expanded. It is at the heart of global dialogue on energy, providing authoritative research, statistics, analysis and recommendations.