Over the last decade, the levelised cost of energy (LCOE) of many renewable technologies
has sharply declined. As a result, direct cost comparisons of LCOE figures have made
renewables to be perceived as economically very competitive options to decarbonise energy
systems when compared to other low-carbon technologies such as Nuclear and Carbon
Capture and Storage. We identify several theoretical shortcomings in relation to using LCOE
or similar life-cycle economic metrics to make inferences about the relative economic
effectiveness of using renewable technologies to decarbonise energy systems. We outline
several circumstances in which the sole reliance on these metrics can lead to suboptimal or
misguided investment and policymaking decisions.
The thesis proposes a new theoretical framework to measure and benchmark the cost-
effectiveness of decarbonising electric systems using renewables. The new framework is
generic, technology-neutral, and enables consolidation of the results of decarbonisation
studies that consider various renewable technologies and low carbon technologies. It also
enables measuring and tracking the cost-effectiveness of the renewable decarbonisation
process at a country or a system level. As a result, it also allows the direct comparison of the
economic implications of different decarbonisation scenarios and various policy proposals in
a very intuitive graphical way.
In addition, the thesis proposes a new, unit-free metric, tentatively called Carbon Economic
Effectiveness Credit (CEEC), to benchmark the relative cost-effectiveness of using different
renewable technologies to achieve long-term carbon emission savings. Theoretically, CEEC
represents the elasticity of the system total cost with respect to the carbon reduction savings
attributable to renewables. In contrast to stand-alone, life-cycle metrics such as the LCOE,
the proposed metric considers the economic and technical parameters of the renewable
technologies and characteristic of the system under study. It also allows expressing the cost-
effectiveness of the renewable decarbonisation process as a function of the system-wide
decarbonisation level.
Using historical load profiles, high-resolution solar radiation data and long-term
meteorological data for a relatively small Gulf country, we investigate the deep
decarbonisation of the electric system through the large-scale deployment of different
renewables technologies. In particular, we use two well-established optimisation methodologies that have been used extensively in the literature to study the decarbonisation
of power systems, namely: the screening curve (SC) method and the unit commitment (UC)
method. In analysing the results of the two methodologies, we find that the choice of the
modelling methodology, in some cases, can greatly influence the perceived carbon cost-
effectiveness of renewables and subsequently their carbon abatement cost estimates. In
particular, our results suggest that under deep decarbonisation scenarios, the estimate of the
long-term carbon savings of renewables is strongly influenced by (1) the choice of the
modelling method and (2) the technical specifications of the simulation models. Our results
suggest that under deep decarbonisation scenarios, using simpler optimisation models
may change the perceived economic effectiveness of renewables to decarbonise some
electric systems. More importantly, our research sheds light on potential shortcomings in the
current modelling practices and help identify patterns of possible inaccuracies or biases in
renewable decarbonisation results.
Moreover, our research suggests that the variations in the technical characteristics of
renewable technologies can have a large influence on the economics of the decarbonisation
process. We show that not all renewable technology types can have a suppressing effect on
the variable costs of the systems due to their “zero marginal costs.” In particular, we identify
certain technologies and circumstances in which an increase in renewable penetration can
significantly inflate the variable energy costs of the system. More specifically, we find that
under deep decarbonisation scenarios, renewable technologies with a highly volatile
production profiles can act as an amplifier for the variable cost of the systems through (1)
reducing the effectiveness of thermal generation units due the increased start-up and
shutting downing activities, and (2) increasing the energy output levels from more flexible
and yet more expensive thermal technologies.
In addition, we identify circumstances in which an increased renewable penetration can
materially affect the capacity adequacy of electric systems, leading to an increase in capacity
investment in thermal flexibility assets. Perhaps more importantly, we find that these
additional flexibility assets will not be commercially viable on an energy-output basis. We
believe that this might have specific implications for the energy-only markets.
Finally, we discuss the policy implications of our findings and propose several important
recommendations. Altogether, we hope that our work will advance the understanding of the
economics of climate change and integrating renewables into energy systems.