While wind and solar market value have declined, wind and solar costs have declined by even more (Figure 3). This dynamic is reflected in the record number of proposed wind and solar projects, as evidenced by the volumes in interconnection queues.
But can wind and solar costs keep up that pace of decline? Or will future market value declines outpace future cost drops? What can be done to mitigate value decline?
How To Minimize Market Value Decline
Strategies to minimize a decline in market value must be matched with its cause in each region. For example, building more intra-regional transmission will relieve congestion penalties, but may provide only limited benefits where the output profile is mismatched with higher market prices. Instead, shifting the output profile through energy storage, or shifting the profile of electricity demand through new rate structures, demand response, or flexible loads like electric vehicles would be more effective in these regions.
Solar seems to be particularly sensitive to a decline in market value due to its output profile and developers have responded by shifting to “hybrid” plants – especially solar paired with battery storage. Recent declines to the costs of batteries have enabled this growth of solar-plus-storage plants. For wind, the shift to larger blades, relative to turbine capacity, allows for improved generation during low wind speeds, boosting capacity factors and effectively flattening the output profile and reducing profile penalties.
Conclusion: A mix of optimism and caution
There is a good chance that market values will decline as penetration levels rise, but ongoing cost drops and performance gains have helped to maintain the value proposition of wind and solar, and are likely to continue.
Measures to mitigate market value decline may be needed, and these can be targeted by region and technology. The rise of hybrid generation + storage plants allows for greater flexibility in future deployment and operations. Expanded transmission capacity can reduce congestion effects and inter-regional transmission can connect wind and solar to regions with higher market prices at advantageous times. Plus, increased electrification of transportation and buildings may change load profiles and allow additional flexibility from the demand side.
Ultimately, there is a race between cost and value, as utilities, developers, and entrepreneurs search for profitable solutions. Berkeley Lab will continue to track the race with annual reports and updates.
The article in Joule, “Solar and Wind Grid-System Value in the United States: The Impact of Transmission Congestion, Generation Profiles, and Curtailment,” is ‘open access’ and available to all: https://doi.org/10.1016/j.
Source: Lawrence Berkeley National Laboratory